Astro’s 1QFY22 core earnings of RM152.7m (+0.8% QoQ, +29.5% YoY) was within our and consensus expectations. We updated our model for FY21 audited accounts and introduce FY24 forecasts. Post adjustments, our FY22/23 forecasts increase by 3.3%/0.9%. Maintain BUY with higher DCF-based TP of RM1.41 (WACC: 7.7%, TG: 0%) from RM1.25. Despite anticipating near term challenges, we believe investors would start to look ahead on the longer term prospects of the company which is improving due to (i) the strengthening of its position in the OTT market as the leading aggregator of streaming services; (ii) its growing home shopping segment; (iii) its penetration to the underserved millennial market through the launching of sooka; and (iv) its ongoing efforts to improve its products and user experience. Besides that, Astro dividend yields generously at 6%.

Within expectations. Astro’s 1Q22 core earnings of RM152.7m (+0.8% QoQ, +29.5% YoY) made up 29.8% and 28.4% of ours and consensus full year forecast respectively. We deem the results within expectations as we expect performance to weaken in the following quarters amid weaker adex and higher content cost. 1Q22 one-off adjustment includes forex loss of RM11.5m.

Dividends. Declared first interim dividend of 1.5 sen/share (1QFY21: 1 sen/share) (ex date: 8 July 2021).

QoQ. Revenue decreased by -4.3% mainly due to the decline in the TV (-5.1%) and radio (-15.6%) segments which more than offset the increase in the home shopping segment (+4.3%). TV segment declined on the back of lower subscription and advertising revenues. The lower subscription revenue was due to (i) lower commercial subscription (hotels, bars, F&B outlets etc) as a result of prolonged lockdown restrictions; and (ii) cancellation mainly due to lower household income impacted by the pandemic. The overall decline in the total advertising revenue (-15.9%) was due to the imposition of MCO2.0 during the period as advertisers were more cautious on ad spend amid weaker business sentiments. Despite a decline in revenue, core PATAMI remained rather flattish (+0.8%) due to lower marketing cost and administrative expenses during the period.

YoY. Revenue was flattish (+0.8%) contributed by radio (+15.1%) and home shopping (+20.9%) while offset by TV (-1.8%). TV segment declined on the back of lower subscription revenue which more than offset the increase in advertising revenue. The overall increase in the total advertising revenue (+21.0%) was due to low base effect as MCO1.0 was introduced during SPLY. Despite flattish revenue, core PATAMI recorded an increase of 20.9% due to lower administrative expenses and finance cost.

Outlook. We expect Astro’s 2Q22 earnings to be weaker due to (i) adex revenue taking a hit as a result of the imposition of FMCO; (ii) higher content cost from major sporting events, i.e. EURO 2020 and Olympics; and (iii) higher marketing expense to promote the launch of its new products (Disney+ Hotstar and sooka). However, the decline in revenue is expected to be partially cushioned by (i) its home shopping segment (boosted by consumers spending more time online shopping during FMCO as well as from the Raya season); and (ii) the introduction of Disney+ Hotstar partnership which started on 1 June 2021 (expected to lift ARPU with additional RM5 charged to Movie Pack customers). For 2H22, we expect earnings to recover gradually aided by the reopening of the economy.

Forecast. We updated our model for FY21 audited accounts and introduce FY24 forecasts. Post adjustments, our FY22/23 forecasts increase by 3.3%/0.9%.

Maintain BUY with a higher DCF-based TP of RM1.41 (WACC: 7.7%, TG: 0%) from RM1.25 as we roll over our valuation year to FY22. Despite anticipating near term challenges, we believe investors would start to look ahead on the longer term prospects of the company which is improving due to (i) the strengthening of its position in the OTT market as the leading aggregator of streaming services; (ii) its growing home shopping segment; (iii) its penetration to the underserved millennial market through the launching of sooka; and (iv) its ongoing efforts to improve its products and user experience. Besides that, Astro dividend yields generously at 6%.

Source: Hong Leong Investment Bank Research - 23 Jun 2021