AFFIN Hwang Capital has cut its earnings forecast for pay-TV operator Astro Holdings Bhd by 3-8% for FY20, on the back of a dwindling revenue base.

Its analysts Chow Wei Nien and Nadia Aquidah said in a Jan 14 note that weaker consumer sentiment may be a dampener on discretionary spending for Astro. 

“This may lead to higher attrition in pay-TV take-up rates. It also cited that the company may  face higher operating expenditure especially in marketing expenses,” they said in a joint note. 

Since revenue from Astro’s pay subscription peaked in 2016 at RM4.36 bil, it has been on a downward trend. 

For 9MFY20, the company registered a revenue of RM2.74 bil. Citing a study conducted by Nielsen, Chow and Nadia said there was a continued erosion in the share of pay-TV viewers to 55% from 57% in 2017. 

“The operating environment for pay-TV is expected to remain challenging with more over-the-top (OTT) players joining the fray and the prevalence of still-illegal Android boxes,” they said.

The analysts also attributed the lethargic customer numbers of Astro to piracy where illegal content streaming continued to cannibalise viewers from Astro.

“Although Astro had embarked on a few initiatives to retain its customer base, such as providing an OTT streaming service (free for Movie Pack subscribers) and followed through with a broadband bundle service with Maxis enabling customers to more cash rebates, customer growth had been tepid,” they said. 

Astro normally spends RM1.6 to 1.7 bil in content costs and it expects the content cost to be around that region for 2020 as there will be two major sporting events this year, namely the Tokyo Olympics and the 2020 UEFA European Football Championship.

According to Chow and Nadia, Astro’s management had been actively renegotiating some of the costs but any cost saving would have been erased by the weakness in the ringgit for the most part of 2019.

Further, Astro’s home shopping business, “Go Shop” failed to provide a panacea to the company’s falling revenue. Sales growth for “Go Shop” declined by 2.9% in 9MFY2020 to RM267 mil as sales tapered after the tax holiday period and 2018 World Cup sales campaign. Astro’s home shopping also lost out to e-commerce giants such as Lazada and Shopee that enjoyed stronger branding and a larger product offering, the analysts added.

Given the negatives surrounding the media group, they have downgraded Astro to a hold with a target price of RM1.32. 

At 11.30am today (Jan 14), Astro was traded at RM1.26, down two sen from its close on Jan 13. 

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