Astro’s 9MFY19 core net profit of RM459.2m (-24.7% yoy) was above our and consensus expectations. The variance to our forecast was mainly due to lower-than-expected operating costs. We revise upwards our FY19 core EPS forecast by 14.1% given the strongerthan-expected results, but maintain our FY20-21 core EPS forecasts. Given the recent share price correction and the upside of 37% to our unchanged 12-month TP of RM1.77, we now upgrade Astro to a BUY rating from HOLD. The dividend yields for FY19-21E at 7.7-8.1% are also attractive.

Lower Revenue From TV and Radio Segments

Astro’s 9MFY19 revenue declined marginally by 0.8% yoy to RM4.11bn, mainly due to a decrease in revenue from TV subscription (-4% yoy) and radio (-11% yoy), but this was partially offset by an improvement in merchandise sales, licensing income and sales of programme broadcast rights. ARPU for 9MFY19 trended lower to RM99.9 from RM100.7 in 9MFY18, which was also its recent peak. After excluding one-off items, Astro’s 9MFY19 core earnings came in above expectations at RM459.2m (-24.7% yoy), accounting for 84% of our previous full-year forecast and 79% of the consensus. The variance to our forecast was largely attributable to lower-than-expected operating costs.

Adex Shines Through 3QFY19

Astro posted 3QFY19 revenue of RM1.38bn, declining by 2.3% qoq mainly due to lower TV subscription and radio contribution but this was partially offset by higher contribution from adex and the home shopping division. The qoq rebound in adex was on the back of an increase in advertising spend by telcos and on launches of new devices. Sequentially, core net profit was up >100% to RM196m, coming from a relatively low base (due to World Cup costs in 2QFY19). The EBITDA margin improved to 34.5% from 22% in 3QFY18, largely attributable to lower content and merchandise costs. We also note that the home shopping division turned EBITDA positive for the first time since its launch 3 years ago. Astro has declared an interim DPS of 2.5 sen, bringing the 9MFY19 DPS to 7.5 sen (9MFY18: 9 sen).

Upgrade to BUY with an unchanged TP of RM1.77

In light of the better-than-expected 9MFY19 results, we raise our FY19E core earnings by 14.1%, but maintain our FY20-21E earnings. Nevertheless, we are concerned over slipping TV subscriptions, which would have a more detrimental impact on valuations should the decline accelerate. Unless there is a turnaround here, we would remain fairly cautious. Nevertheless, the pullback in the stock price and attractive dividend yields (7.7-8.1% for FY19-21E) have turned the stock attractive for a short-term proposition. We upgrade Astro to a BUY (from HOLD) as the recent share price correction (-54.4% over the past 12 months) seems overdone, in our opinion. Our TP is unchanged at RM1.77, which is derived from a 10-year DCF valuation (upside potential of 37% to our TP; CoE of 10% and terminal growth of 0%).

Key Risks

Key risks to our BUY call include: 1) lower-than-expected subscriptions and ARPU; 2) a sharp fall in consumer sentiment leading to a sharp adex decline; and 3) a significant decline in contribution from the home shopping segment.

Source: Affin Hwang Research - 6 Dec 2018