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Company says recent stake purchase in Yen Global is first of several more acquisitions in other firms
MOBILE broadband and networking solutions provider Green Packet Bhd is long forgotten as a gem amongst investors.
In its hey days, its stock was loved so much that it shot up more than 500% a little more than a year after it got listed in 2005, making it the highest valued firm among its peers.
But the company’s decision to venture into the heavy-capex broadband business via the launch of Packet One Networks (M) Sdn Bhd’s (P1) service in 2008 saw its profits dragged down for the longest time.
The group’s losses contributed by P1, now known as webe, had peaked to reach RM160mil in 2011.
Investors were quick to lose interest after that.
Putting the past behind, its chief executive officer Kay Tan says he hopes Green Packet can find favour with the market again as it focuses on building up the sustainability of what he calls the company’s cash cow businesses, which are basically its original operations made up of its solutions and communications segments.
That’s hardly a sexy story to be told and may even seem bland to a certain extent, but Tan who took over the reins as CEO from founder CC Puan two years ago believes that by going back to basics, Green Packet can get back on the radar again.
Additionally, Green Packet is also pursuing an investment strategy where this week it announced its first of many strategies, according to Tan - a 22% stake acquisition in loss-making Yen Global Bhd that is in the Internet of Things (IoT) space which sees electronic signals being sent and received from normal, everyday objects.
“We did not do a lot of outreach in the past two years but were very busy with initiatives to strengthen our financials and improve our business performance ,” Tan tellsStarBizWeek in an interview.
These initiatives had started with the divestment of the firm’s controlling stake in P1.
Recall in 2014 Green Packet had sold a 57% stake in the company to Telekom Malaysia Bhd (TM) for RM350mil. It now holds a remaining 19% stake.
“P1 has now become an investment portfolio for us and with TM in the driver’s seat, we are confident that our investment will pay off in the long-term,” Tan says.
Having said that, he points out that the telecoms industry is front-loaded with heavy capex requirements.
Hence, the company will periodically review if P1 continues to fit in with its investment profile and shareholder interest.
Meanwhile, growing its bread and butter businesses of solutions and communications which have been profitable for the past four years remains a priority.
Combined, these segments brought in an annual revenue of RM340mil last year.
“The solutions business which supplies 4G long-term evolution (LTE) connectivity devices to global telecom companies is enjoying a boom market with sustained accelerated growth of LTE network deployments globally,” says Tan.
Year on year from March 2015 to March 2016, the company saw a 6.5 times increase in global LTE network deployments from 70 to 451, according to him.
“Correspondingly, the current split in our provision of LTE to WiMAX devices is 97% against 3%, compared with 20% against 80% in 2014.
“With an estimated 70% of the world’s total telecoms investing in LTE networks, we think LTE is here to stay with the need for a constant supply and re-supply of LTE devices.”
To ensure continued growth for the solution business, the company has identified specific high potential markets where it builds a direct sales presence and establishes partnerships that will help it penetrate these markets more effectively.
“Employing these strategies has allowed us to win seven new accounts in the European Union, North America and Middle East with a billing of RM19.5mil so far this year.
“Our next focus is the African and Latin American markets, with their huge population, significant digital divide coupled with aggressive government efforts to bridge the divide,” adds Tan.
He also says that Green Packet continues to innovate.
While the company does not strive to be the first in the market, he says it follows trends promptly with “best-in-class” products that are better than the first generation and that’s also when demand starts to pick up, according to him.
In this regard, the firm recently launched its CAT 6 product range, which will command a premium.
For its communications pillar, Tan claims that Green Packet is amongst the fastest growing in Southeast Asia with over 100 million minutes in monthly voice traffic and 250 clients in 30 countries.
“We are also interconnected to 350 quality suppliers.
“Quick wins on this front include adding data on top of wholesale voice to grow the business without expensing much additional resources.”
He says that the company is also expanding its services for the migrant market, and has just launched VivoHub in Singapore which is a mobile platform that allows migrants to make calls and do things like their credit transfers and small financial transactions via the mobile.
Tan says the company has learnt that participating in other businesses’ proven successes is a better way to go than to diversify into new and unfamiliar territories which typically require much bigger investments.
“We are currently evaluating investment opportunities.”
To say the least, the investee company will be in high growth sectors, and have contained risk being at the point in the ‘S’ curve of technology adoption with early majority traction, he explains.
Examples include the financial technology (FinTech) sector in areas such as payments and transfers, and IoT, particularly to connect vehicles and home hubs.
“We also like proven and profitable businesses, which are just looking for a backer to scale.
“And even better if they own valuable assets such as technology patents, platforms and licenses.”
Case in point is our recent investment into Atilze Digital Sdn Bhd via share acquisition in its parent, Yen Global, says Tan.
“Atilze is the authorised distributor for Gemtek Technologies Ltd products, and Gemtek is a global Taiwanese giant for connectivity devices, which also contract manufactures close to 30% of Green Packet-branded products.
“Aside from softening the impact of Gemtek going directly to customers more aggressively, we are participating in the potential upside of Atilze’s much broader product portfolio via Gemtek.”
So far, Green Packet’s business strategies appear to have shown some results.
Cash flow is improved as seen from the performance of its solutions and communications businesses, which are EBIDTA positive and growing.
“We also have minimal investment into capex and aim to maintain this level, moving forward,” Tan adds.
“Clearly, we are in a much better financial position with barely any external debts aside from the exchangeable medium term notes (MTN) attributable to our investment in P1.”
As part of the deal, TM had agreed to subscribe to RM210mil of Green Packet’s issued redeemable exchangeable bonds.
Tan says the MTN loan structure is advantageous because the debt, cumulative of principal and interest costs are not payable until 2022 and are fully exchangeable for P1 shares held by the company.
Green Packet’s war chest is also “sufficient” at the moment, he says with deposits, cash and bank balances of approximately RM88mil.
After the third quarter of this year, the company expects its financial performance and balance sheet to improve significantly as it prepares for the transition of the classification of its P1 investment from associate to simple investment.
“This will end the need for Green Packet to recognise its share of losses and further allows us a reversal of accumulated losses, thus enhancing our shareholders fund substantially.”
Still, shareholders may have to wait a little longer for any dividends as there are currently no plans for payouts with the company choosing to focus on getting back on a sustainable growth track first.
GPACKET (0082) - GREEN PACKET BUY NOW-Will write about the company later