Friday 7 December 2012

Astro Malaysia - Dividend surprise, backed by encouraging value-added services take-up HOLD


- We re-affirm our HOLD recommendation on Astro Malaysia Holdings, with an unchanged fair value of RM2.89/share, based on a 10% discount to our DCF value. 

- Astro reported a net profit of RM118mil (+25% QoQ) for its 3QFY13, bringing 9MFY13 earnings to RM335mil (-29% YoY). The results were broadly within expectations, accounting for 76% of our FY13F earnings and 73% of consensus.

- A surprise dividend of 1.5sen per share was declared – ahead of its guidance to pay dividend starting FY14F. This was backed by a strong set of 9MFY13 result and strong free cash flow generation. Moving forward, management intends to reward shareholders on a quarterly basis, premised on a payout ratio of 75% of earnings. As such, we have assumed DPS of 3.0 sen for FY13F and maintain our FY14F-FY15F DPS assumptions.

- The spectacular topline growth (+12% YoY, 0.9% QoQ) was driven by:- (1) Increase in pay-TV subscribers, totalling 3,213k (+6.6% YoY, +1.5% QoQ); (2) 78% YoY increase in net additions, circa 146k; and (3) ARPU climbing by 5.6% YoY to RM92 from RM87, underpinned by growing  demand for its value-added services. 

- As anticipated, EBITDA margin has compressed to 32%-33%. This declined is expected to continue in the next two years mainly due to cost associated with the acceleration of migration of the B.yond set-up box and promoting higher take-up of new products and services. Take-up rate for HD services has been encouraging to-date, whereby 64% of B.yond subscribers are on it, translating into additional RM20 per month in ARPU. Additionally, 13% are equipped with Personal Video Recorder and 36% subscribe to the SuperPacks. Conversely, the NJOI rollout in April has achieved a total of 132k subscribers. FTA channels – TV3 and TV9 – will be added in 4QFY13, while additional sports and movies offerings are to be launch soon. 

- Management is confident completing the migration of the remaining subscribers to the B.yond set-up box by end-FY14F. This, in turn, will drive a higher take-up of the value-added services and thereby further out, boost ARPU growth. We have assumed ARPU hitting RM93 (+5.2%) and RM98 (+5.6%) in FY13F and FY14F, respectively.  

- In conjunction with Maxis, the launch of the triple-play service – an IPTV service via fibre optic – is targeted for April next year. Two months thereafter, Astro On-the-Go bundling with Maxis mobile and broadband services, are expected to be launched. As part of the soft launch (targeted in 4QFY13), the group will begin trial in high-rise condominium buildings and have started booking some. 

- Astro’s business model is currently undergoing a reinvestment stage, hence our HOLD recommendation. We continue to be positive, underpinned by its virtual monopoly in the Pay-TV segment countrywide and growing franchise value driven by superiority in content portfolio. 

- Our projection suggests that the capex cycle would peak in FY15F. Hence, we see that the free cash flow build-up will only rise meaningful from FY16F onwards. FCF yield stands at 4.2% for FY14F, with a strong net cash position of RM2.2bil as at 9MFY13.

Source: AmeSecurities

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