ASTRO’s 1HFY23 results met expectations. It continued to struggle with falling subscribers while its home-shopping segment lost traction as the economy reopened. Its content cost is poised for a steep rise in FY24 on MYR weakness. We fine-tune up our FY23F net profit by 3% but lower FY24F’s by 14%. We also cut our DCF based TP by 10% to RM0.90 (WACC: 7.9%; TG: 1%). Maintain MARKET PERFORM.

1HFY23 core net profit of RM223m came in within expectations at 52% and 47% of our full-year forecast and the full-year consensus estimates, respectively. A dividend of 1.0 sen brings the YTD total to 2.25 sen, on track to meet our full-year forecast of 6.5 sen.

Results’ highlights. Its 1HFY23 revenue fell 11.2% YoY as the group saw contractions in their TV and home-shopping segments. TV revenue fell 7.1% following a 2.2% decrease in customer base while average revenue per user (ARPU) remained unchanged. Both the TV subscription and TV advertising segments contracted YoY, with their revenue falling by 6.7% and 15.5% respectively. Overall, earnings for the segment fell 13.4% YoY as margins were impacted by the fall in revenue as well as increased distribution costs, marketing expenses and licensing fees.

The group’s home-shopping segment also saw a large fall in revenue post economy reopening. YoY, revenue fell by 54.1% as shoppers trended back towards in-person shopping. The segment has remained loss-making since 3QFY22 and fell further into the red this quarter as losses widened.

Overall, core PATAMI fell 10.1% YoY in line with the decrease in revenue. Their radio broadcasting segment did see better times as earnings grew 20% YoY but growth in the segment was offset by the contractions in TV and home-shopping. Margins narrowed slightly off on increased operating costs associated with the broadcasting.

Outlook. FY23 appears challenging for the group, still struggling with falling subscriptions (dubbed “churn” by the group) while ARPU stagnates. Looking forward, amidst the falling consumer sentiment, the group may face downtrading or even an increased churn rate as inflationary pressure and high interest rates squeeze consumer spending. Furthermore, 2HFY23 performance is expected to be hit by higher content costs associated with the World Cup and Commonwealth Games, eating into the bottom line. On a slightly brighter note, the group has seen an increase in pick-up rate for their broadband service (+40% YoY) but overall the contributions remain marginal and the road to competing as an ISP seems far off.

Weak ringgit, rising costs. While the group has already secured licensing contracts for FY23, the currently weaker ringgit could result in crimped margins in FY24. Given the group’s licensed contents from foreign producers, the weaker MYR could result in an increase in content costs as royalties are denominated in foreign currencies. However, as the group secures its contents 12 months forward, we expect these effects to be felt from 2HFY24.

Post results, we fine-tune up our FY23F earnings by 3% but cut FY24F earnings by 13% to reflect higher content costs due to the weaker MYR.

Maintain MARKET PERFORM with a 10% lower TP of RM0.90 (WACC: 7.9%; TG: 1%) from RM1.00 previously. There is no adjustment to our TP based on ESG given a 3-star as appraised by us (see Page 3).

Risks to our call include: (i) competition from legal and illegal international streaming service providers, (ii) weak MYR resulting in high cost of imported contents, and (iii) regulatory risks.

Source: Kenanga Research - 27 Sept 2022