Astro’s fundamentals still strong despite challenges

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To date, Astro has managed to produce and distribute four of the top five highest grossing films in 2019. — Reuters photo

KUCHING: Analysts are generally optimistic about Astro Malaysia Holdings Bhd (Astro) despite the current challenges faced in the industry.

“Astro concedes that its revenue outlook is challenging given rampant content piracy. That said, it is evolving with the times. It recently introduced the iQiYi subscription video on demand (SVOD) app and plans to add more SVOD apps going forward.

“It also recently introduced the Ultra Box that will broadcast in 4K Ultra High Definition,” said Maybank Investment Bank Bhd’s research team (Maybank IB Research).

It also pointed out that Astro has markedly reduced costs, especially content costs.

“For FY21, it is budgeting for content cost of RM1.5 billion to RM1.6 billion which includes UEFA Euro Cup content cost. This is within our expectations as we already forecast FY21 content cost of RM1.5 billion.

“We also hope the Malaysian Communications and Multimedia Commission will soon accelerate its clampdown on Android TV boxes that pirate content,” it added.

Meanwhile, MIDF Amanah Investment Bank Bhd’s research team (MIDF Research) said it remained sanguine on Astro’s outlook as it continues to show meaningful progress on its cost optimisation plan while pursuing profitability through its multitude of platforms.

“We believe that the earnings momentum of the group to be primarily driven by its improving cost structure going forward.

“Meanwhile, the pay-TV ARPU was also managed to stay around RM100 which we postulate to be mainly through the higher consumption from its On Demand VOD, OTT platforms (Astro Go) and NJOI.

“In addition, we opine that the Astro’ recent launch of its 4K UHD box and broadband content bundling with Maxis are positive developments as it could cement its position as the leader in the paytv segment,” it opined.

The research team also noted that the increase in the number of connected set-top box as of 9MFY19 also indicates that consumers are possibly opting for Astro’s attractive contents (such as HBO Go and iQIYI) upon the full completion of analogue switch-off in October 2019.

“We expect this would increase monetisation opportunities for Astro through its platforms,” MIDF Research said.

Aside from that, the research team said the group has been continually churning out successful local vernacular contents that contribute to the earnings momentum at the pay-tv segment.

“To date, Astro has managed to produce and distribute four of the top five highest grossing films in 2019. For instance, the “BoBoiBoy The Movie 2” and “Pusaka” have raked in approximately RM30 million and RM13.5 million in gross local box office.

“Its movie contents were also well-received by other countries in the Southeast Asia region. We expect the demand for locally-produced quality contents would help to improve Astro’s earnings quality as well as adding new popular local contents to its library.

“This is in line with Astro’s strategy to increase the share of local contents and thus gradually reducing its content costs going forward,” it explained.

As for Astro’s third quarter of the financial year 2020 (3QFY20) results, it noted that its normalised earnings of RM171.2 million was in line with expectations.

“The better 9MFY20 earnings were primarily attributable to the notable reduction in total cost in line with its focus on operational efficiency,” it added.

It explaiend that 9MFY20 profit margin improved to 14.1 per cent (up three percentage points) and this was underpinned by the resilient ARPU and overall reduction in cost.

“This was in spite of the decline in revenue to RM3.7 billion (down 10.3 per cent y-o-y),” it said.

All in, MIDF Research and Maybank IB Research maintained their ‘buy’ call on the stock.