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| Astro a sell, target price at RM2.70, says Maybank IB |
| Written by Financial Daily | |||
| Thursday, 16 July 2009 11:52 | |||
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“We foresee Astro facing intense competition from TM’s new IPTV (Internet protocol television) product, threatening net additions and ARPU (average revenue per user) and incurring higher content cost. Major commitments will prevent it from increasing dividends,” it noted in a research report. As a result, the local research house maintained its sell call on the stock at RM3.40 and its RM2.70 discounted cash flow-derived (DCF) target price as it believed the current share price fully reflected its near-term prospects. “New competition from TM poses substantial risks. Like the Singaporean experience when mio TV entered the pay-TV industry to compete with StarHub, TM’s new IPTV product (due to be rolled out by 1Q10) may erode Astro’s net additions and ARPUs. “Astro may retain attractive content (especially sports) but at higher prices due to competitive bids from TM,” said Maybank IB. It added that other major commitments would limit the company’s dividend payout. “Astro has earmarked some RM800 million for capital expenditure (capex) and debt repayment (FY09 capex: RM174.1 million, FY08 capex: RM205.4 million). It will be difficult for it to pay much more than 10 sen DPS (dividend per share) per annum in the  near future. As such, dividend yields will likely remain at only 3%,” it said. Maybank IB estimated that Astro’s net profit for the financial year ending April 30, 2010 and 2011 to be at RM141 million and RM244.1 million, respectively. It noted that Astro had previously traded at a premium to DCF as it was the sole pay-TV operator in Malaysia then. It added that the premium narrowed sharply to nearly nil when MiTV entered the pay-TV industry in Sept 2005. “On the same basis, with a more formidable competitor in TM and the risks that it will pose, we believe that Astro will at best, trade at par to DCF going forward,” it said. “At the current share price, Astro is trading at par to DCF. Our target price includes potential losses from its Indonesian lawsuits as none has been settled in its favour yet.” Astro closed at RM3.48 yesterday, up eight sen. This article appeared in The Edge Financial Daily, July 16, 2009.
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