Results

1QFY14 core earnings (adjusted for RM12.8m unrealised forex gain and RM7.6m derivative losses) slipped by 20% YoY to RM108.9m (2.09 sen/share), making up 22% and 23% of ours and consensus’ estimates respectively.

Deviations

Considered largely in line as we expect stronger sequential earnings growth.

Dividends

Net dividend of 2 sen/share declared. Ex-date on 26 Jun-13, payment on 15 Jul-13.

Highlights

Results review… 1QFY14 revenue grew by 14% YoY to RM1.16bn, driven by sequential growth in both subscribers and ARPU. Subscribers grew to 3.58m representing a household penetration rate of 53% while ARPU inched up to RM94.2/month. Adex revenue especially from the TV division also supported top line growth. The TV division has been claiming a bigger slice of the overall Adex market. However, due to higher operating expenses, i.e. customerrelated acquisition costs, and accelerated depreciation for its B.yond set top boxes (STB), core earnings fell by 20% YoY.

QoQ, revenue dipped slightly by 1%, mainly due to seasonality weakness in Adex revenue. However, core earnings posted sequential growth of 7% due to lower content, marketing and distribution costs.

Look at EBITDA… Despite the drop in reported core earnings, the EBITDA level is a better reflection of Astro’s performance and fundamentals as the bottom line is depressed from the accelerated depreciation and vendor financing for its B.yond STB. EBITDA posted healthy growth of 11% YoY (QoQ: +10%) to RM380.9m during the quarter.

Target 7% ARPU CAGR… Clients with B.yond STBs have reached 2.18m, representing 66% of pay-TV subscribers. Management is targeting to complete this swap out exercise by FY14. B.yond subscribers tend to generate higher ARPU, and coupled with the value-added products/services, management believes that ARPU of RM130/month is achievable by FY18, translating to a CAGR of 7%.

IPTV impact… Still only ~11k IPTV subscribers, mainly from TimDotCom’s backhaul. The recently launched Astro-Maxis tie-up should see its impact in 2QFY14. We are positive on this development as it will not only drive higher ARPU through various product offerings but also increase earnings margin due to lower broadcasting costs.

Risks

Unexpected economic slowdown; Threat of new players; High content costs; and Regulatory risks.

Forecasts

Unchanged.

Rating

HOLD

Positives: (1) Monopoly of pay-TV; (2) Higher subscriber base through stronger penetration rate and ARPU growth through new product offerings; (3) Strong take-up in IPTV.

Negatives: (1) Blocked from raising subscription rates; (2) Drop in consumer confidence sentiment.

Valuation

TP maintained at RM2.98 based on DCF with an unchanged WACC of 7.3% and terminal growth of 1.5%.

Source:Hong Leong Investment Bank Research - 13 Jun 2013