News

• Astro announced that its wholly-owned subsidiary, Measat Broadcast Network Systems S/B (MNSB) has entered into a Sale and Purchase of Shares Agreement with Star Media Group Bhd and Star RFM S/B (SRSB) for 5m (100%) shares in Capital FM S/B (CFSB) for a total cash consideration of RM42m.

• In CY15, CFSB, the broadcaster of Capital FM and Red FM, had revenue of RM5.3m, a loss after taxation of RM4.1m and net liabilities of RM0.8m.

Comments

• Bigger chunk of radio adex… There are 26 private owned radio stations in Malaysia and Astro currently owns 9 of them. The company is currently offering its 9 FM broadcasting stations through its radio network company, Astro Radio S/B. The inclusion of 2 new FM radio stations will increase Astro’s presence in the private owned radio station from 34.6% to 42.3%. In FY15, Astro managed to secure circa 59% of total radio adex, this acquisition will allow Astro to cement its position with a bigger bite of the total radio adex.

• Relying on proven expertise… We are slightly positive on the proposed acquisition. As radio spectrums and frequencies in Malaysia are scarce, this is the best way for Astro to expand its radio FM segment. Since 2012, its radio segment has had a steady growth (CAGR: 11%) with a healthy EBITDA margin of 48-58%. In FY16 radio segment contributed 5.4% and 8.9% to Astro’s revenue and EBITDA, respectively.

• Capital FM is currently a women centric radio station while Red FM caters to urban and suburban listeners. We believe Astro plans to revamp these radio stations to expand its current reach and content formats to target new audiences. Successful overhaul of these radios will enhance its current radio segment.

• The acquisition will be funded fully in cash. The total consideration of RM42m is minute when compared to its strong cash flow.

Risks

• Unexpected economic slowdown;

• Threat of new players;

• High content costs; and

• Regulatory risks.

Forecasts

• No changes to our forecast pending more information from management.

Rating

• BUY

• Positives: (1) Monopoly of pay-TV; (2) Higher subscriber base through stronger penetration rate and ARPU growth through new product offerings; (3) Strong take-up in IPTV; (4) Lower capex as well as depreciation & amortisation; (5) Astro’s home shopping business.

• Negatives: (1) Higher than expected content costs; (2) Higher cost of living leads to reduction in ARPU.

Valuation

• TP maintained at RM3.24 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 13 Sep 2016