3QFY22 core PATAMI of RM93.5m (-14% QoQ, -37% YoY) brought 9MFY22 sum to RM354.6m (-8% YoY), which came in below expectations due to slower-than-expected recovery in adex and commercial subscription revenues. The recoveries in these two segments started to pick up towards the end of 3QFY21 and continue into 4QFY21 which should contribute to earnings uplift in the following quarter. Given the results shortfall, we lower our FY22 forecast by -4.7% while leaving our FY22/FY23 forecasts largely unchanged. Maintain BUY with a slightly lower DCF-based TP of RM1.40 (WACC: 7.5%, TG: -1%) from RM1.41. Astro currently provides an attractive dividend yield at 7.8%.

Below expectations. 3QFY22 core PATAMI of RM93.5m (-13.7% QoQ, -37.3% YoY), brought 9MFY22 sum to RM354.6m (-7.7% YoY), which is below our (66.9%) and consensus (62.1%) full-year forecasts. The results deviation is due to the slower-than-expected recovery in adex and commercial subscription revenues. 9MFY22 core PATAMI was arrived at after adjusting for forex loss (+RM20.4m) and gain of disposal of unit trust (-RM0.1m).

Dividends. Declared third interim dividend of 1.5 sen/share going ex on 23 Dec 2021 (3QFY21: 1.5sen). 9MFY22: 4.5sen (9MFY21: 4.0sen).

QoQ. Revenue declined -3.6% dragged by TV (-2.8%) and home shopping (-10.9%). Under TV segment, subscription revenue declined -2% due to (i) lower commercial subscription (hotels, bars, F&B outlets, etc) as a result of prolonged lockdown restrictions; and (ii) cancellations from households due to lower household income impacted by the pandemic. TV adex on the other hand declined by -7.2% due to (i) lower business activities during the lockdown; and (ii) the lack of new vernacular contents (which usually draw the bulk of TV adex) due to production halt. Home shopping contraction was due to (i) lower discretionary spending impacted by the pandemic; and (ii) a reversion in consumers shopping trend towards traditional retail stores as they reopen. Consequently, core PATAMI declined by -13.7%.

YoY & YTD. Revenue declined by -7.6% YoY and -3.3% YTD on the back of the declines in TV (-5.3% YoY, -2.3% YTD), radio (-35.3% YoY, -5.6% YTD) and home shopping (-15.3% YoY, -10.4% YTD). The declines in TV and home shopping segments were largely due to the same reasons as mentioned above. Radio fell due to the longer lockdown period compared to SPLY which impacted radex as a result of lower road traffic. Consequently, core PATAMI declined by -37.3% YoY and -7.7% YTD.

Outlook. Despite the economy reopening in phases since Sept, adex and commercial subscription improvements only came in towards the end of the quarter (end Oct), resulting in earnings disappointment. Nonetheless, from management’s guidance, the recovery momentum in adex and commercial subscription continue d in Nov and so far in Dec, which should contribute positively towards the bottom line as these 2 segments are high-margin segments. The recovery in adex is supported by (i) the resumption of business activities; (ii) year-end festivities in Dec and CNY in Jan; (iii) the resumption of live shows and the return of new Astro vernacular contents to the TV (which draw a large chunk of TV adex); and (iv) advertisers exhausting their marketing budget towards year end. For commercial subscriptions, enterprise customers were returning towards the end of 3QFY21 and the number of customers was up 17% QoQ. The recovery in this segment should continue towards the next quarter as consumer activities (F&B and bars) and inter-state traveling (hotels) pick up.

Forecast. Given the results shortfall, we lower our FY22 forecast by -4.7% while we leave our FY22/FY23 forecasts largely unchanged.

Maintain BUY with a slightly lower DCF-based TP of RM1.40 (WACC: 7.7%, TG: 0%) from RM1.41 as a result of our earnings revision. Astro has been taking incremental steps to adapt to the changing consumer trends, including (i) aggregating streaming services to capitalize on the shift in TV viewing preference from linear to on-demand; (ii) introducing and deploying internet -connected plug-and-play set top boxes which reduces installation costs for Astro, while allowing for on-demand viewing and avoiding rain fade issues for customers; and (iii) aggregating TV bundles with broadband services which provides convenience (payment under one bill) and cost savings (vs subscribing to TV and broadband services separately) to consumers. We believe that Astro is heading in the right direction with its initiatives but will likely need more time and marketing efforts to deliver its value proposition to targeted customers. On the consumer end, as streaming service availabilities become more varied and crowded, consumers may soon find Astro’s one stop entertainment solution appealing. Additionally, Astro currently provides an attractive dividend yield at 7.8%.

Source: Hong Leong Investment Bank Research - 10 Dec 2021