Astro Malaysia Holdings Bhd 
(April 10, RM2.68)
Maintain add with an unchanged target price (TP) of RM3.25: In an interview with The Edge Malaysia weekly, Astro Malaysia Holdings Bhd’s chief executive officer Datuk Rohana Rozhan shared the group’s strategy of becoming a platform-agnostic content provider in the face of competition from over-the-top (OTT) players, both legal and illegal. 

For example, Astro recognised viewer demand for access to mobile content and introduced the “Astro-on-the-Go” app five years ago. 

On March 31, the app was rebranded as “Astro Go”, with enhancements in its user interface, personalised recommendations, and social media sharing, among others. Management also sees Astro Go as a new platform to expand online advertising expenditure (adex).

We agree with management that online piracy is a bigger threat to Astro than OTT players because it devalues the content and talent. 

Astro remains confident that it will maintain its 5.1 million strong household customer base by leveraging on its strength in content ownership. Astro produced 13,000 hours of local content annually.

The average Astro customer household spends about four hours a day on the Astro platform, of which three hours are spent on local vernacular content. 

This gives Astro a competitive edge over rivals because the international studios do not invest much in local content due to the lack of scale. Astro is undergoing digital transformation.

Rohana stated that Astro is in the process of complete digitalisation. Once completed, Astro customers will enjoy self-service consumer experience that would extend to the ability to check on the location of the technician assigned to fix the set-top box at home from a smart device. 

As part of Astro’s digitalisation initiative, it has partnered with Amazon Web Services to shift its content to the cloud. 

Astro is also exploring the potential of content mobility, which would allow a subscriber to access Astro content when travelling outside Malaysia. Expect stronger earnings growth in financial year 2017 (FY17) and FY18. 

We expect stronger earnings per share growth of 8.5% in FY17/FY18, driven by robust adex growth of 8% to 9% and higher average revenue per unit (Arpu) of RM102 per month from the sports package price hike and higher take-up rate of value-added services. 

Maintain “add” with an unchanged TP of RM3.25. Maintain “add” with an unchanged discounted cash flow-based TP of RM3.25. In our view, the stock offers decent forecasted FY18F/FY19F dividend yields of 4.9% and 5.3% respectively. 

Astro remains our sector top pick for its defensive earnings and dominant market position. Rising Arpu from value-added services and stronger home-shopping contribution are potential catalysts. Downside risks are higher churn from pay-TV subs and currency volatility. — CIMB Research, April 10