Astro, Maxis to gain in long run from tie-up

It is the right way forward on the bundling, cross-sell


ASTRO Malaysia Holdings Bhd’s move to cooperate with Maxis Bhd to bundle TV content and fibre broadband is seen as a major development that will up the competition in the broadband and content space in the country.

Astro, which is considered to be Malaysia’s leading content and consumer company, serves about 5.7 million households while Maxis had about 280,000 home fibre subscribers.

Both companies have a common major shareholder, billionaire Tan Sri T Ananda Krishnan.

“There is much synergy between Astro and Maxis, it is the right way forward on the bundling, cross-sell amid intense competition and changing the landscape.

“Globally, it is already happening, the consolidation and convergence between telecommunications company (telco) and media content/entertainment companies,” Rakuten Trade Sdn Bhd research VP Vincent Lau told The Malaysian Reserve yesterday.

The partnership comes on the heels of the government’s National Fiberisation and Connectivity Plan to drive higher adoption of broadband nationwide.

Astro began offering new bundles of 30Mbps and 100Mbps broadband and content products for its customers last week and the full suite with higher broadband speeds in due course.

“This strategic partnership is timely as it occurs at a period where the demand for converged connectivity matters more than ever and multiplay propositions that bundle connectivity, content and service.

“The partnership leverages both companies’ strengths to bring greater value and benefits for its customers.

“At the same time, the collaboration will create new revenue streams and unlock new markets by maximising the talent and resources at both companies while driving scale and efficiency,” the two companies said in a joint statement last week.

Astro CEO Henry Tan (picture) said customers will see significant value and benefits from this proposition which brings compelling content with high-speed fibre connectivity.

“The partnership will provide our customers better-connected experience especially for On Demand viewing, allowing them to enjoy over 50 thousand shows via set-top boxes and on mobile devices,” he said.

Maxis CEO Gokhan Ogut said the telecommunication company was motivated by the demands for great connectivity behind its Fibrenation campaign, as more and more Malaysians show themselves to be digital natives.

“We are now seeing demand for more family-oriented offerings and a wider range of digital services. This is a new era of connectivity — convergence.

“Our new partnership with Astro will give our customers another reason to choose Maxis Fibre and accelerate our convergence strategy by offering fibre to even more homes in Malaysia,” he said.

Kenanga Investment Bank Bhd expects the partnership to benefit both companies over the longer term.

“This will allow both companies to leverage their individual strengths and create new revenue streams by introducing new customers. Maxis could see a higher subscription for its broadband segment and Astro could tap into a wider customer base to address its declining subscription revenue,” Kenanga stated in a research note last Friday.

The broker noted the partnership will help silence ongoing market talk of a potential merger between the two companies.

Kenanga has an ‘Outperform’ call on Astro with a discounted cashflow (DCF) driven target price (TP) of RM2 and an ‘Underperform’ call on Maxis with a DCF-driven TP of RM4.90.

In June, Astro’s cost optimisation measures on content and operating expenses saw it translated into a 1% year-on-year (YoY) rise in earnings to RM176 million for the first quarter ended April 30, 2019 (1Q19).

The pay-television service provider’s revenue fell 5.8% YoY to RM76.5 million due to decrease in subscription revenue.

Earlier this month, Maxis identified weaker service revenue in the absence of network sharing agreement and lower prepaid and postpaid revenue for the fall in its net profit by 16.9% to RM397 million in the 2Q19, from RM478 million reported in 2Q18.

The telco stated its 2Q19 service revenue slipped 4.7% year-on-year (YoY) to RM1.92 billion while service revenue excluding wholesale revenue slid 0.7% YoY to RM1.89 billion.

For the first half of the year, the group recorded a net profit of RM806 million, a 19.5% decline from RM1 billion recorded in the corresponding period of the previous year, while revenue for the period fell 1% to RM4.43 billion from RM4.48 billion a year ago.

Maxis declared a first interim dividend of five sen per share, to be paid on Sept 26, 2019. The entitlement date has been set on Aug 30, 2019.

Astro’s share price closed lower at RM1.40 last Friday, giving it a market capitalisation of about RM7.3 billion, while Maxis closed at RM5.45, valuing the telco at RM42.6 billion.