Analysts lower forecasts after Astro's earnings miss

TheEdge Tue, Sep 27, 2022 02:02pm - 1 year View Original


KUALA LUMPUR (Sept 27): Analysts tracking Astro Malaysia Holdings Bhd have trimmed their estimates for the financial year ending Jan 31, 2023 (FY23) and ahead after its earnings mostly missed expectations.

Astro posted a 13% increase in net profit for the second quarter ended July 31, 2022 (2QFY23) to RM98.47 million, from RM87.13 million posted a year ago, mainly due to lower net financing and depreciation costs, it said on Monday (Sept 26).

The better net profit came despite a 13% decline in quarterly revenue to RM921.12 million from RM1.06 billion, amid lower merchandise sales, subscription revenue, sales of programming rights, and advertising revenue. Earnings per share (EPS) rose to 1.86 sen, from 1.67 sen for 2QFY22.

For the cumulative six months ended July 31, 2022 (1HFY23), Astro's net profit fell 13% to RM198.48 million or 3.81 sen per share, from RM228.37 million or 4.38 sen per share a year ago. Revenue slipped 11.24% to RM1.88 billion, from RM2.12 billion.

It declared a second interim single-tier dividend of one sen per share, to be paid on Oct 25.

In a note on Tuesday, CGS-CIMB analyst Kamarul Anwar said Astro’s 1HFY23 core net profit was equivalent to 47% of the consensus and the firm’s full-year forecasts, and expects its performance for the first six months of FY23 to regress year-on-year (y-o-y) with the World Cup rights raising costs ahead. 

“We deem this below consensus and our expectations, as we are expecting a weaker 2HFY23. In our view, the costs incurred to obtain the rights to air and stream the 2022 FIFA World Cup will choke Astro’s margins, with its FY23 pre-tax margin forecast at 13.4% versus FY22’s 14.1%.

“[Additionally], Astro’s 1HFY23 core net profit tumbled 10.4% y-o-y. While all segments underperformed y-o-y, what we find to be most alarming is the continued slide of its cash cow — that is, its subscription revenue.

“For 1HFY23, Astro’s subscription revenue eased 6.7% y-o-y, resulting in the group recording two straight quarters of turnover below RM1 billion,” he said.  

Kamarul also observed that one year after Astro introduced its streaming integration strategy, Malaysians are still not taking the bait, no thanks to the prevalence of piracy in Malaysia.

As such, he downgraded his call on Astro to a “hold” from “add” earlier, with a lower target price (TP) of 88 sen from RM1.35 previously.

His "hold" call is supported by 7.2%-8.5% calendar year 2022 (CY22)-CY23 dividend yields, while the lower 88 sen discounted cash flow-based TP is the result of cutting the research house's FY23-25 EPS estimates by 15%-39% on lower subscription revenue, and raising the cost of debt in the firm’s weighted average cost of capital assumption from 2% to 5.5% to reflect the higher interest rates.

On the other hand, Hong Leong Investment Bank Research analyst Tan Je Jyne said Astro’s 2QFY23 core profit after tax and minority interest of RM106.7 million brought the 1HFY23 sum to RM231.1 million. The results came in below the firm’s expectations, but in line with the consensus at 40.4% and 48.4% of the full-year forecast.

“The results shortfall was mainly due to weaker-than-expected advertising expenditure and subscription revenue. Given the results shortfall, we lower our FY23/24/25 forecasts by 13.6%/12.7%/4.8% respectively.

“Despite the shortfall, we believe that an eventual recovery in Astro’s subscription and advertising revenue could be a rerating catalyst for the stock. Moreover, Astro also currently yields an attractive yield of 6%,” he said.

Tan maintained his “buy” call on Astro, with a lower discounted cash flow-based TP of RM1.28, from RM1.34 previously. 

Meanwhile, PublicInvest Research analyst Eltricia Foong said Astro’s 1HFY23 results were in line with expectations.

“However, we cut our FY23-25 earnings forecasts by an average of 11%, as we believe advertising revenue could decline further due to weaker consumer sentiment, in view of growing inflationary pressures.

"In addition, we expect content cost to increase with the weakening of the ringgit against the US dollar. Although we note that Astro has hedged its US dollar exposure in the near term, we anticipate costs to increase from FY24,” she said.

Given the downward adjustment to the earnings forecasts and the assumption of higher risk-free rates in a rising interest rate environment, she reduced her TP for Astro to 90 sen from RM1.12, and maintained her “neutral” stance.

Meanwhile, Kenanga Research analyst Ahmad Ramzani Ramli said Astro’s 1HFY23 core net profit of RM223 million came in within expectations at 52% of the firm's full-year forecast, and 47% of the consensus.

“We fine-tuned our FY23 earnings forecast by 3%, but cut FY24 earnings by 13% to reflect higher content costs due to the weaker ringgit,” he said.

He maintained his “market perform” call on Astro, but with a 10% lower TP of 90 sen, from RM1 previously.

At the time of writing, Astro’s share price was down two sen or 2.41% at 81 sen, bringing a market capitalisation of RM4.22 billion. 

Read also:
Astro 2Q net profit up 13% to RM98.47 mil, declares second interim dividend of one sen
Astro's Henry Tan to retire in January 2023; Euan Daryl Smith appointed group CEO designate

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