ASTRO : Buy

Strong Subscriber Growth at the Expense of ARPU

9M09 Revs RM2.2b - Revs +16% yoy despite a decline in ARPU thanks to continued strong subscriber growth. 9M EBITDA expanded at a slower pace (+11%) due to high content and operating costs on new channel additions. However, a RM264m provision in 3Q took the group to a 9M net loss of RM500.3m. A 2.5sen dividend was declared for the quarter.

Strong domestic operations - YTD net additions increased to 293k, driven by the rural/Malay segment. However, the strong growth from this lower-ARPU segment has translated into a dip in overall ARPU to RM81 (2Q: RM83). Churn remains manageable at 9.8%. Radio revenues grew 9.5% yoy.

Re-evaluating its Indo content business - Given ongoing litigation and economic concerns in Indonesia, Astro has made a full provision of RM264m on its content providing business. Pending evaluation, it may have to account for further restructuring charges estimated at RM75m.

Lowering earnings, target price - We lower our ARPU assumptions to RM82 in FY09 and RM81 in FY10. We also incorporate the additional provision charges into our estimates. This lowers our FY10-11E earnings by 11-19% and brings our target price down by 11% to RM3.05/share.

Maintain Buy (1L) - We prefer Astro to adex-reliant Star (STAR.KL; RM3.08; 3L) and Mprima (MPRM.KL; RM1.01; 3M) given its healthy subscriber growth and relatively more resilient earnings model. Exit from cash-draining Indonesia will allow it to re-focus its resources on the robust Malaysian operations