This article first appeared in The Edge Malaysia Weekly on February 25, 2019 - March 3, 2019
WHEN it comes to yield, Astro Malaysia Holdings Bhd is by far the most attractive media stock, offering higher potential yields than telecommunications companies.
Since relisting only its Malaysian operations in late 2012, Astro has consistently declared quarterly dividends, surpassing its dividend policy of paying at least 75% of consolidated profits.
“Dividends will continue,” says CEO Henry Tan, referring to the group’s total return proposition of both capital gains and yield. Since its relisting, Astro has paid over RM3.5 billion in dividends, Bloomberg data shows.
Assuming Astro declares its usual 2.5 sen dividend next month for the fourth quarter ended Jan 31, 2019, to bring total dividends for the fiscal year to 10 sen per share, dividend yield would be just above 6% as at its RM1.66 close last Thursday.
Astro has already paid a 2.5 sen dividend for each of the first three quarters of FY2019, albeit down from the three sen per quarter it paid in FY2017 and FY2018 with an additional 0.5 sen special dividend for the last quarter of the previous two financial years.
Its consistent quarterly dividend payout caught the eye of the Employees Provident Fund (EPF), which can only pay dividends out of realised gains and is constantly looking for stable and consistent income streams.
On Feb 15, EPF CEO Tunku Alizakri Alias was appointed as the retirement savings fund’s non-executive nominee to the board of Astro.
On the same day, Astro’s board also welcomed another nominee — general counsel Mazita Mokty from its major shareholder Usaha Tegas Sdn Bhd — as non-executive director. She joins Usaha Tegas director and chief operating officer Lim Ghee Keong, who named Vernon Das, a colleague with investment, corporate finance and consulting experience, as his alternate director on that day.
Usaha Tegas is a vehicle of billionaire businessman T Ananda Krishnan, whose deemed interest in Astro rose to 41.257% or 2.15 billion shares after Mujur Sanjung Sdn Bhd bought 18.13 million shares or just over one-third of a per cent stake on the open market between June 13 and Nov 8 last year, filings with Bursa Malaysia show.
On June 5, Astro’s board clarified that “as far as the company is aware, after due enquiry, it has not received confirmation of any privatisation proposal” in response to news reports that the billionaire was again mulling a privatisation of Astro, had been discussing funding options and was reaching out to gauge investor interest.
Two days later, Astro announced the resignation of Datuk Rohana Rozhan as group CEO effective Jan 31 this year. She remains as a board member.
It is worth noting that news of Ananda’s previous privatisation of Astro, Maxis Bhd and Bumi Armada did not reach the market until he was ready to let the cat out of the bag.
Still, given the challenging operating environment for Astro and Maxis, there is constant speculation of the possibility of Astro being merged with its sister company Maxis, in which Ananda has 62.42% deemed interest but does not have the same economic interest due to the terms of a discretionary trust, according to annual report disclosures.
Malaysian private-sector wage earners should also be an interested party, given that the EPF held an 11.09% stake or 866.98 million shares in Maxis as at Feb 15, filings with Bursa show.
A 10 sen per share payout by Astro would give the EPF about RM42.76 million in dividend based on its 8.2% direct stake as at Feb 19.
Whether or not Ananda is looking for funding options or a buyer for a strategic stake in Astro, its implied yield would have been over 9%, assuming a 10 sen payout for FY2019 ended Jan 31, when the shares dipped to a one-year low of RM1.09 on Nov 28 last year.
The stock has retraced some of its decline but it is still about 45% shy of its year-high of RM2.41 on Feb 21 last year, according to Bloomberg data at the time of writing.
The yield factor is partly why many analysts have a “buy” recommendation on Astro, although they agree the company’s operating environment will remain tough even if regulators eventually clamp down on piracy.
There are analysts who reckon that a Maxis-Astro merger can yield cost savings while others are not so convinced, given the uncertainties in the operating and regulatory environment. The companies can bundle products without being under the same roof and have more flexibility when it comes to working with other companies.
What is certain, though, is that Khazanah Nasional Bhd does not count Astro among its strategic holdings, which means it would be willing to part with its 20.67% stake in Astro, should the right offer come along. Khazanah, which maintains that it is in no hurry to monetise its assets, has a nominee on Astro’s board: Shahin Farouque Jammal Ahmad, a director in Khazanah’s investment division.
Of the 10 analysts who updated their recommendations on Astro this year, six have target prices ranging from RM1.70 to RM2.10. Three others value the stock at RM1.44 to RM1.60 apiece. Astro closed at RM1.66 last Thursday.
Astro’s 1.8 times net debt to Ebitda also means there is pressure on it to rationalise cost and become more efficient in getting outsized results without spending more money. If it succeeds, the benefits would trickle down to shareholders. Its share price would also get a re-rating if more investors are convinced it can continue to be generous with its dividends.
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