1QFY22 normalised PATAMI of RM147 came within our/consensus expectations, making up 23%/27% of full-year estimates, respectively. The reimplementation of MCO negatively impacted advertising sales, QoQ. However, YoY, we note a jump in sales by 21%. Subscription revenue continued its downtrend but was offset by a rise in home- shopping revenue. With the recent rise in share price, we downgrade our call to MP despite attaching a higher TP of RM1.20.

1QFY22 within expectations. A normalised PATAMI of RM147m was recorded in 1QFY22 which came within our/consensus’ expectations at 23%/27%, respectively. However, the dividend of 1.5 sen per share which was declared came in below our expectation of 9.0 sen per share for the full year.

YoY, 1QFY22 revenue was flattish as it rose by a mere 1% to RM1.062b from RM1.05b due to increased revenue from advertising, merchandise sales and others but was offset by a decrease in subscription revenue. ARPU declined to RM97.20 from RM99.10 due to a 5.5% drop in subscription revenue which was impacted by the reimposition of MCO in 1QCY21. The decline in subscription revenue was offset by a 21% rise in advertising revenue which was mainly contributed by a 25% increase in television ad sales followed by a 15% rise in radio ad sales. Moreover, EBITDA margin improved by 3.9ppt to 35.2% due to lower net financing cost. On the other hand, home-shopping revenue jumped by 21% to RM115.2m due to the Hari Raya festive season and the growth was further accelerated due to consumers finding convenience in shopping online during MCO 2.0. All in all, ASTRO’s normalised PATAMI increased by 37% to RM147m.

QoQ, revenue dropped by 4% as the stubborn pandemic impacted subscription revenue (-3%) and advertising sales (-16%). Moreover, radio advertising revenue declined by 7% as fewer vehicles on the road prompted advertisers to cut radex. Therefore, home-shopping was the only segment to see a positive jump QoQ due to the abovementioned reasons. That said, ASTRO registered a normalised PATAMI of RM147m, down by 5%.

Initiatives taken. ASTRO’s Ultra and Ulti boxes are continuing to garner consumer’s attention as an extra 70,000 units of these boxes have been installed in 1QFY22 showing positive demand. However, it is noted that the group’s subscription revenue has continued to decline; thus, the group is taking proactive steps to improve their ARPU. For instance, the recent partnership with Walt Disney offers Disney+ Hotstar which commenced on 1 June 2021, may help to regain lost subscribers from 2QFY22 onwards. Moreover, the group has also launched a new stand- alone streaming service on 8 June 2021 called sooka which offers both free and paid content targeted at Malaysian millennials which may help to bump up the group’s other revenue under the television segment.

Post-results, we leave our FY22E/FY23E earnings unchanged.

Downgrade to MARKET PERFORM with a higher TP of RM1.20 (previously RM1.12). Our TP is based on a valuation of 9.65x (previously 9.0x) FY23 PER (the stock’s 3-year mean). With new streaming services in place and a target to get 15 SVOD services by 1QFY23, we believe the group may regain their lost subscribers. However, we are currently cautious of the upcoming content costs in 2QFY22 owing to global sporting events (e.g. Tokyo Olympics and Euro 2020).

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

Source: Kenanga Research - 23 Jun 2021