Results

1HFY14 core earnings (adjusted for RM13.4m and RM16.9m unrealised forex and derivative losses respectively) fell by 14% to RM243.3m (4.68 sen/share), making up 50% our forecast, but beat consensus’ estimates slightly by making up 53% of full year forecast.

Deviations

In line.

Dividends

Net dividend of 2 sen/share declared. Same amount also paid out in 1QFY14, hence bring YTD dividends declared to 4 sen/share. Ex-date on 26 Sep-13, payment on 18 Oct-13.

Highlights

Results review… 2QFY14 revenue grew by 11% and 6% on a YoY and QoQ basis to RM1.19bn, driven by higher subscribers (subs), ARPU and Adex revenue. EBITDA, which better reflects Astro’s operating fundamentals, grew by 13% and 6% YoY and QoQ respectively to RM404.6m as margin held steady at 34%. After adjusting for EI, core earnings fell by 7% YoY to RM134.4m, but rebounded 23% on a QoQ basis.

For 1HFY14, revenue grew by 13% to RM2.31bn as Astro’s subs and ARPU continued to post growth. EBITDA grew by 12% to RM785.5m with margin of 33.9%. Overall, core earnings fell by 14% to RM243.3m due to accelerating depreciation and higher amortisation charges.

Net adds and ARPU growth… Posted 92.9k net adds subs whereby pay-TV added 43k while NJOI added 49.9k in 2QFY14. Hence, bringing its total subs base to 3.67m. B.yond set-top boxes (STB) have achieved 74% swap out rate with remaining 887k subs left with the conventional STBs. Meanwhile, ARPU, posted a 1% increase to RM94.9/month. Management is targeting an ARPU of RM99/month by end FY14.

>75% payout ratio… Insofar, Astro has declared 4 sen/share dividend which represents a 85.5% payout ratio of core earnings. This is higher than its dividend policy of 75% payout. We believe that this is possible given the strong recurring free cashflow while reported earnings are lower due to accelerated depreciation charges which are non-cash item.

Hedging US$... To mitigate the impact of depreciating RM, its US$330m term loan have been fully hedged at exchange rate of RM3.0189/US$ and its financing lease for MEASAT transponder have been redenominated into RM for the remaining contractual years at RM3.0445/US$. Content cost has also been hedged for 1-year forward.

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) Subsidy cuts which reduces disposable income.

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 - 12 Sep 2013