Astro Malaysia Holdings has finally launched its Astro B.yond IPTV with Maxis Bhd, which could complement its services to subscribers with more value proposition and significant savings. Although Maxis-Astro IPTV offering enjoys a lower EBITDA margin compared to Time-Astro IPTV, synergistic benefits to be reaped from this collaboration should be more than enough to offset the shortfall. We are sanguine on this collaboration as it has bundles of win-win benefits for the subscribers and synergistic benefits for Astro and Maxis. Our optimistic view and assumption on this new Maxis-Astro IPTV has led us to increase our FY14 and FY15 net profits by 2.4% and 9.9% respectively (to account for the potential 65k and c.175k of additional IPTV subscribers in FY14 and FY15). In tandem with the earnings upgrade, our DCF-derived TP (WACC: 8.9%, Beta: 1.0, Terminal growth: 1%) has been increased to RM3.38 from RM3.10 as well. As the TP now offers a decent capital upside of c.15%, we are upgrading our MARKET PERFORM call on Astro to an OUTPERFORM.

Maxis-Astro IPTV offering is finally on! According to The Edge Malaysia, Astro Malaysia Holdings has officially launched its Astro B.yond IPTV with Maxis Bhd as an alternative for consumers to have access to home fibre broadband internet and home voice services. On this Maxis-Astro IPTV offering, we understand that the fibre broadband packages provided by Maxis will range from 10-30Mbps while the B.yond IPTV content packages provided by Astro will be on SuperPack, Value Pack and Family Pack with prices ranging from RM37.95 to RM100/month with an optional Home Voice Package of RM20/month. (Please refer to Table 1 and Table 2).

Salient details on the composition of revenue-expense sharing between Maxis and Astro for its IPTV collaboration. We understand that Astro will recognise 100% of the ARPU from this IPTV collaboration. For instance, assuming customer A subscribes to the basic 10Mbps broadband package with a SuperPack1 content selection, the total ARPU will be RM248/month (RM148 from the broadband package and RM100 from the content package) and Astro will recognise 100% of this total ARPU of RM248. Subsequently, in the cost of sales component, Astro will recognise 75% of the broadband ARPU (which is equivalent to RM111 in this case) as the cost to be distributed back to Maxis.

Lower EBITDA margin compared to Time-Astro IPTV collaboration. Based on our back-of-the-envelope calculation (please refer to Table 3 for the calculation), the EBITDA margin of the Maxis-Astro IPTV collaboration will be c.29% versus the c.38% of the Time-Astro IPTV’s EBITDA margin. This implies that with a likely increasingly higher take-up for the Maxis-Astro IPTV offerings, the EBITDA margin of the group on the overall will be diluted on a percentage basis.

Synergistic benefits to be reaped under this collaboration. As this Maxis-Astro IPTV will be complemented by Maxis’ extensive reach of 1.3m homes compared to Time’s reach of 100k homes, we believe that it could immediately give a boost to its revenue. This should increase its absolute profit despite the EBITDA margin dilution highlighted above should the product be well taken up. We also understand that there are 1.1m (or 85%) of the current HSBB home premises are on Astro’s subscribership. That said, for current Astro subscribers who are also having the TM Unifi package, they could achieve better value propositions and cost savings by subscribing to this new IPTV packages (please refer to Table 4 and Table 5).

Our take from this Maxis-Astro IPTV collaboration. We are sanguine on this collaboration as it has bundles of win-win benefits for the subscribers and synergistic enefits for Astro and Maxis. In conjunction with that, we are assuming c.65k and c.175k subscribers to take up this IPTV offering (mainly on SuperPack packages), taking cues from the management’s guidance of c.60-70k and 170-180k subscribers in FY14 and FY15 respectively. Consequently, our net profit has been increased by 2.4% to 9.9% in FY14 and FY15 despite a lower EBITDA margin of 32.4% (from 32.7%) and 33.4% (from 34.2%) for the two years. Consequently, our DCF-derived TP has now been increased to RM3.38 from RM3.10. As the TP now offers a decent capital upside of c.15%, we are upgrading our MARKET PERFORM call on Astro to an OUTPERFORM.

Source: Kenanga