Results

• Astro 9MFY18 revenue of RM4.1bn was translated into core earnings of RM559.2m accounting for 81.0% of HLIB and 73.8% of consensus full year earnings forecasts.

Deviations

• Expecting a weaker forth quarter.

Dividends

• Declared second interim dividend of 3.0 sen/share vs. 3.0 sen/share in 3QFY17. For full year, we are projecting a total DPS of 13.5 sen/share, translating to a dividend yield of 4.8%.

Highlights

• QoQ: Revenue decreased by 1.6% and to RM1.4bn due to the drag from TV and Radio segments. The 44.0% plunge in core earnings was mainly due to higher content cost However, YTD EBITDA margin was maintained at 34.5%.
• YoY: Revenue dropped by 1.9% 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. Core earnings dropped 16.7% mainly due to lower revenue and higher content cost.
• YTD: 9MFY18 EBITDA margin increased by 1.9ppt due to lower content cost and cost to serve leading to higher operational efficiency. Core earnings soared by 15.1% mainly attributed to higher operational efficiency contributed by lower content cost and lower cost to serve.
• Astro also announced that Astro Digital Sdn Bhd, a wholly own subsidiary of Astro has entered into a binding term sheet with GMK and it wholly owned subsidiary Karangkraf Digital 360 in respect of a joint venture for the creation and monetisation of content verticals in Malaysia and the Nusantara region. Astro will invest RM100m for a 51% stake in Karangkraf Digital 360 and this joint venture will extend Astro’s online presence amongst the Malay-language audience.
• Outlook: Astro has remained resilient amidst the soft consumer / business sentiments and has managed to improve its 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

• Unchanged

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 an unchanged TP of RM2.49 post earnings adjustment based on DCF valuation (WACC of 8.4% and TG of 1.0%).

Source: Hong Leong Investment Bank Research - 07 Dec 2017