Astro Malaysia: A Comprehensive Financial Analysis

December 12, 2024, by Maybank Investment Bank Berhad

Introduction

Astro Malaysia, a leading integrated consumer media entertainment group in Malaysia, operates across Pay-TV, radio, publications, and digital media platforms. This report provides a detailed analysis of Astro Malaysia’s recent financial performance, future outlook, and strategic maneuvers in the face of a challenging market landscape.

Regaining Subscribers at the Expense of ARPU and Margins

Astro Malaysia’s efforts to regain subscribers have come at the cost of average revenue per user (ARPU) and profit margins. The company has lowered the pricing of its TV packages to attract more subscribers. However, this strategy has led to a reduction in EBITDA margins and ARPUs, prompting a significant cut in the projected earnings for FY25E, FY26E, and FY27E by 26%, 52%, and 55%, respectively.

Financial Performance Overview

For the third quarter of FY25, Astro Malaysia reported a headline net profit of MYR47 million, buoyed by an unrealized forex gain of MYR46 million. Excluding this gain, the core net profit was a mere MYR1 million, marking a 97% year-over-year (YoY) decline. The 9MFY25 core net profit stood at MYR52 million, a 63% drop YoY, fulfilling only 48% of the fiscal year estimate.

Revenue for 9MFY25 was MYR2.31 billion, within expectations at 74% of the fiscal year estimate, despite a 9% YoY decline. The shortfall was attributed to a lower-than-expected EBITDA margin of 24%, with the third quarter specifically showing a margin of 21%.

Strategic Adjustments and Challenges

In its pursuit to regain subscribers, Astro Malaysia launched new TV packages, Astro One, which required significant marketing investments and led to provisions for doubtful debts. While these initiatives have resulted in the highest year-to-date Pay-TV gross additions in five years, the reduced pricing of the Astro One packages has put downward pressure on ARPU, which decreased by MYR0.60 quarter-over-quarter to MYR99.2 in 3QFY25.

The prevalence of illegal streaming devices, such as Android TV boxes, remains a formidable challenge, potentially undermining the effectiveness of Astro’s subscriber regain strategy.

Future Earnings Outlook

The report projects further financial contractions, with FY25E EBITDA expected to fall by 25% YoY due to anticipated content costs from events like the UEFA Euro Cup and Summer Olympics. A slight easing in EBITDA is forecasted for FY26E, decreasing by another 4% YoY due to declining TV subscription revenue.

Valuation and Recommendation

Following a reevaluation of Astro Malaysia’s financial metrics and strategic outlook, the report downgrades the stock to a ‘SELL’ recommendation, with a revised 12-month price target of MYR0.10, down from the previous MYR0.28. This represents a significant decrease, reflecting the anticipated continued pressure on earnings and margins.

Key Financial Metrics and Ratios

Astro Malaysia’s key financial metrics underscore the challenges faced. The EBITDA, a crucial indicator given the substantial depreciation and amortization expenses, is projected to decline significantly. The company’s financial leverage remains high, with net gearing exceeding 200% as of the end of FY24. However, the net debt to EBITDA ratio remains manageable at 3.2x.

Conclusion

Astro Malaysia is navigating a complex landscape, with efforts to regain subscribers impacting its financial performance. While strategic initiatives are in place to boost subscriber numbers, the challenges posed by illegal streaming and high content costs are significant hurdles. Investors are advised to exercise caution, as the company’s current financial trajectory suggests further difficulties ahead.