ASIAN PAY TELEVISION TRUST
S7OU.SI
Asian Pay Television Trust - Higher finance and tax temper profits
- 3Q15 EBITDA of S$49m (+2% y-o-y, -3% q-o-q) was in line with our expectations.
- Higher-than-expected interest and tax expenses impacted bottom line.
- Dividend of 2 Scts in line; FY15 dividend 8.25 Scts guidance maintained.
- Maintain HOLD with revised TP of S$0.80.
Highlights
Weakening ARPU offset subscriber gains.
- Revenue of Weakening ARPU offset subscriber gains. S$81.6m (+1% y-o-y, -1% q-o-q) was in line. ARPU of premium cable has continued its downward trend, dropping 3% q-o-q.
- Similarly, broadband and basic cable ARPUs have also weakened. However, expanded subscriber base has minimised the overall impact of the ARPU drop.
Higher-than-expected finance and interest costs.
- Operating profitability was largely in line despite higher foreign exchange-related losses. In addition, bottom line was impacted by higher-than-expected finance and tax expenses.
- We have adjusted our finance expense for FY15 and effective tax rates to reflect the higher costs.
Outlook
Network expansion slowing.
- Marketing operations in the new coverage areas have already commenced. However, Taichung network expansion has been delayed with some network expansion capex being pushed to FY16. Further delays could have an impact on revenues in the near term.
- Sufficient debt facilities for growth capex.
- APTT refinanced its existing debt in 1Q15 with a new 7-year c.S$1.4bn borrowing facility. This leaves ~S$190m more available for borrowing for APTT which should comfortably cover capex over the next two years.
Valuation:
- Maintain HOLD with a revised DCF-based TP of $0.80 (WACC 7.2%, terminal growth 0%) as we temper our future profit projections due to higher finance and tax expenses.
- However, the counter does offer an attractive yield of ~10%.
Key Risks:
Potential regulatory policy changes could affect ARPU, revenue.
- Regulatory policy changes which could allow customers to choose channel bundles at a lower price could erode ARPU and revenue for APTT as c.80% of revenues stem from basic cable. However, the management is of the view that the new policy is unlikely to come into effect due to the lack of support from the industry.
Competition and weaker economy could stifle network expansion.
- The total addressable market in the new expansion coverage areas exceeds 400k homes. APTT is targeting to penetrate at least 35% of households over the next five years. However, stronger competition and a weaker economy could dampen efforts to gain market share.
Sharp depreciation of Taiwan dollar or sharp rise in interest rates.
- APTT hedges only part of its currency and interest rate risks, suggesting there is still an element of risk.
Sachin Mittal
DBS Vickers
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http://www.dbsvickers.com/
2015-11-09
DBS Vickers
SGX Stock
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0.80
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