INVESTMENT HIGHLIGHTS

• Lower content cost lifted 2QFY18 normalised earnings to RM176.0m (+76.9%yoy)

• 1HFY18 normalised earnings came in within expectation

• Better earning performance from the TV segment was partially offset by weaker radio and home-shopping segments

• Advertising income continue to grow despite challenging market environment

• Maintain BUY with an unchanged target price of RM3.64

Proportionately lower content cost. Astro Malaysia Holdings Bhd (Astro) reported 2QFY18 earnings of RM246.2m. After adjusting for exceptional items, the normalised earnings came in at RM176.0m (+76.9%yoy). Note that one of the exceptional items pertained to a one-off gain resulting from content cost renegotiation which we estimated to be approximately RM70m. The increase in 2QFY18 normalised earnings was mainly attributable to lower proportion of content costs in relation to the revenue. This lifted the operating profit margin to 26.9% from 17.3% as at 2QFY17.

Within estimates. Cumulatively, 1HFY18 normalised earnings improved by +10.7%yoy to RM362.7m. All in, 1HFY18 normalised earnings came in within ours and consensus estimates, accounting for 51.7% and 51.1% of FY18 full year earnings estimates respectively.

Television. The 1HFY18 segment revenue fell marginally by - 1.7%yoy to RM2,451.6m due to lower package take-up and loss of content recovery for sports channel. Nonetheless, EBITDA improved by +14.8%yoy to RM121.4m as the group managed to reduce the content costs and marketing and market research expenses.

Radio. Radio revenue for 1HFY18 increased by +1.1%yoy to RM160.2m. This was supported by yield and inventory management, in-line with strong listenership performance. Nonetheless, EBITDA was -6.7%yoy lower as the segment incurred higher advertising, marketing and promotion cost.

Home-shopping. The home-shopping segment recorded lower 1HFY18 revenue of RM132.3m (-4.4%yoy) premised on lower number of products sold. As a result, EBITDA reduced by -89.2%yoy to RM3.3m.

Advertising income. The 1HFY18 advertising income grew by +4.4%yoy to RM351m. This was mainly supported by higher TV adex of RM191m (+7.9%yoy) as the group command a bigger of the Malaysia TV adex

Dividend. The group announced 2QFY18 second interim dividend of 3sen per share. Cumulatively, 1HFY18 dividend amounted to 6sen per share, in-tandem with 1FHY17’s quantum. This made up 46.2% of our FY18 full year dividend estimates of 13sen per share.

Target price. We are maintaining our target price to RM3.64 per share. This is premised on pegging our target PER of 26x against the FY19 EPS of 14.0sen per share. Our target PER is the three year historical average PER.

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 Sept 2017