RHB Investment Research Reports

Astro Malaysia - A Slow Recovery

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Publish date: Tue, 01 Oct 2024, 09:58 AM
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An official blog in I3investor to publish research reports provided by RHB Research team.

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  • Still NEUTRAL, new MYR0.27 TP (DCF) from MYR0.32, 3% upside. Astro Malaysia’s results were expectedly weak as adex hit a new low. Subscription revenue, however, notched sequential improvements on higher broadband take-up. The group’s transformation efforts will see benefits backloaded as the shedding of legacy cost takes time. MYR strength and the potential bottoming out of adex should provide some respite to the share price and stock sentiment.
  • Falling short. 2QFY25 (Jan) core earnings of MYR27m (+8% QoQ, -37.2% YoY) brought 1HFY25F core earnings to MYR52m (-50% YoY), at 41% of our and 38% of Street's full-year forecasts. 1HFY25 revenue fell 7.9% YoY, mainly on weaker subscription revenues and adex. EBITDA fell on Olympics- related content cost and higher broadband opex sequentially, partially offset by savings from the decommissioning of the MEASAT-3A satellite in July.
  • Adex may have bottomed; new subscription plans to be unveiled. Adex was at a quarterly low (-19.8% YoY, -19.1% QoQ) as the Middle East conflict drowned sentiment with extended boycotts of key consumer/retail brands. Astro’s lower leverage to public sector ad spending means it has more to lose relative to mainstream peers in the current environment. The wave of boycotts appears to be dissipating with management noting a nascent recovery in ad spending going into 3QFY25. Meanwhile, ARPU inched higher to MYR99.80 from bundled fibre broadband (FBB) subscriptions, with broadband subs up 11% YoY. Astro is set to roll out three simplified subscriber packages to replace the current packages (last repriced in Nov 2021). The value-based offerings look to be ARPU-dilutive, although this could stem the erosion in its premium subs base. We note that Astro secured the highest growth in Chinese subs since 2019 during the quarter.
  • Cost management. We see lower overall content costs in FY26F, helped by the MYR strength, off a major sporting year. With 75-100% of its costs and payables hedged over the next 12 months, the positive FX impact may only be felt from 2HFY26. Key cost efforts (to reduce legacy costs) include the migration of its content play-out services to the cloud, digitalisation of its back-end systems and processes, and the focus on local content.
  • Forecasts and risks. While we model in stronger MYR/USD assumptions, we believe margins will only see gradual improvements as legacy costs will take time to unwind, coupled with the uncertain impact from the repricing of packages. Our FY25-27F earnings are revised down by 13.6%, 5.4%, and 5.8%. This lowers our DCF-based TP to MYR0.27, with a 4% ESG premium baked in. Downside/upside risks: Extended/receding macroeconomic headwinds, weaker/stronger-than expected earnings, and a continued decline/improvement in subscription revenues.

Source: RHB Research - 1 Oct 2024

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