We  downgrade  ASTRO  to  a  NEUTRAL  from  Buy,  but  keep  our  DCFderived  FV  of  MYR3.36  given  the  limited  upside  for  returns.  The  2014 World Cup  will benefit TV operators the most due to the higher adex, but ASTRO’s high P/E – stacked against its low earnings growth and 2% dividend yield - is a setback. We prefer Media Prima (BUY, FV MYR3.60) as a World Cup play, as its valuations and yields are more attractive.

• Catching  football  fever.  Historical  data  suggests  that  gross  adex usually goes up during the FIFA World Cup Year as the large following of football  fans  creates  opportunities  for  advertisers  to  mount  marketing campaigns, notably  on TV.  During the  2010 World Cup,  gross adex (expay TV)  jumped  15.6% y-o-y,  with free-to-air (FTA) TV  adex rising the most -  at  18.2% y-o-y.  We expect  ASTRO  to  benefit  from the  upcoming football fever  and see increasing  adex as well as  average revenue per user (ARPU).  As a yardstick, during the 2006  World Cup,  Astro  All-Asia Networks  (which was  delisted in 2010  and  ASTRO  was listed in 2012) saw its revenue climb 17%, while profit before tax surged 27%.
• On  course  for  ARPU  growth.  ASTRO  remains  on  track  to  grow  its ARPU  on  the  back  of  an  increase  in  the  subscription  of  value-added services. Its revenue is expected to  improve due to  growing penetration in  the  Pay  TV  household  segment.  This  will  give  rise  to  a  sustainable cash flow  for the pay TV  operator.  While ARPU is inching higher, 2014 content cost, notably from the sports channels, is also on the rise.
• Onerous capex coming to an end. FY15 is expected to see the tail end of ASTRO’s  high capex cycle  as the company is scheduled  to launch  its satellite  this  year  while  the  swapping  of  subscribers’  set-top  boxes  is nearly  completed.  As  its  free  cash  flow  is  expected  to  improve  after FY15, there is potential for a more generous dividend payout.
• Now  NEUTRAL.  We maintain our earnings forecast but  downgrade  the stock  to  NEUTRAL  due  to  the  limited  upside  to  our  unchanged  DCFbased  FV of MYR3.36.  For sector exposure,  we advocate  that investors accumulate  Media Prima (MPR MK,  BUY, FV: MYR3.60) given its more attractive valuation and dividend yield of >5-6%.

Financial Exhibits

SWOT Analysis

• Astro  has  first-mover  advantage  in  the  payTV  business  in  Malaysia.  It  continues  to expand  by  offering  various  value-added services and through strategic partnerships

Company Profile
ASTRO is the largest Pay TV operator in Malaysia.

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Source: RHB