1Q19 results came in within expectations. OUPTPERFORM call maintained with an unchanged DCF-derived TP of RM2.30 as we believes the YTD sharp share price correction already priced-in earnings risks, to a certain extent, and could provide bargain hunting opportunities to yield-seeking and long-term investors.

Within expectations. 1Q19 core PATAMI of RM179m (-5% YoY) came in within expectations at 28%/26% of our/consensus full-year estimates. The lower YoY performance was mainly due to lower subscription revenue coupled with higher finance cost. Note that the group’s core PATAMI was derived after adding the unrealised forex loss of RM4m. A lower-than-expected first interim dividend of 2.5 sen (1Q18: 3.0 sen) was declared (ex-date: 21 st June), which was below our estimate of 3.0 sen.

YoY, 1Q19 revenue weakened by 1%, due to the lower subscription revenue (more lower package taken up) but partially offset by higher merchandise and advertising revenue (due to CNY spending). Its home- shopping segment’s turnover climbed by 35% to RM84m due to the higher number of products sold (mainly driven by the tactical campaigns) but still suffered LBT of RM2.4m vs. RM6.1m a year ago. Despite lower turnover, group’s EBITDA increased by 1% to RM461m with margin inching higher by 0.6ppt to 35.2%, thanks to higher operational efficiency contributed by lower content costs. QoQ, revenue dipped by 6% due to decrease in subscription (higher take-up on the lower-end package) and advertising revenue (normalized post the year-end school holidays). Group’s EBITDA, however, increased by 19% with margin improving to 35.2% (vs. 28.0% in 4Q18) as a result of lower content costs, reversal of impairment of receivables and other OPEX.

Building digital ecosystem capabilities. ASTRO recorded a total of 5.5m (flat on QoQ or 75% household penetration rate) customer base in 1Q19, mainly supported by NJOI. The higher NJOI take-up rate suggested that subscribers continued to downplay their TV subscription plan, leading the group’s TV subscription revenue to record negative sequential growth for five consecutive quarters. The trend, however, is not expected to reverse in the near-term, in our view, judging from the change in consumer behavior. Having said that, we understand that the group is set to continue to reposition its business with emphasis towards personalization, mobility, interactivity and customer engagement in FY19. It also aims to focus on the signature vernacular's contents (particular Malay and Nusantara) and provides more premium and seamless experience to its subscribers. All in, management is keeping its FY19 Pay-TV subscription ARPU unchanged at RM101 (underpinned by higher take-up of its vernacular and live sports packages as well as better monetisation on its IP creative contents) but set to incur a higher content cost (at c.36% of TV revenue vs. 33% in FY18) as a result of the several sport events.

World Cup broadcasting updates. Management indicated that all 64 matches will be seen LIVE in HD, of which 37 are exclusive to ASTRO. The co-broadcasting of some matches with FTA channels is not a threat to the group as this has been practiced in prior World Cup matches.

Potential privatization talk? In a separate announcement, management had clarified that as far as the company is aware, after due enquiry, it has not received confirmation of any privatization proposal.

Maintain OUTPERFORM with unchanged DCF-driven TP at RM2.30. Post results review, we have raised our FY19-20E PATAMI by 1.3-1.4%, respectively, after fine-tuning. The group has plunged 31% YTD (as a result of challenging operational outlook coupled with the removal from the FBMKLCI component stock list), which we believe had been overdone. We reiterate our OUTPERFORM call with an unchanged DCF-derived TP at RM2.30 (WACC: 9.8%, TG: 1%).

Source: Kenanga Research - 07 Jun 2018