Review

• Astro’s 1HFY25 core net profit of RM52mn came in within ours and below consensus expectations at 45.4% and 38.3% of full-year forecasts, respectively. We deemed the results within our expectation as expect higher revenue and earnings from new TV packages and adex to remain around the average level with an upward bias, as the impact of boycotts may diminish, potentially boosting adex spending.

• Excluding exceptional items, 1HFY25 core net profit stood at RM52mn (- 49.5% YoY), dragged by weaker Pay-TV subscription revenue (-8.4% YoY) and adex (-15.6% YoY). Core earnings were normalised to exclude the impact of RM20mn unrealised forex gain from transponder lease liabilities.

• YoY. 2QFY25’s revenue and core net profit declined 9.5% YoY and 37.2% YoY to RM787mn and RM27mn respectively. Earnings were dragged by weaker Pay-TV subscription revenue (-6.4% YoY) and adex (- 19.5% YoY) amid macroeconomic headwinds and poorer business and consumer sentiment. This comes despite stronger demand from i) Astro Fibre’s broadband user base growing 11% YoY; ii) Sooka’s monthly active users (MAU) surging by 60% to 1.3mn users, with VIP paying customers more than doubling, largely fueled by popular events such as Euro 2024.

• QoQ. 2QFY25’s revenue and core net profit increased slightly by 1.9% QoQ and 8.0% QoQ to RM787mn and RM27mn respectively. This was largely due to higher Pay-TV subscription revenue (+2.2% QoQ) and higher ARPU of RM99.80 (+0.4% QoQ), which was driven by major sports events and continued demand for broadband services. This is despite lower adex (-19.5% QoQ) due to external factors such as the ongoing Middle East conflict and higher increase in content costs, representing 36% to 37% of total TV revenue.

Impact

• No change to our earnings forecasts.

Outlook

• We expect higher revenue and earnings from new TV packages and adex to remain around the average level with an upward bias for 2HFY25, as the impact of boycotts may diminish, potentially boosting adex spending.

• On the other hand, we remain cautious about Astro’s outlook. The group faces challenges from macroeconomic headwinds and weaker customer sentiment, which may impact its growth and ongoing transformation plans. To address this, Astro plans to introduce three streamlined TV packages targeting entry-level viewers, sports fans, and all-access seekers, aiming to boost signups and provide better customer support.

• We believe Astro will likely benefit from the recent strong ringgit appreciation as approximately half of the content cost is denominated in foreign currencies, mainly USD. However, we do not see much of this benefit to be reflected in 2HFY25, but after FY25, as management has clarified that they are not a trading company and they have hedging in place, having already locked in prices.

• 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.

Valuation & Recommendation

• We maintained our TP for Astro at RM0.30 based on a WACC of 10.4% and LT growth rate of 0.5% with an ESG premium of 3%. The recent drop in share price has enhanced the risk-reward profile, as the stock is trading at 1SD below its historical mean EV/EBITDA of 5.4x. As a result, we upgrade our recommendation on ASTRO from SELL to BUY.

• Key downside risks include i) Tax bill of RM735mn from LHDN being fully/partially materialized, ii) Higher-than-expected content costs, iii) Lower-than-expected adex and iv) Stronger-than-expected impact from macroeconomic headwinds and poorer business and consumer sentiment

Source: TA Research - 1 Oct 2024