Astro’s 1QFY19 core net profit of RM182m (-5% yoy) was slightly below our expectations. The decline in earnings was largely due to lower contribution from its TV and radio segments, but partially offset by an increase in home shopping contribution. We trim our FY19-21E core EPS forecasts by 4.5-6.5%, given the continuous challenges in the Malaysian media industry. However, in view of the recent share price correction and after rolling forward our DCF base year, we upgrade Astro to HOLD with TP at RM1.90.

Lower Revenue Across TV and Radio Divisions

Astro’s 1QFY19 revenue declined slightly by 1.1% yoy to RM1.31bn, mainly due to a decrease in subscription revenue (-6% yoy due to lower package take-up) but offset by higher adex (+17% yoy driven by 2018 Chinese New Year spending), sales of programming rights and homeshopping sales. Radio’s revenue of RM67.5m was lower by 6% yoy, due to unfavourable operating environment leading to lower advertising spend. ARPU for 1QFY19 trended lower to RM99.6 from 1QFY18: RM100.8, which was also its recent peak ARPU. Although not disclosed, we estimate that subs would have also declined this quarter. While EBITDA margin improved to 35.7% from 34.4% in 1QFY18, this was partly attributable to lower content costs for the quarter (as there were no major sports event during the quarter). After EI’s, Astro recorded a 1QFY19 core profit of RM182m (-5% yoy), which is slightly below our expectations. The variance was mainly due to weaker contribution from the TV and radio divisions.

Core Net Profit Sequentially, But Only Due to Low Base in 4QFY18

Sequentially, Astro’s 1QFY19 revenue and net profit declined by 5.6% and 4% qoq to RM1.31bn and RM175m respectively. After stripping off EI’s amounting to RM7.4m comprising mainly of unrealised forex loss as well as fair value loss arising from interest rate and forex rate risk, core net profit was up from RM86m to RM182.1m in 1QFY19 due to 7.6ppts qoq expansion in EBITDA margin. Astro has declared an interim DPS of 2.5 sen, lower than DPS of 3.0 sen declared in 1QFY18.

Possibility of Privatisation of Astro

Relating to the recent spate of news in relation to the possibility of Astro being privatised by its major shareholder, management has clarified through an announcement on Bursa that at this juncture, no formal privatisation proposal has been received by Astro.

Source: Affin Hwang Research - 7 Jun 2018