Gpacket and Digi – The Designed Marriage

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As the market heightens up with debt ceiling issue in a sudden 180% degree turn back where market had taken a slight correction in this opportunity, it seems that the unseasoned traders are rather confused with the broad economy directions, not disregarding the seasoned trader as well who might got cheated into this drama.

However as for me, I am not so much troubled, or probably I would choose to say that I do not want to be bothered about how the broad market economy wants to go about with the different kind of news that they want to release from time to time, which I am seeing that they are purely just doing their hired job for a salary for making ups and downs in the market. You have to thank them that they create some dips for you to buy, but at the same time, you will be cursing them when they created a big hole in your pocket as well if you had entered into wrong position as they play around with the market news.

While the economist are trying hard to make a good drama on giving some genius solution in solving ever challenging economy that is full of QE, debts, bonds and so on, I am too having my another piece of mind in my opinion on the latest mega hit – Gpacket.

Well, what might be so great in this deal that involves Gpacket and Digi as much as it had been much speculated by the public. Could it be another historical dramatic event that will turn into ashes or a pact of the year? As concerned as you are, but let me bring you to see a strings of event that could make you concerned about whether you had enough position in Gpacket, or not after reading.

Let me start off with the technical side of it. A simple chart here will recommend that Gpacket had hit over a new leaf and started it’s upwards trending that is supported by a good amount of volume. As Gpacket had been seen steadily rising from the valley at 30 cents, it had been well supported off at 50 cents now in 12 trading days with volume consolidating and price seeking yet another burst run up when the volume resumes it’s activity. By the way I am looking at it, Gpacket had torced above RM 0.65 in 25th October 2012, which I would say an easily achievable target this time around with no time to loss. Time will prove again.

With media turning their guns on and off towards Gpacket, we had yet to see IBs turning their guns at Gpacket for the time being despite the heavy speculation from the public with local media coverages. Can this be a target too bad to write, or too good to promote?

I will refresh your memory once again for the 5th time, 1st on Digi’s interest in acquiring additional spectrum, which is being announced publicly in the media. And to be more precise, before the end of Q4 of 2013 as they plan to roll out LTE services as soon as their corporate timeline can be. While in another counter part, we had Gpacket which is as desperate as Digi, fighting it’s way to survive in this competitive market with a major deficit accounts on the top priority of the corporate. While Digi is suffering badly seeing their customer switching over to LTE ready network with a 2 years contract, without the spectrum, Digi is prior to head southwards as market appetite are looking at LTE network, which can carry more than 30mbps.

While there had been reported news that Digi is looking at 80% of their RM 750m CAPEX on LTE,  P1 in another hand had been tweaking a call for RM 1.5b or no deal. Now, who is really desperate? As curious as you are,  we will look into what alternative that Digi and Gpacket have.

Digi is just thirst and hunger for a band of spectrum that can enable them to roll out LTE network to their customer. While Gpacket with P1 is their primary option, Puncak Semangat might be another out of the blue contingency plan for them in case Gpacket pull the trigger at their own head. But with Syed Mokthar sitting on an empty shell company with just spectrum only, it is a way too expensive idea for Digi to consider as I am confident that Syed Mokthar is not in any hurry to pact his delicious spectrum away so soon, not for a chicken thigh, but probably a chicken farm. Digi’s negotiation power, with CAPEX constraint, will be only best used to tackle Gpacket, which had the spectrum, and the infrastructure as well as ready site. As for this, I am sure that Digi will be putting 99% effort in settling down with Gpacket.

On the other hand, what about Gpacket? Gpacket position might be worst than Digi, because there is no option for them, but only Digi. You may ask what about TM, or YES 4G. If you would understand TM core business, taking that little spectrum will do TM nothing great as they better focus on their UNIFI now. As for YES 4G, I would believe that their business direction for the spectrum is more towards Sekolah Bestari. Moreover, YTL group is having a major corporate exercise in privatizing YTLPower, taking P1 will not be a good move at this time as they are not really an establish player in this market at all. While Gpacket had sold off Packet Hub at Jalan Templar to free up some cash flow to buy time, Gpacket is buying time and Packet Hub is their last bet to make things happen. It is no use to keep something with great potential, but not able to release it’s potential. Gpacket, in short, will gain nothing hugging it’s spectrum once the company enter into administration. With this, Gpacket cannot be too rigid as they really only have 1 savior – Digi.

In short and a quick conclusion, No pact and both dies, similarly, Pact and both alive. Consider a win-win situation for Gpacket and Digi, I would opined that this deal will be in a 99.5% in shape – But at what price?

Since The Star is reporting 80% of RM750m from Digi and Nanyang is reporting RM 1.5b from Gpacket, I will playfully take it as (RM 600m + RM 1500m)/2 = RM 1.05b. At 690m shares in Gpacket, RM 1.05b will be knocking at RM 1.50 +/- per ordinary share.

As conservative as I am, I am taking a slash cut at 50% discount from RM 1.50 at RM 0.75 range. Of course, when Digi is taking over all the infrastructural cost for Gpacket, I am not surprise to see Gpacket delivering it’s WiMax services as an operator without major overhead, which will definitely put them into gems of the Year 2014.

So now, are you still game out or game in now? Don’t be late.

Bone’s Short Term TP: RM 0.80

Cheers and regards,
Bone

Bonescythe Stock Watch

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