-  We maintain our HOLD recommendation on Astro Malaysia with a slightly lower fair value of RM3.10/share (vs. RM3.11/share previously), based on our DCF valuation, as we tweaked our margin assumptions.

-  Astro recorded a 3Q net profit of RM123.8mil (+25% QoQ, +5% YoY), bring total 9MFY14F earnings to RM336.6mil (+0.5% YoY). We deem this to be in line, as it accounts for 73% of our full year estimate and 74% of consensus.

-  Astro declared a third interim dividend of 2 sen/share, which brings the total DPS to 6 sen so far. We now expect a similar payout in the final quarter, and raise our DPS payout expectation to 8 sen for FY14F.

-  Its 9MFY14 revenue continues to chart a strong growth of 13% YoY, mainly driven by:- (i) an increase of 6% in Pay-TV subscribers; (ii) a 4% growth in ARPU from RM92.30 to RM95.60 due to a strong take up for its value-added services; and (iii) an adex revenue growth of 17%.

-  80% of Astro’s Pay-TV subscribers are now using the new B.yond set-top boxes (STB). We understand that management will no longer aggressively pursue to complete the full swap out of STBs for the remaining subscribers, as previously guided. As such, we have raised our EBITDA margin assumption for FY14F to 33% (vs. 32% previously) to account for lower acquisition costs related to the swap outs.

-  Content cost continues to rise in tandem with its top line, accounting for 32% of its revenue YTD. However, management has guided that its content cost would increase to ~35% of its revenue in FY15F due to the many major sporting events then. We have thus reduced our EBITDA margin assumption for FY15F to 34% (vs. 35% previously).

-  Its depreciation and amortisation cost rose significantly by 45% YoY, predominantly caused by the STB swap outs, resulting in rather flat earnings YoY.

-  We believe the depreciation/amortisation charges will continue to increase and weigh on its bottom line, and will only peak in FY15F, based on our estimates.

-  While we view Astro’s substantial market share in the Pay-TV segment positively, we believe its earnings trajectory will continue to be impacted in the near term.

-  At the current level, Astro is trading at a steep FY15F PE of 32x. Furthermore, its dividend yield of ~3% appears unattractive when compared against its peers within the sector.

Source: AmeSecurities