Astro Malaysia (Astro) reported 1QFY25 headline net profit of RM17m, jumping 14% YoY mainly due to lower net financing costs on favourable unrealized foreign exchange (forex) from unhedged lease liabilities. However, net profit was down 61.8% QoQ due to higher net financing costs. Stripping out forex impact, normalised net profit fell 59% YoY (- 28.6% QoQ) due to lower advertising and TV subscription revenue. Although 2024 will be a major sporting year (i.e. Olympics and UEFA EURO), we are not expecting adex to pick up strongly given the weak consumer sentiment. Coupled with more intense competition from other video streaming services, we believe its TV subscription revenue is not likely to grow in the near term. As such, we cut our FY25-27F earnings forecasts by an average of 11% p.a. Our DCF-based TP is revised down to RM0.35. We maintain our Neutral rating on Astro.

• 1QFY25 revenue fell 9.8% YoY, mainly due to a 10% decline in TV subscription revenue while advertising revenue was down 22%. Radio revenue was also weaker, falling by 2% YoY. All in all, adex dropped 13% YoY due to muted consumer sentiment, as clients opted for caution in spending given slow business activities. Meanwhile, EBITDA margin fell by 2 ppts to 27%.

• 1QFY25 normalised net profit slumped 59% YoY, in tandem with the decline in revenue. Content cost has increased from 34% in 1QFY24 to 36% in the current quarter. Note that home-shopping contribution has been excluded following the cessation of business operations with the disposal of Astro Go Shop in October 2023.

• Cash generation remains healthy. Astro continues to generate a healthy free cashflow of RM112m, though it has declined from RM167m. As at 30 April 2024, about 57% of its total borrowing of RM3.2bn are lease liabilities related to the leasing of satellite transponders.

Source: PublicInvest Research - 26 Jun 2024