KUALA LUMPUR: With Astro Malaysia Holdings Bhd’s stock still languishing below its initial public offering (IPO) price of RM3, now may seem an opportune time for dividend seekers to enter, in view of the fact that the pay television giant has grown its payout by an average 15.47% over the last two years.

Analysts are also expecting the upward movement to continue through its financial year ending Jan 31, 2018 (FY18).

At an average estimate of 13.5 sen, Astro’s FY18 dividend per share could give shareholders a yield of 4.95% based on last Friday’s closing of RM2.73. Of note, the projected range from 32 analysts is between 12 sen and 17 sen a share.

Astro has been distributing more than its net earnings since it was relisted in October 2012 (see chart), yet the payouts have not gone beyond 62% of its free cash flow — save for FY13. Hence, there remains considerable breathing space in its cash flow after netting off operating and capital expenditures (capex).

“Most of Astro’s major capex exercises, like the set-top boxes and transponders, have been incurred in the past. Capex now is becoming more predictable for the group, and it wouldn’t pose too much of a problem to Astro’s cash flow [to hinder it from] paying higher dividends,” AllianceDBS Research Sdn Bhd analyst Toh Woo Kim told The Edge Financial Daily.

He also does not see Astro paying out dividends at a quantum far exceeding its net profit, like 120% or more. “It could upset the market if the ratio is higher because it would seem like it’s not being prudent.”

So far, Astro has been reducing the ratio of its dividends to profit after tax and minority interests, despite growing its absolute figures. Astro’s first half ended July 31, 2016 (1HFY17) payout ratio came to 95.97%, while the full FY16 was at 102.71%.

However, its free cash flow has been falling since it peaked at RM1.33 billion in FY15 — which means the gap between total dividend payout and free cash flow has been narrowing.

And though analysts still expect a continued climb in dividends until FY18, the growth rate may be on a lower scale than what has been seen so far. For the current FY17, Bloomberg data showed most expect just a one sen higher payout or a flat one at 12 sen.

Still, the stock could still fetch a yield of 4.4% based on the 12-sen-a-share assumption for FY17, or 4.76% on 13 sen — even after the 16.28% rise in the counter from its lowest point of RM2.348 this year.

Astro’s relisting exercise was panned by critics as the IPO price was deemed expensive. With the stock now trading below that, in spite of earnings growing by an average 13.59% between FY13 and FY16, analysts are indicating that valuation has become more justifiable.

As such, 12 or 52% out of 23 analysts polled by Bloomberg gave the stock a “buy”, with an average target price of RM3.14, indicating a 15.02% upside. The remainder kept a “hold” call, with one giving a “sell” call.

In AllianceDBS’s Sept 15 note, the company too had a “hold” call on the stock. At the time, it was trading at 9.6 times its ratio of enterprise value over earnings before interest, taxes, depreciation, and amortisation (EV/Ebitda) — which Toh said was similar to other pay television players’ in the region. As at last Friday, Astro’s EV/Ebitda ratio stood at 9.2 times.

Looking forward, it may not be all rosy for Astro — which turned 20 in June — as it is still susceptible to the media industry’s changing landscape.

Credit Suisse Securities (Malaysia) Sdn Bhd analyst Danny Chan has already revised down his projected average revenue per user (Arpu) for Astro to RM99.50 for FY17, from RM101. Essentially, he expects no growth in this area, despite a price hike last month in Astro’s channel subscriptions, which should “in theory, increase [Arpu] towards RM100 to RM101”.

Chan’s revision is partly because Astro has lost its traditional pay television subscribers by about 1% year-on-year to 3.49 million as at July 31, 2016.

In addition, Astro has been forking out more for content due to the broadcast of major sporting events (the 2016 Uefa European Championship, the Summer Olympics, and also the renewal of the three-year contract for English Premier League) this year. The weaker ringgit also has not helped, as most programmes are sold in US dollar.

“Nonetheless, we retain our ‘outperform’ on the stock, premised on three key arguments: the business remains highly cash generative with no major capex in the near term; dividend-per-share growth will resume in FY18 onwards with the absence of major sporting events; and the home-shopping business will start contributing to the group’s bottom line in FY18 onwards,” said Chan.

Astro has been diversifying its revenue streams to rely less on its traditional pay television service. While the segment’s subscribers slid in 1HFY17, its prepaid service Njoi recorded a 38% rise in subscribers to 1.48 million.