Astro’s FY18 core net profit of RM653m (-13.4% yoy) was below expectations due to weaker than expected EBITDA margins. More importantly, revenue from TV subscriptions continued to shrink (-4% yoy) and likewise margins (-3ppt yoy). ARPU’s also recorded its first decline, which we suspect could be due to high ARPU subs downtrading or churning out. We cut our FY19-20E forecasts to reflect this and our DCF-derived TP is lowered to RM1.85. Downgrade to SELL.

FY18 Results Below Expectation, But Undertone Is Frail

Astro’s FY18 revenue declined marginally by 1.5% yoy to RM5.53bn, mainly due to lower contribution from TV subscription revenue. Although headline net profit is up 24% yoy, after excluding one off items (largely forex gains), FY18 core net profit declined 13% yoy to RM653m, due to weaker EBITDA margins of 32.3% (-3.5ppt yoy), despite lower depreciation and finance charges. Results were below expectations due to weaker than expected EBITDA margins. More importantly, subscription revenue continued to shrink (-4% yoy), compounded by the ARPU decline this quarter. Astro also announced interim DPS of 3.0 sen per share and a final DPS of 0.5 sen, bringing FY18 total DPS to 12.5 sen.

4Q18 Headline Earnings Growth Driven by Unrealised Forex Gains

Sequentially, Astro’s 4QFY18 revenue declined by 0.6% to RM1.4bn whereas core net profit fell by a sharp 27% qoq. EI’s amounting to RM95m comprising largely forex gains contributed to the better 4Q18 headline profit of RM182m (+24% qoq, +25% yoy). Also, while EBITDA margin was slightly firmer (+0.5ppts qoq), a higher effective tax rate and depreciation charges were a drag to earnings. Core TV subscription business remains weak on declining revenue and ARPUs.

Downgrade to SELL With TP at RM1.85

Despite FY18 earnings falling within our expectations, we trim our FY19- 20E core EPS forecasts by 1.4%, mainly to factor in lower package takeup and weaker ARPU growth going forward. In tandem with our earnings cut, our 10-year DCF-derived 12-month target price is lowered to RM1.85 (from RM2.08 previously). We downgrade Astro to a SELL (from HOLD previously) given the weaker earnings forecasts going forward due to the challenges in the media industry.

Source: Affin Hwang Research - 29 Mar 2018