Astro Malaysia Holdings - Below expectations

Period  FY13/4Q13

Actual vs. Expectations  The FY13 net profit of RM418m came in below expectations as it accounted for only 93% and 91% of ours and the consensus full year estimates respectively. The variance was mainly due to a higher net finance cost coupled with a higher depreciation amid the heavy B.yond boxes swap-out.

Dividends  A 1.5 sen second interim dividend has been declared. Positively, the group has also proposed a final DPS of 1.0 sen (subject to shareholders approval), bringing the YTD DPS to 4.0 sen, which implies a 1.5% net dividend yield and a payout ratio of c.50%.

Key Result Highlights  YoY, the FY13 revenue saw a decent growth of 11%, underpinned by the higher revenue growth in the TV segment (+11%) and Radio segment (+24%). The revenue growth in the TV segment was mainly driven by an increased subscription revenue on the back of a higher ARPU of c.RM93 (+5% driven by the higher take-up in value-added services such as HD and PVR) and higher pay TV subscribers of 3.276m (with net adds of +209k or +54% YoY). Meanwhile, the Radio segment’s revenue growth was driven by the consistent strong listenership rating, which supported Radex growth. However, the PBT number dropped by 34% as the robust growth in the radio segment (+32%) was offset by the lower PBT in the TV segment (-36%), which was mainly dragged down by higher marketing and distribution cost, content cost (impact of Euro 2012 and Olympics sporting year) as well as higher depreciation & amortisation charges on the back of the heavy swap-out of B.yond STB.

 QoQ, the 4Q13 revenue increased by 5.0% mainly on the back of the higher TV revenue (+5%) and radio revenue. Nonetheless, the PBT dropped by 28% due to a lower EBITDA margin of 30.6% (-0.6ppts) as a result of higher marketing and distribution costs arising from higher customer acquisition, B.yond boxes swap-out and interactive services.

Outlook  While the convergence of media platforms and devices coupled with the proliferation of smart devices and higher-speed broadband capability could post significant challenges to Astro, we believe that its strategic move into NJOI and Astro-On-The-Go platforms would cushion the convergence impacts.

Change to Forecasts  We have lowered our FY14 and FY15 net profit forecasts by 3-4% after assuming a higher marketing and distribution cost (from c.10% of total revenue to c.12%) for the two years amid the group’s aggressive move in customer acquisitions and higher B.yond boxes swap-out.

Rating    Maintain MARKET PERFORM

Valuation  Post earnings revision in FY14 and FY15, our DCF derived TP has been lowered to RM3.10 (WACC: 8.9%, Beta: 1.0, Terminal growth: 1%) from RM3.17 previously.

Risks  Lower than expected subscriber growth.

 Escalation of content cost.

Source: Kenanga