Green Packet Bhd (63 sen) believes it is on track to achieve operating breakeven in the last month of 2011. Although the company will remain in the red both at the operating and net levels for the full year, this achievement will nevertheless be a key milestone.
The company had previously pushed back its target date for operating breakeven in favour of more aggressive network rollout and drive for subscriber acquisition — which translates into higher depreciation and interest charges as well as marketing and promotional expenses for P1, its broadband arm.
The decision was based on expectations that growth, especially in the nomadic broadband segment, would peak in 2011-2012.
Thereafter, the cost of subscriber acquisition is expected to rise steeply as the market segment becomes increasingly saturated.
P1 intends to complete the planned RM1 billion capital expenditure programme — to install 2,500 RFS sites for a 65% population coverage — by end-2012.
So far, it has spent RM679 million for roughly 43% of the planned number of sites. The wider coverage will boost the company’s addressable market, especially in the nomadic broadband segment.
Targets 450,000 subscribers and operating breakeven by end-2011
For the first six months of 2011, P1 added 64,000 subscribers, bringing the total to 338,000. This was slightly short of the target of 70,000 net adds but the company is sanguine that it will make up the difference in 2H11 — in step with the faster network rollout.
Similarly, some 133 RFS were added in 1H11, slower than the target of 191 sites. Nevertheless, the current work in progress indicates that the pace will pick up strongly with an additional 517 sites by end-2011.
P1 has already intensified its marketing and promotional campaign, including reseller incentive programmes and on-ground sales acquisition activities, to boost subscriber acquisition for 2H11.
Total subscriber base is targeted to hit 450,000 by the end of this year and 650,000 by end-2012. As at June this year, the nomadic broadband segment accounted for just about 35% of total subscribers. This percentage is expected to rise to about 50% based on its push into the nomadic broadband segment.
Target turnaround in 2013 but much depends on P1
Green Packet’s solutions arm is already profitable. The company’s sales of software licences and customer premises equipment totalled RM87.8 million in 1H11, more than double the RM37.2 million in 1H10. Earnings before interest and taxes (Ebit) improved to RM8.7 million in 1H11, up from RM4.8 million in the previous corresponding period.
Turning the company around will still depend on P1’s performance. Revenue for the broadband arm grew 27% year-on-year (y-o-y) in 1H11 to RM124.7 million but was in the red with loss before interest and tax totalling RM73.6 million.
As a result, Green Packet remained loss-making in 2Q11. Pre-tax loss narrowed slightly to RM36.6 million from RM37.5 million in 1Q11. We expect the company to stay in the red for the full year and 2012.
The company is upbeat that if all goes to plan, it could turn a profit in 2013. Investors, however, may be more cautious. At this point, the business risks remain high given the very competitive operating environment.
The nomadic broadband market segment is already very competitive with all the mobile operators and YTL Communications jostling for a share.
The fixed home broadband segment too is starting to get crowded. Previously dominated by Streamyx, and to a lesser extent P1, this segment will see intensifying competition with Maxis and Celcom entering the fray.
Telekom’s UniFi service has already taken a good slice of this market since its launch last year — accounting for almost half of the net adds in this segment in 1H11 — and is expected to do increasingly well with our growing demand for bandwidth.
Wholesale agreement with Telekom to protect customer base
Cognisant of this trend, P1 recently signed a wholesale agreement with Telekom Malaysia Bhd for the use of the latter’s high-speed broadband (HSBB) fibre network. This way, it hopes to retain high bandwidth users who would otherwise be switching to rival operators — even though margins will be squeezed. The fibre network is currently the most efficient and cost-effective option for high-speed broadband.
Longer-term outlook still hazy
The longer-term outlook for Green Packet is still somewhat hazy. Much depends on how the next generation of services, the LTE, plays out in the country.
At the moment, nine players, including P1, are vying for the frequency spectrum blocks to be given out by the government. Given the size of our population, this could be a very congested market but one that remains very much in Green Packet’s plans.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, October 28, 2011.
The company had previously pushed back its target date for operating breakeven in favour of more aggressive network rollout and drive for subscriber acquisition — which translates into higher depreciation and interest charges as well as marketing and promotional expenses for P1, its broadband arm.
The decision was based on expectations that growth, especially in the nomadic broadband segment, would peak in 2011-2012.
Thereafter, the cost of subscriber acquisition is expected to rise steeply as the market segment becomes increasingly saturated.
P1 intends to complete the planned RM1 billion capital expenditure programme — to install 2,500 RFS sites for a 65% population coverage — by end-2012.
So far, it has spent RM679 million for roughly 43% of the planned number of sites. The wider coverage will boost the company’s addressable market, especially in the nomadic broadband segment.
Targets 450,000 subscribers and operating breakeven by end-2011
For the first six months of 2011, P1 added 64,000 subscribers, bringing the total to 338,000. This was slightly short of the target of 70,000 net adds but the company is sanguine that it will make up the difference in 2H11 — in step with the faster network rollout.
Similarly, some 133 RFS were added in 1H11, slower than the target of 191 sites. Nevertheless, the current work in progress indicates that the pace will pick up strongly with an additional 517 sites by end-2011.
P1 has already intensified its marketing and promotional campaign, including reseller incentive programmes and on-ground sales acquisition activities, to boost subscriber acquisition for 2H11.
Total subscriber base is targeted to hit 450,000 by the end of this year and 650,000 by end-2012. As at June this year, the nomadic broadband segment accounted for just about 35% of total subscribers. This percentage is expected to rise to about 50% based on its push into the nomadic broadband segment.
Target turnaround in 2013 but much depends on P1
Green Packet’s solutions arm is already profitable. The company’s sales of software licences and customer premises equipment totalled RM87.8 million in 1H11, more than double the RM37.2 million in 1H10. Earnings before interest and taxes (Ebit) improved to RM8.7 million in 1H11, up from RM4.8 million in the previous corresponding period.
Turning the company around will still depend on P1’s performance. Revenue for the broadband arm grew 27% year-on-year (y-o-y) in 1H11 to RM124.7 million but was in the red with loss before interest and tax totalling RM73.6 million.
As a result, Green Packet remained loss-making in 2Q11. Pre-tax loss narrowed slightly to RM36.6 million from RM37.5 million in 1Q11. We expect the company to stay in the red for the full year and 2012.
The company is upbeat that if all goes to plan, it could turn a profit in 2013. Investors, however, may be more cautious. At this point, the business risks remain high given the very competitive operating environment.
The nomadic broadband market segment is already very competitive with all the mobile operators and YTL Communications jostling for a share.
The fixed home broadband segment too is starting to get crowded. Previously dominated by Streamyx, and to a lesser extent P1, this segment will see intensifying competition with Maxis and Celcom entering the fray.
Telekom’s UniFi service has already taken a good slice of this market since its launch last year — accounting for almost half of the net adds in this segment in 1H11 — and is expected to do increasingly well with our growing demand for bandwidth.
Wholesale agreement with Telekom to protect customer base
Cognisant of this trend, P1 recently signed a wholesale agreement with Telekom Malaysia Bhd for the use of the latter’s high-speed broadband (HSBB) fibre network. This way, it hopes to retain high bandwidth users who would otherwise be switching to rival operators — even though margins will be squeezed. The fibre network is currently the most efficient and cost-effective option for high-speed broadband.
Longer-term outlook still hazy
The longer-term outlook for Green Packet is still somewhat hazy. Much depends on how the next generation of services, the LTE, plays out in the country.
At the moment, nine players, including P1, are vying for the frequency spectrum blocks to be given out by the government. Given the size of our population, this could be a very congested market but one that remains very much in Green Packet’s plans.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
This article appeared in The Edge Financial Daily, October 28, 2011.
