KUALA LUMPUR: Tycoon T. Ananda Krishnan, who controls a 40.9% stake in Astro Malaysia via his private vehicle Usaha Tegas, would require onerous finances if he plans to take the pay-TV operator private, says UOB Kay Hian Malaysia Research.

The research house said  on Wednesday Astro was taken private in June 2012 and thereafter re-listed in October that same year at RM3 a share. 

“Given current attractive valuation at 12.3 times FY19F PE and above-market yield of 7.3%, we are not ruling out the possibility that Ananda Krishnan would consider privatising the company. 

“Nevertheless, the probability of this remain moderate given Usaha Tegas’s focus outside of Malaysia plus the onerous finances needed for a privatisation,” it pointed out.

UOB Kay Hian Research expects FY19 core net profit to fall marginally by 0.4% on-year to RM675mil on the back of a shrinking pay-TV subscriber base and higher content costs (2018 World Cup). 

Consequently, it expects earnings before interest, tax, depreciation and amortisation (Ebitda) margin to fall 1.6 percentage points on-year to 31.3%.

It retained its buy call with an unchanged target price of RM2.21, based on -0.5% earnings compounded annual growth rate in its discounted cashflow model, implying 17 times FY19F price-to-earnings (PE) and 7.4 times enterprise value/Ebitda (EV/Ebitda).

* According to Wikipedia, EV/Ebitda is a popular valuation multiple used in the finance industry to measure the value of a company. It is the most widely used valuation multiple based on enterprise value and is often used in conjunction with, or as an alternative to, the P/E ratio to determine the fair market value of a company.

An advantage of this multiple is that it is capital structure-neutral, and, therefore, this multiple can be used to directly compare companies with different levels of debt.

The EV/Ebitda multiple requires prudent use for companies with low profit margins (i.e., for an Ebitda estimate to be reasonably accurate, the company under evaluation must have legitimate profitability).

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