U Mobile on the verge of operational profitability

  • Expects to cut operational losses by more than half in 2014
  • Signs on Huawei and ZTE for network expansion plan announced in Sept
U Mobile on the verge of operational profitability
U Mobile Sdn Bhd, Malaysia’s fourth largest mobile operator, believes that operational profitability is not far away, saying that it is consistently “outgrowing the industry.”

The company, 49% owned by Straits Mobile Investment Pte Ltd (a subsidiary of Singapore’s ST Telemedia), has been improving its revenue and profitability in recent years.
 
Based on Companies Commission of Malaysia (CCM) data, its revenue almost doubled to RM919.17 million for the financial year ended Dec 31, 2013, versus RM470.93 million a year earlier. [RM1=US$0.30]
 
It still recorded a net loss of RM363.24 million, but that is against a net loss of RM444.44 million in 2012.

In 2013, U Mobile also managed to expand its subscriber market share to 10.3% or approximately 4.5 million subscribers. Its subscriber base crossed the five-million mark this year.

“In terms of our loss before interest, tax, depreciation and amortisation, we were above RM200 million in 2013; this year, we are looking at more than half of a reduction,” U Mobile chief executive officer Wong Heang Tuck told a media briefing in Kuala Lumpur on Dec 4.

This means U Mobile's operational loss this year may be in the range of RM100 million or less.
 
“At this point in time, we are on the verge of becoming EBITDA (earnings before interest, tax, depreciation and amortisation) positive,” Wong said.
 
Bigger goals
 
Other than the slight hiccup it experienced in 2009, when it saw its subscriber market share fall to 1%, from 2.9% in 2008, U Mobile has been consistently outgrowing its competitors.
 
It recorded a 1.5% market share in 2010, and grew it further to 4.1% in 2011 and 8.5% in 2012.
 
Although the mobile industry is currently on a slow-growth trend, U Mobile is not going to be content with a mere 10% market share, Wong declared.
 
“We aim to have a meaningful market share moving forward. Of course, we have our own internal targets, but we are not ready to share the exact targets right now,: he said however.
 
Wong claimed that the company is confident of achieving double digit growth in revenue this year – not a surprising declaration as its revenue base is still somewhat small compared with rivals Maxis Bhd, Celcom Axiata Bhd and DiGi.Com Bhd, which each have an annual turnover of over RM6.7 billion.
 
Besides achieving financial and market share goals, U Mobile also hopes to close the gap between itself and its competitors when it comes to 3G (Third Generation) and LTE (Long-Term Evolution or 4G) network coverage.
 
Heavy 3G and LTE investment

U Mobile on the verge of operational profitabilityThe company announced on Dec 4 that it has signed a network partnership agreement with Huawei Technologies and ZTE Corporation, with the aim of strengthening its 3G and 4G LTE network coverage and quality.
 
Under the agreement, U Mobile will be spending RM1.5 billion between now and the end of 2015 to improve its network.
 
The investment will be used to roll out 1,000 3G network sites and 1,000 4G LTE network sites, a plan it first announced in September, with the two China telco gear giants now signed on as vendors.
 
The rollout of the 2,000 new sites will complement its existing 4,000 3G sites and approximately 100 4G LTE sites.
 
Wong (pic) said the network partnership agreement with Huawei and ZTE is for five years. “The investment we announced today is solely for (now until) 2015. It is a five-year agreement, and we will be continuing to invest beyond 2015.”
  
The RM1.5 billion investment will be funded via a combination of vendor financing and internally generated funds, he added.
 
“Our aim is to provide superior network capacity and coverage that is at least on par, if not better, with the rest of the industry players by the end of 2015,” said Wong.
 
“This would not be possible without the strong support and commitment of our shareholders. To date, more than RM2 billion has been invested into the company,” he added.
 
U Mobile's other shareholders include U Telemedia Sdn Bhd with a 37% stake, Magnum Bhd with a 6.3% stake, Glorious Reflection Sdn Bhd with a 5.3% stake, and billionaire Vincent Tan with a 2.4% stake. U Telemedia is also a company controlled by Tan.

No rush into an IPO
 
With revenue, profitability, network quality and coverage on the uptake, the million-dollar question industry observers are asking is when an initial public offering (IPO) will take place.
 
U Mobile seems to be in no rush. “An IPO is definitely on the cards, but it all depends on the ultimate performance of the company,” said Wong.

“What we want is to have a bit more runway in terms of sustainable improvements of our profitability before we go to the market.
 
“Once we are EBITDA positive, then maybe we will be able to be more definite on an IPO time-frame,” he added.

Related Stories:
 
U Mobile in deal with edotco to accelerate network rollout
 
A deeper look into Malaysia’s Big 3 mobile telcos in 1H2014

U Mobile unveils RM1.5bil expansion plan, promises 2,000 more sites
 
ZTE to build up disaster recovery system for U Mobile’s network
 
 
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