Investment Highlights

• We downgrade Astro Malaysia (Astro) to HOLD with a lower DCF-derived fair value (FV) of RM0.68/share (vs RM1.02/share previously). Our FV reflects a 3% premium for its 4-star ESG rating and implies a FY24F PE of 9x, near its 5-year low of 8x.

• Astro’s FY23 core net profit (CNP) of RM312mil (excluding impairment of intellectual property and goodwill pertaining to a subsidiary of RM74mil and unrealised forex gain related to transponder lease liabilities of RM21mil) was 23% below our forecast and 21% short of consensus.

• The deviation was due to a weaker-than-expected subscription revenue in the television segment. As such, we lower our earnings for FY24F by 12% and FY25F by 20%.

• Astro did not declare a dividend for 4QFY23. DPS for FY23 amounted to 3 sen (FY22: 6.8 sen) in total. This translates to a pay-out ratio of 60% and is a departure from the minimum pay-out policy of 75%. Management intends to resume dividend payments in FY24F. Looking ahead, Astro offers FY24F-26F dividend yields of 6%-7% based on a pay-out ratio of 60%.

• YoY, Astro’s FY23 CNP fell 34% to RM312mil dragged by weaker TV and home shopping earnings.

• TV’s PBT halved YoY to RM266mil in FY23 due to decreased subscription and TV ad revenue, as well as higher broadband cost and content cost.

• Radio’s PBT grew 13% YoY to RM92mil in FY23 in tandem with the 17% growth in radio revenue as the segment benefitted from higher radix spend.

• Home shopping segment continued to make losses, posting a LBT of RM36mil in FY23 as shoppers returned to physical stores following the easing of movement restriction orders.

• QoQ, Astro’s CNP shrank 77% to RM17mil in 4QFY23 due to higher World Cup content cost.

• Despite the Hari Raya festivities, we expect ad spending to be tepid in 1QFY24 as 1Q adex is usually seasonally weaker. On a positive note, subscription revenue may be supported by Astro’s Liga Malaysia broadcast rights, which is until FY25F. However, we expect home shopping segment to continue in the red.

• Astro is currently trading at 8.6x FY24F PE, near its near its 5-year low of 8x.

Source: AmInvest Research - 28 Mar 2023