Results

FY14 core earnings (adjusted for RM23.4m forex losses and RM34.3m derivative losses respectively) grew by 5% to RM505.7m (9.7 sen/share), making up of 103% of our forecast, but beat consensus’ estimates by making up 111% of full year forecasts.

Deviations

Largely in line.

Dividends

Declared a net dividend of 3 sen/share. Thus, bringing the FY14 payout to 9 sen/share. Ex-date on 31 Mar-14, payment on 30 Apr-14.

Highlights

Results review… FY14 revenue grew by 12% to RM4.79bn, with ARPU growing by 3% to RM96.0/month which was driven by the premium customers. Added 399.6k new subscribers during the year (Pay-TV: 166.8k; NJOI: 232.8k). Meanwhile, TV and Radio Adex revenue also lifted overally revenue growth. EBITDA grew by 16% to RM1.62bn. After adjusting for EI, core earnings grew by 5% to RM505.7m from RM480.2m.

Smaller Capex… Most of the capex has already been recognised by Astro to position itself for future earnings growth. Hence, we expect lower capex of ~RM550m going forward as compared to ~RM630m in FY14. Currently, B.yond set-top boxes have achieved 84% swapout rate, with 559k remaining, while most of the investment incentive exercise already incurred.

World cup matching… Management will continue to be prudent in content acquisition especially this year given the Brazil World Cup 2014. Content cost will make-up 32-35% of TV revenue. We believe Astro will seek collaboration with other media players.

Temporary impact… Due to the unfortunate MH370 incident, advertisers have deferred their spending on various promotional campaigns. However, management views the impact as temporary, and there is more upside to gain when businesses resume as normal.

Risks

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

Forecasts

FY15 earnings trimmed by 0.3% while raising FY16 earnings by 14.9% as we tweak our earnings model.

Rating

BUY

We upgrade Astro to a BUY call due to its stronger FCF growth and completion of its high capex phase for its B.yond set top box swap out exercise.

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) Higher than expected content costs; (2) Blocked from raising subscription rates; (3) Subsidy cuts which reduce disposable income.

Valuation

TP raised by 23.2% to RM3.72 from RM3.02 previously mainly due to higher FCF forecast, based on DCF valuation with a WACC of 6.6% and TG of 1.0%.

Source: Hong Leong Investment Bank Research - 1 Apr 2014