Increase in subscriptions lifts Astro’s earnings

0

KUCHING: Astro Malaysia Holdings Bhd (Astro) has clocked-in commendable growth for the third quarter of the financial year 2015 (3QFY15), driven by an increase in subscription and advertising.

In a filing on Bursa Malaysia, Astro said its revenue for the 3QFY15 grew by 10 per cent year-on-year (y-o-y) to RM3.9 billion, while its earnings before interest, tax, depreciation and amortisation (EBITDA) rose 11 per cent to RM1.3 billion and profit after tax increased by 12 per cent to RM376 million.

According to the research arm of M&A Securities Sdn Bhd (M&A Securities), this growth was driven by lower net finance costs and higher EBITDA by RM186 million and RM656 million in the first nine months of 2015 (9M15).

“Furthermore, revenue of RM3.9 billion surged commendably (10 per cent y-o-y) in 9M15 driven by an increase in subscription and advertising of RM232 million and RM15 million respectively,” it highlighted.

It further explained, the increase in subscription has lifted Astro’s television revenue to RM3.7 billion (10 per cent y-o-y) in 9M15 underpinned by the jump in subscription, attributed by growths in both ARPU and number for Pay-TV residential subscribers of RM2.90 (from RM95.60 to RM98.50) and 77,000 (from 3.4 million to 3.5 million) respectively.

It noted, Astro’s profit before tax (PBT) for television segment increased by 18 per cent y-o-y.

Astro’s TV penetration rate has also reached 62 per cent to with a total customer base of 4.3 million, according to Astro.

For its radio segment, M&A Securities said the Group’s revenue for the radio network segment grew by eight per cent y-o-y to RM192 million in 9M15 thanks to strong listenership ratings and improving sales tactical campaign underpinned by the introduction of the youthful format to make it more attractive.

“The radio segment’s PBT increased by four per cent driven by solid revenue performance. Radio advertisement expenditure or adex (Radex) in 3Q15 was at 60 per cent against the corresponding quarter of 55 per cent.

Aside from that, M&A Securities noted that Astro has chosen Kantar Media to organise and monitor audience measurement service by collecting data from its subscribers for the most popular channels and services that they tune to and plus report on viewership of the advertisement spots.

It viewed, with innovative service, DynamicTAM (DTAM) brought in by Kantar Media, Astro would be able measure viewership not only direct standard and high definition channels, but also sectioned viewership from services, such as time-shifted viewing, video-on-demand and interactive television which is still unmeasured to date.

“The DTAM would provide hand-full information that would allow advertisers make better media advertising decision and target specific consumers based on their viewing habits. Furthermore, DTAM would report on viewership of advertising spots across Astro and free-to-air (FTA) TV channels,” it added.

In a separate report, the research arm of CIMB Investment Bank Bhd (CIMB Research) viewed that Astro’s growth prospects remains intact given its dominant market position, with a 62 per cent penetration rate, a defensive operating structure and the sticky nature of its subscribers.

“Although management is guiding for gradual pay-TV subs growth in the coming years, we believe that other growth drivers such as higher ARPU from value-added services, NJOI prepaid satellite TV, home shopping and content licensing could contribute towards Astro’s earnings growth.

“Moreover, the company remains focused on driving growth from its more affluent subs, which tend to be resilient during a challenging economic environment, by introducing new and innovative products such as the offering of eight new HD channels, Super Pack, video-on-demand (VOD) Astro Plus, etc,” it opined.

Apart from that, CIMB Research said, Astro is also exploring content monetisation opportunities by selling more channels and content to regional markets.

“Astro had recently embarked on two new ventures – setting up a documentary channel known as SPARK Asia, and partnering with Mexico’s TV Azteca SAB de CV to co-produce Asia-based telenovelas. This is part of its strategy to diversify its earnings beyond pay-TV subscriptions and leverage the group’s strength in content creation.

“The success of its content monetisation strategy is partly demonstrated by the strong growth in other services revenue, which grew from RM137 million in 9MFY14 to RM241 million in 9MFY15,” it said.

CIMB Research reiterated its ‘add’ call on the stock but cut its FY15-17 core net profit forecast by three to seven per cent as it expected gradual growth in new pay-TV subs add due to the challenging economic outlook for 2015 and higher operating expenses with the initial set-up costs for the home shopping business.

Nevertheless, it viewed, “We are a little concerned about the poor consumer sentiment due to the GST implementation and subsidy rationalisation impact on consumers in 2015.”

As for M&A Securities, it valued Astro at RM3.39 per share and recommended a ‘hold’ call on the stock.

“Potential re-rating catalyst for Astro includes strong adex driven by Malaysia Year of Festivals 2015, better-than-expected subscribers take-up rate of HD services, and strengthening in bundled services (Maxis) to wider its market leadership.

Meanwhile, Datuk Rohana Rozhan, chief executive officer of Astro said in a press statement, “Astro is now in 62 per cent of Malaysian households, with a total customer base of 4.3 million.

“Our relevance remains with choices ranging from our free TV, NJOI to Pay-TV, as well as Astro on the Go (AOTG) and OTT.

“ARPU growth of three per cent to RM98.5 was driven by customers’ take-up of value-added services. We saw strong demand for HD service with over 1.9 million subscribers, a 45 per cent increase in Personal Video Recording service to 679,000 subscribers and a 29 per cent rise in Multi-room customers to 372,000.

“We work towards sustaining this trend with more HD offerings, as well as with our ‘same day’ TV series, which we broadcast as soon as they have premiered in the US, UK and Hong Kong.”

“We are pleased to see phenomenal reception to NJOI, and plan to provide even more discretionary prepaid content and packages to NJOI customers. Consumption of content on all platforms has increased; be it linear, on demand and on AOTG, which has registered over 1.2 million downloads.”

She added, “Astro’s customers are spending more time watching content on AOTG, with weekly viewing time increased by 75 per cent to 93 minutes from 53 minutes a year earlier. Our vernacular content and content IPs continued to register high viewership and remained our key differentiator to attract and retain viewers.

“The IPTV business however, remains challenging as we strive to establish an acceptable broadband service level to our customers.

“In a soft advertising market, we aim to strengthen our relevance to advertisers by building on ratings mechanism analytics, coupled with growing TV viewership and radio listenership. Astro’s total advertising revenue rose by four per cent y-o-y to RM440 million.”