Astro’s 2Q23 core PATAMI of RM106.7m (QoQ: -14.2%, YoY: -1.6%) brought 1H22 sum to RM231.1m (YoY: -11.5%) at 40.4%/48.4% of ours/consensus full year forecasts. We deem the results below our expectations. The results shortfall was mainly due to weaker than expected adex and subscription revenue. Given the results shortfall, we lower our FY23/24/25 forecasts by -13.6%/-12.7%/-4.8% respectively. Maintain BUY with a lower DCF-based TP of RM1.28 (WACC: 8.6%, TG: 0%). Despite the shortfall we believe that an eventual recovery in Astro’s subscription and advertising revenue could be a re-rating catalyst for the stock. Moreover, Astro also currently yields an attractive yield of 6% (FY23).

Below expectations. 2Q23 core PATAMI of RM106.7m (QoQ: -14.2%, YoY: -1.6%), brought 1H23 sum to RM231.1m (YoY: -11.5%). The results came below our expectations but in line with consensus at 40.4% and 48.4% of full year forecasts respectively. The results shortfall was mainly due to weaker than expected adex and subscription revenue. 1H23 core PATAMI was arrived at after adjusting for forex loss (RM33.3m) and gain on disposal of unit trust (RM0.7m).

Dividends. Declared second interim dividend of 1 sen/share (2Q22: 1.5 sen/share) (ex-date: 11 Oct 2022). 1H23: 2.25 sen (1H22: 3 sen).

QoQ. Revenue decreased by -4.3% due to the declines in TV (-2.7%), radio (-23%) and home shopping (-12.8%). The decline in TV was due to weaker subscription and advertising revenue. Decline in radio was also due to weaker adex as 1Q23 was boosted by major festive seasons (Ramadhan and Hari Raya holidays). Home shopping continued its decline following the continued pivot to in-person shopping. Consequently, core PATAMI decreased by -14.2%.

YoY & YTD. Revenue declined by -13.1% YoY and -11.2% YTD due to the decline in TV (YoY: -9.3%, YTD: -7.1%) and home shopping (YoY: -55.3%, YTD: -54.1%) but partially offset by an increase in radio (YoY: +15%, YTD: +14.4%). The decline in the TV and home shopping segments was due to the same reasons as mentioned in the QoQ paragraph. The increase in radio was mainly due to the recovery momentum this year as Malaysia moved to endemicity whereas the country was undergoing MCO3.0/Phase 1 lockdowns SPLY. However, core PATAMI declined by a lower quantum of -1.6% YoY due to lower content costs as the group incurred higher content cost from major sporting events SPLY. On a YTD basis, core PATAMI declined by -11.5%.

Outlook. Astro’s results miss was largely due to the continued decline in its TV subscriptions as well as a softer adex environment as the rebound in Malaysia’s economic activities and stronger job market was still unable to stem the decline in its subscription revenue. Nonetheless, we note that TV subscription revenue has slowed to -1.2% QoQ which is the lowest decline for the past 3 quarters. Looking ahead to 2H22, the FIFA World Cup which begins on 21 Nov 2022 should help boost adex revenue as advertisers look to spend more and capitalize on a big sporting event to have a wider reach among consumers.

Forecast. Given the results shortfall, we lower our FY23/24/25 forecasts by 13.6%/12.7%/4.8% respectively.

Maintain BUY with a lower DCF-based TP of RM1.28 (WACC: 8.6%, TG: 0%) from RM1.34. Despite the results shortfall we continue to like Astro as a long-term play as we opine that an eventual recovery in its subscription and advertising revenue would signal an inflection point which could provide a re-rating opportunity for the stock. Moreover, Astro also currently yields an attractive FY23 projected dividend yield of 6%.

Source: Hong Leong Investment Bank Research - 27 Sept 2022