Astro’s cost optimisation bearing fruit

by SHAZNI ONG/ pic by BLOOMBERG

ANALYSTS are optimistic of Astro Malaysia Holdings Bhd’s outlook as the company continues to show positive progress on its cost management plan, while pursuing profitability through its multitude of platforms.

Astro’s profit surged on improved earnings margin and lower finance costs despite revenue falling due to weaker contributions from its core television (TV) business.

For its second quarter ended July 31, 2019, (2Q19), the pay-TV operator posted a net profit of RM169.34 million against only RM16.58 million in the corresponding quarter last year as its earnings before interest, tax, depreciation and amortisation improved 15% over the same period.

This was owing to the lower content costs, and marketing and distribution expenses recognised by the company which is also involved in the radio and home shopping businesses.

The higher profitability achieved was in spite of the company’s turnover declining 12.7% year-on-year (YoY) to RM1.24 billion for the quarter, largely driven by the decrease in subscription revenue and licensing income from the TV business, its exchange filing stated.

For the first half of its fiscal year ending Jan 31, 2020 (1HFY20), Astro’s net profit jumped 80.6% YoY to RM345.53 million, while revenue fell 9.5% YoY to RM2.47 billion.

The company declared a two sen dividend for 2Q19, bringing the total dividend declared to four sen over the six-month period.

MIDF Research in a note last Friday said the earnings momentum of the group would be primarily driven by its improving cost structure going forward.

The pay-TV average revenue per user also managed to stay around RM100 mainly due to higher consumption for its On Demand VOD, over-the-top (OTT) platforms (such as Astro Go) and NJOI service offerings.

“We opine that Astro’s recent launch of its broadband content bundling with Maxis is a positive development as it could reach out to customers in a more efficient manner,” it said.

MIDF added that the increase in the number of connected set-top box also indicates that consumers are possibly opting for Astro’s attractive and premium contents (such as HBO Go and iQIYI) ahead of the analogue switch-off possibly in 4Q19 or 2020, which could bode well for its earnings.

“We are making upward adjustment to our FY20, FY21 and FY22 earnings by 7.8%, 8.5% and 5.9% to RM675.8 million, RM686.7 million and RM696 million respectively, as we are lowering further our cost assumptions,” MIDF noted.

It maintained a ‘Buy’ call on Astro and revised up its target price (TP) to RM1.84 (previously RM1.74) per share.

This is premised on forward price-earning ratio of 14 times pegging against FY21 earnings per share of 13.2 sen per share.

RHB Investment Bank Bhd stated that Astro’s 1HFY20 results were broadly in line and the underlying performance appears resilient despite the feeble consumer sentiment and structural threats.

“We expect operating expenditure (opex) to rise in 2HFY20. We continue to like the stock for its solid free cashflow, strong content value proposition and dominant share of pay-TV households. Its FY20F yield is one of the highest among the bigger caps,” the bank noted.

It maintained its ‘Buy’ call and with discounted cashflow (DCF)-based TP of RM1.85, noting that Astro is set to launch its next-generation set-top box, which is ultra high definition-ready in 4Q19.

“The key feature of the new set-top box is the ability to record an unlimited number of programmes on cloud (services) — a step up over the current set-top box, which is limited by storage capacity.

“We see monetisation opportunities from the upselling of the new set-top box features, although the impact is likely to be minimal in the medium term,” it said.

On the broadband bundle with Maxis which was launched in mid-August, the research house noted that Astro’s management said it was still early days to gauge the response.

“We previously estimated that viewers stand to enjoy savings of 3%-11% from a bundled sub versus a standalone sub over a 24-month contract,” it said.

PublicInvest Research said Astro continues to place emphasis on its pay-TV and NJOI business by redefining customer value propositions, elevating customer service and providing refreshing content, despite the challenging outlook in the media industry due to structural changes.

“Astro will continue to focus on vernacular content given the strong response from viewers. Furthermore, Astro is looking to manage its subscriber base and product proposition to be more optimised, and in return, improve on its profitability,” it said.

PublicInvest maintained its ‘Outperform’ call on Astro with an unchanged DCF-derived TP of RM2.