ASTRO: Mixed Performance Sees Earnings Miss Forecasts; Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM0.11 (+10.0%) |
| Last Traded | RM0.10 |
| Recommendation | HOLD |
A recent investment bank research report indicates a mixed financial performance, with the company’s core net profit for the first nine months of fiscal year 2026 (9MFY26) significantly falling short of expectations, despite an increase in core net profit in the third quarter (3QFY26) driven by cost efficiencies. TA Securities has reiterated its HOLD recommendation, revising the target price downwards to RM0.11 per share.
Performance Review
The company’s 9MFY26 core net profit of RM10 million was notably below both TA Securities’ and consensus full-year forecasts, at 25.6% and 24.7% respectively. This earnings miss was primarily attributed to a higher-than-expected tax rate of 36.2% and elevated content costs. The core net profit figure excludes a RM5 million unrealised forex gain from the mark-to-market revaluation of transponder lease liabilities.
On a quarter-over-quarter (QoQ) and year-over-year (YoY) basis, 3QFY26 displayed a brighter picture for core net profit, which rose to RM4 million from RM1 million YoY and RM3 million QoQ. This improvement occurred despite a 7.2% YoY decline in revenue to RM696 million (from RM750 million) and a modest 1.8% QoQ revenue increase (from RM683 million). The boost in profitability was largely due to significant cost optimization, with content costs and other operating expenditures both decreasing by 8.2% YoY. However, Pay-TV subscription revenue saw a 7.9% YoY and 1.0% QoQ decline, while advertising expenditure (adex) also fell by 15.0% YoY, reflecting broader macroeconomic headwinds and subdued consumer sentiment.
Challenges and Future Outlook
The report highlights several challenges impacting the company’s performance. The “Astro One” pay-TV refresh initiative has not met expectations, leading to cannibalisation as customers migrate to lower-priced packages. This trend has resulted in subscriber losses and softer Average Revenue Per User (ARPU), which declined by 1.2% QoQ and 4.1% YoY, consequently pressuring overall revenue. While management anticipates ARPU stabilisation, the continuous reduction in subscriber numbers keeps analysts cautious until more robust recovery signals emerge.
Furthermore, a challenging macroeconomic backdrop and weak consumer sentiment are expected to hinder growth and slow the progress of the company’s transformation efforts. Management has reaffirmed its focus on a multi-pronged transformation plan aimed at sustainable long-term growth. Key strategic pillars include strengthening local content, scaling adjacent businesses such as sooka, Astro Fibre, enterprise services, and addressable advertising, and optimizing costs associated with legacy operations.
Rating and Recommendation
Reflecting the revised earnings forecasts, TA Securities has adjusted its target price downwards to RM0.11 per share from the previous RM0.145 per share, based on a WACC of 10.4% and an LT growth rate of 0.5%, with an ESG premium of 3%. The investment bank has maintained its HOLD recommendation, signaling a cautious stance on the stock despite the positive impact of cost management.
