ASIAN PAY TELEVISION TRUST
S7OU.SI
Asian Pay Television Trust - High capex to result in lower distributions
- 4Q15 EBITDA 5% below our estimates
- Management cuts FY16F distributions by 15-20%
- Regulatory change in Taiwan entails much higher capex burden
Lower distribution guidance for FY16.
- APTT has cut its distribution guidance for FY16 by 15%-20% to 6.5-7 Scts versus 8.25 Scts in FY15.
- APTT is required to switch-off from analogue TV to digital TV in all its franchise areas due to changes done to the Cable Law in Taiwan in Dec 2015.
- Management has guided for digital TV related capex of S$100- 110m over FY16-17 leading to our FY16F & FY17F capex rising by S$35m (+60%) & $S40m (+100%) respectively.
4Q15 EBITDA was below expectations.
- 4Q15 EBITDA of S$16.2m (+8% y-o-y, +8% q-o-q) was 5% below expectations due to higher-than-expected operating costs.
- Forex changes and higher staff costs were the key factors.
Outlook
- FY16F/17F EBITDA cut by 8%/7%.
- APTT has postponed its network rollout in Taichung with expansion capex of only S$10m in FY15 compared to S$ 20-25m expected at the start of the year. This was due to the delay in securing content rights for cable TV services in the region.
- This delay coupled with the mandatory switch to Digital TV could be the key reasons for lower EBITDA guidance in FY16.
Valuation:
- Maintain HOLD with a revised DCF-based TP of $0.62 (WACC 7.2%, terminal growth 0%) due to cut in EBITDA and rise in capex forecasts.
- The key attraction is its 10% yield but rising gearing continues to be a challenge.
Key Risks to Our View:
- Distributions could decline further. APTT expects capex to shrink once set-top box rollout declines after 2017. However, if capex continues to be high, distributions could decline further.
- Also if cable TV ARPU if affected adversely due to the switch to digital TV, it could lead to significant drop in EBITDA and distributions.
Sachin Mittal
DBS Vickers
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http://www.dbsvickers.com/
2016-02-24
DBS Vickers
SGX Stock
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0.62
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0.77
