Wednesday, September 19, 2012

The Price Determines The Attractiveness

There was a great article in The Star a few days back which had a couple of fund managers being negative on Astro IPO. When I read further I was shocked at the valuation. At an indicative price of RM3.60 (this is the price that has been set for bumiputra investors) and based on its earnings of RM629.6mil for its financial year ended Jan 31, 2012 (FY12), this translates to a price-earnings ratio of 38 times. 

I have written that I like Astro IPO as a dividend play, BUT at RM3.60, the price-earnings ratio is more than 30 times and the dividend yield is only 2%. Now this pisses me off. I have been defending AK's strategy to delist and relist as they were still within the rules operating at the time. You come back with a dividend play scheme and if its really RM3.60, you can go fly wau.

Luckily it was an indicative pricing, today's article came out with firmer details.  Astro Malaysia Holdings Bhd, a pay-TV firm, has set an indicative price range of 2.70-3.00 ringgit per share for institutional investors for its initial public offering that could raise up to RM4.56bil (US$1.5bil), a source with direct knowledge of the deal said.

The institutional book for Astro will open on Wednesday, said the source, who declined to be identified as details of the deal were not yet public.

Based on the indicative price range, the total 1.52 billion shares in the offer could be worth 4.1-4.56 billion ringgit.

The deal is being handled by CIMB, Maybank and RHB, while several foreign banks are also advisers including UBS, Credit Suisse, Goldman Sachs and JPMorgan.

Comment: Even at the reduced price of RM2.70, its still a very high price, yield will just be 2.66%, which there are plenty of other blue chips offering better than that. I doubt very much it will even break RM2.80 upon listing. Hence the upside will only be good if you can get it between RM2.50-2.55. I expect it to trade with a very small premium (maybe 5 sen) if they stick to RM2.70 as IPO price. Its all in the dividend yield people. Too greedy, just too greedy.