Will Astro survive current market?

Astro has seen over a 3rd of its market value decreasing to RM9b today, compared to the estimation of RM14b at the start of 2018


Astro Malaysia Holdings Bhd’s shares continue to fall amid competition and rising concerns of business sustainability.

As it is, Astro’s current market reach in Malaysia is fairly saturated at 75% of Malaysian households as at the first quarter of financial year 2019 (FY19).

The cord-cutting trend has also been evident in countries around the world like Singapore’s StarHub Ltd and Singapore Telecommunications Ltd, and US’ AT&T Inc, Dish Network Corp and Charter Communications Inc.

In a research report by Swiss-based Credit Suisse Group AG, the drop in Astro’s share price could be due to the recent exclusion by MSCI Inc after its review of its May 2018 Semi-Annual Index Review for all the MSCI Equity Indexes, which came into effect on June 1, 2018.

Credit Suisse noted that Astro has seen over a third of its market value decreasing, about RM5 billion lower, and is worth RM9 billion today, compared to the estimation of RM14 billion at the start of 2018.

The research house said among the three possible outcomes that may occur include Astro being privatised by major shareholder T Ananda Krishnan, after the pay-television (TV) shares plunged to a record low of RM1.31 in May, following news the 2018 World Cup would be broadcast live on state-owned Radio Televisyen Malaysia.

Another scenario will be a merger between Astro and Maxis Bhd, which the global investment bank said will be beneficial to both parties, as long as it prolongs the survivability of both businesses and can place them ahead of peers in the local saturated market.

Maxis currently has a broadband market share of 6.6%, of which fibre penetration stands at less than 20% at the end of 2017.

“There is still room to grow in terms of market share, as well as the overall fibre broadband market penetration,” Credit Suisse said.

PublicInvest Research has lowered its estimates for Astro between 1% and 3% for the FY19-FY21.

It cuts Astro’s terminal growth assumption to 0.5% due to the increasingly challenging outlook for pay-TV operators.

“We believe Astro’s subscribers are on the decline, putting it under pressure to expand its bread-and-butter subscription revenue.

“We do not think it will be completely phased out as yet and remain relevant in the next 10 years, thanks to the older generation who tend to be ‘stickier’ post subscription,” it said in a report.

PublicInvest added that based on its estimations, the older generation should still generate an income of RM300 million annually.

The research house said the merger between Astro and Maxis will benefit both parties, especially since Ananda is the main shareholder of Maxis (62.4%) and Astro (24%).

“Merging Maxis wireless and broadband networks with Astro’s content offering capabilities and pay-TV business would create convergence and synergies to the enlarged entity,” it said.

PublicInvest believes convergence has become a core strategy for operators in developed markets to remain relevant in the current industry.

The situation does not look too bad in the near to medium term for various reasons, one being that competition will always be a pressure.

“With more affordable, faster Internet packages offered by Telekom Malaysia Bhd, people will be able to get better video streaming experience on over-the-top offerings or illegal streaming sites, which is negative to Astro,” the research company said.

With the new government planning to liberalise and promote competition in the pay-TV segment in order to create a healthier market space, it believes newcomers may be granted broadcasting licences.

The Communications and Multimedia Ministry recently dismissed allegations that the sole satellite pay-TV operator, Astro’s unit Measat Broadcast Network Systems Sdn Bhd (MBNS), is the only operator in the country.

“So far, there are three companies namely Ansa Broadcast Sdn Bhd, Jaringan Mega Sdn Bhd and Smart Digital International Sdn Bhd that have been allowed to provide satellite broadcasting services other than MBNS,” the ministry said in a parliamentary written response dated July 26, 2018.