Astro’s 2QFY21 core earnings of RM117.0m (-0.8% QoQ; -16.3% YoY), brought 1HFY21 sum to RM234.9m at 46%/45% of ours/consensus full year forecast which is slightly below expectations. The deviation was due to lower-than expected contributions from pay-TV subscription coupled with soft adex. We tweaked our FY21-23 forecasts by -8.7%/-10.2%/-3.7% to account for persisting challenging environment from Covid-19. Maintain BUY with lower DCF-based TP of RM1.07 (WACC: 7.5%, TG: -1%) from RM1.09. While we acknowledge that subscription revenue is on a declining trend, we believe significant content cost savings due to the absence of major sport events this year would be able to cushion this. Besides that, Astro also pays out generous dividend, which translates to a yield of 7.3%.

Slight amiss. The reported 2QFY21 core PATAMI of RM117m (-0.8% QoQ, -16.3% YoY), brought 1HFY21 core PATAMI to RM234.9m. This forms 46% of ours and 45% of consensus full year forecasts respectively, which is slightly below expectations. The deviation was due to due to lower-than-expected contributions from pay-TV subscription coupled with soft adex revenue. 2QFY21 one-off adjustments include forex gain (RM17.7m) and loss of disposal of unit trust (-RM1m).

Dividends. Declared second interim dividend of 1.5 sen/share (2QFY20: 2 sen/share) (ex-date: 30 Sept 2020). YTD DPS amounted to 2.5 sen (1HFY20: 4 sen).

QoQ. Revenue inched up by +3.6% buoyed by the increased in home shopping segment (+51.8%) that offset the tad decline in TV (-0.1%) and radio (-27.8%). Core PATAMI moderated slightly by -0.8% to RM117m on the back of higher effective tax rate recorded 27% vs 1QFY20 at 25% due to non-deductible expenses.

YoY & YTD. Revenue skidded by -11.8% YoY and -13.2% YTD on the back of the declined in TV (-14.9% YoY, -15.3% YTD) and radio (-58.8% YoY, -48.6% YTD), but partially cushioned by the jump in home shopping segment (+59.9% YoY, +37.9% YTD). The TV segment was lower on the back of subdue subscription and advertising revenues. The commendable result in home shopping was attributable to the increase in viewership stemming from the MCO and Raya festive season during the quarter. Subsequently, core PATAMI declined (-16.3% YoY, -27.6% YTD) due to lower EBITDA margin.

Outlook. In the current weak environment, ARPU seemed to have slowed down slightly, registering 1.1% decrease from RM99.1/month to RM98.0/month stemmed on the back of the one-off rebate of RM40 for sports pack customers. With the ending of moratorium at the end of September, we do not discount the possibility of ARPU to decline further. Despite the easing of restrictions with RMCO, we are pessimistic with the still supressed adex number that registered a -11.3% decline QoQ. On the flipside, we are encouraged with the uptake in home shopping segment that continue to be the saviour, projecting the uptrend likely to persist on the back of proactive measure from Astro in manoeuvring through customer preferences.

Forecast. Given the results shortfall, we tweaked our FY21-23 forecasts by -8.7%/- 10.2%/-3.7% to RM466.1m/RM446.3m/RM510.7m, respectively.

Maintain BUY with lower DCF-based TP of RM1.07 (WACC: 7.5%, TG: -1%) from RM1.09. While we acknowledge that subscription revenue is on a declining trend, we believe significant content cost savings due to the absence of major sport events this year would be able to cushion this. Coupled with an attractive dividend yield of 7.3%, we opine that the near term risk to reward equation is still tilted to the upside.

Source: Hong Leong Investment Bank Research - 17 Sept 2020