Results

• Astro 1QFY18 revenue of RM1.3bn translated into a core earnings of RM185.9m (adjusted for unrealised forex gain of RM57.2m and derivative losses of RM83.9m). This is deemed within expectations, accounting for 27.6% of ours and 25.9% of consensus forecasts.

Deviations

• None.

Dividends

• Declared first interim dividend of 3.0 sen/share vs. 3.0 sen/share in 1QFY17. For full year, we are projecting a total DPS of 13.5 sen/share, translating to a dividend yield of 5.0%.

Highlights

• QoQ: 1QFY18 revenue dropped 5.1% QoQ, to RM1.3bn. This is mainly attributed to a decrease in licensing, subscription and advertising revenues, which was further, affected by the slow momentum after CNY. However PAT increased by 34.5% to RM192.4m, due to higher EBITDA and a decrease in depreciation of PPE.
• YoY: The 2.7% dropped in revenue drove PATAMI to RM195.9m (-3.1%). All three segments (TV, Radio and Home-shopping) saw weaker performances. TV and Radio did not benefit from festive spent for CNY as compared to the corresponding quarter and further affected by the loss of content recovery for sports channel. The fall in earnings was mainly attributed by a lower EBITDA and increase in net finance costs.
• The traditional Pay-TV segment is anticipated to remain challenging; subscription revenue fell by 1.02% YoY to RM1.1b. However ARPU increased marginally by 1.8%, from RM99/month to RM100.8/month YoY with higher TV Adex and Radex share. To mitigate lower ARPU, the group will be focusing on upselling its ala carte contents through NJOI Now. The management is targeting NJOI ARPU to increase to RM8 from the current?s RM2.50 over the next 5 years.
• Astro is rapidly scaling their digital ventures via its regional OTT streaming, Tribe. It now has existence in 3 different countries (Indonesia, Philippines, and Singapore) the group expects to expand to other countries within ASEAN in FY18.

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

• Maintained.

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 take this opportunity to tweak our YTD beta forecast to 0.75 (WACC: 6.86% vs previous WACC 6.80%). We maintain BUY with an adjusted TP of RM2.98 from RM3.01 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 15 Jun 2017