Astro announced that it has signed an agreement with TM on 29 Sep, where Astro will leverage on TM’s infrastructure as a reseller of broadband services. We view this development positively as this (i) will provide Astro a new revenue stream without the need to invest heavily in new infrastructure; (ii) synergistic with its core pay-TV business through bundling; and (iii) enhance customer experience. Maintain BUY with an unchanged DCF-based TP of RM1.41 (WACC: 7.7%, TG: 0%).

NEWSBREAK

Astro announced that its wholly owned subsidiary, MEASAT Broadcast Network Systems Sdn Bhd has signed an agreement on 29 Sep with TM, where TM will provide Astro with full suite of wholesale infrastructure and connectivity solutions to enable Astro to serve its customers with broadband and content services. TM will also provide Astro with its Content Delivery Network (CDN), a newly developed content platform service that delivers seamless, faster and secure digital content.

HLIB’s VIEW

Astro with broadband offering. This partnership allows Astro to offer broadband services to its subscribers who resides within TM’s coverage of 5m million homes and businesses. The rollout of this service is expected to take place in FY23. We are positive on this news for the following reasons:

i. New revenue stream for Astro by offering new service without the need to invest heavily to build a new infrastructure;

ii. Synergistic with its pay-TV segment where Astro can bundle this new broadband service with its pay-TV packages; and

iii. Enhance customer experience as bundling will lead to more attractive value propositions including convenience (payment under one bill), eliminating rain feed issues from satellite, viewing on-demand content on TV as well as cost-savings (vs subscribing to TV and broadband services separately).

Recall that Astro already has partnerships with other broadband service providers, namely Maxis, Time and Allo. Service bundling will provide more flexibility in its product offering and pricing. Besides, capitalizing on TM’s CDN technology should lead to smoother content delivery.

Forecast. We maintain our forecasts as this will only take place in FY23. Maintain BUY with an unchanged DCF-based TP of RM1.41 (WACC: 7.7%, TG: 0%) We like Astro for its improving long term prospects on the back of (i) the strengthening position as the leading aggregator of streaming services; (ii) its ongoing efforts in innovating and improving its products and user experience; and (iii) its growing home shopping segment. Besides that, Astro dividend yields generously at 7.4%.

Source: Hong Leong Investment Bank Research - 30 Sept 2021