Period  2Q15

Actual vs. Expectations Within expectations. Astro recorded 2Q15 net profit (NP) of RM137.8m (+7% QoQ, +39% YoY), taking its 1H NP to RM266.1m (+25%) which made up 47% and 50% of our fullyear forecast and the consensus, respectively.

Dividends  As expected, a second interim single-tier dividend of 2.25 sen was declared, bringing 1H net DPS to 4.5 sen which implies 88% dividend payout ratio. For FY15, we expect the group to declare a net DPS of 9.9 sen.

Key Result Highlights YoY, 1H15 revenue grew 12%, driven by the TV segment (+13%) and Radio segment (+9%). Delving deeper, the revenue growth in TV segment was mainly driven by much higher “other revenue” (+243% to RM93.7m, which was due to the monetisation of the major eventful sports and movie contents), and further lifted by a steady increase in subscription revenue (+9% on the back of ARPU of RM98.0 or +3% and pay TV subscribers of 3.486m or +45k as of YTD, although at a slower pace by minus 45%). Besides, TV adex also grew by 6% with higher adex share (+2ppts to 37%) in the total industry adex. Meanwhile, looking at the Radio segment, revenue growth was driven by the consistent strong listenership rating, which supported Radex growth. At the PBT level, the group’s registered a broader growth of 26% due to higher other operating income (+212% to RM36.3m, mainly on the re-lease of transponder T-11 back to MEASAT Satellite Systems, amounted to RM23.6m) coupled with the lower installation and marketing & distribution costs.

 QoQ, 2Q15 revenue increased by 8% as the seasonally stronger TV & Radio adex (+39% & +35% on the back of higher adex share taken as well as the festive season and FIFA World Cup event) offset the sluggish pace of growth in subscription revenue (+3%). At the EBITDA level, the group registered a narrower growth of 5% due to the compressed margin (-0.9ppts to 34.3%) on the back of increase content costs in conjunction with the key sporting events.

Outlook  While we expect FY15 EBITDA margin to normalise back to 34.4% (+0.7ppts) on the back of lower swap out and lower sales and installation costs, we are cognisant of: (i) the ongoing subsidy rationalisation plan that could slow down consumer spending, which might translate into slower subscription rate and higher churn and (ii) the sluggish IPTV subscription (the group had only garnered c.17k subscribers with c.33k in total since the official launch of Maxis-Astro IPTV services).

Change to Forecasts Post-results, we have fine-tuned our FY15E NP by -2% for house keeping purposes. We also introduced our FY16E NP  of RM647.0m (+15% YoY on the normalisation of EBIT margin (+20.5% or 3.4%) as we assume majority of the Astro’s subscriber base would have migrated to the new B.yond STB, thus leading to lower depreciation &_amortization charges.

Rating Maintain UNDERPERFORM. Although the group’s subscription business are relatively defensive in nature as compared to other media companies, its current valuation appears to be overstretched (with FY15 PER of 31.3) thus capping its potential upside. Coupled with the lack of rerating catalysts and challenging industry outlook, we prefer to err on the conservative side for now.

Valuation  We maintain our DCF derived TP of RM3.10 based on a 10-year explicit DCF valuation with the following assumptions: (i) WACC: 8.8%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%. Our TP also implies a FY15 PER of 28.7x.

Risks to Our Call Higher-than-expected subscriber growth.

 Better content cost.

Source: Kenanga