ASTRO is offering its full Sports Pack residential customers a rebate of RM20/month for the next two months’ bills on the back of the lull in global sporting events. This burden-easing move could help to instil customer loyalty. We anticipate only slight earnings impact from this move, based on our back of envelope calculation. Maintain MARKET PERFORM and TP of RM0.900.

Pay for what you get. In light of the postponement of major global sporting events, ASTRO announced in a statement on 22 May 2020 that it would be offering its full Sports Pack residential customers a rebate of RM20/month over the next two months’ bill in June and July. Prior to the Covid-19 pandemic, global viewers had the Euro 2020 (Jun-Jul 2020) and Tokyo Olympics (Jul-Aug 2020) to look forward to.

Customer’s first. We are positive with this empathetic move as it could be a small price to pay for customer retention and perhaps instilling a greater sense of loyalty towards the content provider. It is also often thought that the Sports Pack is one of the most subscribed offerings for the brand, given our strong national football culture. Though the group does not provide details of its content subscription mix, we estimated that the group has a total paying subscriber base of about 3.0m. Further to our back-of-envelope calculation, assuming all subscribers are able to enjoy this rebate, a RM120.0m (RM20 x 2 months x 3.0m subscribers) dent to revenue would translate to a 6% reduction in earnings to our FY21E model assumptions. That said, we are confident the impact would be much less than the worst case scenario above.

Post-update, we leave our FY21E/FY22E numbers unchanged for now as we believe the negative impact above would not be overly detrimental to the year’s performance.

Maintain MARKET PERFORM and TP of RM0.900. Our target price is based on an unchanged 9.0x FY22E PER (1.5SD below the 3-year Fwd. average). Our target price implies a downside biased capital gains in anticipation of softer earnings outlook in the coming years as the postponement of events could crowd content costs and undermine earnings. That said, some investors may still favour its stellar dividend yields potential of c.8-10%.

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

Source: Kenanga Research - 27 May 2020