Highlights

• Astro had monopolised Malaysia’s DTH satellite pay-TV for over the past 20 years and the exclusivity had finally ended in Feb 2017.
• Channel checks reveal that a new player is in the midst of entering the satellite pay-TV segment. Previously known as U-television, a cable TV operator (a subsidiary of the Berjaya group) is now reborn as Ansa Broadcast.
• While details remain scarce, we understand that ANSA is currently deciding which satellite solution to adopt, either to lease bandwidth from operators or launch its own satellite. Implementation may take some time before service is officially launched.
• If materializes, Astro will face the pressure which had been absent for past 20 years with ANSA’s entrance as a new DHT satellite player. While many non-satellite broadcasters (ABNXcess, MiTV, Mega TV) had failed historically, ANSA is not expected to be an overnight success but it can be disruptive offering aggressive pricing and content variances.
• According to a recent news article, Astro is seeking for a fair ground against the OTT players in Malaysia. Astro wants OTT players in Malaysia to be regulated by the Communication and Multimedia Act 1998 (CMA). Astro believes that with a level playing field upon regulation, it will be in a better position as it owns most of the broadcasting rights in Malaysia. Given so, pirated OTT players remain a significant treat that can’t be avoided.
• However, the still weak ringgit will drive up content cost as most of Astro’s contents are sourced internationally (i.e. Sports, HBO, Disney and many more).
• As the number of digital players increases, adex has been spilling over from traditional platforms to digital. However, television still dominates a lion share of the adex pie (40% of total adex). Television still acts as the most effective advertising medium, as most Malaysians still prefer the big screen (which explains Astro’s growing subscription rate at a CAGR of 4.5% from FY13 to FY17).
• In a nutshell, the road ahead is expected to be tougher for Astro. Given the soft advertising market, it is crucial for Astro (i) to sustain its subscription fees and (ii) to evolve faster than ever to differentiate from its peers.

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

• We cut FY18-20 earnings forecast by 20%, 32% and 44% to RM562m, RM589m and RM618m, respectively as we adjust for higher content cost and lower subscription rate moving forward.

Rating

HOLD (↓ )

• Astro is facing dismal adex growth, due to weak consumer sentiments. Besides, the challenging business environment from aggressive shifts in the media platforms from traditional to digital is leaving the company in a tough position.

Valuation

• We downgrade to HOLD with a lower TP of RM2.47 from RM2.98 based on DCF valuation.

Source: Hong Leong Investment Bank Research - 15 Aug 2017