FY17 core PATAMI of RM648m came in within expectation, mainly underpinned by higher e-commerce and adex revenues. A fourth interim single-tier dividend of 3.5 sen was announced. Post-results, we lowered our FY18E core PATAMI by 12% and introduced FY19 numbers. Our stock rating on ASTRO, meanwhile, is maintained at OUTPERFORM but with lower DCF-driven target price of RM3.00 (from RM3.02 previously).

In line. FY17 core PATAMI of RM648m (-2% YoY) came in within expectations at 101%/99% of our/consensus full-year estimates, mainly driven by higher performance in e-commerce and adex but partially offset by lower subscription revenue. Note that the normalised PATAMI excluded post-tax impact of unrealised forex loss of RM34m due to revaluation of M3B transponder lease liability.

As expected, a fourth interim single-tier dividend of 3.5 sen was declared (ex-date: 10-Apr), bringing the FY17 DPS to 12.5 sen (vs. 12.0 sen a year ago as well as our 12.8 sen estimate) and representing a dividend pay-out ratio of 101% and dividend yield of 4.4%.

YoY, FY17 revenue improved by 3%, driven by the Radio (+11%) and Home Shopping (+38% to RM261m) segments. The former was mainly driven by the effective yield and inventory management while the latter was boosted by increased numbers of products sold following the launch of the Chinese channel. The TV segment turnover, meanwhile, was up marginally by 1% as the increase in advertising and other revenue was partially offset by lower subscription revenue. EBITDA, meanwhile, dipped by 6% with margin lower by 310 bps to 32.4% due to higher content costs as a result of major sport events and impact of weakening MYR. QoQ, 4Q17 revenue was lower by 2% to RM1.4b as the higher subscription revenue (thanks to marginally higher ARPU (RM100.4 vs. RM99.9) and subscribers) was offset by the lower advertising and home-shopping segment performance (due to higher number of pending deliveries contributed by flooding in selected areas and resource issues faced by logistic partners). ASTRO’s Pay-TV segment churn rate declined to 11.9% (vs. 12.4% in 3Q17) following a net increase in subscribers of 24.1k. Group’s EBITDA margin, meanwhile, weakened by 90bps to 31.8% due mainly to lower turnover as well as higher impairment of receivables.

Outlook. Moving into FY18, management expects: (i) its home-shopping business revenue to record c.500m (driven mainly by higher customer base and product orders as well as to provide more value propositions to a different targeted group), (ii) zero net adds in its Pay-TV segment (due to cautious mode on spending) but with higher targeted ARPU of RM103 (driven mainly by digital transformation, monetarise NJOY (with higher prepaid take-up rate), and capitalize per event sales (i.e. sport event)) with an aim to achieve RM115 over the next 5 years, (iii) content cost at c.34%-35% (of TV revenue), of which 75% of the required content cost have hedged at above RM4.00 but below the current spot rate, (iv) cash capex of c. RM270m-RM280m, and (vi) EBITDA margin maintained at c.32%. All in all, we concur with the management.

Post-results, we lowered our FY18E core PATAMI by 12%, after raising our D&A estimate and taking management’s latest guidance into consideration. Meanwhile, we also introduce our FY19 numbers, where we expect ASTRO’s net profit to growth by 8% on the back of higher revenue and stable D&A expenses. We lowered our DCF-derived target price to RM3.00 (from RM3.02 previously), based on a 10-year explicit DCF valuation with the following assumptions; (i) WACC: 9.0%, (ii) Beta: 1.1, and (iii) Terminal growth: 1%.

Source: Kenanga Research - 29 Mar 2017