INVESTMENT HIGHLIGHTS

• 1HFY19 normalised earnings of RM225.3m (-47.6%yoy) failed to kept pace with ours and consensus expectations

• Broadcasting of FIFA World Cup and higher net finance cost led to single digit profit margin in 1HFY19

• Home shopping is the only segment that outperformed

• Downgrade to NEUTRAL with a revised target price of RM1.55

Surge in content cost reduces profitability. Astro Malaysia Holdings Bhd’s (Astro) 2QFY19 normalised earnings amounted to RM46.6m. This translates into a decline of -80.8%yoy. The appalling results was mainly attributable to: i) higher content cost in relation to the broadcast of FIFA World Cup, ii) higher cost of merchandise sales and’ iii) higher net finance cost.

Cumulative normalised earnings below expectations. The weak 2QFY19 normalised lead to lower 1HF19 normalised earnings of RM225.3m (-47.6%yoy). This came in below ours and consensus expectations, accounting for 32.1% and 33.1% of full year FY19 earnings estimates respectively.

Television. 1HFY19 segment revenue fell by -1.8%yoy to RM2,407.1m following lower package take-up and lower adex revenue. Coupled with higher content costs arising from FIFA World Cup, PBT declined by -65.5%yoy to RM191.2m.

Radio. The segment recorded 1HFY19 revenue of RM142.7m, a decrease of -10.9%yoy. This was mainly due to lower client advertising spending. As a result, PBT was lowered to RM72.5m (- 13.2%yoy).

Home-shopping. 1FH19 revenue from the home-shopping segment surged by +33.8%yoy to RM177.0m. This was mainly driven by higher number of products sold in view of successful tactical campaign executed during the period. This reduced the segment’s loss before tax to -RM7.0m from RM-9.3m recorded for 1HFY18.

Earnings impact. We are assuming a more conservative FY19 and FY20 earnings estimates of RM502.7m and RM541.0m respectively. Note that we are lowering our FY18 and FY19 profit margin to 9.1% and 9.5% to take into account higher content cost and higher net finance cost.

Source: MIDF Research - 27 Sept 2018