Astro posted a FY20 core net profit of RM717.2m, coming in within our expectation, largely due to lower opex, in particular marketing and administrative expenses and costs normalising post the 2018 FIFA World Cup. We expect Astro’s FY21 earnings to be impacted by the slower economy due to Covid-19, but see a slight improvement in FY22 underpinned by sporting events (Tokyo Olympics and Euro League Cup) being postponed to 2021. Following our earnings revisions, we lower our DCF-derived TP to RM0.90 from RM1.15. We downgrade Astro to HOLD from Buy given the potential upside to our new TP is now only 8.4%.

Higher FY20 Earnings Due to Lower Opex, Within Expectations

Astro’s FY20 revenue declined by 10.4% yoy to RM4.91bn, as lower contributions were seen across all of the group’s segments (TV, radio and home shopping). In particular, TV subscriptions fell 9.5% yoy, partly as a result of a continued lower package take-up rate. Positively, the top-line disappointment was largely offset by an expansion in EBITDA margin of 5.2ppt to 36.2%. This was partly attributable to content costs normalising post the 2018 FIFA World Cup, lower marketing and distribution expenses as well as lower staff costs due to the separation scheme exercise carried out in end-2018. For FY20, core earnings came in at RM717.2m (+17.4% yoy), accounting for 98% of our full-year estimate – within expectations.

Sequentially Net Profit Was Weaker

On a qoq basis, revenue was marginally higher by 0.8% to RM1.23bn due to an increase in merchandise sales, sales of programming rights and ad revenue, but partially offset by lower subscription revenue. However, qoq the EBITDA margin was lower at 31.8%, a decline by 6.1 ppt, due to higher content costs and marketing and distribution expenses in 4QFY20. In tandem, Astro’s core net profit (excluding one-off items) was lower by 33.6% qoq to RM128.7m. Astro has also announced an interim DPS of 1.5 sen, bringing total FY20 DPS to 7.5 sen (vs FY19: 9 sen).

Source: Affin Hwang Research - 26 Mar 2020