We remain cautious on Astro’s Pay-TV subscription rate which continues to fall on the back of widespread piracy and burgeoning OTT platforms. We note that there are potentially significant catalysts (broadband packages & clampdown on android boxes) but these are very much still work in progress. We tweaked our earnings forecast downward, largely on weakening ARPU and rolled over our DCF base year. At this juncture, we reiterate our HOLD rating (new TP: RM1.44).

Pay-TV Subscription Slides Further in FY19

Astro’s Pay-TV subscription revenue (73% of FY19 revenue) contracted for the third consecutive year, coming in at RM4.0bn in FY19, from a peak of RM4.4bn in FY16. Given the increasing preference for cheaper alternatives such as OTT platforms and accessing pirated content through android boxes, we expect Pay-TV subscription revenue to remain under pressure, as a result of a persistent decline in the number of Pay-TV subscribers and weakening ARPU.

Strengthening Vernacular Content a Priority

Management is focusing on strengthening vernacular content offering given the increasing traction over Hollywood blockbusters and its ability to command higher viewership. The current share of viewership assessing vernacular content stands at c.64% on Astro-branded channel platforms.

Home-shopping Provides Top-line Cushion

Astro’s Go Shop continues to see promising sales growth, generating a total of RM374m in revenue for FY19, up 29.3% yoy. This is on the back of 1.8m registered customers for FY19 as compared to 1.3m customers in FY18. We expect Go Shop to keep up its positive momentum and possibly achieve an EBITDA breakeven in FY20E.

Reiterate HOLD With Lower TP of RM1.44

We tweaked our earnings forecast downward, largely to take into account weakening ARPU, and rolled over our DCF base year. All in, we lower our DCF-derived 12-month target price to RM1.44 (from RM1.60). Given the limited upside, we reiterate our HOLD rating for Astro. We remain cautious over a challenging environment in light of the declining Pay-TV subscription revenue, weakening ARPU and a muted adex outlook.

Source: Affin Hwang Research - 15 May 2019