KUALA LUMPUR (Aug 13): Astro Malaysia Holdings Bhd's (KL:ASTRO) planned review of its offerings could further reduce the average revenue per user (ARPU) which is already under pressure from weakening subscriptions, a research house has cautioned.

In a company update note on Tuesday, Hong Leong Investment Bank (HLIB) Research said that Astro’s first-quarter (1QFY25) results were continuing to “slide”. The downward trend was marked by revenue of RM772.5 million, which was -6% quarter-on-quarter (q-o-q) and -10% year-on-year (y-o-y).

Core profit after tax and minority interests (PATAMI) also declined to RM23.2 million (-17% q-o-q; -68% y-o-y).

“We view this as a structural decline as viewers opt for 'cord-cutting' given the availability of much cheaper OTT alternatives (Netflix, Disney+, HBOGo),” said the house which maintained its 'sell' rating on the stock with a discounted cash flow (DCF)-based target price of RM0.23.

Subscription revenue has been the main revenue driver for Astro amounting to 62%-77% of top-line for the past five financial years, HLIB said, noting that the group is looking to “rejig” its package offering to three different options with the lowest tier package to come on par with most OTT offerings at RM40-RM50.

This is expected to increase the likelihood of customer acquisition as it is also the same model strategy offered by Netflix.

However, HLIB is of the view that this may reduce the group’s ARPU even further despite the belief that it would increase customer traction.

To mitigate potential decline in subscription revenue, the group is seeking to increase its customer base by aiming for more volume.

On the tax front, Astro has also come under pressure as on 11 July 2024, the pay-TV operator said the Inland Revenue Board (IRB) had served a Notice of Additional Assessment on Astro Shaw (ASSB) and MEASAT Broadcast Network (MBNS) for years of assessment 2019 to 2023 amounting to RM22 million and RM712.9 million, respectively.

On a more positive note, some of the group's recent projects are doing well which include Projek High Council (now on Netflix), Polis Evo 3, Sheriff (RM64 million of gross box office), and The Experts (RM13 million of gross box office).

Despite this, the house maintained its view that the outlook for Astro may still be hampered by the major hurdle of softening adex and weakening subscription.