Monday is the day. Dare to take the risk?
Saturday August 16, 2008
Rumours re-surface on the privatisation of Astro
By TEE LIN SAY
THE stable of companies under T. Ananda Krishnan, (better known as AK), have always held special appeal with investors due to its premium quality branding and sound businesses.
Last year, it was the RM16bil privatisation of Maxis Communications Bhd that hogged the limelight, not only for its surprise element, but also for the debate it sparked off on whether the deal had favoured minority shareholders.
The massive exercise involving Maxis was deemed largely rewarding for the reclusive tycoon, as it saw the entry of Saudi Telecom Co as a 25% long-term strategic partner with an investment of US$3.5bil (RM10.7bil) into the privatised entity.
In fact, if all goes well, Binariang’s chairman Raja Datuk Arshad Raja Tun Uda has hinted that Maxis may make an early comeback, and could possibly be re-listed in about three years time.
While investors will certainly look forward to having Maxis back on Bursa Malaysia, there are other companies under his stable that are also speculated to make a comeback to the local bourse.
The re-listing of Ananda’s Bumi Armada Bhd – one of Malaysia’s largest owners and operators of offshore support vessels – has been a stubborn rumour that has refused to go away in the past two years.
It is generally known that CIMB was engaged to handle Bumi Armada’s planned re-listing. CIMB was advisor to the privatisation of Bumi Armada four years ago.
Hit a snag?
While initial plans were for the listing to take place this year, sources say that the exercise has hit a snag, not least due to languishing market conditions.
“Under the current climate of weak appetite for equities, getting funding and placees aren’t easy. I don’t think many banks will take the risk by underwriting the bulk of the shares,” says an observer.
Flotation or not, Bumi Armada is certainly on an aggressive fleet expansion drive despite concerns of declining global demand for vessels.
Currently, 70%, of Bumi Armada’s profits come from its offshore support vessels (OSV) division.
With 46 vessels, Bumi Armada is the largest fleet owner and operator in Malaysia. Its plans to grow the fleet to 73 in 2009, making it the largest owner and operator of OSVs in Southeast Asia.
During its recent unveiling of the Armada Firman 2 at the Drydocks World Shipyard in Tuas, Singapore, Bumi Armada’s CEO Hassan Basma evaded the issue of a listing, but did not completely deny the possibility of a flotation exercise.
“Our plans for an IPO (initial public offering) are like any sensible company. We always look ahead and we plan our requirements for cash for expansions. So we are considering various options, including an IPO. We will continue to evaluate the situation; at present, it is quite inappropriate,” he was quoted as saying.
Sources add that should listing plans be off, AK may also choose to sell Bumi Armada to a willing buyer at the right price.
Bumi Armada shares were de-listed on April 18, 2003 at a takeover offer of RM7 a share by Objectif Bersatu Sdn Bhd.
Objectif Bersatu is controlled by AK and business partner, Wan Ariff Wan Hamzah. The privatisation cost them about RM440 million, a sliver of the RM16 billion spent to privatise Maxis.
The buzz - again and again
Meanwhile, the buzz on the privatisation of direct TV operator Astro All Asia Networks Plc appears to have reemerged – again.
The speculation is however backed up by facts that make a privatisation a natural progression. The counter is undervalued and this, despite having zero debts, bright prospects and being in a net cash position.
Analysts agree that reasons for the privatization is to realise value, as its current magnetism is being blemished by its losses in Indonesia and India. “The Malaysian business is very strong and generates good cash flow. The intent of the privatization is to split the mature and immature businesses and to divide the domestic business which is very mature from the new businesses of India and Indonesia, which will be posting losses over the next few years before it breaks even,” says one observer.
Astro’s valuation based solely on its Malaysian business, says an analyst, is between RM4.20 and RM5.22 per share.
Domestically, most analysts are positive on Astro’s strong cashflow, hence the prospects for higher dividend payouts.
The domestic operations now generates cashflows in excess of RM200mil to RM300mil per annum.
Most analysts are confident that Astro will achieve its targeted subscriber additions of 250,000 to 270,000, premised on a stronger up-tick in demand from the major sporting events such as the Euro 2008 and the Olympic Games.
OSK Investment Research analyst Jeffrey Tan in his report, believes the possibility of a privatization is not completely out of the window as Astro shares have continued to trade below its IPO price over the past 12 months and are undervalued, there has been no material progress on the Indonesia impasse, and earnings volatility is expected to continue.
Another analyst says that an Astro privatization may even entail a back-to-back deal:“It will be something like the Maxis deal, where they get Middle Eastern partners to buy a stake in the company at a premium.”
He adds that to be fair to its long term shareholders, the privatisation price ought to be at a premium to its IPO price.
In October 2003, Astro was listed at an offer price of RM3.65 for retailers, and RM4.06 for institutions.
“If we were to assume the same 20% takeover premium at current levels, implying a takeover offer at RM4 per share, a general offer would cost its major shareholder some RM1.7bil, excluding Khazanah’s 21% stake,” says Tan.
Indonesian thorn
Indonesia has been a thorn for Astro over the last few years but this could soon be coming to an end.
The “trading buy” and “buy” calls analysts have on Astro have a lot to do with the Sept 1 expiry date for its current trademark licensing with PT Direct Vision (PDTV).
Come Sept 1, the licensing agreement between Astro and its Indonesian pay-TV joint venture partner, PTDV ends.
The troubles in Indonesia, since its first venture in 2006, have been endless. There had been initial hopes for Astro to hold a 51% shareholding in the joint venture, but this was later reduced to a notional 20%, and now, maybe even 0%
In the last 3 years, Astro has incurred RM241mil in losses, RM92.4mil in write offs and RM203mil in support costs for Indonesia.
Astro doesn’t have a choice but to decide on its Indonesian strategy as its branding contract with PT Direct Vision expires soon. Most analysts opine that Astro is likely to call it quits with PTDV, as its been an endless journey of regulatory problems and sunken costs.
Astro has been forking out RM20mil per month for the last few years and has so far invested a burgeoning RM536mil.
It supplies channels and programming content and also provides technical support to PTDV. Astro also allows PTDV to use the Astro brand in the hope of acquiring a 20% stake in PTDV.
Seeking closure
When contacted, most analysts feel that Astro is likely to end its relationship with PDTV and seek a new partner.
“It’s definitely good to break up with PDTV. They are sinking in RM20mil every month to maintain operations in Indonesia. Apart from the licensing rights, there is little else,” says a media analyst.
Aseambankers says that it is likely that Astro will incur the RM20mil monthly support costs until Sep 08, disassociate itself from PT Direct Vision, and sell content or establish another JV with other Indonesian pay-TV operators.
“We understand that the RM200mil in commitments already made are transferable or saleable between Indonesian pay-TV operators,” it says.
Should Astro and PDTV part ways, the group expects to account for costs relating to commitments already made which are about RM200mil.
Should this happen, analysts are still positive on the group.
“Even with the RM200mil write-off, it only works out to a 10 sen dilution in earnings. I don’t expect the stock to be punished, but quite the reversed. Astro will in fact have a cost savings of RM20mil per month which can be put for better use,” says the media analyst.
As at January 2008, PTDV had 145,000 subscribers and an average revenue per user (ARPU) of US$20.1 (RM65). The service broadcasts 49 channels of which 12 are local including six channels the group specially designed for Indonesia.
Indian venture
On a more positive note, Astro’s 20% associate Sun Direct TV achieved 1 million subscribers in just 200 days, well ahead of its one calendar year target.
Analysts now expect Astro’s Indian venture to breakeven in three years, instead of the initial forecast of 5 years.
“Sun Direct’s robust subscriber growth was partly attributable to its low fees. Its activation and installation fee was the lowest while its subscription fee was among the lowest,” says the media analyst.
Previously, SunTV is only expected to break even after 5 years of operation (in 2012) based on a 3 million subscriber threshold. Astro expects to account for its share of losses of up to RM576mil, reflecting its 20% stake over the next 5 years.
“We sense that the Astro’s share price has hit a trough as we believe its cash burning days in Indonesia will soon be over and its Indian operations are growing above expectations,” says Asseambankers.
The research house has a RM4.60 mid-calendar year 2009 discounted cash flow-derived target price. In arriving at this target, it applies a terminal growth rate of 6% for its core Malaysian operations and a weighted average cost of capital of 11%.
Rumours re-surface on the privatisation of Astro
By TEE LIN SAY
THE stable of companies under T. Ananda Krishnan, (better known as AK), have always held special appeal with investors due to its premium quality branding and sound businesses.
Last year, it was the RM16bil privatisation of Maxis Communications Bhd that hogged the limelight, not only for its surprise element, but also for the debate it sparked off on whether the deal had favoured minority shareholders.
The massive exercise involving Maxis was deemed largely rewarding for the reclusive tycoon, as it saw the entry of Saudi Telecom Co as a 25% long-term strategic partner with an investment of US$3.5bil (RM10.7bil) into the privatised entity.
In fact, if all goes well, Binariang’s chairman Raja Datuk Arshad Raja Tun Uda has hinted that Maxis may make an early comeback, and could possibly be re-listed in about three years time.
While investors will certainly look forward to having Maxis back on Bursa Malaysia, there are other companies under his stable that are also speculated to make a comeback to the local bourse.
The re-listing of Ananda’s Bumi Armada Bhd – one of Malaysia’s largest owners and operators of offshore support vessels – has been a stubborn rumour that has refused to go away in the past two years.
It is generally known that CIMB was engaged to handle Bumi Armada’s planned re-listing. CIMB was advisor to the privatisation of Bumi Armada four years ago.
Hit a snag?
While initial plans were for the listing to take place this year, sources say that the exercise has hit a snag, not least due to languishing market conditions.
“Under the current climate of weak appetite for equities, getting funding and placees aren’t easy. I don’t think many banks will take the risk by underwriting the bulk of the shares,” says an observer.
Flotation or not, Bumi Armada is certainly on an aggressive fleet expansion drive despite concerns of declining global demand for vessels.
Currently, 70%, of Bumi Armada’s profits come from its offshore support vessels (OSV) division.
With 46 vessels, Bumi Armada is the largest fleet owner and operator in Malaysia. Its plans to grow the fleet to 73 in 2009, making it the largest owner and operator of OSVs in Southeast Asia.
During its recent unveiling of the Armada Firman 2 at the Drydocks World Shipyard in Tuas, Singapore, Bumi Armada’s CEO Hassan Basma evaded the issue of a listing, but did not completely deny the possibility of a flotation exercise.
“Our plans for an IPO (initial public offering) are like any sensible company. We always look ahead and we plan our requirements for cash for expansions. So we are considering various options, including an IPO. We will continue to evaluate the situation; at present, it is quite inappropriate,” he was quoted as saying.
Sources add that should listing plans be off, AK may also choose to sell Bumi Armada to a willing buyer at the right price.
Bumi Armada shares were de-listed on April 18, 2003 at a takeover offer of RM7 a share by Objectif Bersatu Sdn Bhd.
Objectif Bersatu is controlled by AK and business partner, Wan Ariff Wan Hamzah. The privatisation cost them about RM440 million, a sliver of the RM16 billion spent to privatise Maxis.
The buzz - again and again
Meanwhile, the buzz on the privatisation of direct TV operator Astro All Asia Networks Plc appears to have reemerged – again.
The speculation is however backed up by facts that make a privatisation a natural progression. The counter is undervalued and this, despite having zero debts, bright prospects and being in a net cash position.
Analysts agree that reasons for the privatization is to realise value, as its current magnetism is being blemished by its losses in Indonesia and India. “The Malaysian business is very strong and generates good cash flow. The intent of the privatization is to split the mature and immature businesses and to divide the domestic business which is very mature from the new businesses of India and Indonesia, which will be posting losses over the next few years before it breaks even,” says one observer.
Astro’s valuation based solely on its Malaysian business, says an analyst, is between RM4.20 and RM5.22 per share.
Domestically, most analysts are positive on Astro’s strong cashflow, hence the prospects for higher dividend payouts.
The domestic operations now generates cashflows in excess of RM200mil to RM300mil per annum.
Most analysts are confident that Astro will achieve its targeted subscriber additions of 250,000 to 270,000, premised on a stronger up-tick in demand from the major sporting events such as the Euro 2008 and the Olympic Games.
OSK Investment Research analyst Jeffrey Tan in his report, believes the possibility of a privatization is not completely out of the window as Astro shares have continued to trade below its IPO price over the past 12 months and are undervalued, there has been no material progress on the Indonesia impasse, and earnings volatility is expected to continue.
Another analyst says that an Astro privatization may even entail a back-to-back deal:“It will be something like the Maxis deal, where they get Middle Eastern partners to buy a stake in the company at a premium.”
He adds that to be fair to its long term shareholders, the privatisation price ought to be at a premium to its IPO price.
In October 2003, Astro was listed at an offer price of RM3.65 for retailers, and RM4.06 for institutions.
“If we were to assume the same 20% takeover premium at current levels, implying a takeover offer at RM4 per share, a general offer would cost its major shareholder some RM1.7bil, excluding Khazanah’s 21% stake,” says Tan.
Indonesian thorn
Indonesia has been a thorn for Astro over the last few years but this could soon be coming to an end.
The “trading buy” and “buy” calls analysts have on Astro have a lot to do with the Sept 1 expiry date for its current trademark licensing with PT Direct Vision (PDTV).
Come Sept 1, the licensing agreement between Astro and its Indonesian pay-TV joint venture partner, PTDV ends.
The troubles in Indonesia, since its first venture in 2006, have been endless. There had been initial hopes for Astro to hold a 51% shareholding in the joint venture, but this was later reduced to a notional 20%, and now, maybe even 0%
In the last 3 years, Astro has incurred RM241mil in losses, RM92.4mil in write offs and RM203mil in support costs for Indonesia.
Astro doesn’t have a choice but to decide on its Indonesian strategy as its branding contract with PT Direct Vision expires soon. Most analysts opine that Astro is likely to call it quits with PTDV, as its been an endless journey of regulatory problems and sunken costs.
Astro has been forking out RM20mil per month for the last few years and has so far invested a burgeoning RM536mil.
It supplies channels and programming content and also provides technical support to PTDV. Astro also allows PTDV to use the Astro brand in the hope of acquiring a 20% stake in PTDV.
Seeking closure
When contacted, most analysts feel that Astro is likely to end its relationship with PDTV and seek a new partner.
“It’s definitely good to break up with PDTV. They are sinking in RM20mil every month to maintain operations in Indonesia. Apart from the licensing rights, there is little else,” says a media analyst.
Aseambankers says that it is likely that Astro will incur the RM20mil monthly support costs until Sep 08, disassociate itself from PT Direct Vision, and sell content or establish another JV with other Indonesian pay-TV operators.
“We understand that the RM200mil in commitments already made are transferable or saleable between Indonesian pay-TV operators,” it says.
Should Astro and PDTV part ways, the group expects to account for costs relating to commitments already made which are about RM200mil.
Should this happen, analysts are still positive on the group.
“Even with the RM200mil write-off, it only works out to a 10 sen dilution in earnings. I don’t expect the stock to be punished, but quite the reversed. Astro will in fact have a cost savings of RM20mil per month which can be put for better use,” says the media analyst.
As at January 2008, PTDV had 145,000 subscribers and an average revenue per user (ARPU) of US$20.1 (RM65). The service broadcasts 49 channels of which 12 are local including six channels the group specially designed for Indonesia.
Indian venture
On a more positive note, Astro’s 20% associate Sun Direct TV achieved 1 million subscribers in just 200 days, well ahead of its one calendar year target.
Analysts now expect Astro’s Indian venture to breakeven in three years, instead of the initial forecast of 5 years.
“Sun Direct’s robust subscriber growth was partly attributable to its low fees. Its activation and installation fee was the lowest while its subscription fee was among the lowest,” says the media analyst.
Previously, SunTV is only expected to break even after 5 years of operation (in 2012) based on a 3 million subscriber threshold. Astro expects to account for its share of losses of up to RM576mil, reflecting its 20% stake over the next 5 years.
“We sense that the Astro’s share price has hit a trough as we believe its cash burning days in Indonesia will soon be over and its Indian operations are growing above expectations,” says Asseambankers.
The research house has a RM4.60 mid-calendar year 2009 discounted cash flow-derived target price. In arriving at this target, it applies a terminal growth rate of 6% for its core Malaysian operations and a weighted average cost of capital of 11%.