Highlights

HLBank Research Highlights

Author: HLInvest   |   Latest post: Thu, 22 Oct 2020, 5:01 PM

 

Astro Holdings - Value Emerging?

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Like many others, Astro faced with unprecedented disruptions with the Covid19 pandemic. To help cushion the decline in adex, Astro has been agile in taking advantage of the situation by pairing the ads to relate to the PSA. Astro has witnessed a good traction with the localised advertising that was recently rolled out in March 2020. On the issue of piracy, Covid-19 has caused the slowing down in the development as the focus has been diverted in curbing the pandemic instead. Despite the reassurance of 75% of dividend payout policy, we choose to remain conservative premised on the back of the uncertain development of economic recovery moving forward. We adjust our FY21-FY23f earnings forecast downward by 8-12%, respectively. Maintain BUY but with lower DCF-based TP of RM1.09 (WACC: 7.5%, TG: -1%) from RM1.15 in tandem with imputation of lower projections.

We organized a con-call with Astro’s management and came away feeling neutral. Following are the key takeaways.

Agile during MCO. Like many others, Astro was faced with unprecedented disruptions from the Covid-19 pandemic. One of the key area that has been badly affected is adex. To cushion this, Astro has been agile in taking advantage of the situation by pairing the ads to relate to the public service announcement (PSA). As could be seen on Astro channels, some advertisements that are related to Covid-19 like staying at home with UEMS Sunrise (see Figure #2) have been shown as form of advertising, while concurrently, served as a reminder for Malaysian in staying cautious by following SOPs. Furthermore, management shared that degree of improvement is observed in radio advertising, with overall activity gradually picking up since the easing of restrictions.

Localised advertising. Astro has witnessed a good traction with the localised advertising that was recently rolled out in March 2020. With this form of advertising, Astro is able to publish the advertisement to only selected regions instead of broadcasting it throughout the whole country (see Figure #3). Local restaurant operators in Penang for example, are better off focusing their advertisement in targeted northern region where the customers tend to be from the peripheral of that area. With this, the advertisers would be getting a better buck for their money, at the same time, enabling Astro to extend their market reach in helping the local SMEs that has been badly impacted in this Covid-19 induced hardship (see Figure #4).

Addressable advertising on the other hand, intents to leverage on the data gathered through their different digital avenues namely; AstroGo and GoShop websites. By using artificial intelligence (AI), Astro would be able to track the consumer behaviour data and focus the advertisement based on the individual preference. This would enable Astro to show different ads to different households while they are watching the same program. Advertisers on the other hand, can move beyond large-scale traditional TV ad buys, to focus on relevance and impact. This development however, has been halted given Covid-19, as most of the discussion and negotiation been put on pause at this juncture. Management guided that due to its heavy reliant on technological advancement, this will take about 12-18 months for it to materialize.

Possibility for standalone OTT AstroGo? From the discussion, we understand that this does not seem as easy as one might think. Though with the data that have been successfully collected, thanks to the free complimentary viewing of AstroGo for all Malaysian during the MCO (18-31 March), it is actually quite a complicated process. In order for this to take shape, Astro would need to do perform a heavy technological tweak on the back end. On the front end, there are a lot of considerations that have to put into place in terms of the pricing point as well as type of content that could be offered. Currently, AstroGo serves as a complementary on the existing Astro STB box, mirroring what the customers subscribe in their Astro payTV plan. Though this might seem like another possible revenue stream for Astro, we opine that this concentrated space would do little to benefit Astro as what could be seen with other players venturing into the bandwagon (Star Media dimsum, Iflix). Additionally, this might not bode well against the backdrop of weak consumer sentiment, which is expected to weigh on discretionary spending.

Piracy. Illegal streaming has long been a problem as they ultimately take a share of the market. Unfortunately, it is still a long way ahead in combating piracy. To compare, in Australia, on top of blocking website, the Australian Government has turned to strict financial punishment for users downloading pirated content. Penalties have been said to sit between AUD80-2,000 per offense. Astro sees combating piracy as a worthwhile investment for them considering the repercussion from the leakage in the system. Globally, the impact to the media industry is estimated at USD500bn annually due to content piracy. In Malaysia, the media industry is hit with an estimated c.RM1bn in loss revenues and potentially up to RM150m in taxes being withheld from the government. Piracy is seen as one of the major reasons Astro is losing its subscriber base. Astro have been working diligently with MCMC and Internet Service Providers to track down and block the pirated websites. However, the Covid-19 has caused slowing down this development as the focus been diverted in curbing the pandemic instead.

Dividend. On the dividend front, despite the lower DPS of 7.5 sen in FY20, amounted to 60% of its reported net profit, management reiterated that their payout policy of at least 75% net profit remains intact. With FCF of RM323m and cash and bank balances of RM1.1bn as at 1QFY21, the group is confident that this would be sufficient to provide enough buffers for them to stay on course with their existing dividend policy. Despite this positive reassurance, we choose to remain conservative premised on the back of the uncertain development of economic recovery with the recent spiked of Covid-19 cases locally; we have assumed a payout ratio of 60% for FY21.

Forecast. We adjust our FY21-FY23 earnings forecast downward by 8-12% to RM510.6m/RM497.2m/RM530.2m, respectively. These adjustments were made largely to account for a slower-than-expected recovery and development in Astro efforts to diversify their revenue stream.

Maintain BUY with lower DCF-based TP of RM1.09 (WACC: 7.5%, TG: -1%) from RM1.15 in tandem with imputation of lower projections. We opine the consumer sentiment to be greatly impacted by Covid-19, as a potential reduction in household income may lead to subscriber churn and down-trading activity. On the other hand, we believe significant content cost savings due to the absence of major sport events this year would be able to partially cushion this. Share price have retraced by 37.5% since the outbreak of Covid-19 (23 Jan). This, together with a dividend yield of 7.6%, enhances attractiveness of the stock.

Source: Hong Leong Investment Bank Research - 18 Aug 2020

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