Astro hit an all-time high of RM3.70 in June 2014.

Now, the company is worth over 91% less.

If you invested RM10,000 in this stock a decade ago, it would be worth RM878 right now.

So, what on earth happened?

The history of Astro began with the 4th and 7th Prime Minister.

In 1993, Mahathir called for an end to the government’s monopoly in media.

This led to the creation of MEASAT, Malaysia’s privately-owned satellite communications company.

Three years later, MEASAT launched Malaysia’s first satellite.

And with that, Astro was born.

Since MEASAT paid for the satellite, the government gave Astro a 20-year monopoly.

From 1996 until 2017, Astro had exclusive rights to be the sole satellite television operator in Malaysia.

Almost overnight, it became Malaysia’s largest media company.

With its monopoly, Astro charged absurd monthly prices and provided poor services.

Its satellite TV was unreliable and easily disrupted by the rain.

Prices of packages contained hidden charges and penalties.

In some cases, the firm even hiked its prices without contacting customers.

Despite complaints from consumers, Astro continued to flourish.

From 2013 to 2018, revenue grew 29.50% and peaked at RM5.53 billion.

Net profits rose 84% to RM770.6 million.

Astro’s dominance is not only in the TV industry.

It has:

• 13 radio brands.

• 10 digital brands.

• Wifi & internet services.

• Partnerships with streaming services.

• Streaming rights to major sporting events (MFL, BWF, The Premier League).

But when the monopoly ended in 2017, everything came crashing down for Astro.

The internet became cheaper and faster.

As internet penetration grew, streaming services such as Netflix and Spotify became the choice of entertainment for consumers.

More importantly, consumers no longer wanted to pay RM100-200 per month to:

• A monopolistic company.

• Watch unentertaining and repetitive local shows.

• Watch live football and badminton (when you can watch it via VPN).

Astro claims to “serve” 5.3 million families (or 67% of TV households) today.

But paid subscribers only account for 2.2 million, or about 41%.

From 2019 to 2024, Astro lost one million paid subscribers, and the effects were plainly obvious on its revenue.

As revenue fell, net profits and dividends plunged.

For FY2024, Astro’s posted the lowest net profit since its listing in 2012, at only RM36.88 million.

Meanwhile, dividends fell to a record low of 0.25 cents and share.

These factors sent Astro’s share price to all-time lows.

It was trading at RM0.29 just a few weeks ago.

That’s less than a tenth of its IPO price of RM3.00 in 2012.

So what now??

Astro has highlighted challenges moving forward, including the strong US dollar, operational costs, and change in consumer sentiment.

6 out of 12 research firms have sell calls on the stock, with zero buy calls.

Wrapping things up,

Astro is the pinnacle example of utilizing monopoly for corporate greed.

Its profit driven business model, made possible by the exclusive rights granted by the government, meant that it could innovate as little as possible while maximizing profits.

But now, the era has changed.

If Astro continues to assume that its monopoly will last, then we may just see another case of Nokia.

And that would certainly be a sight for all Malaysians to see.

Could this downfall be foreseen? If so, how can we avoid this as an investor?

Global trends shift quickly.

If a company does not adapt and innovate its services, its dominance will crumble, regardless of its monopoly.

As an investor, you must be aware of the evolving trends in the global market and frequently assess your stock picks.

But this is a lot of work.

Fortunately, there is an easier method of determining the future of a stock.

The 5 Point Checklist to Picking Stocks

1. Return on Equity (ROE)

2. Profit Margin

3. Operating Cash Flow (OCF) and Free Cash Flow (FCF)

4. Assets vs Liabilities

5. Historic Share Price

I’ve covered each point in detail in the previous newsletter. You may read it here.

We’ll use this checklist to analyze the performance of Astro and understand why the stock is on a steep downtrend.

1. Astro’s Return On Equity (ROE) is low.

Healthy companies tend to grow at a steady pace ever year, with an average ROE of above 10%.

To give you an example, Apple’s ROE was 147.25% for FY2023.

Astro’s ROE, meanwhile, came in at 3.39%, which could possibly indicate that the firm is not using its shareholders’ equity to generate profits effectively.

2. Declining Profit Margin.

Astro’s profit margin ranged from 17.59% to 22.83% from 2015 to 2022.

In the recent two years, however, its profit margin has declined by almost 50% from its peak of 22.83% in 2020.

This means that Astro is making less profit per ringgit of revenue, either due to weak sales or troubles in managing its expenses, or both.

3. Cash Flow is Getting Tighter.

A company’s cash flow determines how much money it has received from its businesses.

Astro’s Operating Cash Flow (OCF) and Free Cash Flow (FCF) have declined significantly over the years, indicating that it is struggling to receive payments from business operations.

4. Astro’s Current Liabilities Exceed its Current Assets.

A company’s current assets are those that are liquid and can be converted into cash within a year, such as short-term investments (fixed deposits, bonds, etc.) and accounts receivable.

Current liabilities, meanwhile, are financial obligations or debts that the company has to settle within one year. They include accounts payable, short-term debt, dividends, and income taxes.

Typically, current liabilities are settled with current assets, which is why it is paramount for a firm to have more cash at hand versus its urgent debts.

When a company’s current liabilities exceed its current assets (just like Astro), it means that the firm is facing cash flow challenges.

This will hamper its growth and capability to pay back creditors.

5. Nail in the coffin: Astro’s share price has declined by 76% in the past 5 years.

Investors believe that Astro’s monopoly will fade away due to internet penetration and the rise of streaming services such as Netflix.

Combined with the 4 points above, it’s clear that Astro’s fundamentals are weak, and the outlook is dim.

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Disclaimer: The information contained in this newsletter is for informational and educational purposes only. Nothing herein shall be construed to be financial, legal, or tax advice.