• FY17 normalised earnings remains resilient at RM648.0m

• NJOI subscriber base continues to record double digit growth

• Higher demand for Go Shop products lifted FY17 revenue by +37.9%yoy

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

Within expectations. Astro Malaysia Holdings Bhd (Astro) reported FY16 earnings of RM623.7m. After adjusting for exceptional items amounting to RM24.3m, the normalised earnings came in at RM648.0m. This represents a decrease of (-2.1%yoy). Despite a +2.5%yoy increase in FY17 revenue, the normalised earnings was impacted by higher content costs, costs of merchandise sales, broadband expenses and impairment of receivables. Nonetheless, FY17 normalised earnings came in within ours and consensus estimates, both accounting for 98.3% of full year earnings estimates.

Television. The segment revenue was marginally higher (+0.7%yoy) at RM5,022.1m. 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 caused by the decrease in Pay-TV residential subscribers (-2.3%yoy). Fortunately, the impact was partially offset by marginally higher ARPU of RM100.4 (FY16: RM99.3).

Home-shopping. The home-shopping segment revenue grew by +37.9%yoy to RM261.1m. The increase in revenue was driven by higher number of products sold at 1.5m products (as compared to 983k products in FY16), in-tandem with the introduction of the Chinese channel.

Dividend. For FY17, the group has declared a total dividend of 12.5sen per share. This is 0.5sen per share higher as compared to FY16 dividend declared of 12.0sen per share. This is in-line with the group’s adoption of a progressive dividend policy.

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 at least 4.5% which further elevates Astro’s attractiveness. All factors considered, we maintain our BUY recommendation on the stock.

Source: MIDF Research - 29 Mar 2017