ASIAN PAY TELEVISION TRUST
S7OU.SI
Asian Pay Television Trust - Slow network expansion
Softening ARPU and rising costs are key concerns.
- Persistent drop in premium digital cable ARPU and escalating operating and interest costs are key concerns.
- Network expansion in the Taichung region offers the ability to add more subscribers. However, potential delays in the expansion could minimize the upside.
- We revised down our premium digital cable ARPU and subscriber growth, resulting in c. 2% drop in FY16F EPS.
Higher-than-expected finance and interest costs.
- In 3Q15, premium cable TV ARPU continued its downward trend, dropping 3% q-o-q. However, expanded subscriber base has minimized the overall impact on revenue.
- 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 model to reflect the higher costs.
Network expansion is slowing.
- Marketing operations in the new coverage areas have already commenced. However, Taichung network expansion has been delayed with some capex being pushed to FY16.
- Further delays could have an impact on revenues in the near term.
- APTT refinanced its existing debt in 1Q15 with a new 7-year c.S$1.4bn borrowing facility. This leaves another ~S$190m available for borrowing which should easily cover capex over the next two years.
Valuation:
- Maintain HOLD and a revised DCF-based TP of $0.77 (WACC 7.2%, terminal growth 0%).
- Given that expansion capex is funded by debt (not operating cash flow) and over 90% of its debt is hedged at fixed interest rate till 2017, we see little risk to 10% dividend yield over the next 2 years.
Key Risks to Our View:
- Competition and weak economy could stifle network expansion. The total addressable market in the new coverage areas exceeds 400k homes.
- However, stronger competition and a weaker economy could dampen efforts to gain market share.
Sachin Mittal
DBS Vickers
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http://www.dbsvickers.com/
2015-12-02
DBS Vickers
SGX Stock
Analyst Report
0.77
Down
0.87
