Between Airasia X and Astro's IPO

This morning while I was listening to BFM, it was talking about Airasia X's IPO opening which needed Maybank to stabilize the price to prevent it from dropping below its initial offer price. The station mentioned of it being the worst performing IPO in recent times. I think that's not true. Probably if we take into account not so long ago last year, perhaps Astro was worse dropping below RM3 for a long long while.

The difference between Airasia X and Astro. Well, if you give me the choice, I would take Airasia X despite both businesses needed huge capital outlay. Airasia X is looking towards growth prospects although the challenges are aplenty while Astro is looking towards a more bleak outlook having gone through maturity stage years ago and now fighting older age. It is fighting against something which it cannot fight - not ABN or RTM - but the internet.

One of the reason why the investment community are not favorable towards both IPOs are due to the pricing. They are just pushing the envelope. If you noticed, the more recent large IPOs are just too expensive for investors and the launching price just do not makes sense. IHH, FGV included but of course these two have big brother to support and make them look good but Airasia X (which remain to be seen as it is just 2 days) and Astro do not have that big brother.

Astro targeted at RM3.50?? by Credit Suisse

I received a report from Credit Suisse on Astro. Here are the excerpts:

Astro (ASTRO MK, TP RM 3.50, OUTPERFORM [V])
A media powerhouse

■     Initiating coverage with an OUTPERFORM. Astro is the only satellite pay TV operator in Malaysia, with a subscriber base of over 3 mn. We expect Astro to grow its subscriber base as well as ARPU at the same time. We initiate coverage on Astro with an OUTPERFORM rating and a DCF-based target price of RM3.50, implying c.32% potential upside.
■     Proxy for rising Malay household income. We believe Astro is a potential beneficiary of Malaysia’s attractive demographics: a young and growing population, whereby a growing economy is driving income growth. Malay households, which account for 60% of Astro’s subscribers, have the highest income growth within the Malaysian population. Astro’s wide range of content is suited to Malaysia’s multi-lingual population, whereas free-to-air (FTA) TV has limited capacity to offer dedicated vernacular channels.
■     Growth drivers. Astro’s ARPU grew 8.5% from FY10A to FY12A. Potential ARPU drivers include high definition (30% take-up currently), personal video recorder (PVR), Super Pack and IPTV. We have baked in mid-single-digit ARPU growth for FY14-16E but if management delivers high single-digit ARPU growth, we estimate, 16% further potential upside to our target price.  
■     Trading 11% below IPO price. We apply a mid-point 15% discount-to-DCF to arrive at our RM3.50 target price. Historically, Astro has traded at a 3%-29% discount to DCF valuations—this suggests a share price range of RM2.90-4.00. Key risk factors, in our view, include content cost, satellite transponder capacity, technical/broadcast failure, competition, regulatory risks and currency. While FY13-14E EBITDA is dampened by significant costs related to a box swap, we expect profitability to rebound in FY15E when the bulk of Astro’s subscriber homes will be equipped with an HD-box.


It went on to compare Astro in Malaysia against UK and US as well as India. Yes, comparison is not wrong but the things he fails to see is this and this. So, before Astro reaches the potential that he sees in US and UK, other threats will just kill it. And, where are Astro's threat coming from? Here.

I am just wondering, where he gets these data... Astro itself?

Astro's management in a show of support for its shares

In a strong show of support for Astro's shares, the management of Astro made purchases of their company's shares.

Remember, it can be an Investor relation exercise and who's best to do it, other than from the CEO, COO etc of a media related company. Remember, they are media people! At the same time, it can be a message that the price of Astro is undervalued.

And, they are insiders as well. So, which is which or are they just trying to please their own bosses?

You still think Astro is a good bet?

Just notice where is Astro heading or at least it is also targeting from below's advert? Mobile.

This is not an advert. You wanna click, click the one below :)

Why? Because it is losing viewership in the big screen TV. But, let me ask you, do you seriously believe in watching your show on your Android phone or tablet? Of course, they will say they are targeting multi-platform. True, if you believe it.

Read this, it is talking about how companies like Google, Facebook, Microsoft are still struggling with monetising mobile revenue while more and more people are turning to their little devices for anything - news to games to stocks quotes :). Who are winning at the moment? Apple, Samsung cause they are the devices sellers. In fact, Apple and Google are dominating what Steve Jobs called the post-PC era. The post PC era seems more and more real despite apprehensiveness (even myself). Just that Apple is making money from selling the devices, while Google is giving away its software for free, hoping to get back from adverts and apps. It is actually hard to believe that Samsung has now become the main beneficiary from the handset sales to the extent that the Korean company profited more from it than Google at the moment - until Google found a better model to make more money from mobile adverts that is.

Back to Malaysia, the poor performance in Astro's IPO is not just due to the awareness of the general public in turning their attention to other devices or content, but the price is just too expensive. It is now at RM15 billion, current price of RM2.90 and at its IPO offering price of RM3.00, it was RM15.8 billion. Remember, Astro's profits are dropping. I read with disbelieve when some analysts mentioned of there are still huge untapped potential in the subscription model for Astro because it only manages to penetrate 50% of the households market. There are still remaining 50% to be tapped. Hello...

Other IPOs in Malaysia such as IHH and FGV, they were not real success because we attract good funds. They were successful because Malaysian funds made them a success. Investment is a herd thing until you realise that you are part of the group of bulls that were running aimlessly. (This does not mean I do not believe some of these companies but yet again, expensive is the keyword.)

With more eyeballs to other devices, the momentum swing may be moving towards different players, and it does not mean the incumbents are surely winning. Why take that bet when you are unsure?

Read my article on a more inept view on Astro's IPO.

Astro's IPO: Get the picture?

It seems Astro's IPO is on. And it seems that the valuation is going to be around RM15.6 billion - plus minus. Assuming this year's net profit is to be about RM600 million, that's a valuation of about 26x. Read this - Astro's IPO is to be a dividend stock as it has mentioned of awarding up to 75% of profits as dividends.

I have written of my concerns on Astro moving forward. To sum it up, let's look at what's in store for Astro to defend on which are not going to be just local. Discard ABN, Media Prima, Hypp TV - check out what's entertainment about, present and future.

You may ask, why Time Dotcom and Maxis. Well, these are the parties which Astro has tied up with. In fact the Maxis tie-up is mutually exclusive as I have read.

Astro-Maxis tie up: Wake up guys!

So at last Maxis and Astro decide to do tie-up, although the nature of the tie-up is yet still blurr. What was not possible due to each party's "protecting the brand and turf's" mentality, is now made possible probably from the Number 1 in this case - Ananda?

What is the outcome in this?

Astro is way-way stronger in terms of content production and channels delivery to the masses in Malaysia. It is Number 1 by far. Who is Number 2? Media Prima - some may not even know the name ... err TV3, NTV7 ring the bell?

In my previous article, I have mentioned at length of Astro's dominance but yet its growth is to be curtailed in future not due to local competition but the nature of the content deliveries technologies (and content itself) moving forward. IPTV is to gain dominance and who has the best infrastructure in terms of IP delivery - TM. Astro's delivery infrastructure is old!

Maxis rents the HSBB (fiber) infrastructure from TM. And from there, Maxis offers its own fiber packages to the Malaysian masses. Sounds confusing? Well, let's put it in another way. TM build the roads with the help of the government. TM puts its own toll booth and Maxis does that as well renting the booths and toll roads from TM. Who provides the transport? Astro. But so far it only offers that to Maxis using the toll roads that Maxis rents from TM.

Do I see something missing? There is still the monopoly element here. Astro does not compete against TM. Neither does it competes against Maxis as Maxis is not into content. Not that I see it.

Where are the tie-ups between Astro and TM, Digi, Celcom, P1, YES?

Bring it on. And lose the monopolistics element in content deliveries! Drop the exclusivity(ies).

Only one-third of proceeds goes to Astro

The EdgeDaily yesterday reported that proceeds from the IPO would be used for the following:

This shows that a possible netting of RM3.764 billion by both Ananda's company and Khazanah.

Hence, what does that tell you. It is going to be a dividend stock. If you are looking for dividend, this is not a too bad a stock however, it will face challenges in terms of its business in future.

Astro's IPO: Primetime still?

Imagine 10 - 15 years ago, what was your most viewed screen? TV? PC for work and some surfing? How about today? How many active screens do you own? Mobile (smart), tablet (iPad probably), notebook with built in wifi (whole lot of apps for video viewing, blog reading, stock charting, facebook-ing?), then your TV screen. In my house, for example I have some 6 active screens in total (2 TVs, 2 PCs, 1 tablet and 1 mobile).

With that, the biggest question for Astro in the future is how to grab that eyeballs from Malaysians as much as it can. The question is can Astro with the tonnes of content it is creating and to some extent have exclusive rights in some premium content, would it be able to grab your attention. Would more people be shifting from watching Astro's TV to reading my blog for example, or me spending time blogging rather than watching Astro's content? How would YouTube's premium content strategy turn out to be? Will YouTube be a competition to Astro? How about Apple's TV strategy?

Even TV is changing

One of the biggest question now is whether Apple coming out with "iTV"? The fact of the matter whether Apple is coming with TV or not is actually not important. The more important fact is that SmartTV is here to stay and grabbing market share from the more traditional TVs. Apple's iTV is about SmartTV, only thing is how are they going to make it smarter as in the iPhones for mobile and iPads for tablets. If SmartTV is here to stay, and with capabilities of viewing youtube, international channels not related to Astro and other hosts of applications now being made available from your PC to your TV screen, it is going to be bad news for Astro. They will lose their share of your eyeballs.

Will Astro with a whole lot of highly paid and smart people be able to address that problem? Its competitors - Google, Apple, Samsung have very highly paid (and smart) people as well. Much higher in fact. And these guys are thinking of getting into TV and content. (Yes, Astro's competition may not just be Media Prima and RTM but people like Larry Page, Sergey Brin, Tim Cook, even Microsoft's Steve Ballmer - am I over speculating? I am not.)

Netflix?

Heard of Netflix? The top darling stock in US for 2011 (of course it came down later while its strategy has proven to be a threat). It is basically a company that aggregates content - be it movies, dramas, series, - new or old - and bringing them to your living room. Their charging model is via per movie purchased or monthly subscription. Hence, households will have a huge library of content available in their living room, and they can watch it by paying a minimum sum whenever they want to watch them. The more they watch the more they pay - basically On Demand.

Of course, over here in Malaysia, this Netflix model is a bigger threat to the pirated DVD dwellers than Astro for now. But imagine you can pick and watch whatever you want anytime you want - that is OnDemand TV already here right now. YouTube can do that too. The biggest challenge right now for this things to be here, in Malaysia is licensing.

Can Astro do what Netflix is doing? As a predominant Satellite TV provider - difficult, as technologically it faces a challenge. What netflix does is it does not care which "platform" you are watching your TV on, you can basically get a USD50 set top box (STB) from any shop out there, pre-downloaded with Netfllix and watch. From there, the content will reach any home which has STBs that supports Netflix. (Most homes in US has that.)

While Netflix may not be here, what may happen are operators with Netflix model may be here and again these are potential threats to Astro in terms of grabbing your eyeballs.

Current challenges to Astro

What has been said above are potential threats to Astro - although, it may or may not be here, yet. The single biggest challenge to Astro NOW is the challenge with content costs and increasing the Average Revenue Per User (ARPU). If you see below, it may seem to be that they can pass the costs to the users as it seems that they have been able to grow the ARPU from RM82 in 2010 to RM91 in 30 Apr 2012.

How high more can this continue? Above RM100? While the actual data may not be available, let's face it - my experience in Astro being able to increase its ARPU is not by providing better and more content to the household, but by increasing its charges. The amount of content that I get from Astro is still the same or lesser in fact but over the last few years it has repackaged their pricing to squeeze more dollars from its subscribers.

Again the question is how much content do we really need. Yes, Astro is smart to repackage content so that we may need CNBC, Sports, History Channel and other useless channels which I do not watch - repriced them yearly so that we will be paying more, but this is to backfire if it does this too many times.

It already has 50% market share on the households in Malaysia. Anything more would be getting tougher as there is a percentage who would not bother or just cannot afford. Look below, it manages to increase less than 200,000 subscribers over the 2 years, still a decent sum but already it is showing a slow down in terms of getting new subscribers.

However, I would feel that the bigger challenge in the long run is to reduce its churn. While this may not seemed to be, based on the above current numbers, it will be a challenge over the long run.

How come?

- Monopolistic environment - besides what are already mentioned above, one thing that people do not realize is that Astro has been pretty much operating off a "monopolistic" environment. Astro is the only 1 operator who is able to offer satellite TV, and Ananda is smart to be able to expand this advantage fast to be able to control premium content deliveries in Malaysia. Astro now has exclusivities over ESPN, Star Sports, EPL, CNN, CNBC (basically the premium content that most Malaysians until now are not able to live without). Will that change is a question?

It may, it may not. The most recent example where Live Olympics content was already available off YouTube (owned by Google) is already an example. You can basically watch Olympics live on Youtube as in what we get from Astro. Google is a USD250 billion behemoth, and I am sure this is just the beginning. If Apple is going into offering content through TV, I am (carefully) sure things like this will be here as well, or much more.

Yes, we may say the content owners may have different ideas but content delivery partners to these guys are equally important and these giant of companies have a lot of power and money to make statements. Movie content guys are facing some of the threat that the music industries were facing since the days of Napster.

Hence, that monopolistic situation may even be cancelled out, even with the Malaysian government fully behind Astro. Content may have just gone borderless with the advent of YouTube.

- younger generations - again, more and more eyeballs have gone to tablets, phones, notebooks and other screens and moved away from TV in the last 5 years. Hows that going to translate to Astro getting more of your time? They may be able to continue to charge you subscription and increase them. But don't you think over time, we will not be that naive anymore? - paying for something which we use lesser and lesser.

- costs - at last, I am going to show the financials. Look at the revenue growth - great. But look at the PAT growth as well. In fact, for the most recent quarter, its PAT deteriorated (from RM196 million to RM123 million - 30 April 2012 quarter). How is this?

It is basically spending more to deliver content to us - either by way of purchasing them or making (producing) them. Over the years, premium content are getting much much more expensive. This is why much watched "Live" content such as EPL, NBA, Olympics are getting "record-breaking" bids. This is also why content such "American Idol" is getting value - that is if you are able to produce them well. Nothing beats live content nowadays. Beyond live content, their value deteriorates due to "On Demand" technology. And this is why strategies like Netflix's will thrive in the future. Not Astro's as it does not have the delivery mechanism to do this - besides Beyond IPTV. Who has? Actually, Telekom Malaysia through HyppTV's IPTV (but TM currently does such a bad job in this - they will learn but this is a story for another day.)

Why are Astro's other expenses higher besides the costs of sales? It has to concentrate to make more localize content of its own. And it has to spend more on getting better and newer technologies to deliver the content to your home - better Set Top boxes (the PVR, HD), having more satellites to deliver High Definitions content. However the platform that it is using is just too much a challenge against the one that TM is having - fiber.

Another potential reason for the higher revenue and ARPU could be due to the sale of broadband. Started few years ago, Astro has tied up with Time Dotcom to offer Astro Beyond IPTV. Part of the package offered for Beyond IPTV is broadband (minimum price package I think is RM138 for a 3MB broadband). Hence, if it is recognizing revenue from broadband, for sure its revenue and ARPU is going to be higher. So will the costs of sales be. Hence probably from there, that's the reason we are not able to see higher profitability despite the higher revenue.

It seems that the journey Astro is going to have is getting more and more challenging. It is just facing competition from many angles.

At RM15 billion market valuation it is trying to ask for from us, is it worth it? Would you pay 24xPE (2012's Net Profit) for so many things unanswered? But yet again, since Khazanah is there, EPF is potentially going to be there as well. And from there, Astro may get some premium - but for how long with all these questions? Yet again, it may promise all the dividends in the world - and when we hear things like this we get excited.

Anyway, there aren't much for those who would like to apply through the usual balloting. See below.

Read my other article on Astro's IPO.

Astro IPO: How delisting and relisting may create additional RM6.5 billion from the market

Astro's IPO: How delisting and relisting may create additional RM6.5 billion from the market

Guess who owns Astro and Maxis. Both listings exercise strategies are cut from the same cloth. If one can remember, both went through a decently successful initial IPO (Maxis much more successful) and both were delisted. Then Maxis was relisted, Astro is about to be relisted.

What is that strategy? Originally, Astro prior to its delisting has operations in several countries but Malaysia is the only successful and significant one. Malaysia is the only one making money while everywhere else are just too volatile and bleeding cash as well as affect its P&L.

I have pulled out the Income Statement prior to its delisting in 2010 and compare it to the Proforma Income Statement which it is going to use for its prospectus this coming IPO. See the difference, prior to delisting, the marketing, distribution and administrative expenses was much higher. So was the share of losses from its associate companies (which are using equity method of accounting). The PAT was RM233 million for the accounts prior to its delisting. After the restructuring, we are seeing an account with a healthier PAT of RM614 million. And this structure is the one it is using for the new listing.

Which were the associate companies? Well, pretty much as below.

What did it do? The below is what I have cut out from its prospectus (which it submitted to SC). Astro basically reorganized its business by pulling out the profitable Malaysian operations and offer them to the people again. It also cuts off most of its associate companies above from the listing.

For the point of delisting, Ananda and several group (Khazanah included) were buying off minorities at RM8.5 billion valuation. Now, it is expecting a valuation of between RM11 billion to RM15 billion and I believe it is able to achieve at least RM12 billion judging from the more recent IPOs for large listings in FGV and IHH. If they achieve RM15 billion, it is going to be a cool RM6.5 billion that it has managed to pull from the market.

The question is, are all these illegal? It definitely is not. But just pure assets shuffling (for gains) which is just too much of unproductive work and thinking into it - and that is much we are all about nowadays - tonnes of hot air for nothing!
Do you see anything productive here?

BTW, as I see it again CIMB is involved. Guess who is always thinking of creating something out of nothing.

Other article on Astro's IPO:

Astro's IPO - Primetime Still?

Telecommunications in Malaysia - a sector not to be missed

When I thought of how much monthly expenses are spent on communication, I thought I should not miss out this sector.

I spend around RM430 a month paying these companies. Some may pay much lower, some may even pay much higher, nevertheless it is already a necessity. We use their services from voice to data (3G or High Speed Broadband), whereas for video content, we use Astro's services.




Few thoughts about this sector:

1. voice has matured, with more spending on mobile rather than fixed. Fixed line usage will continue to deteriorate;
2. data is growing, but who will be the winner ultimately. Current seems to be TM. Will they continue to grow their market share?;
3. mobile has the Big 3 i.e. Maxis, Celcom (under Axiata) and Digi. The others such as UMobile, YTL, Redtone are just passers-by;
4. this is a high capex game. Remember telcos are technology adopters not so much of a technology innovative companies. AT&T used to have Bell Labs which churned out tonnes of new technologies during the earlier days. Now this is not so - I remember Bell Labs became Lucent and now it is Alcatel-Lucent. Look at where Alcatel-Lucent is right now - almost animosity. Telcos are more of adopters today. Look at how AT&T, Verizon, even Maxis and the Singapore telcos are so reliant on Apple, Blackberry and recently Google to help them to push their 3G packages;
5. since it is a high capex game, why the smaller players bother mind-boggles me;
6. anyway I believe they are looking at the post investment effect which is the amount of free cashflow received is very rewarding;
7. all the big boys (Axiata, Maxis, Digi and TM) are fighting over the data market share. Smaller players are also putting their effort in not allowing this to be just the big boys game;
8. Will any player be able to break Astro's dominance? Is yes, when and who can possibly be the player?

The industry is gamed for exciting times (has always been since mobile became something big).
Here are some of the market cap size of companies in this space:

As you can see, the telco sector consists of around 9% of the total market cap - very significant. Now who will be the winner? - as my blog is trying to identify the better play. I will have more of the industry and individual company analysis of this sector.
See ya!