nvestment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with a lower DCF-derived fair value (FV) of RM1.20/share (vs RM1.33/share previously). Our FV also reflects a 3% premium for its 4-star ESG rating.

• Astro’s 1QFY23 core net profit (CNP) of RM119mil (excluding unrealised forex loss related to transponder related lease liabilities of RM19mil) on an annualised basis was 9% below our expectation and consensus estimates. Astro has declared a gross dividend of 1.25 sen for 1QFY23 (1QFY22: 1.50 sen), which was within our forecast.

• We have reduced Astro’s FY23F-25F earnings by 9% to account for a more conservative recovery in ARPU and adex spending. We also expect the churn rate to be high due to inflationary pressures. Nonetheless, we expect the impact to be cushioned by adex spending for sports events. A higher number of sports events is expected to take place in FY23F such as the UEFA Champions League and FIFA World Cup.

• YoY, Astro’s 1QFY23 CNP fell 19% to RM119mil on weaker television (TV) and home shopping earnings. Here are the highlights:
  • TV’s PBT slid 32% YoY to RM110.3mil in 1QFY23. The division’s revenue fell 5% to RM859.2mil due to lower subscription & advertising revenue and higher broadband & marketing expenses.
  • Radio’s PBT grew 47% YoY to RM26.1mil in 1QFY23 in tandem with the 14% improvement in revenue. The segment benefitted from higher radex spend in line with the transition to endemic phase and Raya festivities during the quarter.
  • Home shopping dipped into the red in 1QFY23 as consumers returned to shopping malls following the easing of the movement restriction order.
• QoQ, Astro’s CNP slid 11% in 1QFY23 as revenue in all of its segments fell. TV revenue declined by 5.4% QoQ to RM859.2mil in 1QFY23 dragged by lower advertising and subscription revenue. Radio’s revenue slid by 13.6% QoQ to RM48.8mil in 1QFY23 as the preceding quarter benefitted from higher radex spend from New Year and Chinese New Year campaigns. Home shopping revenue eased by 19.3% to RM54mil as consumers returned to physical stores.

• We continue to like Astro for its: (i) strength in vernacular content and high household penetration rate of 71%; (ii) attractive dividend yield of 6%-7%; (iii) ongoing efforts to incorporate major streaming services into set-up boxes; and (iv) venture into internet service provider, Astro Fibre.

• Downside risks include persistent geopolitical and macroeconomic headwinds which may lead to dampened consumer and business sentiments.

• Astro is currently trading at an attractive 11x PE, lower than its 5-year average of 13x (Exhibit 5)

Source: AmInvest Research - 22 Jun 2022