PETALING JAYA: The upcoming digital convergence strategy of Astro Malaysia Holdings Bhd is set to steer the pay-TV operator on a new growth path.
According to CGS-CIMB Research, the new Astro digital convergence strategy should help address investors’ jitters over the group’s long-term earnings prospects, as the company looks to win back lapsed subscribers and a new generation of viewers.
“We believe Astro’s upcoming digital convergence strategy to lure ‘cord-nevers’ could be a significant transformation in its business model.
“An in-house broadband service may also be in the works, ” it said.
Reiterating its “add” recommendation on Astro, with an unchanged target price of RM1.18, CGS-CIMB noted that Astro had said that “over the next few months” it could be announcing the addition of another subscription-based video-on-demand (SVOD) partner into its fold, which currently includes HBO GO Asia and iQIYI.
“This would effectively turn its Ultra Box into a ‘legal’ grey-market streaming box, in our view. We believe the revenue-sharing method for the SVOD partnerships can yield revenue/subscriber that is far higher than the pay-TV model’s of around RM2 per channel, ” it explained.
“In addition, the group is working on its standalone SVOD service to cater to lapsed subscribers and ‘cord-nevers’, which it aims to launch in the first half of this year, ” the research house added.
Astro was also considering entering the Internet service provider (ISP) business.
“Unlike the pay-TV market, fixed broadband is far from reaching a saturation point; its penetration rate in Malaysia is only 34.5%, ” CGS-CIMB said.
It noted that Astro’s plan to have over-the-top service and broadband in its ecosystem was similar to what international media companies such as Sky Ltd and Comcast Inc had done.
“The group’s digital gambit should remove the valuation discounts that the market has given Astro, relative to its pay-TV and media peers globally, ” the brokerage said.
Astro’s share is trading at a 76.9% discount to the global pay-TV and streaming giants’ weighted average 2021 estimated enterprise value to its earnings before interest, taxes, depreciation and amortisation. This implied Astro was an overlooked stock in this space, CGS-CIMB said.
“We have not imputed any potential earnings from Astro’s upcoming digital convergence strategy, as the group has yet to provide concrete details on the strategy’s timeline and pricing models.
“However, from the crumbs of information that Astro has been leaving behind, we are hopeful that the new strategy can finally provide the growth story that has eluded the group since its October 2012 re-listing, ” it said.