HLIB, RHB cut Astro FY21-23 earnings forecast

KUALA LUMPUR (June 19): Concerns over lower revenue projection across all segments due to economic challenges from the Covid-19 pandemic has led Hong Leong Investment Bank (HLIB) Research to cut its earnings forecast for pay-television operator Astro Malaysia Holdings Bhd.

In a note today, HLIB Research analyst Syifaa’ Mahsuri Ismail said she slashed Astro’s FY21-FY22 forecasts by -18.7% or -12.9% to RM579.9 million and RM540.6 million, respectively.

“We also introduced our FY23 financial forecast,” she said.

She noted despite the 4.1% jump in average daily viewers and increase in 11.5% of average time spent daily on Astro, the higher engagement does not translate directly to increase in revenue.

“In the current weak environment, average revenue per user seemed to have slowed down slightly, registering 1.3% decrease from RM100.4 per month to RM99.1 per month. With no exception as compared to other media players, Astro’s advertising expenditure (adex) revenue witnessed the biggest drop (-47.6% quarter-on-quarter; -37.6% year-on-year).

“Management remains hopeful that the adex spend will gradually pick up with the loosening of restrictions during the RMCO,” she said.

Syifaa’ maintains a “buy” call on Astro with a lower DCF-based target price of RM1.15 from RM1.29 as she imputes negative terminal growth rate in line with the bleak economic outlook.

Even though she acknowledges that subscription revenue is on a declining trend, she believes that significant content cost savings due to the absence of major sport events this year would be able to cushion this.

“Coupled with an attractive dividend yield of 6.6%, we opine that the near-term risk to reward equation is still tilted to the upside,” she noted.

For the first quarter ended April 30, 2020 (1QFY21), Astro’s net profit more than halved to RM73.84 million from RM176.2 million a year ago, in a filing with Bursa Malaysia yesterday.

The group’s revenue fell 14.6% to RM1.05 billion from RM1.23 billion, as it saw a 38% decline in adex and faced restrictions in up-selling and installations during the quarter.

Meanwhile, RHB Research has cut Astro’s core earnings for FY21-FY23 forecasts by 22%-29%, mainly to factor in notably weaker adex, lower TV subscription revenues, and higher doubtful provisions.

Its analyst Jeffrey Tan said FY21 core earnings are now projected to fall 18% year-on-year, partially offset by cost savings.

“We see FY22 core earnings to fall another 11% from deferred sports content (Olympics and Euro 2020). Our weighted average cost of capital assumption is raised to 9.8% (from 9%) to factor in the high risk premium associated with the pandemic and the change in customer behaviour,” Tan added.

However, he mentioned the key risks of the group including weaker-than-expected earnings, dividends and ringgit/US dollar weakness. He said strong operating cash flows and execution are key merits.

At 10.09am, shares in Astro fell 5.61% or 5.5 sen to 92.5 sen, valuing the group at RM5.11 billion. It saw some 7.01 million shares traded, exceeding its 200-day average volume of 4.26 million.

Source: TheEdgeMarkets