Astro Malaysia Holdings Bhd
(July 15, RM2.97)
Maintain neutral with a revised target price (TP) of RM3.33: Astro is eyeing rural homes for expansion, relying on increased adoption of a subscription-free service by rural homes to add pay-TV customers as consumer spending weakens post goods and service tax (GST).

We are “neutral” on this initiative as we are of the view that consumers are still adjusting their spending patterns. While there could be higher take-up rates from the rural homes, we opine that the growth would not be significant.

Moving forward, we expect Astro’s TV household penetration rate growth to reduce to below 13% per year. In addition, such a move would also lead to lower blended average revenue per user (Arpu).

As at the first quarter of financial year 2016 (1QFY16), Astro’s Arpu was RM99, an increase of RM1.90 from RM97.10 recorded for 1QFY15. 

However, should the number of subscribers from rural homes increase, growth in Arpu could be negatively impacted. Profit margins could subsequently be squeezed.

In our strategy outlook for the third quarter of calendar year 2015 (3QCY15), we noted that the consumer sentiment index as at 1QCY15 plummeted to its six-year low of 72.6 from a high of 122.9 in 1QCY13.

We expect the consumer sentiment to remain subdued in the foreseeable period. Following our earnings revision, we value Astro at a revised TP of RM3.33 per share. This is premised on FY17 earnings per share of 11.9 sen against forward price-earnings ratio of 28 times.

We are concerned with the slower net additions in the company’s Pay-TV segments. Despite strong growth in the NJOI (Astro’s free satellite TV) segment, the households with NJOI only make up less than 20% of Astro’s subscriber base. This could signal slower momentum growth in Astro’s subscriber base.

However, we are positively surprised by the higher dividend payouts. Should this continue, it could promote Astro’s attractiveness as a dividend-play stock. — MIDF Research, July 15

This article first appeared in The Edge Financial Daily, on July 16, 2015.