News  In a Bursa announcement, Astro Malaysia Holdings (Astro) announced that its wholly-owned subsidiary, Astro Retail Ventures Sdn Bhd (ARV) has entered into a shareholders’ agreement with GS Home Shopping Inc. (GSHS) for the establishment of a home shopping business in Malaysia.

 GSHS is a public listed company on the KOSDAQ (Korean Securities Dealers Automated Quotations) since January 2000. It has an issued share capital of KRW1.76trn and is a leading home shopping company in the Republic of Korea. It is also one of the leading home shopping operators in Asia with presence in South Korea, China, Vietnam, Indonesia, Thailand, India and Turkey.

 ARV and GSHS will establish and participate in a company to be incorporated under the name of Astro GS Shop Sdn Bhd (AGS) to carry out home shopping business through various platforms, including but not limited to TV home shopping, Internet shopping and mobile shopping.

 The initial authorised share capital of AGS shall be RM100m divided into 100m ordinary shares of RM1.00 each. The shareholding structure of AGS shall be held by ARV and GSHS in the ratio of 60% and 40%, respectively. Total capitalisation of AGS will be RM70m.

Comments  We are mildly positive on the deal as the potential revenue stream from this home shopping business is backed by an almost instant access to its 3.8m TV households or 55% of household penetration without further investment required in its STB and broadcast infrastructure.

 While there are no quantitative details from the announcement nor guidance from the management to gauge the impact of the group’s financial, we understand that there will not be any material effect to the company’s financials in FY14 and FY15.

Outlook  Although Astro provides better defensiveness compared to its peers given its subscriber base business as well as the low earnings reliance on the adex business, we prefer to err on the conservative side as we believe that the (i) the ongoing subsidy rationalisation could slow down consumer spending as well as the adex sentiment and (ii) response plan from its competitors, e.g. carriage of certain BPL matches by TM has corroded the competitive edge of ASTRO being the exclusive BPL content provider could pressure its subscription growth in the near-term.

Forecast  No changes to our forecast at this juncture.

Rating MAINTAIN MARKET PERFORM

Valuation  Our DCF derived RM3.10 valuation remained unchanged for now. This DCF valuation is derived from the assumptions of (i) WACC: 8.9%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%. This valuation also implies a FY14 PER of 35.2x.

Risks  Lower than expected subscriber growth.

 Escalation of content cost.

Source: Kenanga