KUALA LUMPUR (July 12): Shares in Astro Malaysia Holdings Bhd (KL:ASTRO) plunged to a new record low on Friday, after the pay-television operator was slapped with an additional tax bill of RM734.88 million.
The stock fell as much as 10% or three sen to 28 sen. It was trading at 29 sen at 9.05am, valuing the company at RM1.5 billion on Bursa Malaysia. Trading volume surged, with nearly 10 million shares changing hands so far.
“In the worst case, this additional tax liability will erode” Astro shareholders' funds by 65% to RM434 million, Kenanga Investment Bank warned. Astro’s liabilities already exceeded its assets by 13 sen at the end of April, and the tax bill could worsen the deficit to 27 sen if its appeal fails, the house flagged.
On Thursday, Astro disclosed that the Inland Revenue Board had served notices of additional assessment for 2019-2023 totalling RM735 million, including penalties, after disallowing deductions for production costs incurred during the period.
The company has 30 days to appeal and will do so, and if required, initiate legal proceedings to challenge the basis and validity of the notices, it said.
If the company fails and raises debt to pay for the additional taxes, its net debt will rise to RM3.8 billion from RM3.1 billion at the end of April, while its gearing will balloon to nearly 10 times from about two times, Kenanga warned, keeping its ‘underperform’ call on the stock, which is equivalent to a ‘sell’ rating.
Shares in Astro have tumbled 29% so far this year, as the company grappled with intense competition from over-the-top media services such as Netflix, eroding its subscriber base. Further, subdued consumer and business sentiment also dragged on Astro's advertising expenditure growth.
Analysts are largely bearish on Astro, with a majority of eight ‘sell’ calls, followed by two ‘hold’ ratings and one ‘buy’. The consensus 12-month target price is now 30 sen, according to Bloomberg. Just last week, Hong Leong Investment Bank downgraded the stock to ‘sell’.
On its part, Astro said “there are fair and reasonable grounds to defend against the notices”, following legal advice from its counsels.