• Maintain NEUTRAL and MYR0.32 TP (DCF), 6% downside and c.3% FY25F (Jan) yield. Astro Malaysia’s weak earnings streak continued into the 1QFY25 on the back of tightened purse strings and economic headwinds. The group’s multi-year transformation journey should see the removal of legacy costs over time, in our view. We lower FY25F-27F earnings by a further 16- 26% post results. At 1SD under historical EV/EBITDA mean and 56% relative share price underperformance over the past year, valuations are fair.

• A routine miss. Astro’s net profit shortfall looks increasingly routine, with 1QFY25 results making up only 14-15% of our and Street’s estimates. With discretionary spending hit by the higher cost of living, TV subscription revenue has fallen to record lows. The group had to contend with higher content costs with the USD’s strength. Nonetheless, management cited good progress on content cost renegotiations, with savings channelled to local content, as well as savings in package prices.

• Adex down 12% YoY (-21% QoQ). This came from a 31% decline in net TV advertising expenditure (adex), which offset the 15% gain in digital and addressable adex. It is worth noting that addressable sales tripled YoY. By end FY25, we hold the view that unified audience management (across all platforms) should further strengthen Astro’s addressable adex.

• Strengthening adjacencies… The group remains committed to strengthening adjacent businesses, ie Sooka, fibre broadband, and enterprise offerings. The launch of Astro Studio in April marked a strategic move into world-class content creation with the use of cutting-edge technologies. The recently unveiled Sooka TV stick enables freemium streaming on non-Smart-TVs with Sooka over-the-top or OTT seeing 28% and 86% YoY jumps in monthly average users and paying customers.

• …cutting legacy costs. Management highlighted the rationalisation of legacy cost will be executed over 2-3 years. More recent initiatives include: i) The migration of content play-out service into the cloud, ii) a revamp of customer relationship management (which has seen costs reduced by two-thirds), and iii) digitalisation of systems and processes. The decommissioning of Measat- 3A in July would also contribute to MYR10-15m in savings per quarter. Further out, Astro guided that the leasing of transponder capacity will come off with on-demand viewing riding on cloud infrastructure.

• We cut FY25F-27F core earnings by 16-26% after moderating TV subscription revenue and adex assumptions. Our DCF-derived TP is maintained at MYR0.32 after rolling forward the base year with a 4% ESG premium imputed, given the 3.2 ESG score vs the 3.0 country median. Key downside risks are extended macroeconomic headwinds, weaker-than expected earnings, and the continued decline in subscription revenues. The converse represents the upside risks.

Source: RHB Research - 26 Jun 2024