3QFY23 core PATAMI of RM95.3m (QoQ: -10.7%, YoY: +1.9%), brought 9MFY23 sum to RM326.4m (YoY: -8%). The results were below our (71.8%) but within consensus (74.9%) full-year forecasts. The shortfall was mainly due to lower than-expected TV subscription revenue. Given the results shortfall, we lower our FY23/FY24/FY25 forecasts by -5.5%/-4.8%/-7.7% respectively. Maintain BUY with a lower DCF-based TP of RM0.95 (WACC: 8.6%, TG: 0%) from RM1.15. Despite the group’s tepid near-term outlook, we believe that the recent selloff in the stock has priced in most of the negatives facing the group. Moreover, Astro currently provides an attractive dividend yield at 8.5%.

Below expectations. 3QFY23 core PATAMI of RM95.3m (QoQ: -10.7%, YoY: +1.9%), brought 9MFY23 sum to RM326.4m (YoY: -8%). The results were below our (71.8%) but within consensus (74.9%) full-year forecasts. Results deviation was mainly due to lower-than-expected TV subscription revenues. 9MFY23 core PATAMI was arrived at after adjusting for EIs amounting to RM122.1m.

Dividends. Declared third interim dividend of 0.75 sen/share, going ex on 30 Dec (3QFY22: 1.5 sen). 9MFY23: 3 sen (9MFY22: 4.5 sen).

QoQ. Revenue increased by 0.6% mainly due to the improvement in the radio segment (+39.1%) but partially offset by the TV (-0.4%) and home shopping (-13.4%). The decrease in the TV segment was due to lower subscription revenue while the decrease in the home shopping segment was due to consumers returning to physical shopping as well as more cautious spending. However, core PATAMI declined by -10.7% due to higher content costs for the period.

YoY & YTD. Revenue declined by -9.4% YoY and -10.6% YTD due to the declines in the TV (YoY: -7%, YTD: -7.1%) and home shopping (YoY: -56.5%, YTD: -54.9%) segments, while partially offset by an increase in radio (YoY: +60.9%, YTD: +28.4%). The declines in the TV and home shopping segments were largely due to the same reasons as mentioned above while the increase in the radio segment was due to pandemic restrictions SPLY which impacted radex as a result of lower road traffic. However, core PATAMI increased by +1.9% YoY due to net positive taxation recorded for the current quarter. On a YTD basis, core PATAMI declined by -8%.

Outlook. Astro’s earnings continued to be dragged by declining TV subscription and home shopping revenue with advertising revenue being unable to offset the decline despite entering a seasonally stronger 2H adex period. Nonetheless, we expect to see higher adex contributions in its TV advertising and radio segments in 4Q23 as advertisers go on a spending spree for the holiday season. Other than that, we also note that Astro’s recent win in an anti-piracy case against a local commercial establishment sets an important precedent for the group, as more enterprise customers would be deterred from broadcasting illegal content or risk facing significant financial consequences. In the long run, this should have a positive impact on the group’s subscription revenue as enterprise customers would have to subscribe to Astro’s content packages in order to stream content legally.

Forecast. Given the results shortfall, we lower our FY23/FY24/FY25 forecasts by -5.5%/-4.8%/-7.7% respectively.

Maintain BUY with a lower DCF-based TP of RM0.95 (WACC: 8.6%, TG: 0%) from RM1.15 as a result of our earnings revision. Despite the group’s tepid near-term outlook, we believe that the recent selloff in the stock has priced in most of the negatives facing the group. We continue to like Astro as a long-term play as we believe that an eventual recovery in its subscription and advertising revenue would signal an inflection point which could result in a re-rating catalyst for Astro. Moreover, Astro also currently yields an attractive FY23 projected dividend yield of 8.5%.

Source: Hong Leong Investment Bank Research - 16 Dec 2022