Astro’s 4QFY20 core earnings of RM141.6m (-14% QoQ, +16% YoY), brings FY20 core earnings to RM661.5m (+23%), which only formed 88% of HLIB and 95% of consensus forecast. Shortfall was due to the lower-than-expected revenue. Declared 4th interim dividend of 1.5 sen/share (4QFY19: 1.5 sen/share). FY20 dividend totalled 7.5 sen (FY19: 9 sen) per share. With the deferments of 2 major sporting events to FY22, we adjust our FY21-22 earnings forecasts by +12% and -13%, respectively. Post earnings adjustment, our DCF-based TP decreases to RM1.29 (from RM1.64) on the back of higher WACC. Maintain BUY.

Below expectation. Astro’s 4QFY20 core earnings of RM141.6m (-14% QoQ, +16% YoY), brings FY20 core earnings to RM661.5m (+23%). The core earnings were below our expectations at 88% but within consensus forecast at 95%. The key variance was due to lower-than-expected revenue. FY20 core earnings have been adjusted for (i) realised forex loss of RM1.3m; (ii) interest rate risk of RM3m; and (iii) fair value loss on foreign exchange risk RM57.4m (iv) unrealised forex gain (+RM55.5m).

Dividend. Declared 4th interim dividend of 1.5 sen/share (4QFY19: 1.5 sen/share). FY20 dividend totalled 7.5 sen (FY19: 9 sen) per share. (Ex-date: 9th April 2020).

QoQ. Revenue increased 1% QoQ to RM1.22bn on the back of slightly higher contribution from home shopping segment (+8% QoQ) but was partly offset by lower subscription revenue (-2%). However, core earnings fell by 14% QoQ due to higher effective tax rate (30% vs. 23% in 3QFY20) related to one-off non-deductible expenses and higher opex by 17% due to higher marketing cost, but this was partly cushioned by higher finance income.

YoY. Revenue fell 10% YoY dragged by subscription (-9%), radio (-3%), but was cushioned by home shopping (+2%). Nevertheless, core earnings improved by 16% YoY on the back of the lower opex by 12% and lower finance cost by 11%.

YTD. Despite the decline in revenue (-10%), core earnings increased 23% aided by lower depreciation (-21%) and lower finance cost (-25%).

Outlook. In light of the deferments of 2 major sporting events, namely Euro and Tokyo Olympics, Astro is still awaiting further details from their respective bodies before making any pricing changes to its sports package. Astro guided that it has yet to book the content cost and this could be a temporary big relief to Astro’s cost structure but expect the content cost to spike in FY22 (2021) due to these deferments. In addition, Astro guided it experienced a spike in the vi ewing time by 4 hours on its major platforms during the Movement Control Order period. No issue on the delay on the EPL broadcast as the league is schedule to recommence in April 2020.

Forecast. With the deferments of 2 major sporting events to FY22, we make adjustment to our FY21-22 earnings forecast by +12% and -13%, respectively (mainly on shifting recognition of lumpy content cost).

Maintain BUY, TP: RM1.29. Post earnings adjustment, our DCF-derived TP decreases to RM1.29 (from RM1.64) on the back of higher WACC of 9.1% (previously 8.8%) as a result of higher beta. Astro continues to reap the benefits from 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, Astro continues to be supported by attractive dividend yield of 10%.

Source: Hong Leong Investment Bank Research - 26 Mar 2020