Highlights

• Astro announced that its wholly owned subsidiary MBNS Multimedia Technologies Sdn Bhd (MMT) entered into a Share Purchase Agreement with Maxis Bhd (Maxis) to dispose off 833,334 (25%) ordinary shares in Advanced Wireless Technologies Sdn Bhd (AWT) for a cash consideration of RM15.8m and the purchase of goods and services by Maxis from MMT totalling RM3.0m.

Comments

• Since 2004, MMT has been holding 25% equity interest in AWT which in turn wholly-owns UMTS (Malaysia) Sdn Bhd (UMTS) which is the holder of a 2100MHz spectrum assignment from MCMC expiring on 1 April 2018.
• The divestment of MMT?s interest in AWT is done as it is not part of the core business of Astro and its subsidiaries. It is commercially viable for MMT to divest its investments in AWT before the expiry of the spectrum assignment, as the renewal cost of the spectrum assignment is expected to be high and might require additional funding from AWT?s shareholders.
• AWT group recorded a PAT of RM8.1m in FY16 which made up circa 1.2% of Astro?s core earnings. The group estimates a one-off loss of circa RM12.1m on the disposal based on the carry value of investment in AWT of RM27.9m. However, the cash consideration of RM15.8m will improve its cash position by 2.8%.
• The proceeds will be utilised for working capital purposes within 12 months from the completion date.
• Overall, we are neutral on the disposal as its contribution to the whole group is minimal. However, we believe the disposal will allow Astro to streamline its operations and give more focus to its core business strategies and further strengthen its balance sheet.

Risks

• (1) Unexpected economic slowdown; (2) Threat of new players; (3) High content costs; (4) Regulatory risks; (5) Shift to digital alternatives; and (6) DTTB as substitution for consumers and advertisers.

Forecasts

• Unchanged.

Rating

BUY (↔)

• We like Astro due to its monopoly in the pay-TV segment, increasing penetration in the local households, innovative home shopping business, its move towards gaining regional eyeballs and ability to attract adex despite the overall soft consumer and business sentiment.

Valuation

• We maintain our BUY call with TP of RM3.01 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 28 Dec 2016