1QFY21 CNP of RM107m (-42% YoY) and 1.0 sen interim dividend declared missed estimates, as top-line suffered under the unprecedented Covid-19 induced MCO. Even if economic activity picks up, we believe the group could be challenged by softer consumer appetite for paid-content. Dividends might also be held back in favour of better cashflow management. Downgrade to UP (from MP) with a lower TP of RM0.830, as wecut our FY21E/FY22E earningsby 18%/8%.

1QFY21 missed expectations. Normalised PATAMI of RM107m missed both our and consensus expectations, making up only 16% and 17% of respective estimates. The negative deviation mainly came from lower-than-expected ARPUs stemming from weaker paying-customer acquisition and free content offered during the MCO. An interim dividend of 1.0 sen was declared, which we also deem as a miss from our 10.0 sen full-year estimate. Management is likely to be less generous with dividends as they navigate around a slower post-MCO economic landscape.

YoY, 3MFY21 revenue declined to RM1.05b (-15%) as television subscription revenue fell (-12%) from a decline in overall ARPU to RM99.10/mth (from RM100.40/mth) with some estimated losses in paid subscriber numbers from the economic downturn experienced during the Covid-19 induced MCO. Both television and radio advertising revenue also suffered (-38%) as the MCO impacted economic activity coupled with a growing shift to digital advertising platforms. EBITDA declined by 26% in conjunction with the softer revenue. Higher finance charges was offset by lower effective taxes, leading to a normalised 3MFY21 PATAMI of RM107m (-42%).

QoQ, 1QFY21 revenue dipped by 14%, being the first quarter affected by the Covid-19 induced MCO which could have affected customer retention (particularly SMEs). Similar to the above, the overall weakness in top-line performance translated to a weaker core PATAMI which dropped 17%.

Wary of hard times ahead. Since the MCO, the group provided complimentary access to paid-channels and certain rebates for its Sports Pack subscribers. Understandably, installation works and new customer acquisition strategies had taken a backseat when movement restrictions were in place. In the meantime, some subscribers could have opted out or downgraded in response to loss/reduction of income. That said, we are sceptical if a rebound in economic activity could translate positively to Astro as quickly as customers may not immediately revert to their past content consumption habits. While we do not believe subscriber losses would occur in droves, the group may struggle with upselling its products and may see a higher take-up of freemium offerings, potentially further diluting its monthly ARPU.

Post-results, we cut our FY21E/FY22E earnings by 18%/8%. In line with greater prudence exercised by management, we cut our dividend estimates to 6.0/6.0 sen from 10.0/7.5 sen, with FY21 being more cash-conservative.

Downgrade to UNDERPERFORM (from MARKET PERFORM) with a lower TP of RM0.830 (from RM0.900). Our TP is based on an unchanged valuation of 9.0x FY22E PER (1.5SD below the stock’s 3-year mean). Though the stock may continue to provide solid dividend yields (6%) post-model adjustments, the challenges in operating in a spending-tight landscape may weigh further onto the group’s earnings for the year. Additionally, we believe that earnings recovery could only be seen beyond FY23/CY22 as the return of global sporting events might reignite the highly seasonal content costs typically experienced by the group.

Risks to our call include: (i) higher-than-expected subscription, (ii) higher than-expected adex revenue, and (iii) lower-than-expected content cost and operating expenses.

Source: Kenanga Research - 19 Jun 2020