Investment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with an unchanged DCF-derived fair value of RM1.83/share (WACC 8%, terminal growth rate 0%), which also includes a 3% premium for our 4-star ESG rating (Exhibit 5). We keep a flat FY22F DPS of 8 sen which translates to an attractive yield of 7.3%. This is supported by the company declaring a 1QFY22 DPS of 1.5 sen (+50% YoY).

• Astro’s 2QFY22 results are due to be announced next month. Our forecasts are unchanged although we expect a weaker 2QFY22 net profit which could mean a 20%–33% QoQ decline. This could translate to 1HFY22 accounting for 44%–47% of our FY22F forecast, still within the range of 42%–54% for first half earnings over the past 2 years.

• Our expectation of a 2QFY22 net profit contraction stems from prolonged MCO-led declines for media adex revenue and content production. According to Nielsen Ad Intel, adex spent on free-to-air (FTA), radio and digital dropped MoM by 12%, 40% and 12% respectively in June (Exhibit 1).

• Additionally, sporting events (i.e. UEFA EURO 2020 and Olympics Games Tokyo 2020) during the quarter under review could lead to a higher content cost of 34%–37% as compared to 33%–34% during the non-sports period.

• Nevertheless, the earnings risk could be partially mitigated by the rollout of Sooka (mobile-based streaming platform) and Disney+ Hotstar, which is hard bundled with Astro’s Movie Pack for an additional RM5/month from 1 June 2021.

• This could possibly lift ARPU, which averaged RM97 in 1QFY22 (Exhibit 3). We assume higher consumer spending to continue supporting Astro’s home shopping business via Go Shop during the Hari Raya festive season.

• In 1QFY22, Astro’s market share remained relatively firm YoY with TV advertisement at 39% while digital adex rose to 3% from 2%. However, radio advertisement (radex) slid to 78% from 84% (Exhibit 4). Segment-wise, TV accounted for 88% of the group’s pretax profit, radio 10% and home shopping 2%.

• As such, we are optimistic that the potentially weaker 2Q results could be cushioned by stronger 2HFY22 earnings while riding on adex recovery underpinned by the relaxation of movement restrictions for fully vaccinated individuals.

• Recall in March last year when the first MCO lasted 1.5 months (from 18 March to 3 May 2020), adex on FTA and radio fell 12% and 58% QoQ in 2Q2020 and thereafter rebounded by 24% and 152% QoQ in 3Q2020 (Exhibit 2).

• Hence, we believe our forecasts remain intact given that Astro’s 1QFY22 core net profit (excluding unrealised forex loss of RM6mil) of RM150mil (-2% QoQ; +40% YoY) accounts for 26% of our FY22F earnings, vs. 20%–32% for the first quarter over the past 3 years.

• We continue to like Astro for its: (i) strength in vernacular content and high household penetration rate of 74% in FY21; (ii) move to expand offerings by aggregating streaming services via OTT partnerships and launching of its own Sooka OTT; and (iii) attractive dividend yield of 7%–8%.
   
• Currently, the Stock Is Trading at a FY22F PE of Only 10x Vs a 3-year Average of 12x.

Source: AmInvest Research - 13 Aug 2021