ASTRO announced yesterday that the group is collaborating with Telekom Malaysia to provide broadband and content services across the country. With this collaboration, ASTRO has the means to bundle its very own broadband plans with their existing products as well as markets standalone broadband to non-Astro subscribers. With that said, we maintain OUTPERFORM with a higher TP of RM1.22 (previously RM1.16) as we believe the group have a competitive advantage in bundling their internet plans with vernacular and non-vernacular content.

Yesterday, Astro and Telekom Malaysia announced that they will be entering into a partnership deal to deliver high-quality digital experience to all Malaysians via content bundles and broadband services which will be launched in either late CY22 or early CY23. We are positive on this collaboration as we see ASTRO benefiting from…

…breaking ground into the broadband market. At present, ASTRO maintains collaborations with Maxis and Allo to provide bundled products of ASTRO’s Pay TV subscriptions with their partners providing internet access. Such arrangements are based on a profit-sharing basis. The new partnership with TM positions ASTRO to purchase wholesale internet access from TM to be repackaged with ASTRO’s existing product portfolio.

This facilitates ASTRO’s ambition to be an Internet Service Provider (ISP) with the ability to come up with their very own broadband plans and manage its pricing and profits from such arrangements more effectively. Additionally, tapping into TM’s large nationwide broadband footprint could also allow ASTRO to market more effectively in previously untapped regions whilst still providing quality service. With this collaboration with TM, we believe ASTRO stands a good chance in securing more broadband subscribers as Astro has a high household penetration rate of 73% as at 1HFY22. Even if they were to not increase its TV subscription pool, ASTRO could still supplement its broadband products with its freemium offerings (e.g. NJOI) to access more households, enterprise customers, hotels, etc.

Post update, we leave our earnings unchanged as the group is still in discussion to finalise the core details, e.g. pricing of internet plans, bundling of content and more.

Maintain OUTPERFORM with a higher TP of RM1.22 (from RM1.16, previously). Our TP valuation is based on FY23 PER of 10.2x (previously 9.65x) (0.5SD above the stock’s 3-year mean, from a previously ascribed mean). We believe this new partnership is a positive step taken by the group, tapping into a new market where we see it having the potential to grow as the group holds a solid base in household penetration and has a competitive advantage over other ISPs as they can bundle their internet plans with vernacular and non-vernacular contents.

Risks to our call include: (i) lower-than-expected subscription, (ii) lower-than-expected adex revenue, and (iii) higher-than-expected content cost and operating expenses.

Source: Kenanga Research - 30 Sept 2021