Astro’s 1QFY21 core earnings of RM117.9m (-6.4% QoQ; -36.2% YoY) were below both ours and consensus expectations. The disappointment was due to the dropped in revenue across all segments. Given the results shortfall we cut our FY21-22 earnings by -18.7%/-12.9% to account for further top line decline due to Covid-19. Maintain BUY with lower DCF-based TP of RM1.15 (WACC: 7.5%, TG: -1%) from RM1.29. While we acknowledge that subscription revenue is on a declining trend, we believe significant content cost savings due to the absence of major sport events this year would be able to cushion this. Besides that, Astro also pays out generous dividend, which translates to a yield of 6.6%.

Below expectations. Astro’s 1QFY21 revenue of RM1.05bn, translated into a disappointing core earnings of RM117.9m (-6.4% QoQ, -36.2% YoY) making up 17% of ours and 19% of consensus full year forecast, respectively. The results shortfall was due to lower-than-expected contributions from pay-TV subscription and adex revenue. 1QFY21 one-off adjustment includes forex loss of RM44.1m.

Dividends. Declared first interim dividend of 1 sen/share (1QFY20: 2 sen/share) (ex date: 2 July 2020).

QoQ. Revenue dropped for all segments, recording a total decrease by -14.1% (TV - 12.2%; radio -51,7%; home shopping -5.1%) to RM1.05bn. Radio segment was severely hit primarily due to lower advertising as companies held back on their A&P spend. However, core PATAMI decreased by a slower rate of -6.4% to RM117.9m partly cushioned by lower effective tax rate of 25% (vs 4QFY20: 30%).

YoY. Top line decreased -14.7% YoY mainly dragged by subscription and advertising revenues, where both charted double-digit declines of -11.5% and -37.6%, respectively. This was partially lifted by a home shopping segment with an increase of +14.1% on the back of higher viewership and festi ve season during the quarter. EBITDA margin dropped 4.5pts to 31.4% due to higher content cost, merchandise costs and staff related costs. Subsequently, the core PATAMI plunged by -36.2%.

Outlook. Despite the streets’ expectation for Astro to be the beneficiary of MCO with majority of people staying at home, it is evident that they too, are feeling the heat in this weak economic environment. Despite the 4.1% jumped in average daily viewers and increase in 11.5% of average time spent daily on Astro, the higher engagement does not translate directly to increase in revenue. In the current weak environment, ARPU seemed to have slowed down slightly, registering 1.3% decrease from RM100.4/month to RM99.1/month. With no exception as compared to other media players, Astro’s adex revenue witnessed the biggest drop (-47.6% QoQ; -37.6% YoY). Management remains hopeful that the adex spend will gradually pick up with the loosening of restrictions during the RMCO.

Forecast. Given the results shortfall, we slashed our FY21/22 forecasts by -18.7%/- 12.9% to RM579.9m and RM540.6m, respectively. These adjustments were made on the bases of lower revenue projection across all segments due to economic challenges from Covid-19. We also introduce our FY23 financial forecast.

Maintain BUY with lower DCF-based TP of RM1.15 (WACC: 7.5%, TG: -1%) from RM1.29 as we impute negative terminal growth rate in line with the bleak economic outlook. While we acknowledge that subscription revenue is on a declining trend, we believe significant content cost savings due to the absence of major sport events this year would be able to cushion this. Coupled with an attractive dividend yield of 6.6%, we opine that the near term risk to reward equation is still tilted to the upside.

Source: Hong Leong Investment Bank Research - 19 Jun 2020