Review

• YoY. 1QFY25’s revenue and core net profit declined by 13.3% and 58.3% respectively. Earnings were dragged by i) increased staff-related costs, partially offset by reductions in licenses, copyright and royalty fees, and professional and consultancy fees as a percentage of revenue, and ii) lower Pay-TV subscription revenue (-3.8% QoQ, -9.9% YoY).

• QoQ. 1QFY25’s revenue and core net profit slipped further by 5.8% and 28.6%. This was mainly due to the fully ceased business operation of HomeShopping, weaker revenue and EBITDA from TV (-5.3% and –7.3% respectively) and Radio (-13.4% and 37.1% respectively).

• Core earnings were normalised to exclude the impact of RM8mn unrealised forex loss from mark-to-market revaluation of transponderrelated lease liabilities. Despite that, the core net profit of RM25mn (-28.6% QoQ, -58.3% YoY) came below ours and consensus full-year estimates at 14.7% and 14.2%, respectively. The variance was due to the higher than expected content cost and also lower than expected Pay-TV subscription revenue.

Impact

• We have lowered our FY25F/FY26/FY27 earnings estimates by 34.7%/50.4%/44.8% upon lowering Pay-TV subscription revenue and also increasing content cost to reflect actual 1QFY25 results.

Outlook

• Management maintains a cautious outlook for Astro, given the macroeconomic headwinds, weaker customer sentiment, and the stronger USD, which are expected to challenge the group’s growth and ongoing transformation initiatives. To address these challenges, the group plans to introduce more affordable product entry points to encourage signups and provide support for customers.

• Meanwhile, management reaffirmed Astro’s commitment to its transformation plans, aiming to drive long-term and sustainable growth by focusing on i) Elevating local content ii) Accelerating growth of adjacent businesses such as sooka (freemium streaming), Astro Fibre, enterprise services, and addressable advertising, and iii) Rationalising legacy cost structures.

Valuation & Recommendation

• Corresponding to our earnings downgrade, our TP for Astro is lowered to RM0.30 (previously RM0.36) based on a WACC of 10.4% and LT growth rate of 0.5%. Astro remains committed to its strategic initiatives to reverse and stabilise the prolonged decline in Pay-TV subscription revenue. However, progress has been gradual, underscoring the challenging nature of the transformation efforts. Moreover, we anticipate that persistent macroeconomic challenges will hinder the near-term recovery of its crucial Pay-TV subscription and advertising revenue streams. Maintain Sell.

• Key upside risks include substantial progress in executing transformation strategies, favourable improvements in the business environment and consumer confidence, successful cost optimization initiatives, and robust implementation of anti-piracy measures.

Source: TA Research - 26 Jun 2024