Analysts still upbeat over Astro despite headwinds

Analysts remain bullish over Astro Malaysia Holdings Bhd despite the media giant posting a lower turnover across major business segments.

Astro clocked in a net profit of RM170.85 mil, or an 11.5% rise, for the third quarter ended Oct 31, 2019, from RM153.22 mil for the same period last year, on the back of lower net finance charges and tax expenses. 

But revenue dropped 12.18% to RM1.22 bil from RM1.38 bil amid a decline in advertising, subscription, production and sales of programming rights. 

Still, most analysts believe there is some value to be extracted from Astro despite a tough pay-television (Pay-TV) terrain. According to Bloomberg data, 18 analysts cover the stock with 14 buys, two holds and two sells. 

Two analysts from the buy camp noted that Astro had a few aces, namely its cost optimisation plan, a stable average revenue per user (ARPU) of about RM100 and prepaid satellite television service NJOI.

MIDF Research analyst Khoo Zen Ye noted that he is “sanguine” over Astro’s future prospects. “We believe the earnings momentum of the group to be primarily driven by its improving cost structure going forward,” he said in a Dec 5 note. 

He added that the stable Pay-TV ARPU was due to a “higher consumption” of Astro’s video-on-demand service On Demand as well as over-the-top platforms such as Astro Go and NJOI. 

“In addition, we opine that Astro’s recent launch of its 4K UHD box and broadband content bundling with Maxis are positive developments as this could cement its position as the leader in the Pay-TV segment,” Khoo said. 

TA Securities analyst Wilson Loo said Astro “offers investors attractive forward dividend yield of 7.7% across FY20-22.” His estimate is slightly higher than the consensus of 7.1-7.5%. 

Despite the tough Pay-TV market, “we expect Astro to record earnings growth in FY20, underpinned by lower content costs, monetisation from NJOI customers and leaner opex on the back of ongoing cost optimisation initiatives,” he said in a Dec 5 note. 

Loo also observed that Astro has been “working hard” to defend its core Pay-TV business, citing the launch of the Ultra Box that boasts cloud-recording features and 4K-Ultra HD viewing.

“More importantly we believe that Astro will continue to have a strong presence in the majority of Malaysia’s TV households with its vernacular content capturing the lion’s share (63%) of viewership on Astro. Note that in 9MFY20, Astro recorded a TV household penetration rate of 76%,” he said.

Investors who had followed Loo’s recommendations for Astro would see a 19.4% return on the stock, according to Bloomberg data.

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