KENANGA : ASTRO - HOLD - 21 Mar 2008

ASTRO – FY08 earnings dragged down by Indonesia (Results Note)



Price: RM3.40

Target Price: RM4.55

Recommendation: HOLD



· FY08 net loss of RM6.2m was below our expectation and market consensus’ of RM80.6m and RM43.8m respectively. FY08 EBITDA of RM556m was within expectations as the Malaysian operations improved with higher net adds of 281,000 and 5% higher ARPU of RM82 per month. However, this was offset by the high “burn-rate” in Indonesia of RM135m and write down in investment in PDTV resulting in a 52.4% YoY decline in FY08 EBIT.

· FY08 net loss was incurred as Astro recognised RM95.7m loss from associate PDTV. Since 2Q08, Astro has discontinued recognising PDTV share of associate’s contribution due to the changes in the law on foreign shareholding limit.

· 4Q08 EBITDA fell 30.9% QoQ primarily due to the cost of introducing 8 new channels in Oct 2007 and higher CAC, which have more than offset the increase in revenue of 4.5% QoQ.

· FY08 EBITDA increased by 5.5% YoY due to 17.0% YoY surge in revenue underlined by higher customer net adds and improved ARPU on the back of the May’s re-pricing exercises, partially offset by higher content costs and CAC per box sold.

· Gross DPS of 5.0sen was announced in 4Q08 amounted to total gross DPS of 10.0sen for FY08. Project gross DPS of 12sen for FY09 and FY10.

· Malaysian operations solidified with capacity available to expand channel offering and at such, ARPU is expected to rise in tandem. Astro TV expects to launch 21 new channels in 2008 and targets penetration rate of 50% over the next 3 years from 40% currently.

· Indonesia challenge remains protracted and complex. Astro will continue to identify a suitable partner and provide basic services to support the Indonesia operations at the rate of RM20m/month as long as Management still believes favourable outcome can be achieved.

· Maintain HOLD on the stock’s overall risk profile with India’s expecting to incur losses and the unresolved problems in Indonesia. Target price lowered to RM4.55 (based on sum of parts valuation, with RM4.21 for the Malaysian operation which is based on a DCF valuation with 13% WACC, plus 22 sen per share for its Indonesia and India investments and 12 sen FY09 dividend).







KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department