Analyst Reports: Astro, Sunway, Dagang Nexchange

  • Analyst Reports
  • Monday, 16 Sep 2019

Astro Malaysia Holdings Bhd

By Kenanga Research


Target price: RM2.00

ASTRO’S first half FY20 (H1FY20) core profit after taxes and minority interests (PATAMI) of RM352.6mil came in within Kenanga Research’s but slightly above consensus expectations at 50% and 57%, respectively.

The miss from the consensus was likely due to the overly pessimistic cost assumptions.

Note that a post-tax unrealised forex loss of RM7mil was excluded from core PATAMI calculation.

On a year-on-year (y-o-y) basis, Astro’s revenue for the first half of FY20 declined 9% to RM2.5bil due to lower subscription revenue, 12% weaker radio revenue, and almost flat merchandising revenue, which was partially mitigated by a 5% increase in advertising revenue.

Despite the decline in revenue, core PATAMI came in 57% higher at RM352.6mil, due to the absence of FIFA which inflated H1FY19 content cost to 39.6%, as compared to 33.1% at H1FY20.

In addition, Astro saw more favourable marketing and distribution costs amid the ongoing cost containment effort.

Average revenue per user (ARPU) in H1FY20 increased 0.1% y-o-y to RM100 owing to rising consumption across platforms, while TV customers based grew perpetually to 5.7 million as ASTRO TV viewership continued to gain market share at 75%.

Kenanga Research noted that the media industry appears to be undergoing structural changes, where competition arises not just from piracy but also pressures from international over-the-top (OTT) platforms (Apple TV, Netflix and Disney).

“To combat this, management maintains focus towards vernacular content to cater to local flavors, strategic tie-ups with local telco players to enable cross-selling opportunities, and enhancing seamless experience that customers could enjoy with its offerings (exclusive rewards and privileges).

“Apart from these, the group continues its effort on cost optimization initiatives, which include digitalisation of processes and content cost renegotiation.

“All in, we concur with management’s focus to strengthen its core business and also their ongoing cost optimization efforts, ” said Kenanga Research.


By AllianceDBS Research


Target price: RM2.10

SUNWAY REIT (SREIT) has solid assets in its portfolio, with the retail segment its main contributor.

Based on FY19 earnings, its retail segment contributed 70.6% of the group’s net property income (NPI) driven by its crown jewel Sunway Pyramid shopping mall.

Sunway Pyramid’s NPI increased 3.9% y-o-y due to higher rentals, better turnover rent and steady occupancy of 98%.

Based on its expiry schedule, Sunway Pyramid managed to renew 98.7% of total space with single-digit rental reversions.

The mall’s upcoming expiry for FY20 is 51.2% of total net lettable area (NLA) and Alliance DBS Research expects renewal with single-digit rental reversions.

This is due to its good track record of renewing leases as well as its prime location.

“We expect Sunway Pyramid to continue to drive earnings with rental reversions of 3% and high occupancy rates of 99% for FY20 to FY22.

“We expect SREIT’s retail segment to contribute about 66.4% of income from FY20 onwards as the ‘Others’ segment continues to grow, ” said AllianceDBS Research.

SREIT has been growing its ‘Others’ segment further to offset the tough retail, office and hotel segments.

This will also provide a safe haven for earnings and maintain distribution per unit (DPU) growth for shareholders.

Assets under the others segment currently include Sunway REIT Industrial Shah Alam, Sunway Medical Centre and Sunway University & College Campus.

This segment has contributed 8.9% to the group’s NPI and is expected to contribute some 13.9% from FY20 onwards as Sunway University contributes full-year earnings.

SREIT sponsor Sunway Bhd has retail assets which have yet to be injected into the REIT.

Out of nine malls, only three malls are under the SREIT’s portfolio (Sunway Pyramid, Sunway Carnival and Sunway Putra).

The remaining six assets may only be injected into SREIT when the malls reach 6% to 7% yield to match SREIT’s portfolio yield and prevent dilution of yields.

Distribution yields may have toned down to 5.4% as share price has performed well year-to-date with a 10% increase.

Nonetheless, SREIT still offers an upside of 2.1ppt from 10-year Malaysian Government Securities (MGS) yields currently at 3.3%.

Dagang Nexchange Bhd



Target price: RM0.34

Following the recent increase in tender activities, especially for government-related jobs, after muted tender activities in the past 12 months, Dagang NeXchange (DNeX) is optimistic of capturing new contract wins in the system integration and consultation (SIC) segment.

DNeX’s national single window (NSW) trade facilitation platform revenue fell 9% year-on-year in H1FY19, partly due to a 20% drop in traffic volume as a result of the slowdown in global trade activities.

Nevertheless, it is optimistic of higher contribution in H2FY19, driven by expansion in its business-to-business logistics solutions.

CGS-CIMB expects NSW to remain a key driver for DNeX, contributing 28% to its revenue in FY19.

Its energy division registered 9% y-o-y pretax profit growth in H1FY19, mainly driven by Ping Petroleum (Ping).

Nevertheless, the research house expects stronger contribution from its trading and services division in H2FY19, driven by new contract wins, such as the automatic tank gauging supply contract for Petronas which is slated to start in the third quarter of this year.

Meanwhile, the drilling division remains a drag for the group, but management is hopeful the losses could narrow in FY19 as DNeX is participating in regional tenders worth RM300mil.

The group has hired a consultant to proceed with the potential divestment of its entire 30% stake in Ping, which is estimated to be worth about RM250mil.

The amount would be at a 24% premium to Ping’s book value on DNeX’s balance sheet as at end-Dec 2018, resulting in RM208mil or 12 sen per share gain on disposal.

DNeX’s shareholders could therefore benefit from a possible special dividend following the disposal.

“We see improving earnings prospects following the NSW contract extension and potential new contract wins in the SIC segment, ” said CGS-CIMB.

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