Astro Malaysia’s results were in line with the strong rebound in ad sales as expected. Stock valuation remains undemanding (-1.5SD below the historical EV/EBITDA mean), supported by its digital pivot which should see churn and subscription revenues stabilise in the medium term. The research house’s target price (TP) for the counter has baked in a 4% ESG premium based on their in-house methodology.
4QFY22 core earnings leaped 38.5% QoQ (-15.1% YoY), halting three consecutive quarters of contraction. This was on account of the strong rebound in advertising spend (+56% QoQ) from the economic reopening, and lower content cost. FY21 core earnings made up 98% of our forecast (consensus: 99%) with the impact of Cukai Makmur masked by deferred tax
assets and prior year overprovisions. A fourth interim and final DPS of 2.3 sen brought FY22 DPS to 6.8 sen, a consensus miss albeit within the analysts’ expectations (76% payout). Post the results call, the analysts’ adjust FY23-24F core earnings by -0.2% to 9.8% and introduce FY25F forecasts.
TV subscription and subs down 2.8% and 2% QoQ on weaker discretionary spending and the soft consumer sentiment (floods, inflationary pressures etc.). The research house has gathered the reception to its new subscription packages (unveiled in November 2021) has been most positive (no numbers disclosed) and ahead of internal expectations, with subs mostly taking on 2-year contracts.
The new packages and bundled offerings (with Netflix and Disney+Hotstar) are seen by the analysts as value accretive with upside risk to ARPUs in the medium term, alongside lower churn. Meanwhile, the decline in GO Shop revenue accelerated in 4QFY22 (-29% QoQ) as shoppers thronged physical stores following the easing of movement restrictions.
A smorgasbord of new over-the-top (OTT) content in the pipeline; addressing the ‘rabbit-hole’ issue with aggregation. Astro said it has a long list of OTTs knocking on its doors, with plans to onboard six more in FY23F. The aggregation of streaming video on demand (SVOD) services is an integral part of Astro’s digital pivot to deliver a seamless customer experience. A recent Accenture survey found that 60% of consumers globally find the process of navigating different streaming services
frustrating, with about a third of respondents looking to spend less on independent SVOD subscriptions. The findings resonate well with Astro’s OTT aggregation model, as it removes the complexity of searching for relevant content across platforms, with subscribers exercising greater control over the content that interests them. On the regulatory front, the house view the recent Copyright Act (2022) amendments to include illegal streaming technology as further bolstering Astro’s efforts on combating piracy.
Key risks identified for this counter are: A slowdown in economic momentum, protracted churn, and weaker MYR/USD.
Salient points for investors:-
Target Price (Return): MYR1.37 (24.5%)
Price (Market Cap): MYR1.10 (USD1,364m)
ESG score: 3.20 (out of 4)
Avg Daily Turnover (MYR/USD) 2.54m/0.60m
