This article first appeared in The Edge Financial Daily on September 18, 2017

Astro Malaysia Holdings Bhd
(Sept 15, RM2.71)
Downgrade to hold with a lower target price of RM2.83: Astro’s first half of financial year 2018 (1HFY18) revenue declined slightly by 1.6% year-on-year (y-o-y) to RM2.75 billion, due to lower contribution from home shopping (due to the decrease in the number of products sold), lower TV subscription (due to lower package take-up rate) and lower licensing (due to loss of content recovery for sports channels), but this was partially offset by higher revenue contribution from TV and radio advertising expenditure. Astro’s revenue contribution from the TV and home shopping divisions declined by 1.7% and 4.3%, respectively, to RM2.45 billion and RM132.3 million, while the radio division’s revenue increased by 1.1% to RM160.2 million.

1HFY18 core net profit increased by 19.4% y-o-y to RM446.1 million, partly due to better margins and a decrease in depreciation. This was above our and consensus expectations, accounting for 58.9% of our previous FY18 forecast and 62.9% of the street’s. The variance was mainly due to cost savings in the TV division, which in our view is unlikely to be sustainable unless at the expense of content quality. Astro announced an interim dividend per share (DPS) of three sen, bringing 1HFY18 DPS to six sen (1HFY17: 6 sen).

Given the challenging operating environment in the media industry, Astro is trying to reposition its business, focusing on executing its key strategies which include: i) digitalisation of the legacy business via investments in technology and launching of OTT streaming services; ii) rapidly scaling the digital venture via its e-commerce platform (Go Shop) and regional OTT streaming service (Tribe); and iii) building a robust innovation pipeline via collaborative partnerships with leading content players. Astro has ventured into the digital and consumer-based business to complement the group’s existing media platforms, but we believe that these initiatives remain in a gestation period. — Affin Hwang Capital Research, Sept 15