ASTRO MK Overview
Date: September 30, 2024
Broker: CGS International Securities
Financial Performance
ASTRO MK experienced a significant decline in its core net profit for 2QFY25, dropping 47% quarter-over-quarter (qoq) and 72% year-over-year (yoy). For the first half of FY25, the core net profit decreased by 71%. The earnings made up only 22-26% of the forecasted figures by CGS International and Bloomberg consensus for FY25.
Factors Contributing to Financial Decline
- Increased Content Costs: The rise in costs was attributed to higher sports content expenses related to major events like UEFA Euro 2024, the Olympics, and Copa America.
- Weak Advertising Revenue: Advertising expenditures faced pressure due to ongoing boycotts in response to conflicts in the Middle East.
- Higher Taxes: The company faced increased tax obligations, further impacting profitability.
Revenue Insights
Despite the challenges, ASTRO MK reported an increase in Average Revenue Per User (ARPU), which rose to RM99.80 in 2Q, marking an increase of RM0.70 yoy and RM0.40 qoq. This growth is attributed to the company’s effective customer acquisition efforts and bundling strategies.
Strategic Initiatives
ASTRO MK plans to roll out three new packages aimed at improving its content offering, catering to evolving consumer preferences. This strategy seeks to simplify package choices for customers and enhance overall service value.
Financial Forecast Revisions
Due to the recent developments, CGS International has revised its forecasts for ASTRO MK’s core net profit for FY25F, FY26F, and FY27F downwards by 48%, 40%, and 21%, respectively. The adjustments reflect anticipated weaker advertising revenues and higher operational expenses, which are partly offset by an improved exchange rate forecast for the Malaysian ringgit against the US dollar.
Target Price Adjustments
Following the earnings revisions, the Discounted Cash Flow (DCF) based target price has been reduced from RM0.49 to RM0.41.
Market Position
Despite the current headwinds, ASTRO MK is positioned to benefit from a strengthening Malaysian ringgit, as 35% of its costs are incurred in US dollars, primarily related to content costs, transponder leases, and software expenses. However, the benefits of the ringgit’s strength are expected to materialize with a 12-month lag due to hedging practices.
Recommendation
CGS International maintains an “Add” recommendation for ASTRO MK, citing the potential for recovery as the company innovates and optimizes its operations. The current trading price offers a 54.7% upside to the revised target price, suggesting that the stock is undervalued relative to its historical performance metrics.
