• Reiterate BUY and DCF-derived TP of MYR1.30, 24% upside and c.7% FY23F (Jan) yield. Astro Malaysia’s 4Q/FY22 results are due to be announced on 31 Mar. We see a strong earnings rebound following three consecutive quarters of decline with the recovery in advertising expenditure (adex) as a key catalyst. We continue to like the stock for its digital pivot and superior dividend yields, with valuation at -1.5SD from its historical EV/EBITDA mean. Our TP has baked in a 3.2 ESG rating based on our in- house methodology.

• A good finale. ASTRO’s stronger sequential (4QFY22) showing should be driven by: i) A strong rebound in ad sales (off the 3QFY22 low-base (MCO 3.0), and ii) incremental uplift from new subscription plans unveiled last November. The key earnings swing factor, in our view, would be the treatment of Cukai Makmur as 9MFY22 effective tax rate hovered at 24% with the group benefitting from tax losses at certain subsidiaries and qualifying capital allowances. Astro is likely to declare a final and interim DPS of 3.5 sen, bringing FY22F DPS (FY21: 8 sen) to 8 sen (~8% yield), ahead of its 75% payout guidance and our projection. Our forecasts are unchanged pending the earnings release.

• Adex reverting back to pre-pandemic levels. If the strong 27% QoQ rebound in gross industry adex in 4Q21 is of any indication, we should see a similarly strong uplift in ASTRO’s 4QFY22 adex sales with the resumption of on-ground sponsorship activities under Phase 4 of the National Recovery Plan (NRP). The launch of a holistic advertising solution (addressable advertising) last December will see the group benefitting from more effective monetisation of ad inventories across platforms. The solution, which kicked- off initially on Astro On-Demand (AOD) and on its Ultra/Ulti set-top boxes, will be eventually replicated on linear channels, allowing advertisers to stretch their ad dollars via customised campaigns for a specific audience mix.

• Are the new plans mitigating revenue pressure? It has been four months since ASTRO unveiled new subscription packages. While it may still be premature to discern the overall impact to the group given the pandemic- weakened wallet share of consumers and over-the-top (OTT) substitution effect, anecdotal evidence suggests that the new plans are value accretive. This is because viewers are presented with stronger content and value proposition via the bundling of Netflix and Disney+Hotstar alongside more flexibility accorded on package offerings. An average household gains from the richer content line-up, a more seamless viewing experience and unified billing platform. Overall, we see TV subscription revenue stabilising in the medium term from the upgrade to value bundles, a recovery in commercial/enterprise sales and lower churn. The integration of more iconic OTTs should see cord-cutting level off with cord-nevers joining the fray with its independent OTT service, Sooka driving new digital revenue. Key downside risks are negative earnings surprise, extended revenue, and subs churn.

Source: RHB Research - 23 Mar 2022