Astro shares hurt by Netflix’s entry and weaker ringgit

More competition: An Astro Malaysia Holdings Bhd signage stands beside a satellite dish at the broadcaster’s headquarters in Kuala Lumpur. An analyst felt Astro’s share price has dropped due to entry of more players in the field. – Bloomberg

SATELLITE pay TV company, Astro Malaysia Holdings Bhd shares have come under pressure in recent weeks and were further bruised after news broke of Netflix’s entry into the country recently.

Astro’s share price has fallen below its IPO price of RM3 to its record low since its listing in October 2012. It closed at RM2.56 on Friday, 15% or 44 sen from its IPO price.

One factor driving Astro’s share price lower is the weaker ringgit. The drop in the local currency against the US dollar means Astro has to cough out more to pay for global content.

Astro content cost for three months (third quarter) ending October 31, 2015 was RM427mil, which accounts for 38% of its revenue. It was 1% higher than the earlier quarter. According to reports, Astro has hedged its foreign currency exposure but not all of it.

This year Astro’s content cost is likely to be higher as there are two major “live’’ sporting events it will bring in for its viewers. They are the Euro 2016 and Olympics, and the rights for the next three seasons of the BPL will likely be higher.

“They will be paying more in content this year, also due to the weaker ringgit,’’ says an analyst.

She felt the share price drop was for now seen as a “knee jerk’’ reaction to the entry of more players in the field, but she also cautioned that “Astro will have to do something about it.’’

“No doubt they have local content and their stronghold is the “live’’ sporting events content, but this is a real threat, though long term, and that needs to be addressed. The sooner they address it, the better it will be,’’ she adds.

What is adding pressure to Astro is the growing number of online streaming companies that have emerged as a threat to traditional homegrown TV companies.

Netflix is a big name globally and on Jan 6 came to Malaysia offering streaming services at attractive pricing.

A few months earlier, iflix, a similar set up like Netflix, entered the market place. Its offering is now available on Telekom Malaysia Bhd’s HyppTV.

But what companies like Netflix have yet to do is standardise their content with that in the United States as that is what viewers here want.

What is in Astro’s favour is its local content strategy apart from its screening of live sports.

“That is why Astro needs to keep paying for live sports content as that it is its real differentiator from the rest of the pack including the online streaming boys,’’ said the analyst.

The growth areas for Astro remains Njoy, premium subscribers and adex, she adds.

“Eventually it will get to head-on competition,’’ adds another analyst.

And the sooner Netflix gets the standardisation of content sorted there will be more interest in their offering, said an industry executive.

Astro has 4.7 million subscribers as at end October, 2015 or 66% of total households in the country.

Maybank IB Research in its report does not believes that the arrival of Netflix in Malaysia will change the Malaysian TV competitive landscape due to its lack of vernacular content and weak value proposition.

It adds there is the incumbents’ live content.

Astro is expected to announce its results for financial year ending Jan 31, 2016 in March and analysts are expecting a 10% growth in its core earnings per share (EPS) to 12% from 10% previously. For 2017 the expectation is 14% EPS.

The average revenue per user per month is projected to rise marginally to RM99.50 from RM99 as at full year 2016.

Astro remains a “buy” stock for 14 broking houses for now. Only two have a “sell’’ call and 9 a “hold’ call, according to Bloomberg estimates. The target price listed there remains at RM3.26.

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