Friday 29 Mar 2024
By
main news image

This article first appeared in The Edge Financial Daily on December 8, 2017

Astro Malaysia Holdings Bhd
(Dec 7, RM2.77)
Downgrade to hold with a lower target price of RM3.00:
Revenue in third quarter of financial year 2018 (3QFY18) declined 1.9% quarter-on-quarter (q-o-q) due to weak advertising expenditure (adex) across the TV and radio segments, down 19.9% and 10.6%, respectively. 

Meanwhile TV subscription (subs) revenue continued to slide (-1.9% q-o-q) due to lower package take-up. Group content cost surged 26.7% q-o-q to RM447 million after the lower-than-expected content cost in the previous quarter. Overall, core net profit fell 43.3% q-o-q to RM138 million, after stripping out foreign exchange (forex) gain.

For the cumulative nine months (9MFY18), revenue fell 2% year-on-year (y-o-y), mainly due to lower TV subs (-2.7% y-o-y). We estimate this was due to lower package take-up from pay-TV subs. 

In spite of the weaker revenue, earnings before interest, taxes, depreciation and amortisation margin rose 1.9 percentage points from 32.6% to 34.5% on the back of lower content cost, interest and depreciation expenses. 

As a result of higher operating leverage, its core net profit grew by 17.4% y-o-y from RM482 million to RM566 million. Astro declared a third interim dividend per share (DPS) of three sen, bringing total dividends to nine sen, in line with expectation.

Following its 3QFY18 results, management held a conference call with analysts and fund managers. 

The group expects its content cost to increase in FY19 mainly due to the high number of sporting events, which include major events like the Fifa World Cup 2018, Gold Coast 2018 Commonwealth Games and 2018 Asian Games. The group expects the total content cost to come in at 35% to 36% of TV revenue in FY19. 9MFY18’s content cost hovered around 33% of TV revenue.

Astro announced yesterday it had entered into a 51:49 joint venture (JV) called Karangkraf Digital 360 (KK360) with Grup Majalah Karangkraf Sdn Bhd for the creation and monetisation of content verticals in Malaysia and the Nusantara region. Astro would spin off Karangkraf’s Malay-language and Islamic-themed intellectual properties into content through multiple platforms of TV, over-the-top, and digital. 

Astro plans to invest a total of RM100 million over five years in the JV. The deal is expected to be completed in first half (1H18).

We cut our FY18-FY20 earnings per share by 5% to 8% to account for lower TV subs and adex revenue and higher content cost and depreciation expense. We expect content cost to increase by RM100 million or 6% y-o-y in FY19. Moreover, we are wary of lower adex demand due to sluggish consumer sentiment on the back of higher cost of living. — CIMB Research, Dec 7
 

      Print
      Text Size
      Share