Astro Malaysia slides

Investors offload its shares amid changing landscape

INVESTORS seem to be bracing for tougher times ahead for Astro Malaysia Holdings Bhd as the media broadcasting scene continues to evolve.

Apart from shifting media consumption habits, there is also a perception that the satellite broadcasting business is capital intensive in nature, especially from content costs and the necessary continued investments in broadcasting technology.

Against this backdrop, the company’s shares in the past week dropped to nearly its lowest point since it was listed in 2012. Its shares closed at RM2.18 yesterday, down four sen, after hitting RM2.16 on Tuesday.

There are no official statistics available on how fast people are migrating from paying for satellite TV subscription and opting for a streaming service over the web.

However some analysts have raised concerns about the growing popularity of Netflix and other streaming service providers that may eat into Astro’s dominance in the near future.

According to a report in 2017, there are an estimated 66,000 active streaming subscribers for Netflix in Malaysia and that this number could grow up to 336,000 by the year 2020, according to statistics portal Statista.

No public information is available on another major online streaming provider – Iflix, but the company which is positioned as a cheaper alternative to Netflix had reportedly successfully raised even more funding in March 2017.

Iflix had reportedly raised some US$90mil then from John Malone’s Liberty Global, Middle Eastern mobile carrier Zain and existing investors Sky, Catcha Group and Evolution Media Capital.

Iflix had in 2016 raised US$45mil from Sky that counts 21st Century Fox as one of its major shareholders. “I believe net additions of subscribers for Astro is still sustaining now.

“It is also cushioned given that high speed Internet subscription is still low in the rural areas.

“Streaming services is a threat to Astro but the price of the stock looks undemanding now at about 15 times price to earnings ratio (PER),” AmInvestment Bank Research’s analyst tells StarBizWeek.

However, while streaming providers such as Netflix may be gaining all the attention now, there are also concerns that it is starting to pay too much for content.

Netflix’s content chief Ted Sarandos was reported as saying that the company is expected to spend US$7bil-US$8bil on original content this year.

This figure is much higher than the US$6bil that was spent in 2017 and US$5bil in 2016. Analysts say that while content costs are seemingly high for Netflix, it has the advantage of amortising these costs over a longer period of time given the nature of its distribution to the end user through video-on-demand channel.

Another analyst notes that some of the few advantages that Astro has over its close streaming providers are the availability of real time news channels and sports channels. “The cord-cutting trend as seen in the US could happen here as well but there is still noticeable demand for reliable sports broadcasting channels that provide live streaming.

“These are not readily available elsewhere. Also the decision for the government to impose the goods and services tax on online streaming providers would help level competition to a certain extent in this space,” says an analyst.

Affin Hwang Capital Research’s analyst Nadia Aquidah Subhan tells StarBizWeek that Astro’s competitive advantage for on-demand TV viewing is in its content, namely their in-house productions.

“Their content library is huge and what attracts viewers is their good quality vernacular content.

“Astro’s vast array of content still appeals to the masses and we believe Astro will still be able to leverage on its strong content to dominate the pay-TV space in Malaysia,” she says. According to its financial results for its latest reported third quarter ended Oct 31, 2017, Astro’s subscription revenue declined by 4% to RM1.04bil in the quarter, however pay-TV residential average revenue per user (ARPU) rose slightly to RM100.70 from RM99.90 in the same quarter a year ago.

For its third quarter, net profit declined slightly by 3% to RM146.6mil compared to the same period a year ago against revenue falling by 2% to RM1.40bil.

In a report on Wednesday, Nadia notes that Astro’s ARPU had grown at a slower rate in the quarter, noting that its pay-TV subscriber base had declined for the first time in the financial year 2017 (FY17) -2.3% from the previous year to 3.47 million.

“As at the third quarter in FY18, the number of pay-TV subscribers had shrunk to about 3.3 million, and we expect it to fall even further due to higher churn from increased competition in the space.

“In terms of ARPU, Astro recorded only a marginal increase of 30 sen to RM100.70 in the third quarter, attributed to the lower take-up rate for premium packages,” Nadia says in her report. I believe Astro’s TV household penetration is likely to continue to grow. “But the growth will be in the NJOI segment (the free subscription), while the pay-TV segment is likely to be impacted (decline) by the growing popularity of various online/digital platforms,” she tells StarBizWeek.

Nadia has maintained her “hold” call on the stock, noting that its management has indicated that there is a possibility of a price revision later this calendar year (in its FY19).

Astro is slated to announce it results in the coming week on March 28.

AmInvestment Bank Research’s analyst tells StarBizWeek that while content costs could increase moving forward, there are some opportunities for Astro during the World Cup season in June and July.

“Fundamentally nothing has changed, during the previous World Cup matches advertising expenditure improved and it would likely happen this time.

“People are probably also concerned on the risk of the stock dropping out of the FBM KLCI component stocks,” he says.

AmInvestment Bank had upgraded their call on Astro to a “buy” on Feb 5.

Since its listing in 2012, Astro has struggled to stay above its listing price of RM3 per share. The dominant pay-TV provider in Malaysia valuations are at some 15.2 times forward PER for FY19 now, according to Affin Hwang Capital.

This valuation is near the mean forward PER of various other pay-TV operators around the world of 15.5 times, with SkyUK at 18.9 times and Starhub Ltd at 19.6 times.

Given the dynamics and lowered share price at present, its shares could be supported by the rising prospects of a privatisation exercise should its major shareholders decide to do so.