• Maintain NEUTRAL, new MYR0.37 TP (DCF) from MYR0.50, 0% upside/downside, c.4% FY24F (Jan) yield. Astro Malaysia’s 9MFY23F results missed our and Street’s expectations due to the persistently challenging operating landscape. We cut FY24-26F estimates further on weaker subscription revenue and down-trading. The stock’s risk-reward is largely balanced, in our view, trading at -1SD of the historical EV/EBITDA mean, following the sharp 44% share price decline YTD.

• A miss yet again. 9MFY24 core earnings fell short, at c.50% and 61% of our and consensus’ forecasts. After backing-out the voluntary separation scheme (VSS) cost (MYR40m) and unrealised FX gains (MYR108m) for the quarter, 3QFY24 core earnings were flat sequentially from lower EBITDA and higher financing costs. EBITDA margin was down c.5% QoQ to 22% largely from the higher staff costs (including VSS cost) and would have been up 2ppts QoQ excluding the VSS impact, with content cost being stable.

• Advertising expenditure (adex) revenue up 12% QoQ, off the preceding quarter’s low, with more signature content and originals that premiered during the current quarter. Nonetheless, this was offset by continued slippage in television (TV) subscription revenue (-2.1% QoQ, -5.7% YoY) alongside a lower TV subscription base (-2.5% YoY, -1% QoQ). Fibre broadband (FBB) customer growth stayed robust (+22% YoY) reflecting good bundling and upselling efforts with blended ARPU (MYR99.80) up for the fourth consecutive quarter.

• Operational pivot. Astro’s loss-making home shopping business, Go Shop (AGS) ceased operations on 11 Oct (since re-classified as discontinuing operations). Moving forward, management will continue to sharpen its focus on FBB bundles, addressable advertising and Sooka, the over-the-top (OTT) business which is targeted at youths and digital natives via more value packages and attractive content. Management highlighted that the VSS programme had managed to reduce staff headcount by 20% with an estimated payback of a year.

• Forecasts and TP downgraded further. Post the results call, we lower our core earnings by another 9-20%, after moderating our assumptions for TV subscription revenues and removing the contribution from AGS. Consequently, our DCF-derived TP (includes a 4% ESG premium) is lowered to MYR0.37.

• Key risks are extended macroeconomic headwinds, weaker-than expected earnings, and the continued decline in subscription revenues. A possible catalyst would be the upcoming Olympics 2024 in Paris.

Source: RHB Securities Research - 15 Dec 2023