This article first appeared in The Edge Financial Daily on September 28, 2018

KUALA LUMPUR: Disappointing second-quarter earnings figures have put Astro Malaysia Holdings Bhd under selling pressure, pulling its share price to RM1.52 — the lowest level since June 4.

A total of 9.17 million shares changed hands yesterday — more than four times its 30-day average volume of about 2.1 million shares.

The sharp 93.3% fall in its profit to RM16.6 million for the second quarter ended July 31, 2018 (2QFY19) has raised concerns over its earnings prospects moving forward against the backdrop of rising content costs and the tough fight against pirated content over the Internet.

“We see a challenging outlook for Astro given the recent weakening in ringgit as nearly 60% of its content cost is denominated in US dollars. We estimate that each 10% movement in ringgit/US dollar could impact its EPS (earnings per share) by 15% in FY19-FY21.

“Meanwhile, the reduction of wholesale prices for high-speed broadband under the Mandatory Standard Access Pricing (MSAP) could increase competition for Astro as that could provide more consumers better access to online content through over-the-top (OTT) providers or pirated websites,” commented CGSCIMB in its financial result review.

CGSCIMB downgraded Astro to a “hold” rating with a lower target price of RM1.75 in view of its challenging outlook due to the unfavourable foreign exchange (forex) and increase in competition for content from non-traditional media players and OTT providers following the implementation of MSAP.

Nonetheless, CGSCIMB highlighted that Astro offers an attractive FY19 forecast yield of 6.3%, supported by healthy free cash flow generation from its strong Malaysian TV household penetration (76%). “We see a potential M&A (merger and acquisition) with a telco (telecommunications) provider as a key upside risk for the stock,” it said.

Fifa World Cup 2018, which was expected to be an income booster, turned out to be a drag on Astro’s earnings during the quarter under review.

Astro’s share price slipped to its all-time low of RM1.36 at end of May this year as the market reacted to the news that 41 of 64 Fifa World Cup 2018 matches will be aired for free on RTM. It has since recovered back to the RM1.90 level in mid-August before some of the selling pressures returned prior to the release of its latest quarterly results.

A look at the group’s share price would have shown that a large chunk of the decline in its share price happened this year. Over the last one year alone, Astro has seen a total loss of about 43.3% in its share price (inclusive of dividend payout). It was not too long ago in December last year when the dominant pay TV company was still trading at RM2.60.

With the most recent decline, the group is trading at a trailing price-earnings ratio of 15.2 times and has an attractive dividend yield of about 5.6%.

The question remains though on what would be the earnings catalyst for Astro moving forward.