Astro Malaysia (Astro)’s 1HFY14 results were in line with our estimates but  slightly  below  consensus  forecast.  While  revenue  continued  to grow  positively,  its  bottomline  was  pressured  by  high  operating expenses.  In  1HFY14,  Astro  generated  free  cash  flow  of  MYR469m  – more  than  doubled  its  reported  net  profit.  It  declared  a  2  sen  dividend (equivalent to 100% payout) in 2QFY14. Maintain BUY and MYR3.36 FV. 
 
- Results in line. Astro’s 1HFY14 net earnings of MYR213m (-1.8% y-o-y) were  in  line  with  our  expectation,  at  48.7%  of  our  full-year  forecast  but below  street  estimate.  Its  topline  grew  12.6%  y-o-y  but  bottomline  was pressured  by  high  operating  expenses  as  well  as  high  depreciation  of set-top boxes (STB) and amortisation of software.

- Operations overview. ARPU improved to MYR94.9 from MYR91.8 due to  a  higher  take-up  rate  of  value-added  services  and  contribution  from NJOI. Its gross adex also has outperformed the industry, in line with our sector view. Despite the bottomline being pressured by higher expenses, Astro  managed  to  generate  free  cash  flow  of  MYR469m  in  1HFY14, which more than doubled its net profit of MYR213m.   

- 2  sen  dividend.  Given  its  strong  free  cash  flow,  Astro  was  able  to continue its 2 sen dividend payout in 2QFY14, bringing its total dividend payout  in  1HFY14  to  4  sen  per  share.  This  translated  into  a  100% dividend  payout  ratio  in  2QFY14  and  was  above  our  expectation.  That said, we keep our dividend payout ratio at 75% at this juncture, which is the minimum promised by Astro.

- Risks.  These  include  high  expenses  and  slow  growth  in  pay-TV household penetration rate, as well as the emergence of new players.

- Maintain  BUY.  Moving  forward,  Astro  will  continue its strategy  to  focus on  content  and  quality  of  service  to  maintain  its  market  leadership. We continue to like Astro. Maintain BUY, with our MYR3.36 FV unchanged.

Source: RHB