Astro posted a weaker 2QFY21 net profit of RM133.7m, down 21% YoY, largely dragged by a decrease in subscription and advertising revenue as well as higher merchandise costs. After adjusting for unrealized forex loss of RM19m, cumulative 1HFY21 core net profit came in at RM226.5m, accounting for 43% of our and consensus full year estimates. We deem the results to be broadly in-line with expectations however as we are expecting a better 2H given the resumption of business activities. While we maintain our earnings forecast, our TP for Astro is reduced to RM1.38 (RM1.55 previously) as we raise our WACC assumption to 9% (from 8.3%), mainly to factor in the increase in earnings and cash flow uncertainties, primarily due to weaker consumer spending. Our Outperform call on Astro is maintained nonetheless as Astro remains an attractive dividend play. On that note, Astro declared a second interim dividend of 1.5sen, bringing the total YTD dividend declared to 2.5 sen.

• 2QFY21 revenue declined by 11.8% YoY, as both TV and Radio segment recorded lower contribution. Nevertheless, the decline in subscription and advertising revenue was partially mitigated by the increase in sales from its home-shopping segment. Pay TV ARPU decreased to RM98, mainly due to the one-off RM40 rebate given to Astro’s Sports Pack customers. Advertising revenue fell by 49.4% YoY to RM80m as advertisers held back on spending in the absence of Astro’s live reality signature content amid the Movement Control Order (MCO). It is worth noting however that Go Shop recorded its best quarter yet, mainly boosted by stronger festive sales. We foresee the current growth momentum for Go Shop tapering off slightly in 2HFY21 as we expect consumer spending to be impacted upon expiry of the 6-month loan moratorium.

• Lower core net profit YoY. 2QFY21 core net profit fell by 28.9% YoY to RM119.7m, mainly attributable to lower revenue recorded in the TV and Radio division as well as higher merchandise costs. However, lower content cost and impairment of receivables managed to partially cushion the negative impact. EBITDA margin declined by 4.6 ppts to 31.3% in 2QFY21.

• Outlook. The gradual reopening of business activities is expected to have a positive impact on Astro’s earnings moving forward. We are a little wary over the Group’s near-term prospects amid the challenging economic conditions however, which may lead to down-trading by subscribers. On-going cost optimization initiatives will be able to partially mitigate the impact on lower revenue however.

Source: PublicInvest Research - 17 Sept 2020