Following the release of Astro’s 4Q21 results recently which was slightly above estimates, Macquarie Equities Research (MQ Research) reiterates its Outperform rating on Astro with a target price of RM1.58, which is 59.6% above Astro’s last Friday’s closing price of RM0.990. MQ Research is optimistic on Astro’s FY22 revenue supported with more streaming deals to be signed coupled with resumption in local content production and sporting events.

Event

• MQ Research is reiterating its Outperform recommendation on the shares of Astro following the release of its 4Q FY21 results. Core profit for 4Q of RM154m (+1% QoQ) brought FY21 core profit to RM534m (-19% YoY), representing 105%/104% of MQ Research’s/consensus’ estimates. Higher advertising, licensing, and prepaid revenue helped deliver the third sequential quarter of revenue growth. More important, in MQ Research’s view, new streaming deals likely to be signed in 2021, coupled with a resumption in local content production and sporting events, should support revenue growth for FY22. A 4sen DPS (1.5 interim + 2.5 final) was also well ahead of MQ Research’s/consensus’ estimates for 6.5/7.0sen. MQ Research maintains its view that a resumption of top-line growth should provide Astro’s shares with a rerating catalyst from an undemanding FY22E price-to-earnings ratio (PER) of 11x, supported by a 9% dividend yield.

Impact

• Much to look forward to. Astro is in the final stages of negotiating some content streaming deals, with the first expected before Hari Raya (May). This should help boost demand as well as ease longer-term content costs. In addition, a plug-and-play model for its set top boxes (STBs) - with option to run on existing broadband connections, simplified packages, and online signups – should make it easier for consumers to take up service. Increased local content also provides potential for subscriber and average monthly revenue per user (ARPU) upside. A bumper year of sporting events bodes well for advertising expenditure (adex) and subscription revenue, albeit with higher content costs. Adex should also see a lift from the improving economy.

• The good. The slide in subscription revenue continues to ease (-1% QoQ). Freemium service, NJOI’s revamped offerings, have also helped boost NJOI revenue 36% QoQ. Advertising revenue expanded 2% QoQ despite the movement restrictions.

• The not so good. Pay TV subs continue to ease (est -0.5%), albeit at a slower pace. Higher bad debt provisions and marketing costs led to a 1.3ppt QoQ decline of the earnings  before interest, taxes, depreciation, and amortisation (EBITDA) margin. Management is looking at cash capex of RM250–300m for FY22 and STB capex of RM150–200m to fund the product/system upgrades vs MQ Research’s RM274m total estimate.

Action and Recommendation

• Outperform reiterated.

12-month Target Price Methodology

• ASTRO MK: RM1.58 based on a total shareholder return methodology

Source: Macquarie Research - 29 Mar 2021