9MFY22 normalised PATAMI of RM344m came below our/consensus expectations at 63%/65%, respectively. The negative deviation came from continued high content costs arising from the airing of major sporting events. In tandem with lower revenue YTD, earnings fell by 10%. We continue to maintain OUTPERFORM but lower TP of RM1.07 on adjustment in FY22E/FY23E earnings.

9MFY22 results came below expectations. ASTRO registered a normalised PATAMI of RM344m which came in below our/consensus expectations at 63%/65%, respectively. The negative deviation came from high content costs which were hiked up by the airing of major sporting events in 2QFY22 (39%) and 3QFY22 (36%). Lastly, dividend of 1.5 sen per share came in as expected.

YoY, 9MFY22 revenue fell by 3% to RM3.1b as a result of a 5% decline in subscription revenue and 11% drop in merchandise sales which were offset by a 2% increase in adex and higher sales of programming rights. With a decline in subscription revenue as the prolonged lockdowns continued to take a toll on consumers’ disposable income, ARPU dropped by a mere 0.2%. Along with more cautious consumer spending, home-shopping fell by 10% to RM314m. In tandem with the fall in revenue, the group’s core PATAMI declined by 10% to RM344m.

QoQ, the nationwide lockdown in 3QCY21 negatively impacted revenue resulting in a 4% decline which was mainly dragged down by a 3% decline in subscription revenue. EBITDA margin remained flattish at 29% (-0.2ppt) as higher license, copyright and royalty fees were offset by lower content costs (36% in 3QFY22 vs. 39% in 2QFY22). All in, core PATAMI declined by 5% to RM96m.

Initiatives taken. ASTRO continues to expand their services by collaborating with Synamedia to provide Addressable Advertising solutions to businesses in order to help them reach specific audience with targeted advertisements. Currently, the service is available on Astro Go and Video On Demand content and will eventually be launched for their linear TV audiences. We see this as a positive move taken by the group to further strengthen the group’s TV adex. Furthermore, the group has recently collaborated with TM to provide broadband and content services across the country giving them the ability to come up with their very own broadband plans and manage the pricing and margin from such arrangements more effectively.

Post results, we decrease our FY22E/FY23E earnings by 10%/13% to account for the drop in earnings due to high content costs. The Cukai Makmur tax has been accounted for in FY23E numbers.

Maintain OUTPERFORM with a lower TP of RM1.07 (previously RM1.22). Our TP valuation is based on an unchanged FY23E PER of 10.2x (0.5SD above the stock’s 3-year mean). We believe the easing of movement restrictions and SOPs coupled with the reopening of the economy will improve the disposable income of consumers, thus, allowing them to better respond to the expanding OTT services provided by ASTRO as well as generating more advertisement activities on the group’s platforms.

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

Source: Kenanga Research - 10 Dec 2021