Shareholders of the company founded by reclusive tycoon Ananda Krishnan have understandably been disheartened that Astro’s share price has been steadily declining over the past several years, from RM1.26 on Jan 2, 2020 to 68 sen last Friday.
Subscribers have deserted Malaysia’s largest pay TV operator in droves over that time, many switching to ubiquitous TV boxes, digital and mobile streaming options like Netflix or Disney+, or just because of a slowing economy.
Since its inception in 1996, Ananda’s Astro quickly became a household name, and by 2020 was reported to have 5.7 million subscribers. That number may well be much lower now.
So, should investors be upset at Astro’s latest financial results, especially the precipitous drop in Q3 net profit to a measly RM5.8 million from RM105.92 million a year earlier?
Research house CGS-CIMB Securities thinks this is not too big a deal, pointing out that most of the drop stemmed from an “unrealised foreign exchange loss” for its new set of transponders it had yet to hedge at the time.
“The unrealised forex loss came to RM91 million for the cumulative nine months of FY2023, which brought down its 9M FY2023 reported net profit to RM204.3 million.”
After setting aside the unrealised forex loss, Astro’s 9M FY2023 core net profit of RM295.3 million came to 73% of its full-year forecast and 68% of Bloomberg consensus, CGS-CIMB said in a recent research report.
“The 9M FY2023 core net profit was within our expectations and we expect the Q4 FY2023 earnings to march up quarter-on-quarter (q-o-q), bulwarked by stronger advertising sales during the year-end holidays and Lunar New Year,” it said.
Winning over greenfield and brownfield subscribers
However, the research house tempered this by reiterating that Astro’s journey to win over Malaysians with its streaming-integration and transformation strategy would be “a long and arduous one”.
“The 9M FY2023 results show the group needs to do more to get Malaysians’ buy-in but it seems that Astro is on the right track, in our view,” it stated.
It noted that Astro reported a 6.9% year-on-year (y-o-y) drop in 9M FY2023 subscription revenue.
“However, at its results conference call, the group appeared unconcerned, saying it was beginning to see greenfield and brownfield subscribers taking up Astro’s pay television service, with many bundling together Netflix and broadband services.
Q3 television revenue fell 7%, or RM63 million, to RM833.1 million against the corresponding quarter of RM896.1 million a year ago, mainly from the decrease in subscription revenue, advertising revenue and sales of programming rights.
CGS-CIMB said it was unfortunate that net sales were still on a decline y-o-y because there were more subscribers that either downgraded their subscriptions or opted out of Astro altogether in the current economic climate.
“Astro added that it would bring in more streaming services and refresh its content slate to get more people back on the bandwagon, hoping these small wins will ultimately snowball into bigger ones.
“A re-rating catalyst for the stock is when tentpole subscription-based video-on-demand (SVOD) services join Astro’s distribution ecosystem, as it could help stoke interest among lapsed subscribers,” CGS-CIMB suggested.
It noted the digital convergence strategy was put into motion in FY2022 and will be “a work in progress for years to come”.
Long stigmatised as a demoded satellite broadcaster, Astro is working on bringing back lapsed subscribers with an unrivalled slate of SVOD services, it said.
Supporting the government’s social agendas
While noting that Astro is an advocate of the government’s social agendas, it is neither owned by a political party nor is it a government-linked corporation (GLC).
According to Astro, its Astro Awani channel and app are one of the most followed news outlets in Malaysia. “We attribute this to Astro’s stance of being politically neutral, giving it a measure of credibility in the digital age,” it said.
CGS-CIMB encouraged investors to capitalise on any potential sell-down after the Q3 results announcement, as its FY2024-2025 dividend yields of 8.5% at the current share price level are already one of the highest in CGS-CIMB Research Malaysia’s universe of coverage.
Astro’s 0.75 sen third interim dividend per share brings the year-to-date amount to 3 sen. “It is premature to say whether it falls short of our full-year expectation of 6 sen since the group tends to pay a bumper amount at the end of a financial year.”
On potential downside risks, the research house highlighted subscription revenue falling worse than projected, and content costs surging past expectations.
CGS-CIMB has an add call on Astro with a target price of 88 sen.
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