Astro’s adex a life-saver, content still king in attracting customers — Analysts
KUCHING: Astro Malaysia Holdings Bhd’s (Astro) advertising expenditure (adex) has been viewed as a ‘ life- saver’ for the group while analysts believe that content is still important for Astro when it comes to attracting customers.
According to Affin Hwang Investment Bank Bhd (Affin Hwang), both TV and radio adex for Astro have remained relatively stable amidst the industry-wide contraction, contributing an average of approximately 15 per cent to group revenue over the past three financial years.
The research firm noted that total industry adex excluding payTV declined by 12.5 per cent year on year (y- o-y) for 2017.
“We expect adex to pick up in financial year 2019 ( FY19) on the back of the 2018 World Cup in Russia, especially with the favorable match kick- off times this year, as well as Malaysia’s 14th General Election that should provide advertisers with a feel- good sentiment,” it said.
In Affin Hwang’s view, content remains a key ingredient in attracting customers.
As Astro’s vast array of content still appeals to the masses, Affin Hwang believed Astro will still be able to leverage on the group’s strong content to dominate the pay- TV space in Malaysia.
The research firm also believed some of the key factors in attaining stickiness in the customer base are Astro’s ability to provide quality vernacular content that appeals to the domestic mass market, exclusive broadcasting rights to live sports and live viewing reality shows.
“For instance, Astro’s longest running singing reality show ‘Akademi Fantasia’ has a 2.5 million viewership base and is able to garner north of nine million digital views.”
However, Affin Hwang pointed out that content cost is always a concern for Astro as 70 per cent of the group’s content is foreign currency- denominated while the remaining 30 per cent is in ringgit.
The research firm noted that Astro hedges the group’s content costs about six to 12 months in advance which is positive when ringgit weakens against the US dollar, and vice versa.
“Usually, Astro’s content costs are higher during mega- sporting years, thus we expect costs to rise and the earnings before interest, tax, depreciation and amortisation ( EBITDA) margin to be compressed in FY19 with the World Cup event in June- July 2018.”
Meanwhile, piracy is one of the main threats for Astro, Affin Hwang said.
The research firm noted that Astro’s dominance in pay-TV is mainly attributable to its service offering of premium content.
“Any loss of such content to competitors or online streaming operators is likely to result in a higher churn rate.”
The research firm believed that the on-going threats from content piracy, if not sufficiently dealt with, would continue to have a profound impact on Astro’s profitability.
As for Astro’s home shopping business, Go Shop, Affin Hwang highlighted that it has seen encouraging growth since its inception in January 2015.
The research firm further highlighted that as at the first nine months of FY18 ( 9MFY18), Go Shop has 1.2 million registered customers, generating a total of RM205 million in revenue (five per cent of group turnover), an increase of 2.2 per cent y- o-y.
“Go Shop Singapore’s operation has, however, lagged behind due to stiff competition in the e- commerce space in Singapore,” the research firm said.
“The existing partnership with StarHub generally targets the Chinese audience (through Go Shop’s Mandarin language channel carried on StarHub), who already have many products to choose from.
“Astro’s management indicated that there is a possibility of a new partnership as it intends to shift its focus to the Malay audience in Singapore, where there are fewer product offerings.”
While Astro’s home- shopping business posted negative EBITDA of RM8.6 million in 9MFY18, the division is expected by Affin Hwang to show positive EBITDA only from 2019 onwards, that is FY20.