GreenPacket(GP)'s share price has been very volatile for the last couple of weeks. Its share price was at a low of RM2.20 and shot up to RM2.80 before going back lower to RM2.08 today. One of the main reason given for the sell down was due to the poor 1Q08 results released last week(see below). I was curious to find out whether there are any other reasons for the selldown on this “up and coming ... down”company which was initially listed on the MESDAQ in 2005 before transferring to Main Board last year. Below are some information about this company. Conclusion is at the end of the analysis.
Business Activities
Provides networking product and solutions and converged telecommunication services. Revenue breakdown by region is as follows:-Local 40% Asia/Pacific 40% MENA etc(Middle East North Africa) countries 20%.
Results (Revenue/Net Profit(Loss)/EPS)
'05 RM40m/RM31m/10sen
'06 RM99m/RM56m/19sen
'07 RM123m/29m/9sen
'1Q08 Revenue 22.3m/(2.7m)/-0.8sen nta RM1.25
P/E based on last year eps is 23X
According to the Notes to the Accounts : The 1Q08 loss was mainly attributed to the slower implementation of projects by telecommunication companies in the China market, heavy promotional activities for the broadband business and higher share of losses incurred by the associated companies.
Some of the key 31 Dec 07 balance sheet figures
Cash and bank balances RM242 m
Very low borrowings except for RM4m HP Creditors
Trade receivables RM46mil
Debtors turnover days = 140 days( about 4.7 months) (06: 197 days) Note: Company says normal trade credit terms range from 30-90 days.
Target for 2008
Internal target of triple digit growth in Revenue as its diversification plans start to bear fruit.
Shareholders
Green Packet Holdings/Puan Chan Cheung(CEO) 34.6%
OSK Holdings Bhd 16%
Goldman Sachs International 5.74%
The Goldman Sachs Group Inc 5.74%
And other impressive foreign funds
Top 30 shareholders take up 85% shares available. Balance free float 15%
Market capitalization RM733m (based on RM2.20 per share)
Shares buy back available as Treasury shares to date 4,659,700 shares which represents a 1.2% of total shareholding of GP(purchase price ranges between RM2.18 – 2.93) and cost approximately RM11.6 m based on RM2.50 per share. So far there are no sales of the Treasury shares in the open market. Why are they buying? Is it due to the followings?Confidence with the company’s future potential, company has the funds available, avoiding potential hostile takeovers by buying more shares available in the open market, supporting share prices while company’s diversification plans start to bear fruits or planning to reward the shareholders via share distribution instead of dividends in the future??
New Businesses expected to kickoff for the 2nd half 2008 onwards
1) WiMax (target 25% population by 2008, 35% by 2009 and 46% by 2010. It will starts from Klang Valley and moves towards Johor and Kedah).
2) Collaboration between MCMC, City Hall and P1 on the proposed KL Wireless Metropolitan Project.
3) Software wireless solutions services in line with China's launching of 3G services
4) Other wireless networking solutions business
WiMax
What are the Pluses?
a) GP via subsidiary P1 will be able to capitalized the 1st mover advantage in WiMax . GP has done Malaysia proud as this is the 1st large scale WiMax deployment in SEA and second in Asia after South Korea.
Business Activities
Provides networking product and solutions and converged telecommunication services. Revenue breakdown by region is as follows:-Local 40% Asia/Pacific 40% MENA etc(Middle East North Africa) countries 20%.
Results (Revenue/Net Profit(Loss)/EPS)
'05 RM40m/RM31m/10sen
'06 RM99m/RM56m/19sen
'07 RM123m/29m/9sen
'1Q08 Revenue 22.3m/(2.7m)/-0.8sen nta RM1.25
P/E based on last year eps is 23X
According to the Notes to the Accounts : The 1Q08 loss was mainly attributed to the slower implementation of projects by telecommunication companies in the China market, heavy promotional activities for the broadband business and higher share of losses incurred by the associated companies.
Some of the key 31 Dec 07 balance sheet figures
Cash and bank balances RM242 m
Very low borrowings except for RM4m HP Creditors
Trade receivables RM46mil
Debtors turnover days = 140 days( about 4.7 months) (06: 197 days) Note: Company says normal trade credit terms range from 30-90 days.
Target for 2008
Internal target of triple digit growth in Revenue as its diversification plans start to bear fruit.
Shareholders
Green Packet Holdings/Puan Chan Cheung(CEO) 34.6%
OSK Holdings Bhd 16%
Goldman Sachs International 5.74%
The Goldman Sachs Group Inc 5.74%
And other impressive foreign funds
Top 30 shareholders take up 85% shares available. Balance free float 15%
Market capitalization RM733m (based on RM2.20 per share)
Shares buy back available as Treasury shares to date 4,659,700 shares which represents a 1.2% of total shareholding of GP(purchase price ranges between RM2.18 – 2.93) and cost approximately RM11.6 m based on RM2.50 per share. So far there are no sales of the Treasury shares in the open market. Why are they buying? Is it due to the followings?Confidence with the company’s future potential, company has the funds available, avoiding potential hostile takeovers by buying more shares available in the open market, supporting share prices while company’s diversification plans start to bear fruits or planning to reward the shareholders via share distribution instead of dividends in the future??
New Businesses expected to kickoff for the 2nd half 2008 onwards
1) WiMax (target 25% population by 2008, 35% by 2009 and 46% by 2010. It will starts from Klang Valley and moves towards Johor and Kedah).
2) Collaboration between MCMC, City Hall and P1 on the proposed KL Wireless Metropolitan Project.
3) Software wireless solutions services in line with China's launching of 3G services
4) Other wireless networking solutions business
WiMax
What are the Pluses?
a) GP via subsidiary P1 will be able to capitalized the 1st mover advantage in WiMax . GP has done Malaysia proud as this is the 1st large scale WiMax deployment in SEA and second in Asia after South Korea.
b) Spin-off-Interest from countries egs Indonesia, Thailand, Vietnam and the Philippines which are issuing licenses in the next 6 months to 1 year to work with GP due to its expertise.
c) Intel Capital's RM50m investment in GP (or about RM2.80 per share) will advance and accelerate Wimax’s momentum . (Intel in the latter part of this year is expected to offer WiMax/WiFi/module for notebooks based on its next generation chip Intel Centrino 2 processor technology. Similarly in the US; Intel, Google, Comcast, Time Warner and Bright House has agreed to invest US3.2b in a new joint venture to speed up deployment of next generation mobile WiMax networks).
d) Big potential market. Wimax Forum projects more than 133 m Wimax users globally by 2012. WiMax should be launched at a much cheaper rate than 3G as it is available easier and free from heft royalty fees requires for 3G mobile devices and equipments.
What are the Negatives?
a) Worries about the interoperability of devices in Malaysia and overseas countries resulting customers' decision to wait and see. WiMax Forum has not certify these 2.3 GHz products and transmission equipment yet.
What are the Negatives?
a) Worries about the interoperability of devices in Malaysia and overseas countries resulting customers' decision to wait and see. WiMax Forum has not certify these 2.3 GHz products and transmission equipment yet.
b) Systems have not proven yet to be profitable commercially as it is still new.
c) Market is unsure how fast Intel can come out with its Centrino 2 processor. This smart chip would enable handsets/notebooks and cameras to be WiMax ready.While waiting, 3G companies and Mobile Virtual Networks companies will be all out to outbid each other for a slice of the wireless network customers. Note: TM aims to sign up 250,000 new streamyx customers in the next 7 months in its new campaign targeting rural and urban folks. It has now 1.12 m customers. TM controls 90% of broadband market. (Malaysia's internet penetration rate is 12% only). Speed is the essence.
China Business
The yet to be launched 3G services in China is hampering GP's business take up. However, based on what was reported yesterday, China will give out 3G licenses as soon as the current telecommunication restructuring and the testing of its own 3G systems TD-SCDMA are completed, probably in 6-12 months time. So this good news to GP.
China Business
The yet to be launched 3G services in China is hampering GP's business take up. However, based on what was reported yesterday, China will give out 3G licenses as soon as the current telecommunication restructuring and the testing of its own 3G systems TD-SCDMA are completed, probably in 6-12 months time. So this good news to GP.
Conclusion
GP has to work very hard to ensure all its targeted business ventures starts off well without much obstacles. It is most important that all the variables fall into place perfectly when the implementation starts. GP has been very forthcoming especially on its WiMax rollout plans and has worked very hard to ensure all systems go with the help of P1's experienced CEO Micheal Lai (ex TM Net CEO). However, GP is in a very competitive market (software/telecommunication and wireless networks). Besides competition from its fellow WiMax providers(Redtone, YTLe and Asiaspace), GP must also fend of 3G companies especially TM as the latter company has the financial muscle, economies of scale and good networks ready to be deploy. Attractive price point or overall value proposition would draw new customers and GP's first major target is the existing TM's subscribers. The WiMax business must start off with a 'bang' as GP needs to counter the slowing down of its existing business. Unfortunately, this year would only be an investment year (RM300m is expected to be spend on WiMax) for the company as it was only expected to make money in the 4th year after it is launched. Question in mind is whether GP and other WiMax providers are able to challenge the 3G operators in terms of offerings and making money in the same time? Do I dare to take a bet on GP now? Err....maybe latter when WiMax is launched.
Note: In the meantime, GP is set to continue buying shares in the open market until the company's business yields result....Notice how this counter provides support around RM2.08 (which is also close to the latest March 08 esos price of RM2.09)
* 3G licenses will be issue in China soon as the current telecommunication industry's restructuring is completed. China Mobile yesterday lost more than 25b yuan after the Government said it will reorganize the industry to help smaller companies. The share was down 7.5% to HKD115.70.
* The Wall St Journal: China has cleared the National Security Fund, which is worth more than US75b to invest more freely with local private-equity funds. Good news for the Chinese markets.
* Redtone ventured into internet tv today to offer alternative channel to viewers via broad band internet connection. It did not mentioned its latest WiMax rollout plans for East Malaysia.
* BT Malaysia: Malaysia's export of palm oil to India has been on a declining basis since 1999. India is expected to import only 142m MT of palm oil for 2008 (2007: 511m, 1999: 2,376m) One of the reason given was that India buys more from Indonesia rather than Malaysia especially the crude palm oil rather than the refined oil.
* Contemporary drawing above by Zheng FanZhi was auctioned off at HKD9.5m(or RM4.75m)!
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