Results

• Astro’s FY18 revenue of RM5.5bn translated into core earnings of RM653.3m which came in below ours and consensus expectation, accounting for 94.6% of HLIB and 88.2% of consensus full year earnings forecast.

Deviations

• Lower-than-expected ARPU

Dividends

• Declared fourth interim dividend of 3.0 sen/share (unchanged YoY) and another 0.5 sen final dividend pending approval at AGM, bringing YTD DPS to 12.5sen (unchanged YoY) translating to a dividend yield of 6.2%.

Highlights

• QoQ: Revenue decreased by 0.6% due to the drag from TV segment (lower package take up). The 35.7% fall in core earnings was a result of higher professional and consultancy fees, higher selling and distribution expenses and higher tax expenses.
• YoY: Revenue dropped by 0.7% as the group experienced a decrease in subscription revenue mainly due to lower package take-up. Core earnings dropped 54.3% mainly due to lower revenue and higher operational cost incurred from the introduction of zayan and goxuan.
• YTD: FY18 revenue and core earnings dropped by 1.5% and 3.7% respectively mainly attributed to lower subscription revenue and higher operational cost from radio segment (launching of two new segments).
• 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.
• We would like to highlight that, the company is now the 40th largest company listed on Bursa Malaysia by market cap. As such, it may lose its place in the FBM KLCI index in the upcoming semi-annual index review that will take place in June 18.

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 our FY19-20 earnings forecast by 6.4% and 8.7% to RM668.4m and RM716.5m respectively, as we adjust our ARPU assumption downwards to RM98 for FY19 and RM97 for FY20.

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 a lower TP of RM 2.04 (previously RM2.49) based on DCF valuation (WACC 8.4% and TG 1%).

Source: Hong Leong Investment Bank Research - 29 Mar 2018