The Inland Revenue Board (IRB) has served ASTRO with notices of additional assessment for 2019-23 totalling RM735m. ASTRO has 30 days to appeal and it will do so, and if required, initiate legal proceedings. In the worst case, this additional tax liability will push ASTRO’s negative NTA by 14 sen deeper to -27 sen (from -13 sen as at end-Apr 2024). We maintain our forecasts, TP of RM0.25 and UNDERPERFORM call.

The Inland Revenue Board (IRB) has served ASTRO with notices of additional assessment for 2019-23 totalling RM735m (including penalties), pursuant to the disallowance of production costs. ASTRO has 30 days to appeal and it will do so, and if required, initiate legal proceedings to challenge the basis and validity of the notices.

In the worst case, this additional tax liability will erode ASTRO’s shareholder fund by 65% to RM434m (from RM1,125m as at end-Apr 2024) and push its NTA 14 sen deeper into negative territory to -27 sen (from -13 sen as at end-Apr 2024). Assuming a full settlement, ASTRO’s net debt and gearing of RM3.1b and 2.1x as at end-Apr 2024 will rise to RM3.8b and 9.8x (assuming debt is raised to pay for the additional taxes).

Forecasts. Maintained pending the outcome of the appeal.  

Valuations. We also keep our TP of RM0.25 based on DCF valuation. There is no adjustment based on a 3-star ESG rating as appraised by us (see page 3).

Investment case. We remain cautious on ASTRO due to: (i) intense competition from over-the-top streaming platforms (for international content) and free-to-air TV (for vernacular content), (ii) inflated cost base that includes legacy expenses (e.g. ongoing payment of transponder lease costs to MEASAT Satellite), and (iii) competition from digital music streaming platforms that leverage on AI to offer personalized content and targeted commercials. Maintain UNDERPERFORM.  

Risks to our call include: (i) cord-cutting trends moderate as disposable incomes increase, (ii) effective legal enforcement eliminates the proliferation of illegal set top boxes, and (iii) rebound in consumer sentiment leads to a recovery in adex.

Source: Kenanga Research - 12 Jul 2024