ASTRO MALAYSIA HOLDINGS BHD

By UOB Kay Hian Research Buy (upgrade)

Target price: RM2.21

UOB Kay Hian said Astro is oversold following the 33% share price retracement in the year-to-date basis (versus the FBM KLCI’s 3.6% gain).

Consequently, it said value has emerged with the stock currently trading at below its previous trough valuation and -2 standard deviation of its forward mean price-to-earnings ratio since its re-listing on Oct 12.

“We attribute the selldown mainly to foreign outflow (declining foreign shareholdings from 44% as of end-2017 to 40% as of end-Feb 2018) on the back of cautious investment sentiment and concern over its earnings prospects,” it said.

“Understandably, Astro is not fully insulated from structural issues that have bogged down the media sector.

“Sticking points surrounding Astro include a dwindling pay-TV subscriber base, ability to significantly upsell and monetising the over the counter platforms, and sustainability of its average revenue per user (Arpu) rates,” it added.

UOB Kay Hian said the market has turned “over-defensive” and pricing is too much of the downside of Astro’s operating dynamics.

Its fourth quarter financial year 2018 (FY18) Arpu and earnings before interest taxes depreciation and amortisation margins have dropped 0.5% and 3.6 percentage points year-on-year (y-o-y) to RM99.9 and 28.2%, respectively, which is within its expectations.

“Astro’s FY18 core net profit still came in the highest (+3.5% y-o-y) since its re-listing, suggesting a relatively stable operating environment as compared to other local listed media players, whose profits have dwindled significantly,” UOB Kay Hian said.

UOB Kay Hian has upgraded Astro from a “hold” to “buy” as the risk-reward now borders on the upside following the sharp 33% de-rating over the past three months (39% off its 52-week highs).

The research house said it liked Astro for its undemanding valuation at 13.7 times FY19 forward price-to-earnings ratio and attractive dividend yields of 6.6%.