Review

• Astro’s 9MFY25 core net profit of RM1mn came in below both ours and consensus expectations at 46.3% of full-year forecasts. Core net profit excludes RM67mn unrealised forex gain from mark-to-market revaluation of transponder-related lease liabilities. On our end, results were missed mainly due to lower-than-expected earnings from new TV packages.

• Excluding exceptional items, 9MFY25 core net profit stood at RM53mn (- 63.4% YoY), dragged by weaker Pay-TV subscription revenue (-8.2% YoY) and adex (-16.5% YoY). Core earnings were normalised to exclude the impact of RM67mn unrealised forex gain from transponder lease liabilities. Similarly, 9MFY25 free cash flow decreased by 16.5% YoY, from RM503mn to RM420mn.

• YoY. 3QFY25’s revenue and core net profit declined 9.5% YoY and 97.6% YoY to RM750mn and RM1mn respectively. Earnings were dragged by weaker Pay-TV subscription revenue (-8.3% YoY) and adex (-18.4% YoY) amid macroeconomic headwinds and poorer business and consumer sentiment. This comes despite stronger demand from i) Astro Fibre’s broadband user base growing 9% YoY; ii) Sooka’s monthly active users (MAU) surging by 15% to 1.4mn users and VIP paying base +77% YoY driven by strong local content and sport tentpoles.

• QoQ. 3QFY25’s revenue and core net profit decreased by -4.8% QoQ and -96.3% QoQ, respectively. The weaker performance was primarily attributed to a 4.1% QoQ drop in Pay-TV subscription revenue and a slight decline in ARPU to RM99.20 (-0.6% QoQ). This was due to the rollout of Astro One, a more affordable package aimed at attracting new customers, which diluted ARPU. Despite these challenges, adex increased by 14.3% QoQ, bolstered by strong growth in Astro Radio, which contributed RM40mn to adex, up an impressive 24% QoQ. Additionally, content costs decreased slightly from RM275mn in 2QFY25 to RM262mn in 3QFY25.

Impact

• We have adjusted our earnings forecasts for FY25/FY26/FY27 downward by -28%/-3%/-3%, reflecting the weaker-than-anticipated 3QFY25 performance. Additionally, we have revised our ARPU assumptions for FY25-FY27 downward by 0.5% to 1.5% to align with Astro's strategy, which focuses on expanding its customer base through more affordable packages, consequently diluting ARPU.

Outlook

• We maintain a cautious outlook on Astro due to ongoing macroeconomic headwinds and subdued customer sentiment, which may weigh on its growth and transformation efforts. In response, Astro has introduced Astro One—three streamlined TV packages designed to appeal to entrylevel viewers, sports enthusiasts, and all-access users—aiming to drive sign-ups and enhance customer support.

• We anticipate higher revenue and earnings from these new packages, with adex expected to remain stable, potentially trending upward next year as the impact of boycotts diminishes, encouraging higher advertising spending.

• Astro is also poised to benefit from the recent appreciation of the ringgit, as approximately half of its content costs are denominated in foreign currencies, primarily USD. However, the impact is unlikely to materialize significantly in 2HFY25 due to hedging practices and pre-locked pricing, with more noticeable benefits expected post-FY25.

• Meanwhile, management also maintained Astro’s commitment to its transformation plans. To drive long-term and sustainable growth, it will remain focused on i) elevating local content, ii) accelerating growth of adjacent businesses, including sooka (freemium streaming), Astro Fibre, enterprise, and addressable advertising, and iii) rationalising legacy cost structures.

Valuation & Recommendation

• Corresponding to our change in earnings, we revised our TP slightly downward to RM0.28 based on a WACC of 10.4% and LT growth rate of 0.5% with an ESG premium of 3%. Maintain BUY. We believe Astro One has the potential to serve as a key catalyst for future earnings growth, driven by its targeted approach to attracting new customer segments.

• Key downside risks include i) Tax bill of RM735mn from LHDN being fully/partially materialized, ii) Higher-than-expected content costs, iii) Lower-than-expected adex and iv) Stronger-than-expected impact from macroeconomic headwinds and poorer business and consumer sentiment

Source: TA Research - 12 Dec 2024