Astro’s 2QFY20 core earnings of RM158.4m, brought 1HFY20 core earnings to RM345m (+38.4% YoY), in line with HLIB at 51.6% but missed consensus estimates at 38%. Declared dividend of 2 sen per share, which brought 1HFY20 dividend to 4 sen per share. Maintain our earnings forecast as the results were in line. Maintain BUY with unchanged TP of RM1.67. We reckon that cost savings can outweigh declining subscription revenue in the near term. Besides that, Astro also pays out generous dividend which translates to a yield of 8.1%.

Results in line. Astro’s posted 2QFY20 core earnings of RM158.4m (-15.1% QoQ, +149.1% YoY) brought 1HFY20 core earnings to RM345m (+38.4% YoY). Cumulative 1HFY20 core earnings were inline with our forecast at 51.6% but below consensus at 38%. 2QFY20 core earnings are adjusted for the unrealised forex gains (RM30.6m), fair value losses on derivative (RM29.1m) and impairment receivables (RM9.5m).

Dividend. Declared second interim dividend of 2.0 sen/share (2QFY19: 2.5 sen/share). 1HFY20 dividend totalled 4 sen (1H19: 5 sen) per share. (Ex-date: 30th September 2019).

QoQ. Revenue was flattish at RM1.23bn (+0.2%), contributed by higher advertising revenue (+8.8%) and home shopping (+8.4%) but offset by lower subscription revenue (-0.3%). Nevertheless, core earnings fell to RM158.4m (-15.1%) mainly due to higher content cost (35% of total content cost vs 31% in 1QFY20), but was cushioned by lower net finance cost and taxation.

YoY. Core earnings surged 149.1% to RM158.4m due to the low base effect from FIFA World Cup content cost in 2QFY19 (48% of total content cost in 2QFY19 vs. 35% in 2QFY20) resulting in EBITDA growing by 51.5%. Nevertheless, revenue fell 12.7% weighed by weaknesses across all segments, namely TV (-13.4%), radio (- 12.9%) and home shopping (-3.2%).

YTD. Despite lower revenue mostly due to weaknesses in all segments, core earnings increased to RM345m (+38.4%) arising from better EBITDA of RM880.8m (+17.5%) from lower content cost and marketing, distribution expenses. This was further aided by lower finance cost by 33%.

ARPU resilient. Despite declining pay-TV subscription revenue, Astro’s ARPU was healthy at RM100 (vs. RM100.4 in 1Q20). We believe Astro managed to monetise through the higher consumption from its On Demand VOD and OTT platforms.

Outlook. We view that Astro will be able to mitigate the deteriorating subscription revenue by lowering content cost to 33%-34% of revenue (by focusing more on vernacular instead of Hollywood contents). Besides that, home shopping segment has also showed encouraging EBITDA performance and we are positive that GoShop will break even in near term.

Forecast. Maintain our forecast as the results were in line.

Maintain BUY, TP: RM1.67 based on DCF valuation. Astro continues to reap the benefits of cost rationalisation that managed to improve earnings in absence of revenue growth. Over the long term, we expect Astro to maintain its lion share in the TV households in Malaysia on the back of its strength in the vernacular content creation. Besides that, Astro also pays out generous dividend which translates to a yield of 8.1%.

Source: Hong Leong Investment Bank Research - 13 Sept 2019