Period

3Q16/9M16

Actual vs. Expectations

Within expectations. ASTRO reported 3Q16 core PATAMI of RM169m, bringing 9M16 core PATAMI to RM499m which made up 77%/78% of our/consensus’ FY16 estimates. Note that the 9M16 core PATAMI has been adjusted for the unrealised forex losses (of RM87.4m) arising from (i) unhedged finance lease liability for M3B transponder amounting to RM72.9m and (ii) unhedged vendor financing for its STBs amounting to RM14.5m.

Dividends

A third interim single-tier dividend of 2.75 sen was declared (ex-date: 21-Dec), bringing its 9M16 total DPS to 8.25 sen (9M15: 6.75 sen) which came in within expectations. Key Result

Highlights

YoY, 9M16 revenue grew 5%, with sales improvement seen in all segments namely TV (+1%), Radio (+13%) and other segments (>100%). Taking a closer look, organic growth in TV segment was on the back of better subscription revenue underpinned by higher ARPU (RM99.3 vs. RM98.5 a year ago) as well as higher Pay-TV residential subscribers (to 3.53m, +2% YoY). Meanwhile, the group managed to reap in 267k net TV customers in 9M16, driven by strong take-up of NJOI (+43% YoY to 1.16m) and higher TV households’ penetration rate of 66% (vs. 9M15: 62%). For the Radio segment, the improvement in yield and inventory management in line with the strong listenership performance drove the decent performance. The leaps and bounds improvement in “other revenue”, meanwhile, was due to the new revenue stream of merchandise sales from its home-shopping business. Looking at its EBITDA level, margin increased to 35.3% (vs. 34.3% a year ago), sending EBITDA higher to RM1.44b (+8%) thanks to lower content, selling & distribution expenses in spite of higher cost of merchandise sales.

QoQ, 2Q16 revenue came in flat at RM1.37b with the higher merchandise sales (+39%) from home-shopping business negated by weaker lion share revenue contributorssubscription and adex. Coupled with the higher content costs as well as marketing, selling and distribution expenses, EBITDA margin decreased by 1.3%, sending EBITDA lower (-3%) to RM474m.

Outlook

Despite the challenging operating environment as well as softer consumer sentiment, management remains hopeful to achieve: (i) mid-to-high single digit revenue growth, with the assumption of decent subscription rate and robust growth in merchandise sales, and (ii) EBITDA margins of at least 31- 32% despite the escalation of content cost (with major sports events), for FY17; a forecast which is also shared by us.

Meanwhile, management’s FY17 Free Cash Flow guidance of RM1.1b-RM1.15b is also supportive of our dividend payout assumption of RM910m. Change to forecast

We leave our FY16E-FY17E earnings unchanged for now.

Rating

Maintain OUTPERFORM due to its resilient earnings and decent dividend yield

Valuation

Our DCF-derived TP remained unchanged at RM3.30. This is 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 24.3x which is close to -1SD below its 3-year PER mean.

Risks to Our Call

Lower-than-expected subscriber growth.

Higher content cost.

Source: Kenanga Research - 9 Dec 2015