- We maintain our HOLD recommendation on Astro Malaysia Holdings with a higher fair value of RM3.20/share, based on our DCF valuation, due to housekeeping adjustments.

- Astro reported 4QFY14 earnings of RM111.4mil (-9.9% QoQ, +33.9 YoY), bringing the full-year earnings to RM448mil (+7.2% YoY). We deem the result to be in-line with our and consensus estimates.

- The group declared a fourth interim dividend of 2 sen/share and proposed a final dividend of 1 sen/share, bringing total DPS to 9 sen for FY14.

- Topline grew by 12%, driven by:- (i) a higher take-up rate of value added services, which increased its ARPU by 3% to RM96; (ii) net additions of 167k for Pay-TV and 233k for NJOI; and (iii) adex growth of 15% for its TV and radio segments, which outpaced the industry growth of ~3%.

- However, churn rate has increased from 8% to 10%, which we believe was due to weak consumer sentiment, as well as the recent price hike in its sports package.

- The strong revenue growth was offset by higher depreciation/amortisation charges (+39% YoY), which were mainly caused by strong STB swap outs. This led to a pretax profit contraction of 1% YoY. We estimate depreciation expenses to peak in the current financial year, and will therefore continue to weigh on earnings.

- Despite that, Astro still managed to achieve a net profit growth of 7% due to a lower effective tax rate of 21.3% vs. 27% previously. This is not sustainable as management guided that the effective tax rate will most likely be at the 25% level going forward.

- 84% of its Pay-TV subscribers are now on the B.yond settop-boxes (STBs). Management reiterates that the remaining 16% of its total subscribers (c.560,000 subscribers) that are still on the older STBs will not be actively swapped to the newer B.yond STBs. This bodes well for Astro as it will lift pressure on EBITDA margins.

- Nevertheless, we believe this will be partially offset by the higher content cost (c.35% of TV revenue) that the group will incur in FY15 due to major sporting events this year (i.e.FIFA World Cup, Commonwealth Games and Asian Games).

- Although we are positive on Astro’s market dominance in the Pay-TV segment that is driven and supported by its superior content offerings, we believe this has been priced in and reflected in its steep valuation of FY15 PE of 37x. Our DPS assumption assumes a yield of 2.8% in FY15.

Source: AmeSecurities