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Astro Malaysia: Broadcasting Strong Growth Well Into The Future
By: Brian Brinker
Articles (44) Profile

Astro Malaysia appears to be set for another year of strong growth, but numerous challenges could dim the company’s prospects. While the company itself is well-managed and has been recording solid growth over the last few years, several external pressures could dampen the consumer services industry and media sub-sector this year.

The consumer services industry in Malaysia may be set for slow growth through 2014. While the future is hard to predict, many economists and analysts project that Malaysia will suffer slower consumer consumption growth, rising living costs, inflation, and slow wage growth. This will likely restrain the growth of the consumer services industry as potential customers will have less to spend.

The Malaysian government is now looking to scale back subsidies, which could have a dramatic impact on disposable income levels. Malaysians will now have to spend more money on gasoline, energy, and other essential goods. As spending on these items increases, the amount of money left over to spend on other items will decrease.

The government will also be introducing a goods and sales tax (GST), which will further restrain growth in consumer spending. The GST will be set at 6 percent and will come into effect on 1 April 2015. While the immediate impact on spending may be delayed until 2015, investor outlook could cool in the immediate future as investors anticipate the introduction of the tax.

The media sub-sector will also likely enjoy restrained growth through 2014 due to the above conditions. 2013 was a good year for the media advertising expenditures (adex), with the sector producing some RM12.2 billion through the first 11 months of 2013, compared to RM10.1 billion worth of revenue during the same time frame in 2012. Television advertising were RM7.2 billion, up from RM5.4 million previously.

RM4.3 billion of this revenue was for “paid TV”, up from RM2.5 billion worth of revenue during the same period a year earlier. Astro is the biggest player in the paid TV segment.

Maybank Investment Bank has warned that advertising revenues will likely decline through 2014 in anticipation of the GST in 2014. With consumer spending likely to suffer a drop off, companies will be less inclined to spend on advertising given that people will likely be spending less either way.

Television accounted for 59.3 percent of market share in the media adex in the first 11 months of 2013. Any slowdown in adex could have a dramatic impact on Astro as the company generated some RM503 million of its revenues from advertising fees in 2013.

Company Profile

Astro was founded in 1996 and has grown into one of Malaysia’s largest media companies. Astro’s business focuses primarily around paid TV. The company serves 3.5 million customers, which represents a household market penetration rate of approximately 52 percent. The company made headlines around the world in 2012 with its multibillion dollar IPO being one of Asia’s largest.

Financial Highlights

Astro added 418,000 customers in 2012, helping drive a 10.9 percent growth in revenue in FY13, reaching RM4.3 billion. Astro generated an EBITDA of RM1.4 billion with a margin of 32.5 percent. The company also produced a solid 28 percent return on invested capital.

Just over RM4 billion of Astro’s revenue came from television services. Another RM214.7 million was generated through radio services. Astro’s assets are valued at RM6.5 billion while the company holds RM3.7 billion worth of debt.

Latest Developments

• Astro’s emergence as a leading Malaysian company was confirmed this past May when it was included on the MSCI Index.
• Astro anticipates lower 2014 revenue due to currency loses, equipment upgrades and higher amortisation costs.
• Astro projects a 40 percent growth in revenue for its 2015 earnings, due to higher than average revenues per customer, largely stemming from its high definition B.yond service.
• The company was able to deliver double digit growth in 2013, despite industry-wide challenges, through the rapid expansion of its subscriber base.
• Astro partnered with Maxis to offer entertainment and high-speed broadband combo package for customers, which could help lead to expanded market share for both companies.
• Astro launched an on-the-go programme that allows remote access for customers living and working abroad, helping the company stay in touch with its customers even when they leave Malaysia.

Brokers’ Recommendations & Catalysts

Astro appears to be positioned for strong growth in the near future. The company has enjoyed strong growth in subscribers over the last few years and should be able to maintain growth through 2014. Most brokerage firms are advising investors to either hold or buy Astro.

UBS Securities Malaysia noted that it expects Astro’s earnings to hold up despite rising living costs and other challenges facing the industry as a whole. The company raised its target price to RM3.80, up from RM3.50. UBS did, however, highlighted that currency losses could weigh on the company, but expects an especially strong performance in 2015.

Maybank Investment Bank has maintained an upbeat outlook on Astro, advising investors to “Buy”. Maybank has noted that dividends were better than expected, while the company has remained resilient in spite of weakening consumer sentiments and increased competition. Maybank expects Astro to continue to deal with and overcome industry-wide challenges in 2014.

Many brokerage firms have also noted Astro appears set to enjoy rising revenue from individual customers as Astro raised prices in November of 2013 and did not suffer any blow back. Further, more customers are opting for premium packages and high-definition television services.

Source: FactSet

This article is brought to you by Bursa Malaysia Berhad. The research in this article was conducted independently by Pioneers & Leaders (Publishers) Pte Ltd (“Pioneers & Leaders”) and the views and opinions expressed in this article are Pioneers & Leaders’ own and do not represent the views and opinions of Bursa Malaysia. Bursa Malaysia does not warrant or represent, expressly or impliedly as to the accuracy, completeness and currency of the information in this article. In no event shall Bursa Malaysia be liable to the reader or any other third party for any claim howsoever arising out of or in relation to this article.
Brian focuses on trending and understanding how fast changing circumstances can impact markets and companies.

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