Monday, September 24, 2012

IPO ... Astro

Astro Malaysia Holdings Bhd is raising RM1.42bil from the sale of 474.30 million new shares at an indicative RM3 per share for the retail portion.

The new shares are part of its initial public offering (IPO) of 1.518 billion ordinary shares of 10 sen each, comprising of a public issue of 474.30 million new shares and an offer for sale of up to 1.044 billion existing shares. This will see it raising a total of RM4.55bil.

Of the RM1.42bil from the IPO of which RM750mil or 52.7% of the proceeds would be used as capital expenditures with 36 months and RM500mil or 35.2% to repay bank borrowings.

The company had allocated RM112.90mil as working capital while listing expenses would be RM60mil.

Of the 1.518 billion shares, 1.258 billion shares would be offered to the foreign institutional and selected investors including Bumiputera investors while 259.86 million shares would be offered to the public, directors and eligible employees.

It intended to adopt an active capital management. It proposes to pay dividends out of cash generated from its operations after setting aside the necessary funding for capital expenditure and working capital needs.

Of the proceeds from its public issue of RM1.42bil, it intends to use RM750mil for capital expenditure within 36 months, RM500mil to repay bank borrowings within a year, and RM112.90mil as working capital. Its listing expenses amounted to RM60mil.

Upon completion of the exercise Astro Networks will own 70.8% equity stake in Astro and the investing public will hold the remaining 29.2% stake. As part of this policy, target a payout ratio of not less than 75% of its consolidated profit for the year under MFRS, in each financial year beginning Feb 1, 2013.

Astro's profit for the period ended April 30, 2012 was RM123.36mil while profit before tax was RM171.90mil. Its EBITDA was RM341.93mil.

Ananda, who owns telecom and energy companies, is relisting Astro after it was privatised in 2010 in a deal that valued it at around US$2.8 billion.

Meanwhile Japanese bank Nomura Holdings Inc and Singapore’s Great Eastern Holdings Ltd are among the 16 cornerstone investors for the US$1.5 billion listing of pay-TV firm Astro Malaysia Holdings Bhd.

Other cornerstone investors include California’s Standard Pacific Corp and Malaysian state-owned fund management firm Permodalan Nasional Bhd, the sources added, speaking on condition of anonymity because they were not authorised to talk publicly on the matter.

PNB is said to be one of the biggest cornerstone investors out of the 22 that the country's largest pay-TV operator Astro Malaysia Holdings Bhd has secured for its US$1.5bil (RM4.5bil) initial public offering (IPO).

A total of 430 million shares were offered to cornerstone investors, which included tycoon Chua Ma Yu, Kencana Capital Libra Investment Sdn Bhd, Great Eastern Life Assurance, Myriad Opportunities Masterfund, Nomura Asset Management, Antell Holdings Ltd, hedge-fund Azentus Global Opportunities Masterfund Ltd, Caprice Capital International Ltd, Cornstone Smith Asset Management, Gordel Capital, five units of Ochis-Ziff, TPG-Axon International, TPG Axon Partners and pension fund Universities Superannuation Scheme.

The lock-up period for the cornerstone investors is said to be three months.

Astro's rationale for returning to Bursa was to provide it access to the capital markets to source funding for its expansion.

From its inception, this pay-TV operator has grown by leaps and bounds and its offering is now available on multiple platform that allows it to access new target markets.

Its growth was about “servicing its existing customers by providing the right value propositions and content. Astro is also moving out of living rooms to provide Astro-On-The-Go and will bundle TV and radio services on broadband and provide existing and new channels on high definition.” With that Astro can now tap into a “100% addressable market” which is about 7.5 million households.

Capex would be 11% of revenue by 2014 and maintenance capex will be 4% to 5%.

Astro reported net profit of RM629mil for financial year ended Jan 31, 2012 on the back of RM3.8bil revenue. For first quarter-February to April for FY13, Astro reported net profit of RM123mil.

Astro has borrowings to the tune of RM3.7bil and although it intends to pare debts down with the proceeds from the IPO, its debts would still be high but “the company is correctly leveraged and it has an acceptable gearing level.”

Its Valuations …

While industry observers said the new RM3 retail price for the comeback listing of Malaysia’s largest pay-TV operator is “fairer” compared to the indicative RM3.60 set for bumiputra investors, the investment community is still largely divided on the stock.

Despite Astro’s historical price-to-earnings ratio (PER) shrinking slightly to 24 times based on the retail price and net earnings of RM629.6mil for the financial year (FY) ended Jan 31, 2012 some remained unconvinced and would not be subscribing for the shares.

The cornerstone investors have their own agenda. There could be other reasons. Maybe they think there is a possibility of someone coming in to buy them out later at a higher price or the funds who showed interest might be doing so for indexing purposes. This is especially true for funds who track the benchmark KL Composite Index. They are buying into Astro for that and not so much for the growth of the company.

Astro’s management has guided for lower earnings and margins for FY13 and FY14 as the company converts the current (Sept 2012) batch decoders to high-definition, the cost of which is borne by Astro. This earnings erosion is, however, expected to recover by FY15.

Based on the listing price of rm3.00 per share, Astro is valued at rm15 billion. However some say its value could even higher at between rm15 billion and rm22 billion.

Astro has already achieved critical mass and its push into more value added products will boost its average revenue per user.

Astro currently (Sept 2012) dominates the local pay TV scene with over three million subscribers and is poised to continue adding subscribers at a healthy pace.

Post IPO, Astro’s net debt to Ebitda ratio will be reduced to 2.2 times from 2.4 times and be maintained at 1.5 to 2 times in the long run.

Ananda, the country’s second-richest man, took the satellite TV operator private in 2009 in a deal worth RM8.5bil. The company is being relisted at RM18.7bil without its Indian and Indonesian operations, or 125% higher than when it was delisted three years ago at RM4.30.

Astro has a longer-term growth story and shareholders will have to wait it out.

Margins were likely to see compression for the time being (Sept 2012 & Beyond) as Astro worked to switch some 1.5 million of its subscribers to high-definition. However, Astro’s management was confident it could bundle both TV as well as broadband offerings once the conversions were complete.

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