Analysts Raise Astro's Target Price?????

On the Edge Financial Daily Analysts raise Astro’s target price

The headline was RATHER MISLEADING in my opinion.

The following were written.

• CIMB Research has downgraded Astro All Asia Networks plc to neutral despite a higher target price of RM3.60 as it sees limited upside to the share price following an 80% surge since its upgrade in March.
  
  The research house cut its FY10-FY12 earnings forecasts by 7% to 20% for higher tax rates and churns, as guided.
  
  “Astro’s annualised 1QFY1/10 core net profit came in at only 46% of our forecast and 73% of consensus, largely because of a higher-than-expected tax rate of 50.6% due to losses in foreign businesses which were not tax deductible,” it said.
  
  Although revenue was in line, rising 6% year-on-year (y-o-y) on robust net additions, it added that Ebitda margin (earnings before interest, taxes, depreciation and amortisation) slipped about 2% points which, together with the higher taxes, led to a 41% slump in core net profit.
  
  Astro declared a 2.5 sen net dividend which was no surprise, being consistent with the payout in 1QFY09, it said.
  
  “In 1Q, net subscriber additions fell 15.6% quarter-on-quarter (q-o-q) to 82,000, pulled down by a higher churn rate of 10.6% (1QFY09: 9.8%). Astro expected churns to be manageable at 10% to 11% for the full year, higher than our assumption of 9%,” CIMB said.
  It also noted management had indicated that demand for home-based entertainment appeared to be resilient to the downturn, saying that the recently launched Mustika package should maintain average revenue per user (ARPU) just above RM80 for the full year.
  
  Though the 20%-owned Sun Direct TV associate in India was still unprofitable, its subscriber base had grown from 2.5 million as at end-January 2009 to 3.2 million as the company expanded from the southern province to all the metropolitan areas of the country.
  
  The research house raised its target price to RM3.60, applying a lower weighted average cost of capital (WACC) of 12.2% (13% previously) and removing the 10% discount to its discounted cash flow (DCF) value in view of Astro’s limited exposure to the weak advertising market and the minimal downside risks for its Malaysian operations.
  
  “Although we remain positive about the group’s prospects, we downgrade the stock from trading buy to neutral as there is limited upside to the share price,” it said.
  
  Meanwhile, AmResearch maintained its hold rating on Astro with a fair value of RM3.36 (from RM2.10 previously) at parity to revised DCF valuation.
  
  AmResearch said the strong take-up, viewed positively given the current economic slowdown, was driven by Astro’s continued focus on semi-urban and rural segments. Malay subscribers made up 57% of total subscribers in 1Q10, up from 54% in 1Q09.
  
  “On a sequential basis, top line declined by 3% due to lower advertising revenue from its radio segment (-15%), in tandem with the declining general advertising expenditure amid the economic slowdown. We expect radio segment to contribute 7% of FY10F’s top line,” it said.
  
  It also expected Astro to declare a dividend of 10 sen per share in FY10F, translating to 3% yield at current levels.
  
  “We are raising FY10F-FY11F earnings by 9%-11% to take into account higher FY10F’s net additions of 280,000 versus previous of 250,000 and higher depreciation charge due to higher capex, including investment to upgrade CRM system and high definition (HD) TV infrastructure," AmResearch said.
  
  It said Astro was trading at FY10F price-earnings ratio (PER) of 29 times and EV/Ebitda (enterprise value/Ebitda) of 11 times, at current levels, a premium vis-a-vis its regional peers of 17 times and nine times respectively. It does not see the gap between its estimated free cash flow (FCF) yields of 8% to 11% and estimated dividend yields of 3% to 4% to narrow down in the immediate term on the back of higher capex requirement.
  
  In addition, management does not rule out potential acquisition, especially local content providers to enhance its package offerings, it said.
  
  Astro dropped 18 sen to close at RM3.06 yesterday.

Yes, CIMB target price was higher but it was DOWNGRADE to NEUTRAL. ( This is one common practice I have seen by our local analysts. They can increase the target price in a downgrade. LOL! Don't ask - I don't know. )

And AmResearch has a HOLD rating.

How ironic. On another article on the Edge Financial Daily TODAY, Astro slides on downgrade

• Astro All Asia Networks plc closed 18 sen or 5.56% lower at RM3.06 yesterday after Credit Suisse Group AG downgraded the stock, citing "rich" valuations......
• Credit Suisse cut the stock’s rating to underperform from outperform, while the target price was lowered to RM2.65 from RM3.05. Astro is trading at a price-to-earnings multiple of 12.3 times 2009 expected earnings, compared with three to 11 times for its global peers, Loke said.

LOL! Credit Suisse cut Astro to underperform.

So how?

Where is all the analysts raise Astro target price?

OSK was one of the bullish folks on Astro. However, their call is only a 'maintain trading buy' only.

• Astro returned to the black with a headline net profit of RM34.5m from a loss of RM28.9m in 4QFY09 in the absence of major provisions for Indonesia. The key operational takeaways for the quarter were the steady ARPU and still-robust subscriber growth despite the challenging economic conditions. Its fair value has been adjusted to RM3.20 (from RM2.92 previously) based on DCF following the 5%-10% upgrade in our prospective forecast and after removing the 20% premium imputed for the potential corporate exercise, now refuted by management. We continue to see trading opportunities for the stock on account of its improved showing, with a trading target of RM3.20-RM3.50. Maintain TRADING BUY.

Now the other camp that is raising Astro's target price is RHB. However, their fair value is only rm2.60!!

• Investment case. Our fair value estimate has been raised to RM2.60 from RM2.33 following an update in valuation parameters. Valuations remain demanding while dividend yields are not particularly attractive, in our view. Hence, we are maintaining our Underperform recommendation.