INVESTMENT HIGHLIGHTS

• 9MFY17 normalised earnings came in within expectations

• Growth in revenue supported by higher adex and higher contribution from Go Shop

• Cumulative dividend of 9sen per share declared for 9MFY17

• Maintain BUY with an unchanged TP of RM3.78 per share

Better profit margin. Astro Malaysia Holdings Berhad (Astro) 3QFY17 normalise earnings came in at RM162.0m. This represents an increase of +5.9%yoy. The rise in earnings was mainly attributable to lower depreciation and amortisation cost as well as lower net finance cost. Due to its continuous cost management strategy, profit margin also improved to 10.6% from 7.7% achieved for 3QFY16.

Within expectations. The improvement in Astro’s 3QFY17 financial results led to higher 9MFY17 earnings of RM482.0m (+3.4%yoy). Likewise, 9MFY17 revenue came in +3.5%yoy higher at RM4,215.2m, driven by better adex (+12.4%yoy) and larger contribution from Go Shop (+58.7%yoy). All in, the group’s 9MFY17 cumulative results came in within ours and consensus’ expectations, accounting for 72% and 74% of FY17 full year earnings estimates respectively.

Television. The 9MFY17 segment revenue was marginally higher (+1.2%yoy) at RM3,771.7m. This was mainly due to higher advertising and other revenues which were partially offset by marginally lower subscription revenue. The decline in subscription revenue was due to the decrease in Pay-TV residential subscribers (- 2.6%yoy) which were partially buffered by marginally higher ARPU of RM99.9 (previously RM99.3). Nonetheless, profit before tax grew at a faster pace of +25.5%yoy to RM571.6m.

Churn. Churn rate for its TV household increased to 12.4% from 9.4% as at 3QFY16. The higher churn rate was mainly attributable to the availability of pirated content as well as softer market environment.

Radio. The radio’s segment 9MFY17 revenue improved by +11.0%yoy to RM241.7m. This was driven by effective yield and inventory management and strong listenership for its radio brands. As a result, profit before tax grew by +19.2%yoy to RM139.3m.

Home-shopping. The home-shopping segment is on track for growth and expansion. The 9MFY17 revenue came in +77.0%yoy higher at RM200m. The increase in revenue was mainly supported by its customer base of 691k which bought 1.1m units of products. This enables the segment to further reduce its loss before tax to -RM12.4m from - RM17.8m in 9MFY16. Moving forward, the home-shopping segment is expected to be further boosted by its foray into the Singapore market through its business partner, StarHub.

Dividend. The group declared dividend of 3sen per share in 3QFY17. On a cumulative basis, the group has declared a total dividend of 9sen per share as compared to 8.25sen declared in 9MFY16.

Earnings impacts. We fine tune our FY17 earnings marginally lower by -1.9% as we align our profit margin assumption to better reflect the results thus far. Meanwhile, we made no changes to our FY18 earnings estimate.

Target price. We maintain our target price of RM3.78 per share. This is premised on FY18 EPS of 13.5sen against forward PER of 28x. Our PER assumption is based on historical average low-PER since its listing.

Maintain BUY. Despite various headwinds affecting the media industry, the group continues to outperform by successfully expanding its customer base through dual-model, i.e. premium and freemium market approach. Based on the business model, bulk of the income stream is derived from subscription revenue as opposed to advertising revenue. In addition, the group also expanded its revenue stream by tapping into the consumer market through its home shopping business venture. Moreover, its continuous cost management strategy has also kept the operating cost at bay. As a result, it has strong cash generation capability which enables the adoption of a progressive dividend policy. At present, the stock offers an attractive dividend yield of more than 4.5% which further elevates Astro’s attractiveness. All factors considered, we maintain our BUY recommendation on the stock.

Source: MIDF Research - 8 Dec 2016