• BUY, new DCF-derived MYR0.94 TP from MYR0.99, 32% upside and c.9% FY23F (Jan) yield. 3Q/9MFY23 results underwhelmed as seasonally higher advertising expenditure (adex) was offset by lower subscription revenue and higher opex. Downside risks for the stock look to be priced in (-25% YTD), supported by attractive FCF and dividend yields, and EV/EBITDA valuation at near -2SD of the historical mean. Our TP includes a 4% ESG premium. Key risks: Weaker-than-expected earnings, soft discretionary spending, and extended pressure on advertising spending.

• 3QFY23 core earnings fell for a third consecutive quarter (-29.7% QoQ, -22.8% YoY) as higher opex and financing costs more than offset lower tax expense. Interest cost surged three fold QoQ to MYR141.7m in 3QFY23 (2QFY23: MYR45.9m) from unrealised FX losses on unhedged transponder lease liabilities. Despite stronger adex, overall results were a miss, at 66% of our forecast (consensus: 68%). A 0.75 sen third interim DPS (9MFY23: 3 sen) puts payout at 54%. Post results call, we lower FY23-25F core earnings by 4-8%.

• Adex revenue up 26% QoQ thanks to the good line-up of content, and the new addressable advertising service which capitalises on data analytics to push relevant ads to individual households. This was however offset by feeble TV subscription revenue which slipped for the fifth quarter in a row (- 2.1%) as it continued to grapple with the erosion in TV subs base and inflationary headwinds. FBB customers grew 34% YoY, the majority on content bundles with steady ARPU (MYR97.40), the latter supported by new TV packs and broadband as more customers opted for the 100Mbps plan. GO Shop (commerce) revenue fell another 13% QoQ (-57% YoY) on subdued consumer sentiment and customers returning to physical stores.

• More OTT brands in the offing. BBC Player is the latest to join the expanding OTT portfolio of eight OTT brands, with Viu, a pan-regional video streaming service to follow soon. Astro plans to add another 4-5 OTT names over the next 12 months before eventually incorporating music and fitness apps, which would transform the ultrabox into a one-stop lifestyle hub for the home. Astro’s stronger content value proposition and the pivot from linear to on-demand viewing should stabilise subs churn in the medium- term.

• Combating piracy. On 16 Nov, Astro won a landmark anti-piracy case against a commercial establishment, where the High Court ruled that enterprises air only legitimate content in business premises. This sets a crucial precedence in the group’s continuous battle against piracy.

Source: RHB Research - 16 Dec 2022