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This article first appeared in The Edge Malaysia Weekly on April 10, 2017 - April 16, 2017

ASTRO made its comeback to Bursa Malaysia at RM3 per share in 2012. Today, it is still trading below its relisting price.

In terms of valuation, media analysts say Astro is trading in line with its global peers today.

“The global average is nine times EV/Ebitda. Astro is trading at about nine times. I’m a bit more optimistic on the stock. The pay-TV subscribers seem to be returning if you track the most recent quarter. This signals a bit of improving sentiment in the consumer segment,” says an analyst who covers the stock.

“We’ve always said we are a total return stock. Last year (FY2017 ended Jan 31), we paid 12.5 sen, which is a 4.5% yield. I think we will always look at dividends within the context of total returns. We are strongly cash-generative enough to be able to do that but at the same time, we understand the need to reinvest,” says group CEO Datuk Rohana Rozhan.

Data from AbsolutelyStocks shows that Astro’s total returns stood at 7.4% from its relisting on Oct 19, 2012, to April 6, 2017.

Meanwhile, shareholder returns for listed media groups Star Media Group Bhd and Media Prima Bhd for the same period stood at 3.76% and -33.66% respectively. Telcos Maxis Bhd and Digi.com Bhd registered shareholder returns of 15.69% and 15.5% respectively.

Half of the analysts polled by Bloomberg have a “hold” recommendation on the stock while 45% called a “buy” and 5% a “sell”. The 12-month average target price of analysts polled by Bloomberg stood at RM3 — the same as Astro’s IPO price on it relisting in October 2012. The stock closed at RM2.77 last Thursday, 7.6% below the listing price.

Astro was taken private in 2010 and relisted two years later in 2012 — raising RM1.4 billion — without its overseas business.

Last November, it was reported that its major shareholder, Tan Sri Ananda Krishnan, was mulling a privatisation via his private vehicle Usaha Tegas Sdn Bhd. Quoting industry sources, the report said the exercise was still in its early stages and that Usaha Tegas felt the market was not valuing the company fairly.

Rohana says there is no news of this at the corporate level and that the matter has to be directed to the major shareholder.

Moving forward, she expects the new financial year ending Jan 31, 2018, to be better than the previous year. “Content cost was about 36% last year, it is probably going to be 33% to 34% this year,” she says. It also depends on where the ringgit goes, she notes, but adds that Astro has hedged 75% to 80% of its US dollar requirements.

Analysts expect the weak ringgit to weigh on Astro’s margins.

Maybank Investment Bank Research, in a March 29 report, says it expects Ebitda margins to remain compressed due to higher content cost because of the weak ringgit.

“Astro now expects content cost to account for 34% to 36% of TV revenue, up from 33% to 35% previously,” the reports says. It adds that Astro intends to extract more ARPU (average revenue per user) from wealthier subscribers with premium and on-demand content. “In fact, Astro targets its ARPU to grow to RM103 to RM104 this year,” it states. The research house has a “hold” call on the stock with a RM2.55 target price.

Meanwhile AllianceDBS Research has a “buy” call on the stock, with a RM3.15 target price.

In a March 29 report, AllianceDBS Research says, “Astro’s resilient results and a significantly-hedged US dollar exposure for FY18 should alleviate investors’ concerns about potential earnings disappointment due to the weak consumer sentiment in Malaysia. With other dividend-paying stocks such as telcos still facing earnings and cash-flow risks, we believe Astro is a good alternative for yield-seeking investors.”

“Post relisting in 2012, Astro has made TV advertising one of its main focus areas to drive revenue growth. Due to the wider reach to the mass market with the introduction of NJOI and also advertisers adopting a more targeted approach to advertising, Astro managed to grow its TV adex by 9%-16% in FY12 to 14 and took market share from Media Prima. TV adex dipped 2% in FY15 owing to poor consumer sentiment before recovering by 6%-12% in FY16-17. We expect growth to be modest at 4% in FY18F,” it adds.

Astro expects the growth driver for FY2018 to come from higher digital advertising expenditure through increasing viewership of NJOI — its subscription-free TV service — which will in turn see a rise in prepaid consumption.

In Malaysia, it wants to add 400,000 Njoi consumers this year.

For FY2017, Astro’s net profit grew 1.36% to RM623.68 million from RM615.31 million the previous year due to lower depreciation of assets and lower net finance cost. Annual revenue rose 2.5% year on year to RM5.61 billion, from RM5.48 billion.

Astro gets the bulk of its revenue from TV subscriptions, followed by TV ads, radio ads, merchandising and others.

In FY2017, higher advertising and other revenue helped offset lower subscription revenue from the TV segment. Revenue from TV rose a marginal 0.7% y-o-y to RM5.02 billion. The segment’s profit inched 1.6% higher y-o-y to RM702.2 million.

Revenue from the radio business improved 10.7% y-o-y to RM327.7 million while profit rose 15.6% to RM196.4 million. Radio listenership rose 21.9% y-o-y to 15.6 million. The home-shopping segment’s revenue grew 37.9% to RM261.1 million but is still loss-making.

 

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