Astro Malaysia (Astro) reported an 80% decline in 1HFY24 net profit to RM39.5m, mainly due to higher home-shopping losses, higher net finance costs resulting from unrealized forex loss on unhedged lease liabilities and higher amortization of intangible assets. Stripping out non-operating items, normalised net profit was at RM104m, which only accounted for 33% of our and consensus full-year estimates. This was largely due to higher-than expected net finance cost, though revenue came in within our expectations. Hence, we cut our FY24-26F earnings forecasts by an average of 15% as we raise our net finance cost assumption. We have also revised down our terminal growth rate assumption, leading to a downward revision in our DCF-based TP to RM0.59. Maintain Neutral on Astro. No dividend was declared for the current quarter as Astro has changed its dividend policy to an annual payout. In view of the challenging operating environment, we expect Astro to conserve cash and declare a lower dividend payout of 50% (FY23 was 60%), translating to a yield of 5% for FY24F.

• 1HFY24 revenue fell 6.5% YoY, mainly due to a 5% decline in TV revenue to RM1,604.6m on the back of lower subscription revenue (- 6% YoY) and advertising revenue (-14% YoY). Home-shopping revenue was also weaker, falling by 34% YoY to RM67m due to subdued consumer sentiment and more cautious spending. Meanwhile, radio segment posted a marginal revenue growth of 4% due to higher advertising expenditure (adex).

• 1HFY24 net profit dragged by higher net finance cost. Apart from a 6.5% decline in revenue, net profit was mainly dragged by an increase in finance cost due to unrealized forex loss arising from unhedged lease liabilities. Normalised net profit fell 53% to RM104m.

• Acquisition of Basecamp Films. Astro has recently acquired a visual post-production studio, Basecamp Films, with the intention of establishing a new division called Astro Sound+Vision. The move is expected to expand its post-production capabilities by providing a comprehensive range of audio and visual services such as video content encompassing films, TV series, shows and commercials. The new division will cater to both Astro and external clients’ needs for high-quality finishing of video content. Although the amount of acquisition was not disclosed, we do not expect it to be a material sum and contribution is not likely to be significant on a standalone basis but to complement its existing businesses.

Source: PublicInvest Research - 26 Sept 2023