Investment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with a lower DCF-derived fair value of RM1.33/share (from RM1.79/share previously), which includes a 3% premium for our 4-star ESG rating (Exhibit 3).

• Excluding exceptional items, Astro’s 9MFY22 core net profit of RM344mil missed expectations, accounting for only 67% of our earlier FY22F earnings and 65% of consensus estimates (vs. 71%–81% for 9M contribution over FY20–FY21 earnings).

• Hence, we cut our earnings forecast by 4% for FY22F and 6% for FY23F. This is due to lower assumptions for TV subscriptions and home shopping business dampened by lacklustre consumer spending and the prosperity tax impact in FY22.

• Meanwhile, the company declared a 3QFY22 DPS of 1.5 sen, which translates to 9MFY22 dividend of 4.5 sen (+13% YoY) and a payout ratio of 70%.

• YoY, the group’s 9MFY22 core net profit dropped 9% from weaker television (TV) earnings and halving of home shopping pretax margin. These are the YoY highlights:

• The TV segment’s PBT fell 12% as spillover effects from intensified lockdowns led to decreased subscriptions and advertising revenue.

• Home shopping PBT was reduced by 63% in tandem with a 10% decline in sales as consumers returned to physical stores following the easing of movement restrictions.

• This was partly offset by radio’s PBT improving by 6% as lower licence, copyright and royalty fees more than offset the lower revenue.

• QoQ, the group’s 3QFY22 PBT climbed by 15% to RM134mil, mainly from lower TV content costs, partially offset by higher radio marketing expenses and normalisation of licence, copyright and royalty fees. Meanwhile, home shopping reversed to a 3QFY22 loss of RM1mil from an equivalent 2QFY22 pretax profit.

• We are cautiously optimistic on Astro’s earnings momentum as the home shopping segment, currently loss-making, could continue to drag the overall performance.

• On a positive note, we expect a strong 4QFY22 rebound, similar to 1QFY22 earnings from an adex recovery underpinned by the relaxation of movement restrictions for fully vaccinated individuals.

• We continue to like Astro for its: (i) strength in vernacular content and high household penetration rate of 72% currently; (ii) move to expand offerings by aggregating streaming services via OTT partnerships and launching of its own Sooka online app; and (iii) attractive dividend yield of 8%.

• Currently, the stock trades at a FY22F PE of only 10x vs. a 3-year average of 12x.

Source: AmInvest Research - 10 Dec 2021