This article first appeared in The Edge Financial Daily on September 26, 2018
Astro Malaysia Holdings Bhd
(Sept 25, RM1.66)
Maintain hold with an unchanged target price (TP) of RM2.02: Astro Malaysia Holdings Bhd’s second quarter of financial year ended July 31, 2018 (2QFY19) results are scheduled to be announced today and we expect it to be a stronger quarter-on-quarter (q-o-q) and weaker year-on-year (y-o-y) to match our core net profit expectations of around RM190 million to RM200 million.We also expect a distribution of second interim dividend of 2.5 sen per share.
The advertising expenditure- (adex) friendly quarter should be driven by several major events including World Cup (June to July) and the 14th general election (May). Besides that, we expect to see growth in the home shopping segment riding on the festive season (Hari Raya). Historically, home shopping is usually the strongest in 2Q.
Starhub witnessed its Pay TV 2QFYE18’s revenue increase by 5% q-o-q to S$85 million (RM351.66 million) and average revenue per user (Arpu) rose to S$53 from 1QFYE18’s S$51. The company attributed this to the World Cup.
Subsequently, Singtel’s Pay TV 1QFYE3/19’s revenue also strengthened by 29% q-o-q to SG$72 million and saw a 7% hike in Arpu from S$41 in 4QFYE3/19 to S$44. Hence, we are expecting Astro to enjoy a similar uplift as its regional peers and see a slightly stronger Arpu in 2QFYE19.
It may get harder from this point as Astro’s over-the-top (OTT) competitor Tonton (Media Prima) has ceased its annual video on demand pay subscription and moved its content to the free streaming site, YouTube.
We opine that this would somehow affect Astro’s NJOI subscription, as Tonton does not have to go through the hassle of box installation, as the contents are ready online.
We expect the second half of FY19 (2HFY19) to be less exciting for Astro as we do not see any near-term catalyst. In our view, 1HFY19 will be stronger than 2HFY19. With the more affordable fixed broadband packages, subscription rate for pay TV is expected to be disrupted significantly by OTT (for example Netflix, dimsum, among others).
Not forgetting FY19 is bearing a higher content cost of 36% of total revenue compared with normal non-World Cup year of 33% of total revenue.
The 10-year high Consumer Spending Index of 133 points in 2Q18 implies growth of +65% y-o-y and 46% q-o-q. In the latest Nielsen’s 2Q18 adex figures (which exclude pay TV and digital media) showed a total ad spend of RM1.92 billion (-9% y-o-y, +42% q-o-q).
Maintain “hold” with an unchanged TP of RM2.02 based on a discounted cash flow valuation using weighted average cost of capital of 8.4% and TG of 1%. We maintain our “hold” call despite the 19.5% capital upside pending the release of results today.
We think that Astro will remain relevant with its high penetration rate of 75% of total Malaysian households and for its reliability on live sports broadcasting. We like its regional digital initiatives, and its intention to produce more Asean content to capture the Nusantara market. — Hong Leong Investment Bank Research, Sept 25