Period  4Q15/FY15

Actual vs. Expectations  In-line. Astro recorded 4Q15 net profit (NP) of RM140.0m (+24% QoQ, +26% YoY), bringing its fullyear NP to RM519.4m (+16% YoY) that made up 102% of our, and 101% of consensus, full-year estimates.

 Higher-than-expected DPS was the main surprise in its 4Q15 results announcement.

Dividends  A total 4.25 sen (which comprised of a fourth interim single-tier dividend of 2.25 sen (with an ex-date at 14- April) and a final single-tier dividend of 2.0 sen) was declared, bringing its full-year net DPS to 11.0 sen (FY14: 9.0 sen) which implies 110% dividend payout ratio.

 The full-year dividend of 11.0 sen is above our (8.8 sen) as well as the street’s estimate of 9.4 sen.

Key Result Highlights  YoY, FY15 revenue grew 9%, driven by the TV segment (+9%) and Radio segment (+6%). The former was mainly driven by higher subscription, advertising and other revenue. The increase in subscription revenue was due to higher ARPU by RM3.00 (from RM96 to RM99) and higher Pay-TV residential subscribers by 67.3k (to 3.51m). Its advertising revenue improved by 1% to RM589m mainly driven by festive seasons and FIFA World Cup. The increase in other revenue, meanwhile, was mainly due to an increase in licensing income (RM82.2m) and merchandise sales of RM25.1m from home-shopping business. Meanwhile, looking at the Radio segment, the higher revenue performance was mainly driven by the pricing and inventory strategies in line with the strong listenership performance.

 Despite higher revenue growth, EBITDA margin merely improved to 34.6% (FY14: 33.7%) in FY15 due to higher content costs arising primarily from key sporting events.

 QoQ, 4Q15 revenue improved by 5% mainly driven by higher subscription (as a result of higher ARPU by RM0.50 and improved Pay-TV net add of 138k (3Q14: 128k)) and other revenue. The increase in other revenue is due to its maiden merchandise sales of RM25.1m from home-shopping business and licensing income of RM5.5m. EBITDA margin increased by 2% due to lower content costs and lower professional and consultancy fees.

Outlook  The encouraging maiden result recorded in its homeshopping business in 4Q15 has led Astro to have higher confidence in this segment. Astro is aiming to achieve RM150m-RM160m turnover in FY16, although it is still expecting to record minimal loss at the EBITDA level.

 Meanwhile, the group is also aiming to grow its revenue through: (i) monetarising its content capability, (ii) continuing to improve ARPU through product upselling, and (iii) optimising content cost.

Change to Forecasts  Post-results, we have raised our FY16E NP by 4.3% to account for higher net adds in Pay TV subscribers as well as lower content costs (33% vs 34% of its TV revenue). Meanwhile, we also introduce our FY17E numbers, where we expect Astro’s net profit to growth 29% YoY on the back of higher turnover, lower depreciation costs and operating expenses.

Rating Upgraded to MARKET PERFORM from UNDERPERFORM previously.

Valuation  Post earnings revision, we have raised our DCF-derived TP to RM3.38 (from RM2.98 previously) 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 FY16E PER of 28.1x.

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

 Higher content cost.

Source: Kenanga