We believe 2QFY19 earnings will be stronger QoQ and weaker YoY matching our core net profit expectation of RM190-200m. We expect a distribution of second interim dividend of 2.5 sen per share. Moving into 2HFY19, the more affordable fixed broadband packages are likely to erode pay-TV’s subscription significantly by OTT. However, the weaker pay-TV subscription should be cushion by higher adex thanks to improved CSI. We keep our forecast unchanged and maintain HOLD with an unchanged TP of RM2.02 based on DCF valuation (WACC 8.4%, TG 1%).

Stronger 2QFY19. Astro’s 2QFY19 results is scheduled to be announced on 26th Sep 2018 and we expect it to be stronger QoQ and weaker YoY to match our core net profit expectation of around RM190-200m. We also expect a distribution of second interim dividend of 2.5 sen per share.

Earnings boost. The adex friendly quarter should be driven by several major events including World Cup (June-July) and GE14 (May). Besides that, we expect to see growth in the home shopping segment riding on the festive season (Hari Raya). Historically, home shopping is usually the strongest in 2Q.

Comparing to neighbouring regional peers. Starhub witnessed its Pay TV 2QFYE18’s revenue increased by 5% QoQ to SGD85m and ARPU rose to SGD53 from 1QFYE18’s SGD51. The company attributed this to the World Cup. Subsequently, Singtel’s Pay TV 1QFYE3/19’s revenue also strengthened by 29% QoQ to SGD72m and saw a 7% hike in ARPU from SGD41 in 4QFYE3/19 to SGD44. Hence, we are expecting Astro to enjoy similar uplift as its regional peers and see a slightly stronger ARPU in 2QFYE19.

Competitor dishing out free content. It may get harder from this point as Astro’s OTT competitor Tonton (Media Prima) has ceased its annual VOD pay subscription and moved its content to the free streaming site, YouTube. We opine that this would somehow affect Astro’s NJOI subscription, as Tonton does not have to go through the hassle of box installation, as the contents are ready online.

2HFY19 is lacking of catalyst. We expect 2HFY19 to be less exciting for Astro as we do not see any near term catalyst. In our view, 1HFY19 will be stronger than 2HFY19. With the more affordable fixed broadband packages, subscription rate for pay-TV is expected to be disrupted significantly by OTT (Netflix, dimsum, etc). Not forgetting FY19 is bearing a higher content cost of 36% of total revenue as compared to normal non-world cup year of 33% of total revenue.

Cushioned by higher adex. The 10-year high consumer spending index (CSI) of 133pts in 2Q18 implies growth of +65% YoY and 46% QoQ. In the latest Nielsen’s 2Q18 adex figures (which exclude pay-TV and digital media) showed a total ad spend of RM1.92bn (-9%YoY, +42% QoQ).

Maintain HOLD with an unchanged TP of RM2.02 based on a DCF valuation using WACC 8.4% and TG of 1%. We maintain our HOLD call despite the 19.5% capital upside pending the release of results tomorrow. We think that Astro will remain relevant with its high penetration rate of 75% of total Malaysian household and for its reliability on live sports broadcasting. We like its regional digital initiatives, and its intention to produce more ASEAN content to capture the Nusantara market.

Source: Hong Leong Investment Bank Research - 25 Sept 2018