FY22 normalised PATAMI of RM474m came within our/consensus expectations at 96%/99%, respectively. We believe the initiatives taken by the group along with the lifting of movement restrictions beginning 2QCY22 should result in better advertisement sales and strengthening of subscriber base for their Pay-TV service. Thus, we continue to maintain OUTPERFORM but with a higher TP of RM1.29.

FY22 results came within expectations. ASTRO registered a normalised PATAMI of RM474m which came in within our/consensus expectations at 96%/99%, respectively. The group declared a dividend of 2.3 sen which came in as expected.

YoY, FY22 revenue dropped by 4% to RM4.2b due to a 6% decline in subscription revenue and 18% drop in home-shopping revenue which was offset by higher sales of programming rights and advertising revenue. The home-shopping revenue dropped mainly due to more cautious consumer spending, as a result of inflation, and lifting of movement control leading to more shopping activities in malls. Despite subscription revenue declining by 7% and estimated paying-subscribers base dropping by 6%, ARPU rose by 0.3% which we believe is due to a slightly higher percentage of consumers selecting premium packages compared to FY21. Moreover, EBITDA margin declined by 3ppt due to higher content cost (FY22: 30% of sales vs. FY21: 27% of sales), broadband costs and marketing and distribution expenses. In tandem with the fall in revenue, the group’s core PATAMI declined by 11% to RM474m.

QoQ, the lifting of movement control in 4QCY21 led to higher radio and Pay-TV advertisements, with 55% jump in total adex. On the other hand, home-shopping revenue dropped by 29% due to the abovementioned reason. All in, core PATAMI rose by 35% to RM130m.

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, Ultra and Ulti boxes, 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 rolled out their very own internet service called Astro Fibre to meet demand for stronger connectivity of multiple devices at the same time. This gives ASTRO control over pricing and margin more effectively.

Post results, we increase our FY23E earnings by 9% and introduce our FY24E earnings where we anticipate better adex and reception for the group’s newly launched fibre service, along with more partnerships with streaming services.

Maintain OUTPERFORM with a higher TP of RM1.29 (previously RM1.07) as we roll over our valuation base to FY24E PER based on a higher PER of 10.5x (1SD above the stock’s 3-year mean). With the government lifting movement restrictions beginning 2QCY22 (e.g. allowing businesses to resume normal operating hours, reopening of borders), this should lead to recovery in domestic income and employment which should see improvement in adex as well as allowing consumers to better respond to the expanding OTT services provided by ASTRO. However, we are cautious of the upcoming costs in FY23 which has major sports events such as FIFA World Cup, Asian Games and many more.

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 - 1 Apr 2022