Results

• 1QFY17 revenue of RM1.4bn translated to core earnings of RM162.9m or 3.12 sen/share (adjusted for unrealised forex gain of RM123.1m and derivative losses of RM83.9m), came in below expectations, accounting for 21% of full year forecasts.

• Core earnings increased 6% qoq, but crept 3% lower yoy.

Deviations

• Higher-than-expected depreciation costs.

Dividends

• Declared first interim dividend of 3.00 sen/share vs. 2.75 sen/share in 4QFY16. Ex-date is on 14-Jun-16, whereas payment date is on 30-Jun-16.

Highlights

• Astro’s 1QFY17 increased 2% yoy mainly contributed by Astro Go Shop as well as its radio segment, where both charted double digit increase of 73% and 16%, respectively.

• TV subscription dropped 1% yoy to RM1075.9m. Due to the tough consumer and business environment, growth of subscribers came solely from its NJOI Platform.

• ARPU declined marginally by 0.3%, from RM99.3/month to RM99/month (its yoy growth was stagnant). Management is targeting ARPU of RM100 for FY17. To mitigate lower ARPU, Astro plans to increase the price of its sporting content sometime this year. Hence, we expect churn rate to increase slightly once the magnitude of price increase is known.

• The group expects to capture new regional demand via its Tribe platform, Astro’s mobile-first OTT product. YTD, Astro has launched Tribe in Indonesia via collaboration with XL Axiata. The group also entered into an MOU with Globe Telecom to offer the OTT services to audience in Phillipines. Advertising driven, revenue from Tribe would be shared with the local telco operators. Tribe will offer live and on demand content for Korean fans, sports fans and movie buffs.

• On 7th June 2016, Astro will launch eGG (Every Good Game), the first 24/7 eSports channel. Some of the games/ tournaments available for viewing are – Counter Strike, StarCraft II, Dota 2 and League of Legends.

Risks

• Unexpected economic slowdown;

• Threat of new players;

• High content costs; and

• Regulatory risks.

Forecasts

• Reduce earnings for FY17 – FY18 by 20% - 18% based on the higher depreciation costs as well as a slight increase in content costs due to UEFA Euro 2016 in June and Rio Olympics in August.

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 reduced by 5% RM3.24 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 1 Jun 2016