What the broker says

PUBLISHED : Sunday, 26 October, 2003, 12:00am
UPDATED : Sunday, 26 October, 2003, 12:00am

Commercial satellite operator Asia Satellite Telecommunications Holdings (AsiaSat) is set to gain from the regional economic recovery, says Lehman Brothers.

Lehman raised its stock rating to 'overweight'' and increased its price target to HK$16.50. The counter closed at $13.30 on Friday.

AsiaSat's time to shine is approaching. The satellite sector should improve as stronger consumer spending leads to higher advertising revenue, lifting demand for broadcasting content and transponder capacity.

The company has lagged the market over the past six months and now trades at attractive levels with a 2003 price earnings ratio of 11 times and strong cash flow.

Lehman considers this an excellent opportunity to buy a market-leading franchise.

Beside offering solid value, Lehman says the stock offers a potential call option on the China broadcasting sector. It sees indications that AsiaSat may take a costless equity position in a Guangdong direct-to-home (DTH) pay TV service.

If this happens, Lehman estimates its valuation will rise by at least $4 a share.

AsiaSat could become more than a simple lessor of transponders if it participates in the Guangdong start-up, using transponders as equity. SinoSat is set to become the vehicle for a nationwide DTH system, but Guangdong is often a test bed for development. AsiaSat has worked closely with the Chinese government to gain access to the mainland DTH market.

China gave frequency for four transponders to Hong Kong. AsiaSat won the rights to these and installed them in AsiaSat 3s, launched two years ago.

Lehman believes the co-operative approach between AsiaSat and Beijing indicates the company is more aligned with the changing regulatory environment than is generally understood.