Credit Suisse sees higher Astro profit by 2015

ASTRO Malaysia Holdings Bhd's profit should rebound in the year ending January 2015 when the bulk of its subscriber homes are equipped with a high de-finition (HD)-enabled box, Credit Suisse said.

So far, two million of the total re-sidential subscription of 3.3 million have the new HD-enabled box, or a take-up rate of 64 per cent.

To that effect, Astro's earnings before interest, taxes, depreciation and amortisation (Ebitda) margin is expected to remain depressed as it plans to swap the bulk of the remaining 1.3 million homes by the end of the current fiscal year.

"For FY14, Astro is targeting similar revenue growth momentum, churn to remain in the eight per cent to nine per cent range and content cost at around 32 per cent of TV segment revenues," Credit Suisse added.

The soon-to-be-launched Astro-Maxis IPTV bundles will give Astro an additional means of delivery and an opportunity to generate extra revenues from video-on-demand services and migration to Superpacks.

"Judging by the current IPTV bundles offered on Maxis fibre, an exis-ting direct-to-home (DTH) Astro subscriber with a Telekom Malaysia fibre broadband subscription could get better value by switching to the Astro-Maxis IPTV and Maxis fibre broadband bundles," it added.

Credit Suisse has maintained its "outperform" rating on Astro with a discounted cash flow (DCF)-based target price of RM3.50.

"We expect Astro to grow subscribers and average revenue per user (Arpu) and at the same time, it is well-positioned to tap Malaysia's attractive demographics: a young and growing population, whereby a growing economy is driving income growth."

Meanwhile, CIMB - which also reiterated its "outperform" recommendation - said "better times are just ahead" for Astro.

"While we were too optimistic about Astro's ability to monetise its value-added products (VAP) subscribers, we believe FY14 would be a tough year for the company when operations expenditure peaks, and profit growth resumes," it said.

"Our FY14 estimates imply a 15.7 per cent year-on-year growth in core net profit," it said.

Goldman Sachs has raised Astro's 12-month DCF-based target price to RM3.25 from RM3.20 on higher core business revenue from FY14 onwards and higher Ebitda in FY15.

It maintained a "buy" call on the stock but noted key risks such as Arpu compression; potential challenge from Telekom Malaysia Bhd's IPTV; over-the-top opportunities could fragment content bundles created; and finally, margin pressure from increasing content cost.