Astro reported a 13% growth in 2QFY23 net profit to RM98.5m, as the decline in revenue was offset by lower costs. Stripping out non-operating items, core net profit increased marginally by 3% to RM104m. For 1HFY23, results were in line with expectations. However, we cut our FY23-25F earnings forecasts by an average of 11% as we believe advertising revenue could decline further due to weaker consumer sentiment, in view of the growing inflationary pressures. In addition, we expect content cost to increase with the weakening of the Ringgit against the USD. Although we note that Astro has hedged its USD exposure in the near-term, we anticipate cost to increase from FY24F onwards. Given the downward adjustment to our earnings forecasts and the assumption of higher risk-free rate in a rising interest rate environment, our TP for Astro is reduced to RM0.90. Maintain Neutral on Astro. A second interim dividend of 1.0 sen per share was declared (2QFY22: 1.50 sen).

• 2QFY23 revenue fell 13.1% YoY, due to a lower television (-9.3% YoY) and home-shopping (-55.3% YoY) revenue. The drop in television revenue was attributable to lower subscription revenue, advertising revenue and sales of programming rights. The sharp decline in home-shopping revenue was the result of a subdued market sentiment, more cautious consumer spending and the return of customers to physical stores. Radio revenue increased by 15% YoY but its contribution to the group remained small at only 5%.

• 2QFY23 core net profit improved by 3% YoY. Despite weaker revenue, normalised earnings were marginally higher due to lower cost of sales, financing cost and depreciation charges. However, we expect content cost to pick up in 2HFY23 with the airing of World Cup 2022.

• Outlook. Astro is expected to further invest in local content development to build and strengthen its online, digital and broadband businesses. This is because local and vernacular content remains a key contributor to Astro’s strength, accounting for two-thirds of its audience viewing. Meanwhile, as over-the-top (OTT) services continue to dominate the entertainment needs of more Malaysians, we are also expecting Astro to focus more on investment in global streaming services. As such, more OTT services are likely to be aggregated onto its platform in the near term. By the end of this year, 3-5 OTTs are expected to be added onto its portfolio of global streaming services which includes Netflix, Disney+ Hotstar, iQIYI and HBO GO. However, a consolidation of OTT providers in the US is imminent given the intense competition and a more saturated market. Therefore, in our view, Astro’s strategy of being a super aggregator may not necessarily translate to a more favourable pricing for its subscribers in the future.

Source: PublicInvest Research - 27 Sept 2022