Astro Bets on TV Technology for Growth Post Share Sale

Astro Malaysia Holdings Bhd. (ASTRO), the country’s largest pay-TV operator, will use part of the proceeds from a $1.5 billion share sale to woo more users to high- definition content in a bid to restore earnings growth.

“It’s a costly affair but it underpins a growth story,” Chief Executive Officer Rohana Rozhan, 49, said in an interview in Kuala Lumpur yesterday, referring to the investment in upgrading technology. “The new platform allows us to service the affluent, young customers better.”

Astro, the last major initial public offering in Kuala Lumpur in 2012, closed unchanged in its debut today, the weakest first-day performance among five Malaysian companies that each raised at least 700 million ringgit ($230 million) this year. The broadcaster, controlled by billionaire T. Ananda Krishnan, and its shareholders sold stock at 3 ringgit apiece, top of the marketed range, valuing the company at 15.6 billion ringgit.

“There wasn’t much meat left on the table for investors,” said Choo Swee Kee, who oversees about 700 million ringgit of assets as chief investment officer of TA Investment Management Bhd. in Kuala Lumpur, including Astro shares. “It looks like the IPO was fairly priced. Investors shouldn’t always expect that when you buy IPOs you’re sure to make money.”

At the IPO price, Astro is valued at 25 times its fiscal 2012 earnings, compared with a 14 times current price to earnings at Isleworth, England-based British Sky Broadcasting Group Plc (BSY) and 13 times for Englewood, Colorado-based Dish Network Corp., according to data compiled by Bloomberg.

IHH, Felda, IGB

Felda Global Ventures Holdings Bhd. (FGV), the world’s third- biggest oil palm planter, jumped 16 percent at the close of its first trading day in June. IHH Healthcare Bhd. (IHH) surged 10 percent on its debut, IGB Real Estate Investment Trust gained 11 percent, while Gas Malaysia Bhd. rose 10 percent.

Astro will retain 1.42 billion ringgit from the sale of new shares. It plans to use the money to reduce debt and help migrate all its customers to a more advanced set-top box by early 2014 that will let them use higher revenue-generating services, Rohana said.

About half of Astro’s subscribers have already moved to the enhanced platform that gives them the option to watch certain content in high-definition format and record selected programs, she said. Customers opting for these services are charged an extra fee, Rohana said.

Photographer: Goh Seng Chong/Bloomberg

Rohana Rozhan, chief executive officer of Astro Malaysia Holdings Bhd. Close

Rohana Rozhan, chief executive officer of Astro Malaysia Holdings Bhd.

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Photographer: Goh Seng Chong/Bloomberg

Rohana Rozhan, chief executive officer of Astro Malaysia Holdings Bhd.

Increasing Costs

Still, upgrading the set-top boxes will increase costs for the company, according to Ong Boon Leong, an analyst at UOB-Kay Hian Holdings Ltd. in Kuala Lumpur.

“While more high definition take-ups will help to drive the sale of more expensive programs and hence, raise average revenue per user, upgrading of set-top boxes will raise amortization expenses,” Ong wrote in a Oct. 17 note to clients. “This will put pressure on Astro’s earnings over the medium term, potentially leading to earnings contraction.”

The pay-TV operator’s profit declined 24 percent in the 12 months ended Jan. 31 to 624 million ringgit and sales expanded at a slower pace, according to data compiled by Bloomberg. Its operating profit margin declined to 25.5 percent from 29 percent in the year-earlier period, the data show.

Astro, which started as a satellite broadcaster in the Southeast Asian nation in 1996, is returning to the market after it was taken private in 2010. The re-listed company excludes the group’s overseas operations.

High Definition

The Malaysia-born Ananda Krishnan, the country’s second- richest man according to the Bloomberg Billionaires Index, also has interests in real estate, telecommunications and oil and gas, and helped develop the 88-floor Petronas Towers in Kuala Lumpur -- the world’s tallest building until 2004.

Photographer: Goh Seng Chong/Bloomberg

A satellite dish is reflected in a puddle at the Astro Malaysia Holdings Bhd. headquarters in Kuala Lumpur. Close

A satellite dish is reflected in a puddle at the Astro Malaysia Holdings Bhd.... Read More

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A satellite dish is reflected in a puddle at the Astro Malaysia Holdings Bhd. headquarters in Kuala Lumpur.

The company, whose 3.2 million residential subscribers have optional access to 156 TV channels, including 22 in high- definition, plans to expand its program line-up and extend its reach beyond households to individuals by streaming its content via mobile devices, Astro said in its prospectus.

“Going forward, Astro intends to raise average revenue per user with its high-definition content, which costs subscribers an additional 20 ringgit per month on top of existing standard- definition subscription,” wrote UOB-Kay Hian’s Ong.

Astro is counting on Malaysia’s young population which tends to chase new technology as well as rising incomes to spur conversion to high-definition television channels and consumption of high-value products, Rohana said.

“Malaysia has a very young demographic,” she said. “The youngsters are increasingly affluent, increasingly wealthy and urban, the take-up of technology is high. All these statistics point to growth.”

Expanding Economy

The Southeast Asian nation’s labor force is projected to grow by 19 percent to 22 million by 2020, compared with 2010, Merrill Lynch projected in an April 27 note. Malaysia’s median age will be 28.4 in 2020, Merrill Lynch forecasts.

Malaysia’s economy may expand faster than previously expected this year and next on resilient domestic demand and investment, the government-linked Malaysian Institute of Economic Research said yesterday.

The research institute raised the nation’s gross domestic product forecast for 2012 to 4.9 percent from 4.2 percent. Southeast Asia’s third-largest economy may expand 5.4 percent next year, more than the 4.7 percent pace it previously projected in July, it said.

‘Out of Whack’

“Valuations are getting more and more out of whack with reality,” said Alan Richardson, a Singapore-based fund manager who helps oversee $82 billion for Samsung Asset Management Co., referring to Astro and speaking before today’s debut. “Previous IPOs have done quite well, so there are expectations that this will continue.”

Richardson, who bought Felda and IHH Healthcare IPO shares, said he chose not to subscribe to Astro as the stock offers limited appreciation potential.

“The returns on the business are likely to decline over the next three years as it invests IPO proceeds on high definition,” said Richardson. “It’s going to need a lot of capital, which dilutes earnings.”

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editor responsible for this story: Barry Porter at bporter10@bloomberg.net

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