Published June 23, 2009

Astro overtakes market, gaining 37% since Feb

Move to exit from messy joint venture in Indonesia pays off for satellite TV firm

By S JAYASANKARAN
IN KUALA LUMPUR

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THE shares of Astro All Asia Networks - Malaysia's only satellite television operator - have surged 37 per cent since February, out-performing the broader market which has moved up a more leisurely 18 per cent.

Turning around: Astro is attractive as a dividend play - it has said it will pay out at least 50% of earnings

There are several reasons for the out-performance - but chief among them is that Astro last year disentangled itself from a messy joint venture with Indonesia's Lippo Group, cutting loss provisions of almost RM1.2 billion (S$493.8 million) in the process.

Astro is claiming relief for its Indonesian foray, which will be the subject of arbitration in Singapore.

The disastrous outing caused the group to post losses for two years. For the year to Jan 31, 2009, the loss was RM530.5 million. But it looks like Astro has turned the corner. For the first quarter of its 2010 financial year, it reported a net profit of RM34.5 million on sales of RM752 million.

Astro's penetration rate in Malaysia - where it has 2.7 million pay TV subscribers - is around 47 per cent. And this, according to Tan Teng Boo of fund manager icapital.biz, which called a 'buy' on the stock in February, 'is far from saturation point'. Despite the recession, Astro continues to add customers - 82,000 customers in Q1 2010 alone.

In many ways, the group epitomises a counter-intuitive growth story in a recession. Early this year, chief executive Rohana Rodhzan described Astro as 'recession-proof' - and she may not have been far wrong.

When times are tough, more people stay at home. And with Astro's cheapest packages selling for an affordable RM37.95 a month, its subscriber base is likely to go up, not down.

Moreover, advertising accounts for only a fraction of revenue, so the advertising cutbacks that are hurting traditional media companies have little effect on Astro.

The company is also attractive as a dividend play - it has said it will pay out at least 50 per cent of earnings. Finally, Astro seems immune from competition - at least in Malaysia, where it derives the bulk of its earnings.

Two players have announced plans to launch Internet Protocol TV in Malaysia, but most analysts have discounted their chances.

First, Malaysia's broadband services are relatively primitive. And second, Astro has a tight grip on content.

It has exclusive, long-term deals with popular content providers such as CNN, BBC, HBO and the like and controls the world's largest Chinese movie library through Hong Kong-based Celestial Productions.

Given Astro's monopoly position and current market share, it would take years for any would-be competitor to erode its position.