This article first appeared in The Edge Financial Daily, on March 3, 2016.

Astro Malaysia Holdings Bhd
(March 2, RM2.75)
Reiterate buy with target price (TP) of RM3.35. Astro Malaysia Holdings’ share price hit a one-year high of RM3.25 in February 2015 before plunging 16% to RM2.72 as of last close. Sentiment towards Astro remains weak due to the emergence of online streaming operators, concerns over the escalating content costs, tepid Pay-TV subscriber growth and recent aggressive foreign-selling. 

However, we believe the recent pullback presents an attractive buying opportunity as we expect Astro to continue to cement its position as Malaysia’s dominant Pay-TV operator given its brand name, product proposition and sticky subscriber base. 

While the emergence of online streaming operators (Netflix, iFlix) has brought about more competition in the media industry, we believe the threat is minimal as the availability of quality online streaming remains confined to the urban and sub-urban areas due to the lack of high-speed broadband elsewhere.

Astro’s unique feature is its quality vernacular content that is not readily provided by other media players. This helps to create a sticky subscriber base which has been steadily increasing to peak at 4.7 million households as of the third quarter of financial year 2016 (3QFY16) with the help of the NJOI, its subscription-free satellite TV. Coupled with increasing average revenue per unit (ARPU), Astro’s revenue from television subscription should remain stable. 

We also like Astro’s timely move into the e-commercial segment through Go Shop, a home shopping channel.

We continue to like Astro for its strong FY16 to FY18E (estimate) earnings per share compound annual growth rate of 18.6% and decent dividend yields of 4.8% to 6.1% for FY16 to FY18E. 

Astro is currently trading at an all-time-low of 17 times calendar year 2016 estimate (CY16E) price-earnings ratio compared with the FBM KLCI average PER of 18 times CY16E, and as such, we believe valuations look attractive. We reiterate “buy” on share-price weakness with a discounted cash flow-based 12-month TP price of RM3.35.

Key risks to our call would be much lower-than-expected subscriptions, ARPU and advertising expenditure growth, an unexpected increase in competition from other pay-TV operators and a sharp drop in consumer sentiment. — Affin Hwang Capital, March 2