KUALA LUMPUR (Oct 7): Green Packet Bhd has emerged as the most actively traded stock on Wednesday after the management said it is optimistic on earnings turnaround after sealing a 10-year agreement with Tencent Cloud to exclusively offer its cloud services in Malaysia.

The technology and telecommunications firm, which saw 188.85 million shares change hands in the morning trade, fell 2 sen or 2.88% to 51 sen. The counter rose as much as 5 sen or 9.62% to an intra-morning high of 57 sen.

CGS-CIMB said in a note Wednesday that the firm is capitalising on Malaysia’s cloud market, which is set to deliver 13% revenue compound annual growth rate in 2020 to 2024, after signing a 10-year exclusive agreement with Tencent Cloud (TC) in August to set up servers in Malaysia and offer TC’s services (part of its international node coverage).

According to the note, Green Packet will initially invest about RM100 million for 600 servers that will go live by the first quarter of 2021 and believes this will grow to 3,000 to 4,000 servers over the next four to five years with total investment of RM300 million to 500 million.

Green Packet projected the business to contribute 30% to 40% of earnings before interest, taxes, depreciation and amortization in financial year 2022 (FY22), with a net present value of US$82 million (RM339 million) over 10 years.

The note also highlighted that Green Packet is optimistic of its earnings turnaround by FY21.

Green Packet posted core net losses of RM65 million and RM37 million in FY19 and 1H20 respectively due to continued investments to expand its digital service business.

According to the note, the group’s business expansion was funded by its private placements and warrants.

While Green Packet’s Tranche 1 private placement raised RM52 million in July 2020, the note said the firm plans to raise another RM63 million to RM99 million via a Tranche 2 private placement of 120 million to 190 million shares at an indicative issue price of 52 sen per share — similar to Tranche 1 — to fund working capital and cloud infrastructure investment.

Its outstanding warrants may further raise RM180 million upon conversion into ordinary shares, it added.

Meanwhile, although the group’s digital services posted net losses of RM29 million and RM13 million in FY19 and 1H20 respectively on business development costs, its kiplePay, which is pursuing fintech opportunities in the education sector, saw its gross transaction value grow 113% year-on-year.

The group has also completed its plans to end the loss-making VivoHub and exchangeable medium term notes (EMTNs).