Flat re-entry for Astro
Analysts, however, see upside in pay TV company
THE local market has been abuzz for weeks over the relisting of Astro Malaysia Holdings Bhd in a RM4.6bil initial public offering (IPO) making it the third largest listing in Malaysia this year. Analysts say despite the hype, there was some disappointment on its relatively demanding valuations as well as Astro’s share price performance on day one.
Nevertheless, Astro has garnered a lot of interest in the market. A sign of strong investor appetite is that its shares were oversubscribed by more than 20 times by institutional investors and oversubscribed by 6.08 times for the retail portion.
“During our roadshow, we met over 300 investors and a lot of them were on a one-on-one basis, some in forums and luncheon meetings which were full and it is one of the reaffirmations that they acknowledged Astro,” Astro Malaysia Holdings Bhd CEO and executive director Datuk Rohana Rozhan tells StarBizWeek.
When the pay-TV made its debut on Bursa Malaysia, its shares dominated trading, accounting for about 19% of trading volume. Some 269.7 million shares changed hands. The stock opened at RM3.03, a 1% premium over the indicative price of RM3, and rose to a high of RM3.11 before closing unchanged at RM3.
While the stock failed to fly on its debut, analysts sees “upside” for Astro given the huge untapped pay-TV market, a potential rise in its average revenue per user (ARPU) as subscribers migrate to the highdefinition platform.
“While its IPO valuation may not appear cheap initially, there is upside potential given the existing low pay-TV penetration of 46%, a potential uptick in ARPU as subscribers migrate to the HD platform, its content superiority, and the high entry barriers to the payTV industry due to the high capital expenditure (capex),” OSK Research says.
It adds that Astro was the largest pay-TV operator in the country has a defacto monopoly, commanding a 99% market share.
The big question remains on Astro’s IPO is its valuation and detractors have harped about the million dollar question; how did Astro double its valuation from the time of its privatisation in June 2010 to its listing yesterday.
Astro All-Asia Networks plc, the entity that was taken private in June 2010 but included its foreign operations (in India), was then valued at RM8.3bil or RM4.30 per share. At yesterday’s closing, Astro’s market value almost doubled to RM15.6bil.
Rohana says Astro today was a different entity from Astro All-Asia Network then which included overseas businesses.
“The listed company before which holds not only media assets but also regional assets in Hong Kong, Indonesia, India and Middle East as well as Malaysia.
“The re-listed company, Astro Malaysia Holdings, is newly incorporated and to hold the Malaysian media assets and the focus is to take the fair share of Malaysia consumer wallet and advertising. We are an integrated play with radio, digital advertising and publication,” she points out.
Rohana says the company took many decisions to improve its business such as introducing better value propositions to subscribers, prepaid programmes and introducing of Astro B.yond HD and Astro B.yond PVR among others.
She adds that Astro also introduced NJOI which carries 37 channels and have recently supplemented that with a prepaid mechanism which allows users to buy movies.
“It gives us a bigger addressable market and we get discretionary and prepaid income. We also have Astro B.yond IPTV that is offered on Time dotCom Bhd’s network and soon on Maxis Bhd network.”
Astro has also moved out from the communal living rooms to provide Astro-On-The-Go and will bundle TV and broadband services.
In its prospectus, Astro says its valuation had taken into consideration its financial performance and operating history, its competitive strengths, strategies and future plans.
Overview and future
It says it considered the overview and the future outlook of the pay-TV and advertising industry in Malaysia as well as the prevailing market conditions including market performance of key global indices and companies which were in businesses similar to Astro.
Astro says one of its competitive strengths was its multi-lingual content in Malaysia with strong in-house production capabilities and extensive international content portfolio as well as its multi-platform distribution ability to deliver its content anywhere, anytime and on any device.
“We intend to continue our partnership with Time dotCom Bhd to provide bundled IPTV and highspeed broadband services via Astro B.yond IPTV,” it said in its prospectus, adding that it would use its Astro On-The-Go to extend its TV business to new devices.
The pay-TV operator also intends to pursue a targeted acquisition strategy to drive subscriber base, grow its share of the local advertising spend and enhance customer experience to strengthen customer loyalty.
At RM3 a share, analysts have said the stock was “not cheap”. Based on that price, the price earnings ratio (PER) of the stock is 24 times for its financial year 2012. Some analysts still felt that this was on the expensive side. For financial year 2013, the PER will go up to more than 30 times as Astro has guided for lower earnings and margins on the back of its higher customer acquisition cost, finance cost and accelerated depreciation of its Astro B.yond set up boxes.
EBITDA growing
Astro’s topline has registered a compounded annual growth rate (CAGR) of more than 9% over the last three financial years. Its earnings before interest, tax, depreciation and amortisation (EBITDA) has also been growing year-on-year over the past three financial years.
“Astro topline chalked up a decent CAGR of 9.5% over the last three financial years, driven by its pay-TV segment which grew 9% per annum over the period. We attribute this to its enlarged subscriber base, which grew from 2.9 million in FY10 to 3.1 million as of FY12, coupled with the up-selling of its existing offerings to monetise on higher arpu. This is evident in the slight uptick in arpu from RM82 in financial year 2010 to RM89 in 2012, as Astro’s HD subscriber numbers grew from 24,000 in 2010 to 772,000 in 2012,” OSK Research says.
JF Apex Securities Bhd estimates Astro’s net earnings to grow at 3-year CAGR of 10% from 2012 to 2015 forecast. Pay-TV subscribers of Astro exceeded 3.1 million as at April 30, which represents about 50% of Malaysian households.
“Moving forward, we do not foresee eye-catching growth in terms of number of subscribers but the growth may come from the higher arpu, as subscribers gradually shifting into premium services. Another encouraging fact will be the declining dropout rate of Astro’s subscribers, which stood at a single digit of 8%, down from 11% in 2011,” it said.
In financial year 2012, Astro recorded a net profit of RM629.6mil on revenue of RM3.88bil.
Its EBITDA margin for financial year 2012 stood at 36.4%.
Meanwhile, Astro has debt of some RM3.7bil. The company intends to use RM500mil from the proceeds of it IPO to pare down its borrowings. Post IPO, Astro’s net debt to EBITDA ratio will be reduced to 2.2 times.
One thing that could appeal to investors would be its commitment for dividend payout ratio of not less than 75% of its consolidated profit for the year. However, some analysts say even with 75% the dividend was not exactly very attractive.
Analysts have net profit forecasts of between RM399mil and RM490mil for financial year ending Dec 31 (financial year 2013).
JF Apex says Astro makes a “decent dividend play” with the latter’s promise to pay not less than 75% of its total earnings as dividend.
“We expect the stock to render 3.35%, 3.54% and 3.82% dividend yields for 2013-2015 respectively based on 85% dividend payout and indicative listing price of RM3,” it says.
Total return
Rohana, however, maintains that Astro was a “total return stock balance with growth and dividend”. She adds that from an operational perspective, Astro was a strong company and brand.
Analysts point out that the payTV business was all about growth, advertising dollars, wider reach that will help boost revenue as well as subscription. The growth, analysts say will depend on investment in content, distribution and new technology.
“Astro has reached a critical mass and its push into more value added products will help boost its arpu,” an analyst says, adding that pay-TV in the region have been adopting multiscreen strategies to drive growth across pay-TV, broadband and mobile platforms and expects Astro to embark on this path.
The pay-TV currently dominates the market with 50% of the 6.6 million household penetration in Malaysia. The company has a total of 156 radio and TV channels and will be looking at doubling that in future as it gets more transponders.
“We will double up transponder from 2014 as that will double up our channels. Our ku-band transponders have pretty maxed out with HD services and 156 channels so we will need more transponders in future. One ku-band transponder can give five HD channels versus 10-14 SD (standard definition) channels. Today, we have 22 HD channels,” Rohana says, adding that it would continue to invest in its broadcasting including Astro B.yond set top boxes, production and IT systems.