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ultraman_taro
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Posting #1: Thu Nov 1st, 2007 11:38 |
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Green Packet Berhad was incorporated in Malaysia on 15 December 2000; after CEO Puan Chan Cheong relocated the tech outfit from Silicon Valley to Kuala Lumpur. It was listed on Mesdaq in 2005, and recently transferred to the Main Board.
Current price: RM3.38
Outstanding shares: 333,279,375
Market Cap: 1.126B
Core business
Green Packet’s profits are driven by its SON based solution. SON stands for “Self Organizing Network”, and is comprised of 3 main wireless networking solutions – SONbuddy, SONaccess and SONmetro.
SONbuddy is a technology that is similar to your regular Wi-fi connectivity, but offers better security and extends coverage.
SONaccess is a technology that enables mobile users to roam. Green Packet’s biggest SONaccess customers are Telcos who wants to offer roaming/broadband to their subscribers. Just recently in July 2007, Green Packet announced that they have signed a 2 year SONaccess contract with Shanghai Telekom, a subsidiary of China Telecom. Previously, they had supplied SONaccess to other subsidiaries of China Telecom, in Zhejiang, Guangdong, Jiangsu, Sichuan and Hunan.
SONmetro is Green Packet’s wireless broadband initiative, targeted to consumers. It is seen as its’ next driver of growth. It is so far already rolled out in Bahrain, and there are major plans to deploy SONmetro in other Asian and European countries. The Wimax license owned by Green Packet will further complement SONmetro in Malaysia.
Nextel was acquired by Green Packet last year for RM24.75M. It provides alternative voice services market, or discount telephone service.
Earnings
2004 2005 2006 2007 (1st half)
Revenues (RM) 18.1M 39.4M 98.9M 66.9M
Profits (RM) 11.9M 31.7M 55.3M 23.34M
Do note that Green Packet had traditionally reported more sales/profits in the 2nd half of the year.
Balance Sheet
Very healthy balance sheet with no long term debt. Working capital (current assets – current liabilities) is RM312.12M. That’s 94 cents per share.
Current price weakness
As the market rises, Green Packet is crashing. It is now trading at its lowest price in 2007. RM3.38 is equivalent to RM2.535 prior to the ex-date of its share bonus issue and consolidation on 13th July. Price went down 42.7%, from the price of RM5.90 on 14th July. The subprime crisis is the main culprit, but there are other reasons.
High receivables had been cited as a possible factor for the drop in price; but Green Packet’s rise in receivables had been consistent with its increased revenue. As at December 2006, 90% of the RM38.1m in receivables from its core solution product is from China Telecom, Hewlett-Packard, Lenovo, and Dell. For its discounted telephony business from its 75%-owned Nextel Group, the RM14.9 million in receivables (as at December 2006) is mostly contributed by Sony, RHB Bank, Samsung, and the OSK Group. These are creditable companies, and should therefore not be at risk of default. On the other hand, quite a large sum of receivables are denominated in foreign currency, and will thus be exposed to forex risk.
Other factors include failure to meet analyst’s target in profit growth so far for 2007, and the delay in Wimax roll-out. Most analyst expected Green Packet to double it’s profits this year, thanks to its aggressive expansion in the Middle East and China, and also the Wimax roll-out. While they’re doing a good job, it will take some time for Green Packet to realize the sales and profits. In fact, profits in the first half of 2007 shown a 30% increased compared to 2006 (23,276M vs 18,049M), but still far from analysts target. Meanwhile, Wimax services are only scheduled to be officially offered to the public in 2008.
Conclusion
Minus off the 94 cents working capital from RM3.38, the business is valuated at RM2.44 per share, or RM813m. Will you buy a fast growing company that is earning RM50m a year and is poised to make RM100m a year in the near future, for RM813M? I think it’s a great buy. Anything below RM4 is too cheap. There’s still a whole lot of untapped market for Green Packet in China and the Middle East, and Wimax is bound to be big.
Possible setbacks would be failure in Wimax roll-out.
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stockraider1
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Posting #2: Thu Nov 1st, 2007 12:05 |
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From the figure u have given, I notice that the earnings growth of 2007 is tapering off.Say annualized Rm 47 million compare to Rm 55 million in 2006.
Now at Rm 47 million the eps is Rm 0.14 agst the stock price of Rm 3.38 will give a PE of 24.In addition its NtA is only Rm 0.94.
Without the visibility of earnings growth how can we supported the high valuation of the company ?
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ultraman_taro
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Posting #3: Thu Nov 1st, 2007 12:30 |
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stockraider1,
here's the tricky part. A large chunk of Green Packet's sales and revenue always comes at the 2nd half of the year. I would assume that it's because of purchasing patterns/ contract renewals of its customers are mostly billed in the 2nd half.
In 2006, profit was 18.049M at Q2, but swelled to 55.3M at year end. In 2005, 11.679M at Q2, 31.7M at year end. That means their record for the past 2 years show that their profits in the 2nd half is double of the profits posted in 1h.
Of course, this does not mean that the same will happen again this year; but it shows why you should not annualized their earnings to calculate P/e.
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stockraider1
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Posting #4: Thu Nov 1st, 2007 13:19 |
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Ultraman,
Tks for the info and assuming this position is correct the projected profit for 2007 will be as follows;
Rm 55.3m multiply by 23.2m (half yr 2007) divide by 18m (half year 2006)=71m.This gives EPS Rm 21.4.
Growth rates
2005-166%
2006-74%
2007-29%
2008-12%(forecast based on 40% of previous year)
2009-5%(forecast based on 40% of previous year)
Thus the Eps in 2009 will be 21.4 x 1.12 x 1.05 = Rm 0.25.
Share price Rm 3.38 hence Prospective PE 13.5 time.(based on 2009 earnings)
Current stalwart like Maybank and Plus trade at around PE 14.
Could it be the mkt is factoring the growth converting Green Packet into a Blue Chip stalwart and hence value it accordingly ?
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random
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Posting #5: Thu Nov 1st, 2007 13:54 |
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Wahh ultraman... as usual very very excellent work! 
Look forward to more reviews from you!
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Moolah
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Posting #6: Thu Nov 1st, 2007 14:23 |
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Ultraman,
Great piece!
Of course, this does not mean that the same will happen again this year; but it shows why you should not annualized their earnings to calculate P/e.
ps.. What you can do is take the ttm earnings and compare these earnings with its past 2005 & 2006.
ps/ps.. I would discount 2004 numbers mainly cos new company and the earnings base is simply too small. So any attempts to get a compound annual rate would only see a magnified numbers.
ps/ps/ps.. you are left with 2 fiscal year earnings + its ttm earnings. Too little, too few. Any attempt to project would is simply too difficult and the percentage to make a wiseman looks rather less than wise.
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random
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Posting #7: Thu Nov 1st, 2007 14:26 |
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Dearest ultraman_taro,
Hope you don't mind, I will play the part of the villain and point out some things.. 
Curi your table abit..
Earnings
2004 2005 2006
Revenues (RM) 18.1M 39.4M 98.9M
Profits (RM) 11.9M 31.7M 55.3M
Looking at it GP has like been approx doubling both revenue and profits yoy. Margin is a very enviable 60+%
Now I know that profit is calculated by the following:
Profit = Revenue - Expenses
So the table then becomes like this.. ( I took the shortcut way :D)
Earnings
2004 2005 2006
Revenues (RM) 18.1M 39.4M 98.9M
Expenses 6.2M 7.7M 43.6M
Profits (RM) 11.9M 31.7M 55.3M
But but.. lets say I want to recognise my profit only when the cash is in the piggy bank...
So I minus off the receivables from the revenue (kira write off la worst cash scenario... ass-u-ming la)
Revenue Receivables %Receivable from revenue
2004 - 18.1M 12.4M 68.5%
2005 - 39.4M 24.4M 62%
2006 - 98.9M 62.1M 62.8%
So it becomes this..
Earnings
2004 2005 2006
Revenues (RM) 5.7M 15M 36.8M
And again ass-u-ming all the receivables has no cost-of-goods-sold (can la horr.. give chance since margin so high )
So the expenses remain the same...
Earnings
2004 2005 2006
Revenues (RM) 5.7M 15M 36.8M
Expenses 6.2M 7.7M 43.6M
Profits -0.5M 7.3M -6.8M
Now how do the earnings growth look now? 
Now before you say anything.. I know this is a little bit extreme.. but I'm just experimenting here.. hope you don't mind.. Kira this one litmus test la.. If can pass this.. sure can pass everything..
How? Can ah?
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Moolah
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Posting #8: Thu Nov 1st, 2007 14:42 |
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random,
ps.. sometimes making less assumptions means we have less chances to be the ass
ps/ps.. when too much assumptions are needed, sometimes we try to go sailing on and not try being the wiseman in every fool
ps/ps/ps.. don't you just love it?
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random
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Posting #9: Thu Nov 1st, 2007 14:45 |
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What's with the ps ps thing?
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Moolah
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Posting #10: Thu Nov 1st, 2007 15:13 |
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random,
And again ass-u-ming all the receivables has no cost-of-goods-sold (can la horr.. give chance since margin so high )
ps.. assumption is actually accepted (though it's rather too multi-layered assumptions) ... now take another step... go look at its latest earnings notes and compare this with its cash flow...
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