I Like Green Packet At Current Levels

Besides spotting good shares, the entry levels are important as well, especially when you talk about a momentum driven market like Malaysia. When the trend is negative, most shares get driven down as well, thus providing better entry levels for stocks with good prospects. I like Green Packet quite a bit. Its certainly one of the more innovative among the small companies. Investing in smaller companies brings forth a lot more risks (search for "small caps" in my blog), hence I will more than often shy away from them.

Why I like Green Packet... its the wifi/broadband market. The market in Malaysia for wifi/bb is still fragmented and offers a lot of opportunities thanks to the pathetic offering and service by the main players. Even izzit has managed to take substantial ground off the established telcos. Green Packet guided that its WiMax subscriber base has grown at a tremendous pace and already reached 50,000 by end of May. This represents a 5-folds improvement from 9,500 at end 2008.

Its 52 week high-low is RM2.51-0.60. I would be keen at levels below 70 sen. As I mentioned before, my yardstick remains a potential 30%-50% upside within 6 months. It won't be making a profit this year, but in this business, I see them ratcheting up subscribers to go past the critical mass levels by end of this year, which is where the value is.

I like their coverage, I like their aggressive marketing plan, I like the way their sales units interfaced with potential customers. I like the attitude of the sales force that work for the company. I get a strong sense that they are making good penetration, and that every potential client that walks by has a very good sign up rate and closure rate.

Management guided that in February and March 2009, the sign up for Wimax has seen an aggressive growth, clocking in as high as 500 subscribers per day but slowed since then. In May 2009, it was hovering between 300-350 subscribers per day. I like the pricing plans they have. I like that the modems can be free or be paid in installments.

The group has secured more than 400 sites currently and target to increase coverage sites to 700 by the end of 2009 to cater for up to 250,000 subscribers. Management said barring any delay, the deployment of coverage sites can hit 800 by year end as it has two turnkey vendors - Alcatel-Lucent and China's ZTE Corp to deploy the sites. Green Packet already rolled its services in Klang Valley, Johor Baru, Alor Setar, Penang, Kuantan, Kuala Terengganu and Ipoh. The company plans to extend services by penetrating into another seven states, including Melaka, Negeri Sembilan, Pahang, Terengganu, Kelantan and Perlis.

P1 also formed a partnership with Sunway Group last year, a
collaboration known as Wireless@Sunway, to be the preferred
technology  partner for broadband connectivity and communications
requirements in the Sunway township. P1 completed deployment of
the first phase of the Wireless@Sunway project, providing wireless
broadband Internet access to more than 80 per cent of Sunway
home and business users, students and visitors, thus making Bandar
Sunway the first integrated wireless broadband-enabled township in
the country.

Kuala Lumpur City Hall and the Malaysian Communications and
Multimedia Commission also picked P1 to set up the WiFi-WiMAX
KL Wireless Metropolitan Project (Wireless@KL). The
Wireless@KL network currently offers more than 100,000 users
free wireless broadband access in Kuala Lumpur.

China and India markets are not going to yield much to Green Packet's bottomline anytime soon. Let's look beyond that for now. The company has already delisted its associate company, GMO Limited from the Alternative Investment Market (AIM) of the London Stock Exchange in May. The cost savings from the listing fee is approximately USD300,000 per annum. Now that is sensible.

The prospects for the company does not come without investments cost. Capex YTD amounted to RM250mn and the group is committed to spend another RM230mn by the next two year to complete its Phase1 and Phase 2 Wimax implementation plan to cover 40% of the population. Green Packet's total capex could reach RM1bn over the next four years. The group has RM200mn cash as at 31 May 2009 and will have to raise funds. Fund raising is not necessarily a bad thing, and I quite like the business model. The company has issued three private placements and raised about RM300mn since its IPO in 2005. Currently, Green Packet is proposing a rights issue of 208.3mn shares of 50sen/share together with 208.3 free detachable new warrants on the basis of 1 rights share and 1 warrant for every 2 existing ordinary shares held. The company expects to raise between RM98.8mn and RM104.2mn for its Wimax network. I would be supportive of subscribing to the rights and warrants.

Given the market's euphoria over YTL-e solutions RM2.5bn investment in wifi/bb, I favour Green Packet's P1 head start anytime man.


p/s photos: Han Ye Seul