Astro-Waiting for Godot?

Any Further Push?

Numerous research houses are singing songs backing Astro as a top performer. But for holders of this dreadful stock, it has been one bitter rite. Perhaps, a rite of passage not to ever dabbled in Malaysian IPOs with its twists and turns particularly the Astro IPO.

Jeez, even cornerstone buyers can sell on Day 1.

Stupido!!

Imagine a company laden with debts more than its assets apparently, being foisted upon the Malaysian public just to get fresh new blood for its bleeding financials.

Astro's third quarter results is slated to be released on Dec 5. Will its price sprint?

So far, in spite of the slight push-up last week to RM 2.88, it has gone under water again. This is equivalent to about 4.3% below its IPO price of RM 3.00.

Standing firm behind Credit Suisse's outperform call on Astro, head of Malaysian equities at Credit Suisse Stephen Hagger says he is confident in the company due to its growing subscriber base, coupled with its increasing average revenue per subscriber, coming primarily from the adoption of high definition (HD) programme packages.

“Its subscriber base is still growing across all ethnic groups, particularly among the Malays, who love Astro's in-house productions.

As such, the company offers unique exposure to consumer spending that is both halaland discretionary, in a rapid growing population,” he says.

In Credit Suisse's report released on Tuesday, it expects Astro to grow its subscriber base as well as average revenue per user (arpu). Its arpu has grown steadily to RM 92 in the first half of 2013 from RM 89 in 2012, compared to RM 82 in 2010 when it was delisted.

“We believe Astro is a potential beneficiary of Malaysia's attractive demographics, a young and growing population, whereby a growing economy is driving income growth. Malay households, which account for 60% of Astro's subscribers have the highest income growth within the Malaysian population,” it says.

It says HD, PVR (personal video recorder), premium content and Internet protocol television (IPTV) services are potential arpu drivers for Astro in the longer term.

“There's also an opportunity for Astro to tap prepaid revenues via its NJOI offering, which doesn't incur any subscriber acquisition cost. Yet, NJOI could see long-term potential revenue upside if users buy prepaid content,” it says.

The investment bank had also set a discounted cash flow-based target price of RM3.50, implying a 21.9% potential upside.

“While financial year 2013 to 2014 earnings are dampened by significant cost related to a box swap, we expect profitability to rebound in financial year 2015, when the bulk of Astro's subscriber homes will be equipped with an HD box,” it says.

Hagger says while investors should take note of its upcoming quarterly results, short-term earnings are way less important than the long-term prospects of the company, in particular looking at subscriber and arpu growth which will provide a guide to the long-term value of this company.

“Despite its extremely strong cash-flow, I don't see Astro as a dividend yield stock quite yet, until such a time that the board feel comfortable with gearing and capital expenditure levels and crucially articulates a dividend policy. The dividend yield will however come and it will attract a new group of investors,” he says.

On the recent sell-down in Astro shares, Hagger says there were probably a number of factors responsible for this. One of which was a possible margin call on approved bumiputra investors under the International Trade and Industry Ministry portion.

“The process of the allocation is not transparent, but it is possible that a significant number of shares went to individuals, who may then have been hit by margin calls, sending the stock into a downward spiral. However, looking at the recent stability of share price, it seems that most of these weak holders have been cleared out,” he says.

Credit Suisses also notes that despite the sell-down, senior management comprising the CEO, COO, chief commercial officer and also the chief innovation officer, all bought Astro shares after the listing.

Currently, Astro commands a 99% pay-TV market share and 12% share of the broader communications industry in Malaysia as of financial year 2012. Its three million subscriber base translate into a household penetration rate of close to 50%, relatively lower compared to India's 80% and Singapore's 70%, which still represents a growth potential in the local market.

Looks like we may have to wait to 2015 to see some nest eggs.