This article first appeared in The Edge Financial Daily on February 3, 2020

Astro Malaysia Holdings Bhd
(Jan 31, RM1.20)
Maintain add with an unchanged target price of RM1.75: Citing an unnamed source, technology news website The Information reported on Jan 29 that Facebook Inc had decided to withdraw from bidding for rights to stream major live sports, “at least for the moment”.

The social media behemoth, which once ruminated to enter the overcrowded subscription video-on-demand (SVOD) market, is following Google Inc’s lead in dialling back on high-budget programmes for its YouTube Premium service. Both Facebook’s Watch and YouTube will instead focus on short clips, and rely more on advertising revenue.

We view this news as positive for Astro Malaysia Holdings Bhd, as there is one less formidable player with the potential to bid for sports programming rights in the Malaysian market.

With declining global television viewers and the explosion of the streaming market, competition for sports programming has gotten more intense over the years, as both broadcasters and SVOD media companies look to snatch exclusive rights.

The streaming era has opened the floodgates to international media players to bid for the Malaysian rights of a sports programme.

Recall that Astro was scrambling at the 11th hour to buy the 2018-19 Uefa Champions League’s broadcasting rights, having to negotiate with “multiple parties” that had obtained the tournament’s airing licence, which also elevated the cost for the programme.

We also doubt that the streaming players would again spoil the local market’s sporting rights bids, given Malaysia’s low paid streaming penetration rate of 2%.

Weaker US dollar is also a relief. The weakening of the US dollar should also help to further alleviate Astro’s content costs, seeing as about 75% of the group’s content cost is greenback-denominated. The US dollar has fallen by 3.1% from 2019’s highest point to RM4.0895.

The group hedges its foreign currencies by 12-18 months, thus the effect of a weaker US dollar should be felt for forcasted financial years 2021-2022. This was part of the reason why the airing rights for the 2018 Fifa World Cup badly hit Astro’s bottom line; the ringgit was traded to as low as 4.47 against the US dollar in 2017.

A reduced risk of soaring content cost gives breathing room to the group’s margins, as it weathers through the changing dynamics in media consumption. The stock’s salient appeal is its 2020 and 2021 yield of 7.7% and 8.8%, an antidote to the prolonged low interest rate environment. A higher exodus of subscribers is a major downside risk for the stock. — CGS-CIMB Research, Jan 30