· We maintain our HOLD call on Astro Malaysia with a higher fair value of RM3.48/share. Astro reported FY15 earnings of RM519.4mil that was within our expectations – constituting 103% of our estimates, and 101% of consensus’. We increase our FY16F-FY18F earnings to reflect the results.

· Astro declared a fourth interim dividend of 2.25sen/share, and proposed a final dividend of 2sen/share. This brings the total dividend for FY15 to 11sen/share, above our and consensus’ FY15 estimates of 9sen/share.

· Key reasons for its strong 4QFY15 earnings are:- (1) strong expansion of Astro’s customer base with 31,000 net subscribers added in Q4; (2) steady churn rate at 10% (3) increase in ARPU by another RM0.50 to RM99 (FY14: RM96), due to higher sales of value-added products and services; and (4) better cost control by management.

· NJOI, Astro’s Free-To-Air (FTA) service has doubled its subscribers to 920k in FY15 (FY14: 442k subscribers). Astro’s strategy of converting FTA users into Pay-TV subscribers seems to be gaining some traction with over 30,000 subscribers converted in FY15.

· In addition, despite the current muted customer sentiment, Astro was able to grow its adex revenue by 1% to RM589m in FY15, from RM582m in FY14. Note that total Malaysia 2014 adex forecast declined by 400 basis points on aggregate. Separately, Astro’s radio adex improved by 200 basis points while TV adex declined by about 800 basis points.

· Astro officially launched its home shopping channel on 31 Jan 2015, with encouraging results. They have sold over 120k products to over 75,000 customers in West and East Malaysia; it even experienced total sales of up to RM500k over two days. Astro aims to leverage its large customer base to achieve sales of RM150mil-RM170mil in FY16F, and RM500mil in five years from the home shopping initiative.

· Despite a muted consumer sentiment, management expects its EBITDA margin to improve by 1%-2% in FY16F, particularly from value extracted from the established operations of the Home Shopping business, as well as Astro’s plans to monetise its underutilised sports and vernacular content.

· The stock now trades at 25.12x PE for FY16F. Our DPS assumption assumes a dividend yield of 3.4%.

Source: AmeSecurities