We maintain HOLD on Astro Malaysia, with an unchanged fair value of RM3.05/share, based on a DCF valuation. We raised our FY17F by 24% on account of Astro's gain in adex market shares in the

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Astro Malaysia : Hero in a tough spot      HOLD

We maintain HOLD on Astro Malaysia, with an unchanged fair value of RM3.05/share, based on a DCF valuation. We raised our FY17F by 24% on account of Astro's gain in adex market shares in the TV and radio segments. The strong YoY improvement in the 9M net profit stemmed from smaller losses in the home shopping business, lower depreciation and lower finance cost. We note that Astro had a lower depreciation because most of the HD set-top boxes were fully depreciated. Notwithstanding a soft adex market, Astro's 9MFY17 revenue saw a 3.5% uptick YoY. We note that Astro's YTD TV adex and radex were up 5% and 6% YoY respectively despite total gross adex in Malaysia declining 1%. This was attributed to a 3ppt gain in share of both TV adex and radex on the back of higher radio listenership and TV viewership respectively.

In the TV segment, the Pay-TV subscriber base recorded a negative net addition for third straight quarters, with a net churn of 50k subscribers this quarter.

On another positive note, 9MFY17's home shopping revenue grew by 59% YoY while PBT margin narrowed from -14% to -6%. QoQ, we understand that the revenue fell 16% due to festive season promotion in the preceding quarter. Management guided that GoShop is expected to break even by the end of FY17 and swing into the black next year. Astro will also continue to expand in ASEAN via its OTT VOD service, Tribe, which was recently launched in the Philippines and currently operating in Indonesia. This will allow Astro to tap into another growth segment and reduce reliance on Pay-TV subscription. Astro is trading at a CY17F PE of 20x, 2sd below its 3-year historical average, while Sky UK trades at a CY17F PE of 13x. Astro declared an interim single-tier dividend of 3 sen/ share (2QFY16: 2.8 sen), in line with expectation.

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