This article first appeared in The Edge Financial Daily, on October 9, 2015.

Astro Malaysia Holdings Bhd
(Oct 8, RM2.96)
Maintain buy with a lower target price of RM3.35 from RM3.70: Astro Malaysia Holdings Bhd’s NJOI, a subscription-free satellite-TV service, has seen a rising trend to 1.07 million users in the first half of financial year 2016 (1HFY16).

We believe the strong interest in NJOI is due to its subscription-free model. Pay-TV subscribers also grew in 1HFY16 but at a slower rate, adding 9,900 subscribers in a year to 4.59 million.

Due to the US dollar appreciation versus the ringgit, we expect Astro’s content costs to rise in 2HFY17. Currently, Astro’s 1HFY17 content costs are hedged.

According to management, every 10 sen depreciation against the greenback, leads to about RM30 million increase in content costs.

We are trimming our FY16 to FY18 earnings per share by 1% to 3% after assuming a lower pay-TV net subscriber (net adds) from FY16 to FY20 to 50,000 per year from 60,000 per year; a cut in average revenue per user (ARPU) growth from FY16 onwards to 1% to 2% from 2% to 3%; and higher content costs of 34% to 36% of total TV revenue from FY17 against 33% to 35% previously.

Downside risks include much lower-than-expected growth in subscriptions, ARPU and advertising expenditure, unexpected increase in competition from other TV operators and a sharp drop in consumer sentiment. — Affin Hwang Capital Research, Oct 8