Astro’s 2Q22 core earnings of RM108.4m (QoQ: -29%, YoY: -7.4%) brought 1H22 sum to RM261.1m (YoY: +11.2%) at 45.3%/43.3% of ours/consensus full year forecast. We deem the results within expectations as the higher content cost and weaker adex should reverse in 2H. Maintain BUY with an unchanged DCF based TP of RM1.41 (WACC: 7.7%, TG: 0%). We like Astro for its improving long term prospects on the back of (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 7.1%.

Within expectation. 2Q22 core PATAMI of RM108.4m (QoQ: -29%, YoY: -7.4%), brought 1H22 sum to RM261.1m (YoY: +11.2%), accounting for 45.3% of our and 43.3% of consensus full year forecasts. We deem the results within expectations as the higher content cost and weaker adex should reverse in 2H. 1H22 core PATAMI was arrived at after adjusting for forex loss (RM32.8m) and gain of disposal of unit trust (RM0.1m).

Dividends. Declared second interim dividend of 1.5 sen/share (2Q21: 1.5 sen/share) (ex-date: 5 Oct 2021). YTD DPS amounted to 3 sen (1H21: 2.5 sen).

QoQ. Revenue came in flat at -0.1% contributed by an increase in TV (+2.1%) but offset by the decline in radio (-23.6%) and home shopping (-8.6%). TV segment increase was mainly due to an increase in content sales. The decline in the radio segment (radix) is due to the lockdown impact which resulted in (1) lower road traffic; and (2) weaker consumer sentiment. Home shopping segment decline was due to supply chain disruption as well as the inability to deliver to areas under EMCO (which resulted in orders cancellation and postponement of delivery). Despite registering flat revenue, core PATAMI declined by -29% mainly due to the higher content cost from major sporting events (Olympics, Paralympics, EURO 2020).

YoY & YTD. Revenue declined by -2.8% YoY and -1% YTD mainly due to the decline in home shopping (YoY: -27.2%, YTD: -8.1%) partially offset by increase in radio (YoY: +21.1%, YTD: +17.6%). The decline in home shopping segment was due to a higher base from SPLY (where consumers were panic buying and stocking up on essential items during MCO1.0). The increase in radio segment was mainly due to the low base effect from SPLY where advertisers were much more cautious in their ad spending during the first lockdown SPLY. Core PATAMI declined by -7.4% YoY as the higher content cost was balanced by the by lower merchandise cost and depreciation of PPE expenses. On a YTD basis, core PATAMI increased by +11.2% where the lower merchandise cost, finance cost and depreciation of PPE expenses more than offset the higher content cost during the period.

Outlook. The weaker earnings for Astro on a QoQ basis was within our expectations as it was hit by the lockdown impact (lower adex) as well as recording a higher content cost from major sporting events. For 2H22, we expect earnings to recover gradually aided by the reopening of the economy which will boost adex spending and recovery in commercial subscription revenue. Astro continues to expand its role as a streaming services aggregator through its partnership with TVBAnywhere+ which allows Astro Dynasty Pack customers free access to the streaming service starting 13 Sep 2021. As the competition in the streaming services space intensifies, Astro’s proposition as a one stop entertainment solution becomes appealing to consumers as consumers will be able to mix and match different entertainment options according to their preferences, at attractive prices.

Forecast. Unchanged. Maintain BUY with an unchanged DCF-based TP of RM1.41 (WACC: 7.7%, TG: 0%) As the Covid restriction eases and the economy gradually open, we should see an earnings recovery for Astro in 2H22. Other than that, the long term prospects of the company are also improving on the back of (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 7.1%.

Source: Hong Leong Investment Bank Research - 22 Sept 2021