Astro Malaysia Holdings Bhd
(March 31, RM3.20)
Maintain add with a slightly lower target price (TP) of RM3.70: Revenue in financial year ended Jan 31, 2015 (FY15) grew 9.2% year-on-year (y-o-y), driven by a 2% increase in pay-TV subscribers from 3.4 million to 3.5 million and higher average revenue per user (Arpu) growth of 3.1% from RM96 to RM99.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) margin grew 0.9% from 33.7% to 34.6% in FY15 on the back of disciplined cost management initiatives and lower marketing and distribution expenses. Astro posted a stronger core net profit of RM519 million versus RM448 million last year, despite recording a significantly higher effective tax rate of 28.7% versus 21.3%. It also declared a higher interim and final dividend of 4.25 sen in the fourth quarter of financial year 2015 (4QFY15) versus three sen in 4QFY14, bringing total dividend to 11 sen in FY15, ahead of our expectation of 10 sen.

We were negatively surprised by the lower Arpu guidance of RM101 in FY16 during Astro’s conference call as management expects 2% to 3% Arpu growth, following the high definition fees hike on Dec 14 and gradual pay-TV subscriber growth of about 60,000 to 70,000 in FY16.  

Management also highlighted the need to be a platform-agnostic content provider in order to stay relevant. We like the group’s strategy to develop this. We are also excited about over its new home shopping business as it provides a new source of revenue.

Astro’s growth prospects are intact, given its dominant market position, with a 63% penetration rate. — CIMB Research, March 31

This article first appeared in The Edge Financial Daily, on April 1, 2015.