• Astro reported a core net profit of RM166.1m in 3Q20, up 59.4% qoq due to higher ad revenue and sales of programme rights given the increased business activity during the RMCO, but partially offset by lower profit from the home shopping and TV subscription segments
• Given the better 9MFY21 results, we raise our FY21-23E core EPS by 4-7%, mainly to account for lower operating expenses and higher profit from the home shopping division. Nevertheless, we expect 4QFY21 earnings to be lower qoq as ad revenue could be impacted again due to uncertainties and the CMCO
• Maintain HOLD rating but with a new 12-month TP of RM0.94

Sequentially stronger core net profit

On a qoq basis, Astro’s revenue was 1.5% higher at RM1.1bn due to higher contribution from the TV (attributable to higher ad revenue given the increased business activity following the implementation of the nationwide Recovery Movement Control Order [RMCO] and sales of programme rights) and radio (attributable to higher ad revenue) divisions. However, this was partially offset by weaker revenue from the home shopping division (attributable to the drop in merchandise sales given the high base in 2QFY21 due to the Raya festivity). Astro’s 3QFY21 PBT improved by 10.3% to RM206.8m. Excluding one-off items, Astro’s 3QFY21 core net profit was higher by 59.4% qoq at RM166.1m. Astro announced an interim DPS of 1.5 sen, bringing the total 6MY21 DPS to 4 sen (6MFY20: 6 sen).

9MFY21 core net profit at RM416.7m – above our expectations

Astro’s 9MFY21 revenue fell by 11.8% yoy to RM3.25bn due to lower revenue contribution from its TV and radio businesses, but partially cushioned by higher revenue from its home shopping division. In particular, TV subscription was down as subscribers’ ARPU was lower at RM97.60 vs. RM99.90 in 9MFY20, while advertising revenue was lower due to advertisers scaling back on ad spending during the COVID-19 pandemic (especially during the MCO period). The EBITDA margin was weaker at 33.4% in 9MFY21, down 4.2 ppt yoy, due to higher merchandise and staff-related costs, but partially mitigated by lower content costs, as a percentage of revenue. Astro’s 9MFY21 PBT, which includes impairment and forex gains, dropped 26.3% yoy to RM491.1m. Excluding one-off items, 9MFY21 core net profit came in at RM416.7m (-29.2% yoy), accounting for 79.5% of our previous full-year estimate and above our expectations due to lower operating expenses.

Maintain HOLD but with a higher TP of RM0.94

Given the better 9MFY21 results, we raise our FY21-23 core EPS forecasts by 3.8- 6.5%, to account for the lower operating expenses and higher profit from the home shopping division, although we expect 4QFY21 earnings to be lower qoq as ad revenue could be impacted again as advertisers turn cautious due to uncertainties and the CMCO. Our DCF-derived target price is now higher at RM0.94 from RM0.88 previously but we maintain our HOLD rating.

Key risks

Key up/downside risks to our call would be: 1) higher/lower-than-expected subscriptions, ARPU and adex; 2) stronger/weaker enforcement on android boxes with illegal content; 3) a sharp improvement/deterioration in consumer sentiment; and 4) a sharp increment/fall in contribution from the home shopping segment.

Source: Affin Hwang Research - 4 Dec 2020