Astro Malaysia Holdings, which reports a RM47 million in loss in Q3, are still deep in the woods with multiple headwinds and indicators that led Kenanga Research to downgrade its call to UNDERPERFORM from MARKET PERFORM.
In its Results Note, the research house said Astro’s 9MFY24 results missed expectations due to prevailing drag from subscriber churn.
“Excluding one-off VSS costs, EBITDA margin shrunk to 41% compared to 45% in 9MFY23 as it grappled with legacy costs. We slashed our FY24F and FY25F earnings by 26% and 12%, respectively, to reflect subscriber churn and higher overhead costs.
“Additionally, we also removed contribution from the home shopping segment in-line with its cessation,” it said today (Dec 15).
Consequently, it also lower its TP (DCF; TG: 1%) to 33 sen from 56 sen, with no adjustment based on a 3-star ESG rating.
“We expect sustained earnings weakness against the gloomy backdrop. Correspondingly, we expect this to translate to lower dividends in line with the group’s revised policy that aims to reinvest in the growth of adjacent businesses, whilst preserving liquidity.”
Kenanga said Astro’s result came grossly below expectations.
“Its 9MFY24 core net profit of RM135 million came in at 49% and 57% of our full-year forecast and the full-year consensus estimate, respectively due to weak TV subscription revenues and higher-than-expected overheads.
‘”(There is) no end in sight for subscriber base erosion,” it said.
Elaborating further, it said Astro’s 9MFY24 topline contracted by 5% due to sustained customer attrition (YTD: 136,000) which led to subscriber base erosion (-2.5% YTD).
“To a smaller extent, the decrease in revenue was exacerbated by lower radio adex (radex) due to weakness within the broader industry, and lower box-office receipts due to reduced foot fall at nationwide malls in 3QFY24.
“The larger dip in bottomline was (-58%) was attributed to higher overheads, and chunky costs of RM52 million recognized for its voluntary
separation scheme (VSS) for severance payments and benefits under this program that was undertaken in August.”
It added excluding the one-off VSS costs, EBITDA margin shrunk to 41% (9MFY23: 45%) as the group grappled with legacy costs, for example, payment of transponder lease costs to MEASAT Satellite Systems Sdn Bhd amidst fresh costs to implement its transformation program
“But ARPUs continue to surge. On a brighter note, pay TV ARPU sustained its sequential uptick to reach a high of RM99.8 (2QFY24:
RM99.1, 3QFY24: RM97.4).
“This was following higher take-up of its bundled fiber offerings, as evident from the 22% YoY expansion in Astro’s broadband subscriber base. Additionally, TV adex jumped 13% quarter-on-quarter (QoQ) on the back of compelling Astro’s original vernacular content.
Kenanga said post-briefing with Astro, it found that the group had ceased operations of its home shopping business, Go Shop, in October in line with the group’s strategy to emphasize cost discipline and focus on its core businesses (pay TV and radio broadcasting).
It also noted that majority of staff that opted for Astro’s VSS program originated from the corporate services division, with a headcount reduction of 20% following their exit in January 2024.
“Moving forward, the group expects the financial payback from this exercise to materialize over the next 12 months. Additionally,
in the near future, it does not expect to conduct any new VSS programs,” it added.
The research house said Pay TV is facing multiple headwinds.
“We believe that market share erosion for Pay TV will prevail due to structural cord cutting trends on the back of stiff competition from unauthorized TV boxes, and over-the-top (OTT) platforms (e.g. Netflix, Disney+Hotstar).
“In particular, the leading OTT provider, Netflix, is ramping up its vernacular programming in major Asian languages (including Malay, Tamil, Mandarin).
“Furthermore, younger audiences are leaning towards new digital platforms (i.e. social media, mobile apps, websites, and video streaming) for news and entertainment content.
“Lastly, another nail on the coffin is continued unauthorized digital downloads of TV series and movies over the internet.”
Aside from that, Kenanga said traditional radio lacks AI edge and therefore, in terms of TV adex, it expect it to decline in tandem with Pay TV’s subscriber rout.
“Whereas for the radio segment, we expect its share of adex to continue to shrink given the growing popularity of OTT audio streaming apps such as Spotify and Apple Music, which has AI application.
The risks to Kenanga’s call include cord-cutting trends ease as consumer discretionary spending rebounds, effective legal enforcement eradicates the proliferation of illegal set top boxes, and recovery in sentiment propels a sector-wide recovery in adex.
