Astro: Earnings Plunged

Results Update

For QE31/7/2018, Astro's net profit dropped 91% q-o-q or 93% y-o-y to RM17 million while revenue was mixed- up 8% q-o-q but down 0.2% y-o-y to RM1.42 billion.

Revenue dropped y-o-y mainly due to a decrease in subscription and advertising revenue, offset by higher merchandise sales, licensing income and sales of program broadcast rights. The decrease in subscription revenue was mainly due to lower package take-up and the decrease in advertising revenue was due to lower spending over festivities as compared to corresponding quarter. The increase in merchandise sales was due to increase in number of products sold, mainly driven by the tactical campaigns executed for the current quarter.

Net profit decreased y-o-y mainly due to higher content costs from FIFA World Cup and higher cost of merchandise sales and higher net finance costs. Higher net finance cost was mainly due to unfavorable unrealized forex movement arising from unhedged finance lease liabilities and vendor financing and increase in interest expenses from borrowings. The drop was partially offset by lower tax expenses.


Table: Astro's last 8 quarterly results


Graph: Astro's last 28 quarterly results

Financial Position

Astro's financial position is weak with current ratio of 0.9 time and gearing ratio of 9 times. I believe that the investment community accepts these weak ratios because of the concession-like income stream. Will the faster and cheaper broadband affect this assumption in the future? We will ahve to wait and see.

Valuation

Astro (closed at RM1.66 yesterday) is now trading at a trailing PE of 16 times (based on last 4 quarters' EPS of 9.97 sen). In addition, Astro paid out dividend quarterly which amounted to 11.50 sen for the last 4 quarters; giving the stock an attractive DY of 6.9%. Based on these PER and DY, Astro is deemed fairly attractive.

Technical Outlook

Astro dropped from RM2.90 in October last year to a low of RM1.31 in May this year. After a rebound to RM1.97 in August, the share price is again on the retreat. It may re-test the low- hopefully giving us a double bottom!


 Chart: Astro's weekly chart as at Sep 26, 2018 (Source: Malaysiastock.biz)

Conclusion

Despite the weaker financial performance, I believe Astro is still a good stock for long-term investment based on fair valuation. For those who like to buy into Astro, you can afford to wait for lower prices before accumulating.

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.