• 1Q16 NPAT formed 31% of our FY estimate
• Cautiously upbeat about FY16
• MYR depreciation is a key risk

Decent start to FY16

Astro Malaysia Holdings Berhad (Astro) made a decent start to FY16, with revenue climbing 6.1% YoY to MYR1330.1m, meeting 23% of our full-year forecast, driven mainly by the increase in subscription and advertising. Thanks to lower installation costs, lower selling and distribution expenses as a percentage of revenue, EBITDA rose 7.1% to MYR472.5m (margin also improved from 32.8% to 35.4%). With lower depreciation charges, NPAT jumped 31.1% to MYR168.2m, or 31% of our FY16 estimate. Astro also declared an interim dividend of 2.75 sen (versus 2.0 sen a year ago), payable on 15 Jul.

But watch those TV subscribers number

However, results were slightly more muted QoQ, with revenue down 1.3% and EBITDA down 1.0% (although NPAT was still up 20.1%), mainly due to a 5.1k decrease in Pay TV subscribers to 3504.5k, while APRU remained flat at MYR99/month. We also noted that the churn rate has increased to 10.3% from 9.9% in both 4Q15 and 1Q15. On the other hand, nonsubscription customers jumped 10.5% to 1016.3m, although the pace of these net adds slowed 9.6% to 96.6k in 1Q16. Currently, Astro carries 184 channels, with 73 being its own branded ones, 50 HD channels; and 26 NJOI “freemium” channels.

Cautiously upbeat outlook for FY16

Going forward, management believes that the group will remain cash generative and be able to invest in its growth strategy (and progressive dividend policy), despite the expectations of a more challenging economic outlook and the effects of current trends in consumer sentiments (likely brought on by the recent 6% GST tax). This as Astro believes that its significant range of uniquely differentiated content adds real value to its consumers and provides a solid base to drive growth, even in a soft consumer market.

Maintain BUY with adjusted MYR3.75 FV

As the 1Q results were mostly in line, we opt to keep our forecasts unchanged. However, our DCF-based fair value dips slightly from MYR3.79 to MYR3.75 due to a higher risk-free rate (in line with rise in the 10-year bond yields). Maintain BUY. Key risk remains the continued depreciation of the MYR against the SGD for Singaporean-based investors.

Source: OCBC Research - 18 Jun 2015