INVESTMENT HIGHLIGHTS

• 4QFY19 normalised earnings grew by +42.0%yoy mainly premised on improvement in adex

• This lead to smaller-than-expected contraction in FY19 normalised earnings of RM 563.0m (-17.0%yoy)

• FY19 cumulative dividend amounted to 9.0sen per share, slightly below our FY19 dividend estimates

• Maintain NEUTRAL with a revised target price of RM1.50

Thinner profit margin. Astro Malaysia Holdings Bhd’s 4QFY19 normalised earnings amounted to RM159.0m, an increase of +42.0%yoy. This was mainly attributable to the increase in advertising income. However, the improvement in earnings was partially offset by the increased content costs, marketing and distribution costs, STB installation and smartcard costs and other expenses. This led to decline in normalised profit margin to 11.6% from 12.9% in 3QFY19. Note that 4QFY19 revenue remains stable at approximately RM1.4b.

Double digit decline in FY19 full year earnings. Astro’s FY19 financial performance came in above our expectations but in line with consensus, accounting for 110.0% and 98.3% of full year FY19 earnings estimates respectively. This was mainly attributable to the higher-than-expected advertising income. However, cumulatively FY19 normalised earnings decreased -17.0%yoy to RM RM563.0m. This was predominantly attributable to: i) higher content costs from the broadcasting of FIFA World Cup 2018, ii) increase in merchandise costs and, iii) increase in interest expenses for borrowings and finance lease liabilities.

Sequentially higher adex. The advertising income on a recovery mode amid slowing adex environment. On a sequential basis, the group has registered strong growth in advertising income. Note that the advertising income grew by +6.6%qoq, +11.2%qoq, +9.5%qoq in the second, third and final quarters respectively. As a result, 4QFY19’s advertising income recovered back to the same level in previous year of RM196.0m. However, on a year-over- basis total adex still dwindled by -5.0%yoy.

Source: MIDF Research - 27 Mar 2019