Results

• 9MFY15 core earnings (adjusted for RM25.8m unrealised forex gain and RM53.9m derivative losses) increased by 8% to RM407.5m (7.84 sen/share), accounted for 75% of both ours and consensus’ full year forecasts.

Deviations

• In line.

Dividends

• Declared a net dividend of 2.25 sen/share. Paid the same amount in 1QFY15 and 2QFY15. Hence, YTD dividends declared amounts to 6.75 sen/share or 61% of our DPS estimates (12.5% higher vs. 6 sen/share in 9MFY14). Exdate on 24 Dec-14, payment on 12 Jan-15.

Highlights

• 3QFY15 results review… Astro recorded revenue of RM1.28bn (+5% Yoy & -5% Qoq), which was slightly below our expectations, making up 23% of our estimates. The Qoq decline was mostly due to festive season and the FIFA World Cup event in the previous quarter (2QFY15). TV and radio segment posted lower revenue Qoq, -5% and -7%, respectively. However, content costs were significantly lower compared to 2QFY15 (33% of its TV revenue), which boosted gross profit to record growth of 7% QoQ & YoY. Going into FY16, we anticipate lower content costs resulting from the absence of any major sporting events.

• Driven by its premium customers, 9MFY15 revenue grew by 10% to RM3.88bn, with ARPU rising 3% to RM98.5/month. With Astro hiking its HD fee by RM5, we believe it will be a boon for Astro’s ARPU moving forward.

• Net ads & Churn rate… Cumulatively, Astro charted 409.8k new subscribers during the period with Pay-TV and NJOI contributed 38.8k and 371.0k, respectively. For its QoQ performance, however, net ads for Pay-TV dropped by 6.7k. Consequently, its churn rate has increased Qoq by 0.4% to 10.3%. The increase might be attributed to Pay-TV subscribers moving to the NJOI platform. Management is targeting net ads of 60k for its Pay-TV segment.

• Higher FCF position as we expect no major surges in capex in the near future. YTD, it has achieved RM1.05bn of FCF, translating to FCF yield of 6.0% vs 4.9% in FY14.

• Astro Go Shop… Since its soft launch on 1 Nov-2014, sales from the home shopping channel has exceeded expectations with about 30k products sold.

• Concerning the weakening RM vs USD, we expect the impact to be minimal due to its prudent hedging policy.

• Outlook… Despite further dampening of consumer sentiment and soft macro environment, it is confident about the prospects as it focuses on high-end customers (more resilient), which evidently provides higher ARPU and earnings.

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 subscriberbase 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)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 - 12 Dec 2014