• Keep BUY, lower MYR0.84 DCF TP from MYR0.94, 27% upside, c.9% prospective FY24F (Jan) dividend yields. Astro Malaysia’s core earnings underwhelmed with a lumpy impairment (non-cash) booked on a non-wholly owned subsidiary. The poor earnings prognosis for the group is in the price, with the stock trending off historical lows (YTD: ±1.5%). Our FY24-25F earnings estimates are downgraded to reflect inflation-adjusted opex and weaker advertising expenditure (adex) propensity.

• Earnings and dividend miss. 4QFY23 core earnings slipped into the red from accelerated depreciation and amortisation and the spike in content cost from the World Cup 2022 (WC2022). A MYR74m goodwill impairment (non-cash) related to a non-wholly-owned subsidiary contributed to LBIT of MYR67m for the quarter. Consequently, a final interim dividend was precluded, putting FY23 DPS at 3 sen or a 60% payout (below the 75% regular payout guidance), similar to FY20 where COVID-19 uncertainties saw management pulling the dividend plug. At 66% of our forecasts (consensus: 69%), the results underwhelmed expectations.

• Subscription revenue ticked up 1.4% QoQ, reversing five consecutive quarters of decline, aided by stronger ARPU (+1% QoQ to MY98.20) from the WC2022 passes and broadband bundles. With the spike in WC2022 content cost (+57% QoQ, +54% YoY) (FY23 content cost/revenue at 37%), core EBITDA margin fell a sharp 10ppts QoQ to 18.5% – the lowest on record. 4QFY23 adex revenue rose 14% QoQ, helped by the WC2022 broadcast, on-ground activities, and sponsorship deals – albeit down 14% YoY from inflationary woes. Also, Astro’s policy of not accepting political adex meant it did not benefit from GE15 spending.

• Transformation updates. Astro’s pivot (Astro 2.0) into an OTT content aggregator has had some positive impact, although less clear cut given the macroeconomic headwinds and quarterly earnings ‘noise’. Management highlighted that the greenfield subs base was fairly steady QoQ, suggesting improving affinity to the new Astro branding. The recent addition of ZEE5 and VIU brings the number of streaming video-on-demand (SVOD) services on its platform to 10 (including Astro GO) with ongoing negotiations for more OTT tie-ups (internally, management has set the bar high for one new OTT app/month). In the pipeline, are streaming music service and lifestyle/health oriented applications. Post the results call, we cut FY24-25F core earnings by 14-15%, mainly to factor in weaker adex propensity and higher inflation- adjusted opex. FY26 numbers have been introduced.

• Key risks are the extended macroeconomic headwinds, weaker-than- expected earnings, and the continued decline in subscription revenues. Our TP has factored in a 4% ESG premium based on our in-house methodology.

Source: RHB Research - 28 Mar 2023