Astro

Its Prospects … dated Dec 2012

It still has huge room for growth given the low existing pay TV household penetration rate of 50%, a potential uptick in ARPU as subscribers migrate to the HD platform, its superior content and high entry barriers to the pay TV industry due to significant economies of scale.

Currently (Dec 2012) 1.8 million 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 standard definition set top boxes by end FY2014.

It is believed that most of its customers will subscribe to High Definition (HD) contents when the company migrates all its customers to the new HD platform. As at October 31, 2012, Astro has over 3.2 million subscribers, of which about 1.77 million (or 55 per cent of subscribers) are currently (Dec 2012) watching their TV contents via the Astro B.yond set-top boxes. Of the 1.77 million customers, about two-thirds subscribe to HD contents.

HD channel is one of its key differentiators against what is available out there, whether it's privacy or other content providers.

Having most of its customers to subscribe to HD contents is one of the key for Astro's growth over the next few years from Dec 2012.
Astro’s partnership with Maxis and TimeDotCom to provide IPTV services to the masses could provide a new avenue of growth, with the bundling of voice, broadband and IPTV services to offer new products to consumers.

It will be catalyzed by a convergence of media platforms and successful execution of its new IPTV product.

After all, Astro’s dominance today (Dec 2012) grew on the back of monopoly – which ends in 2017 – of satellite technology which is old compared with HSBB-powered TV.

Competition will be stronger as Astro will be challenged by TM’s triple play service on HSBB network. Astro is looking to launch its triple play service with MAXIS by end of Jan 2013 and on TM’s fiber network by April 2012.

Astro enjoys a monopoly on the pay TV industry with a market share of more than 95% and TM;s Hypp TV being its only. However, ABN Media Corp, a newcomer in the pay TV is looking to challenge the incumbent with grand and ambitious plans in mind.

Regardless of how ABN ups the ante against Astro, industry observers do not foresee the latter faltering and surrendering market share given its strong brand and resilient ecosystem which the company took many years to establish and nurture.

Some observers opined that AStro still faces the threat of new players, high content costs and regulatory risks.

It is open to sharing its contents with its rivals - as long as it makes business sense to the company and the company is constantly in talks with parties on such arrangements. Under the new content-sharing rules, all TV stations without broadcasting rights to certain major sports events would be able to share the contents obtained from rights holder on reasonable commer-cial terms.

Its revenue rose 11.5% to RM3.133bil from RM2.811bil mainly due to the increase in subscription and advertising revenue of RM269.4mil and RM52.2mil respectively.

On the outlook, Astro TV expected subscriber net additions, ARPU and adex to continue to contribute to its revenue growth.

The conversion of residential subscribers to Astro B.yond set-top boxes is progressing according to plan and is expected to complete by the next financial year. This will continue to drive higher take-up of value added services such as high definition, recording services and Video-On-Demand, which are the primary drivers of ARPU growth.

However, this is expected to impact the group EBITDA and net profit for the remainder of this financial year. The group continues to have good visibility in respect of content costs which are in line with its expectation.

It reported net profit of RM118.08mil in the third quarter ended Oct 30, 2012 from RM103.52mil a year ago, boosted by unrealised foreign exchange (forex) gains.

There was an unrealised forex gain of RM30.6mil versus an unrealised forex loss of RM47.4mil a year ago, which was offset by a decline in earnings before interest, tax, depreciation and amortisation (EBITDA) of RM14.3mil and higher depreciation of RM45.6mil.

Revenue rose 8.3% to RM1.078bil from RM995.31mil a year ago. Earnings per share were 5.20 sen. It declared an interim dividend of 1.5 sen per share.

The higher revenue was mainly due to the increase in subscription revenue of RM74.5mil. The increase in subscription revenue is attributed to both an increase in ARPU for Pay-TV residential subscribers of RM4.90 (from RM87.40 to RM92.30) and an increase in number of Pay-TV residential subscribers from 3,013,500 to 3,213,100.

However, group earnings before interest, tax, depreciation and amorisation fell by RM14.3ilm from a year ago mainly due to higher installation, marketing and distribution costs. These were in relation to customer acquisition as well as higher B.yond boxes swap out, higher content costs, staff related costs and impairment of receivables.

As for its cashflow, cash and cash equivalents increased to RM927.4mil from a year ago mainly from proceeds from the shares issuance, net of issuance costs of RM1.387bil. However, this was offset by lower operating cash flows of RM69mil and payment of dividend of RM366.0mil.

For the nine-month period ended Oct 30, 2012, the earnings fell 29% to RM334.84mil from RM472.04mil.

The decrease in net profit is mainly due to higher depreciation of RM113.2mil, decrease in EBITDA of RM46.6mil, and increase in finance costs of RM70.1mil, which is partly offset by increase in finance income of RM33.6mil and lower taxation of RM57.7mil.