INVESTMENT HIGHLIGHTS

• 1QFY19 normalised earnings remained resilient at RM178.7m, in-line with ours and consensus expectations

• Home-shopping business continue to improve, supported by 1.4m customers

• Higher net finance cost incurred was partially mitigated by lower tax expenses

• Maintain BUY with a revised target price of RM2.06

Within expectation. Astro Malaysia Holdings Bhd’s (Astro) 1QFY19 normalised earnings amounted to RM178.7m. During the quarter-inreview, Astro’s 1QFY19 normalised earnings was mainly influenced by higher net finance cost as revenue stayed above RM1.3b. The higher net finance cost was mainly due to unfavourable unrealised forex movement arising from unhedged non-current balance sheet liabilities comprising finance lease liabilities and vendor financing. Fortunately, the increase in net finance cost was partially offset by lower tax expenses. All in, Astro’s 1QFY19 financial performance came in within ours and consensus expectation, accounting for 25.5% and 26.3% of full year FY19 earnings estimates respectively.

Television. 1QFY19 segment revenue fell by -2.7%yoy to RM1,159.6m due to lower package take-up rate. This, however, was partially offset by increase in advertising, set-up fees revenue, sales of programming rights and production revenue. Coupled with higher licenses and copyright fees, higher marketing and distribution expenses, television EBITDA remained resilient at RM429.2m (- 0.1%yoy).

Radio. The segment revenue decreased by -5.6%yoy to RM67.5m as unfavourable operating environment led to lower client advertising spends. Nonetheless, Astro managed to maintain its pole position across all four key languages. In light of lower revenue recorded, EBITDA decrease by -9.1%yoy to RM33.1m.

Home-shopping. The home-shopping segment revenue improved by +34.7%yoy to RM83.5m, mainly driven by higher number of products sold as a result of tactical campaigns executed during the period. This led to +54.0%yoy improvements in EBITDA.

Impact. No change to our earnings estimates at this juncture.

Dividend. The group announced 1QFY19 dividend of 2.5sen per share. This is slightly below 1QFY18 quantum of 3.0sen per share. We view that the lower dividend payment was mainly attributable to lower free cash flow of RM338m as compared to RM399m a year ago.

Target price. We are rolling forward our valuation base year to FY20 and derive a revised target price of RM2.06

per share (previously RM2.83 per share). Note that we reduced our target PER from 21.0x to a conservative 14.9x which is 1 standard deviation below its 3-year historical average. We reduced the target PER to account for the stock exclusion in the 30-stock FBM KLCI and evolving media landscape.

Maintain BUY. Despite various headwinds affecting the media industry, the group continues to record commendable performance via the expansion of its customer base through dual-model, i.e. premium and freemium market approach. At present, bulk of the income stream is still derived from subscription revenue as opposed to advertising revenue. The major sporting events would serve as an additional catalyst to further drive the group’s. 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 more than 5% which further elevates Astro’s attractiveness. All factors considered, we maintain our BUY recommendation on the stock.

Source: MIDF Research - 7 Jun 2018