Period

2Q16/1H16

Actual vs. Expectations

Below expectation. Astro’s 1H16 PATAMI of RM306m (15% YoY) came in below our, but within the street, full-year estimate, at 44.6% and 47.5%, respectively. Note that, the 1H normally made up c.47%-52% of the full-year NP, based on the past three-year financial performance. Stripping off the unrealised forex losses of RM9.2m (due to revaluation of M3B transponder lease liability), its normalised PATAMI stood at RM315m in 1H16.

The key discrepancy on our end was mainly due to the higher-than-expected finance costs in 2Q16 as a result of discounting of transponder’s deposit to its present value of RM22.0m and unrealised forex impact.

The double-digit YoY growth in 1H16 PATAMI was mainly driven by: (i) higher EBITDA on the back of lower content, marketing and selling & distribution costs, and (ii) lower dep. and amortisation costs.

Dividends

A second interim single-tier dividend of 2.75 sen was declared (ex-date: 30-Sept), bringing its 1H16 total DPS to 5.5 sen (1H15: 4.0 sen). Key Result

Highlights

YoY, 1H16 revenue grew 4%, driven by the TV segment (+0.5%), Radio (+14%) and other revenue segment. The former was mainly driven by better subscription revenue on the back of higher ARPU (RM99.1 vs. RM98.0 a year ago) as well as higher Pay- TV residential subscribers (to 3.52m, +1% YoY). The increase in other revenue, meanwhile, was mainly due to an increase in merchandise sales from its homeshopping business. Meanwhile, looking at the Radio segment, the higher revenue performance was mainly driven by the yield and inventory management in line with the strong listenership performance.

EBITDA improved by 6% to RM962m in 1H16 with margin increasing to 35.6% (vs. 34.7% a year ago), thanks to lower content, selling & distribution expenses but partially offset by higher cost of merchandise sales and impairment of other investments.

Astro added 161k net TV customers in 1H16, underpinned by strong take-up of NJOI (+58% YoY to 1.07m) and higher TV households’ penetration rate of 65% (vs. 1H15: 60%)

QoQ, 2Q16 revenue climbed by 3% due to an increase in subscription, advertising, radio and other revenues. EBITDA, meanwhile, improved by 4% to RM489m with margin inching higher to 35.7% (vs. 1Q16: 35.5%) as a result of lower selling and distribution expenses.

Outlook

Despite the challenging operating environment coupled with softer consumer sentiment, management remains hopeful to achieve (i) mid-to-high single digit revenue growth, (ii) low-teens for EBITDA growth (on the back of higher operational efficiency), and (iii) high-teens/low 20s for net profit growth.

In view of the sturdy performance in its home-shopping business (1H16 revenue: RM74m), Astro will launch its second Go Shop channel in the Chinese language to cater to different customer segments in Nov 2015.

Astro highlighted it has hedged 100%/40% of the content costs for FY16/FY17. Thus, its content costs would remain at c.32% of TV revenue for FY16 and at 32%-35% range for FY17.

Change to forecast

Post-results, we have lowered our FY16/17E core NPs by 5.1%/4.1%, after lowering our ARPU assumption and raising the finance costs charges to reflect the current run-rate.

Rating

Maintain OUTPERFORM .

Valuation

Post-earnings revisions, we lowered our DCF-derived TP to RM3.30 (from RM3.38 previously) based on a 10-year explicit DCF valuation with the assumptions of (i) WACC: 8.9%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%. Our TP also implies a FY16E PER of 24.3x.

Risks to Our Call

Lower-than-expected subscriber growth.

Higher content cost.

Source: Kenanga Research - 17 Sep 2015