Feeling the Blues From FIFA World Cup

Astro’s 1HFY19 core net profit of RM239.3m (-48% yoy) was below our and consensus expectations. The slump in earnings was primarily driven by the jump in content cost from the recently concluded FIFA World Cup. We revise downwards our FY19-21 core EPS forecasts by 8.7-20.5%, given the challenging outlook for Astro. We lower our DCF-derived 12-month TP to RM1.77, but maintain our HOLD rating on Astro.

Severely Dragged Down by Higher Content Costs

Astro’s 1HFY19 revenue declined slightly by 0.7% yoy to RM2.27bn, mainly due to a decrease in subscription revenue (-5% yoy due to lower package take-up) but this was offset by an increase in merchandise sales, licensing income and sales of programme broadcast rights. ARPU for 1HFY19 trended lower to RM99.9 from RM100.8 in 1HFY18, which was also its recent peak. The EBITDA margin declined to 29.3% from 37.2% in 1HFY18, attributable to higher content costs from the FIFA World Cup (making up 48% of total TV revenue for 2QFY19) and higher merchandise costs. Excluding one-offs, 1HFY19 core earnings came in at RM239.3m (-48% yoy). This is below our and consensus expectations, accounting for 35% and 36% of the respective full-year forecasts. The variance was mainly due to higher-than-expected content costs and interest expenses.

Better Top-line Sequentially, But Not Enough to Offset Higher Costs

Astro’s 2QFY19 revenue increased by 8.1% qoq attributed to higher sales of World Cup passes and an increase in ads sales during the Hari Raya celebration. However, core net profit was down from RM182m to RM57m in 2QFY19 due to higher content costs and interest expenses. Astro has declared an interim DPS of 2.5 sen, bringing the 1HFY19 DPS to 5 sen (1HFY18: 6 sen).

Maintain HOLD With a Lower TP of RM1.77

Given that 2QFY19 results fell below our expectations, we revise downwards our FY19-21 core EPS forecasts by 8.7-20.5% as we turn more cautious due to the challenging operating environment outlook on growing concerns over: 1) the declining TV subscription revenue as the number of Pay-TV subscribers trends downward; 2) higher content costs for sporting events; and 3) continued weakness in the advertising segment. Hence, we lower our DCF-derived 12-month target price to RM1.77 (from RM1.90 previously), but maintain our HOLD rating on Astro.

Risks

The key risks to our HOLD call includes: 1) much higher/lower-thanexpected subscriptions and ARPU; 2) a sharp improvement/fall in consumer sentiment leading a sharp adex growth/decline; and 3) a significant increment/decline in contribution from the home shopping segment.

Source: Affin Hwang Research - 27 Sept 2018