KUALA LUMPUR: Astro
Malaysia to grow its revenue from RM5.6bn in FY1/17 to RM8.8bn in FY22, driven by stronger adex and new growth initiatives such as Go Shop, Tribe, licensing income and other ancillary income.
In a research note issued on Tuesday, CIMB Equities Research said overall, Astro is targeting to more than double its profit after tax and minority interest (Patami) from RM629mil in FY17 to RM1.5bil.
“We think the profitability target is achievable partly because we expect Astro’s depreciation and amortisation expense to taper down gradually beyond FY18 in view of minimal capex and new subs acquisition cost,” it said.
CIMB Research said Astro hosted its first investor and analyst day at the group’s headquarters in Technology Park Malaysia, Bukit Jalil on Monday.
The event was hosted by Astro’s senior management team which includes the group CEO Datuk Rohana Rozhan, CFO Shafiq Abdul Jabbar, COO Henry Tan and CIO Raymond Tan.
“There were no surprises from the event, but we are encouraged by what we learned about the group’s five-year targets to grow its profitability, while staying ahead of competition and relevant to Malaysian consumers,” it said.
The research house said Astro expects Go Shop’s revenue contribution to grow from RM260mil in FY1/17 to RM1.9bil in FY22 on the back of a growing customer base, additional “live” slots and a better product mix with higher volume and margin.
For example, Astro plans to raise the existing customer base from one million to six million customers.
“We think this is an ambitious target, but the group is optimistic about Go Shop’s growth potential given that it expects the Malaysian e-commerce market to reach US$2.9bil in 2020 (vs. US$1.2bil in 2016).
“Astro is looking to raise its spending on local vernacular and Asean intellectual properties (IPs) by 50% in order to capture growth in new segments such as Nusantara, eSports, Kids, etc. Moreover, these IPs offer monetisation potential outside of Malaysia.
“We like Astro’s strategy of investing in these new IP segments as it creates a value differentiator from competitors and potentially new target markets such as millennials and kids,” it said.
CIMB Research expects stronger earnings recovery in FY18 on the back of a robust 8% adex growth and higher average revenue per user (Apru) of RM102 a month (vs. RM100.4 a month in FY17), driven by the sport package price revision and higher take-up of value-added services.
It also expects lower content cost in FY18F due to a reduction in sporting events (vs. FY17). Moreover, we see further reduction in content cost from the appreciation of the Ringgit against the US dollar.
The research house said the stock trades at 18 times CY18 P/E, two standard deviation below its three-year mean of 24 times.
“The stock is down by 20% from its three-year high. We think the risk of declining pay-TV subs is reflected in Astro’s share price, but investors have not factored in Astro’s new initiatives to diversify its earnings beyond pay-TV.
“Maintain Add with a DCF-based target price of RM3.25. Key risks are a decline in premium subs base and higher-than-expected content cost,” it said.
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