Asian Pay Television Trust - DBS Research 2016-02-24: High capex to result in lower distributions

Asian Pay Television Trust - DBS Research 2016-02-24: High capex to result in lower distributions 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 | http://www.dbsvickers.com/ 2016-02-24
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 0.62 Down 0.77


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