- We maintain our HOLD recommendation on Astro Malaysia Holdings with a higher fair value of RM3.30/share (vs. RM3.20/share previously), as we tweak our FY15-17F capex, interest expense and depreciation assumptions.

- Astro reported 1QFY15 earnings of RM128.3mil (+15.2% QoQ, +12.4 YoY). This accounted for 27% of our previous full year estimate, while making up 23% of consensus’ estimates.

- The group declared a first interim dividend of 2.25 sen/share, which was within our expectation.

- Revenue grew by 11%, driven by:- (i) a higher take-up rate of value added services, which increased its ARPU by 3% to RM97; (ii) a higher TV household penetration rate of 58% (+ 5pp); and (iii) adex growth of 6% for its TV and radio segments.

- However, net addition for its Pay TV subscribers continues to weaken and have declined by 30% YoY. We understand that some of its Pay TV subscribers have also switched from the Pay TV platform to the subscription-free NJOI platform.

- Churn rate increased from 8% to 10%, possibly due to weak consumer sentiment and the recent price hike for its sports packages. Management guides that the churn rate will remain at this level going forward.

- Content cost is estimated to be higher at ~35% of TV revenue this year, due to major sporting events this year (i.e. FIFA World Cup, Commonwealth Games, and Asian Games), compared with 32% without major events.

- However, as Astro is no longer actively swapping out the remaining subscribers on the older set-top boxes (15% of the total Pay TV subscribers) to the B.yond STBs, we expect the savings from this to more than offset higher content costs. Overall, we anticipate EBITDA margin to improve to 35% in FY15F (vs. 33.7% in FY14).

- Its home shopping business is expected to commence operations in 4QFY15, with dedicated channels that will exhibit its products around the clock. Management expects this new venture to contribute quite significantly in the medium term – generating circa RM500-700mil of revenue p.a. in 5 years.

- Although we are positive on Astro’s market dominance in the Pay-TV segment driven and supported by its superior content offerings, valuation is nevertheless steep at 38x PE of our FY15F earnings estimate. Our DPS assumption implies a yield of 2.5% in FY15.

Source: AmeSecurities