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This article first appeared in The Edge Malaysia Weekly, on September 28 - October 4, 2015.

 

Rohana-Rozhan_18_TEM1077_theedgemarketsAstro Malaysia Holdings Bhd is embracing the mobility element in its next phase of growth as the media and entertainment giant seeks to capture future generations of content subscribers.

Astro Malaysia CEO and executive director Datuk Rohana Rozhan acknowledges that the classic linear TV broadcast is no longer sufficient to cater to the changing consumption habits of younger consumers. With that in mind, the pay-TV operator has started to evolve for the digital age.

“The one phenomenon is the individual space, the smart devices space. Sometime back, we launched Astro on the Go and we have made some progress. Now, we have to move seriously into that space,” she tells The Edge in an exclusive interview.

To tap the market, Astro had, in 2012, first offered the Astro on the Go service to all Malaysians, including non-Astro TV subscribers. The mobile app gives subscribers access to live TV channels as well as live sports and entertainment events on a  computer, tablet or smartphone.

 

“It’s funny how some customers, even though they have Astro in the home, prefer to keep their privacy and subscribe to something on their own,” says Rohana, “The reality of content consumption is [that] the linear push is not sufficient. We embrace the mobility element.”

In the first half ended July 31, 2015 (1HFY2016), Astro on the Go recorded 1.8 million downloads, with an average weekly viewing time of 140 minutes. Considering that 90% of Malaysians have smart devices and consume seven hours of content on a daily basis, it is understandable that Astro wants to move into that space.

With that in mind, Astro aims to reach 2.5 million downloads by the end of FY2016 with a weekly viewing time of 180 minutes per user.

“We have 4.6 million households, each home has four to five people in it, so there is no reason why [we cannot hit the target]. We want to capture the market share of that seven hours of content viewing, and these numbers are starting to make sense,” she says.

The whole idea of entering the individual and smart device space is as much about increasing Astro’s average revenue per user (ARPU), which stood at RM99 in 1HFY2016 and is expected to reach RM100 by end FY2016, as it is about how technology and consumer needs have evolved.

Njoi_Chart_18_TEM1077_theedgemarkets“It’s more like family viewing now, as people are watching on a big screen in the living room. But when they are in the individual space, each one wants to watch a different thing. So, when the aggregate consumption as a family goes up, hopefully they will buy a bigger package from us,” she says.

Meanwhile, in the traditional home segment, Astro is also urging subscribers to connect their set-top boxes to the Internet in order to access its video-on-demand (VOD) content, says Rohana.

“In addition to the linear viewing, you can access our huge VOD library, whose titles are second to none. You’ll always have something to watch. We are driving take-up of connected boxes and of Astro on the Go from 181,000 now to 500,000 by year-end,” she says.

Rohana was a founding member of the Astro group, joining in 1995. She was the group chief financial officer of Astro All Asia Networks Ltd, and was instrumental in its listing on Kuala Lumpur Stock Exchange in 2003.

Astro (fundamental: 1.10; valuation: 1.70) is 41%-owned by business tycoon T Ananda Krishnan while sovereign wealth fund Khazanah Nasional Bhd also has a 20.7% stake.

In financial year ended Jan 31, 2015 (FY2015), Astro saw revenue grow 9% to RM5.23 billion, and net profit by 16% to RM519 million. Advertising expenditure (adex) growth was almost flat at 1%, from RM582 million to RM589 million, of which 54% was contributed by TV and 44% from radio.

For 1HFY2016, the group generated net profit of RM305 million, on revenue of RM2.69 billion. Adex registered growth of 5% to RM305 million, underpinned by higher TV viewership share, radio listenership and growing interest in digital platforms.

Astro-Operation-financial_Table_73_TEM1077_theedgemarketsAs at 1HFY2016, Astro had a 65% household penetration rate, or 4.6 million households —  50% from its pay-TV service and 15% from its subscription-free satellite service, dubbed NJOI.

“We are well on-track to achieve 85%[household penetration] in a couple of years. Within that framework, 55% to 60% will be coming from pay-TV, and the balance (25% to 30%) from NJOI. That mix is probably a right mix,” says Rohana.

While the prevailing poor consumer sentiment is “extremely worrying” for Astro, as it is very much a consumer brand, the good news is that the heavy capital expenditure and expensive part of reinvestment on infrastructure have all been done.

In other words, shareholders can expect decent dividends going forward.

“Three years ago, when we went for listing, we painted a picture of a growth story. We want to make sure that we have the new technology that can deal with home, mobility and interactive platforms. Now, the whole investment phase is pretty much over,” she says.

Astro adopts a progressive dividend policy and continues to be highly cash generative. In FY2015, the company declared a dividend per share of 11 sen, representing a payout ratio of 110% or dividend yield of 3.8% based on last Friday’s closing of RM2.88.  

Astro, one of the companies on the FBM KLCI, has fallen 4.95% year to date, for a market capitalisation of RM14.98 billion as at last Friday. The stock is currently trading at a trailing 12 months price-earnings ratio (PER) of 27 times and price-to-book value of 23 times.

A quick check on Bloomberg also shows that Astro is now trading at an estimated PER of 23.5 times. It has a potential upside of 20%, against its consensus target price of RM3.45.

Most research houses that track Astro, including Nomura, HSBC and UBS, have a “buy” call on the stock. UOB Kay Hian and Goldman Sachs recommend “hold” on Astro, while  KAF Seagroatt & Campbell rated it a “sell”.


Note: The Edge Research’s fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations. Visit www.theedgemarkets.com for more details on a company’s financial dashboard.

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