Astro’s FY19 core net profit of RM607.7m (-10.3% yoy) came in within our and street expectations, accounting for 97% and 106% of forecasts respectively. The main culprits for the decline in earnings yoy were largely due to lower contribution from the Pay-TV subscription and radio segment. The final DPS of 1.5 sen this quarter was however below expectations. Full year DPS of 9 sen was 28% lower yoy, also suggesting that the previously high yields the stock offered may not be sustainable. In view of the challenging environment, especially with the threat of piracy, we revise downwards our FY20-21E forecasts by 7-9%. In tandem with our earnings cut, we are downgrading Astro to HOLD (from BUY) given the limited upside.

FY19 Core Earnings Within Expectations

Astro’s FY19 revenue declined marginally by 0.9% yoy to RM5.5bn, mainly attributable to decline in TV subscription (-4.7% yoy) and radio (-9.4% yoy) segments but partially offset by an increase in contribution from home shopping (+29.3% yoy). ARPU remains unchanged at RM99.90 for FY19 as compared to FY18. After excluding one-off items, Astro’s FY19 core earnings came in within our expectations at RM607.7m (-10.3% yoy), accounting for 97% of our previous full year forecast and 106% of the consensus. Meanwhile, Astro announced a final DPS of 1.5sen per share, amounting to a lower full year DPS of 9.0sen (FY18: 12.5sen).

Dwindling Pay-TV Subscription Remains a Concern

Sequentially, Astro posted 4QFY19 revenue of RM1.37bn, declining by 1.1% qoq mainly on the back of lower TV subscription (driven by lower package take-up) but offset by higher contribution from adex, radio and the home shopping division. Dwindling Pay-TV subscriber base continues to be a major concern, amidst the challenging content and media environment, coupled with widespread piracy issues. However, we note that management is focused on revenue diversification efforts, by leveraging on its biggest assets: i) large customer base and ii) diversified content to drive further value proposition through endeavours including new broadband bundles, enhanced membership privileges & rewards and introduction of new technology platform to better address individual users.

Downgrading to HOLD With a Lower TP of RM1.60

Despite FY2019 earnings falling within our expectations, we lower our core earnings forecasts for FY20-21E by 7-9% mainly in consideration of the challenging operating environment, especially with the threat of widespread piracy. We remain concern over slipping Pay-TV subscriptions, coupled with lacklustre adex sentiment in the near term. In tandem with the earnings cut, we are downgrading Astro to a HOLD rating (from BUY) given the limited upside of 4.0%. Our revised TP of RM1.60 (from RM1.77 previously) is derived from a 10-year DCF valuation.

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 - 27 Mar 2019