Wednesday, February 20, 2008

Astro Boy Returns!

Really has not been posting about stocks specific. Was looking at one stock's movements over the past 2 weeks - a bit too obvious I thought, so here goes. This was posted back in October 2007. The bounce back to RM4.00 basically confirmed my suspicion - its on, the privatisation.

The once-golden boy, dragged through the mud with their adventure in Indonesia, finally made the top ten volume stocks. This is more than aweek after the announcement that they are pulling out of Indonesia. If it was the Indonesia factor, the stock would have reacted much earlier. Hence there is a better than 50% chance we are seeing another privatisation from the AK's stable. Following up on my prediction of another privatisation possibility for Tanjong Plc - if all comes through almost all of AK's companies will be like him, very private.

Factors For Privatisation
a) Easier to do price hikes and whack the Malaysian subscribers as a private entity.
b) Pay TV and ARPU moving in the right direction again.
c) Cut out the cancerous Indonesian operations, limited downside.
d) Starting up in India, less problematic and better potential.
e) Earnings will drop enormously in 2007 and 2008, improvements will occur only in 2009.
f) The Indonesian experience brought on the realisation that: gestation period of a major project will weigh heavily on stock's performance; the start up period will not see improvements in bottom line - all strong factors to take the company private.
g) Management thinks that Astro is under appreciated by investors, not many willing to take a long term view on the stock.
h) Management thinks that the share price does not reflect the critical mass of subscribers in Malaysia.
i) After all the hoo-hah, the share price is still way below the IPO of RM4.50, why bother to list?
j) Does the company want to go through another 2 years of depressed share price (akin to the Indonesian experience) with their Indian operations?

A privatisation should see a bid of RM4.50 as a minimum because that's the value of just the Malaysian operations. If it bid just RM4.50, there will be a lot of hoo-hah as that was the IPO price, hence can expect a bid of between RM4.60-4.80. Better to take it private and relist in 2009 when Indian earnings start kicking in.


yj said...

if true why would EPF kept selling it on mkt ? wasn't the IPO at 4.06 ?

Salvatore_Dali said...


why do u think epf would know what is really happening... at every level there would be sellers and buyers... just like you probably do not believe my opinion... of course I could be wrong, but my views are based on what I can see, not hearsay ... its best to form opinions sitting far away , away from so called sources... at the end of the day, its whats reflected in the traded prices ... the trend is unlikely to be just a new substantial shareholder... thats my view... if u can ask epf why they sell then good... or else we are all just guessing, guess epf is not speaking to me... i may be wrong on the ipo px, i believe i got that figure from somewhere, not sure if its true though..

The Rock said...

While I think there are many good reasons for Astro to be taken private, there is a little barrier wrt how they will service the debt required to privatise the company. Astro's cash flow is about 2-2.5% yield pa. At best they may get long term loans/bonds at 5.5-6%. Astro can raise the subscription price again to increase their cf.

But I think to double the cf to service the loans at this juncture is a long shot.

So if I am the board of directors, I'll say forget it - why should I care about the share price level if I'm not a speculator? Or if I'm not planning to selldown my controlling stake? Maxis' angle is totally different - it has cash yield of almost 80c per share. That's more than enough to service the debt. Secondly a strategic buyer bought a 25% stake! So the actual cash required is less. It makes sense financially to privatise Maxis.

But less so for Astro.

That's my personal opinion...

Salvatore_Dali said...


well said, you r right if we look at cash flow and outstanding debt that there is little reason to take it private... unlike Maxis which gives better yields... the reasoning for Astro is that when investors whack prices down it presents the business at a certain valuation... as owner u may want to wait it out... or if u believe the mkt does not value certain assets properly, then u get to take it private at a good px... raising capital is one of the main reasons for taking a company public ... thats in the past for Astro... the value to be unlocked for Indon and Indian operations are substantial as I see no other "cable operator" with critical mass local language programming for these countries... and herein lies the hidden value... its hard to build another franchise like Astro... its now leveraging on its content which it has assidously been building up... Taking it private below 5.00 is a good ploy if I can relist one or both operations at much higher multiples two years down the road when subscriber base has reached critical mass ... plus can then keep the good cash flow fm Malaysian operations private... when investors do not want to buy n hold for a 2-3 year view... it might make sense to take advantage of the mis-pricing as the owner may be seeing an annualised return of 12%-15% a year compounded by taking this route.