Kenanga Research & Investment

Astro Malaysia Holdings - World Cup Hangover

Publish date: Tue, 28 Mar 2023, 09:09 AM

ASTRO’s FY23 results met our forecast but missed market expectation. While ARPU improved marginally, costs spiked in 4QFY23 due to World Cup licensing cost that clawed into the bottom line. We maintain our FY24F earnings but trim our TP by 3% to RM0.73 (from RM0.75). Maintain MARKET PERFORM.

Within our expectations. Its FY23 core net profit (excluding RM21m of net forex gains and a one-off, non-cash impairment of RM73.5m worth of goodwill and intangibles) met our expectations but missed consensus estimate by 15%.

No dividend was declared in 4QFY23, leaving the full-year dividend at 3.0 sen, missing our expectation of 5.2 sen. The group commented that this is a departure from its usual policy of 75% payout ratio due to a large, non-cash impairment of historical costs incurred by its subsidiaries.

YoY. Its FY23 revenue fell 9% following a decrease in subscription and home shopping revenue. While TV revenue fell 5.7% YoY, earnings were hit by the increased content costs in FY23 and contracted by a larger 25.2%. The group’s subscription base also continued to contract, shrinking 1.8% YoY. Conversely, the radio segment maintained its momentum, with earnings growing 13.1% YoY following the reopening of the economy. However, any improvements were offset by the continued contraction of the home shopping segment which fell further into losses following a 51.9% contraction in revenue.

Overall, core net profits fell 28.8% as higher content costs associated with major sporting events hit earnings. Excluding radio, the group saw contractions across the board as it continued to struggle with costs and subscription numbers.

QoQ. Its revenue increased by 7% QoQ, largely due to a 7.5% increase in TV revenue. The group attributes this partially to sales of its World Cup passes as well as an uptick in adex during 4QFY23. However, its core net profit fell 43.3% as increased costs associated with the World Cup pressurised margins across the board.

The key takeaways from its analyst briefing yesterday are as follows:

1. Regarding the rumours on a privatisation, the group “is not aware of any privatisation offer at the moment.”

2. It maintains a cautious outlook moving forward. It is currently prioritising the transition over to its streaming service and aggregator business model and is pushing for adoption of its Ultra Box and Ulti Box. This initiative is expected to impact the group at the balance sheet level, due to higher capex with the adoption of new technology and higher depreciation on shorter life spans for its existing equipment.

3. The group is attempting to integrate additional apps into its aggregation services. Once it has secured the headline streaming services, the group is targeting to integrate lifestyle applications such as music streamers and fitness apps as well.

4. The group guided for stable margins moving forward (excluding extraordinary events) at about 28% at the EBITDA level under normal operating conditions

Post results, we maintain our FY24F earnings and introduce our FY25 forecasts. We also maintain our dividend payout ratio estimate of 75% as the group has commented that the 4QFY23 non-payment was an exception.

Maintain MARKET PERFORM with a 3% lower TP of RM0.73 as we roll over our DCF valuation (WACC: 7.9%; TG: 1%). There is no adjustment based on a 3-star ESG rating as appraised by us (see page 4).

We continue to like ASTRO for: (i) being the largest player in the subscription TV space, (ii) its unique service as an over-the-top (OTT) streaming service aggregator, and (iii) growth potential as an internet service provider (ISP). However, we remain wary as the group continue to struggle with subscriber retention and declining ARPU. We cut our TP by 3% to RM0.73 (WACC: 7.9%; TG: 1%) from RM0.75 previously.

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 - 28 Mar 2023

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