Date of Report: October 1, 2024
Broker: CGS-CIMB Securities Malaysia Sdn. Bhd.

Company Overview

Astro Malaysia is a leading content and consumer company in Malaysia, primarily involved in television and radio broadcasting, digital content, and consumer-related products and services. The company has built a strong market presence through its customer acquisition efforts, bundling strategies, and a diversified media portfolio.

Financial Performance

In 2QFY1/25, Astro Malaysia experienced a sharp decline in core net profit due to increased content costs and persistent weakness in advertising expenditure (adex), particularly impacted by the ongoing Middle East conflicts. These external challenges have placed pressure on the company’s profitability.

ARPU Performance

Despite the profit decline, Astro Malaysia’s average revenue per user (ARPU) has been holding up well. The company’s customer acquisition strategies, along with various bundling initiatives, have helped maintain higher ARPU levels. This reflects the success of Astro’s efforts to provide value through comprehensive service offerings and customer retention.

Cost Management Challenges

Astro Malaysia has implemented various cost-saving initiatives; however, these measures are taking longer to materialize than expected. The company continues to work on managing costs, particularly with respect to content acquisition, as it remains a key challenge impacting its overall financial performance.

Currency Impact

Astro Malaysia stands to benefit from a stronger ringgit, as the local currency’s appreciation would positively influence its financial results. However, the impact of a stronger ringgit will only be felt after a 12-month time lag due to the company’s hedging strategies. This currency advantage could provide some relief to its profit margins in the long term.

Investment Recommendation

Astro Malaysia’s performance is under a “Maintain Add” recommendation, with a revised lower target price (TP) of RM0.41. Despite current challenges, the company’s solid ARPU and the potential for currency benefits support the investment case, with a focus on long-term gains once cost-saving efforts and hedging benefits fully materialize.

Conclusion

While Astro Malaysia is facing short-term pressures from increased content costs and adex weakness, its ARPU remains resilient. The company’s efforts in customer acquisition and bundling strategies have bolstered its revenue per user, and long-term benefits from a stronger ringgit are expected to enhance profitability. Investors are advised to maintain a position, given the company’s strong fundamentals and future potential for cost savings.