ASTRO has officially launched its partnership with iQIYI which will spearhead its marketing initiatives here while offering existing Astro subscribers two months’ worth of free service. While we do not expect this new venture to be materially impactful in the near-term, longer term growth could be seen from riding on iQIYI’s data expertise, and cross-platform talent sharing. Maintain OUTPERFORM and DCF-driven TP of RM2.00 (WACC: 10.8%, TG: 1.0%)

OTT partner in the bag. With the agreement inked in June 2019, iQIYI yesterday officially launched its streaming app to Malaysian consumers. iQIYI (parent company Baidu and listed on the NASDAQ stock exchange) is China’s largest online video platform which also produces original contents with over 100m paying subscribers under its belt. The collaboration with ASTRO marks the brand’s maiden partnership outside of China. In this revenue-sharing model, ASTRO will drive the marketing and advertising initiatives for the new plaform. Hence, we reckon that ASTRO could have a bigger share of the customer acquisition stake.

Existing ASTRO subscribers are able to hop in with two months free on either of these packages: (i) RM12.90/month for mobile only access; and (ii) RM23.90/month for Apple TV and mobile access, with Android TV access aimed to be available by end-2019.

Optimistic... Overall, we are positive with this high profile tie-in as the revenue-sharing deal provides a new income stream that we believe come at a minimal cost. In addition to providing a wider array of Chinese language content for its customers, the collaboration also means sharing of selected ASTRO’s own contents to iQIYI’s library, and potential cross-platform opportunities for its talents. Management is also hopeful to glean more knowledge on artificial intelligence and data analytics through iQIYI’s expertise.

…but not too moved. Management aspires to bring in about 100k new subscribers into the iQIYI platform (Per the last reported 2QFY20 results, the group served 5.7m households and 10.1m unique monthly viewers over its digital platform). Assuming this is achieved, the group could see revenue increments of c.RM20m-RM30m/year (less than 1% of total group revenue). In the near-term, this may not translate too meaningfully to group earnings. However, the potential abovementioned synergies could grow the group operationally when doors for other similar partnership opportunities arise.

Post-update, we leave our FY20E/FY21E numbers unchanged.

Maintain our OUTPERFORM call and DCF-driven TP of RM2.00. Our target price (based on WACC: 10.8%, TG: 1.0%) implies FY20E PER of 14.7x (-1.5SD level to its 5-year mean). Among the media companies under our coverage, we think that ASTRO is currently trading at a cheap PER valuation of 10x on FY21E EPS vs. our media coverage average of 12x. Moreover, we continue to like ASTRO for its attractive dividend yield (c.8%) while earnings remain relatively resilient.

Risks to our call include: (i) lower-than-expected subscription and adex revenue, and (ii) higher-than-expected content cost and operating expenses.

Source: Kenanga Research - 7 Nov 2019