Astro is perceived to be the biggest gainer should there be an intervention by the government on this matter, according to analysts.
KUALA LUMPUR: CIMB Equities Research has upgraded Astro
Malaysia to Add with a lower sum-of-parts target price of RM2.70 in view of the recent selldown.
The research house said on Thursday that Astro has a monopoly in pay-TV, with 75% penetration in Malaysia, supported by strong free cashflow generation and attractive 5.8% yield in CY18F.
“Key downside risks are a rise in content cost and decline in premium pay-TV subs. We see a potential pick-up in consumer sentiment from a strengthening of the ringgit, better content monetisation strategy and higher dividend payout as potential re-rating catalysts,” it said.
CIMB Research pointed out the core net profit for the financial year ended Jan 31, 2018 was broadly in line at 97% of its forecast, but fell below consensus estimates at 91% of FY18F forecast.
Core net profit in FY18 grew by 4.6% year-on-year due to lower content cost and contract renegotiations with production studios, amidst higher depreciation and tax expenses.
“We think the recent selldown on the stock is excessive as Astro still commands 75% of Malaysian households through its pay-TV and NJOI prepaid platforms.
“The stock trades at 16 times CY18F P/E, two standard deviation below mean of 22 times, supported by strong free cashflow and attractive 5.8% yield.
“Potential pick-up in consumer sentiment from strengthening of ringgit, better content monetisation strategy and higher dividend payout are potential re-rating catalysts,” it said.
Overall, Astro’s core net profit in FY18 grew by 4.6% on-year from RM648m to RM678m, after stripping out RM93m unrealised forex gain.
The group expects its content cost to increase in FY19F, mainly due to the high number of sporting events, which include major events like FIFA World Cup 2018 (FWC18), Gold Coast 2018 Commonwealth Games and 2018 Asian Games.
The group expects total content cost to come in at 35%-36% of TV revenue in FY19F (vs. 33% in FY18).
“Nevertheless, we think the recent strengthening of the ringgit and ongoing contract renegotiation with production studios will help to reduce the impact of higher content cost.
“Astro is planning to introduce a RM120 one-time pass for the upcoming FWC18 that will allow non-Astro customers to watch the entire tournament on any device.
“To recap, Astro sold over 100,000 passes for RM100 each during the 2014 World Cup. We expect a higher take-up for FWC18 given the favourable timing of the fixtures for Malaysia - our channel checks found that about 60% of matches will start at 11pm or earlier.
“We lower FY19-20F EPS by 6%-7% to account for lower TV subs revenue and higher depreciation expense.
“While content cost is expected to increase by 10% in FY19F, we project better earnings delivery from the (NJOI) prepaid platform, higher ARPU from new packages and turnaround at Go Shop will help to offset the potential earnings decline,” it said.
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