Astro Malaysia Holdings Bhd
(May 15, RM1.32)
Maintain hold with a lower target price (TP) of RM1.44. We remain cautious on Astro’s pay-TV subscription rate which continues to fall on the back of widespread piracy and burgeoning over the top (OTT) platforms.

We note that there are potentially significant catalysts (broadband packages and clampdown on android boxes) but these are very much still works in progress. We tweaked our earnings forecast downward, largely on weakening average revenue per unit (Arpu) and rolled over our discounted cash flow (DCF) base year.

At this juncture, we reiterate our “hold” rating.

Astro’s pay-TV subscription revenue (73% of financial year 2019 [FY19] revenue) contracted for the third consecutive year, coming in at RM4 billion in FY19, from a peak of RM4.4 billion in FY16.

Given the increasing preference for cheaper alternatives such as OTT platforms and accessing pirated content through android boxes, we expect pay-TV subscription revenue to remain under pressure, as a result of a persistent decline in the number of pay-TV subscribers and weakening Arpu.

The management is focusing on strengthening vernacular content offering, given the increasing traction over Hollywood blockbusters and its ability to command higher viewership.

The current share of viewership assessing vernacular content stands at around 64% on Astro-branded channel platforms.

Astro’s Go Shop continues to see promising sales growth, generating a total of RM374 million in revenue for FY19, up 29.3%  year-on-year (y-o-y). This is on the back of 1.8 million registered customers for FY19 as compared with 1.3 million customers in FY18.

We expect Go Shop to keep up its positive momentum and possibly achieve an earnings before interest taxes, depreciation and amortisation break-even in the estimated earnings for (FY20E).

We tweaked our earnings forecast downwards, largely to take into account weakening Arpu, and rolled over our DCF base year. All in, we lower our DCF-derived 12-month TP to RM1.44 (from RM1.60). Given the limited upside, we reiterate our “hold” rating for Astro. We remain cautious over a challenging environment in light of the declining pay-TV subscription revenue, weakening Arpu and a muted advertising expenditure outlook. — Affin Hwang Capital, May 15