Astro Malaysia (Astro) reported 2QFY25 headline net profit of RM53.2m, jumping 170% YoY mainly due to lower net financing costs on favourable unrealized foreign exchange (forex). However, normalised net profit was down 37% YoY to RM27m on the back of a 6% decline in TV subscription revenue. Additionally, TV advertising revenue fell 19% YoY. 1HFY25 results came in below expectations. Although the strengthening of the ringgit against USD should help to ease the pressure of rising content cost, Astro has hedged its FY25F currency exposure at rates higher than the prevailing spot rates. Hence, a stronger ringgit may only translate to lower operating cost in FY26F. As such, we cut our FY25F earnings forecasts by 21%. Our DCF-based TP is revised down to RM0.30. We maintain our Neutral rating on Astro.

• 2QFY25 revenue fell 6% YoY, mainly due to a 6% decline in TV subscription revenue while advertising revenue was down 19%. Radio revenue was also weaker, falling by 20% YoY. All in all, advertising revenue dropped 20% YoY due to muted consumer sentiment, with clients opted for caution stance in advertising spend. Also, we believe competition from the non-traditional digital platforms have resulted in market share loss for Astro. Meanwhile, EBITDA margin fell by 3 ppts to 24%.
   
• 2QFY25 normalised net profit slumped 37% YoY, in tandem with the decline in revenue. Content cost has increased from 35% in 2QFY24 to 37% in the current quarter. Note that home-shopping contribution has been excluded following the cessation of business operations with the disposal of Astro Go Shop in October 2023.
   
• Outlook. Although 2024 is a major sporting year (i.e. Olympics and UEFA EURO), we are not expecting adex to pick up strongly in the coming quarters given the weak consumer sentiment. Coupled with a more intense competition from other video streaming services, its TV subscription revenue is likely to remain muted. While we believe content cost should ease in FY26F due to a more favourable exchange rates, topline growth is expected to be restricted by a challenging industry landscape.

Source: PublicInvest Research - 1 Oct 2024