Strong Results All in the Price

Astro’s 1HFY18 core net profit of RM446.1m (+19.4% yoy) came in above our and consensus expectations. The variance was mainly due to the cost savings in the TV division, which in our view is unlikely to be sustainable unless at the expense of content quality. Astro also announced a DPS of 3 sen, bringing 1HFY18 DPS to 6 sen (1HFY17: 6 sen). We have upgraded our FY18 core EPS forecast by 4.3% given the strong 1HFY18 results but we have lowered our FY19-20 core EPS forecasts by 1-10% as we become more cautious given the challenging operating environment outlook. As such, our DCFderived 12-month TP has been lowered to RM2.83. Given the limited upside of 7.6% to our new TP, we downgrade Astro to a HOLD.

Lower Revenue From TV Subscription, Licensing and Home Shopping

Astro’s 1HFY18 revenue declined slightly by 1.6% yoy to RM2.75bn, due to lower contribution from home shopping (due to decrease in number of products sold), TV subscription (due to lower package take-up rate) and licensing (due to loss of content recovery for sports channel), but this was partially offset by higher revenue contribution from TV and radio adex. Astro’s revenue contribution from the TV and home shopping divisions declined by 1.7% and 4.3%, respectively, to RM2.45bn and RM132.3m, while the radio division’s revenue increased by 1.1% to RM160.2m.

1HFY18 Core Earnings Increased by 19.4% to RM446.1m

1HFY18 core net profit increased by 19.4% yoy to RM446.1m, partly due to better margins and a decrease in depreciation. This was above our and consensus expectations, accounting for 58.9% of our previous FY18 forecast and 62.9% of the street’s. The variance was mainly due to cost savings in the TV division, which in our view is unlikely to be sustainable unless at the expense of content quality. Astro announced an interim DPS of 3 sen, bringing 1HFY18 DPS to 6 sen (1HFY17: 6 sen).

Challenging Operating Environment Outlook

Given the challenging operating environment in the media industry, Astro is trying to re-position its business, focusing on executing its key strategies which include: 1) digitalisation of the legacy business via investments in technology and launching of OTT streaming services; 2) rapidly scaling the digital venture via its e-commerce platform (Go Shop) and regional OTT streaming service (Tribe); and 3) building a robust innovation pipeline via collaborative partnerships with leading content players. Astro has ventured into the digital and consumer-based business to complement the group’s existing media platforms, but we believe that these initiatives remain in a gestation period.

Downgrade to HOLD With a Lower TP of RM2.83

We have raised our FY18 core EPS forecast by 4.3% given the strong 1HFY18 results, but we have lowered our FY19-20 core EPS forecasts by 1-10% as we turn more cautious due to the challenging operating environment outlook on growing concern over the declining TV subscription revenue because of the decrease in pay-TV subscribers. As such, our DCF-derived 12-month target price has been lowered to RM2.83. Given the limited upside of about 7.6% to our new TP, we downgrade Astro to a HOLD rating from BUY previously.

Key Risks

The key risks to our call include: 1) much lower/higher-than-expected subscriptions, ARPU and adex growth; 2) an unexpected increase in competition from other pay-TV operators; 3) a sharp drop/increment in consumer sentiment, which could spur churn; and 4) a sharp drop/increment in home-shopping contributio

Source: Affin Hwang Research - 15 Sept 2017