Astro Malaysia Holdings - Astro Partners with Walt Disney

Date: 05/05/2021

Source  :  KENANGA
Stock  :  ASTRO       Price Target  :  1.12      |      Price Call  :  BUY
        Last Price  :  1.13      |      Upside/Downside  :  -0.01 (0.88%)

ASTRO has procured its third subscription-based video-on- demand (SVOD) streaming service by partnering with Walt Disney Company to stream Disney+ Hotstar in Malaysia, launching on 1 June 2021. We believe this partnership will benefit ASTRO through subscriber retention, regaining of lost subscribers and new subscriber acquisitions. We raise FY22E and FY23E earnings by 6% and 7% respectively. Maintain OUTPERFORM with a higher TP of RM1.12 (previously RM1.05).

New SVOD... The Walt Disney Company has picked Astro as their official distributor of Disney+ Hotstar streaming service in Malaysia which will be launched on 1 June 2021. The streaming service will feature over 800 films and 18,000 episodes of Disney’s award-winning contents, Marvel, Star Wars, Pixar, National Geographic, FX, 20th Century Studios, blockbusters from Hollywood and leading Malaysian studios and many more. Astro customers that are subscribed to the group’s Movies Pack will be able to access the streaming service via Disney+ Hotstar mobile app and website. The group is aiming to make this SVOD available via their Ultra and Ulti connected boxes by end of 2021.

…partner. Current Movies Pack subscribers will automatically be charged an additional RM5 per month starting 1 June 2021 for Disney+ Hotstar content whereas Astro’s non-Movie Pack customers can either pay an additional RM30 to add Disney+ Hotstar to their existing package or upgrade their existing package to include Movies Pack. With this new partnership, this sums to three SVODs under Astro’s belt after HBO GO and iQiYi. This partnership is in line with the group’s aim of becoming an aggregator for streaming giants and target to get 15 SVOD services by 1QFY23.

Benefits of the partnership. We are positive with this new partnership because we see Astro benefiting from the partnership through subscriber retention, regaining of lost subscribers and new customer acquisitions. As the group does not provide details of their content subscription base, thus, based on our back-of-envelope calculation, we estimate that the group has a total paying subscriber base of 3m of which we assume 50% are Movie Pack subscribers paying RM5 additional monthly subscription fee effective June and the remaining are non-Movie Pack subscribers whereby 10% would upgrade their package. We also assume that it will cost roughly RM20 to upgrade to the nearest tier package that includes Movies Pack. As the streaming service launches in June 2021 and will impact earnings from 2QFY22 onwards, we believe the group will gain an extra RM108m (RM5 additional * 8 months * est. 50% Movies Pack subscribers * 3m) + (RM20 upgrade * 8 months * est. 10% non-Movies Pack * 3m) in FY22. This would translate to 6% and 7% increase in revenue for FY22 and FY23, respectively.

Post update, we raise our FY22E/FY23E CNP by 6%/7% to accommodate for the rise in revenue moving forward.

Maintain OUTPERFORM with a higher TP of RM1.12 (previously RM1.05). Our TP is based on an unchanged valuation of 9.0x FY23E (the stock’s 3-year mean). We believe the stock will face limited downside risk moving forward as we see consumers responding well to the group’s current strategies as well as their upcoming strategies. Moreover, we like ASTRO for its high dividend yield (c.9%) and more resilient subscription-based model as opposed to other advertising- dependent players.

Risks to our call include: (i) lower-than-expected subscription, (ii) lower-than-expected adex revenue, and (iii) higher-than-expected content cost and operating expenses.

Source: Kenanga Research - 5 May 2021

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