Friday, October 19, 2012

Will Astro Malaysia fly on its debut?

KUALA LUMPUR (Oct 18): Pay-TV behemoth Astro Malaysia Holdings Bhd’s comeback to Bursa Malaysia on Friday seems to have the endorsement of the country's top leader.

Not only did Prime Minister Datuk Seri Najib Razak mention the IPO in the tabling of Budget 2013, he also launched the prospectus for the stock that’s being sold at RM3 apiece to raise RM4.55 billion — 69% of which would go to its promoters billionaire Ananda Krishnan and state-owned investment arm Khazanah Nasional Bhd.

Astro’s US$1.5 billion (RM4.5 billion) IPO also adds to Malaysia’s envied number of billion-dollar offerings happening amid a dearth of listings globally this year.

The world’s largest crude palm oil (CPO) producer Felda Global Ventures Holdings Bhd (FGV) had raised US$3.2 billion in June, while Asia’s biggest hospital operator IHH Healthcare Bhd had raised another US$2 billion in July. FGV gained 16.48% on debut while IHH rose 10.36%.

Expectations are that there would be some pressure for Malaysia to ensure Astro’s debut goes well given the spotlight the country is receiving for housing three of the world’s top listings this year.

Astro’s IPO would do well “simply because there’s tremendous appetite for new large listings in Malaysia”, said one Kuala Lumpur-based foreign fund manager who requested anonymity.

There is ample liquidity and “hunger” for companies that provide consistent dividend payments and Astro has promised to return to shareholders at least 75% of profits annually, he added.

Yet Astro’s IPO price of RM3 apiece “is not cheap”, UOB Kay Hian Research’s analyst Ong Boon Leong wrote in a note on Wednesday. This is relative to the valuation of key large consumer stocks like MULTI-PURPOSE HOLDINGS BHD [] (MPHB), BERJAYA SPORTS TOTO BHD [] (BToto) and even Ananda’s Malaysian flagship telecoms operator Maxis Bhd.

“These companies [MPHB, BToto and Maxis] are expected to pay out 6% in net dividend yields [for 2013], which is a sum that we think Astro would have difficulty in matching,” wrote Ong, who does not have an official recommendation or price target for Astro.

Already, Astro — which is listing without its overseas operations — is valued at RM15.59 billion at its IPO price, nearly double the RM8.3 billion its predecessor ASTRO ALL ASIA NETWORKS PLC [] was worth using its privatisation price just over two years ago.

Detractors also point out that 55.8% of the 430 million Astro shares with cornerstone investors are not subject to any lock-up period: something that could cut gains in its share price.

Valuation on Astro from five research houses obtained by showed a split in opinion.

Price targets ranges between ECM Libra Research’s RM3.09 and TA Investment Research’s RM3.53 apiece, which implied a wide 3% to 17.7% upside potential from its IPO price.

A few research houses, whose investment banking colleagues are involved in the IPO, are on a “blackout period” and cannot publicly speak on Astro for at least 45 days.

Gan Eng Peng, head of equities at HwangDBS Investment Management Bhd in Kuala Lumpur, reckon Astro “should give about 5% upside tomorrow”.

“Valuations are rich and earnings for the next two to three years are not going to be spectacular,” Gan tells

He does not think Astro will gain more than 10% on debut. “I believe rational will prevail. I don’t think there is a government agenda for this one,” he said.

To be sure, while FGV’s stock performance is seen tightly bound with the mood of PLANTATION [] smallholders who make up a sizeable voter base in Malaysia, Astro’s IPO is dearer to Ananda Krishnan and Khazanah. Their combined holdings in Astro would still be 70.8% post-IPO.

Even TA Research, which values Astro at RM3.53 a share, based on its discounted cash flow valuations, calculates that Astro’s projected yield was “rather low” at only 2.6% based on its earnings forecast for the upcoming financial year ending Jan 31, 2014.

In an interview with The Edge Malaysia early August, Astro Malaysia CEO Datuk Rohana Rozhan concur profit margins could come under pressure the next two years due to cost of migrating the other half of its 3.1 million customers onto its new platform. But that, she said, was a necessary short-term price to pay for longer-term growth.

Speaking on condition of anonymity due to non-disclosure agreements, a fund manager said “it would be a challenge” for Astro to persuade existing users to spend more. Subscriber growth would also be tough with Astro already in 50% of Malaysia’s households that would only have access to more types of entertainment with time and TECHNOLOGY [].

Even so, he said the success of Astro’s IPO “should not be judged by its share price over one week but over the next three to five years”.

In gauging Astro’s performance, investors might want to take a leaf from the performance of Maxis, which also marketed itself as a dividend play on its comeback in November 2009 and whose IPO was also lead managed by CIMB Investment Bank Bhd.

Maxis’ shares hovered around RM5.50 levels — just 10% above its IPO price of RM5 — for most of its first two years’ of listing (November 2009-November 2011), before advancing to as high as RM7.05 on Oct 5 this year as investors paid a premium for consistent dividend payers.

“If [Astro] goes up more than 10% then I’ll be wrong,” Gan said, laughing. “That’s alright. Nobody is right all the time.”

Whatever the case, Astro would still have more friends than Facebook Inc even if its shares gains only 5% on Friday.

Written by Cindy Yeap of

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