My basis is simple. Astro PE ratio is high, Based on Astro IPO price of RM3.00, Astro PE ratio is 24.8x based on Astro EPS of RM0.121 (profit of RM626.62 million).
Astro dividend yield is low. Astro dividend yield is only 3% based on Astro dividend payout ratio of at least 75% (assuming at 75%).
If I apply a PE ratio of 20x, then Astro target price will be RM2.42 only. If based on 30x PE ratio then fair value will be RM3.63. But Astro cannot justify the PE ratio of more than 20x. This is because for the next few years, the growth is low or negative. Most KLCI counters are trading below PE ratio of 20x.
ECM said Astro target price is RM3.09 is based on DCF valuation (WACC: 7.4%, β: 1.5, terminal growth: 1%).
Reported in The Star newspaper, according to industry executives, Astro's management has guided for "lower" earnings and margins for FY13 and FY14 as the company converts the current 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 Maybank IB Research's net profit forecast of RM408.9mil for FY13 for Astro, the stock has an estimated forward PER of 37.5 times and dividend yield of 2%.
But because so many people are going for Astro IPO, such as MITI, ESOS, public IPO, etc, Banks or brokers probably are having huge demand for Astro IPO share financing.
Imaging if Astro fair value is RM2.42, IPO price is RM3.00, you think the banks want to lend money to you? But if they don't, bank will have no business.
Many argue that Astro is worth higher, cannot purely based on fundamental, have to take into consideration the market sentiment and the demand for Astro IPO shares. As long as Astro can trade above the IPO price upon listing, then Banks can safely lend the money for IPO share financing.
So many cornerstone investors and good public acceptance of Astro IPO. StarBiz reported that 22 cornerstone investors had been secured for Astro IPO. They include tycoon Chua Ma Yu, Kencana Capital Libra Investment Sdn Bhd, Great Eastern Life Assurance, Myriad Opportunities Masterfund, Nomura Asset Management, Antell Holdings Ltd, Azentus Global Opportunities Masterfund Ltd, Caprice Capital International Ltd, Corston-Smith Asset Management, Gordel Capital, Ochis-Ziff, TPG-Axon International, TPG Axon Partners, permodalan Nasional Bhd PNB and Universities Superannuation Scheme.
But some argue that the cornerstone investors may 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. The funds who showed an interest might be doing so for indexing purposes.
What is your purpose? Long term? Apply and Sell? Dividend? Different purpose different strategies.
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