This article first appeared in The Edge Financial Daily on September 28, 2018
Astro Malaysia Holdings Bhd
(Sept 27, RM1.52)
Maintain outperform with a lower target price (TP) of RM2: Astro Malaysia Holdings Bhd’s second quarter of financial year 2019 (2QFY19) revenue was flat at RM1,417 million, but net profit slumped by 93.3% to only RM16.6 million. Adjusting for the unrealised foreign exchange losses due to the revaluation of M3B transponder lease liabilities, 2QFY19 normalised net profit came in at RM46.6 million (-80.8% year-on-year [y-o-y]).
While first half of FY19 (1HFY19) revenue was within expectations, the normalised net profit came in below expectations at only 34% and 33% of our and consensus full-year estimates respectively. The poor set of results was mainly dragged down by: i) the higher-than-expected content cost from the 2018 Fifa World Cup due to the weaker ringgit; ii) the weaker-than-expected advertisement expenditure (adex) due to the reduced need to advertise during the tax holiday period; and iii) the higher finance cost. As a result, TV fell into the red with loss before tax (LBT) of RM13.5 million for the first time since its relisting (versus RM310.4 million in 2QFY18).
We cut our earnings by 7% to 26% for FY19 forecast (FY19F) to FY21F, mainly to account for the higher-than-expected content cost and the weaker-than-expected adex. Our discount cash flow-based TP is consequently lowered to RM2. We maintain our “outperform” call. In the medium term, we believe a potential merger and/or privatisation by its major shareholder should lend some support to the share price. The group declared a second interim dividend per share of 2.5 sen.
2QFY19 revenue continued to remain flat as the increase in merchandise sales, licensing income and sales programme broadcasting rights was offset by the lower subscription and advertising revenue. While revenue from World Cup passes increased by 50% from the 2014 World Cup, this was offset by a big drop of 29.2% y-o-y in TV adex due to the reduced need to advertise during the tax holiday period from June to August 2018. As a result, TV revenue was flat in 2QFY19 despite seeing better sales and viewership from the 2018 Fifa World Cup and having festivities like Hari Raya. Total customer base increased by 5.6% y-o-y to 5.6 million households, primarily driven by NJOI. Pay TV average revenue per user was lower at RM99.90 in 1HFY19 (1HFY18: RM100.80). Radio revenue was lower by 15.2% y-o-y due to lower client advertising spend. Meanwhile, e-commerce revenue was higher by 33% y-o-y, mainly driven by the increase in the number of products sold.
2QFY19 content cost was RM602 million, a 22.9% increase as compared with RM490 million in 2QFY15 (2014 World Cup). In terms of percentage, this quarter’s content cost was the highest level since relisting, at 48% (versus 38% in 2QFY15) mainly due to the increase in content cost for World Cup broadcasting rights and this was worsened by the weaker ringgit. We understand that the exchange rate paid for the 2018 World Cup broadcasting rights was at RM4.20 against the US dollar, which was a big jump of 31% as compared with RM3.20 in the 2014 World Cup. In addition, TV revenue was also lower in 2QFY19 due to weak adex during the tax holiday period, which falls in this quarter. Cumulatively, 1HFY19 content cost was 39.6% of the TV revenue. The group expects its full-year content cost to be around 37% of TV revenue in FY19F.
2QFY19 normalised net profit slumped by 80.8% y-o-y to RM46.6 million, mainly hit by the higher-than expected content cost due to the weaker ringgit, weaker adex and higher finance costs. Earnings before interest, taxes, depreciation and amortisation margin shrank by 18.4 percentage points to only 20.4% in 2QFY19. TV fell into the red with LBT of RM13.5 million for the first time since its relisting (versus RM310.4million in 2QFY18). In line with the decline in revenue, radio profit before tax slipped by 17.9% y-o-y. Meanwhile, e-commerce LBT widened to RM4.6 million due to costs incurred for additional channel and tactical campaigns.
We highlight that 3QFY19 adex may also be affected by weak adex due to the reduced need to advertise during the tax holiday period as August falls in the third quarter. — PublicInvest Research, Sept 27