Monday, 23 September 2013

Instacom: Your Tower of Strength?

After completed the reverse takeover of ACE market listed IPower in 8th Oct 2012, Instacom is aiming for a big future.

Instacom is a Kuching-based one-stop service provider to telecommunication players. It started its business since 2001 and is currently listed in ACE market wearing IPower's shell. Its business involves providing total solution for infrastructure development for mobile phone operators in Malaysia.

Among Instacom ambitious plans include:

  • To build a 3176.4km fibre optic cable network that link the entire peninsular Malaysia in 3-5 years time.
    • Phase 1: Johor (705km), Kedah (188km)
    • Phase 2: Perak (315km), Selangor (158km), N Sembilan (148km), Melaka (43km)
    • Phase 3: Pahang (215km), Terengganu (260km)
    • Phase 4: Kelantan (340km), Kuantan-Selangor (275km)
  • To lease the fibre network to multiple telcos to generate long term income stream without futher increasing the working capital.
  • To participate in the submarine fiber optic cable project between Johor-Singapore (24km submarine fibre & 48km land-based fibre)
  • To set up tower REIT (to build and lease telecommunication towers to telcos to generate consistent income).
  • To make at least one acquisition by year end of 2013 to expand its business.
  • To achieve RM300 million revenue by year 2015.
  • To expand to overseas. In Oct 2012's news, it claims to be invited by ZTE & Huawei to install telecommunication equipment in Philippines, Cambodia & Vietnam, as well as to jointly undertake telecommunication projects in Australia & New Zealand.
  • To transfer to Main Board soon with the inclusion of institutional investor. (Instacom has fulfilled criteria for main board transfer)

A plan is just a plan, how far can Instacom materialize its plan?

Here are some positives on Instacom's future:

  • Recent report by Ericsson foresees mobile data volume to rise by a CAGR of 50% from 2012 to 2018.
  • Instacom's regular clients include Maxis, Digi, Celcom, Huawei, Nokia Siemens & Ericsson. (claims to be the only one in Malaysia to have all major telcos as its clients, but what about OCK???).
  • Surely you can feel that there is more demand for high speed mobile data and internet in the country.
  • 4G/LTE roll-out is at infancy state in Malaysia and latest 5G coming soon at developed countries.
  • Build and lease of fibre network and telecommunication towers may be the trend as it can help to reduce telco's capex greatly.
  • Secured a RM205 million contract for telecmmunication infrastructure works in Sarawak in May 2013, which will be realized from FY2013 to FY2015.

Instacom's revenue & net profit are in a good uptrend since 2010. However, I'm not sure about FY2012's net profit.

RM mil Revenue Profit

2010 47.4 3.5

2011 87.7 10.0

2012 93.1 ?

1H2013 66.5 14.5

Instacom's revenue & net profit for the last 3 quarters since reverse takeover of IPower are also in an increasing trend. Thus, it is on track to achieve a good record year for its FY13. However, it may have quite a steep ladder to climb to achieve RM300 million revenue in 2 years time, unless it really goes for business acquisition.

       The soul behind Instacom: Kung & Ngu

While it has injected a huge asset into IPower since 8th Oct 2012, Instacom also brings along RM90 million debts and RM14.9 million cash. After 3 quarters, both debt and cash drop to RM79.8 million and RM7.6 million respectively, where 87% of the debt is short term debt. Currently its debt to equity ratio stands at 0.52. With limited cash in hands & heavy capex, Instacom may not be expected to pay dividend in the near future.

Instacom has just given away one free warrant for every 2 shares in the end of Aug 2013. The warrant conversion price is set at 33sen. If the current earning trend continues, Instacom may register a net profit of at least RM30mil for its FY2013. This will give an EPS of 4.27sen base on 702 million of ordinary shares. With this, PE ratio will be 6.5x using the share price of 28sen. If the warrants are fully converted, then the total shares will be 1054 million and EPS and PER will be 2.8sen and 10x respectively.

For a company with decent growth prospect but no dividend guarantee, would you put your money into it?

Anyway, recent share disposal by one of its main director Mr Ngu does raise some eyebrows.

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