Slow Internet speed works in favour of Astro

PETALING JAYA: Astro Malaysia Holdings Bhd should ride through the near-term ripples of US-based multinational provider of on-demand Internet streaming media Netflix’s entry into the local market as the pay-TV operator has much wider content.

Nomura Research said in a report that the relatively slow Internet speed in Malaysia could also be a factor that works in Astro’s favour, as the present quality of telco infrastructure in the country could hinder good video streaming experience, which would be necessary for Netflix to take off.

“We see several factors that should help to mitigate the impact of Netflix on Astro’s subscriber and revenue outlook over the near term.

“While Netflix probably has access to stronger international content than Astro, especially for TV shows, sports and local content will continue to be the key differentiating factors for Astro’s content,” Nomura said in its report yesterday.

In addition, it noted: “For Netflix to take off, a good video streaming experience is critical, which requires backing of strong telco networks – this is still missing in many parts of Malaysia.”

Astro’s shares had come under pressure since Netflix, which is an American multinational provider of on-demand Internet streaming media, announced its launch in the Malaysian media market early this month.

Year-to-date, the counter had lost around 7% to close at RM2.56 on Friday.

Besides Malaysia, Netflix would also be making its foray into the rest of Asean.

Despite the contained near-term risk, Nomura said, Astro would still be considered as the most vulnerable among its Asean counterparts to competition from the Netflix.

“Both companies have similar revenue models, driven by subscription-based average revenue per use; plus there is a considerable overlap in their content types – international TV shows and movies,” Nomura explained.

With regards to international content, Nomura said, Netflix had the capacity to outspend and outbid pay-TV incumbents like Astro given its much bigger scale, and hence its ability to realise much better economies of scale.

“Another risk to be mindful of is if Telekom Malaysia starts to offer Netflix like Singapore Telecommunications Ltd and StarHub Ltd do in Singapore,” the brokerage added.

“We have a ‘buy’ on Astro, but don’t think the stock will do much until there is a meaningful improvement in Malaysian sentiment,” Nomura said.