Investment Highlights

• We maintain SELL with a lower DCF-derived fair value of RM0.31 vs. RM0.38 previously as we reduced the terminal growth to -1% from 1%. We believe that there is no catalyst for revenue growth while at the same time, operating costs are rising. Our DCF reflects a 9% WACC and 3% premium for a 4-star ESG rating.

• Astro’s 9MFY24 core net profit (CNP) of RM140.4mil (excluding loss of RM108mil arising from mark-to-market revaluation of transponder lease liabilities and after-tax VSS cost impact of 40mil) was below our expectations. The group’s results accounted for only 63% of our forecast and 58% of street’s estimates.

• The weaker-than-expected earnings stemmed from a lower subscription and adex revenue. Churn rate was also higher as Astro lost 2% of its TV customer base to 5.3mil. This reduced pay-tv and NJOI household penetration rate by 3pp to 67% YoY in 9MFY24. We have trimmed Astro’s FY24F-FY26F net profit by 24-31% to account for all of these.

• Incidentally, Astro has exited its loss-making home shopping unit as the operating environment is challenging.

• YoY, Astro’s core net profit (CNP) 9MFY24 dropped 53% to RM140.4mil due to declines in television (6%), radio (3%) and home shopping revenue (35%) resulting from subdued consumer and business sentiment. Also, Astro’s TV unit swung into the red with a net loss of RM46mil in 9MFY24 from a profit of RM211mil in 9MFY23.

• On QoQ basis, Astro CNP dropped 16% to RM35.9mil in 3QFY24 vs. a CNP of RM42.6mil in 2QFY24 due to lower merchandise sales, programming rights sales and subscription revenue. On a positive note, advertising revenue grew by 13% driven by Astro Originals and addressable advertising.

• Looking ahead, we are pessimistic as there are no signs of a recovery in linear pay-tv subscribers. There is also risk of consumers switching to streaming applications. Additionally, Astro faces piracy issues, foreign exchange risk and weak consumer sentiment.

• Astro is currently trading at a pricey 12x FY24F PE vs. its 5-year low of 7x.

Source: AmInvest Research - 15 Dec 2023