Astro’s 1QFY19 core earnings of RM185.6m (QoQ: +115.1%, -0.5% YoY), came in broadly within ours and consensus expectations, accounting for 28% and 27% of HLIB and consensus full year earnings forecasts, respectively. The QoQ improvement in earnings was due to lower content cost, lower marketing cost and lower tax expense. Declared a lower interim dividend of 2.5sen. We keep our forecast unchanged, reiterate HOLD with an unchanged TP of RM2.02 based on DCF valuation (WACC 8.4%, TG 1%).

Within expectations. Astro’s 1QFY19 revenue of RM1.3bn translated into core earnings of RM185.6m. This was within ours and consensus expectations, accounting for 28% and 27% of full year earnings forecasts, respectively. We deem this to be in line, as we are expecting higher content cost next quarter in view of World Cup 2018.

Dividends. Declare interim dividend of 2.5sen/share (1QFY18: 3.0sen). With the lower declared interim dividend, we lower our full year DPS projection to 10.5sen/share, translating to a dividend yield of 5.7%.

QoQ: Revenue decreased by 5.6% due to the drag from weaker adex whereby TV and radio adex fell by 25% and 19%, respectively. Despite the fall in revenue, core earnings surged significantly to RM185.6m from RM86.3m attributable to improved EBITDA margin due to lower content cost, lower marketing and distribution expenses, and lower tax expense.

YoY: Core earnings remained flattish (-0.5%) despite the 1.2% decline in ARPU (from RM100.8/month to RM99.6/month), as it was more than offset by the 35% improved home shopping sales and 17% improved TV adex (attributable to CNY spending).

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.

Forecast. Unchanged.

Reiterate HOLD with unchanged TP of RM2.02 based on a DCF valuation using WACC 8.4% and TG of 1%.

Source: Hong Leong Investment Bank Research - 7 Jun 2018