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 includes a 3% premium for our 4-star ESG rating (Exhibit 3).

• Excluding exceptional items such as unrealised forex loss of RM20mil, Astro’s 1HFY22 core net profit of RM248mil came in within our expectations at 43% of our FY22F earnings and 45% of consensus estimates (vs. 40%–54% for 1H contribution over FY19–FY21 earnings).

• The company declared a 2QFY22 DPS of 1.5 sen, which translates to 1HFY22 dividend of 3 sen (+20% YoY) and a payout ratio of 68%, in line with our assumptions.

• YoY, the group’s 1HFY21 core net profit rose 9% from a 3.1x surge in its radio’s pre-tax margin to 42%, partly offset by the weaker earnings from the television and home shopping segments.

• On a YoY segmental comparison:
  • Television revenue was relatively flat as higher advertising revenue cushioned lower subscription fees, impacted by Covid-19. This was further supported by a 1bps increase in TV viewership to 72%.
  • Radio PBT improved by 3.7x thanks to a 17% increase in revenue and lower licence, copyright and royalty fees.
  • Home shopping PBT fell by 31% from an 8% decline in revenue on the back of supply disruptions due to movement control orders.
• QoQ, the group’s PBT fell by 37% to RM117mil as all segments posted weaker earnings due to: 1) higher content costs from the Euro Cup and Tokyo Olympic events for the TV segment; 2) radio adex slowdown; and 3) home shopping being the worst hit from softening consumer sentiment and supply disruptions.

• We are optimistic that the weak 2Q results could be cushioned by stronger 2HFY22 earnings while riding on an adex recovery underpinned by the relaxation of movement restrictions for fully vaccinated individuals.

• Moving forward, Astro will be partnering with the TVBAnywhere+ app to provide free access for its Dynasty Pack customers (vs. premium subscription fees of RM39.90/month currently). Additionally, the group will introduce new movie programmes and general entertainment/sports options to replace the cessation of FOX channels.

• However, Astro customers with activated Disney+Hotstar app will still be able to enjoy FOX channels. Hence, we are mildly positive on these developments as we expect the enhancement of customer experience will help to retain the current client base.

• 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 an FY22F PE of only 10x vs. a 3-year average of 12x.

Source: AmInvest Research - 22 Sept 2021