Brokers Report: Astro Malaysia Holdings Berhad - Resilient model to continue for Astro

Retain OUTPERFORM with higher target price (TP) of RM3.22

Astro Malaysia Holdings Bhd

(April 18, RM2.69)

Maintain outperform with a higher target price (TP) of RM3.22: We met with Astro Malaysia Holdings Bhd recently to get updates on business operations and strategies moving forward. Despite current cautious consumer sentiment and weak advertisement expenditure (adex), we believe Astro’s earnings will remain resilient on the back of its subscription-based business model with a vast 5.1 million household customer base. Its advertising income has consistently outperformed the industry, with an overall +10% year-on-year (y-o-y) adex growth in the financial year 2017 (FY17) compared with a 2% contraction for the industry.

The pay TV segment is anticipated to remain challenging, with management expecting pay TV subscribers base to remain flat at about 3.4 million to 3.5 million household base. The group will be focusing on the upselling of premium content and value-added products, with a target to increase its average revenue per user (ARPU) to RM103 this year from RM100 in FY17. For FY18, 75% of Astro’s content cost has been hedged at a favourable rate of RM4.10 against the USD. The content cost for FY18 is expected to be marginally lower at 34% to 35% owing to minimal sporting events.

Astro’s satellite broadcast exclusive rights expired on Feb 28, 2017. We do not foresee any significant changes operationally due to its high penetration rate of Malaysian households at 71%, high entry costs for newcomers (high capex requirement) as well as its strong content offerings which differentiate Astro from its competitors.

Astro’s radio adex recorded an impressive growth (+11% y-o-y) in FY17, with current share of radio adex at 73%, owing to the adoption of a different advertising strategy which offers an integrated value advertisement package to its advertisers. The two radio stations acquired from the Star Media Group are anticipated to be rebranded and launched closer towards October this year. With the additional two radio stations coming in, we believe that Astro is well-positioned to capture more radio adex going forward.

Last year Astro launched Tribe, a regional over-the-top (OTT) video service, through collaborations with local telecommunications and media companies. It has achieved one million registered users in Indonesia and the Philippines. Astro is looking to expand its OTT streaming platform in another two to three new regional markets in FY18, mainly in Southeast Asia. On top of that, Astro has relaunched Astro GO, an app that allows users to watch Astro content on their mobile devices. The enhanced Astro GO was relaunched on a new user interface which is sleeker and intuitive to use with more relevant and personalised content surface for individual viewers. It has received a positive response with over three million downloads on the Astro GO app.

Following the collaboration with StarHub to launch its home shopping business in Singapore, Astro’s e-commerce Go Shop saw a 37.9% y-o-y revenue growth to RM261.1 million in FY17. Moving into FY18, management is hopeful of raising its home shopping revenue contributions to about RM500 million in FY18, by increasing its live hours and expanding product portfolio. On top of that, Go Shop is set to develop its own Internet Protocol for Islamic lifestyle products in FY18 as an example of its product and branding differentiation strategy.

We continue to like Astro premised on its resilient business model, ability to monetise its value-added services and contents to lift ARPU, coupled with higher projected dividends moving forward. — PublicInvest Research, April 18

Source: PublicInvest Research/ The Edge Financial Daily - 19 April 2017