It said slower recovery in advertising expenditure due to inflationary and recessionary fears could weigh down on the company’s revenue in financial year 2023 (FY2023).
“The increase in pay-TV churn rate could also see the group’s subscription revenue face macroeconomic headwinds,” it added.
However, AmResearch expects a recovery from FY2024, spurred by value-for-money bundled packages.
In addition to its channel offerings, Astro also has aggregated over-the-top (OTT) streaming with seamless navigation and broadband bundling.
Year-to-date, AmResearch pointed out, the group’s advertisement expenditure grew 9% year-on-year (y-o-y) in May 2022.
“However going forward, we envisage a slower recovery due to growing economic uncertainties. This may cause advertisers to reduce their marketing budgets or pursue discounted marketing instead,” it said.
Nonetheless, the research house said, there is a silver lining in sports events as ad expenditure for this segment would be positive given that more sports events are taking place, including the FIFA World Cup in Qatar.
The launch of Astro’s addressable advertising services in June, which leverages on its first party data to allow advertisers to target their advertisement at different households who are watching the same programme, is also seen as another positive note.
It also allows scaling to suit various industries and business sizes, making it possible for small and medium enterprises to get TV advertising.
In line with those factors, AmResearch has maintained its “buy” call on Astro based on a discounted cash flow derived fair value of RM1.16 per share compared to RM1.20 per share previously. This reflects a 3% premium for its four-star ESG rating, and implies a price to earnings (PE) ratio of 10.7x for FY2023, which is 18% below its five-year average.
“We continue to like Astro for its strength in vernacular content and high household penetration rate of 71%; attractive dividend yield of 6% to 7%; ongoing efforts to incorporate major streaming services into set-up boxes; and venture into internet service provider, Astro Fibre,” AmResearch said.
It added that the counter currently trades at an attractive FY2024 forecast PE of 10x, lower than its five-year average of 13x.