Astro Malaysia Holdings Bhd
(Feb 4, RM2.96)
Maintain hold with an unchanged target price of RM3.20: We attended Astro’s Go Shop official launch last Friday. Recall that Go Shop is a home shopping channel (Channel 118) and had a soft launch on Nov 3 last year.

Go Shop is 60%-owned by Astro with the remaining 40% by GS Home Shopping Inc, a leading multimedia retailer established in South Korea with home shopping operations in six other countries.

To date, there have been 72,000 customers buying 115,000 products and 800 new customers have been signing up daily. We understand that average daily sales range from RM200,000 to RM500,000. This is admirable considering that consumer sentiment is at multi-year lows. At first, we were sceptical because SmartShop on TV3 and Kayla Beverly Hills on MetroVision (now 8TV) were unsuccessful.

Astro targets to grow Go Shop revenue to RM500 million in five years and expects steady earnings before interest, taxes, depreciation and amortisation (Ebitda) margins of mid-teens in percentage terms.

For the first full year, Astro targets Go Shop revenue of RM150 million, a 3% to financial year 2016 revenue and Ebitda to be slightly positive. The RM150 million translates into average daily sales of RM400,000 which we deem achievable given the new sign-up rate of customers.

It is early days yet but we are now more convinced that Go Shop is unlikely to be an earnings drag and may even be a growth catalyst going forward. Astro’s valuations are not cheap at 22 times one-year forward price-earnings ratio but its resilient subscription-based business model as opposed to advertising expenditure-based model justifies them. — Maybank Investment Banking Research, Feb 4

This article first appeared in The Edge Financial Daily, on February 5, 2015.