Wednesday, June 21, 2006

Malaysia - Notable Corporate Developments

Astro Passing Critical Mass
Astro All Asia Networks plc's net profit for the first quarter ended April 30, 2006 has more than doubled to RM90.48 million from RM39.81 million a year ago mainly due to better margins and lower finance cost, after offsetting share of losses from associates and overseas investment. Revenue rose 11% to RM523 million from RM473.2 million a year earlier on the back of higher subscription and advertising revenue, while earnings per share increased to 4.7 sen from 2.07 sen. In a statement on June 20, Astro said earnings before interest, tax, depreciation and amortisation (EBITDA) improved 65% to RM151 million, reflecting higher revenues and the benefit of a one-off reduction in subscriber acquisition cost of RM19.9 million. It said EBITDA margin improved to 28.9% from 19.4% a year earlier. Astro said its pay-TV roped in 98,400 new accounts during the first quarter. Net of churn, the company added 38,500 residential subscribers, bringing our residential base up to 1.82 million or 34.1% of Malaysian TV homes. Churn, or the number of customers who disconnected the service, fell to 59,900 from 77,800 in the previous quarter. As in recent quarters, a significant portion of the net additions came from the Malay-speaking market, which now makes up 46% of our subscriber base. Penetration of the Malay-speaking sector is still low, at 30% compared with 47% for Chinese and 61% for Indian, and with broader penetration into the mass urban market, average revenue per subscriber was marginally lower at RM78.70.
Astro said its radio business continued to expand its reach and market share, despite increasing competition. It said according to the latest survey, its eight FM stations reached 11.3 million out of 14.2 million listeners. It added that its radio adex share improved to 84% from 76% in the preceding quarter, while radio revenues rose 11% to RM33.2 million from RM30 million a year earlier. Astro said its service in Indonesia was launched by PT Direct Vision (PTDV) on Feb 28 under a trademark licensing agreement. It said the terms of the joint venture and shareholder agreement were being restructured to comply with the country's new guidelines and the completion date had been extended to July 31. As of April 30, 2006, the group had incurred total costs of RM96.1 million, which includes capital and operating expenses and other services extended to PTDV.

My Take - Astro passing the critical mass level of subscribers, and hence should be accorded a premium in valuation. The "near monopoly" will be translated in quality earnings via substantive margins, thanks to the no-show by touted competitor in MiTV. The Indonesian venture will be a good additional source of revenue to come despite hiccups in the early part of the game. Already, current subscribers and its growth rate will put positive cash flow at a growing rate to the company. Some analysts will still view Astro with guarded opinions citing declining ARPU - please, which cable company commands higher ARPU when they goes past critical mass, this is not like a phone company, the ARPU is silly as a measure. Astro has a monopoly in Malaysia, not by force but by managerial ability - how do you rate the earnings quality and predictability of Nestles, Rothmans, Japan Tobacco, Petronas Gas ... tell me why Astro's earnings should not be ranked the same. The product is a necessity, an additction of sorts. The superior management should be able to push through the Indonesian venture - hard to see them fail despite some teething problems. As for delays in launching Measat-3 satelite, its atecnicality not a fundamental factor. As for those who think that the Indonesian venture will be dilutive - thats why they are analysts and not CEOs, for fearing the early stages where earnings will be diluted, can they also remember the losses suffered by Astro when they first started in the first 2 years - thats pretty dilutive. You do not go into a new market and expect non-dilution in earnings, you have to strategise, invest and replicate your operations so that more revenue streams can be channeled. Pisses me off when anaysts say "earnings dilutive" when they also fail to mention corporate strategy. If Astro did not venture to Indonesia, the same fuckers would have said, "limited growth" in Malaysia - get a fucking life and start justifying your big pay packets. The 52- week high was RM5.90, compared to its current price of RM4.60. The stock should be upgraded in most analysts write-ups. This makes the covered warrant very cheap indeed at 16 sen.

HELP Finally To List

Selangor Properties Bhd’s private education subsidiary Help International Corporation Bhd (HIC) is offering the public six million shares under its proposed listing on the Second Board. Under the proposed listing, HIC would undertake a public issue of 14.78 million new shares at a price to be determined later. Of the remaining IPO shares, 8.78 million shares will be reserved for directors and employees of HIC group and persons who have contributed to its success. The proposed flotation is expected to be completed by the last quarter of the year. Selangor Properties and several vendors also proposed to undertake a restricted offer for sale of 13.15 million HIC shares, of which Selangor Properties’ portion is 10.14 million shares or such numbers to meet the 30% bumiputera shareholding requirement. As part of the pre-IPO, HIC proposed to acquire the entire equity interest in Selangor Properties’ 74.89% subsidiary Help University College Sdn Bhd (HUC) comprising 22.29 million shares for RM45.61 million via the issue of 74 million new HIC shares at 62 sen each. HIC will then acquire HUC’s subsidiaries for cash equivalent to their respective net tangible asset except for Help Executive Advanced Training Sdn Bhd, which will be bought at RM1. Selangor Properties said HIC would then be its 74.89%-owned subsidiary. The HUC group posted a net profit of RM6.6 million for the year ended Oct 31, 2005 against RM5.69 million a year earlier.
My Take - Everyone was clamouring for them to list back in the mid-90s, would have had doubled the current valuation. Still, the premier higher education operator. Systematic with a very solid infrastructure. Astute quality control, and attracting the better crop of students amidst the numerous pretenders and competitors. Everyone should try to subscribe for their IPO and just lock it up. Short supply of free float looks very likely.

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