iQIYI video streaming will be officially launched outside China for the first time via a partnership with Astro. Under the partnership, Astro will be responsible for marketing, customer acquisition and sales around the iQIYI proposition in Malaysia. We are positive on this development as this allows both Astro and iQIYI to further penetrate Malaysia and China markets. The introduction of the partnership is timely to help Astro in alleviating the gradual deterioration of paid subscriber base. Maintain earnings forecast as the revenue contribution from the partnership is limited for now. Maintain BUY with unchanged TP of RM1.67 based on DCF valuation.

NEWSBREAK

Astro and iQIYI have launched a new online video application which marks the latter's first app outside China. This follows a content partnership inked between Astro and iQIYI back in June this year. Astro has the exclusive rights to deliver iQIYI content on TV, On Demand and OTT in Malaysia, including the world's first iQIYI branded channel comprising iQIYI's extensive slate of original content, from drama to a variety shows and movies.

HLIB’s VIEW

A win-win situation. Overall, we are positive on this development as this allows both Astro and iQIYI to further penetrate Malaysia and China markets. Both Astro and iQIYI are able to leverage on each other’s strength in the vernacular contents to further increase subscriber base. For Astro, we understand that its 3 original Astro shows will also be made available on the iQIYI apps namely (i) Miss Astro Chinese International Pageant; (ii) Call Me Handsome; and (iii) web drama by XUAN, where iQIYI platforms can be accessed by over 100m paid subscribers.

Long term benefit. The introduction of the partnership is timely to help Astro in alleviating its gradual deterioration in paid subscribers. Over the longer term, we believe Astro’s OTT viewership and downloads may increase riding on the iQIYI partnership and Astro did not discount the possibility of further tie-ups with other streaming providers from other countries.

Forecast. No change to our forecast as the revenue contribution from the partnership is limited for now.

Maintain BUY, TP: RM1.67 based on DCF valuation (WACC: 6.5%, g: 1%). Astro continues to reap the benefit 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 paid-TV households in Malaysia on the back of its strength in the vernacular content creation. Besides that, Astro also pays out generous dividends, yielding 7.9%.

Source: Hong Leong Investment Bank Research - 7 Nov 2019