Saturday September 22, 2012
Investing community divided on Astro
By JOHN LOH and TEE LIN SAY
PETALING JAYA: Few recent initial public offerings (IPO) have stirred quite as much polemics as the return of Astro Malaysia Holdings Bhd.
While industry observers say the new RM3 retail price for the comeback listing of Malaysia's largest pay-TV operator is “fairer” compared to the indicative RM3.60 set for bumiputra investors, the investment community is still largely divided on the stock.
One fund manager told StarBizWeek that despite Astro's historical price-to-earnings ratio (PER) shrinking slightly to 24 times based on the retail price and net earnings of RM629.6mil for the financial year (FY) ended Jan 31, 2012 he remained unconvinced and would not be subscribing for the shares.
“The cornerstone investors have their own agenda. There could be other reasons. Maybe they think there is a possibility of someone coming in to buy them out later at a higher price,” he said.
He believed the funds who showed an interest might be doing so for indexing purposes.
“This is especially true for funds who track the benchmark KL Composite Index. They are buying into Astro for that and not so much for the growth of the company."
Another fund manager who spoke on condition of anonymity said he would stay out of the IPO as his fund did not need to have a position in indexed stocks.
“Astro will likely be a substantial component of the index so fund managers who follow it will hold out for a stake,” he explained.
According to industry executives, Astro's management has guided for lower earnings and margins for FY13 and FY14 as the company converts the current batch decoders to high-definition, the cost of which is borne by Astro. This earnings erosion is, however, expected to recover by FY15.
Based on Maybank IB Research's net profit forecast of RM408.9mil for FY13 for Astro, the stock has an estimated forward PER of 37.5 times and dividend yield of 2%.
StarBiz reported yesterday that 22 cornerstone investors had been secured for Astro's RM4.5bil listing slated for Oct 13.
They include tycoon Chua Ma Yu, Kencana Capital Libra Investment Sdn Bhd, Great Eastern Life Assurance, Myriad Opportunities Masterfund, Nomura Asset Management, Antell Holdings Ltd, Azentus Global Opportunities Masterfund Ltd, Caprice Capital International Ltd, Corston-Smith Asset Management, Gordel Capital, Ochis-Ziff, TPG-Axon International, TPG Axon Partners, and Universities Superannuation Scheme.
The biggest of these was said to be state investment firm Permodalan Nasional Bhd.
As one analyst put it: “There was never much doubt about demand for the IPO despite concerns about its rich valuations.
“The naysayers may disagree with how T. Ananda Krishnan lists and relists his companies, but the market is used to this.”
Asked to comment on the strong institutional interest garnered by Astro, a head of research said: “This is the classic case of too much money chasing too few assets. Malaysian institutional investors are deprived of investment ideas for their domestic portfolio.”
Ananda, the country's second-richest man, took the satellite TV operator private in 2009 in a deal worth RM8.5bil.
The company is being relisted at RM18.7bil without its Indian and Indonesian operations, or 125% higher than when it was delisted three years ago at RM4.30.
Another head of research at a local bank-backed brokerage considers Astro a longer-term growth story.
“If you invest now, you are buying into a long-term story. Shareholders will have to wait it out,” he said.
He added that margins were likely to see compression for the time being as Astro worked to switch some 1.5 million of its subscribers to high-definition.
However, he said Astro's management was confident it could bundle both TV as well as broadband offerings once the conversions were complete.
“They believe customers who today pay RM300 a month for both UniFi and Astro will trade that for a better price.”
Positive response to Astro IPO