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Thursday, December 8, 2016

Brokers Report: Astro Malaysia Holdings - In Line

Upgrade to outperform with unchanged target price (TP) of RM3.02

9M17 core PATAMI of RM482m came in within expectation, mainly underpinned by higher e-commerce and adex revenues. A third interim single-tier dividend of 3.0 sen was announced. Post-results, we have raised our FY17E/FY18E core PATAMI marginally after fine-tuning but keep our DCF- derived target price unchanged at RM3.02. Our stock rating on ASTRO, however, is raised to OUTPERFORM (from MARKET PERFORM previously) as the recent share price weakness provides great opportunity for bargain hunting.

In Line. 9M17 core PATAMI of RM482m (4% YoY) came in within expectations at 76%/74% of our/consensus full-year estimates, mainly driven by higher performance in e-commerce and adex. Note that the normalised PATAMI excluded post-tax impact of unrealised forex loss of RM4.4m due to revaluation of M3B transponder lease liability.

As expected, a third interim single-tier dividend of 3.0 sen was declared (ex-date: 21-Dec), bringing the YTD DPS to 9.0 sen (vs. 8.25 sen a year ago). For the full-financial year, we expect the group to pay a total DPS of 12.8 sen, representing a dividend pay-out ratio of 103% and dividend yield of 4.8%.

YoY, 9M17 revenue improved by 3%, driven by the Radio (+11%) and Home Shopping (+59% to RM201m) segments. The former was mainly driven by the effective yield and inventory management while the latter was boosted by increased numbers of products sold. The TV segment turnover, meanwhile, was up marginally by 1% in 9M17 as the increase in advertising and other revenue was partially offset by lower subscription revenue. EBITDA, meanwhile, dipped by 4% with margin lower by 260 bps to 32.6% due to higher content costs as a result of major sport events. PATAMI surged by 16% mainly due to less D&A expenses and lower net finance cost. QoQ, 3Q17 revenue was flat at RM1.4b as the increase in advertising revenue was largely offset by the lower subscription (due to decrease in the number of Pay-TV subscribers but cushioned by higher ARPU by RM0.70 to RM99.90) and home-shopping business (as a result of a lower number of products sold and festive season promotion in 2Q17). ASTRO’s Pay-TV segment churn rate hit another record high level at 12.4% (vs. 10.9% in 2Q17), no thanks to the growing piracy trend. Nevertheless, management believes its rich local contents coupled with continued evolving user interface could provide unique user experience and subsequently retain its high ARPU subscribers. Group’s EBITDA margin, meanwhile, advanced by 300bps to 32.9% due mainly to lower content costs.

Outlook. The group is keeping its FY17 earnings guidance unchanged where ASTRO is targeting; (i) 3-4% top line growth, (ii) RM300m home- shopping business revenue, and (ii) ARPU of RM99-RM100. Moving to FY18, management expects: (i) its home-shopping business revenue to record c.RM500m (driven mainly by the recent partnership with Singapore’s StarHub as well as to provide more value propositions to a different targeted group), (ii) zero to -50k net adds in its Pay-TV segment (due to cautious mode on spending); (iii) content cost at c.34%-35% (of TV revenue), of which 70-75% (of the required content cost) hedged at RM4.10-RM4.15 level; and (iv) increase in household penetration to 75% vs. 70% currently. All in all, we concur with the management.

Post-results, we have raised our FY17/18E core PATAMI marginally by 2.3%/0.4%, after fine-tuning. We are keeping our DCF-derived target price unchanged at RM3.02, based on a 10-year explicit DCF valuation with the following assumptions; (i) WACC: 9.0%, (ii) Beta: 1.0, and (iii) Terminal growth: 1%.

Source: Kenanga Research - 08 December 2016

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