Review

• Astro announced a FY17 core profit of RM690mn (+7.3% QoQ, +5.2% YoY). This was within ours and consensus estimates at 104.1% and 104.7%. Dividends of 3.5sen/share (YTD: 12.5sen/share) were also announced.

• Overall performance remained resilient, in spite of prevailing macro conditions. The Pay TV segment reported solid numbers, with 24k subscriber net adds (reversing three consecutive quarters of decline) and a higher ARPU of RM100.4. However, holding back optimism, the segment remains challenging, with management expecting Pay TV subscribers to remain flat in the immediate future. Home shopping revenues (-1.6% YoY) were affected by delivery disruptions due to floods and resource issues faced by its logistic partners during the festive season.

• YTD. Revenue improved 2.5% YoY to RM5.6bn. Barring flattish TV subscription revenues, growth was broad based across the group.

• Its home shopping business (+37.4% YoY), Go Shop, continues to grow well, but remains in the red with a LBT of RM20.7mn. Targets for FY18 are to increase revenues to RM500mn, while expanding margins by 5.0%.

• The group continues to gain market share with higher radio (+10.8% YoY) and TV (+9.6% YoY) adex. Its current share of radio and TV adex stands at 73% (+3pp) and 38% (+3pp) respectively. Radio stations acquired from Star Media Group are expected to be launched towards the second and third quarter.

• Premised on weak macro conditions, Pay TV revenues stood flattish. Higher Pay TV ARPU (+1.1% YoY) helped offset a net decrease of 83k Pay TV subscribers. Improved ARPU was premised on take up of value added services and price revisions to its sports packages. On the flip side, NJOI trends remained healthy with 386k subscriber net adds. With NJOI ARPU still low at RM2, there are plans to further monetise this customer base. Initiatives include providing customers access to on demand titles on an a la carte basis.

• EBITDA decreased 6.4% YoY. Content costs increased 8.6% YoY due to the double sporting year and a weaker ringgit. Administrative costs also increased 17.6% YoY. Elsewhere, costs were well managed with a decline in marketing & distribution (-6.4% YoY) and operating (-3.3% YoY) expenses.

Impact

• Imputing year-end figures into our model and adjusting for lower-thanexpected margins at its home shopping business, we decrease our FY18 and FY19 earnings by 1.7 and 3.4%. We also introduce our FY20 earnings estimates of RM807mn.

Outlook

• We estimate a 9.3% YoY earnings growth in FY18. Coming off a double sporting year, this is expected to be driven by a moderation in content cost to 34-35% of TV revenues. The Pay TV segment is anticipated to remain challenging, with projections of a flattish base of 3.4-3.5mn subscribers. Instead, Pay TV revenues are expected to be driven by higher Pay TV ARPU of RM103-104 – driven by premium households. Elsewhere, we continue to expect healthy adex and home shopping revenue growth. Go Shop targets to raise its revenues to RM500mn, by increasing its product breadth, live hours, premium delivery options and payment options.

Valuation

• We value Astro at a slightly lower TP of RM3.20/share (from RM3.30/share) – premised on a DCF valuation with an unchanged WACC at 7.0% and long term growth rate of 1.0%. We like the company for its resilient Pay TV revenues and ability to grow adex. From a valuation standpoint, it is trading at an undemanding EV/EBITDA of 9.2x, 1SD below its historical average. Dividend yields are also attractive at 4.5-4.9%. BUY.

Source: TA Research - 29 Mar 2017