1Q18 core PATAMI of RM188m came in within our and the street?s estimates. A first interim single-tier dividend of 3.0 sen was announced, as expected. Post-results, we tweaked our FY18E/FY19E core PATAMI estimates marginally but keeping our DCF-driven target price unchanged at RM3.00. We reiterate our OUTPERFORM call on ASTRO in view of its relatively resilient earnings and decent dividend yield.

In line. 1Q18 core PATAMI of RM188m (+5% YoY) came in within expectations at 26% of our/consensus full-year estimates, well within its historical 1Q contribution of 21-27% range over the past three financial years. Overall, the better core PATAMI in 1Q18 on a YoY basis was mainly driven by a lower unrealised forex gain (RM8m vs. RM23m in 1Q17) arising from the revaluation of M3B transponder lease liability.

A first interim single-tier dividend of 3.0 sen was declared (ex-date: 30 June), as expected, representing a dividend pay-out ratio of 83%. For the full financial year, we expect the group to declare a total DPS of 13.5 sen, representing a dividend yield of 5.0%.

YoY, 1Q18 revenue dipped by 3%, no thanks to the lower licensing (as a result of loss of content recovery for sports channel), advertising (weak adex spending) and subscription revenue (lower package take-up). Its home-shopping segment?s turnover weakened by 3% to RM62m due to additional tactical campaigns executed during the quarter. EBITDA, meanwhile, was lower by 4%, in tandem with its top-line performance, with margin softened by 30 bps to 34.7% due to higher proportion of content costs against revenue.

QoQ, revenue was lower by 5% to RM1.3b on lower advertising and subscription revenue. EBITDA, however, improved by 3%, with margin improved to 34.7% (vs. 31.9% in 4Q17), thanks to lower content and marketing costs. The higher EBITDA coupled with lower net finance costs (due to favourable unrealized forex) and deprecation charges led the group to record a higher core PATAMI of RM188m (+13%). ARPU, meanwhile, rose to RM100.8 (vs. RM100.4 in 4Q17), driven by higher take-up of value-added products and services as well as the re-pricing of sports packs. ASTRO recorded a total 5.2m (or 71% household penetration rate) customer base in 1Q18, of which 33% (or 1.7m) were NJOI customers.

Outlook. The group is set to accelerate its digital transformation plan and digitalise 75% of its end to end process and infrastructure. ASTRO is keeping its FY18 targets unchanged with an aim to: (i) achieve higher ARPU of RM102-RM103 (driven mainly by digital transformation, monetarise NJOY (with higher prepaid take-up rate), capitalize per event sales (i.e. sport event)), (ii) achieve zero net adds in its Pay-TV segment (due to cautious mode on spending), (iii) utilize cash capex of c.RM270- 280m, and (v) maintain EBITDA margin at c.32%. Its content cost guidance, meanwhile, was lowered to c.RM1.75b (or c.34%-35% of TV revenue from RM1.8b previously), of which 80% of the required content cost have been hedged at RM4.10-RM4.20 range. All in, while we concur with the management on the above-mentioned guidance, its ambitious to achieve a c.RM500m turnover in its home-shopping business appeared a tall order judging from the uninspiring performance of 1Q18.

Maintained OUTPERFORM with unchanged DCF-driven target price of RM3.00. We have lowered our FY18E/FY19E core PATAMI estimates by 0.6%/0.5%, after lowering our Home Shopping segment?s turnover and Pay-TV segment?s content cost assumptions but keeping our DCF-driven target price unchanged at RM3.00 (WACC: 9.0%, TG: 1%). ASTRO remains our favourite pick in the media sector in view of its relatively resilient earnings and decent dividend yield.

Source: Kenanga Research - 15 Jun 2017