Astro Malaysia - ARPU grow 5%; high take-up of value-added products

-  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 4QFY13 earnings of RM83mil (-30% QoQ, -47% YoY), bringing FY13 earnings to RM418mil (-34% YoY). This was within expectations, comprising 96% of our estimate, but 92% of street’s.

-  Astro declared a 2nd interim dividend of 1.5 sen/share and proposed another 1.0sen/share pending shareholder’s approval. As such, dividends amounted to 4.0 sen/share for FY13.

-  FY13’s topline grew 10% driven by:- (1) Higher take-up rate of value- added services (+64%), which in turn drove ARPU to RM93.20 (+5%); (2) Net additions for Pay-TV and NJOI of 209k each; (3) Churn rate maintained at a healthy 8%; and (4) Adex growth of 9% for TV and radio, which outpaced the industry growth of 5%.

-  However, given the cost associated with the migration of the B.yond set-up box, as well as higher content and financing costs, EBITDA margin shrank to 33% from 36%. This led to a weaker bottom line. Customer acquisition cost stood at RM612.

-  The customer base has grown to 3.5mil (52% penetration rate) from 3.1mil. Management highlighted that migration to the B.yond set-up box is well on track for completion by FY14.

-  The commercial launch of B.yond IPTV powered by Maxis is expected by end-April, targeting 1.3mil homes passed (1.1mil are existing Astro subscribers). Astro Select will be exclusive to Maxis B.yond IPTV subscribers, with additional HD channels and 700+ video on demand hours.

-  Astro On-The-Go (AOTG) service is presently available in Melbourne, targeting Malaysian living abroad. Other potential markets for AOTG include Singapore and the UK. Existing Astro subscribers pays RM25/month, while non-Astro subscribers pays RM30/month or RM5/day.

-  Select-TV's recent launch on an IPTV product via Emagine-TV is unlikely to be a huge threat to Astro. This is underpinned by Astro’s competitive advantage as a superior content provider.

-  Post-FY13 result adjustments, earnings are expected to expand by 10%-27% for FY14F-FY16F. Our estimate assumes ARPU hitting RM98 in FY14F. We have assumed DPS of 6.9 sen and 7.6 sen for FY14F and FY15F, respectively – in line with the group’s guidance of paying out 75% of earnings.

-  Underpinned by Astro’s compelling and superior content portfolio, we are positive on Astro. Furthermore, Astro has a strong growing franchise value backed by a virtual monopoly in the Pay-TV segment nationwide.

-  However, capex cycle has not stabilised, in our view. Our estimates suggest free cash flow is expected to rise meaningfully beyond FY15F as capex would have peak by then.

Source: AmeSecurities