Astro recorded better-than-expected progress in its home shopping venture, which helps its non-traditional revenue diversification efforts. Nonetheless, we are concerned that the subdued Malaysian consumer sentiment could continue to weigh on earnings going forward. Maintain NEUTRAL with a revised TP of MYR2.94 (from MYR2.88, 2% downside). We also believe that current valuations have priced in potential upside where Astro is trading close to the mean valuations of its regional peers.Earnings outlook. We remain cautious on the 2016 outlook for the media sector owing to the subdued Malaysian consumer sentiment (Malaysian Institute of Economic Research (MIER) Consumer Sentiment Index hit an 18-year low in Dec 2015). Consequentially, Astro expects a challenging FY17 (Jan)and has guided for minimal subscription revenue growth and mid-single digit growth in adex revenue.

Home shopping comfort. Go Shop, Astro’s home shopping venture has registered better-than-expected progress, serving 410,000 customers while generating MYR189m revenue in FY16. We continue to like the e-commerce business as a means of revenue diversification and forecast that the venture could contribute as much as MYR400m by FY18. Management aims for Go Shop to break even in FY17.

Earnings and risks. We make no changes to our earnings forecasts. Risk to our recommendation includes worse-than-expected consumer sentiment while the upside is better-than-expected pay TV net-adds.

Maintain NEUTRAL. 4QFY16 earnings were in line with expectations, making up 98%/100% of our/consensus estimates respectively. While we were pleased to note the progress of Astro’s revenue diversification efforts, we expect the subdued consumer sentiment to continue to weigh on earnings. Maintain NEUTRAL with a revised TP of MYR2.94 (2% downside, CoE: 9%, TG: 1%), with an implied FY17F P/E of 22.3x. Astro is currently trading at 22.7x FY17F P/E, which is close to the mean valuations of its regional peers (Figure 6).

Cautious on FY17 Strategy. Astro aims to be a platform-agnostic content provider of choice within the next three to five years. Management intends to achieve its goal by focusing on the quality of the content such as the development of vernacular content (Astro now has the largest vernacular content library in South-East Asia) as well as the development of local films (Police Evo and Ola Bola shattered local box-office records by generating MYR18m and MYR16m in revenues respectively). Astro has also reiterated the importance of having content delivery channels that cater to the ever-increasing mobility demand. We believe that Astro On The Go would be an ideal platform for the company to reach out to the younger crowd who now consumes content often through their mobile devices.

Launch of Tribe. Astro has recently launched Tribe, an over-the-top (OTT) service for ASEAN video consumers. This service would leverage on Astro’s vernacular library in collaboration with key partners in the region to expand the company’s reach as a platformagnostic content provider. We gather from management that Tribe would differ from Astro On The Go as the latter is catered to Malaysian Astro subscribers, while the former targets regional non-Astro clientele and would have live sports content.

Expiry of exclusive direct-to-home (DTH) licence. Astro’s exclusive DTH satellite licence would expire in 2017. Nevertheless, management is not too concerned onpotential entrants into the pay-TV space due to the difficulties in securing satellite infrastructure for broadcasting. Typically, it would take considerable capital expenditu re and a 3-4 years’ time frame to launch a satellite. Furthermore, the optimal orbital space for TV broadcasting in Malaysia is currently reserved by other satellite operators. We also understand that any new satellite operators would have to use less favourable frequencies as they cannot interfere with the radio frequencies of existing satellite operators.

Forex sensitivity. Management has shared that it has managed to fully hedge its USD content cost for FY17. As such, further USD forex volatility would only impact Astro’s bottomline from the exposure of its USD125m lease liabilities. We forecast that for every 3% movement in the USD, Astro’s earnings could be inversely impacted by MYR30m. Maintain NEUTRAL. While we were pleased to note the progress of Astro’s revenue diversification venture, we expect the subdued consumer sentiment to continue to weigh on earnings. Maintain NEUTRAL with a revised TP of MYR2.94 (2% downside, CoE: 9%, TG: 1%), with an implied FY17F P/E of 22.3x. Astro is currently trading at 22.7x FY17F P/E, which is around the mean valuations of its regional peers (Figure 6).