Investment Highlights

• We maintain our HOLD on Astro Malaysia Holdings (Astro) with a lower fair value of RM1.66/share (previously RM1.81/share) based on a discount rate equivalent to its WACC of 9% and a terminal growth rate of 0%. We have revised our FY19F-FY21F forecasts downwards by 13-16% to account for the worse-thanexpected adex environment in 1HFY19.

• Astro’s 2QFY19 core profit came in way below expectations at RM17mil (-91% QoQ and -93% YoY). This brings 1HFY19 core profit to RM191mil, which accounts for only 30% of our full-year forecasts and 28% of full-year consensus estimates.

• 1HFY19 revenue fell 1% due to weaker subscription revenue impacted by lower package take-up and softer adex during the tax holiday period as there was a reduced need to advertise. This was offset by higher merchandise sales, licensing income and sales of programme broadcast rights.

• Astro’s 1HFY19 core profit slumped 57%, affected mainly by:

i) Higher content costs from the 2018 FIFA World Cup;

ii) The weaker MYR against the USD (-3% YTD), given that 60- 70% of its content costs are USD-denominated;

iii) Higher net finance costs (+21%) mainly from unrealized forex losses due to unhedged finance lease liabilities and vendor financing, and higher interest expense on bank borrowings; and

iv) Higher merchandise costs.

This was despite lower tax expenses in 1HFY19.

• The company’s radio segment was not spared from the softer adex environment as revenue and PBT declined 15% and 18% respectively. Despite this, radio listenership rose 5% and radex share grew 1ppt to 75%.

• As for its home-shopping segment, revenue and PBT improved 34% and 25% respectively as the number of products sold rose on the back of sales campaigns held in 1HFY19. In 1HFY19, Go Shop’s registered customers increased 36% YoY to 1.5mil.

• Despite higher content costs, the 2018 FIFA World Cup was Astro’s best ever as revenue was 50% higher and viewership reaching an all-time high of 11.6mil in 2018 (+40% vs 2014 FIFA World Cup).

• Astro has secured exclusive broadcast rights to the English Premier League (EPL) for the next three seasons until 2021/22. All 380 matches will be available live in HD on Astro TV and Astro GO.

• Moving forward, we may see an adex recovery in 2HFY19 due to stabilization following the switch from the GST to SST and as government policies become clearer, despite a lack of major adex catalysts.

Source: AmInvest Research - 27 Sept 2018