Today i am writing about two companies in two different industries. One is in the aviation business and the other is in the entertainment industry.
Both companies are power houses and known to every Malaysian. Let us go through each company.
Air asia
The best low cost airline in South east asia currently. They have pioneered the low cost business model in Malaysia. They have actually changed the industrial landscape and made MAS scramble to keep up. Currently, they are penetrating other markets with their long haul flights to China, Korea and potentially other parts of the world. This counter is the darling of many funds; local and international.
I like that they are penetrating the long haul markets. They do have the money to purchase new planes and likely they have the expertise to make it a success. However, this business is not scalable. With every new route, they would require new planes. With new planes being purchased, this would burden them with higher borrowing or reduce their cash pile. Capital expenditure will likely increase in the years to come should they insist on this growth strategy.
They do not have a choice though. They have to grow beyond the Malaysian market.
With the imminent arrival of Malindo Airways into the Malaysian market in 2013, the pie that they are currently enjoying will likely shrink; they have already educated travelers that used buses/ cars as their mode of transport and converted them into using planes as their mode of transport. ( I used to drive from KL to Penang, but with Airasia, I use planes instead.) There is limited growth in terms of potential new travelers.
Current travelers are actually quite price conscious. They will go to the lowest priced airline. If Malindo Airways want to carve a market share, they are likely to reduce the price to either match or be lower than Air Asia. This is another business model that i dislike; price war.
Astro
99% of the household in Malaysia have Astro. They are currently moving towards the HDTV box set and most likely all will convert to HD. ( this is based on the assumption that most TVs sold are HD-ready. With an HD-ready TV, most subscribers will definitely switch to HD channels). Granted, they are spending more for marketing to educate and convert subscribers to HDTV and also spending too change the box-top. However these costs over the long run will be re-coupe.
I also like the fact that they have a monopoly of channels such as EPL or Wah Lai Toi; the channels most people watch. No other broadcaster have that ( caveat: IPTV could stream PPSTV which could cater to Wah Lai Toi, but i will get to that later)
The current capital expenditure that they are likely to incur is to shoot another satellite into space to increase their channel offerings and to improve their quality. However, a satellite cost as much as two planes, and the business is scalable. One satellite cost is likely to be lower over time as more subscribers convert to Astro while Air Asia could not. One plane can only serve a fixed amount of passengers.
There are still 50% of the current household that does not have Astro and likely to be in the rural areas. Astro is working hard to target them with prepaid cards to view content ( smart move as once you use the pre-paid card, you will likely to continue using Astro). Best of all, they are offering more malay content to target the Malay community. Once they secure the Malay content (like how they secured the Chinese market, no way will others be able to compete)
Their competitors are likely to be the following two:
Unifi/ Other broadcaster:
Potential threat? Likely no. They have crap for their content. EPL and Wah Lai Toi is secured and not many customers would want to watch Shanghai Dragons vs Shendong Tilapia as compared to Manchester United vs Liverpool.
IPTV
Yoonic in Malaysia; Mio in Singapore. All you need to do is plug in the decoder into your modem, and voila, you get to stream content onto your TV. Think Apple TV. Can they challenge Astro? Likely no. There are no content worth paying the price for. Of course if you really like China content or Taiwan or Spanish Telenovela yes please go ahead. or else it would be a waste of your time.
Illegal IPTV.
Porn would be the only saving grace. Or else it would be another waste of your time.
Thus, Astro has growth and value potential.
Both stocks are trading at less than RM3. I believe that Astro have the best potential with the same RM3 as compared to Air Asia.
Both companies are power houses and known to every Malaysian. Let us go through each company.
Air asia
The best low cost airline in South east asia currently. They have pioneered the low cost business model in Malaysia. They have actually changed the industrial landscape and made MAS scramble to keep up. Currently, they are penetrating other markets with their long haul flights to China, Korea and potentially other parts of the world. This counter is the darling of many funds; local and international.
I like that they are penetrating the long haul markets. They do have the money to purchase new planes and likely they have the expertise to make it a success. However, this business is not scalable. With every new route, they would require new planes. With new planes being purchased, this would burden them with higher borrowing or reduce their cash pile. Capital expenditure will likely increase in the years to come should they insist on this growth strategy.
They do not have a choice though. They have to grow beyond the Malaysian market.
With the imminent arrival of Malindo Airways into the Malaysian market in 2013, the pie that they are currently enjoying will likely shrink; they have already educated travelers that used buses/ cars as their mode of transport and converted them into using planes as their mode of transport. ( I used to drive from KL to Penang, but with Airasia, I use planes instead.) There is limited growth in terms of potential new travelers.
Current travelers are actually quite price conscious. They will go to the lowest priced airline. If Malindo Airways want to carve a market share, they are likely to reduce the price to either match or be lower than Air Asia. This is another business model that i dislike; price war.
Astro
99% of the household in Malaysia have Astro. They are currently moving towards the HDTV box set and most likely all will convert to HD. ( this is based on the assumption that most TVs sold are HD-ready. With an HD-ready TV, most subscribers will definitely switch to HD channels). Granted, they are spending more for marketing to educate and convert subscribers to HDTV and also spending too change the box-top. However these costs over the long run will be re-coupe.
I also like the fact that they have a monopoly of channels such as EPL or Wah Lai Toi; the channels most people watch. No other broadcaster have that ( caveat: IPTV could stream PPSTV which could cater to Wah Lai Toi, but i will get to that later)
The current capital expenditure that they are likely to incur is to shoot another satellite into space to increase their channel offerings and to improve their quality. However, a satellite cost as much as two planes, and the business is scalable. One satellite cost is likely to be lower over time as more subscribers convert to Astro while Air Asia could not. One plane can only serve a fixed amount of passengers.
There are still 50% of the current household that does not have Astro and likely to be in the rural areas. Astro is working hard to target them with prepaid cards to view content ( smart move as once you use the pre-paid card, you will likely to continue using Astro). Best of all, they are offering more malay content to target the Malay community. Once they secure the Malay content (like how they secured the Chinese market, no way will others be able to compete)
Their competitors are likely to be the following two:
Unifi/ Other broadcaster:
Potential threat? Likely no. They have crap for their content. EPL and Wah Lai Toi is secured and not many customers would want to watch Shanghai Dragons vs Shendong Tilapia as compared to Manchester United vs Liverpool.
IPTV
Yoonic in Malaysia; Mio in Singapore. All you need to do is plug in the decoder into your modem, and voila, you get to stream content onto your TV. Think Apple TV. Can they challenge Astro? Likely no. There are no content worth paying the price for. Of course if you really like China content or Taiwan or Spanish Telenovela yes please go ahead. or else it would be a waste of your time.
Illegal IPTV.
Porn would be the only saving grace. Or else it would be another waste of your time.
Thus, Astro has growth and value potential.
Both stocks are trading at less than RM3. I believe that Astro have the best potential with the same RM3 as compared to Air Asia.
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