Astro delivering in a tough environment

PETALING JAYA: Astro Malaysia Holdings Bhd’s resilient results and a significantly-hedged US dollar exposure for FY18 should alleviate investors’ concerns about potential earnings disappointment due to the weak consumer sentiment in Malaysia, according to Alliance DBS Research.
“With other dividend-paying stocks such as telcos still facing earnings and cashflow risks, we believe Astro is a good alternative for yield-seeking investors,” it said in a report yesterday.
The research house maintained a “buy” call on Astro with a revised RM3.15 target price.
Astro had guided that it has hedged 70-75% of its US dollar exposure (mainly for content cost) at the rate of RM4.10-RM4.15 per US dollar for FY18, not too far from the estimated hedging rate of RM4.00 in FY17.
“This should help to minimise further negative impact from the weaker ringgit, notwithstanding that content costs are likely to decline in FY18 given the absence of major sporting events and further cost management initiatives by Astro. This hedging also gives more clarity and certainty about its key operating expenses going forward,” said Alliance DBS.
Meanwhile, Maybank IB Research said Astro’s Q4 and FY17 earnings were marginally below expectations but dividends were within expectations. The earnings shortfall was due to a lower-than-expected Q4 earnings before interest, taxes, depreciation and amortisation (ebitda) margin, which was compressed by higher-than-expected content cost due to the weak ringgit.
Positively, it noted that pay-TV subscribers are returning and yielding more average revenue per user. That said, the weak ringgit will weigh on margins via higher content cost.
“For now, we trim our FY18 EPS (earnings per share) estimate by 3% but leave our FY19 EPS estimate relatively unchanged on housekeeping changes. In a similar vein, we tweak our target price upward by 2% to RM2.55,” said MaybankIB, maintaining a “hold” call on Astro.