Results

• Astro 1HFY18 revenue of RM2.7bn was translated into a core earnings of RM425.2m (adjusted for unrealised forex gain of RM64.8m and derivative losses of RM57.8m). This is deemed above expectations, accounting for 78.6% of HLIB and 62.3% of consensus forecasts.

Deviations

• Increase in advertising revenue due to festive season (Hari Raya).

Dividends

• Declared second interim dividend of 3.0 sen/share vs. 3.0 sen/share in 2QFY17. For full year, we are projecting a total DPS of 13.5 sen/share, translating to a dividend yield of 5.1%.

Highlights

• QoQ: Revenue and core earnings increased 7.1% and 28.7% to RM1.4bn and RM239.3m, respectively. The increase in revenue was mainly attributed to an increase in advertising revenue in conjunction with the festive season (Hari Raya).

• YoY: Revenue dropped by 0.6% as the group experienced a decrease in subscription and licensing revenue mainly due to lower package take-up and the loss of content recovery from sports channel. However, the decrease was partly offset by an increase in advertising revenue thanks to the festive season during the quarter.

• YTD: 1HFY18 EBITDA margin increased by 4.5ppt due to lower content cost and cost to serve leading to higher operational efficiency. Core earnings soared by 30.8% mainly attributed to higher EBITDA coupled with lower depreciation and finance cost.

• Astro’s regional presence expanded to Thailand in Aug 2017 via TRIBE and now has total registered users of 1.9m (+46.2% QoQ). Go Shop also experienced an increase in number of registered customers to 1.1m.

• Outlook: Astro has remained resilient amidst the soft consumer /business sentiments and has managed to improve it advertising revenue despite the contraction in overall adex revenue. However, we remain sceptical on Astro’s ability to regain subscription revenue as we opine that pay-TV platform will remain challenging moving forward.

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 light of the better-than-expected results, we revise our earnings forecast to better reflect the cost structure, as we were too negative previously. We raise our FY18-20 earnings forecasts by 22.8%, 21.0% and 26.9% to RM690.4m, RM713.7m and RM785.1m respectively.

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 maintain HOLD with higher TP of RM2.49 from RM2.47 post earnings adjustment based on DCF valuation.

Source: Hong Leong Investment Bank Research - 15 Sept 2017