Investment Highlights

• We maintain BUY on Astro Malaysia Holdings (Astro) with an unchanged DCF-derived fair value (FV) of RM1.16/share. Our FV reflects a 3% premium for its 4-star ESG rating and implies a FY24F PE of 13x, at parity to its 5-year average.

• Astro’s 1HFY23 core net profit (CNP) of RM223mil (excluding unrealised forex loss related to transponderrelated lease liabilities of RM24mil) was within expectations as it accounted for 51% of our FY23F forecasts and 47% of consensus estimates. Hence, we make no changes to our earnings estimates.

• Astro also declared a DPS of 1 sen for 2QFY23 (2QFY22: 1.5 sen), bringing 1HFY23 total DPS to 2.25 sen (1HFY22: 3 sen). Management guided that they are maintaining their dividend policy, i.e. a minimum 75% pay-out of the group’s consolidated profits.

• YoY, Astro’s 1HFY23 CNP fell 9% to RM223mil on weaker television (TV) and home shopping earnings. Here are the highlights:

• TV’s PBT fell 13% YoY to RM230mil as TV revenue slid 7% together with higher broadband & marketing expenses.

• Radio’s PBT grew 20% YoY to RM38mil in tandem with the 14% growth in radio revenue. The segment benefitted from higher radex spend in line with the transition to endemic phase.

• Home-shopping dipped into the red to RM18mil as consumers returned to physical stores following the easing of movement restriction orders.

• QoQ, Astro’s CNP fell 13% to RM103.5mil in 2QFY23 as revenue in all segments fell. Radio’s revenue fell 23% QoQ as the previous quarter benefitted from higher radex spend from Raya campaigns. Home shopping revenue dropped by 13% QoQ due to subdued consumer sentiments and easing of movement restriction order. TV revenue slid 3% QoQ in 2QFY23, dragged by lower advertising revenue.

• We view Astro’s outlook to be unexciting in the near-term due to tepid consumer sentiments. This will, however, be cushioned by increased adex spending associated with major sporting events taking place this year, such as UEFA Champions League and FIFA World Cup.

• Over the long-term, we expect recovery in subscription revenue to be spurred by value-for-money bundled packages and aggregated over-the-top (OTT) streaming with seamless navigation and broadband bundling. We also believe that Astro would benefit from the criminalisation of digital piracy in the Copyrights (Amendment) Act 2022, which was gazetted in Feb 2022. On advertising revenue, we think addressable advertising (launched in Jun 2022), which allows for targeted advertisement, will gain traction over the long term.

• We continue to like Astro for its: (i) strength in vernacular content and high household penetration rate of 70%; (ii) attractive dividend yield of 7%-8%, (iii) ongoing efforts to incorporate major streaming services into set-up boxes; and (iv) venture into internet service provider, Astro Fibre. Downside risks include macroeconomic headwinds, which may dampen consumer and business sentiment.

• Astro is currently trading at an attractive 9.5x FY24F PE, 27% lower than its 5-year average of 13x.

Source: AmInvest Research - 27 Sept 2022