Astro’s 3QFY20 core earnings of RM164.4m (-2.1% QoQ, -12.5% YoY) brings 9MFY20 sum to RM578.6m (+27% YoY) which formed 86.5% and 87.3% of HLIB and consensus forecast. We deem the results were above expectations, mainly due to lower than expected tax rate. Declared third interim dividend of 2.0 sen/share, 9MFY20 dividend totalled 6 sen. We revise higher our FY20 by 13.9% as we factor in lower operational costs but cut FY21-22 earnings by 5.3% and 9.2%. Maintain BUY with lower TP of RM1.64 (from RM1.67).

Results above. Astro’s 3QFY20 core earnings of RM164.4m (-2.1% QoQ, -12.5% YoY) brings the 9MFY20 amount to RM578.6m (+27% YoY). The latter formed 86.5% and 87.3% of HLIB and consensus full year forecast and we deem the results to be above expectations, mainly due to lower-than-expected effective tax rate (-4.8ppt YoY). Core earnings have been adjusted for (i) forex loss (RM7.1m), (ii) impairment receivables (RM43m) and (iii) fair value loss on forex risk (RM12.1m).

Dividend. Declared 3rd interim dividend of 2.0 sen/share (3QFY19: 2.5 sen/share). 9MFY20 dividend totalled 6 sen (9MFY19: 7.5 sen) per share. (Ex-date: 19th

December 2019).

QoQ. Revenue declined by -1.7% QoQ to RM1.2bn on the back of lower contribution from subscription revenue (-2.8% QoQ). EBITDA was higher by 5.6% QoQ chiefly from lower costs by -7%. However core earnings fell slightly by -2.1% YoY due to higher effective tax rate (28.8% vs. 24%) due to one off non-deductible expenses and higher finance cost by 43.4% QoQ due to unfavourable USD-MYR movement.

YoY. Revenue fell by 12.2% YoY dragged by all segments, namely subscription revenue (-11.2%), adex (-6.7%) and home segment (-4.6%). In tandem, core earnings fell by -12.5%.

YTD. Despite recording lower revenue of -10.3%, Astro posted higher EBITDA (+6.4%) of RM1.6bn thanks to lower operating cost of -20%. This was further aided by lower finance cost (-28.7%) and lower tax rate (24% vs. 28.7%). Subsequently, this resulted in core earnings increase by 27%.

Outlook. Astro guided its content cost would be on the high side c.+36% in FY21 primarily due to Euro 2020. In addition, Astro will incur additional marketing expenses for its “Ultra Box” which was unveiled in Nov. Take up rate (10k in less than 1 month) has been encouraging and this will partially mitigate the falling subscription revenue.

Forecast. In light of the better than expected 9MFY20 results, we revise higher FY20 earnings by 13.9% as we factor lower operational costs. On the other hand, we cut FY21-22 earnings by 5.3% and 9.2% as we impute higher content cost for Euro and Olympics in 2020.

Maintain BUY, TP: RM1.64. Post earnings adjustment, our DCF based TP decreases to RM1.64 (from RM1.67). Astro continues to reap the benefits of its cost rationalisation. 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. Furthermore, its FY20-21 dividend yield of 5.9-6.3% is compelling.

Source: Hong Leong Investment Bank Research - 5 Dec 2019