Review

• Astro reported a 3QFY24 net loss of RM47mn, compared to a net profit of RM6mn in 3QFY23, as it was dragged by Voluntary Separation Scheme (VSS) costs amounting to RM52mn. This brought the reported 9MFY24 net loss to RM8mn versus a net profit of RM204mn in 9MFY23.

• Excluding exceptional items, 9MFY24 core net profit stood at RM145mn (-50.0% YoY), dragged by weaker Pay-TV subscription revenue and adex, as well as higher costs. Core earnings were normalised to exclude the impact of i) RM108mn unrealised forex loss from mark-to-market revaluation of transponder-related lease liabilities and ii) RM40mn posttax VSS costs.

• 9MFY24 core net profit of RM145mn (-50.0% YoY) came below ours and consensus full-year estimates at 69.4% and 57.9%, respectively. On our end, results were missed due to weaker-than-expected Pay-TV subscription revenue. In 3QFY24, Pay-TV subscription revenue (-2.1% QoQ, -5.7% YoY) trended lower for the 3rd consecutive quarter,

• YoY. 9MFY24’s revenue and core net profit declined 6.9% YoY and 50.0% YoY to RM2,616mn and RM145mn. Earnings were dragged by i) weaker Pay-TV subscription revenue and adex amid macroeconomic headwinds and poorer business and consumer sentiment, and ii) higher costs from content, broadband, licenses, and copyright and royalty fees.

• QoQ. 3QFY24’s revenue and core net profit slipped further by 1.7% QoQ and 2.3% QoQ to RM855mn and RM42mn. This was largely due to weaker Pay-TV subscription revenue, which remained under pressure from subscriber churns (-2.8% QoQ – based on our estimates), albeit cushioned by higher ARPU of RM99.80 (+0.7% QoQ), which was driven by new TV packs and broadband bundles. Adex, however, recovered 12.6% QoQ, driven by the premier of signatures and originals.

Impact

• We have lowered our FY24F/FY25F/FY26F earnings estimates by 10.6%/5.8%/0.7% upon trimming Pay-TV subscription revenue to reflect actual 3QFY24 results. We expect the impact in FY25F/FY26F to be cushioned by cost savings we also factored in from the VSS exercise.

Outlook

• Management remains cautious about Astro’s outlook. The backdrop of macroeconomic headwinds, poorer customer sentiment, and the stronger USD is expected to pose challenges to the group’s growth and ongoing transformation plans. In this regard, the group will be introducing more affordable product entry points to spur signups and support customers.

• Meanwhile, management also maintained Astro’s commitment to its transformation plans. To drive long-term and sustainable growth, it will remain focused on i) elevating local content, ii) accelerating growth of adjacent businesses, including sooka (freemium streaming), Astro Fibre, enterprise, and addressable advertising, and iii) rationalising legacy cost structures. With regards to the recent VSS, management shared that the exercise has reduced headcount by 20%, while its cost of RM52mn is expected to be paid back within 12 months.

Valuation & Recommendation

• Corresponding to our earnings downgrade, our TP for Astro is lowered to RM0.36 (previously RM0.385) based on a WACC of 11.9% and LT growth rate of 0.5%. While Astro continues with its transformation plans in an attempt to reverse and stabilise the long-standing decline in its PayTV subscription revenue, efforts are proving to be long haul. In addition, we expect prevailing macroeconomic headwinds to dampen the nearterm recovery of its key Pay-TV subscription and adex revenue streams. Maintain Sell.

• Key upside risks include meaningful traction with transformation plans, improved business conditions and consumer sentiment, fruitful cost optimisation, and effective enforcement of anti-piracy measures.

Source: TA Research - 15 Dec 2023