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QuestionsCategory: Valuation QuadrantAstro – Valuation
Chee Wai Chou asked 4 years ago

Hi,
I am in the midst of analysing Astro (Malaysia stock – satellite pay-TV station). May I know, if under Astro type of business, which sort of valuation method should I be using to value the stock?
I am now using these two methods to value it:
i. P/E ratio (deemed it as Company with predictable earnings)
P/E ratio from 31st Jan 18 (FY’18) stands at 18 and with today’s latest share price dropping, it hits P/E 9.5. Does this consider as under-valued?
ii. DCF (deemed it as Company with predictable cash flows)
Intrinsic value computed derived at RM2.66 (using 5% CAGR from Revenue growth) vs RM1.41 (price today), having Margin of safety of 47% (at fair value). However, if I take into account the net debt position of the Company, the margin of safety drop till 20% (over valued)
At the same time, looking at the DPS, it ison a increasing trend over the 4 yrs (CAGR 8%) and with the recent drop price, the dividend yield shot up till 8.9% p.a.
From the above facts, which valuation method should I adopt – the P/E ratio or DCF? 
In addition, currently ASTRO is the monopoly for the pay-TV station, and with the recent government changes, one of their manifestos is to address monopolies in the country and specifically mentioning Astro as example that they will be looking into for review.
With this political change, does this consider as a fundamental change for ASTRO or should this be interpreted as a temporary setback?
Thanks
Chee Wai

1 Answers
Victor Chng answered 4 years ago

Hi Chee Wai,
 
As what you mentioned about the government is going to address in the monopolies issue. I think there may be a fundamental change in the business moving forward. Moreover, pay TV business may also be disrupted by the internet TV as drama and movie can be stream readily online. Hence, It may be risky to look into them right now. The better situation is to look into them after the government set the change. Do remember to keep monitoring the disruption from online streaming because in Singapore our cable TV have been disrupted already.
 
Based on all this factors using DCF to predict the cash flow forward for Astro may be distorted already. You can still use PE ratio to value them and make sure you find out what is their average PE trading range and buy it below and do include their net debt position in your intrinsic value calculation.