This article first appeared in The Edge Financial Daily on June 19, 2019

Astro Malaysia Holdings Bhd
(June 18, RM1.44)
Maintain outperform with an unchanged target price of RM2: Astro Malaysia Holdings Bhd announced it had entered into a strategic partnership with iQIYI, a leading online video platform based in Beijing, China with more than 500 million active users monthly.

Based on the announcement, Astro will have exclusive rights to broadcast iQIYI content in Malaysia via television, On Demand and over-the-top services with the aim of bringing in more exciting and high-quality content to the local audience. We believe this tie-up with iQIYI will add value to Astro, as the partnership enables Astro to expand vernacular content offered to Mandarin viewers, in line with Astro’s greater focus on vernacular content going forward. For now, our earnings forecasts remain unchanged as we are only expecting a marginal earnings impact in the near term.

Under the new partnership, Astro plans to introduce a specific iQIYI-branded channel comprising iQIYI’s extensive original content including dramas, variety shows and movies. Astro will be leading the customer acquisition, marketing and media sales. iQIYI’s original content shown on Astro’s platform garnered positive feedback from Astro’s audience. With the partnership, Astro will be able to offer more new quality content which should be favourable to Mandarin viewers.

For the coming quarters, we expect Astro to deliver year-on-year improvements in earnings, largely on a lower content cost as it had previously incurred a higher cost while viewership for the 2018 World Cup was weaker than expected. Meanwhile, Astro has hedged its US dollar exposure at RM4.10 over six to 12 months. We expect Astro to maintain a dividend per share of 10 sen for the financial year 2020, translating into an attractive yield of 7%. — PublicInvest Research, June 1