Astro IPO – Good If You Can Get Some

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The main reason for delisting was that its overseas operations would have compromised the good subscriber base locally – an indication that Astro may have had to invest in riskier propositions overseas. The idea was to relist the entire entity once the volatile overseas markets have reached a sustainable critical mass of subscriber base.

Well, that did not turn out as planned as overseas operations remain just as risky and uncertain after so many years. The planned Astro IPO will be only the domestic operations, which will be viewed positively. Astro having surged past 3m subscribers in Malaysia is so entrenched in the market place and the natural barriers to entry are too high for any competition to be a real threat.

The flip side is that numbers growth will be muted as 3m is not a small base for a population of our size. Can Astro further milk the base for more fees? The answer is YES. Having substantive critical mass actually have seen advertisers who only considered TV1, TV2 and TV3 for national campaigns to shift an increasingly higher budget for more targeted audience campaigns with Astro programming. The smarter marketing packaging allows for a certain show or series to be mainly sponsored by a specific client with credible results. We can expect more innovative marketing campaigns to grab a larger share of the advertising ringgit. Hence I see more upside even 1-3 years down the road.


History

To recap, in 2005, Astro had entered into a joint venture with First Media and other affiliates of the Lippo Group to set up a direct-to-home (DTH) pay-television business in Indonesia to be launched by PT Direct Vision, a subsidiary of First Media.

However, the joint venture was not concluded, and subsequently Astro commenced arbitration proceedings against Lippo Group under the Singapore International Arbitration Centre Rules to recover about US$ 560mil (RM1.7bil) which it had incurred to establish the pay-TV business for PT Direct Vision.

In February 2010, the tribunal in Singapore awarded Astro US$ 300mil (RM909mil) in damages, interest and costs but no part of the award has been paid by Lippo.
IPO
If the IPO includes the overseas operations, the valuation for Astro might not be that rich as the business risks are higher. Astro’s subscriber base had surpassed three million as at end-2011, cementing its lion’s share of the six million pay-TV households in the country. Astro’s re-listing is timely as it is seeing inbound competition from telecommunications companies, which are offering triple-play products and cable pay-TV operator Asian Broadcasting Network (ABN). 
A re-listing of Astro could reignite talks of a union with Maxis, given the potential longer-term term synergies under a converged landscape. Both companies share a common shareholder which may be looking to streamline its media and telecommunication businesses in Malaysia.
It was noted that Astro was looking at ways in which its service could reach out to more customers across multiple platforms and was toying with cloud services while Maxis was transforming itself to be an integrated telecommunication player with bundled offerings.
The group also operates eight FM terrestrial radio stations in Malaysia that cumulatively reach close to 11 million listeners a week or 72% of total radio listeners in the peninsula and command a substantial 57% of the radio industry’s advertising expenditure.

Astro Malaysia Holdings Bhd has offered its IPO to Bumiputra investors at RM3.60 a share. The IPO, expected by the market to list by end-September and to raise around US$ 1.5bn (RM4.7bn), would be Malaysia’s third-largest this year. The offer had opened late last week and will close at 4pm on Wednesday. Based on this indicative price of RM3.60, the 597.69m shares reserved for bumiputra investors would be worth about RM2.15bn (US$ 688.88m).

Assuming they are trying to raise just $ 1bn (RM3.1bn), that leaves just less than RM1bn in allocation to other cornerstones and foreign funds – which no doubt will see enormous complaints and pent up demand. Plus retail players can again raise their hands in the air and say the same thing, good ones you bypass us, tough ones you come to us.


CIMB seems to be trying for a market cap of between RM11bn to RM15bn. I believe the valuation will be closer to the higher end of the scale as its a steady, thriving, very cash flow positive,little reinvestment, but a business model that could be relaunched on a greater platform later with Maxis as a potential genuine triple-play threat. Good if you can get some allocation. I believe even at RM14bn-15bn valuation you can still see 20%-30% upside upon listing, thus making this an even more desirable IPO than IHH in my view.


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