Maintain HOLD and DCF-based MYR2.75 TP

ASTRO will acquire Capital FM and Red FM for MYR42m cash. The purchase consideration values each radio stations at MYR21m, pricey by recent benchmarks. Both radio stations will be rebranded; we are unsure on the value add given that ASTRO already operates nine radio stations covering all major language groups and commands 70% share of radio adex. That said, we opine that this development is immaterial to ASTRO.

To acquire Capital FM and Red FM for MYR42m

ASTRO entered into a conditional SPA with Star Media Group (STAR MK, HOLD, TP: MYR2.48) to acquire 100% of Capital FM and Red FM for MYR42m cash. Both radio stations have been running on auto-play mode since Dec 2015. Capital FM and Red FM incurred net loss of MYR4.1m in CY15 and their balance sheet at end-CY15 was in a net liabilities position of MYR0.8m. The proposed disposal will be completed by end-CY16.

Acquisition pricey by recent benchmarks

The purchase consideration values each radio station at MYR21m. STAR acquired shareholdings in Capital FM in 2011 and May 2015 for a total cash consideration of only MYR16.5m. More recently, Media Prima (MPR MK, HOLD, TP: MYR1.34) also acquired two radio stations (Ultra FM and Pi Mai FM) in Oct 2015 for MYR20m cash, valuing each radio station at MYR10m. By these benchmarks, we opine that ASTRO’s acquisition of Capital FM and Red FM from STAR is pricey.

Unsure on value add

ASTRO already operates nine radio stations covering all major language groups. In FY16, its share of radio adex was already an overwhelming 70%. While Capital FM and Red FM will be rebranded, we are unsure how they will add value. We leave our forecasts unchanged for now. The MYR42m cash consideration accounts for only 5% of our end-FY17 gross cash balance estimate for Astro and the MYR4.1m net loss generated by Capital FM and Red FM account for <1% of our FY17 earnings forecast.

Source: Maybank Research - 13 Sep 2016