Investment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with lower DCF-derived fair value of RM1.79/share (from RM1.83/share previously), which includes a 3% premium for our 4-star ESG rating (Exhibit 1).

• Our lower DCF stems from a FY23F earnings cut of 13% from the recently announced one-off Prosperity Tax of 33% for taxable income above RM100mil, partly offset by a higher average revenue per user (ARPU) assumption of RM99 (vs. RM97.4 in 1HFY22). With that, our dividend forecasts for FY23F also revised downward to 7sen/share (from 8sen/share previously).

• For now, we maintain our FY22F earnings pending the results announcement to be released on 10 December.

• Separately, Netflix has finally debuted on Astro’s platform, exclusively for Ultra Box users after the announcement of OTT partnership with Netflix in June this year.

• Additionally, the company also unveiled a new subscription package with minimum monthly subscription fees starting from RM60/month (vs. RM40/month previously) for primary plans which could lift ARPU in the longer-term.

• We understand that the latest packages would not affect existing users who wish to maintain their current plans. However, the new offerings can unlock their contractual tenures in which existing customers can choose to sign up without any commitment or alternatively opt for 12-24 month contracts for all types of subscriptions.

• We reckon the new proposition is to further provide flexibility and expand offerings to Astro’s clients who will be able to enjoy multiple content under a single provider. However, we are mindful that the contributions to the company’s bottom line are not likely to be significant in the short-term given that higher minimum subscription fees may not be well received.

• Currently, the cheapest package that include Netflix costs RM130/month (vs. Netflix standalone Standard plan of RM45/month). For the pay TV operator, this is exacerbated by persistent online piracy issues.

• Even so, 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 9x vs a 3-year average of 12x.

Source: AmInvest Research - 10 Nov 2021