KUALA LUMPUR: U Mobile Sdn Bhd’s chief executive officer Wong Heang Tuck still doesn’t have a definite answer as to when the telecommunications services provider will float its shares. But since U Mobile has finally drawn earnings before interest, taxes, depreciation, and amortisation (Ebitda), it is definitely on the road to an initial public offering (IPO).

After growing its subscriber base to over four million before its eighth year of business, Wong believed there is more room for U Mobile to grow, and could draw net profit next year. He said U Mobile’s target market is youths, who make up the bulk of the country’s population and are data-hungry.

“We can go for listing now, for sure, because we’ve met certain criteria [for the IPO]. But we want to ensure that when we indeed go for an IPO, we can deliver value to shareholders. We also need to achieve economies of scale and be sustainable for at least a few quarters before we can think of going public,” Wong said in an interview with The Edge Financial Daily.

He denied market rumour of a possible merger-and-acquisition (M&A) exercise between U Mobile and REDtone International Bhd, both of which are affiliated with Tan Sri Vincent Tan.

“There are no talks with REDtone. And there is no discussion on this (M&A) at the shareholders’ level, at least, not that I know of. As far as we at U Mobile are concerned, it’s business as usual,” Wong added.

Late last year when Tan’s Berjaya Corp Bhd accumulated shares in REDtone (Fundamental: 2.3; Valuation: 0.3) to a level nearing the mandatory general offer level, it sparked speculation of a possible M&A between REDtone and U Mobile.

Between Dec 11, 2014 and Jan 7, 2015, Berjaya Corp bought 96.59 million REDtone shares and raised its stake from 12.63% to 30.77%. Additionally, on Dec 11 Berjaya Corp bought REDtone’s derivatives and ended up owning 128.48 million units of the ACE Market telco player’s irredeemable convertible unsecured loan stock and 20.1 million warrants.

Theoretically, had Berjaya Corp exercised all those derivatives, it would have become REDtone’s largest shareholder with a 45.29% stake and consequently trigger a general offer.

U Mobile, meanwhile, is one of Tan’s personal investment ventures. He owns 44.67% of the telco. The other shareholders are Temasek Holdings’ unit Straits Mobile Investments Pte Ltd (with a 49% stake) and Magnum Bhd (6.33%).

“Listing [U Mobile] is a given. [Telcos] will constantly need investment in new technologies, and technology is now updated at a much faster rate,” said Wong.

For now, U Mobile’s liabilities mainly comprise vendors’ credit, which Wong said is normal for businesses in their early stages. He added that U Mobile’s recent RM1.5 billion network expansion programme was mostly financed by its shareholders. By the end of this year, U Mobile will have 1,000 3G network towers and another 1,000 4G LTE towers to enhance its connection.

As at Dec 31, 2013 (FY13), U Mobile’s total liabilities of RM676.71 million were 1.94 times its shareholders’ funds of RM348.47 million, according to filings with the Companies Commission of Malaysia.

However, Wong said in the “traditional sense” of gearing — the measure of a company’s borrowings to financial institutions — U Mobile’s debt level is about 20% to 30% of its equity.

Growing above the industry average

Also in FY13, U Mobile’s revenue was RM919.17 million, which was nearly double of the previous year’s sales. After-tax loss was cut by 18% to RM363.24 million. Based on Malaysian Communications and Multimedia Commission’s Industry Performance Report for 2013, U Mobile had 4.5 million subscribers, which made up 10.3% of Malaysia’s mobile phone market share.

The report did not differentiate between active and non-active subscribers. Nonetheless, on a total subscriber basis, U Mobile has eaten up the market shares of the “Big Three” (DiGi.Com Bhd, Maxis Bhd and Celcom Axiata Bhd) over the years (see chart), with the telco still having less than half of the subscribers of its closest competitor, DiGi had.

Last September, U Mobile initiated its Vision 2,000,000 campaign, in which it planned to add two million subscribers before 2014 ended. It succeeded in doing so two weeks ahead of the deadline.

However, Wong declined to reveal U Mobile’s current subscriber numbers, or its market share. He said U Mobile managed to make over RM1 billion in revenue in FY14, and briefly broke even at the Ebitda level. He is confident that U Mobile can grow “above the industry average” and break new turnover record in FY15.

“We have a few ongoing initiatives. So maybe by the second half of this year our Ebitda will turn positive. We are targeting at least next year for profit,” he added.

But with telco services regarded as parity products, what distinguishes U Mobile from the Big Three players?

Wong said U Mobile is focused on delivering value to Malaysia’s youth — “the 15- to 24-year-olds” — who are heavy users of Internet data.

“We pride ourselves on being the best in terms of customer experience when it comes to mobile Internet. We are currently ahead of the other three [major players] in terms of customer satisfaction, based on various independent surveys. That’s why we came up with [the investment of building] 2,000 network sites, which will be completed by the end of this year,” he said.

Wong said U Mobile was the first telco in Malaysia to provide 42Mbps connection to mobile devices, and is also looking at making smart devices more affordable for its target market.

He added that U Mobile had been in talks with a few companies to provide machine-to-machine connectivity, which could be another revenue stream for the company. It is only a matter of time when the market is ready to use such technology, he said.

This article first appeared in The Edge Financial Daily, on February 23, 2015.