Thursday, November 22, 2012

What's NEXT For Astro ...

It beats several bidders to win the broadcast rights for the next three seasons of the EPL football matches at what is said to be a respectable cost increase to the previous three seasons.

It is understood that the amount is near rm1 billion for the three seasons up from the rm800 million Astro is said to have paid in the current three year season ending 2012/2013.

A substantial cost increase could further dent earnings for Astro, which is already guiding smaller margins year on year in the next two years from Nov 2012 as it spends to convert the remaining half of the 3.1 million subscribers it has to the next generation platform.

Rather than Astro losing the EPL broadcast rights, market observers are currently (Nov 2012) more concerned with the jump in cost, which could hurt dividend payments. Astro has promised to pay out at least 75% of its earnings as dividends to placate shareholders as it nurture new growth sources.

One way Astro could boost confidence is to show it can continue to deliver strong earnings while keeping a tight rein on costs, despite facing heightened competition.

Is It Worth Buying Now (22 Nov 2012) ???
ASTRO Malaysia Holdings Bhd had won the broadcasting rights for the Barclays Premier League (BPL) for the next three seasons starting from season 2013/2014. The broadcast rights is reportedly to cost near RM1bil, up from the previously reported RM800mil. However, ground check indicates that the actual cost for both current and previous deal is lower than those appeared in newsreports.
Nevertheless, expect the impact to Astro's earnings will not be significant.  Estimate that its content cost as a percentage of revenue will increase by 1% to 2%-points in financial year ending Jan 31, 2014 (FY14) from current 32%. This will be within the management guidance of circa 32% to 35%. In addition, content cost will only reach 35% of revenue in the year with major sporting event such as the World Cup and Olympics. Otherwise, content cost will range between 32% and 33% of revenue.
Hence its margin will be under pressure. Churn will be limited but sports are not the only reason. The impact to Astro will be positive as it will limit the churn rate of its subscribers. Current churn rate as at calendar year 2011 (CY11) is 7%, which is well below the industry average of 13%. With BPL rights, churn rate can fall to the 5% to 6% level. However, regardless of the sporting content, Astro's churn rate will also be limited by its local and international offerings.
Astro's wholly-owned subsidiary, MEASAT Broadcast Network Systems Sdn Bhd (MBNS), has received a letter from the Indonesian Embassy in Kuala Lumpur on Nov 14 2012 naming MBNS as second defendant with respect to a claim made by PT Direct Vision (PTDV) for an unlawful act or tort in the District Court of South Jakarta, Indonesia, against Astro All Asia Networks Plc. The on-going dispute with PTDV will not have an impact to Astro as its operation is solely focus in Malaysia .
The current (Nov 2012) content cost is within management guidance. The winning bid for BPL should remove a lot of uncertainty for Astro and at current price level (rm2.65 – rm2.72) is an attractive entry point for investors to accumulate on Astro's shares.
Astro aims for a dividend payout ratio of 75% will be an added incentive for investors.
The main investment cases for Astro are as follows: Astro has room for growth given that Malaysia pay-TV market penetration rate is only at 50% and it is the leader with market share of circa 99%; popular in-house content and international content which will limit the churn rate and entice new subscribers; increasing income level in Malaysia will consequently increase its average revenue per user (ARPU) as subscribers upgrade its packages; new products that can tap previously underserved market; innovative product to maximise ARPU.
By OSK (NO) …

Content has been the largest component of the group's cost of sales, comprising 54.4%, 55.1% and 51.6% of its pro forma cost of sales for the financial years ended Jan 31, 2010, 2011 and 2012 respectively, as well as 52.1% of its audited cost of sales for the three months ended April 30, 2012.

Despite the decrease in content costs as a percentage of total operating costs, its content costs have increased in absolute amount primarily because of the addition of new channels to expand our channel offerings, the addition of high definition (HD) channels to increase our HD penetration, the increase in content prices due to inflation and the increase in local production.

The cost of winning the BPL is likely to have an impact on Astro's earnings before interest, taxes, depreciation, and amortisation (EBITDA) margins for the next two to three years from Nov 2012.

Also expecting a slight impact on the company's dividend payout in the near term or thr next two years.
However mariket observers did not rule out a potential subscription price hike to pass on some of the costs to viewers.

Since 1997, Astro has been showcasing BPL action as part of a comprehensive bouquet of football programming to Malaysian football fans.

Meanwhile, it will be interesting to see if Astro would be mandated to share its content with other players. According to reports, a policy directive to ensure certain types of popular content, such as some live sports, is not bought on an exclusive basis by any television station in the country, is expected to be issued.

This is said to pave the way for joint bidding for live sports content by all the players or, if only one player bids for it, the concept of sharing popular content with all the players will be possible.

The directive is said to address the concerns and comments made by industry players that claim that when only one broadcaster gets all the exclusive content, it allows it to keep its market dominance and the exclusivity blocks the prospects for new entrants.

By Mercury Securities (NO) …

The share price would not revert its offer price or higher (on news of it securing the broadcasting rights). The public already expected Astro to be given the exclusive rights.

The management had already factored in the fee for the rights which is said to be about rm1 billion before the IPO.

Apart from current (Nov 2012) cautious market sentiment, the expensive valuation has also put a cap on Astro’s share price. Furthermore, the company cannot afford a generous dividend as it is incurring large capex as it migrates customers to the new Beyond set up boxes.

The Astro’s management said that for the next two or three years from Nov 2012, Astro should see a 2% to 3% contraction in Ebitda margin.

However it is a wise long term investment on the group’s part to raise profitability.

More than 93% of Astro’s revenue is derived from its pay-TV segment with is current (Nov 2012) Arpu standing rm83.00.

Fro the near term, Astro has no catalyst insight.

Astro venture into IPTV broadcasting – with its mobile Astro On the Go service and strategic collaborations with TIME dotcom Bhd and Maxis as well as it no frills prepaid satellite broadcast service – could potentially be a new growth area for the group and could elevate its pay TV market supremacy. Astro has the exclusive rights for the satellite DTH broadcast service in the country until 2017 until that does not mean it will not face competition.

Astro’s management said that it would face no competition in the foreseeable future. However, that is only partially true as it does not have any competition only within the satellite television service.

The exclusive rights do not guarantee that audiences will only watch Astro. As high speed broadband (HSBB) is becoming increasingly ubiquitous in Malaysian households, Internet users can immediately download or stream any programming to view it a their convenience. Thus Astro’s PVR service, which allows viewers to record and watch a programme later loses some of its appeal.

Another potential competitor for Astro is the cable TV provider ABN which is currently (Nov 2012) doing a test run in the Klang’s Valley.

Meanwhile Astro is only known for its monopolistic business model which provides resilient recurring cash flow, and is well run by a capable management team.

In the long run, there might be an intense war among broadcasters for audiences. But for now (Nov 2012), Astro will continue to dominate.

Philip Capital (NO) …

Astro is a well run company. The current (19 Nov 2012) capex is necessary as it will set a platform for the group’s future earnings growth.

Nonetheless it does not see the share price weakness (19 Nov 2012) as a buying opportunity but until the group starts paying dividends.

The IPO valued the stock as a PER of 32 times based on projected EPS of FY2013. The media industry’s average PER is 18.26 times.

Monday, November 19, 2012

F&N Nov 2012

F&N Malaysia could potentially gain a new owner in the form of Japanese brewer Kirin Holdings Co.
In early Nov 2012, a consortium led by OUE, a property concern controlled by Indonesia ’s Lippo Group, made a S$13.1 billion (RM32.78 billion) or S$9.08 per share, takeover offer for F&N Malaysia’s parent F&N Ltd ( Singapore ).
The offer by OUE sets the stage for a potential bidding war between the Indonesians and the Thais. But adding weight to OUE’s bidding is support from Kirin , which is F&N Ltd’s other major shareholder.
Kirin will agree to accept OUE’s offer without contest, but will subsequently makes a S$2.7 billion offer to acquire F&N Singapore’s F&B business. Kirin holds 14.7% stake in F&N Singapore.
F&N Singapore holds a 56.43% stake in F&N Malaysia, which carries out the bulk of the Singapore parent’s F&B business. F&N Malaysia’s market cap (19 Nov 2012) is rm6.99 billion, which values F&N Singapore’s stake in the Malaysian operations at rm3.8 billion.
Kirin’s move is significant as it is the first indication of the Japanese group’s intentions since Charoen bought into F&N Singapore in July 2012.
Ultimately, however, Kirin ’s entry hinges on whether OUE is successful in its takeover of F&N Singapore. But as F&N Singapore’s current (Nov 2012) largest shareholder with a 35.7% stake, Charoen is unlikely to go down without a fight.

Sunday, November 18, 2012


In the near term, the company is expected to secure the lead role in even more mega projects such as the two new KVMRT lines to be unveiled in 2013 and more railway jobs nationwide over the next few years from Nov 2012.
Its ability to land large contracts, given the ambitious plans for infra buildup put forward by the government, has the company on close watch by the investment community. And with the GE around the corner, the change in company’s shareholding dynamic has captured investor attention. While some Gamuda directors and substantial shareholders were paring their equity holdings, MD Datuk Lin raised his stake to 3.25% as at Nov 5, 2012. Lin raising his stake in Gamuda shows his commitment to and confidence in Gamuda. But as his five year term expires in June 2013, the market has also been wondering whether Lin will stay on for another term.
Market observers viewed that Lin intends to renew his contract for another five years from 2013 as he anticipates more opportunities in the construction and real estate sectors. He acquired more shares in Gamuda (Nov 2012) as he believes the current (Nov 2012) valuations are attractive.
It is also expected that the company to post record profits in the next three years from 2012 with a positive outlook to translate into gains in the company shares.
Gamuda’s fundamentals remain strong with an existing order book of rm4.8 billion and prospects of clinching over rm10 billion worth of jobs in 2013.
The feasibility study on additional KVMRT lines within the Klang Valley should be finalized by end 2012. Gamuda tips the government to approve the new lines by 1QFY2013.
For now (Nov 2012), the market will be closely watched whether Lin’s contract is renewed to ensure management continuity.
The company property projects include the Kota Kemuning and Horizon Hills in Johor and real estate jobs in Vietnam .

Thursday, November 15, 2012


Its shares have been profit taking in the past two weeks from end Oct 2012 which is due to its lofty valuations after it hit an all time high of rm10.72 at end Oct 2012.

Now that the shares have given back some gains (15 Nov 2012), will they attract investor interest anew? After all, the outlook for the global economy is till uncertain and the outlook for the local bourse is clouded by the looming GE. Persistent investor caution has been one of the key drive factors behind the strong interest in defensive, high yielding consumer stocks.

The company manufacture a wide range of staple consumables targeting the mass market, where consumption has so far remained resilient. Indeed, it has been bolstered by rising disposable income and goodies handed out by the government in 2011. In addition, the company has a long, established track record and good corporate governance.

It is likely that the company will continue to do well going forward, earnings wise.

However its prevailing valuations still look rich. The current investor risk off sentiment is underpinned both by uncertainties in the global economy as well as domestic concerns ahead of the GE. Nevertheless, the stock remains a solid long term investment choice for the combination of steady earnings growth and yields.

Sunday, November 11, 2012

Scomi Grp/IJM Corp

Datuk Phillip Siew Mun Chuang increased his shareholding in Scomi Group Bhd acquiring an additional six million shares on 05 Nov 2012 and nudging his shareholding up to 72.98 million shares or 5.48% of the company. His purchased is ahead of a crucial shareholder meeting – to be held soon – to vote on the issuance of convertible debt paper to IJM Corp which could potentially use that to tighten is grip on Scomi Group if it chose to convert the paper into shares. Siew is against issuing the paper to IJM corp, citing dilution to existing shareholders.
Siew is aligned to Tan Sri Abu Sahid who has 7.7% stake in Scomi Group. The duo who collectively hold 13.1% stake in Scomi Group have aired their grouses against the existing board of Scomi Group and its CEO Shah Hakim over IJM Corp’s entry.
On the other side, Shah Hakim together with his partner Datuk Kamaluddin Abdullah have about 13.06% stake in Scomi Group. But things took another turn when Shah Hakim’s long standing partner Kamaluddin wrote to Kaspadu’s board seeking a split in their shareholding in the private vehicle, which holds 13.06% stake in Scomi Group. Kamaluddin and Abu Sahid are close.
While the shares placement to IJM Corp has gone through, the issuance of debt paper to IJM Corp and the conversion of debt paper to shares require approvals from Scomi Group’s shareholders.
While Shah Hakim and IJM corp just require a simple majority to push the proposal through, the simple majority may not be so easily achieved.

Thursday, November 8, 2012

Genting Bhd

Anticipation that an 18 year long mega casino project being planned in South Korea will provide it the much needed investment opportunities outside Malaysia .
It was reported that the South Korean port city of Incheon has partnered with a group of investors to develop a US$290 billion leisure and gaming destination to rival Macau and Las Vegas .
The SK government liberalized laws to lift a major hurdle for foreign investment in opening foreigners only casinos.
The partnership could be a win win situation for all parties in turning SK into a gaming destination … Casino players could benefit given the opportunity to penetrate into a new market.
Market observers would not be surprised if Genting is interested as it had earlier shortlisted SK as one of the group’s potential new market, given the country’s well established infra and high GDP per capita.
Genting is looking for ways to expand outside Malaysia and this is one opportunity. With its track record in casino operations in Malaysia and globally, there is merit to believe that Genting may gain a footing in SK.
In fact, Genting share has not brightened up for some time till late Oct 2012 due to the perception of election risk. Since mid Sept 2012, it had hovered at below rm9.00 following news reports that PAS might close down Genting casinos if PAS won the coming state election in Pahang.
Other catalysts for Genting include the higher than expected visitors’ arrival into Malaysia , Genting Malaysia ’s UK development completed earlier than expected and the license to develop full scale casino will be granted by the NY legislators.

Saturday, November 3, 2012


Its rm2.3 billion RE plant project in Peterborough , the UK is on track having completed the acquisition of a 55 acre tract in Peterborough for 25 million pound. The land, acquired through the purchase of a company named Poplar Investments Ltd will be the site for the 80MW RE plant project that was announced in 2010. The securing of the site clears the way for KNM to obtain financing for the project, hopefully in Nov 2012.
Some 80% of the RE plant’s rm2.3 billion investment will be provided through a syndicated loan by Exim Bank with the remaining 20% through equity financing. KNM owns 80% of the E plant project through its 80% stake in a vehicle named Energy Park Investments Ltd.
KNM’s gearing will increase once the syndicated loan is secured for the RE plant project.
As at June 2012, the group’s total net borrowings amounted to rm861 million versus its shareholders fund of rm1.64 billion. Nonetheless, this was to account for its recent rights issue that raised rm196 million cash.
After securing the financing with the Exim Bank, KNM can commence the construction of the first phase of the RE plant by the 1QFY2013. Meanwhile part of the engineering, procurement and construction contract from the Peterborough RE project will go to KNM’s unit Borsig GmBH. This will help to ensure a steady order flow to the German subsidiary which is expected to be listed in SGX in Aug 2013 for an indicative valuation of rm1.9 billion.
KNM acquired Borsig for about rm1.7 billion in 2008.

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Please note that all data given are merely blogger's opinion. It is strongly recommended that you do your own analysis and research before investing.