Period     1QFY14/3MFY14

Actual vs.  Expectations      The group reported a 1QFY14 net profit of RM114m, making up 24% of ours and the consensus full year estimates respectively, which was within expectations. 

Dividends    A first interim single-tier dividend of 2.0 sen was declared, which was also within expectations. This implies a dividend payout ratio of c.91%. 

Key Result Highlights     YoY, the 1QFY14 revenue saw a decent growth of 14%, underpinned by the higher revenue growth in the TV segment (+15%) and Radio segment (+13%). The revenue growth in the TV segment was mainly driven by an increased subscription revenue on the back of a higher ARPU of c.RM94 (+4%, driven by the higher take-up in value-added services such as HD and PVR) and higher pay TV subscribers of 3.316m (with net adds of +207k YoY or +40k QoQ). Meanwhile, the Radio segment’s revenue growth was driven by the consistent strong listenership rating, which supported Radex growth. However, the PBT number dropped by 8% as the robust PBT growth in the radio segment (+32%) was offset by the lower PBT in the TV segment (-9%). Delving deeper, the lower TV’s PBT was mainly dragged down by the higher installation, marketing and distribution cost as well as higher depreciation & amortisation charges on the back of the heavy swapout of B.yond STB.

QoQ, the 1QFY14 revenue marginally decreased by 1.0% as a lower advertising revenue of c.RM114m (-20%) was offset by a higher subscription revenue of c.RM973m (+2%). However, the PBT increased by 37% due to lower net finance costs and a higher EBITDA margin of 33.8% (+3.2ppts) as a result of lower marketing and distribution costs and lower amortisation of film library and program rights.

Outlook    We believe Astro's outlook will remain intact underpinned by: i) a decent subscriber growth on the back of the encouraging subscription of its Maxis-Astro IPTV offering and its pay-TV services ii) a sustainable ARPU growth driven by the take-up of more valueadded services.

Change to Forecasts    Our FY14 net profit forecasts have been slightly lowered by 1% after incorporating the 1QFY14 results.

Rating  Maintain OUTPERFORM

Valuation     Our TP of RM3.29 remained unchanged. This is based on a 10-year explicit DCF valuation (WACC: 8.9%, Beta: 1.0, Terminal growth: 1%), and implies a FY14 PER of 36.0x.

Risks    Lower than expected subscriber growth. 

Escalation of content cost.

Source: Kenanga