Credit Suisse gives Astro outperform rating

Checking the pulse of Malaysia’s media viewing trends. Credit Suisse conducted a media survey to analyse Malaysia’s entertainment preference, and in particular, Astro’s customer base today.

The financial services company found that more than 80% of Astro’s pay TV subscribers belong to the middle- and upper-household income groups, with sports being their primary reason for subscription.

Screen time up significantly since MCO. According to the survey, 70% of subscribers have spent more time watching Astro since the start of MCO (Movement Control Order). According to management, Astro’s TV viewership is up more than 50% and it has amassed more than 100k new registrations on its Astro GO app.

Go Shop transactions have also increased by more than 40%. While increased viewership may not necessarily translate to revenue generation, we see this as a customer acquisition opportunity without much cost involved. At the same time, with limited entertainment options available, we see revenue upside for Astro’s pay-per-view movie channels and potentially more sign-ups for content-broadband bundle services, as Malaysians reconsider their broadband packages during this time.

Slowing economy a risk, though mitigating factors exist. Astro’s adex business (13% of revenue) could be at risk of undergoing a third straight year of decline. At the same time, we may see higher churn rate in the upcoming quarters as livelihoods, particularly B40 households, are threatened. That said, we estimate its direct revenue exposure to B40 group to be <10%.

Further clampdown on content piracy, should it happen, will help mitigate downside risks. According to our survey, 24% of non-Astro users are likely to subscribe to Astro, should illegal Android TV boxes be made unavailable.

Malaysia’s viewing trends today
According to the survey to analyse Malaysians’ media entertainment preference today. The survey was held over a period of a week (from 23 to 30 March) and involved 237 respondents. Our respondents largely reside in the Klang Valley (84%), with a large proportion aged 39 years and younger—61% between18 to 39 years.

Key survey findings
More than 80% of Astro subscribers belong to the M40 and T20 income households. Among the sample size, 113 respondents were Astro pay TV subscribers, translating to a 48% household penetration rate. Of the Astro subscribers, 84% are in the M40 and T20 household income groups. In fact, almost half (49%) belong to the Top 20% Malaysian households by
income.

The survey also found that affordability and illegal Android boxes key deterrents to Astro subscription. As for the non-Astro users (124 respondents), 45% are likely to subscribe to Astro, should there be ‘cheaper packages’, and 24% would subscribe ‘if Android TV boxes are no longer accessible’. Another 21% are likely to sign up if Astro provides better content offering.

The survey also revealed that only 5% see Netflix and Astro as mutually exclusive media entertainment services. In terms of streaming Netflix is by far the most popular video streaming platform.
When asked to choose their Top two most frequently used video streaming platforms, Netflix came up as the most popular (47%), followed by Astro-related platforms (18%).

Further analysis reveals that Netflix is popular among the under-40 age category, which accounts for 80% of Netflix users. It is also more commonly subscribed to by the higher income households—53% belonging to households earning RM10,000/month and above.

Screen time has more than doubled since MCO
Over 70% of Malaysians are spending more time watching media content (either on video streaming platforms or Astro). Thirty seven percent of respondents are spending an additional six hours/week or more on video streaming platform since the start of MCO. Prior to the MCO, we estimate Malaysians to spend an average of ~4 hours/week on video streaming platforms.

Today, the time spent has more than doubled (+107%) to ~8 hours/week.

We see a similar trend for Astro subscribers. Surveyed Astro users spent an average of two hours on Astro-related platforms daily prior to MCO. Now, the number has more than doubled (+112%) to 4.5 hours, based on our estimates.

To help Malaysians cope with the stay-home order, Astro has offered complimentary access to its content (both on Astro NJOI and Astro Go) until 12 May.

Positive viewership and take-up trends since MCO
So far, the strategy has yielded some positive results. According to statistics shared by management (as of 8 Apr):

Astro GO has >100k new registrations (non-Astro subscribers) while time spent on its digital apps is up >80%;

TV viewership is up >50% since pre-MCO and daily time spent has grown 30%, especially on its English, News, and kids channels;

Go Shop transaction volumes have increased by >40% with a higher proportion of customers shopping on its digital platform.

While increased viewership may not necessarily result in immediate revenue generation, we see this as a customer acquisition opportunity (especially on Astro GO front) without much costs involved.

At the same time, with Malaysians forced to stay home with limited entertainment options, customers may opt for Astro’s pay-per-view movie offerings or relook their home broadband packages and sign up for Astro’s content-broadband bundle services.

According to management, Astro’s pay-per-view movie channel revenue in March has doubled that of pre-COVID levels. Adding to that, Astro recently signed on Tenaga’s Allo Tech as its 4th broadband partner which gives Astro access to >150,000 households and businesses over the next 18 months.

Slowing economy a risk, though could be offset by piracy clampdown
With the onset of a slowing economy, Astro’s adex revenue could be at risk of undergoing a third straight year of decline (-5% in FY19 & -7% in FY20).

According to Nielsen, traditional media’s 1Q20 adex declined 9% YoY. However, a closer inspection tells us that it was the newspapers segment that dragged down adex, having fallen by 24%. FTA TV had in fact only declined 1% YoY.

The decline would worsen as MCO is yet to be lifted and corporates are
tightening their wallets in preparation of weathering the volatile times ahead. At the same time, we may see a higher subscriber churn rate in the upcoming quarters, should the economy enter a recession mode.

By virtue of being a discretionary service, households may look to cancel their Astro subscription as a way to conserve cash flow.

We are not overly worried, however, as we opine most B40 households to be existing subscribers of Astro’s NJOI (freemium service), instead of its pay TV subscription. We estimate Astro’s direct revenue exposure to the B40 group to be <10%.

However, the downside risks could be mitigated, should the government choose to tighten its clampdown on content piracy. As a recall from the earlier section of the report that 24% of the survey respondents are likely to subscribe to Astro services, should illegal Android TV boxes be made unavailable.