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Asian Pay Television Trust - DBS Research 2015-12-02: Slow network expansion

Asian Pay Television Trust - DBS Research 2015-12-02: Slow network expansion 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 | http://www.dbsvickers.com/ 2015-12-02
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.77 Down 0.87


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