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KUALA LUMPUR: Green Packet Bhd — which divested its controlling stake in Packet One Networks (Malaysia) Sdn Bhd (P1) to Telekom Malaysia Bhd (TM) last year — sees opportunities to strengthen its remaining two businesses, solutions and communications, in the Latin American and European markets.

In an interview last week, chief executive officer (CEO) Tan Kay Yen told The Edge Financial Daily that Green Packet (fundamental: 1.3; valuation: 0.6) is now refocusing on being an asset-light technology company with its two businesses, which “have been profitable from day one” but were overshadowed by its telecommunications business, P1.

In its solutions segment, Green Packet provides 4G devices together with embedded software, such as pocket modems, USB dongles, indoor modems and outdoor routers. Its communication services consist of wholesale termination services as well as retail calling card services.

Green Packet’s two core businesses, which made RM300 million odd in revenue in the past 12 months, are strong in emerging markets — to its solutions segment alone, emerging markets contributed 30% of revenue last year.

“We’re already strong in emerging markets, in Asean and South and North Asia. The Middle East is and will continue to be a prime market of focus for us — though not for the communications segment yet. 

“[The] developed market is where the next stage of the market growth is and that’s where the volume is. Europe will probably be at higher single-digit [growth]. The other place to be is Brazil, the country with the largest population in Latin America,” said Tan, who took over from the group’s founder and outgoing CEO Puan Chan Cheong last October.

“We’ve already passed a few toll gates in Brazil — its local certification and the operators’ internal testing. So let’s see how that will pan out. We need to be in Brazil, that’s the market with the largest population in the region. The next down the list is Argentina,” he said.

In Europe, Green Packet has its eye on Spain, as telco giant Telefónica SA — a Spanish broadband and telecommunications provider that has business presence in 21 countries, with O2, Vivo and Movistar in its stable of brands — is headquartered in Madrid.

“There are many small [telco] guys in Europe, so we need a lot of reach because it’s so disparate. In order to reach these markets, we have got in new sales people, new channel partners. We are getting new local distributors to sell for us,” he said.

Big players like Huawei Technologies Co Ltd also provide the same 4G devices and software, so will Green Packet be going head-to-head with the big boys?

“Actually, besides Huawei, there are not too many big boys in this space. Apple, Motorola, Siemens and Samsung — the big handset buys — are not here. Perhaps this market size is small to them compared to the mobile market. So there is still space for us,” said Tan.

In the 4G or long-term evolution (LTE) solutions space, Green Packet is shaping itself up as a tech and communications provider with a full range of services, “much like Samsung’s strategy, where it has different ranges of mobile phones for different markets”.

“So when some telco operators look at us, we want them to see that regardless of the market they serve, we have the device that can serve their market,” said Tan. 

Generally, he said, emerging markets demand low-cost devices with good indoor reception, while the developed markets want high-end products with the latest features on offer.

To recap, TM (fundamental: 1.0; valuation: 0.9) injected RM350 million last year for new shares in P1 for a 57% stake. It also agreed to buy RM210 million worth of exchangeable bonds from Green Packet.

Green Packet is now left with a 31.1% stake in P1; TM now controls 55.3% while South Korea-based SK Telecom Co Ltd (SKT) holds the remaining 13.6% stake.

Green Packet has been making losses for six consecutive years from 2008 to the first half of 2014, since P1’s commercial launch of WiMAX services, due to the fact that “the depreciation [of the P1 business] was high”. 

From July to September 2014, it saw a net profit of RM121.62 million from the RM152.68 million it gained from the dilution of its interest in P1. But it slipped back into the red with a net loss of RM23.3 million from October to December 2014.

Tan said this was because the profits of Green Packet’s two remaining core businesses, which have and will continue to grow this year, have yet to surpass the potential equity losses in P1. Hence, he expects Green Packet to still report losses, albeit reduced ones, in the next one or two quarters.

Green Packet has also been holding back spending on its solutions and communications segments previously as P1’s losses stacked up. But that is changing as Green Packet reprioritises.

“Now that we have refocused all our energy back to the solutions and communications businesses, we will continue to grow these two businesses organically. I see this as a new leaf for Green Packet,” he said.

He also gave assurance that there would be no heavy capital expenditure moving forward, as investments for its two businesses will largely be limited to research, development, sales and marketing, and headcount.

The company has no plans to look into mergers and acquisitions to grow the two businesses further at this moment because, as Tan said, “we feel that even organically, we haven’t done enough to make sure the growth is there”.


The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Go to www.theedgemarkets.com for more details on a company’s financial dashboard.

 

This article first appeared in The Edge Financial Daily, on March 9, 2015.

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