Results

• Within expectations. Reported 9MFY17 core earnings of RM501m (adjusted for unrealised forex gain of RM3.6m and derivative losses of RM26.0m), accounted for 79% and 77% of HLIB and street’s full year estimates, respectively.

Dividends

• Declared third interim single-tier dividend of 3.00 sen/share, similar to previous quarters. YTD dividend of 9.00 sen/share makes up 62% of our DPS forecast.

Highlights

• QoQ: Revenue declined marginally by 0.3% but PBT experienced double digit improvement due to lower content cost, net interest expenses and lower loss coming from Astro Go Shop.
• YoY: Revenue improved 4% as the group experienced an improvement across all its key segments (TV: +3%, Radio: +11% and Home-Shopping: +19%). EBITDA declined slightly by 1% due to higher content cost stemming from Olympic 2016 and weaker MYR which was offset by better performance from its radio segment. PBT on the other hand, improved 53% mainly due to lower net interest expense.
• YTD: 9MFY17 EBITDA fell 4% as Astro had to face higher content cost stemming from the double sporting year (EURO2016 and Olympic 2016) which pushed content cost to 36%. PBT increased 19% due to the improved revenue performance and lower net interest expense.
• Net ads & Churn rate: Net ads declined 24% yoy as Astro lost some of its Pay-TV subscribers offset by an increase of 28% yoy of net adds in its NJOI households. Its churn rate also increased by 3%-pts due to the RM8 hike in its sports package. The hike helped push ARPU by RM0.60 to RM99.90.
• Astro has made its regional move, with the group’s Tribe platform recently launched in Philippines. Astro has also partnered up with StarHub to offer its home-shopping channels in Singapore. This will allow more viewership and potential advertising demand.
• Outlook: Astro has remained resilient amidst the soft consumer and business sentiment and has managed to improve its advertisement revenue despite the contraction of traditional adex. Astro’s ability to gain more eyeballs and subsequently adex, demonstrates the group’s capability to grow alongside the structural shift in the media landscape.

Risks

• (1) Unexpected economic slowdown; (2) Threat of new players; (3) High content costs; (4) Regulatory risks; (5) Shift to digital alternatives; and (6) DTTB as substitution for consumers and advertisers.

Forecasts

• In view of the continuous weak market environment, we reduce our earnings forecast for FY18 by 8%. We introduce FY19 forecasts with the assumption of lower subscriber net adds and subscription revenue growth moving forward.

Rating

BUY (↔)

• We like Astro due to its monopoly in the pay-TV segment, increasing penetration in the local households, innovative home shopping business, its move towards gaining regional eyeballs and ability to attract adex despite the overall soft consumer and business sentiment.

Valuation

• We maintain our BUY call with a lower TP of RM3.01 (from RM3.24) based on DCF valuation.

Source: Hong Leong Investment Bank Research - 08 Dec 2016