Results

• Within expectation. 9MFY16 core earnings (adjusted for RM320.7m unrealised forex losses and RM230.5m derivative gain) increased by 23% yoy to RM501.8m (9.65 sen/share), accounting for 77% and 79% of both ours and streets’ full year estimates.

Deviations

• Largely in line.

Dividends

• Dividend of 2.75 sen/share was declared, similar to 1Q and 2Q of FY16. YTD dividend stands at 8.25 sen/share, making up 63% of our DPS estimation. Ex-date on 21 Dec 2015 while payment date is on 07 Jan 2016.

Highlights

• 9MFY16 review… 9MFY16 revenue increased 4.9% yoy to RM4.9bn from RM3.9bn attributed to higher ARPU where it increased from RM98.5/month to RM99.3/month. Astro Go Shop also contributed RM126.7m to revenue, equivalent to 3% of total revenue. Still minimal for now, but we see more room for growth in Astro’s e-commerce business.

• 3QFY16 review… Revenue increased marginally by 0.4% qoq. The slower growth was due a drop in both subscription and advertising revenue.

• Net ads & Churn rate… Net ads declined 35% yoy to 267k from 410k subscribers. In accordance with weak consumer and business sentiment, both Pay-TV and NJOI registered lower subscribers, where Pay-TV net ads dropped 38% to 24k and NJOI fell 35% to 243k. Nevertheless, its churn rate improved to 9.4% due to customers reconnecting back to Astro.

• Target ARPU… We believe the group is set to achieve its FY16 ARPU target of RM99.5/month as 9MFY16 already achieved RM99.3/month. Management is targeting ARPU to grow to RM101/month for FY17.

• Due to weaker Ringgit vs. USD, content costs would be slightly above the usual 32%-35% range. Currently stands at approximately 37% of total TV revenue. Due to more sporting events in 2016 (for instance Euro 2016), we are expecting content costs to be higher.

Risks

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

Forecasts

• In view of the continuous weak environment, earnings lowered by 10% as we cut our targeted ARPU from RM101.5/month to RM100/month for FY17 and also assume higher content costs due to weaker Ringgit vs. USD.

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 lowered to RM3.33 from RM3.56 based on DCF valuation with a WACC of 6.9% and TG of 1.0%.

Source: Hong Leong Investment Bank Research - 9 Dec 2015