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This article first appeared in The Edge Financial Daily on January 22, 2019

Astro Malaysia Holdings Bhd
(Jan 18, RM1.50)
Maintain buy with a lower target price (TP) of RM1.70:
On the back of a recent improvement in the Consumer Sentiment Index after the 14th general election, we believe Astro Malaysia Holdings Bhd’s earnings will remain resilient, capitalising on its double-edged strategy of digital and subscription base revenues, backed by its 5.6 million household customers.

Additionally, the home shopping segment is experiencing a tremendous growth stemming from its joint-venture partner strategy.

Challenges are expected to persist in this segment as Astro expects a growth in premium subscribers to be sustainably muted.

Astro is focusing on upselling NJOI, a free satellite television (TV) service, and monetising further through more prepaid consumption and slowly converting more NJOI subscribers to its pay-TV platform.

NJOI is able to capture a wide audience base and is benefiting advertisement expenditure (adex) with more than 2.3 million NJOI customers, and expects the customer base to grow higher than the financial year 2018 (FY18) growth of 18%.

Astro considers over-the-top players are less of a threat to its business model as generally Malaysians are still unable to afford a smart TV, preferring local content.

Astro perceives the piracy issue off its set top boxes has a more profound disruption to its business model.

On the other hand, Astro cited the piracy issue could benefit its cost structures as Astro managed to negotiate a lower content cost for international contents affected by the piracy issue.

Astro had also embarked on cost cutting, yielding positive results in the third quarter of FY19.

Astro expects more cost rationalisation through marketing, content, personnel and administrative lines that will result in long-term cost savings and better productivity.

The full-blown impact from its voluntary separation scheme via a one-off expense is expected to be felt in FY20.

We believe the ability to retain subscribers for its sports package lies in its crown jewel — the English Premier League broadcast.

However, in a recent development, Facebook has secured the rights to stream the Premier League from 2019 to 2022 in neighbouring countries, and we do not discount the possibility of Facebook striking a similar deal in Malaysia when Astro’s current deal expires in 2022.

Following the transfer of analyst coverage, we introduced new financial forecasts and revised our FY19 to FY21 forecasts higher by 2% to 3%.

While our earnings are raised, our TP is reduced slightly from RM1.83 to RM1.70 mainly due to working capital adjustments.

We like Astro for resiliently generating revenue from its subscription revenue, a steady adex outlook and the ability to increase average revenue per user.

The group also pays a very generous dividend, translating into a yield of 7%. — Hong Leong Investment Bank Research, Jan 18

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