News     Measat Broadcast Network Systems Berhad (“MBNS”), a wholly-owned subsidiary of Astro Malaysia Holdings Berhad (“ASTRO”) has entered into a 3-year agreement with TM Net Sdn Bhd (“TMNET”), for the carriage of two Astro SuperSport channels on HyppTV.

The parties also agreed to enter into a further agreement for the carriage of selected NJOI channels subject  to conditions.

The two Astro SuperSport channels namely Astro SuperSport HD and Astro SuperSport 2 HD Channel, which will be made available on HyppTV starting from 1st August will contain selected live matches from the Barclays Premier League’s (BPL) Seasons 2013/14, 2014/15 and 2015/16 and other sports content.

Comments    While we reckon that this agreement corrodes the competitive edge of ASTRO being the exclusive BPL content provider, we are NEUTRAL on this agreement as we view that this should not be detrimental to the overall group prospect considering that:

(i) BPL viewers are still likely to stick to ASTRO  given that ASTRO will still have all the BPL matches;

(ii) TM’s limited household reach of 1.3m in HSBB network compared to ASTRO’s 6.7m household reach via its DTH services should minimise any migration risk; 

(iii) “buffet” content styles ranging from FTA channels to third party internationally sourced channels are the saving grace and also help maintain the exclusivity of ASTRO; 

(iv) it minimises the risk of TM being the bidder on thenext BPL renewal cycle that could drive up the bidding price;

(v) a new revenue stream from TM to Astro (quantum were not disclosed) that could partly offset the high cost of BPL content.

While we also understand that 50% of its total pay-TV subscribers have the sport packs under their packages, we do not expect a significant migration arising from this carriage agreement as these channels carriages comprise only two out of the total 14 channels.

Outlook    Astro's buoyant outlook is underpinned by; (i) decent subscriber growth on the back of encouraging subscription for Maxis-Astro IPTV offering and its pay-TV services; and (ii) sustainable ARPU growth driven by take-up in value-added services. 

Forecast    No change to our FY14 and FY15 earnings estimates.

Rating  MAINTAIN OUTPERFORM

Valuation     Our TP of RM3.29 remained unchanged. This is based on a 10-year explicit DCF valuation (WACC: 8.9%, Beta: 1.0, Terminal growth: 1%), and implies a FY14 PER of 33.1x.

Risks    Lower than expected subscriber growth.

Escalation of content cost. 

Source: Kenanga