Results

• 1HFY15  core  earnings  (adjusted  for  RM9.5m  unrealised forex  gain  and  RM21.7m  derivative  losses)  increased  by 14%  to  RM278.3m  (5.35  sen/share), making up  51%  of both ours and consensus’ estimates of full year forecasts.

Dividends

• Declared  a  net  dividend  of  2.25  sen/share.  Paid  the  same amount  in  1QFY15,  thus   bringing  YTD  dividends declared to 4.5 sen/share. Ex -date on 2 Oct-14, payment on 20 Oct-14.

Highlights 

Results  review…  Astro  charted  8%  and  14%  revenue growth  QoQ  and  YoY,  respectively   to  RM1.35bn,  lifted  by strong  growth  in  all  key  divisions.  ARPU  grew  3%  YoY  to RM98.0/month  driven  by  premium  customers.  We  believe that  its  targeted  ARPU  of  RM100/month  for  FY15  is achievable.  Meanwhile,  after  adjusting  for  EI,  core  earnings increased  by 7% YoY to RM144.3m from RM134.4m.

For  1HFY15,  revenue  grew  by  12%  to  RM2.60bn  as Astro’s subscribers  and  ARPU  continue  to  record  growth.  Despite the  high  content  cost  resulted  from  World  Cup  event,  it reported  decent  EBITDA margin of 35%.  Expect content cost to normalise in the next quarter.

Net  ads…  Posted  281.7k  new  subscribers during the period (Pay -TV:  45.4k;  NJOI:  236.3k).  Net  ads  for  NJOI  have  more than  doubled YoY.   NJOI will not only push ARPU higher, but also  increase  margin  due  to  the  absence  of  customer acquisition costs.

Home  shopping  business  is  on  track and should launch in mid-November.  Astro’s  infrastructure  investment  incentive exercise has competed (STBs Swap).

More  HD…  As  Measat-3b  satellite  was  launched last week, more  HD  channels  are  expected  to  be  offered.  HD subscribers  have  reached  1.87m,  which  equates  to  61%  of Pay-TV  subscribers.  Moreover, taking into account its recent collaboration  with  Pinewood  Iskandar  Malaysia  Studios  to offer  TV  content  production  services,  we  believe  Astro  will continue  to  leverage  on its local contents specifically to feed the  vernacular  demand  from  its  high-end  customers.  This  is positive  as this segment generates  higher  ARPU.

Outlook…  Although  consumer  sentiment  remains  weak,  we believe  Astro  will  pull  through  giv en  its  steady  pick  up  in viewership  shares   YoY  from  44%  to  47%  coupled  with NJOI’s  growing  mass  market  reach  that  will  allow  Astro  to grab larger  share of TV Adex.  

Risks 

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

Forecasts 

Unchanged.

Rating  BUY

• 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  maintained  at  RM3.88  based  on  DCF  valuation  with  a WACC of 6.6% and TG  of 1.0%.

Source: Hong Leong Investment Bank Research - 22 Sep 2014