Results

• Above expectations. 1HFY16 core earnings (adjusted for RM83.6m unrealised forex losses caused by finance lease liability and vendor financing and RM25.7m derivative gain) increased by 31% yoy to RM363.5m (6.99 sen/share), which makes up 56% of both ours and streets’ full year estimates.

Deviations

• Lower than expected costs.

Dividends

• Declared second interim single-tier dividend of 2.75 sen/share, similar to Q1FY16 (shows an increase of 22% yoy). YTD dividend of 5.50 sen/share makes up 42% of our DPS forecast. Ex-date on 30 Sept-15, payment on 13 Oct- 15.

Highlights

• 1HFY16 review… 1HFY16 turnover increased 3.7% yoy to RM2.7bn from RM2.6bn. Astro Go Shop contributed RM74.5m to the group’s total revenue. Content costs and expenses were well managed, causing EBITDA to improved 6.5% yoy to RM962.3m. In the current weak environment, ARPU seemed to have slowed down slightly, registering 1.1% yoy increase from RM98.0/month to RM99.1/month. Albeit the weak consumer and business sentiment, Astro achieved PATAMI of RM305.6m (14.8% higher yoy).

• Net ads & Churn rate… Overall net ads decreased 43% yoy, from 281k to 161k subscribers. Pay-TV net ads increased by 10k (better than 1QFY16 where it dropped 5.1k), while NJOI achieved 151k new subscribers. Its yoy churn rate declined from 9.9% to 9.8%.

• 2QFY16 review… ARPU inched up slightly from RM99.0/month to RM99.1/month qoq. Charted PATAMI of RM137.3m (-18.4% qoq; -0.4% yoy). Net finance costs of RM98.6m (vs. RM37.8m and RM44.8m in 1QFY16 and 2QFY15, respectively) was higher qoq and yoy mainly on the back of discounting transponder’s deposit (took in 7 transponders in June), higher amortisation of software, finance lease liability and vendor financing.

• Astro has a one year forward hedging policy. Hence, we believe FY16 earnings should be well insulated (both debt and content costs have been fully hedged). USD denominated loan is hedged until mid-FY17 based on cross currency interest rate swap at an exchange rate of RM3.0189/USD and an all-in interest rate of 4.19% p.a.

• Its dividend policy of paying not less than 75% of its profit remains intact. Note that its dividend payment has increased by 22% yoy. We believe our FY16 DPS estimate of 13 sen/share is achievable.

Risks

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

Forecasts

• We make no changes to our forecasts in view of the current weak environment.

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; (4) Lower capex as well as depreciation & amortisation; (5) Astro’s home shopping business.

Negatives

• (1) Higher than expected content costs; (2) GST which reduces disposable income.

Valuation

• TP unchanged at RM3.56 based on DCF valuation with a WACC of 6.9% and TG of 1.0%.

Source: Hong Leong Investment Bank Research - 17 Sep 2015