Being one of HLIB’s top picks (BUY, TP: RM1.41), Astro is currently trading at an undemanding 9.8x FY22E P/E (30% discount against 5-year average P/E of 14x) coupled with a generous 7.5% dividend yield.

To recap, ASTRO posted lackluster 2QFY22 earnings, with core PATAMI plunging 29% QoQ and 7.4% YoY, dragged down by the lockdown as well as the higher content cost from major sporting events. Nevertheless, we believe Astro’s earnings will recover in 2H22, underpinned by (1) brighter advertising expenditure spending prospect; (2) gradual recovery in commercial subscription revenue on the back of easing lockdown measures since Aug; and (3) the lower content cost (vs 2QFY22).

Despite Malaysia’s pay-TV market (85% of ASTRO FY21 revenue) appearing to reach a saturation point at current levels (71%-75% FY17-FY21), we are encouraged by ASTRO’s efforts to sustain its revenue and lift its average revenue per user (ARPU) through its streaming service partnership with Netflix, Disney+ Hotstar, HOB Go, iQiyi, TVB Anywhere.

In addition, the signed agreement between ASTRO and TM on 29 Sept to become a reseller of broadband services will allow ASTRO to have a new revenue stream without the need to invest heavily in new infrastructure. With ASTRO allowing its customer to subscribe to different streaming services with easy access for payment in a single bill, together with the likelihood of bundling the broadband services with its core pay-TV business, we believe the recent development will further strengthen its pay-TV business and serve as a moat to safeguard its leading position.

Technically, ASTRO is building a sound base near RM0.97 -1.00 supports. Any weakness from current share prices toward the support levels provided a good opportunity to accumulate one of the laggard recovery play proxies. A successful breakout above immediate resistance of RM1.04 (50D MA) will spur the prices toward RM1.10-1.16-1.20 levels. Cut lost at RM 0.945

Source: Hong Leong Investment Bank Research - 28 Oct 2021