Is it a good time to take Astro private?
Making sense of Astro’s privatisation talk
IT HAS been quite an eventful week for Astro Malaysia Holdings Bhd.
First, there were fresh talks about the payTV operator likely to be taken private again; second, there were reports about the personal data of up to 60,000 of its customers being leaked to a third party.
And then, the company announced that its earnings had dropped by almost 11% for its first quarter ended April 30, 2018, and this was followed a day later by an announcement that its long-serving chief executive officer Datuk Rohana Rozhan would be leaving the company by end-January next year.
On the speculation that the company could be taken private again by its billionaire owner T. Ananda Krishnan, while Astro has addressed the matter by clarifying that it has not received confirmation of any privatisation proposal at this juncture, it has not stopped some quarters from believing that such an exercise could take place in the near future.
This is not surprising, given Ananda’s track record of de-listing his companies when times are bad and re-listing it when conditions and valuations improve.
As one analyst puts it, “as it has happened before, people are holding onto hope that it will happen again”.
“But the more pertinent question is whether it makes sense for Ananda to privatise Astro at this point in time?” the analyst points out.
Bloomberg on Tuesday reported that Ananda was weighing the possibility of taking Astro private after the company’s shares dropped to a record low at the end of last month.
Citing sources, the newswire said the tycoon, who controls about 40.9% in Astro via his private vehicle Usaha Tegas Sdn Bhd, was already exploring potential funding options to take over the pay-TV operator.
Interestingly, this is the second time that speculation on Ananda planning a buyout of Astro has emerged since the relisting of the company on Bursa Malaysia in October 2012. Such talks had previously surfaced in November 2016, but the exercise did not take place.
Ananda undertook a management buyout of the company when it was known as Astro All Asia Networks Plc in a deal worth RM8bil, or RM4.30 per share, in 2010. Two years later, he relisted the company, minus its overseas assets, as Astro Malaysia Holdings Bhd, with an initial public offering (IPO) price of RM3 per share.
Mere speculation
There are sceptics who doubt that the latest round of speculation on Astro privatisation hold water.
For instance, one broker with a local bank tells StarBizWeek that he finds it hard to comprehend that Ananda would be willing to offer an attractive premium to take Astro private.
“While Ananda is known not to stinge on taking his companies private based on the previous corporate exercises he had undertaken in the past, it is questionable that what he would be willing to offer a good price for Astro for the deal to go through, considering the challenging operating landscape,” the broker explains.
“First, there is the regulatory risk, especially now that the country has a new government. Second, the outlook on Astro’s financial performance is not exactly that promising amid rising competition from over-thetop (OTT) service providers such as Netflix and escalating content costs,” he adds.
Another market observer concurs, saying that pricing is a major issue.
He notes: “It appears that quite often when the share price of his company hit bottom, talks will emerge that Ananda is mulling to take that company private. This could be based on his past tendencies of taking his companies private when he thinks the market is not valuing them fairly... but sometimes those talks are just that – talks.”
Take, Bumi Armada Bhd, one of the companies under Ananda’s stable.
Bumi Armada was taken private by Ananda in 2003 and re-listed on Bursa Malaysia in 2011 at an IPO price of RM3.03.
In December 2014, talks emerged that Ananda was thinking about taking the oil and gas company private again, after its share price tumbled to penny-stock level amid slumping global crude oil prices. The exercise never took place.
Apart from Astro and Bumi Armada, Ananda had previously delisted Maxis Communications Bhd in 2007 and relisted the company (minus its overseas operations) as Maxis Bhd three years later.
Meanwhile, UOB Kay Hian Research said in its recent report that it would not rule out the possibility of Astro being taken private, given the company’s current attractive valuation, the probability of such exercise taking place remained moderate given Usaha Tegas’ focus outside of Malaysia plus the onerous finances needed for a privatisation.
Besides Ananda, other major shareholders in Ananda are sovereign wealth fund Khazanah Nasional Bhd, with a 20.7% stake, and the Employees Provident Fund, which holds an equity interest of 7.8%, in the company.
Buying support
Astro’s shares have been on a downtrend over the last five month. The counter hit its record low to close at RM1.36 on May 30.
Nevertheless, renewed talks about privatisation managed to prop up Astro’s share price over the week.
When news broke about the potential privatisation of the company on Tuesday, Astro’s shares rallied to close as high as RM1.83 the next day.
The company’s attempt to quell the latest round of privatisation talks came late Wednesday after its shares had already rallied for a good part of the day.
Yesterday, the counter gained four sen to close at RM1.69, giving the company a market capitalisation of RM8.81bil.
At its closing on Friday, the counter was valued at about 13 times its forward earnings, with dividend yield of 4.9%.
Year-to-date, Astro’s shares have lost about 36% in value.
According to Kenanga Research, the sharp year-to-date plunge of Astro’s shares had been overdone, providing a good buying opportunity for investors.
“We believe the sharp year-to-date share price correction has already priced in earnings risk to a certain extent, and could provide bargain-hunting opportunities to yield-seeking and long-term investors,” the brokerage says.
Kenanga Research is one of the 10 brokerages with a “buy” call on Astro.
According to a Bloomberg, there are currently eight brokerages with a “hold” recommendation on Astro, while one recommends “sell”. The median target price for the counter stands at RM2.29.
Over the week, Astro announced that its net profit had declined 10.77% to RM174.73mil for its first quarter ended April 30, 2018, from RM195.82mil in the corresponding quarter last year.
The decline was mainly due to higher net finance costs, given the unfavourable unrealised foreign exchange movement.
During the quarter in review, the group’s revenue fell a marginal 1% to RM1.31bil from RM1.33bil previously, while its earnings per share dropped to 3.35 sen from 3.76 sen. Astro declared a first interim dividend of 2.5 sen per share.
Meanwhile, Astro has asserted that the resignation of Rohana has nothing to do with political reasons or reports about customer data leak.
According to an online portal, data of up to 60,000 Astro customers have been leaked and offered for sale online at an estimated price of 45 sen per record.
Astro chairman Tun Zaki Azmi has clarified that Rohana’s succession plan has been planned for the last few months.
Citing intent “to pursue other goals”, Rohana will resign as Astro CEO effective Jan 31, 2019, but she will remain on the board as a non-executive director. Taking over from Rohana by next year is the group’s chief content and consumer officer Henry Tan.