KEY INVESTMENT HIGHLIGHTS

• 1QFY21 normalised earnings plunged by -41.8%yoy to RM107.0m which came in below our expectations

• This was mainly due to the decline in revenue from the subscription (-11.5%yoy) and adex (-37.6%yoy) segment

• Covid-19 pandemic is expected to dampen advertising expenditure (adex) and subscribers’ purchasing power

• Continuous cost optimisation and resilient free cash flow generation to partially help the group to weather the storm

• Downgrade to NEUTRAL with a revised target price of RM0.86

Below expectation. Astro Malaysia Holdings Bhd’s (Astro) 1QFY21 normalised earnings declined sharply by -41.8%yoy to RM107.0m, primarily due to lower revenue from its subscription and adex segment. This came in below both our and consensus expectations, accounting for 15.2% and 17.4% of full year FY21 earnings estimates respectively. However, the lower 1QFY21 earnings were partially mitigated by lower operating expenses and higher commerce sales from Go Shop. Moving forward, we foresee the group’s earnings performance to remain lacklustre given the subdued economic indicators amidst the ongoing Covid-19 outbreak

Covid-19 pandemic to negatively impact revenue. Astro’s 1QFY21 revenue decreased by -14.7%yoy to RM1.0b, primarily attributable to the lower subscription and adex revenue to RM821.5m (-11.5%yoy) and RM90.3m (-37.6%yoy) respectively. We gathered that the subdued consumer sentiment has led to some cancellation as well as conversion from the existing subscriber to the NJOI platform. This had also impacted the ARPU which fell by -1.0%yoy to RM99.1. Moreover, we view that the restriction on the installation of set-top box during the MCO period further limits the addition of new subscriber. Moving forward, we opine that the weakening economic indicator brought about by the Covid-19 will continue to dampen adex across media platforms as businesses would possibly hold back or cut their marketing budget.

Ongoing cost optimisation to serve as a cushion. Astro’s 1QFY21 total cost dropped by -8.8%yoy to RM868.0m, predominantly premised on lower content and other expenses which fell by -10.0yoy and -8.2%yoy to RM309.0m and RM559.0m respectively. We postulate that the lower content cost was partially due to the deferral of two major sporting events (i.e. Euro Cup and Olympic) to year 2021 as well as less movie production during the period under review. Meanwhile, the -8.2%yoy reduction in other expenses was mainly stem from the lower cost of sales, marketing costs and administrative cost which fell by -5.9%yoy, -24.9%yoy, -13.4%yoy to RM686.1m, RM69.4m and RM112.8m respectively. As such, we foresee continuous improvement in operational efficiency to be a mitigating factor in a subdued business environment for the group.

Source: MIDF Research - 19 Jun 2020