U Mobile may delay IPO plan

• Like other telcos, hit by GST and increasing competition
• EBITDA-positive target delayed by about 12 months

U Mobile Sdn Bhd, Malaysia’s fourth largest mobile operator, may delay its initial public offering (IPO) plans because its journey to profitability has been prolonged by about one year, partly driven by changes in the competitive landscape.
 
About a year ago, U Mobile chief executive officer Wong Heang Tuck (pic above) told the media that the company is expected to become EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) positive by 2017.
 
However, the mobile space has changed significantly since. This year, all Malaysian operators were hit by the implementation of the Goods and Services Tax (GST). At one point, confusion over the GST as it applied to prepaid cards and top-ups saw some mobile dealers temporarily ceasing business.
 
Moreover, intense competition between operators resulted in a price war which saw prices of data packages decline dramatically. Today, the cheapest data package is about RM9-13 per GB, compared with RM20-RM25 per GB early this year. [RM1 = US$0.24 at current rates]
 
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“I think the EBITDA-positive target has been delayed by about 12 months or so,” Wong told Digital News Asia (DNA) after a media briefing in Petaling Jaya recently.
 
The EBITDA-positive target being delayed “has somewhat derailed our IPO plans,” he said, without elaborating.
 
EBITDA is used as an indicator of a company’s operational performance, as it eliminates the effects of financing and accounting decisions. Sometimes, a company could be making net losses but is operationally profitable, partly due to depreciation of its assets.
 
Not isolated
 
U Mobile – which is 49% owned by Straits Mobile Investment Pte Ltd, a subsidiary of Singapore’s ST Telemedia – is not alone in this, with its rivals sharing similar tales of woe.
 
Digi.Com Bhd, the country’s third largest mobile operator in terms of subscriber base, suffered 18.5% and 4.6% declines in third quarter net profit and revenue to RM396.6 million and RM1.67 billion, respectively.
 
For the nine-month period, its net profit fell 6.8% to RM1.34 billion, while revenue declined 0.6% to RM5.19 billion.
 
Celcom Axiata Bhd, a wholly-owned unit of Axiata Group Bhd, saw its first-half net profit and revenue decline by 21.8% and 3.5% to RM722 million and RM3.72 billion, respectively.
 
Wong did not reveal U Mobile’s 2015 financial figures, but a search with the Companies Commission of Malaysia showed that for the full year ended Dec 31, 2014, it registered a net loss of RM191.82 million, a steep improvement versus the RM363.24 million net loss in 2013.
 
During the year, U Mobile’s revenue jumped 37% to RM1.26 billion, versus RM919 million the previous year. This was the highest revenue growth recorded in the industry.
 
It ended the year with three million subscribers, as it had ‘cleaned up’ inactive subscribers when it implemented a new billing system.
 
According to Wong, U Mobile had 3.5 to four million subscribers as at the third quarter ended Sept 30, 2015.
 
Assuming it has 3.5 million subscribers, this would translate to a net addition of 500,000.
 
In contrast, Digi had a net add of 251,000 subscribers during the first three quarters. Maxis registered a net add of 356,000 while Celcom saw a net reduction of 628,000 subscribers during the first half.
 
Maxis and Celcom have yet to announce their third quarter numbers.
 
Shareholders remain committed
 
Despite the bumpy journey this year for all, Wong (pic) remained optimistic about U Mobile’s long-term growth prospects.
 
“We are seeing very strong potential in this business. That’s why our shareholders are committed to investing more on improving and expanding our network,” he said.
 
“The telco business is a long-term business. It is not a short game. We are talking about investing five to seven years ahead,” he said.
 
Earlier this month, the company announced that it plans to invest about RM3.5 billion to RM4 billion over the next five years, mainly to expand its third generation (3G) and Fourth Generation Long-Term Evolution (4G LTE) networks.
 
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