- We maintain our HOLD call on Astro Malaysia with an unchanged fair value of RM3.45/share, as we roll forward our DCF valuation.

- We leave our FY15F-17F earnings unchanged as the group’s 9MFY15 net profit came in within expectations, accounting for 75% of our estimates and 70% of consensus.

- Astro declared an interim dividend of 2.25 sen/share (FY14F: 2 sen/share), bringing total YTD to 6.75 sen/share.

- 3QFY15 earnings declined by 18% QoQ to RM113mil, on the back of a 5% drop in its television segment revenue. This was mainly due to the FIFA World Cup event that took place in the previous quarter, where subscriptions and adex were higher. EBITDA margin contracted by 0.9% points due a compensation of RM29mil for the delayed release of satellite services, as well as increased professional and consultancy fees.

- On a YoY comparison, Astro’s 9MFY15 earnings grew by 13% due to:- (i) 3% increase in ARPU to RM98.50; (ii) higher TV household penetration rate of 62% vs. 55%; and (iii) adex revenue growth of 4% to RM440mil.

- Content cost has normalised to 33% of TV revenue in 3QFY15 after peaking at 38% in the previous quarter due to the major sporting event. Guidance for content cost at between 32%-35% of TV revenue is still intact.

- Despite the EBITDA margin contraction this quarter, the group believes it is still on track to achieve its target of 35% margin for FY15. Astro recently increased RM5 for its HD channel packages in November, which is expected to increase RM1.50 to ARPU on an annualised basis.

- The group has also soft-launched its home shopping channel on 1 Nov 2014, and has since sold 30,000 products averaging RM250 per product.

- Management expects Astro’s business to stay resilient despite a muted consumer sentiment outlook. Furthermore, ARPU expansion will come from the upper segment and more affluent customers which are largely unaffected by the subsidy rationalisation and GST implementation.

- The stock now trades at 27x PE for FY16F post our rollover. Our DPS assumption implies a dividend yield of 3%.

Source: AmeSecurities