Analysts see encouraging signs for Astro Malaysia

Despite weak second-quarter results, analysts reckon that there are encouraging signs for Astro Malaysia Holdings Bhd going forward, which include a rebound in earnings in the coming quarters and positive net additions for its pay-TV subscribers.

According to AllianceDBS Research, Astro is cautiously optimistic about its second-half financial year 2019 (2H19) outlook, given the recent surge in consumer sentiment which should lead to a recovery in advertising expenditure (adex).

This will in turn improve pay-TV subscriber churn and average revenue per user for Astro.

Adex revenue fell 23% year-on-year due to the three-month tax holiday, with Astro not benefiting from political funding during the 14th general election.

Astro estimates full-year content spending to be around RM1.8bil or 37% of TV revenue, which means content cost is likely to trend lower in 2H19.

Apart from that, Macquarie Research expects Astro’s earnings before interest, taxes, depreciation and amortisation (Ebitda) and earnings to rebound in the coming quarters with the absence of the additional high content cost of the World Cup.

“Excluding the World Cup-related costs, management confirmed that Astro has been successful in bringing down content costs in absolutes and getting more for its spend.

“The attraction of Astro’s own vernacular content amongst its base was seen as a key bargaining tool,” said Macquarie Research.

Going forward, Astro has confirmed that it will begin selectively upgrading set-top boxes for customers to offer Ultra HD and 4K services later this year.

Given that this will be on a selective basis and at a lower unit cost, the management expects no significant shift in its RM200mil to RM300mil per annum capital expenditure spend.

“We estimate that Astro will generate RM900mil in adjusted free cash flow (FCF), or a 10.5% FCF yield in 2019, providing support for its 6% dividend yield and allowing for a degearing of its balance sheet.

“We estimate a 2019 net debt to Ebitda of 1.4 times,” said Macquarie Research.

Meanwhile, RHB Research noted that Astro is in the midst of discussions with access providers such as Maxis Bhd and TIME dotCom Bhd on its broadband bundled packages, following the recent revision in the Mandatory Standard on Access Pricing.

Analysts see encouraging signs for Astro Malaysia 1
Analysts see encouraging signs for Astro Malaysia 2
Analysts see encouraging signs for Astro Malaysia 3
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