This article first appeared in The Edge Financial Daily, on June 20, 2016.
KUALA LUMPUR: XOX Bhd recently reported its sixth consecutive quarterly profit, a sure sign that it is enjoying the fruit of its turnaround strategy. The RM1.02 million net profit posted for the third quarter ended March 31 (3QFY16) may not seem big, but what is significant is that the company recorded a growth of more than 100% year-on-year at a time when the telecommunications industry is seeing compressed margin and growth.
XOX’s subscriber base has also seen a consistent upward trend. While it had only 384,000 subscribers at end-2014, the numbers have risen by more than three times to some 1.4 million now. Still, XOX has a long way to catch up with the big boys in the industry. The average number of subscribers for Maxis, DiGi and Celcom, at the end of March, was more than 10 times what XOX has at the moment.
Acknowledging that the virtual mobile network operator still has a long way to go to match the big players, XOX chief executive officer Ng Kok Heng said there is a need for differentiation and innovation in the company’s engagement with customers in its turnaround strategy.
“We need to do something totally different and innovative so that the consumers will think of us as ‘not a telco only’ company,” he told The Edge Financial Daily in an interview.
One innovation that has been adopted is a revenue-sharing postpaid plan that offers consumers an opportunity to be part of the XOX family by starting their own networks from among family and friends.
Another innovative engagement with the consumers is the “Member Get Member” benefit where a user who introduces XOX mobile to family members or friends receives free airtime rewards. XOX has also introduced a Voopee app, which is a sim-free app that provides the user with actual mobile number on existing smartphone without the need for an additional SIM card to make calls from other countries to Malaysia instantly via WiFi or mobile data connection.
Ng said the company has always been innovative in trying to benefit consumers and with this, he believes that subscribers will tell their friends about XOX.
“Our middle men are our partners. In fact, we can also make every consumer our partner,” he added.
Another strategy implemented in the turnaround plan is to focus on the right target group. XOX is currently targeting secondary towns as the acceptance level there is higher.
“We tried the Klang Valley in the first couple of years but we find that when we go to the secondary towns, it works better because the acceptance level is higher,” Ng said.
He explained that in major cities, the competition is very high as every player is concentrating on these places.
“I think it’s logical not to fight head-on with the big boys. We’re definitely not in a good position to fight on the same turf with them as we have less resource, less time and less brand name,” Ng said.
XOX’s balance sheet has also seen a significant improvement. Its current ratio as of March 31 is 2.15 times compared with 0.77 as of June 30 last year. The cash equivalent has also improved significantly from RM9.31 million to RM21.6 million, of which RM14 million is placed in fixed deposit.
Nevertheless, the fact remains that the local telecommunications industry is already very saturated with a penetration rate of more than 100%, which essentially means XOX needs to win customers away from the bigger players. There are also other smaller players such as U-Mobile that has been very successful in the Klang Valley and the revamped P1 under Telekom Malaysia Bhd.
For the past two years, XOX’s financial reports have shown that the game plan is working, but in a matured market, it is usually the survival of the fittest, which is a big question mark when XOX is compared with its competitors.
Ng said XOX has plans for the post-paid market and is hopeful that it could help the company achieve its two million subscribers target by the end of this year. While the target is very achievable, there is the question of how the average revenue per user (ARPU) will be affected in the promotions. Will the ARPU be compromised in attempts to gain market share?
XOX has declined to share its ARPU information at the moment.
Even with the growth seen in the past two years, investors may want to take note of the volatility of XOX’s share price. It has a 52-week range of 11 sen to 71 sen. The normally actively traded counter will have to shed away its reputation as a volatile stock and keep up its current performance to convince the industry players, analysts and consumers that it is a serious player in the market.
Its non-traditional game plan seems to have borne fruit as evidenced by its sixth straight quarters of profit, but XOX needs to keep the innovation game up if it wants to achieve bigger results. As management consultant and author Peter F Drucker says, “if you want something new, you have to stop doing something old”.
XOX (0165) - Is XOX’s turnaround for real?
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