Period  4Q14/FY14

Actual vs. Expectations Within expectations. Astro recorded 4Q14 net profit (NP) of RM111.4m (-10% QoQ, +34% YoY), taking its FY14 NP to RM448.0m (+7% YoY) which made up 99% and 101% of our and the consensus full year estimates, respectively.

Dividends  Above expectation. A fourth interim single-tier dividend of 2.0 sen and a final single-tier dividend of 1.0 sen was declared, bringing YTD net dividends to 9.0 sen, translating into 2.8% net yield, vs our and the consensus’ expected FY14 total net DPS of 7.0 sen and 7.7s sen, respectively. This represents a 105% dividend payout ratio.

Key Result Highlights YoY, FY14 revenue saw a decent growth of 12%, 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 in subscription revenue on the back of a higher ARPU of RM96.0 (+3%, driven by the higher take-up in value-added services such as HD and PVR) and higher pay TV subscribers of 3.442m (+166k as of YTD). Meanwhile, the Radio segment’s revenue growth was driven by the consistent strong listenership rating coupled with an improved sales tactical campaign, which supported Radex growth. While NP registered a higher growth of 7% due to the lower effective tax rate, PBT dropped by 1% as the robust growth in Radio segment (+29%) was offset by the lower PBT in TV segment (-16%) as a result of higher selling and distribution costs in relation to the aggressive customer acquisition coupled with higher content costs.

 QoQ, 4Q14 revenue came in 4% higher underpinned by moderate growth in TV segment (+4%, contributed by an increase in subscription revenue on the back of stable ARPU growth and higher residential subscribers) and Radio segment (+7% driven by year-end festivities). Despite higher top line growth, PBT decreased by 16%, dragged down by lower PBT in TV segment due to the higher depreciation of STB and net finance costs.

Outlook  While we maintain our conservative stance in view of: (i) the ongoing subsidy rationalisation plan that could slow down the consumer spending, and therefore potentially translate into slower subscription rate and higher churn and (ii) the sluggish IPTV subscription (the group had only garnered c.10k subscribers with c.26k in total since the official launch of Maxis-Astro IPTV services), we expect FY15 NP to rebound by 35% driven by higher EBIT margin assumption of 18.2% (+2.0ppts YoY) on the back of lower STB expenses given the lower STB swap-out (penetration of customers with B.yond STB is already at 84% which we believe Astro is unlikely to push aggressively for conversion).

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

Rating Maintain MARKET PERFORM.

Valuation  Our DCF derived TP has been marginally increased to RM3.14 (from RM3.10) based on a 10-year explicit

DCF valuation with the following assumptions: (i) WACC: 8.9%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%. Our TP also implies a FY15 PER of 26.6x.

Risks to our call Lower than expected subscriber growth.

 Escalation of content cost.

Source: Kenanga