KUALA LUMPUR: AmResearch is maintaining its Hold rating on Astro All Asia Networks Plc (Astro) with a fair value of RM3.36 per share in line with its revised discounted cashflow (DCF) valuation.

In a research note issued on June 15, it said Astro’s first quarter ended April 30, 2009 (1Q9) core net earnings of RM35 million was below its and market expectations.

This was dragged down by higher effective tax rate - due to losses in foreign associates which were not eligible for tax relief.

“But, on pre-tax level, annualised pre-tax profit of RM280 million exceeded our expectation of RM266 million for FY10F,” it added.

AmResearch said top-line grew by 6% year-on-year, underpinned by strong momentum in net additions. The 1Q09’s net additions was 82,000, a slight increase from 81,000 posted in the previous quarter.

“We view this positively given the current economic slowdown,” it added.

AmResearch said it was raising FY10F-FY11F earnings by 9%-11% to take into account higher FY10F’s net additions of 280,000 versus previous of 250,000; higher depreciation charge due to higher capex - investment to upgrade customer relations management (CRM) system and High Definition (HD) TV infrastructure.

“At current levels, Astro is trading at FY10F price-to-earning (PE) of 29 times and enterprise value/earnings before interest,tax. Depreciation and amortization (EV/EBITDA) of 11 times, a premium vis a vis its regional peers of 17 times and 9 times.

“We do not see the gap between its estimated free cash flow (FCF) yields of 8%-11% and estimated dividend yields of 3%-4% to narrow down in the immediate term on the back of higher capex requirement - investment in CRM and HD TV.

“In addition, management do not rule out potential acquisition, especially local content providers to enhance its package offerings,” it added.