Astro Malaysia Holdings Bhd
(Dec 12, RM3.07)
Maintain “neutral” with a target price (TP) of RM3.60: Astro’s third quarter of financial year 2015 (3QFY15) earnings dropped 8.5% year-on-year (y-o-y) to RM113.3 million as compared with RM123.8 million recorded in 3QFY14.

This was mainly due to higher effective tax rate of 28.6% as compared with 19.1% in the previous corresponding period.

On a cumulative basis, the nine months of financial year 2015 (9MFY15) earnings amounted to RM379.4 million, an increase of approximately 13% y-o-y.

The growth in earnings was mainly due to the increase in subscription revenue and more efficient financing methods.

The group’s 9MFY15 revenue increased 10% y-o-y to RM3.9 billion. This was supported by higher contribution mainly from the television (+10.1% y-o-y) and radio (7.6% y-o-y) segments.

Higher TV revenue was boosted by increase in subscription, advertising and other revenue. Higher subscription revenue was led by (i) higher average revenue per user for Pay-TV residential subscribers of RM98.50 from RM95.60 previously, driven by higher take-up of value-added services and (ii) higher Pay-TV subscriber base which expanded by 77,000 to 3.5 million subscribers. Meanwhile, festive seasons and the World Cup improved advertising revenue.

Overall, TV household penetration improved 13% to 4.3 million households. This was mainly supported by the strong take-up rate from the NJOI segment, which soared 113% to 814,000 from 382,000 households previously.

The Pay-TV segment also improved, albeit at a slower pace (+2%), to 3.5 million households.

Radio’s revenue climbed to RM192 million. Higher radio revenue was driven by the pricing and inventory strategies in line with strong listenership. The number of radio listenership strengthened 6% to 12.9 million in 9MFY15. This increased radio market share to 60% from 55.1% in the previous corresponding period.

Although 9MFY15 capex amounted to RM200 million, this was a slight reduction of 2.9% as compared with RM206 million spent for 9MFY14. For the cumulative period of FY15, a reduced capex of 32.9% was allocated to generate revenue growth. More capex was allocated for expansion.

Astro declared a dividend of 2.25 sen for 3QFY15. This brings total dividend declared for 9MFY15 to 6.75 sen.

Given the lower-than-expected earnings, we are reducing FY15 and FY16 earnings estimates by 4.2% and 3.7%, respectively.

Also, we trimmed our earnings before interest, taxes, depreciation and amortisation margin assumption.

In addition, our dividend payout forecasts for FY15 and FY16 are also reduced by 10% and 20% to 9 sen and 10 sen, respectively.

Following our earnings revision, we value Astro with a revised TP of RM3.60 (previously RM3.75).

This was derived by pegging FY16 earnings per share of 11.6 sen to 31 times, which is the average price-earnings ratio (PER) of its 16 regional peers operating in the media segment and with television exposure.

Despite strong growth in the NJOI segments, NJOI households only made up less than 20% of Astro’s subscriber base.

This could signal a slower growth momentum in Astro’s subscriber base in the foreseeable term. All factors considered, we reiterate our “neutral” stance on Astro. — MIDF Research, Dec 12

This article first appeared in The Edge Financial Daily, on December 15, 2014.