We keep our BUY call on Astro with RM3.40 FV, based on FCFF valuation (WACC: 8.45%, TG: 1.5%). We continue to like the company as it is the largest pay-TV operator in Malaysia and has a de facto monopoly, commanding 95% of the market. It also enjoys huge room for growth given: i) the low existing pay-TV household penetration rate of only 50%, ii) a potential uptick in ARPU as subscribers migrate to the HD platform, iii) its superior content in 156 TV channels, and iv) high entrybarriers to the pay-TV industry due to significant economies of scale.
Positive HD take-up enhances ARPU. The take-up for Astro’s HD services has been encouraging so far, with 65% of its customers with B.yond set-top boxes (STBs) having subscribed for HD content in 3Q13. We are optimistic about Astro’s progress in this segment given that it could fetch an incremental ARPU of RM20. Currently, 1.8m households have already migrated over to the HD platform (55% of Astro’s pay-TV subscriber base) and management intends to swap out most of its legacy SD STBs by end-FY14. Although the initiative may hurt its bottom-line in the short term, we think it commensurates with the returns obtained over the longer time by securing a larger stream of recurring revenue. With the aid of aggressive marketing and advertising efforts, we foresee Astro succeeding in its upgrading plan.
Potential benefits from collaborating with telcos. Astro’s recent partnership with Maxis and Time dotCom to provide IPTV services to the masses could provide a new avenue of growth. We think the newly offered triple play packages (bundling of voice, broadband and IPTV services) could stir new interest by offering a one-stop entertainment/communication product to consumers. Furthermore, we reckon fibre is a cheaper and more efficient alternative to broadcast content compared to the conventional satellite method, as the capex for fibre is borne by telcos.
Competitors are not assassins. Astro enjoys a monopoly on the pay-TV industry with a market share of more than 95%. Its only competitor currently is Telekom Malaysia’s Hypp-TV. However, Asian Broadcasting Network (ABN) Media Group, a newcomer in the pay-TV market, is lookingto challenge the incumbent with grand and ambitious plans in mind. Regardless of how ABN ups the ante against Astro, we do not foresee the latter faltering and surrendering market share given its strong brand and resilient ecosystem, which took the company many years to establish and nurture.
Positive HD take-up enhances ARPU. The take-up for Astro’s HD services has been encouraging so far, with 65% of its customers with B.yond set-top boxes (STBs) having subscribed for HD content in 3Q13. We are optimistic about Astro’s progress in this segment given that it could fetch an incremental ARPU of RM20. Currently, 1.8m households have already migrated over to the HD platform (55% of Astro’s pay-TV subscriber base) and management intends to swap out most of its legacy SD STBs by end-FY14. Although the initiative may hurt its bottom-line in the short term, we think it commensurates with the returns obtained over the longer time by securing a larger stream of recurring revenue. With the aid of aggressive marketing and advertising efforts, we foresee Astro succeeding in its upgrading plan.
Potential benefits from collaborating with telcos. Astro’s recent partnership with Maxis and Time dotCom to provide IPTV services to the masses could provide a new avenue of growth. We think the newly offered triple play packages (bundling of voice, broadband and IPTV services) could stir new interest by offering a one-stop entertainment/communication product to consumers. Furthermore, we reckon fibre is a cheaper and more efficient alternative to broadcast content compared to the conventional satellite method, as the capex for fibre is borne by telcos.
Competitors are not assassins. Astro enjoys a monopoly on the pay-TV industry with a market share of more than 95%. Its only competitor currently is Telekom Malaysia’s Hypp-TV. However, Asian Broadcasting Network (ABN) Media Group, a newcomer in the pay-TV market, is lookingto challenge the incumbent with grand and ambitious plans in mind. Regardless of how ABN ups the ante against Astro, we do not foresee the latter faltering and surrendering market share given its strong brand and resilient ecosystem, which took the company many years to establish and nurture.
Source: OSK
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