KUALA LUMPUR (June 20): Stripping Astro Malaysia Holdings Bhd’s unrealised foreign exchange (forex) losses and other non-recurring items in the first quarter ended April 30, 2023 (1QFY2024), the pay-TV services provider’s core net profit also missed analysts' expectations, impacted by lower revenue across the board, as well as higher finance costs.
Despite the earnings miss, most analysts have maintained their target prices (TPs) and recommendations on the stock, but trimmed their earnings forecasts for Astro for the financial year ending Jan 31, 2024 (FY2024) and FY2025.
HLIB Research analyst Tan Je Jyne said Astro’s 1QFY2024 core net profit of RM74.1 million came in below the research house’s expectations at 20.8% and consensus at 19.1%.
“The negative deviation was due to lower revenue caused by declines in all three business segments — TV, radio and home shopping,” Tan said in a note on Tuesday (June 20), adding he cut Astro’s net profit forecasts by 3.4% to RM344.8 million for FY2024 and by 19.7% to RM313.1 million for FY2025.
Tan said that while Astro’s efforts to continue to add to its content bundles is a positive, he noted that with subscriber count on the decline post-World Cup coupled with inflation-induced weaker consumer sentiment, it will take time before things start to turn around for the group.
The HLIB analyst maintained his “hold” call with a discounted cash flow (DCF)-based TP of 59 sen. He also introduced a FY2026 net profit forecast for Astro of RM365.6 million.
Along similar lines, PublicInvest Research analyst Eltricia Foong said the normalised net profit of RM62 million — removing unrealised forex losses — was pegged at only 17% of her FY2024 forecast due to the higher-than-expected finance cost, but noted that operating profit was within expectations.
“As such, we cut our FY2024, FY2025 and FY2026 estimates by an average of 11% — to RM316.1 million, RM320.4 million and RM342.1 million respectively — after factoring in higher finance costs,” she said.
Touching on Astro’s broadband business inroads, Foong noted that Astro Fibre’s customer base grew 28% year-on-year (y-o-y), but said she believes that growth in the segment’s customer base is not likely to translate into meaningful bottom-line growth as margin is expected to remain low.
Foong maintained her “neutral” call on the stock with a revised DCF-based TP of 70 sen.
Meanwhile, Kenanga Research analyst Teh Kian Yeong said Astro’s core net profit came in at 17% of the firm’s FY2024 forecast, due to higher-than-expected subscriber base erosion and content costs.
“It was a muted performance in 1QFY2024 as TV subscription revenues sustained their multi-year decline due to customer churn. Additionally, adex (advertising expenditure) was also weaker on both quarter-on-quarter (q-o-q) and y-o-y bases,” Teh said, but noted that Astro expects average revenue per user (ARPU) to recover in 2HFY2024 (second half of FY2024) due to seasonality.
Nevertheless, Teh cut his earnings forecast by 30% to RM306 million for FY2024 and by 34% to RM255 million for FY2025, to reflect expectations for higher content costs and smaller TV subscription base. He maintained a “market perform” on Astro with a lower DCF-based TP of 66 sen (73 sen previously).
In contrast to the other analysts, RHB Research’s Jeffrey Tan maintained his net profit forecasts for Astro at RM412 million for FY2024 and RM428 million for FY2025, and reiterated his “buy” call and TP of 84 sen.
Tan said Astro’s 1QFY2024 core earnings of RM62 million were broadly in line when characterised by seasonality at 15% of the research house’s full-year estimate, but distorted by a higher effective tax rate which is expected to normalise in ensuing quarters.
Premised on expectations of lower content cost and cost efficiencies, Tan said he expects Astro’s core earnings to stage a rebound in FY2024.
Separately, he said: “In our view, a potential re-rating catalyst could well come from privatisation. At current levels, prospective FCF (free cash flow) and dividend yields are attractive at over 15% and 9%."
At the time of writing, shares in Astro were down three sen or 4.55% at 63 sen, giving the group a market capitalisation of RM3.26 billion.