Wednesday, September 26, 2012

Astro IPO priced at a demanding multiple!

Astro Malaysia Holdings Bhd (‘Astro’) will be relisted on our exchange soon. This IPO will involve the listing of 5.248 billion Astro shares on October 19. On Page 244 of the Prospectus, we can see the Financial Information for the company.

You will see the following financial data:
1) Astro’s 1Q2013 revenue increased by 8.6% to RM986 million as compared to RM908 million. Gross Profit increased from RM386 million to RM401 million but Pre-tax profit declined from RM263 million to RM172 million. Proft after Tax had similarly dropped from RM196 million to RM123 million.
2) EBITDA margin, Pre-tax Profit margin & Net Profit margin all declined. EBITDA margin dropped from 39.2% to 34.7%; Pre-tax Profit margin dropped from 29.0% to 17.4%; & Net Profit margin dropped from 21.6% to 12.5%.
3) Astro’s FY2012 revenue increased by 6.1% to RM3889 million as compared to RM3664 million. Gross Profit dropped marginally from RM1664 million to RM1652 million. Pre-tax profit declined from RM1091 million to RM864 million. Profit after Tax had similarly dropped from RM827 million to RM630 million.
4) EBITDA margin, Pre-tax Profit margin & Net Profit margin all declined. EBITDA margin dropped from 37.4% to 36.4%; Pre-tax Profit margin dropped from 29.8% to 22.2%; & Net Profit margin dropped from 22.6% to 16.2%.
5) The Annualized Basic & Diluted EPS for FY2013 are 10.4 & 9.3 sen, respectively.
As such, Astro IPO priced at RM3.00 apiece is valuing the stock at a PE of 32 times. That is very demanding valuation and the only way that you can justify that is if the company can grow at a very fast pace, say 20% or higher. We will have to see whether that is achievable.

When I studied the Maxis relisting in 2009, one of the areas that I looked at was how much higher is the new company (Maxis 2009) being priced at via-a-vis the value of the company when it was delisted (Maxis 2007). In the case of Maxis, we learned that “Maxis 2009 is valued at 18.5% higher than Maxis 2007”. If we do the same comparison for Astro, we would have Astro 2010 valued at RM8.5 billion (here) as compared to Astro 2012 valued at RM15.744 billion- a whopping 85%-increase in value!

As John Hussman has stated many times, if you buy a stock that is trading at high PE, then that investment will give you a poor return. In the case of Maxis, growth has picked up after its listing. Will the same happen for Astro?

7 comments:

Billy Teo said...

Hi Alex,

Mind to share your view on MKLAND(8893)?

Chen Wah Low said...

Hi Alex,

Can you comment DIJACOR-OR? Whether to sell at current price 0.010 or but the rights?

Mat Cendana said...

Based on the figures that you quote here, it *is* expensive. But many investors would not think much about this and will still subscribe/buy because "it is Astro". The brand name and familiarity (like Facebook) - this is what drives the IPO, not facts and figures.

Alex Lu said...

Hi Billy Teo

MKLAND broke above its intermediate downtrend line at RM0.32 on July 20. Its immediate resistance levels are the horizontal lines at RM0.40 & RM0.44 while the support levels are at horizontal lines RM0.35 & RM0.33. The June 2009 high at RM0.49-0.50 is the ultimately the turning point or tipping point for the stock. Until it has broken above that level, this stock is still in a "range-bound" trading with a slight downward bias.

Alex Lu said...

Hi Chen Wah Low

If you buy 4000 DIJACOR-OR at RM0.01 each (costing RM0.40 excluding charges) and then subscribe for 4000 Right shares (costing RM4800), you will get 4000 shares plus 1000 bonus shares at total cost of RM4840. Thus, each share will cost you RM0.968. That is about RM0.082 cheaper than yesterday's closing price of RM1.05. If the share price drops further (say to the psychological support of RM1.00), then your gain will be cut to RM0.032. It can be considered but this stock can be very quiet for long stretch. So don't buy too much!

The entitlement announcement in Bursa website is:
"Renounceable rights issue of up to 491,302,655 new ordinary shares of RM1.00 each in Dijaya (“Dijaya Shares”)(“Rights Shares”) at an issue price of RM1.20 per Rights Share, together with an attached bonus issue of up to 122,825,664 new Dijaya Shares (“Bonus Shares”) on the basis of four (4) Rights Shares for every five (5) existing Dijaya Shares held at 5.00 p.m. on 24 September 2012 and one (1) Bonus Share for every four (4) Rights Shares subscribed for (“Rights Issue”)"

Alex Lu said...

Hi Mat Cendana

I hope you are wrong. It would be bad if Astro IPO turns out to be the Malaysian "Facebook"- not the product/service but the share dumbing.

Mat Cendana said...

Thanks for the opinion on MK Land asked by Billy Teo. This is one of the counters that I've bought and will be holding on to for its fundamentals. The main attractions are: (1) selling below its 1.00 par (2) now making profits and with less debt (3) its NTA - this is the main attraction.

At the very least, it's at 0.90 or so before the re-valuation of its land especially. Its land banks, especially near the Empire project/Damansara Perdana, are in prime locations. It is just a so-so developer but without having to do too much, will be increasingly valuable. This is with the assumption that the price of land will increase over time, of course.

You are right about the technical readings. It is currently stuck in the 0.30-something range - good enough for traders to make profits during its swings. But I'm in it for the longer term. If it can get past the 0.40 resistance and stay above that, I feel it will then go up and up. Maybe something like TH Heavy (formerly Ramunia) - after it broke 0.40, it went past 0.50 and has been staying above that ever since.