Pay-TV firm Astro Malaysia Holdings Bhd closed flat in a weak market debut today on concerns its valuation was too high, underperforming other recent big listings as Kuala Lumpur’s booming IPO market looked set to lose steam next year.

Malaysia has defied the market gloom that has seen the value of new listings drop by more than half in the Asia-Pacific excluding Japan this year, becoming the top IPO destination in the region on the back of several government privatisations and a strengthening economy.

But after such a robust 2012, and with Astro’s US$1.5 billion sale marking the last major listing until the first quarter of next year, the market is expected to cool off.

“For Malaysia, we will see some setback because all the bigger ones have been listed this year,” said Kaladher Govindan, head of research at TA Securities.

“Most of them are somehow government-linked companies. So you don’t have bigger private entities getting listed. It may run out of steam in the second half of next year.”

Astro shares rose as much as 3.7 percent before erasing gains to close at RM3.00, unchanged from the offer price in Malaysia’s third-biggest IPO this year. Analysts polled by Reuters had expected a rise of at least 6 percent.

The IPO by Astro, controlled by Malaysia’s second-richest man Ananda Krishnan, followed Felda Global Ventures Holdings Bhd’s (FGV) US$3.3 billion offering in June and IHH Healthcare Bhd’s US$2.1 billion flotation in July.

By comparison, FGV, a palm oil firm, rose 16.5 percent higher on its first trading day. Hospital operator IHH had gained 10.5 percent on its debut.

“When compared to Felda and IHH, they are big government-linked companies, and investors are more confident in government-backed firms,” said Choo Swee Kee, who oversees some RM700 million worth of assets as chief investment officer at Kuala Lumpur-based TA Investment Management Bhd.

“On the other hand, Astro is more of a privately-owned company, that explains its weaker share price performance on its debut today.”

    

‘Upside potential’

Astro, which also counts state investor Khazanah Nasional Bhd as a major shareholder, returned to public markets after it was taken private in 2010.

Today’s closing price gives Astro a market value of RM15.6 billion (US$5.1 billion), nearly double the RM8.3 billion it was worth when it was taken private.

The price of RM3.00 would translate to a price-to-earnings ratio of 32 times based on estimated earnings per share in fiscal 2013, TA Securities said.    

“There were a lot of concerns earlier that the IPO was priced at a hefty price tag, in terms of price-to-earnings ratio,” TA Securities’ Kaladher said of Astro’s share price performance today.

Still, Astro has a near-monopoly in Malaysia’s residential pay-TV market with a subscriber base of 3.1 million, which some analysts said would support the share price in the longer term.

“While its IPO valuation may not appear cheap initially, there is upside potential given the existing low pay-TV penetration of 46 percent,” Kong Heng Siong and Chan Jit Hoong, analysts at OSK Research in Kuala Lumpur, wrote in a recent report.

Astro will also likely see an increase in average revenue per user as subscribers migrate to high definition TV platforms, while high entry barriers to the industry due to capital expenditure requirements would limit competition, they added.

In its IPO, Astro sold shares at the top end of a marketing range, bolstered by strong demand from cornerstone investors such as US hedge fund Och-Ziff Capital Management and Standard Pacific Capital. The institutional portion of the IPO, or 20.8 percent of the total, was more than 30 times oversubscribed.

- Reuters