• We maintain HOLD on Astro Malaysia Holdings (Astro) with unchanged forecasts and FV of RM2.65/share, based on DCF at an 8% discount rate.

• Astro's 1QFY18 core net profit of RM196mil (+35% QoQ, -3% YoY) came within expectations at 30%/27% of our/consensus core profit estimates. Astro declared a dividend of 3.0 sen, on par with last year.

• Sequentially, 1QFY18 net profit jumped despite lower revenue (- 5% QoQ) due to lower content costs and marketing expenses normally enjoyed in 1Q, as well as lower depreciation. YoY, Astro's 1QFY18 net profit decline was in tandem with its YoY revenue contraction (-3% YoY).

• The decline in 1QFY18 sales (both QoQ and YoY) was attributed to a decrease in adex and subscription revenue. Positively, the YoY drop in Astro's adex (-5%) was slower than the decline of the total Malaysia gross adex (-10% YoY). The company has also garnered higher shares of TV adex and radex compared to last year.

• Nonetheless, we believe Astro has lost some pay-TV subscribers during the quarter, as subscription revenue fell despite ARPU increasing from RM99.0 in 1QFY17 to RM100.8 in 1QFY18. While this is discouraging, Astro's free satellite TV NJOI will allow users to subscribe to ala carte packs. The ala carte packs have seen strong uptake especially for the Korean pack. We expect this to support subscription revenue moving forward.

• Astro's Go Shop has remained stable, recording RM60-65mil per quarter. Management said that buying customers have increased to >200K per quarter and the segment is expected to breakeven by the end of FY18.

• Astro’s OTT streaming app Tribe, which has been launched in Indonesia and the Philippines, has achieved 1.3mil registered users within a year. Together with its Astro GO, which has 1.2mil registered users, the segment will allow the group to tap into mass mobile users and increase its ability to monetise advertisements.

• Astro also recently partnered with Turner Asia Pacific to form a strategic joint-venture with Warner TV, aimed at co-producing Asian content for global consumption, distributing Astro content and having the partner carry Astro channels and Tribe. The venture will enable Astro to participate in the revenue distribution generated from Warner TV in Asia Pacific.

• We are keeping our HOLD call on Astro because: (1) cheaper alternatives offered by strong over-the-top (OTT) players (eg. Netflix) continue to pressure subscriptions and ARPU; (2) newly launched products (Tribe and Astro Go) have yet to gain traction; and (3) dividend yield is less attractive compared to its peers while growth is capped by an already high household penetration.

Source: AmInvest Research - 15 Jun 2017