Astro’s slipping Pay-Tv subscriptions, challenging adex environment remain a concern
KUALA LUMPUR: Astro Malaysia Holdings Bhd’s (Astro) slipping Pay-Tv subscriptions and challenging advertising expenditure environment remained concerns for analysts.
According to Affin Hwang Investment Bank Bhd (Affin Hwang Capital), the main culpritd for the decline in Astro’s financial year 2019 (FY19) core net profit of RM607.7 million, which was down 10.3 per cent year on year (y-o-y), were largely due to lower contribution from the Pay-TV subscription and radio segments.
“Despite the FY19 earnings falling within our expectations, we lower our core earnings for FY20-21E by seven-nine per cent mainly in consideration of the challenging operating environment, especially with the threat of widespread piracy,” Affin Hwang Capital said.
“We remain concerned over slipping Pay-TV subscriptions, coupled with lacklustre adex sentiment in the near term.”
Despite the overall adex environment remaining challenging, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) was comforted by Astro’s ability to uphold its earnings momentum given the continued recovery in advertising income post-14th General Election (GE14) and a more politically stable domestic front.
MIDF Research viewed that the manpower rationalisation will aid in building a lean and productive workforce apart from keeping the operating cost at bay.
“However, we observed that the profit margin continues to be under pressure as we do not foresee any significant recovery in adex,” the research arm said.
“Coupled with the rising content cost, the challenging operating environment has impacted the group’s financial performance as seen in its latest FY19 results.
“Thus, we opine that these factors will continue to be a dampener to Astro’s earning recovery.”
Nonetheless, MIDF Research viewed that the healthy free cash flow would enable the group to support its dividend commitment.
“We view that the group’s strong cash position will enable it to continue to uphold its dividend pay-out ratio of more than 75 per cent.”
At this juncture, the research arm anticipated that the attractive dividend yield would help to partially buffer for the anticipated near-term weakness in share price performance.
On forecasts, MIDF Research revised upwards its FY20 earnings estimates to RM619.3 million as the research arm assumed better profit margin in view of healthier operating cost and improvement in advertising income.
“In addition, we also introduce a more favourable FY21 earnings estimates which takes into account the operational cost savings from the cut in workforce, continued lower and stable content costs and higher advertising income.”
The research arm’s FY21F normalised net profit amounted to RM631.5 million at the time of publication.