About Astro ....

Astro

Utilization Of Proceeds …

Dividend Policy …

The Cornerstone Investors …

Financial Results …

About Astro …

Its Valuations …

Its Growth …

Astro Malaysia Holdings Bhd is raising RM1.42bil from the sale of 474.30 million new shares at an indicative RM3 per share for the retail portion.

The new shares are part of its initial public offering (IPO) of 1.518 billion ordinary shares of 10 sen each, comprising of a public issue of 474.30 million new shares and an offer for sale of up to 1.044 billion existing shares. This will see it raising a total of RM4.55bil.

Of the RM1.42bil from the IPO of which RM750mil or 52.7% of the proceeds would be used as capital expenditures with 36 months and RM500mil or 35.2% to repay bank borrowings.

The company had allocated RM112.90mil as working capital while listing expenses would be RM60mil.

Of the 1.518 billion shares, 1.258 billion shares would be offered to the foreign institutional and selected investors including Bumiputera investors while 259.86 million shares would be offered to the public, directors and eligible employees.

Utilization Of Proceeds …

Of the proceeds from its public issue of RM1.42bil, it intends to use RM750mil for capital expenditure within 36 months, RM500mil to repay bank borrowings within a year, and RM112.90mil as working capital. Its listing expenses amounted to RM60mil.

Dividend Policy …

It intended to adopt an active capital management. It proposes to pay dividends out of cash generated from its operations after setting aside the necessary funding for capital expenditure and working capital needs.

As part of this policy, target a payout ratio of not less than 75% of its consolidated profit for the year under MFRS, in each financial year beginning Feb 1, 2013.

The Cornerstone Investors …

Upon completion of the exercise Astro Networks will own 70.8% equity stake in Astro and the investing public will hold the remaining 29.2% stake. Japanese bank Nomura Holdings Inc and Singapore’s Great Eastern Holdings Ltd are among the 16 cornerstone investors for the US$1.5 billion listing of pay-TV firm Astro Malaysia Holdings Bhd.

Other cornerstone investors include California’s Standard Pacific Corp and Malaysian state-owned fund management firm Permodalan Nasional Bhd, the sources added, speaking on condition of anonymity because they were not authorised to talk publicly on the matter.

PNB is said to be one of the biggest cornerstone investors out of the 22 that the country's largest pay-TV operator Astro Malaysia Holdings Bhd has secured for its US$1.5bil (RM4.5bil) initial public offering (IPO).

A total of 430 million shares were offered to cornerstone investors, which included tycoon Chua Ma Yu, Kencana Capital Libra Investment Sdn Bhd, Great Eastern Life Assurance, Myriad Opportunities Masterfund, Nomura Asset Management, Antell Holdings Ltd, hedge-fund Azentus Global Opportunities Masterfund Ltd, Caprice Capital International Ltd, Cornstone Smith Asset Management, Gordel Capital, five units of Ochis-Ziff, TPG-Axon International, TPG Axon Partners and pension fund Universities Superannuation Scheme.

The lock-up period for the cornerstone investors is said to be three months.

Financial Results …

Astro reported net profit of RM629mil for financial year ended Jan 31, 2012 on the back of RM3.8bil revenue. For first quarter-February to April for FY13, Astro reported net profit of RM123mil.

Astro has borrowings to the tune of RM3.7bil and although it intends to pare debts down with the proceeds from the IPO, its debts would still be high but “the company is correctly leveraged and it has an acceptable gearing level.”

About Astro …

Astro's rationale for returning to Bursa was to provide it access to the capital markets to source funding for its expansion.

Astro is making a comeback without its overseas operations in Indonesia and India.

Astro Malaysiahad also approved rm201.4 million in capex as at end April 2012 and further approved rm2.27 billion, largely earmarked for new businesses as well as investments in additional satellite transponder capacity on Measat-3B that is slated for launch in calendar year 2014.

It also intends to invest in content of some rm1 billion annually. It also intends to derive new income stream from smart and targeted marketing of additional products to its existing customer base.

Astro Malaysia, which had previously been listed under the name Astro All Asia Networks Plc, provides SatTV services to both Malaysian and Bruneian homes.

Its total intangible assets stood at RM1.76bil against the next biggest asset component of property, plant and equipment at RM1.71bil.

Astro Malaysia’s total equity as at April 30 was a negative RM1.13bil while it said its total indebtedness, which also comprised contingent liabilities, was at RM4.56bil. The deficit position is primarily due to the reorganisation, whereby for accounting consolidation purposes, our acquisition of Measat Broadcast Network Systems Sdn Bhd (MBNS), our largest operating subsidiary, was accounted for as a capital reorganisation of MBNS and the difference between the consideration for MBNS and the net assets of MBNS at the date of acquisition has been taken to capital reorganisation reserve.

Its Valuations …

While industry observers said 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.

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 some 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 or the funds who showed 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.

Astro’s management has guided for lower earnings and margins for FY13 and FY14 as the company converts the current (Sept 2012) 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 the listing price of rm3.00 per share, Astro is valued at rm15 billion. However some say its value could even higher at between rm15 billion and rm22 billion.

Astro has already achieved critical mass and its push into more value added products will boost its average revenue per user.

Astro currently (Sept 2012) dominates the local pay TV scene with over three million subscribers and is poised to continue adding subscribers at a healthy pace.

Post IPO, Astro’s net debt to Ebitda ratio will be reduced to 2.2 times from 2.4 times and be maintained at 1.5 to 2 times in the long run.

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.

Astro has a longer-term growth story and shareholders will have to wait it out.

Margins were likely to see compression for the time being (Sept 2012& Beyond) as Astro worked to switch some 1.5 million of its subscribers to high-definition. However, Astro’s management was confident it could bundle both TV as well as broadband offerings once the conversions were complete.

Its Growth …

From its inception, this pay-TV operator has grown by leaps and bounds and its offering is now available on multiple platform that allows it to access new target markets.

Its growth was about “servicing its existing customers by providing the right value propositions and content. Astro is also moving out of living rooms to provide Astro-On-The-Go and will bundle TV and radio services on broadband and provide existing and new channels on high definition.”With that Astro can now tap into a “100% addressable market” which is about 7.5 million households.

Capex would be 11% of revenue by 2014 and maintenance capex will be 4% to 5%.

There is considerable doubt over just how much growth a pay TV operator like Astro can expect to have a market placed filled with challenges and new entrants due to the jump in high speed internet penetration and proliferation of mobile devices.

Local pay TV penetration growth was already showing signs of hitting a plateau when Astro went private in June 2012, just as the regulatory and operating environment started getting tougher. Moreover, the exclusivity privilege it enjoys for the direct to home platform ends 2017.

It is targeting a valuation of over US$5 billion for the new Astro– double the rm8.3 billion or rm4.30 per share its predecessor Astro was valued at when it was privatized by Ananda and Khazanah Nasional.

Has that much value created over the past two years (2009-2011)?

Its CEO stressed that a much bright future for the group, whose 3.1 million subscribers represent just over 50% of Malaysian households.

It has a platform to reach 100% of the market and has mapped out a strategy to not only address Malaysia’s more than six million households but also individuals with mobile devices.

In 2009 Astro prioritized resources to migrate customers who can take more services to take it higher ARPU on the new platform.

Now (Aug 2012), having migrated some 1.4 million subscribers to its next generation Beyond platform, Astro can start monetizing its investments by promoting services like HD as well as over the top services like Astro on go which allows content to carried over mobile devices.

Astro is also mulling services that encourage impulse purchases –something it will also offer non Astro subscribers within a year.

Have all the big ticket capex been made while Astro was private, leaving enough cash for rich dividends?

Apart from standard investment, Astro is expected to incur additional capex on the additional transponder capacity when the Measat satellite comes online in 2014. Its plan to aggressively migrate all subscribers to the new platform could also weigh on margins.

Its margin will be below 2011’s 36$ over the next two years (2013-2014) as it swap out the boxes.

With a large number of broadband users downloading free content, is the bright outlook wishful thinking in Astro’s part? Concerns about the regulatory will to push for on for content sharing as well as the risks from the advent of IPTV on Telekom Malaysia’s high speed broadband network?

While TM is seen as a formidable pay TV rival, rivals had pressed to match Astro’s RM1 billion annual expenditures on content.