Astro Malaysia (Astro) reported a headline net profit of RM15.9m in 1QFY24, down from RM100m in the previous year’s corresponding quarter. Stripping out the impact of unrealized foreign exchange (FX) losses, normalised net profit came in at RM62m, dropping by 47.9% YoY on the back of lower revenue for all segments as well as higher finance cost. The results were below expectations, accounting for 17% and 16% of our and consensus estimates respectively. Operating profit was within our forecast but finance cost was higher-than-expected. As such, we cut our FY24-26F estimates by an average of 11% after factoring in higher finance cost. Our DCF-based TP is revised to RM0.70. A first interim dividend of 0.25 sen per share was declared (1QFY23: 1.25 sen per share). Maintain Neutral on Astro.

• 1QFY24 revenue fell 7.4% YoY, mainly due to a decrease in subscription revenue (-5.2%), advertising revenue (-11.4%) and merchandise sales (-37%). Although radio revenue remained resilient, the TV segment, which accounted for 91% of total revenue, reported a 6% decline due to lower subscription and advertising revenue.

• 1QFY24 net profit dragged by higher finance cost. Apart from a decline in revenue, net profit was also dragged by an increase in finance cost due to the leasing of transponders. Both TV and home shopping segments posted headline losses of RM7.6m and RM7.3m respectively. Only the radio segment was profitable during the quarter.

• Making further inroad in broadband business. Astro’s broadband base has grown impressively by 28% YoY, mainly due to the strategy of offering attractive bundles together with its TV packs. Following its partnership with Telekom Malaysia, Astro is now able to access to over 6m homes. Recently, Astro announced another collaboration with Celcom Timur S/B to provide high-speed broadband to a potential of 118,000 homes in Sabah. Apart from gaining economic benefit of expanding its broadband base in East Malaysia, such collaboration also benefits the community and enables greater digital connectivity in underserved areas. Nevertheless, we generally believe that the growth in customer base is not likely to translate to a meaningful growth in the bottomline as margin is expected to remain low. This is because, although home as well as enterprise broadband business is seen as the next growth area due to the country’s low penetration rates, this has also led to greater competition in this space with the entry of both telco and media companies attempting to achieve better convergence of services.

Source: PublicInvest Research - 20 Jun 2023