Period  3Q14/9M14

Actual vs. Expectations Within expectations. Astro recorded 3Q14 net profit of RM123.8m (+25% QoQ, +5% YoY), taking its 9M14 NP to RM336.6m (+1% YoY) which made up 73% and 74% of ours and the consensus full year estimates respectively.

Dividends  As expected, a third interim single-tier dividend of 2.0 sen was declared, bringing YTD net dividend to 6.0sen which represents 2.1% net yield. We are expecting total net DPS of 7.0sen to be declared in FY14.

Key Result Highlights YoY, 9M14 revenue saw a decent growth of 13%, underpinned by the higher revenue growth in TV segment (+13%) and Radio segment (+15%). Delving deeper, the revenue growth in TV segment was mainly driven by an increase of subscription revenue on the back of a higher ARPU of RM95.6 (+4%, driven by the higher take-up in value-added services such as HD and PVR) and higher pay TV subscribers of 3.402m (+126k as of YTD). Meanwhile, the Radio segment’s revenue growth was driven by the consistent strong listenership rating coupled with improved sales tactical campaign, which supported Radex growth. However, at the PBT level, PBT dropped by 4% as the robust growth in Radio segment (+35%) was offset by the lower PBT in TV segment (-17%) as a result of higher selling and distribution costs in relation of the aggressive customer acquisition coupled with higher content costs.

 QoQ, 3Q14 revenue came in flat by +2% as the growth in TV segment (+3%, contributed by both stable subscription and higher licensing income and sale of decoders for NJOI customers) was offset by the lower revenue in Radio segment (-3%, reflective of the normalisation after the higher Radex in 2Q14 amidst Hari Raya festival previously). Despite of lower top line growth, PBT surged by 16% thanks to the lower net finance costs due to lower interest cost.

Outlook  We are cognisant of the increasingly higher churn rate of 9% (vs. 8% previously) and the sluggish IPTV subscription (notably, the group had only garnered c.9k subscribers YTD, with c.7k in total since the official launch of Maxis-Astro IPTV services.)

 Coupled with i) the ongoing subsidy rationalisation plan that could slow down the consumer spending as well as the adex sentiment; ii) retaliation plan from its competitors e.g. carriage of certain BPL matches by TM which corroded the competitive edge of ASTRO being the exclusive BPL content provider, we prefer to err on the conservative stance for now.

Change to Forecasts Post 3Q14 results, we have fine-tuned our FY14 and FY15 net profit forecasts by -1 to -2% for house keeping purposes.

Rating Maintain MARKET PERFORM.

Valuation  Our DCF derived TP has been trimmed to RM3.10 (from RM3.14). 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 35.2x.

Risks to our Call Lower than expected subscriber growth.

 Escalation of content cost.

Source: Kenanga