Re-listing and re-rating: Initial public offerings show robust results

While recent times have been hard globally for initial public offerings (IPOs), Malaysia bucked the trend in 2012 with some of the world’s most successful new launches. This bullish trajectory has also been of interest to media sector players, with one of Malaysia’s largest media interests, Astro Malaysia Holdings, seeking a relisting in the autumn of 2012. This may trigger a boost in media stocks overall, with a spin-off re-rating of media securities on Bursa Malaysia expected.

BUILDING ON SUCCESS: In 2012 when Facebook’s IPO was running into trouble and companies around the world postponed planned listings for better times, Bursa Malaysia saw two huge offerings.

First, was the $3.3bn share sale by Felda Global Ventures Holdings in June, followed by the $2.1bn IHH Healthcare’s IPO in July. Thomson Reuters figures showed that equity issuance in Malaysia from January to mid-September 2012 stood at around $7.9bn, up from $3.9bn in 2011, with an average gain of 17% on shares listed in IPOs in 2012. Given such promising figures, Astro’s re-listing seems to be welltimed to capitalise on bullish sentiment in the Malaysian equities market.

In mid-September 2012 the Astro re-listing, which was completed in October, was reported by Thomson Reuters to involve the sale of some 1.52bn shares, or 29.2% of Astro’s share capital. Of this, 597.69m shares offered were reserved for bumiputera investors – those who qualify as indigenous or native Malaysians. Some 661.75m shares will then be offered to institutional investors and the remainder to retail investors.

The total IPO was widely thought to be worth around $1.5bn, after an indicative price range for institutional investors of RM2.7-3.00 ($0.87-0.97) per share was set by the company on September 19, 2012. Cornerstone investors had already placed bids for 70% of the institutional shares by the time of this announcement. CIMB Group, Maybank and RHB were handling the deal, with UBS, JP Morgan Chase, Goldman Sachs and Credit Suisse amongst the foreign investors.

When they occurred, the Felda and IHH IPOs were the world’s second- and third- largest public offerings of 2012. The robust character of the companies being offered lay behind these successes.

In particular, the Malaysian government was the main shareholder in both, giving them a solid and reliable background. At the same time, a growing global awareness of the weakness of Western markets and the rising strength of Asian ones saw increased international interest in Malaysian IPOs.

Astro is in a position to capitalise on both of the above factors. It is jointly owned by telecoms magnate Ananda Krishnan and the Malaysian government investment arm, Khazanah Nasional.

In terms of interest in Asia, this shows no signs of abating, with more IPOs also in the pipeline for Malaysia. Westports Malaysia, 1Malaysia Development and power company Malakoff, for example, are all reportedly in the running for major, billion-dollar IPOs during the coming months.

HIGH PROFITS: Even without the above factors, Astro would be a strong pick. It enjoys near-monopoly status on Malaysian pay-TV and operates a range of radio stations. The former asset gives the company some 3.1m subscribers, with a pay-TV penetration rate of 49% of households in September 2012, according to OSK Research. This makes the company quite a profitable one, with annual earnings before interest averaging between RM800mRM1bn ($258.08m-$322.6m), according to OSK.

The company also underwent major re-organisation after de-listing in 2010 following a buyout by Khazanah and Ananda Krishnan. This has created a leaner, more profitable enterprise for re-listing. Thus, many investors see the IPO as a chance to buy shares that will likely deliver good dividends, thanks to high profits, even if the shares still have to face the equities market.

OTHER INCENTIVES: Astro itself is seeking the re-listing to raise funds for a major investment drive. About half the proceeds from the IPO have been earmarked for capital spending, with new broadcast and transmission equipment, corporate building and technical suites on the shopping list. Backers hope this will ready the company to fend off a potential surge in competition for pay-TV, with the arrival of more internet protocol TV and cable TV players in the future.

Increased funding may also be required as costs rise in the years ahead. This is particularly an issue with the fees charged to Astro for broadcasting popular programmes such as English Premier League matches.

As competition stiffens, the Astro IPO may therefore herald a new boost in media spending overall, while giving impetus to other media companies to look to Bursa Malaysia to fund future expansion. Thus there has been more perusal of the media stocks on the exchange recently, with speculation rife that a more general re-rating may be in store upon Astro’s return.

LEADING THE WAY: By market capitalisation, Astro will likely lead the list of media stocks currently on the exchange, given its value at de-listing in 2010 of RM8.3bn ($2.68bn) and the likely value of the IPO.

Also on the board is Astro’s rival and largest free-to-air TV provider, Media Prima (stock code MEDIA). Other major media stocks are Star Publications Malaysia (STAR), Media Chinese International (MEDIAC – a merger of Sin Chew Media and Hong Kong’s Ming Pao Enterprise), Asia Media Group (AMGB), publishing and online business Catcha Media (CHM), book publisher Pelangi Publishing Group (PPG) and newspaper publisher Berjaya Media (BMED).

PREDICTIONS: These companies have had mixed fortunes in recent times, with several basic indicators widely used for assessing strengths and weaknesses. Fundamental to this assessment are expectations concerning advertising expenditure (adex) and the share that different media companies might get of this.

Forecasts for adex in 2012 have generally been good, with the recent string of major sporting events – from the popular Euro 2012 football tournament to the London 2012 Olympics –and expectations of early general elections have led to boosted forecasts of adex by the political parties. While the latter may not occur until 2013, pre-election advertising campaigns might still get under way before the end of 2012.

OSK reported in July 2012 that year-to-date adex was up about 2% year-on-year, while the first two quarters of 2012 had seen quarter-on-quarter adex growth of some 20%. Thus the research house maintained an “overweight” call on the media sector as a whole.

The downsides for prospective media stockholders are often connected with costs. With many programmes imported, the strength of the ringgit against the dollar particularly affects profitability, as do price hikes from content providers. Effective management of these vulnerabilities, as with any company, is thus a major concern with media sector stocks. Increased competition may also have a downside in the months ahead, although few expect major changes.

After the Astro re-listing, Bursa Malaysia’s media equities could be a growing focus of attention for both domestic and foreign investors in the future.