Investment Highlights

• We maintain BUY on Astro Malaysia (Astro) with a lower DCF-derived fair value (FV) of RM1.02/share (vs RM1.18/share previously). Our FV reflects a 3% premium for its 4-star ESG rating and it implies a FY24F PE of 12x, near our 5-year average of 13x.

• Astro’s 9MFY23 core net profit (CNP) of RM295mil (excluding post-tax unrealised forex loss related to transponder-related lease liabilities of RM91mil) was below expectations as it accounted for 68% of our FY23F forecasts and consensus estimates.

• The deviation is due to weaker-than-expected contribution by TV and home shopping segment. Hence, we lower our earnings estimates for FY23F by 7% while fine-tuning FY24F-25F.

• Astro also declared DPS of 0.75 sen for 3QFY23 (3QFY22: 1.5 sen), bringing 9MFY23 total DPS to 3 sen (9MFY22: 4.5 sen). Management intends to maintain their dividend policy, i.e. minimum 75% pay-out of group’s consolidated profits.

• YoY, Astro’s 9MFY23 CNP fell 14% on weaker TV and home shopping earnings:-
  • TV’s PBT shrank 46% YoY to RM211mil as TV revenue fell 7% due to decreased subscription revenue, TV ad revenue, as well as sales and programming rights together with higher broadband expenses.
  • Radio’s PBT improved by 54% YoY to RM59mil in tandem with 28% YoY growth in radio revenue. The segment benefited from higher radex spend in line with Malaysia’s transition to endemic.
  • Home shopping dipped further into the red to RM24mil as shoppers returned to physical stores following the easing of movement restriction orders.
• QoQ, Astro’s CNP dropped by 30% to RM73mil in 3QFY23 mainly due to higher marketing expenses, content cost and broadband customer acquisition cost.

• In 4QFY23, we expect ad-spend to improve due to festivities in Dec 2022 (Christmas) and Jan 2023 (Chinese New Year). While subscription revenue would be higher due to FIFA World Cup and Premier League, margins may be compressed by higher content cost. Meanwhile, we think home shopping segment will continue to drag its earnings as shoppers return to physical stores.

• Over the long-term, we believe recovery will be spurred by value-for-money bundled packages and aggregated over-the-top (OTT) streaming with seamless navigation and broadband bundling. Astro would also benefit from the criminalisation of digital piracy in the Copyrights (Amendment) Act 2022, which was gazetted in Feb 2022. Reiterating our view, Astro won an anti-piracy case against a commercial establishment in Nov 2022, which sets a precedent that it is illegal for commercial premises to broadcast contents from unauthorised sources. Astro has also taken steps to position themselves for a recovery in adex and consumer spending in FY24F, via the launch of addressable advertising in Jun 2022. It 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; (ii) attractive dividend yield of 8.2%; (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 8.1x FY24F PE, 38% lower than its 5-year average of 13x

Source: AmInvest Research - 16 Dec 2022