Astro: Earnings may get a Boost from WC2018

Results Update

For QE31/10/2017, Astro's net profit dropped 40% q-o-q or 3% y-o-y to RM147 million while revenue dropped 2% q-o-q and y-o-y to RM1.40 billion.

Revenue dropped y-o-y mainly due to a decrease in subscription, advertising and licensing revenue, offset by higher production revenue. The decrease in subscription revenue was mainly due to lower package take-up. The decrease in advertising revenue was due to subdued advertising market. The decrease in licensing revenue was due to loss of content recovery for sports channel.

Net profit decreased y-o-y due to decrease in EBITDA, which was offset with impairment of investment in associate of RM15.1 million in the corresponding quarter and lower net finance costs. Lower net finance cost was due to favorable unrealized forex gain arising from unhedged non-current balance sheet liabilities comprising, finance lease liabilities and vendor financing.
(Note: Astro's result for QE31/10/2017 was announced on December 6, 2017.)


Table 1: Astro's last 8 quarterly results


Graph: Astro's last 25 quarterly results

Prospect for FY2019

Being the main provider of live sport event, Astro is likely to get a boost from FIFA World Cup 2018. To compute the financial impact, I have compared the increase in revenue and  profit for the TV segment from FIFA World Cup 2014. We can see the TV segmental revenue & profit for 1H2015 increased by 13% and 28% respectively. Net profit rose by 25% from RM213 million to RM266 million in 1H2015.

Assuming the same level of increase were to happen in 1H2019, then revenue & segmental profit would increase to RM3.057 billion & RM764 million respectively while net profit would increase to RM552 million. Divided by total shares outstanding of 5214 million, 1H2019 EPS would be about 10.6 sen. Assuming 2H2019 EPS is about 6 sen, then Astro's full-year earning for FY2019 would be about 16.6 sen- giving the stock a prospective PER of 15.7times.


Table 2: Astro's forecast earning for 1H2019

Valuation

Astro (closed at RM2.60 on Thursday) is now trading at a trailing PE of 18 times (based on last 4 quarters' EPS of 14.09 sen). In addition, Astro paid out dividend quarterly which amounted to 12.50 sen for the last 4 quarters; giving the stock a decent DY of 4.8%. Based on the above PER and DY, Astro is fairly attractive.

Technical Outlook

Astro is transitioning from a downtrend to a sideways trend, with resistance from the line, XY and support from the line, AB.


 Chart: Astro's weekly chart as at Jan 30, 2018 (Source: Malaysiastock.biz)

Conclusion

I like to revise Astro's rating from a HOLD to a BUY based on steady financial performance, relatively attractive valuation & potential boost from WC2018.

Note:

I hereby confirm that I do not have any direct interest in the security or securities mentioned in this post. However, I could have an indirect interest in the security or securities mentioned as some of my clients may have an interest in the acquisition or disposal of the aforementioned security or securities. As investor, you should fully research any security before making an investment decision.