• 1QFY18 profit margin improved to 14% mainly due to lower depreciation and amortisation cost

• Average revenue per user (ARPU) maintains above RM100 per month for the second consecutive quarter

• Driving digital offerings to remain relevant

• Maintain BUY with a revised TP of RM3.64 per share

Within expectations. Astro Malaysia Holdings Bhd (Astro) reported 1QFY18 earnings of RM195.9m. After adjusting for unrealised forex gain of RM8m, the normalised earnings came in at RM187.9m. This represents an increase of +4.9%yoy. Despite 1QFY18 revenue came in marginally lower (-2.7%yoy) at RM1,326.1m, the improvement in normalised earnings was aided by lower depreciation and amortisation charges (-12.9%yoy) which boosted the profit margin to 14% from 13% previously. All in, FY17 normalised earnings came in within ours and consensus estimates, accounting for 26.8% and 26.1% of full year earnings estimates.

Television. The segment revenue dipped slightly by -2.8%yoy to RM1,226.4m. This was mainly attributable to lower licensing, subscription and advertising revenue. Fortunately, the impact was partially offset by marginally higher ARPU of RM100.8 per month as compared to RM99.0 per month recorded for 1QFY17.

Home-shopping. The home-shopping segment revenue remained resilient at RM62.0m (-3.0%yoy). Along with higher costs for the Singapore operations, EBITDA recorded an unfavourable variance of -RM3.2m.

Target price. We are revising our target price to RM3.64 per share (previously RM3.78 per share). This is premised on pegging our revised target PER of 26x (previously 28x) against the FY19 EPS of 14.0sen per share. Our revised target PER is the three year historical average PER. The reduction in target PER multiple reflects the challenging business landscape which may impact the future earnings growth momentum. In addition, with the shift in business direction, we are expecting more challenges in the OTT segment due to competition from the local and foreign OTT players.

Outlook. The group remain focused on executing its digital initiatives. It has launched over-the-top (OTT) streaming services in Astro GO and Njoi Now. Meanwhile, it is also rapidly scaling its digital ventures via its e-commerce platform, GO Shop and its regional OTT streaming service, Tribe. To extend its contents offering, Astro will also seeks collaboration with leading content players.

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 and its digital initiatives. 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 approximately 5% which further elevates Astro’s attractiveness. All factors considered, we maintain our BUY recommendation on the stock.

Source: MIDF Research - 15 Jun 2017