The research house had on Thursday upgraded Astro to an Add with an unchanged discounted cashflow (DCF) based RM1.75 target price, which implies a 6.4 times CY19F enterprise value/earnings before interest, tax, depreciation and amoritsation (EV/Ebitda).
Astro’s core net profit surged from RM65mil in 2QFY19 to RM160m in 3QFY19 due to stronger TV adex and lower content cost.
Nevertheless, group revenue fell by 2.3% on-quarter due to lower package take-up and sales of the FIFA World Cup in the previous quarter. Astro also declared a 2.5 sen third interim DPS in the quarter bringing the 9MFY19’s to 7.5 sen.
Revenue in 9MFY19 fell 0.8% on-year, mainly due to lower pay-TV subs (-4.3% on-year). However, this was partially offset by stronger home shopping sales (+34%). Astro was also impacted by higher content cost (+14%) and interest expenses related to new transponders.
“Its 9MFY19 EBITDA margin also contracted by 4.8% pts on-year to 29.7%. Overall, the group’s 9MFY19 core net profit plunged 29% on-year from RM566mil to RM404mil,” it said.
CIMB Research said Astro’s management highlighted during the post-3QFY19 results call that Astro is undertaking a strategic operations review to drive cost-savings initiatives in response to the challenging operating environment.
“For example, the group is ceasing the operations of Tribe OTT and live streaming platform Tamago in 4QFY19. We believe these cost-savings initiatives will help to contain margin compression from declining subs revenue.
“We are cognisant that consumers are pivoting towards digital media. We see the bundling of Astro’s pay-TV with Maxis’ ONE Home Broadband as an attractive proposition in light of growing competition and price war in the media and telco space.
“Based on our telco analysts’ estimate, a potential Astro-Maxis merger should be EPS accretive for Maxis in FY19-21F – even if the offer price is set at a c.30% premium,” it said.