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Wednesday November 28, 2012

Majority of research houses still bullish on Astro’s outlook

PETALING JAYA: Six brokerages have issued research reports on satellite pay-TV operator Astro Malaysia Holdings Bhd with the majority of them issuing “buy” calls with price targets ranging from RM3 to RM3.70.

Five of the brokerages have “buy” and “outperform” calls while JP Morgan has a “neutral” call with a target price of RM3. Maybank Research has the highest target price at RM3.70.

Astro, the third largest initial public offering (IPO) of year at RM4.6bil and listed on Oct 19 at an IPO price of RM3, made its debut closing unchanged.

Prior to its listing, many analysts had griped about its expensive valuations. At RM3, it was trading at price earnings ratio of about 30 times.

Since then, the stock has stubbornly stuck below its IPO price and touched its low of RM2.61 on Nov 11. It closed yesterday down one sen to RM2.67 on volume of 4.29 million shares.

Astro now has a 99% market share on the local pay-TV market, with 3.2 million subscribers on a 50% penetration of TV households. It also has nine commercial radio stations.

Maybank Research, however, was bullish on the company's future growth.

“We like Astro because it is a proxy to Malaysian income and population growth, its high definition take up rate and average revenue per user (ARPU) growth potential provides for stronger earnings growth and its business is recession-resistant.

“Our target price of RM3.70 is based on its financial year ending Jan 31, 2014 (FY14) discounted cashflow valuation methodology. With 38% upside potential, Astro is a buy',” said Maybank.

CIMB Research which has a target price of RM3.30 opined that the tie-up between Astro and its sister company Maxis Bhd would be a game changer.

“Astro will launch a new Internet Protocol Television product early next year, riding on Maxis' fibre network.

“This will give Astro access to 1.3 million homes and the UniFi residential subscribers accumulated by Telekom Malaysia (TM) over the past two years will soon have a superior alternative as TM's average ARPUs are 20% higher.

“We estimate that 60% or 200,000 of UniFi residential subscribers will approach the end of their lock-up periods by Dec 13 and these subscribers will be fair game for Astro,” said CIMB.

CIMB added that fears of Astro losing the Barclays Premier League football rights were unrealistic, adding that this was because the rights included Brunei, an area difficult for cable operators to cover.

“Our estimates suggest that last-mile for home fibre there is three times higher than for DTH technology, not to mention licensing and technology barriers.

“As a result, we believe cable operators would be hesitant to penetrate a small market where they would have to start from scratch.

“If Brunei remains bundled with Malaysia, we believe Astro will remain the best candidate to air BPL in Malaysia for years to come,” said CIMB.

Goldman Sach which has a RM3.20 target price said that Astro was well-positioned to capitalise on the increasing penetration of pay-TV after its new product launches and with increasing take-up of high definition services.

JP Morgan, which remained neutral, felt that competition from TM was still a risk, but expected it to be contained given its lack of fiber coverage.

“The business model involves high subscriber acquisition costs, and thus profitability is highly-susceptible to churn rates. Regulatory threats on potential content-sharing rules remain a risk to Astro's advantage on content and pricing,” it said.

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