Investment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with a lower DCF-derived fair value (FV) of RM1.16/share (vs. RM1.20/share previously). Our FV also reflects a 3% premium for its 4-star ESG rating, and implies an FY23F PE of 10.7x - 18% below its 5-year average.

• We cut Astro’s FY23F core net profit (CNP) by 5% and finetune the FY24F–25F CNP as we expect higher pay-TV churn rate and slower advertising expenditure (adex) recovery in FY23F due to inflationary and recessionary fears.

• While its subscription revenue could be facing macroeconomic headwinds in FY23F, we expect a recovery from FY24F onwards, spurred by value-for-money bundled packages. In addition to its channel offerings, Astro also has aggregated over-the-top (OTT) streaming with seamless navigation and broadband bundling.

• Also, we believe that Astro would benefit from the criminalisation of digital piracy in the Copyright (Amendment) Act 2022, which was gazetted in February 2022.

• YTD adex (excluding digital) grew 9% YoY in May 2022 (Exhibit 1). However going forward, we envisage a slower recovery due to growing economic uncertainties. This may cause advertisers to reduce their marketing budgets or pursue discount marketing instead.

• A silver lining lies in sports events. We believe that adex spending for sports events would be positive in FY23F as more sports events are expected to take place, including the FIFA World Cup in Qatar.

• In June, Astro launched addressable advertising services. Leveraging first-party data, advertisers would be able to target their advertisement at different households, who are watching the same programme. It also allows scaling to suit various industries and business sizes, making it possible for SMEs to access TV advertising.

• 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.

• Astro currently trades at an attractive FY24F PE of 10x, lower than its 5-year average of 13x (Exhibit 3).

Source: AmInvest Research - 21 Jul 2022