Astro’s 1QFY16 results were better than expected at 28%/26% of ourand consensus estimates, led by higher revenue and lower costs. Maintain NEUTRAL with a lower TP of MYR3.28 (from MYR3.35, 9% upside), as we remain cautious on the prospects of pay-TV net add.

• 1QFY16 (Jan) results were better than expected on the back of stronger revenue growth as well as lower installation, depreciation and distribution costs. Revenue was up 6.1% YoY while earnings grew 31.3% YoY.Revenue improved across all operating segments while EBITDA also improved 7.1% YoY (see Figure 1).
• Pay-TV net add turned negative on a QoQ basis, registering a contraction of 5,000 households, led by a higher churn rate of 10.3% (4QFY15: 9.9%). Management attributed this to the rationalisation of consumer spending post-goods and services tax (GST), which has also seen some customers downgrading their subscription to Value Pack from Super Pack previously. Nevertheless, Astro has guided a 50,000 pay-TV net add for FY16, lower than our initial 70,000 assumption.
• Forex risk. Astro shared that it has hedged 100%/50% of the content costs for FY16/FY17 respectively. Thus, it guided that its content costwould remain stable at around 32% of TV revenue for FY16.
• Forecasts. Adjusting for the pay-TV and cost assumptions, we upgrade our FY16-17 earnings forecasts by 6-8% but maintain our FY18estimate.
• Go Shop generated MYR37m in revenue, in line to meet the MYR150m FY16 revenue contribution guidance. Astro expects the home shopping venture to break even by the end of this financial year.
• Dividends. A 2.75 sen DPS was declared for the quarter, up 22% from FY15 quarterly dividends.
• Maintain NEUTRAL with a revised DCF-based TP of MYR3.28 (from MYR3.35), based on a WACC of 9% and 1% terminal growth. Despitelower costs and higher earnings, we remain cautious on the prospect of pay-TV net add going forward. W e also expect consumer sentiment to remain subdued for the next two quarters post-GST and thus expect a challenging FY16 for the media industry. Astro is trading at an implied 26.9x FY16F P/E, while its peers are trading at 10.4x. Hence, we reiterate our NEUTRAL recommendation.

Seventh transponder. Astro has also shared that it has taken ownership of itsseventh transponder recently, which it intends to introduce up to nine high-definition (HD) and two standard-definition (SD) channels.

Barclays Premier League (BPL). Astro has also shared that the bidding of the broadcasting rights for the BPL will start next year. The bidding process in the UKwas concluded earlier this year and was reported to be 70% higher than the previous TV deal.

Strategy. Astro shared that it will continue to pursue a comprehensive content provider strategy to reach out to households as well as to individuals on the go, in the face of rising challenges from standalone content-streaming providers such as iFlix. The strategy would enable consumers to seamlessly view content via their Astro settop boxes at home as well as mobile units when they are on the go. Astro also intends to leverage on its extensive historical content library, live contents (sports + news) and vernacular contents. Content downloads for its mobile platform, Astro-onThe-Go (AoTG), grew to 1.46m downloads in 1QFY16 (4QFY15: 1.39m). Astro also intends to introduce a download service, where AoTG users can download content directly onto their mobile devices to counter erratic broadband bandwidth services and enhance their overall viewing experience.