Results

• Within expectations. 1QFY16 core earnings (adjusted for RM27.5m unrealised forex gain and RM28.0m derivative losses) increased by 44% yoy to RM168.7m (3.24 sen/share), making up 26% of both ours and streets’ full year estimates.

Deviations

• None.

Dividends

• Declared a first interim single-tier dividend of 2.75 sen/share, an increase of 22% yoy. This makes up 21% of our DPS estimation. Ex-date on 29 Jun-15, payment on 15 Jul-15.

Highlights

• Results review… 1QFY16 revenue grew by 6% yoy contributed by all its major segments, which achieved 23% of our full year revenue forecasts. ARPU inched up 2% from RM97.1/month in 1QFY15 to RM99.0/month yoy, while ARPU remained the same qoq. Astro is also targeting an 85% market penetration over the next 3 to 5 years.

• Astro’s home shopping business charted RM36.5m in revenue from merchandise sales. The group maintained its FY16 target of achieving circa RM150m and is also expected to breakeven in the same year.

• To entice the growing younger population, Astro will launch a ‘download to go’ in the next quarter. This should augur well with younger generations who prefer watching content on mobile or computer devices compared to television. On a different note, with the delivery of 7 new transponders, Astro will launch 9HD and 2SD channels in 2HFY16.

• NJOI households have successfully reached the 1m subscribers milestone, as compared to 526k in 1QFY15. Any growth in net ads should come largely from NJOI segment.

• Net ads & Churn rate… Overall net ads decreased 18% yoy, from 112k to 92k subscribers. Pay-TV net ads dropped by 5.1k, while NJOI achieved 96.6k new subscribers. Consequently, its churn rate has increased to 10.3% from 9.9% for both yoy & qoq.

• The group could be negatively affected by RM depreciation given that it has a high USD exposure in its borrowings and content costs. However, both have been fully hedged hence it should help mitigate the mismatch in RM revenue and USD expenses.

Risks

• Unexpected economic slowdown;
• Threat of new players;
• High content costs; and
• Regulatory risks.

Forecasts

• Unchanged.

Rating

BUY

Positives

• : (1) Monopoly of pay-TV; (2) Higher subscriber base through stronger penetration rate and ARPU growth through new product offerings; (3) Strong take-up in IPTV; (4) Lower capex as well as depreciation & amortisation.

Negatives

• : (1) Higher than expected content costs; (2) GST which reduces disposable income.

Valuation

• TP unchanged at RM3.56 based on DCF valuation with a WACC of 6.9% and TG of 1.0%.

Source: Hong Leong Investment Bank Research - 17 Jun 2015