Results

1QFY15 EBITDA level grew 16% YoY to RM441.2m, making up 25% and 24% of ours and consensus’ estimates respectively. However, core earnings of RM117.1m (adjusted for RM21.6 unrealised forex gain and RM10.4 derivative losses) is below ours (21% of total) and consensus’ (20%) estimates mainly due to higher depreciation charged.

Deviations

EBITDA level is in line and it has historically made up 24- 25% of full year earnings for the past 2 years.

Dividends

Declared a net dividend of 2.25 sen/share. Ex-date on 01 Jul-14, payment on 17 Jul-14.

Highlights

Results review… 1QFY15 revenue grew by 11% YoY to RM1.25bn, driven by the growth in both subscribers and ARPU. Subscribers grew by 12% YoY to 3.996m representing household penetration rate of 58% vs 56% in 4QFY14 while ARPU inched up to RM97.1/month from RM96.0/month. The growth was contributed by premium customers where it grew by 5% YoY. QoQ, revenue dipped slightly by 0.5%, mainly due to seasonality weakness in Adex revenue.

NJOI… NJOI households grown to 526k from 442k in 4QFY14. We believe with the success of NJOI, Astro will be able to steal more viewership from the FTA TV segment. This will allow it to strengthen Adex share plus generating additional revenue through prepaid offerings.

EBITDA… EBITDA charted a healthy YoY growth of 16% (QoQ: +7%) to RM441.2m in 1QFY15. EBITDA margin increased 1.4% YoY thanks to better cost management.

The home shopping business will launch in 4QFY15. We reiterate that the initial contribution should be minimal. Thus, we maintain our neutral outlook pending the success of the home shopping venture.

Risks

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

Forecasts

Reduced FY15 and FY16 earnings by 7.3% and 2.5% respectively due to higher depreciation charged as we believe FY15 would be a peak year for depreciation but should normalise in 2-3 years’ time. As the depreciation is non-cash in nature, it does not affect the free cash flow.

Rating

BUY

We maintain our BUY call due to its stronger FCF growth and completion of high capex phase for 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 reduces disposable income.

Valuation

TP increased by 4.3% to RM3.88 from RM3.72 as we roll our valuation to FY15 based on DCF valuation with a WACC of 6.6% and TG of 1.0%.

Source: Hong Leong Investment Bank Research- 19 Jun 2014