About GPacket, TM/DIGIYTL Comm (Gpacket), Astro, THHeavy ...

GPacket

What’s Up? … dated Oct 2012

Will Green Packet floating P1 to aid cashflow? With P1 turning EBITDA positive since Dec 2011, it should be in a good position for a listing. In fact bankers had already been hired to look into this option of listing to raise capital.

To recap news reported in mid Oct 2012 that it was looking to divest its 61% stake in P1, thereby existing the mobile broadband business.

However such exercise may not be a straight forward task.

One of P1’s most valuable assets is the spectrum it holds. P1 was one of the nine telcos allotted the LTE/4G spectrum, which is set for commercial use from 2013 onwards.

The question is would the spectrum remain with P1 if there is a change in ownership. In such a scenario, the company would have to get the government’s approval to keep the spectrum.

The government will need to know who is purchasing the stake. If it is a foreign party, there is a cap on how much stake that company an hold. It is usually about 49%. Beyond that the company selling will have to get an approval from the government to keep the spectrum since it can be seen as a national asset.

P1 was allotted 20MHz of the LTE/4G spectrum.

The idea of a possible merger with other telecommunication players remain on the cards. It was reported previously that the MCMC was encouraging collaboration between the players.

Earlier 2012, it was reported that the smaller players were in talks on consolidation, which was seen as a natural progression in the industry. This would give the smaller telcos a stronger footing against their much bigger telcos but enable them to share the high capex cost. In particular the YTL Corp was said to be in talks with both P1 and Asiaspace.

After 15 quarters of operating losses, Green Packet Bhd has finally turned EBITDA (earnings before interest, taxes, depreciation and amortisation) positive with an operating profit of RM3.9mil, contributed both by its solutions and broadband pillar and supported by 400,000 subscribers.

The company would be getting two large contracts from Europeand one from the American market from one of the largest mobile operators in the world in the second half of 2012. This will significantly increase revenue contribution from its solutions pillar.

While Green Packet had already turned EBITDA positive in December 2011, it was mainly contributed by its solutions pillar. As of its first quarter to March 31, 2012, the EBITDA positive figure was contributed both by the broadband segment under Packet One Networks Sdn Bhd (P1) with an operating profit of RM3.3mil and the solutions pillar with RM0.8mil.

For the first quarter to March 31, while group EBITDA grew 153% to RM3.9mil, the company narrowed its net loss to RM14.71mil from RM19mil previously. Revenue grew 5% to RM128mil.

The EBITDA positive figure was achieved on the back of a total subscriber base for P1 of 401,000, with net additions of 13,000 as of the first quarter 2012. Revenue from the P1 pillar grew 52% to RM85mil, driving up average revenue per user (ARPU) to RM78 from RM75 previously. The solutions pillar was 53% lower to RM22mil due to lower shipment of 90,000 units versus 188,000 in 2011. The solutions pillar seasonally performs better in the second half of the year.

P1 would be venturing into East Malaysiain the second half of 2012 and would first be targeting Kota Kinabalu.

To date (May 2012), Green Packet has incurred some RM795mil in capex. Over the next 12 months from May 2012, it will incur a remaining RM205mil which will give it 60% coverage of the Malaysian broadband market.

Broadband remain the main contributor to GPacket’ revenue, making 63% of total turnover.

Industry observers opine that if GPacket were to sell P1, the former would likely wait unit the latter was on a more secure footing before doing so. Given the amount that has been invested in P1 over years, GPacket could possibly grow the company first so that it could get a good price in order to take that into account. If P1 manages to grow its subscriber base further following the launch of LTE/4Gm this would attach a higher price tag to the company.

Telekom/DIGI/YTL Comm (GPacket)

What’s Up? … dated Oct 2012

Green Packet Bhd is exploring "strategic alternatives" for its broadband business under Packet One Networks (M) Sdn Bhd (P1). The alternatives for P1 including the "possibility of merger, consolidation, to sell a stake and other options to maximise shareholders value.

However till 18 Oct 2012, no discussions had started nor have definitive terms been discussed or concluded. It had, to-date, not received any bids from any party to purchase its shareholdings in P1. It had not received any general offer for all the shares in Green Packet itself.

To recap it was reported that GPacket is looking to exit the broadband services business by selling its entire 61% stake in P1. The company is said to have receive bids to purchase the shareholding in P1. Five parties have submitted their bids for P1. Three of the bidders are a foreign party and two local telcos. GPacket will make necessary announcements when the time comes.

While P1 is considered a core business for GPacket, the former has continued to bleed losses since 2006 and only managed to achieve positive Ebitda earlier 2012. After selling off P1, GPcket will only have its solutions business, which sells software and equipment such as modems to mobile operators.

GPacket holds a 47.2% stake in P1 and another 13.5% stake indirectly via its wholly owned Packet One Sdn Bhd. Other shareholders include South Korean telco SK Telecom Co Ltd (28.2%), Megan Sinar Sdn Bhd (1.96%), Dutamas Equity Sdn Bhd (2.5%), Dutamas Regal Sdn Bhd (3.7%) and Akar Amanjaya Sdn Bhd (2.9%).

Telekom …

Telekom Malaysia Bhd has refuted a news report that it is making a RM1.8bil bid for Green Packet Bhd's wireless broadband unit, Packet One Sdn Bhd (P1).

TM described the news report as "misleading as it is based on speculation". It had not announced any interest to bid for the stake nor seek any approval to do so. TM is however always in search of value creating opportunities as part of its strategy and rest assured, will make any necessary announcements to our stakeholders, where so required.

It was reported that Telekom Malaysia Bhd is seeking approval from the Finance Ministry to make a RM1.8 billion bid for Green Packet Bhd's wireless broadband unit, Packet One Sdn Bhd (P1). The price reported was rm2.74 per P1 share.

Meanwhile should the bid approved, TM was unlikely to dace any difficulties in financing the acquisition.

Gpacket’s 2012 balance sheet shows that its net asset per share is 17 sen, suggesting a price to book value of 16 times but this includes all of GPacket’s assets and liabilities.

TM’s catalyst will be UNIFI’s growth.

TM will also be bidding for the Barclays Premier League rights. The initial concern over spending such an amount on this content is valid as TM could this enter into a bitter bidding war which might impair its free cash flow and ability to sustain dividends in the years ahead from Oct 2012.

News reports that said Astro had previously paid rm800 million for the last BPL season which spans three years.

DIGI …

Speculation that another player interested in P1 is DiGi.Com Bhd. Buying over P1 will give DiGi access to a 2.3 GHz spectrum licence to deploy 4G WiMAX services nationwide while, for TM, it will allow it to penetrate into the mobile broadband business which will complement its fixed broadband services and WiFi offerings.

The four current WiMAX players in the country are P1, Asiaspace Sdn Bhd, REDtone International Bhd and YTL Communications Bhd, while there are four 3G players – DiGi, Celcom Axiata Bhd, Maxis Bhd and U Mobile Sdn Bhd.

YTL Comm (YTL Power) …

It was also reported that the YTL Group had also approached Green Packet for a possible merger and acquisition exercise to which YTL had said that it was “always in talks” with its fellow players but had not moved beyond that.

Astro

What’ Up? … dated Oct 2012

Industry observers are concerned about Astro’s rights to the English Premier League (EPL) license. There is worried about the EPL license because Telekom MalaysiaBhd has the dough to buy it. If Astro loses the license, it would be a hit to its arpu.

Another concern has to do with the expiry of Astro's exclusive satellite TV licence in 2017, though the pay TV licence is till 2020.

Then there is competition from TM, which is adding to its own pool of subscribers and bidding for content, especially sports such as the BPL to give its HyppTV a boost. There are other competitors too that will try to take a share of the 7.7 million addressable market.

Astro has 22 cornerstone investors, some of which are very big names and they have a lock-in period of three months from Oct 2012.

It was reported that Astro is a dividend play stock. It will provide“stable dividends” but not much in capital appreciation for the moment (Oct 2012).. Astro has a fixed dividend payout policy of 75%.

THHeavy

What’s NEXT! … dated Oct 2012

It is not aware that it will be lifted out of PN17 status within the next five working days from 19 Oct 2012. It had submitted its third quarter financial quarter results for the period ended Sept 30, 2012 to Bursa for an early upliftment from being classified as a PN17 company on Oct 8, 2012. Bursa decision was currently (19 Oct 2012) pending.

The company is in a position for an early upliftment of its PN17 status after its 3QFY2012 results ended Sept 30.

It announced a third consecutive net profit of rm4 million a share for the financial period ended Sept 30 2012.

Its net value per share was 29.8 sen.

Bursa Malaysia had said that THHeavy’s application for early upliftment from its PN17 classification will be considered once the company has submitted and announced its 3QFY2012 results ended Sept 30.

TTHeavy has completed its regularization plan that managed to raise rm106 million fresh capital through a rights issue and acquired a fabrication yard at Pulah Indah for rm84 million.

It currently (Oct 2012) has an outstanding order of about rm170 million as at Oct 2012 mainly from Sarawak Shell and Aquatara West Desaru Projects awarded in earlier 2012.