Astro posted a strong 6MFY20 core net profit of RM394.7m (+48% yoy), largely due to content costs normalising post the 2018 FIFA World Cup as well as an overall reduction in marketing and administrative costs. The result came in above our and street expectations, accounting for 64% and 63% of respective FY20 forecasts. Given the stronger-than-expected results, we revise up our FY20-22E core EPS forecasts by 11-13%. Meanwhile, its TV subscription revenue decline appears to have been arrested and may sustain dividend yields at an attractive c.6%. Upgrade Astro to BUY (from Hold) based on a higher DCF-derived TP of RM1.62.

6MFY20 Core Earnings at RM394.7m, Above Expectations

Astro’s 6MFY20 revenue declined by 9.4% yoy to RM2.5bn, mainly due to a decline in contributions from its TV subscription (-8.8%), radio (-12.4%) and home-shopping (-1.7%) divisions. However, this was partially mitigated by an increase in TV advertising revenue (+5% yoy). Positively, its EBITDA margin for 6MFY20 improved yoy by 8.8ppt to 37.5%, mainly due to content costs normalising post the 2018 FIFA World Cup coupled with an overall reduction in marketing and administrative expenses. In tandem with the margin improvement, 6MFY20 core earnings came in above expectations at RM394.7m (+48% yoy), accounting for 64% and 63% of our and the street’s FY20 forecasts respectively. The variance to our forecast was largely due to lower-than-expected operating costs.

Weaker Sequentially on Higher Content Costs

Revenue was flattish sequentially at RM1.2bn (+0.2%). The decline in TV subscription revenue was offset by an increase in advertising revenue and merchandise sales driven by the festive season during the quarter. However, core earnings declined 17% to RM179.4m as margins were lower partly due to higher content costs. Astro announced an interim DPS of 2 sen, bringing total 6MFY20 DPS to 4 sen (vs 6MFY19: 5 sen). We note that DPS is lower yoy despite the better earnings performance, as management may well be seeking to conserve cash in view of the overall challenging market. We project FY20E DPS at 8sen, assuming a 60% payout ratio.

Source: Affin Hwang Research - 13 Sept 2019