Results

• FY16 revenue of RM5.5bn translated to core earnings of RM656.1m, 12.61 sen/share (adjusted for unrealised forex losses of RM194.5m and derivative gain of RM153.7m), within both HLIB and consensus’ full year estimation.

• Core earnings, which made up 105% and 106%, increased 16% yoy from RM567.1m to RM656.1m.

Deviations

• None.

Dividends

• Declared dividend of 2.75 sen/share, bringing FY16 DPS to 11.0 sen/share (a tad below our forecast of 13.0 sen/share), yielding 3.7% based on last price of RM3.00. Ex-date is on 04-Apr-16, whereas payment date is on 21-Apr-16.

• Recommended final-single tier dividend of 1.0 sen/share, with its payment date to be determined later.

Highlights

• FY16 review… Contributed by its ARPU growth of RM99.3/month (from RM99/month), FY16 sales increased 5% yoy from RM5.2bn to RM5.5bn. Sales of merchandise from its home shopping business also played a role in pushing revenue higher where the group charted sale of RM164.4m. With Astro having two home-shopping channels (dedicated to its massive Malay and Chinese market), we believe there is more potential for its e-commerce business to grow. EBITDA also improved 7% yoy from RM1.8bn to RM1.9bn.

• ARPU growth yoy increased marginally by 0.3% (from RM99/month to RM99.3/month) while qoq growth was stagnant. Management is maintaining its targeted FY17 ARPU of RM101/month.

• Moving forward, content costs would be slightly higher due to Rio 2016 Olympics and Euro 2016. As such, EBITDA is expected to decline slightly in FY17. However, note that FY17 content cost is mostly hedged based on current spot rate of circa RM4.00/US$.

• Astro continues to steal FTA market share. Household penetration and viewership has increased yoy from 63% to 67% and 49% to 54%, respectively. Also launched 13HD and 2SD channels which we believe will sustain its high-end customer growth. Although AOTG (Astro on the Go) contribution is still minimal, we believe Astro is moving in the right direction by keeping itself up to date with technology and competing with new media platform. An added bonus for Astro is its strong local content.

Risks

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

Forecasts

• Earnings increased slightly by 2% as we update our model based on FY16 results. Introduced FY18 forecast.

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) Higher cost of living leads to reduction in ARPU.

Valuation

• TP increased to RM3.41 from RM3.33 based on DCF valuation with a WACC of 6.9% and TG of 1.0%.

Source: Hong Leong Investment Bank Research - 23 Mar 2016