Sneak peak into Maxis-Astro IPTV JV

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Astro Malaysia Holdings Bhd

(March 8, RM2.79)

Maintain buy at RM2.81 with a revised target price of RM3.50 (from RM3.70): Maxis Bhd and Astro will launch their Internet protocol television (IPTV) product at the end of March. While the product’s earnings before interest, tax, depreciation and amortisation (Ebitda)  margin will likely be below that of the Time-Astro IPTV product, its addressable market is four times larger.

It also offers a good value proposition to subscribers. We trim our 2015 financial year ending January (FY15) earnings estimate by 6% but believe that there is upside potential if takeup is better than we expect.

We understand that Astro will take 25% of broadband (BB) average revenue per user (Arpu) and 100% of content Arpu. Assuming a 10mbps BB connection speed and taking Super Pack 4 (Chinese pack with high definition [HD] and personal video recorder [PVR]) as an example, the net Arpu will amount to RM137 (25% of the RM148 BB Arpu and 100% of the RM100 content Arpu), a huge RM45 lift from its nine-month FY13 blended Arpu.

Under the Time-Astro IPTV joint venture, Astro takes 40% of BB Arpu against 25% under the Maxis-Astro IPTV JV.  Thus, the Ebitda margin of the Maxis-Astro IPTV JV will be, at 25% to 30%, some 10 percentage points lower than that of the Time-Astro IPTV JV.

That said, the Maxis-Astro IPTV product has a readily addressable market which is four times that of the TIME-Astro IPTV product, at about 400,000 homes.

Currently, subscribers who want to subscribe to the Time-Astro package will also have to subscribe to Telekom Malaysia Bhd’s VIP 10 BB package for RM199 and Astro’s Super Pack 4 package via its direct-to-home (DTH) service for RM125. The total bill of RM324 would be 31% more than the cost of the Maxis-Astro IPTV package.

We trim our FY15 earnings estimate by 6% on:

(i) higher staff costs;

(ii) a longer time taken to convert old standard definition (SD) set-top boxes (STBs) to HD ones; and

(iii) lower IPTV Ebitda margins.

In tandem with our lower estimates, we trim our discounted cash flow-based target price by 5% to RM3.50. That said, we still rate Astro a “buy”. — Maybank IB Research, March 8

This article first appeared in The Edge Financial Daily, on March 11, 2013.

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