The Ministry of Education’s partner in the venture, YTL Comm Sdn Bhd, started tolling out the virtual learning environment system in the schools in March 2012.
Sources say while YTL Comms is forking out the money for Capex, the company is expected to get rm300 million per year from the government for all the 10000 schools nationwide for provision and maintenance of the system. The 1Bestarinet contract for the first five years is worth some rm1.5 billion, with an option for another 10 years, making the entire project worth a potential rm4.5 billion.
It is expected to be under a lease agreement, where the government will lease the school to YTL Comms, which will install the service and maintain it. Thus, there is a possibility that a fixed cost is paid to YTL Comms regardless of the size of the school.
What this means is that even if not all of the bandwidth is used in the schools, YTL Comms will still receive a certain amount.
Of YTL Comms’ 2500 base stations, 1600 are located in schools will provide YES 4G service and was aiming for 4000 base stations in total by end of year with a capex of rm2.5 billion to cover 80% of the population by end 2012.
An industry observer says that globally, projects similar to 1Bestarinet offer three revenue streams.
In YTL Comms, having its base stations in schools also means that its YES 4G network would have a wider reach, which would then help in growing its subscribers base.
If YTL Comms manages to turn around in the next couple of years, it would be a relief to shareholders of YTL Power, who have seen their dividend payments from the company drop as funds are used to grow YES.
YTL Comms is loss making. In FY2011 ended Dec the latter reported a net loss of rm197 million while revenue stood at rm30.6 million.
YTL Comms has yet to come up with an official statement on its role in the 1bestarinet project.
The 1Bestarinet project will certainly serve as a steady revenue stream to YTL Comms as it works to establish YES.
On another front, there is still no sign of YTL Comms’ IPTV service hitting the market. The company had said it was looking to offer the service by end 2011. Note that its US partner 8in the venture – Sezmi Corp – has run into financial difficulty.
The question is, will this delay YTL Comms rollout of the hybrid TV service or force the company to go back to the drawing board.
Valuations ….
YTL Power is one of the 30 component stocks of the FBM KLCI and has been lagging its peers in the past 15 months.
It has a cash pile of rm8.68 billion against rm15.82 billion of borrowings and has been trading in the range of rm1.90 and rm1.75 unlike most of the KLCI counters which have headed higher and lifted the benchmark. Shrinking dividend payments is one factor that makes YTL Power less appealing and concerns over the huge capex requirement of its 4G business.
However, there are potential catalysts that could spark interest in YTL Power. And the 4G business could be a boon to its future earnings instead of a burden. Its 60% owned YTL COmmns is said to have won the 1Bestarinet smart school project.
Apart from the 1Bestarinet smart school project, other catalyst to prompt to re rating of the stock is the upcoming 4500 MW power plant up cycle in Malaysia . The bidding process for the 4500 MW power generation started recently with the 1000 MW to 1400 MW gas fired Prai power plant in Penang.
YTL Power together with its Japanese partner Marubeni Corp is among nine bidders shortlisted for the Prai Power plant project. YTL Power will also vie for the Pasir Gudang tender given the possibilities of sharing infra with its existing power plant on site. It could also be awarded a 700 MW power plant project. Currently it is operating two power plants.
Its lackluster share price performance was mainly due to the group has been trimming its dividend payment. The group is cash hoard for M&As opportunities in expectation of an upcoming downturn. However, others point out the skepticism about the fast cash burning in the telcoms business.
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