GPacket- a case to ponder

Technical Outlook

GPacket broke above its medium-term downtrend line at RM0.80 in October (see Chart 1 below). This breakout completed the bottoming phase that began in December 2008 after GPacket broke above its long-term downtrend line at RM0.65 (see Chart 2 below). After the December 2008 breakout, GPacket's share price did not rally- probably due to poor market sentiment & expected losses as it rolled out its WIMAX wireless broadband network.


Chart 1: GPacket's daily chart as at Nov 5, 2009 (Source: Quickcharts)


Chart 2: GPacket's weekly chart as at Nov 5, 2009 (Source: Quickcharts)

Financial Results

From Table 1 below, we can see that GPacket has incurred significant losses for the past 6 quarters as it rolled out its WIMAX network. To continue to finance its capex requirement, GPacket has just completed a Rights Issue of 208 million shares at RM0.20 each (with 208 million free warrants)- raising RM42 million. From Table 2 below, we can see that the revenue generated from the WIMAX broadband services & solution is about RM38.3 million for QE30/6/2009. Assuming that each subscriber pays a monthly fee of RM80 (see the various packages offered), then GPacket may have built up a base of 160k from only 11k at the beginning of the year. If GPacket can maintain this rate of customers acquisition (averaging 25k per month), it might have a customer base of 310k at the end of the year. At a monthly fee of RM80, a base of 310k subscribers would generate a revenue of about RM300 million per annum (see this interesting announcement in Bursa). Can GPacket do it? Looking at the slowdown in TM's Streamyx customer acquisition of 19k per month [its base stood at 1.333 million in May this year as compared to 1.067 million as at end-March 2008 (here)] & the case for mobile broadband, I believe GPacket stands a good shot at achieving its target revenue of RM300 million next year.


Table 1: GPacket's 8 quarterly results


Table 2: GPacket's 8 quarterly segmental results

Comment/Conclusion

While GPacket's financial performance is bad, it may be able to turnaround next year. GPacket has the advantage being the first mover in this new technology. With a bullish technical outlook, GPacket may still have more upside. Nevertheless, one must be careful since the stock has risen very substantially. Let it pullback a bit before going in. A good level to consider is RM1.20-30. Bear in mind that this is a high risk trade no matter how we cut & dice it.