Investment Highlights

• We downgrade Astro Malaysia (Astro) to SELL from HOLD with a lower DCF-derived fair value (FV) of RM0.38/share (vs RM0.68/share previously). Our FV reflects a 3% premium for its 4-star ESG rating.

• Astro’s 2HFY24 core net profit (CNP) of RM105mil (excluding unrealised forex gain of RM64mil related to transponder lease liabilities) was below our expectation as it is accounted only 26% of our forecast and 33% of consensus estimates.

• The earnings disappointment stemmed from lower-thanexpected subscription revenue and customer base in the television segment, coupled with increased content, marketing and distribution costs. As such, we cut FY24FFY26F earnings by 42%-73%.

• Also, Astro revised dividend policy to annual payouts from quarterly to reinvest into customers, pursue new opportunities and preserve liquidity. In line with the revision, there is no dividend payout for 2QFY24. Together with our lower earnings projection, we have lowered our FY24F-FY26F dividend assumptions which translate to a pay-out ratio of 50%.

• YoY, Astro 1HFY24 CNP halved to RM105mil due to weaker TV and home shopping earnings, partly offset by a slight 1% growth in ARPU to RM99.10/month due to subscriptions to ASTRO TV Packs and Broadband Bundles.

• TV PBT fell 98% YoY to RM5.6mil in 1HFY24 due to decreased subscription and ad revenue, as well as higher content cost and distribution cost. Also, 1HFY24 home shopping revenue decreased by 34% due to heightened cautious spending and weaker consumer sentiment, which led to a loss of RM15mil.

• However, 1HFY24 radio PBT grew 20.1% YoY to RM46mil, supported by a 4% growth in radio revenue despite a slight 0.6% YoY decline in weekly radio listeners of 17.9mil.

• QoQ, Astro’s CNP shrank 31% to RM43mil in 2QFY24 due to lower advertising/subscription revenue and merchandise sales.

• We forecast ad spending to be tepid in 3QFY24 due to ongoing cost of living pressures and uncertain dollar volatility. We also expect the home shopping segment to remain unexciting given more attractive online platforms. On the bright side, subscription revenue may be cushioned by the recent Premier League kick off, contemporary Astro Originals and additional 14 integrated streaming services as well as Liga Malaysia official broadcast rights until FY25F.

• Astro is currently trading at a pricey 11x FY24F PE vs. its 5-year low of 7x while dividend yields are now unexciting at 4.6%.

Source: AmInvest Research - 27 Sept 2023