We are positive on recent developments surrounding Astro, namely: i) the launch of its IPTV service, which may provide a further boost to its ARPU, and (ii) the inclusion of the stock in the MSCI Malaysia index which will raise the group’s profile among institutional investors. That said, we are downgrading the stock from BUY to NEUTRAL, as its current share price offers <10% upside to our MYR3.36 FV.

-  A strong rally. Astro Malaysia (Astro)’s share price has rallied strongly over the past few weeks since we upgraded our recommendation on the sector to OVERWEIGHT. As its previous closing price of MYR3.15 is close to our FV of MYR3.36, we are reviewing our earnings forecast and will provide an update soon.  

- Bundled IPTV service launched. After some delays, Astro finally launched its IPTV service in collaboration with Maxis on 30 April. We view the new IPTV product positively as it should improve Astro’s average revenue per user (ARPU) and bottom-line. The launch of this service is timely as most of TM’s UniFi  subscribers are approaching the tail end of their 2 year contractual lock- in periods. The launch of the Astro-Maxis IPTV service provide customers with an alternative IPTV product offered at more attractive prices-points and bundled with Astro’s superior content.   

- To be included in MSCI Malaysia effective 31 May. Astro will be replacing Malaysia Marine and Heavy Engineering Holdings (MMHE) (SELL, FV MYR3.64) on the 42-stock MSCI Malaysia Index effect from 31 May. This will increase its profile among institutional investors and provide a boost to its trading sentiment.

- High expenses incurred to maintain its market leadership. Investors may be concerned about the company incurring high expenses in amortising the STBs it provides to clients – which will affect its bottomline. While we do not deny that the high expenses may hurt margin, we think to that this is necessary as the company would be able to introduce more value-add services to its customers through upgraded STBs, which will in turn boost future ARPUs. Also, as the Pay-TV market matures, viewers are getting pickier and demanding better-quality content. Hence, Aastro needs to make the first move toward improving what it airs before its competitors move in on its market share.

- Downgrade to NEUTRAL, but without any negative implication. As Astro’s share price has rallied recently and the current share price offers a mere <10% upside to our FV of MYR3.36, we are downgrading the stock to NEUTRAL.

Source: RHB