Wednesday, September 19, 2012

The Price Determines The Attractiveness

There was a great article in The Star a few days back which had a couple of fund managers being negative on Astro IPO. When I read further I was shocked at the valuation. At an indicative price of RM3.60 (this is the price that has been set for bumiputra investors) and based on its earnings of RM629.6mil for its financial year ended Jan 31, 2012 (FY12), this translates to a price-earnings ratio of 38 times. 

I have written that I like Astro IPO as a dividend play, BUT at RM3.60, the price-earnings ratio is more than 30 times and the dividend yield is only 2%. Now this pisses me off. I have been defending AK's strategy to delist and relist as they were still within the rules operating at the time. You come back with a dividend play scheme and if its really RM3.60, you can go fly wau.

Luckily it was an indicative pricing, today's article came out with firmer details.  Astro Malaysia Holdings Bhd, a pay-TV firm, has set an indicative price range of 2.70-3.00 ringgit per share for institutional investors for its initial public offering that could raise up to RM4.56bil (US$1.5bil), a source with direct knowledge of the deal said.

The institutional book for Astro will open on Wednesday, said the source, who declined to be identified as details of the deal were not yet public.

Based on the indicative price range, the total 1.52 billion shares in the offer could be worth 4.1-4.56 billion ringgit.

The deal is being handled by CIMB, Maybank and RHB, while several foreign banks are also advisers including UBS, Credit Suisse, Goldman Sachs and JPMorgan.

Comment: Even at the reduced price of RM2.70, its still a very high price, yield will just be 2.66%, which there are plenty of other blue chips offering better than that. I doubt very much it will even break RM2.80 upon listing. Hence the upside will only be good if you can get it between RM2.50-2.55. I expect it to trade with a very small premium (maybe 5 sen) if they stick to RM2.70 as IPO price. Its all in the dividend yield people. Too greedy, just too greedy.


bruno said...

Maybe this a lousy deal for investors,but good for the owners.At least they turned chicken and lower the IPO pricing.Unlike the Facebook owners who upped their initial set IPO price to squeezed the last penny off their potential investors.

But companies whose shares never did well in the IPO always ended up whacked till thier asses turn purple.Another potential member of the Pigg's nations.

One thing about the Facebook owners.They managed into conning the best of wall streeters into believing Facebook was worth 93 bucks.That was the reason they were able to raised the IPO price to 38 bucks a few days before the IPO.

black shoe banker said...

first time post. Enjoyed your blog. Until your recent posting on Astro. Guess you didnt know the specifics. Now you do. It is a ridiculous valuation.

What's the long term outlook? Connected TVs are in. I am all for content on demand. Where's the growth? Where's the total return at that kind of yield.

bruno said...

The Dow is up around 50 pts now,2 1/2 hrs into trading over 13,600.Can it be like the enegizer battery and make a straight line to 14,200,an all time high.I don't think so.It is time to face the oncoming overloaded freight train,and pick up some pocket change.

bruno said...

Technically Euro due for a bounce.Closed position at 1.3015 for 120 pips to average 100 pips total.