Astro has outlined three key areas of focus to sustain its long-term growth. With these efforts, the group is harnessing rich data, which could further enhance customer engagement and monetisation. All in, we make no changes on our FY18E/FY19E earnings forecasts and 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.

Game On. Astro hosted investor and analyst day yesterday for some 60 analysts and fund managers. The company was represented by Group CEO Dato’ Rohana, COO Henry Tan and senior management team. Management discussed its landscape across the key customer products and segments, challenges, as well as the opportunities under the digitalisation era. The group also outlined three key areas of focus to sustain its long-term growth, namely digitalising dominant legacy businesses, rapidly scaling the digital ventures, as well as deepening strength in verticals and building a robust innovation pipeline.

Digitalise core platforms. Astro is aiming to digitalizing 75% of its business as well as double the number of connected STBs to 1m in FY18. Through digitalizing its core platforms, the group is set to grant more control to customers, with self-serve ability for them to plan and manage their viewing, subscription and service request online. Through the use of analytics, Astro aims to further strengthening its digital brands portfolio and become the best for reaching millennial and digital natives as well as to prepare to scale regionally.

Driving digital economy expansion. The group’s digital ventures, namely e-commerce via Go Shop, OTT video via Tribe and eSports via eGG are expected to play a pivotal role in driving expansion into new regional markets. Go Shop offers a premium shopping experience across multiple platforms: TV, web and mobile. With this unique platform, Astro has expanded Go Shop to Singapore in late 2016. Tribe, meanwhile, will continue expanding to more ASEAN markets this year beyond Indonesia and the Philippines. While the OTT video industry in the region is still at a nascent stage, it is poised for exponential growth thanks to broadband and LTE mobile infrastructure. Meanwhile, following the launch of eGG network (a dedicated 24/7 eSports channel available on Astro and Astro GO) in mid-2016, the home-grown channel has been made available in five countries within its first year, including Australia. All in, with these initiatives, Astro is hoping to expand its reach to 7.0m households; 50m individuals (including Tribe regional reach of 16m) and 2.0m connected homes in FY22 (from 5.1m/23m/0.5m in FY17).

Speed and scale through regional collaborations. Astro is proactively seeking collaborations with compatible partners in areas such as IP co-creation and production, distribution and merchandising, to create compelling content and monetise via subscription, adex and commerce. Besides, the group also plans to build a robust innovation pipeline to sail through the digital evolution, guided by capability enhancements in areas of technology, people and culture.

5-year targets. Astro has outlined its targets for FY18 & FY22 with an aim to achieve ARPU/Subscription revenue/Adex revenue of RM102- 103/RM4.5b/RM770m in FY18 and expanded to RM114- 115/RM4.8b/RM1.0b in FY22. Besides, the group also aiming to achieve revenue/EBITDA/PATAMI of RM6.0b/RM1.9b/RM686m in FY18 followed by RM8.8b/RM3.0b/RM1.5b in FY22. All in, while we concur with management for FY18, its ambition to achieve FY22 targets may be too early to assess for now due to the rapid change in consumer behavior as a result of technology evolution.

Source: Kenanga Research - 1 Aug 2017