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This article first appeared in The Edge Financial Daily on August 20, 2018

KUALA LUMPUR: Astro Malaysia Holdings Bhd’s shares, which hit an all-time low of RM1.34 on May 30, have gradually risen to close 36% higher at RM1.82 last Friday — marking a RM2.5 billion gain in market capitalisation in about two months.

According to analysts, improved consumer sentiment is believed to be behind the steady rally.

The Consumer Sentiment Index (CSI) soared to a 21-year high of 132.9 points during the second quarter of this year, according to the Malaysian Institute of Economic Research (MIER).

“Consumer sentiment in the country has been weak since late 2013. With the recent improvement in the CSI, hopefully Astro can see an improvement to its subscriber base and average revenue per user (ARPU), and we can then see a gradual pickup in the company’s share price,” a bank-backed analyst told The Edge Financial Daily.

UOB KayHian, in a note last Wednesday, attributed the appreciation in Astro’s share price to not only improving consumer sentiment, but an undemanding valuation and attractive dividend yield, which were previously overshadowed by cautious investment sentiment and concerns over its earnings prospects.

At the current share price of RM1.82, Astro’s dividend yield works out to 6.87%, more than double the prevailing fixed deposit rates in the country.

In a July 3 note on the media sector, TA Securities wrote that Astro’s dividend paying ability would remain supported by its pay-TV subscription’s stable cash flows. “However, management had recently stated its intentions to maintain its reduced quarterly dividend of 2.5 sen per share versus three sen per share a year ago for the rest of the financial year and accordingly assess the payout of a final dividend,” the firm noted.

Meanwhile, regulatory concerns over Astro’s monopoly status are overblown given that its exclusive direct-to-home (DTH) licence had already expired in early 2017, according to AllianceDBS Research in an Aug 1 note.

“Despite being a dominant player in the pay-TV market, we do not think that Malaysian Communications and Multimedia Commission (MCMC) harbours any views that Astro is anti-competitive or has abused its dominant position.

“In fact, based on our conversation with MCMC, the regulator understands the changes in consumers’ TV viewing habit and is of the view that Astro faces competition from other platforms such as online streaming services (both legal and illegal),” the firm said.

According to Astro’s prospectus, its wholly-owned unit, Measat Broadcast Network Systems Sdn Bhd, was granted a renewable 25-year broadcasting licence for the provision of broadcasting services in Malaysia, with exclusivity on DTH satellite TV services until 2017 and non-exclusivity until 2022.

AllianceDBS also noted that unlike the case of Telekom Malaysia Bhd in the fixed broadband market, Astro’s pricing and content offering are actually quite in line with regional peers, after accounting for foreign exchange differences of about US$24 (RM98.53) to US$25, based on an ARPU of RM99.

On another note, Maybank IB Research noted that it is too early to tell if Astro’s commercial broadcasting in Ultra High Definition (UHD) will be a game changer like the High Definition (HD) that it launched in 2009.

“We understand that the ARPU for pay-TV subscribers who take-up HD content is more than RM100 while the ARPU for pay-TV subscribers who do not is approximately RM75.

“Astro plans to offer UHD content to SuperPack subscribers who yield ARPUs of more than RM140 at no extra cost to them to retain and attract new SuperPack subscribers. With intense competition from Android TV boxes, it remains to be seen how well UHD content will be taken up.

 Nine out of 20 analysts polled on Bloomberg have a “buy” call on the stock, while the rest put it on “hold”.

One development analysts would be closely watching for is the release of Astro’s financial results for the second quarter ended July 31, 2018 (2QFY19), which are due to be released next month.

In 1QFY19, Astro’s net profit declined 10.8% to RM174.73 million from RM195.82 million a year ago due to higher net finance costs, while revenue slipped 1.1% to RM1.31 billion from RM1.33 billion.

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