Period

1Q16

Actual vs. Expectations

In-line. Astro’s 1Q16 net profit (NP) of RM168m (31% YoY) came in within expectation and made-up 25.9%/25.6% of our/consensus, full-year estimates.

The strong double digit YoY growth in net profit was mainly driven by: (i) higher EBITDA on the back of higher revenue, (ii) lower D&A costs, and (iii) decrease in net finance costs.

Dividends

A first interim single-tier dividend of 2.75 sen was declared (ex-date: 29-June), higher than our initial target of 2.25 sen. For the full-financial year, we have raised our expected total DPS to 14.5 sen (vs. 11.2 sen previously), representing a dividend payout ratio of 110% similar to FY15. Key Result

Highlights

YoY, 1Q16 revenue grew 6%, driven by the TV segment (+3%) and Radio segment (+17%). The former was mainly driven by better subscription revenue on the back of higher ARPU (RM99 vs. RM97.1 a year ago) as well as higher Pay-TV residential subscribers (to 3.51m, +1% YoY). The increase in other revenue, meanwhile, was mainly due to an increase in merchandise sales from its home-shopping business. Meanwhile, looking at the Radio segment, the higher revenue performance was mainly driven by the continuous strong listenership performance.

Despite higher revenue growth, EBITDA margin merely improved to 35.5% (1Q15: 35.2%) in 1Q16 due to lower installation, selling and distribution expenses but partially offset by higher cost of merchandise sales and impairment of other investments.

QoQ, 1Q16 revenue slipped by 1% mainly due to a decrease in subscription, advertising and other revenue. The lower subscription revenue was led by a decrease in Pay-TV residential subscribers as a result of cautious mode adopted post the GST implementation. Its lower advertising revenue, meanwhile, was mainly due to seasonal factor, where the preceding quarter was boosted by yearend festival and events. The group’s net profit advanced by 20% in 1Q16, thanks to lower net finance costs and depreciation expenses.

Outlook

Despite expecting a more challenging economic outlook, management remains hopeful to achieve mid-to-high single digit revenue growth and a low double-digit YoY growth in EBITDA (on the back of higher operational efficiency).

Moving forward, Astro is also aiming to grow its revenue through: (i) monetarising its content capability, (ii) continuing to improve ARPU through product upselling, and (iii) optimising content cost. On top of that, the group also target to achieve RM160m turnover in its home-shopping segment (1Q16: RM37m).

Change to Forecasts

Post-results, we have raised our FY16/17E NPs by 5.5%/2.6%, after fine-tuning and lower our depreciation and finance costs assumptions.

Rating

Upgraded to OUTPERFORM from MARKET PERFORM previously as the current share price could potentially provide 17.1% total return (12.3% capital return and 4.8% dividend yield) from here.

Valuation

Post earnings revision, we maintained our DCF-derived TP at RM3.38 based on a 10-year explicit DCF valuation with the following assumptions: (i) WACC: 8.9%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%. Our TP also implies a FY16E PER of 25.7x.

Risks to Our Call

Lower-than-expected subscriber growth.

Higher content cost.

Source: Kenanga Research - 17 Jun 2015