UOB Kay Hian maintains a “BUY” recommendation with an unchanged DCF-based target price of RM1.08 (WACC: 7.7%, terminal growth: -1%). This target price implies 11x FY22F PE (0.5SD below its five-year mean). the recommendation is based on management’s concerted efforts to forge content partnerships and roll out new initiatives, which could allow them to defend the shrinking market share and ARPU over time.
The stock’s 4QFY22 yield at 2.6-3%. In 9MFY22, Astro declared a total dividend of 4.5 sen/share (c.68% payout). As management remains committed to a 75% dividend payout policy, we expect 4QFY22 DPS to be backloaded at 2.5-3 sen/share. This will translate to a dividend yield of 2.6-3% for 4QFY22, and 7-8% for FY22-24.
The key re-rating catalysts for the stock include: a) higher-than-expected dividend payout for FY21, b) higher-than-expected pay-TV ARPU, and c) regulator’s stricter policy in cracking down on piracy.
UOB Kay Hian is positive on Astro’s recovery. Recovery is expected to be on track. They also expect strong sequential growth in 4QFY22. Notable trends in 4QFY22 include: a) encouraging take-up of the higher priced new packages(launched in Nov 21) among its existing customers, b) stabilised TV ARPU, c) recovery in commercial and hospitality segments that should boost TV revenue; and d) improvement of business sentiments during the festive seasons that saw higher adex demand. All in all, we expect 4QFY22 earnings to come in at RM140m-150m, which is a strong sequential improvement of 40-50% qoq growth (but flat yoy) given the reopening of economies and lower content cost. Risks include soft consumer sentiment that was impacted by the lockdown and flood.
After launching Disney+ Hotstar, Netflix, and TVB anywhere in FY22, Astro now covers a total of seven subscription video on demand (SVOD) streaming apps (see RHS table). Stepping into FY23, Astro will continue to forge more partnerships with various global Over The Top (OTT) players with an aim of having 15 SVOD under one subscription. Astro believes the partnerships will be a win-win situation for it and the OTT players in view of its massive customer penetration. We expect these deals to materialise in the next 12-15 months. Besides, Astro also aims to roll out its own broadband product line-ups in mid-/late-FY23, and integrate it with the new pricing packages as part of its convergence strategy. So it is exected to be an exciting year ahead for Astro.
The research house also expects a stabilised TV churn rate and improved ARPU outlook with the introduction of its new TV pricing packages and enriched content offerings. Adex is also expected to recover with the resumption of corporate sentiments. Margin for FY23 to be similar to that of FY22 with the airing of sports events such as the Winter Olympics 2022 and FIFA World Cup. This will see content cost as a percentage of revenue sit at mid-high 30% (9MFY22: 37.5%, FY21: 34%). The earnings forecast has also factored in a guided higher capex in FY23 for the investments in set-up boxes, fibre infrastructure, digitalisation, etc.
