Astro’s headline net profit for 4QFY23 fell by 56.8% YoY to RM54.7m due to an impairment on its goodwill and intellectual properties amounting to RM73.5m, as well as higher operating costs. Stripping out non-recurring and non-operating items, FY23 core net profit came in below market and our expectations, making up 87% and 90% of full-year estimates respectively. This was largely due to higher-than-expected operating expenses, i.e content cost and depreciation cost. We cut our FY24-25F earnings forecasts by 14-20%, factoring in lower revenue and higher operating costs. As such, our DCF-based TP is revised to RM0.73. No dividend was declared for the current quarter. Maintain Neutral on Astro.

• 4QFY23 revenue fell 3.9% YoY, mainly due to a decrease in subscription revenue, advertising revenue and merchandise sales. However, this was partly offset by an increase in sales of programming rights. Television advertising revenue dropped by 19% YoY while subscription revenue declined by 3% YoY. Meanwhile, home shopping revenue continued to weaken, falling by 38% YoY due to subdued consumer sentiment as well as customers returning to physical store shopping.

• 4QFY23 net profit dragged by impairment. Astro recognised an RM73.5m impairment on its goodwill and intellectual properties. Coupled with the increase in amortization and depreciation charges as well as content cost, net profit fell 56.8% YoY. With the airing of World Cup 2022, content cost over TV revenue increased to 49% compared to only 31% in 4QFY22.

• Privatisation on the cards? Following media reports of a possible privatization, Astro’s share price rallied by as much as 25% from its low in early March. Nevertheless, management has dismissed the privatization speculation, denying any confirmation of proposal from its controlling shareholder. Ananda Krishnan and Khazanah Nasional currently own 41.3% and 20.7% of Astro respectively. In 2010, both parties initiated a privatization of Astro All Asia Network and subsequently relisted the group two years later (without the overseas operations). However, we believe that the likelihood of privatization is less likely this time around given that the industry’s landscape has changed with Astro facing challenges such as growing competition from global online streaming services, falling subscriber base and rising costs. Additionally, Astro is now sitting in a net debt position (RM3.2bn), making it a less attractive takeover target.

Source: PublicInvest Research - 28 Mar 2023