Astro - lower ARPU and higher churn

Astro's 1H FY10 net profits were 47% of our FY10E forecast and 31% of street. 1H FY10 Pay TV revenues for Malaysia were up by 6% YoY, driven by higher subscription revenues (growing subscriber base but lower ARPU). Net adds were tracking in line with full-year guidance. ARPU was lower YoY due to lower yielding new subs, although a price hike for the sports package is expected to arrest the slide. Churn edged up for the second consecutive quarter to 11.9%.

For India, the 1H10 loss of RM54 mn was in line with our assumption of RM100 mn share of Sun Direct TV losses this year. Litigation costs from Indonesia were in line with expectations.

We continue to rate Astro UNDERPERFORM, due to its rich valuations. Our DCF-based target price of RM2.65 spells 24% potential downside from the current levels. Additionally, Astro's FY10 EV/EBITDA of 13.5x is a steep premium to global peers of 3.6x-8.5x.

Risk factors include: potential surge in premier league football content cost and HDTV rollout.