Astro shareholders should accept offer

Astro is going private:

IT has finally happened. Astro All Asia Networks will be taken private, putting to rest rumours that have been been brewing over the last two years, with continuous denials from company officials. Not surprisingly, it has happened at a time least expected.

In a style similar to the RM16bil privatisation of Maxis Communications Bhd in 2007, Ananda Krishnan is taking his pay-TV company private at a price of RM4.30 per share, equivalent to a RM8.5bil deal.

The reason? The same as when he took Maxis private; going private would provide a more conducive shareholding and operating structure given the company’s future high capital expenditure (capex).

Astro’s estimated capital requirement is between RM3bil and RM3.5bil. Half of that will be for the domestic market, while the other half is for its overseas markets in the Middle East, Australia and North Africa.

The article came out a few days ago, but is significant for shareholders. Unfortunately, the shareholders will be bought out, many at a significant cut to the highs. The good thing is, they should take it, if Astro wants to lever up its balance sheet for future expansions into risky markets, then it's all good.

At this time when TM is coming into the market and offering HD quality TV to homes everywhere, (Word is they are coming out with 40 channels in the official trials) Astro wants to use its cash flow here to expand in services elsewhere. Ok! If they want it that way!

Shareholders should be glad Ananda is willing to buyout the Astro shares at a fair price. It's not horrible, but not great either. Perhaps Astro should be listed as a growth company instead of a dividend paying one. They might not get a huge IPO following, but at least there will not be any conflict with future shareholders who will know what they are getting.

Three WiMAX licensees fined, MCMC is a joke

From the Star Business:

Three of the four WiMAX licensees have been slapped with fines for not rolling out their networks on time, industry sources said.

The Malaysian Communications and Multimedia Commission (MCMC) is said to have issued letters on the fines to the WiMAX operators more than a week ago.

The players fined are YTL e-Solutions (RM1.9mil), AsiaSpace (RM1.7mil) and REDtone International (RM200,000) for failure to meet the 25% population coverage by the end of March.

The quantum correlates to the level of coverage achieved as at the deadline. However, all three players are appealing against their fines.

Tan Sri Francis Yeoh, head of the YTL Group, told StarBiz that YTL e-Solutions would appeal against the decision on the basis that the company would be ahead of the next roll-out target of 40% by mid-2011.

“We believe in having an extensive network up and running as we don’t see the point in having incremental coverage.

“We take this business seriously. We will have 60% coverage (more than the needed 40%) by the next deadline,” he said.

Another industry player, who declined to be named, said his company had faced a myriad of issues in rolling out its network, especially in relation to obtaining approvals and the land needed to put up the base stations.

“It takes a long time for these government approvals. And if the land is privately owned, prices can be prohibitive for us. This makes it almost impossible to roll out.

“If we were helped with these issues, then it would be fair to impose a fine on us. But these problems are beyond our control,” he said.

Last December, then Energy, Water and Communications Minister Datuk Shaziman Abu Mansor said the Government would withdraw licences from players who could not show good reasons why they are not able to roll out according to proposed plans.

More recently, Information, Communications, Culture and Arts Minister Datuk Seri Dr Rais Yatim said the MCMC should ensure that providers had delivered on what they had promised.

YTL plans to invest up to RM2.5bil over the next five years for its WiMAX roll-out while AsiaSpace is looking at raising RM300mil, having invested close to RM100mil so far. REDtone is looking at raising RM40mil.

It has also been questioned whether the authorities had been lackadaisical in enforcing deadlines and withdrawing the spectrum rights from those who did not use them.

However, as this case indicates, rolling out a telecommunications network can be fraught with difficulties and complications.

It will be just as challenging to manage that spectrum.

I mentioned before that wimax is basically fool's gold. It's an entry into the already crowded wireless arena. The wimax providers are in fact competing with the established telcos in providing wireless internet services. Furthermore, they are handicapped as they don't have the infrastructure built. Betting people would not gamble on wimax competitors taking a substantial market share from the telcos.

The logistics problem of wimax is a pain and an experienced telecom provider would have an easier time implementing than the current batch. The MCMC is another joke of an telecommunications body. How can they have picked so many failing companies? Not only are there infrastructure problems, but the companies have no experience in telecommunications. If I am a government body, I want someone who will have the best chance to build up capacity for the nation. If that means another telco company winning wimax, then so be it.

In light of all the follies of both companies and the MCMC, the only people who will really be affected is the investors who ponied up the capital for this costly wimax infrastructure. Talk about building bridges to nowhere.

Maxis IPO could turn off investors

From the Business Times:

But at a fund manager briefing by CIMB in Kuala Lumpur last week, investors questioned why Maxis, stripped of its prized assets in India and Indonesia, deserved to be valued at the figure of two years ago. Malaysia is a fully saturated market in terms of SIM penetration.

“People have talked about 14 to 16 times (price to earnings ratio),” said Aberdeen’s Jalil. “I think at the lower end of the range it does look OK but if it’s in a late teen or something, it might put off certain people.”

Maxis, which earned RM1.14 billion in the first half of 2009, said it plans to pay out 75 per cent of its net profit as dividend. CIMB Research said Maxis had a dividend yield of between 5.3 per cent and 5.9 per cent in 2010, compared to the 4.6 per cent yield of the FTSE Bursa Malaysia KLCI.

But investors were not impressed.

“If I want to buy for yields, I may as well buy a bond, that way I am not subjected to the ups and downs in the market,” said the CIO of a fund management firm. -- Reuters

I concur as well with the article. The yield of 5.3 to 5.9 pc is not bad, but there are other dividend stocks that may be more attractive in less competitive markets. We have a mature telecom market where revenue growth will most likely amount to GDP growth. The only area which it could grow is in data services but that market is also highly competitive.

For instance, gaming and tobacco stocks are excellent yield stocks in less than competitive markets. Their games and cigarettes have built followings. Telecoms can't distinguish their products from one another easily and usually leads to high attrition as one provider offers better deals.

My take is that Maxis will be priced similar to Digi differentiated only by the customer mix they serve. Digi serves the lower end consumer and therefore might be cheaper with lower margins while Maxis might be a little pricier with higher margins.

Axiata investment opportunity follow up

After reading the CIMB report on Axiata, they point out that 50% of revenues come from Celcom and another 40% from the Indonesia subsidiary. I conclude there is probably little investment opportunity because revenues largely rely on a recovery in exports and Asia. Sure if Asia recovers exceptionally well, Axiata will go up but so will lots of other stocks. But most likely, Axiata is priced correctly at this time and not much of an opportunity as I first thought.

DiGi Q2 net profit falls

From The Business Times:

DiGi.COM Bhd (6947), the country's third largest mobile operator, says its second-quarter net profit fell 21.3 per cent to RM234.5 million due to higher cost of its third-generation (3G) rollout.

However, the group remains "cautiously optimistic" for the medium to long term, as it believes it can capitalise on the changing market dynamics and grow its existing businesses as well as tap new growth opportunities.

"We are actively managing our costs to meet shareholders' expectations on cashflow and yields. In tandem with that, we have solidified our value proposition to customers, focusing on relevant, easier and better deals in everything we do.

"I am convinced we have taken steps in the right direction to strengthen our long-term financial standing. We are already on track to meet our financial guidance of a higher operating cash flow than last year," said DiGi chief executive officer Johan Dennelind in a statement yesterday.

DiGi's revenue in the quarter ended June 30 2009 grew a marginal 1 per cent to RM1.2 billion due to lower usage by the low income segments amid the current economic slowdown.

The mobile phone operator also reported a 6 per cent drop in earnings before interest, tax, depreciation and amortisation (Ebitda) of RM521.5 million in the quarter from a year ago.

For the six months period, DiGi's net profit dropped 13.4 per cent to RM588.5 million from RM509.9 million before. Revenue for the same period grew by 3 per cent to RM2.42 billion, against RM2.36 billion a year ago.

"We are faced with challenges from the economic recession. We acknowledged revenue and margin pressures due to weakened customer spending, but we are responsive to customers' call for greater savings.

"Although the operating environment remains tough, we are holding up well versus competition," Dennelind said.

DiGi will pay an interim single-tier exempt dividend of 49 sen per share for the year ending December 2009 on 18 September 2009.

It now has 7.23 million customers, comprising 1.18 million postpaid users and 6.05 million prepaid users.

Data revenue, comprising of text messages, ringtone downloads and others, also declined in the second quarter compared to the first quarter this year.

Mobile data revenue fell by 5 per cent to RM233 million, against RM246 million in the first quarter.

Revenue from text messages declined by 6 per cent to RM157 million.

Mobile data revenue now contributes 19.6 per cent to the group's total revenue, against a 20.7 per cent contribution in the first quarter.

Looking at the article, the optimistic comments at the beginning soon turn to dust as soon as I read 1% revenue growth. Furthermore, Digi users are considered less affluent. People aren't trading down from more expensive plans, they are just cutting back on spending. 6% revenue decline in text messaging says it all. Texting is as cheap as one can get with mobile communications.

Digi is supposed to be somewhat of a growth-like company and the revenue is not very growth-like. Overall, this is a horrible earnings report for the company, but just as bad for Malaysia's economy as people are cutting back on expenditures.

Faster streamyx broadband on the way?

TM as a company so far has dragged its legs in providing reasonable broadband service for Malaysia. But as an investment, their opportunities are endless. So far, they've gotten themselves in a hole by not anticipating the demand of current users by signing up more than their bandwidth can handle. The speed is almost unbearable at times. But read this from the Business Times:

Zamzamzairani added that

the emergence of wireless broadband service provider, such as the WiMAX players and mobile phone operators, would not be a threat to its fixed-line broadband business, like HSBB services and Streamyx.

"I believe that people in the office or at home would still prefer to surf the Internet using fixed-line. Wireless broadband will be useful for those who are on-the-go," he said.

Meanwhie, the Asia America Gateway (AAG) cable - in the consortium of which TM has a stake in, will be operational in August.

"Once the cable comes on stream, it will make Malaysia attractive for content providers to host here, to provide services to their customers in the region," Zamzamzairani said.

The AAG is a high-bandwidth fibre-optic submarine cable system linking Southeast Asia to the US. Other ope-rators in the AAG consortium include AT&T in the US, Australia's Telstra, India's Bharti and Telkom Indonesia.

So we can hopefully expect faster broadband come the end of the year. I hope the gateway really helps and we get the broadband we pay for. This project is well behind schedule. So at least TM has something coming in the pipeline for broadband relief.

Of Measat, Maxis, and Astro

This potential deal is interesting. Other sources have been decrying this report as total malarky, which I agree somewhat because the timing is premature. I mentioned three months ago that TM seemed extremely confident of its future and why not? They will be able to offer triple play services, broadband, phone, and tv in the next few years.

TM has this in mind as evidenced by some of the "combo" deals they have been offering of phone+internet.

Maxis could possibly compete better by offering phone+intenet deals, but I haven't seen them come up with anything of the sort. If they were to incorporate Astro, they would be able to offer phone+internet+TV and be on similar footing with TM, hence why I would think a merger would be possible. But again, I don't see their business model moving towards packages so I think the merger is speculation at this point.

Check back again if Maxis starts promoting combo deals such as what telekom is doing. If they go in that direction, I would say a merger is definitely possible.

TM mulling over EPL TV rights, country upgrade from CIMB for Malaysia, and thoughts on the effects of recent years' tax cuts

I mentioned last month that Telekom was possibly planning on offering television services with its HSBB infrastructure that it is currently deploying. It seems like this has come true with the possible bidding for English Premier League broadcasting rights for Malaysia as mentioned in the Edge Weekly this weekend.

Hardline infrastructure has so many advantages over wireless infrastructure that it's a no brainer Telekom Malaysia will have a leg up over the competition. For one, wireless signals can get interrupted by bad weather and weak transmission. Hardline or cable television will have no such problems. People will always get a near perfect picture with hardline televsion technologies.
The same goes for internet as well. But at the same time, I hadn't fully considered that TM would have to spend a lot of money in starting up its media division, buying rights, etc. I do expect the government to give TM a lot of support in forcing Astro give up exclusive TV channels like the Star channel, similar to what Indonesia did. After all, the government owns TM.

I'm not expecting the dividends to stay where they are now. The dividend payouts and policies are quite generous at the moment. I believe they will have to cut it soon as they start ramping up the HSBB and televsion divisions. They will most certainly take a hit to their stock price if they were to cut dividends.


I think the CIMB upgrade of Malaysia is silly. Moving to cyclical stocks will amplify profits and losses in stock returns. Yes, in that case for the short term, it might be a good idea as the market has been rebounding. But if the markets turn south, cyclicals will take the worst beatdown. In the longer term outlook of 6 months to a year, It's simply way too early to move into cyclical stocks.

We are only 9 months in this stock bear market. 9 months ago is when the markets really began to collapse by just looking at charts of the nasdaq and dow. And we're at a bottom already? Give me a break. The stock bear market in 2000 lasted for at least 2.5 years until 2003. And guess which recession is worse? Just because GDP may turn positive doesn't mean anything if growth is weak. In this case the markets will still deteriorate, albeit at a slower rate.

One of the things I've been mulling over is the effect of tax cuts from the government over the past few years. In my opinion, tax cuts can be used as an effective monetary instrument. Because the government cut taxes over the last few years during the good times, most of the money went back into the economy and people spent more as shown by gdp. During bad times, people will save money from tax cuts. But when things get better they have more options.

So, if taxes stay where they are now, we will recover in sync. If taxes go up, our recession will be more severe. Anyways, I believe the tax cuts are all done and won't be lowered anymore. So we had a chance if we didn't cut taxes a few years ago to cut taxes now and get out of this recession a bit faster or in better shape. So I think it was a bit of a failure from a view of fiscal responsibility. If we cut taxes now instead of then, we would not have had as much growth, but at the same time we would be in a good position when the recession ends. Anyhow, there are other things to consider, but that is my general view. But we are not alone, the US did the exact same thing. They aren't that much better.