• Keep BUY, new DCF- derived MYR0.99 TP from MYR1.17, 19% upside and c.8% FY23F (Jan) yield. 2Q/1HFY23 results were expectedly weak, with discretionary and advertising spending stymied by inflationary woes. With share price down 13% YTD to a 52-week low, downside risk looks to be priced-in with valuation at an undemanding 4.8x FY23F EV/EBITDA (-1.5SD below historical mean). Forward FCF and yields of 14% and 9% are compelling for a transformational media play. Our TP bakes in a 4% ESG premium on account of the commendable sustainability initiatives.

• A miss. 2QFY23 core earnings fell for a second consecutive quarter (-16.4% QoQ), largely on protracted advertising expenditure (adex) weakness (-22% QoQ) and commerce sales (-12.8% QoQ) with discretionary spending sapped by interest rates hikes and inflation. Consequently, EBITDA margin contracted 2% QoQ. Even with seasonally stronger incremental sales from fibre broadband (FBB) and the Qatar World Cup broadcast in November, the results still fell short of our (44%) and Street’s (46%) forecasts. A 1 sen second interim DPS (1HFY23: 2.25 sen) puts payout at 54%. We cut FY23-25F core earnings by 10-11% post the results call. Astro Malaysia announced that current CEO of the TV business/COO Euan Smith will take over as Group CEO in Feb 2023 upon the retirement of Henry Tan who stays on as advisor.

• Addressable advertising to the fore. Adex revenue (net of commissions) fell 5.3% YoY in 1HFY23, as 2QFY23 adex sales slipped a further 22% QoQ on macro concerns. Positively, Astro’s new adex proposition, dubbed “addressable advertising” (launched on the pay-TV platform in June) has shown some traction and may help mitigate the broader pressure on adex sales going forward.

• TV subscription revenue slipped for a fourth quarter in a row (-1.2% QoQ) as lower subs more than offset incremental FBB revenue, higher discretionary spending (on-demand), and ARPU uplift from the repricing of packages last November. FBB customers were up 40% YoY, the majority on content bundles, as standalone FBB plans were only launched in May. TVB Anywhere+ and beIN Sports Connect were the latest over-the-top (OTT) apps to join its app rail, which now boasts seven OTT brands (including Astro GO). The pivot from linear to on-demand viewing should hopefully stabilise subs churn in the medium to longer term. Astro has hedged its USD content cost 12 months forward at MYR/USD 4.20-4.25, shielding it from FX risks.

• Commerce overhang to persist. GO Shop revenue is at a 6-year low, compounded by notably tightened consumer purse strings from successive interest hikes. Shoppers have also returned to brick-mortar retail stores in earnest, which offer a more personalised shopping experience.

Source: RHB Research - 27 Sep 2022