Astro Malaysia has announced a strategic partnership with Allo Technology (Allo), a subsidiary of Tenaga Nasional Berhad, to offer its broadband bundle and content to new and existing residential areas connected by Allo Technology. The partnership with Allo is expected to boost its subscriber base and hence, provide new revenue stream for Astro though based on our estimates, it could only increase its bottomline by about 1%. Therefore, we do not expect this partnership to have a material impact on Astro’s earnings in the near term. As such, our earnings estimates and DCF driven TP of RM1.80 remains unchanged at this juncture. We maintain our Outperform call on Astro given its appealing valuation, trading at 8x forward PER and an attractive dividend yield of 8%.

• The partnership with Allo. As a part of Astro’s support to the government’s National Fiberisation and Connectivity Plan (NFCP), the partnership will enable Astro to provide high-speed broadband (up to 1Gbps) and content services to areas that were not covered previously. By tapping into Allo’s existing fibre footprint, Astro’s broadband reach will expand beyond urban areas including Alor Gajah, Cyberjaya, Bangsar South and many more. It is estimated to enlarge Malaysia’s the current broadband home-passes by over 150,000 which based on our estimate, would increase the country’s broadband connectivity by 5%. This partnership could potentially increase Astro’s customer base by c.2.6%, based on its current TV customer base of 5.7m. However, this is assuming households under the 150,000 counts are not already Astro subscribers, which may not be the case. Hence, we reckon the potential earnings accretion to Astro could be less than 1%.

• New recurring revenue streams. The bundle of 50Mbps and 100Mbps will be offered at RM99 and RM129 respectively. Similar with Astro’s pay TV offering, the new broadband bundle will provide Astro with at least 2 years recurring revenue. Although the estimated earnings impact is immaterial, we still view this partnership positively as it will enable Astro to secure new customers and increase its recurring revenue stream.

Source: PublicInvest Research - 28 Apr 2020