Results

• Within expectations. Reported 1HFY17 core earnings of RM325m (adjusted for unrealised forex gain of RM58.3m and derivative losses of RM55.7m), accounting for 52% and 50% of our and street’s full year estimates, respectively.

Dividends

• Declared second interim single-tier dividend of 3.00 sen/share, similar to 1QFY17. YTD dividend of 6.00 sen/share makes up 41% of our DPS forecast. Ex-date is on 28-Sep-16, whereas payment date is on 13-Oct-16.

Highlights

• YoY: Astro’s 1HFY17 revenue increased 3% yoy to RM2.8bn mainly contributed by Astro Go Shop and its radio segment, where both charted double digit growth of 87% and 11% yoy, respectively. EBITDA margin dropped 3.3%- pts yoy due to higher content cost from EURO 2016 and weaker MYR.

• Overall, net adds decreased 3% yoy to 156k subscribers. Weak consumer sentiment affected both Pay-TV net adds and churn rates where Pay-TV net adds decreased by 57k. This was slightly mitigated by a higher net add from NJOI of 213k subscribers. Churn rate increased from 9.8% to 10.9%.

• QoQ: 2QFY17 revenue picked up for all segments, recording a total growth of 5% qoq (TV +5%; Radio +20%; Home Shopping +16%) which translated to a 5% qoq increase in core earnings of RM171.5m (from RM162.9m in 1QFY16).

• TV segment revenue grew on the back of higher TV subscription revenue (+2% qoq) and TV adex (29%) mainly contributed by slightly higher ARPU (RM99.2/month) and their new user data management system (DTAM) that allows targeted advertising. Radio segment’s revenue growth was attributed to continuous strong listenership performance (share of radex increased 1% qoq). Home Shopping segment’s revenue grew due to higher number of products sold and and increase in customers served.

• Outlook: We believe the group is responding well to the shift of traditional media to digital media. The group’s Tribe platform, which offers live and on demand content for Korean fans, sports fans and movie buffs, is going as planned. Tribe was launched in Indonesia via collaboration with XL Axiata. Astro has also entered into an MoU with Globe Telecom to offer the OTT services in Philippines by 4Q17. Advertising driven, revenue from Tribe would be shared with the local telco operators.

• Astro’s eGG (Every Good Game) channel is also a step towards the right direction, offering unique culture-agnostic content that will garner more viewership and ultimately, expand their revenue base beyond Malaysia.

Risks

• (1) Unexpected economic slowdown; (2) Threat of new players; (3) High content costs; and (4) Regulatory risks.

Forecasts

• Unchanged.

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 maintained at RM3.24 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 15 Sep 2016