News

News reported that Astro had won the rights to broadcast English Premier League (EPL) matches for the next three seasons from 2016/2017 to 2018/19.

The agreement will see all 380 EPL matches every season being made available live on Astro TV in full high definition and on all mobile devices via Astro on the Go (AOTG).

Comments

The securement of the live EPL broadcasting rights is expected to provide another solid reason for its sport subscribers to continue with their subscriptions. EPL is one of the treasures of Astro’s programmes where about 40% of its 3.5m Pay-TV subscribers are signed up for its sports package.

While it is not known exactly how much Astro is paying for the broadcasting rights, news had earlier reported that Astro paid between RM600m-RM700m for the 2013/2016 EPL rights. In view of the Ringgit depreciation, we would not be surprised if the final price tag is higher by another 15%-30%.

Management earlier guided an approximate amount of RM1.9b content costs in FY17 (or 37% of its TV segment’s revenue vs. the usual 32%-35% range) to reflect the additional broadcasting rights in various sport events as well as the unfavourable forex. Thus, the escalating content costs may leave Astro no choice but to revise its subscription fee moving forward.

Outlook

While Astro believes its Pay-TV segments’ subscription growth rate could remain sluggish (as a result of the challenging economic outlook), its subscription-free satellite TV - NJOI services, are expected to continue to lure more subscribers and drive the TV household penetration rate to 83% by year 2021 from the current 66%.

Home Shopping business’s prospect, meanwhile, remains bright in view of the rising e-commerce trend and ability to cross sell its products to multiple platforms.

Forecast

No change in our FY16/FY17 earnings estimates as we had earlier factored in higher content costs into our financial model.

Rating

MAINTAIN OUTPERFORM in view of its relative resilient earnings as well as decent dividend yield.

Valuation

Maintain our DCF-driven (WACC: 9%; Beta: 1.0; Terminal Growth: 1%) target price at RM2.93.

Risks to Our Call

Weaker-than-expected subscribers’ number and higher content costs.

Source: Kenanga Research - 5 Feb 2016