Asian Pay Television Trust - Phillip Securities 2019-02-28: Sustainable Dividends

ASIAN PAY TELEVISION TRUST (SGX:S7OU)

Asian Pay Television Trust - Sustainable Dividends

Asian Pay TV Trust's 4Q18 revenue and EBITDA were within expectations. PATMI was below due to the amortisation of deferred arrangement fees
Number of cable TV subscribers churning out in 4Q18 more than tripled on q-o-q basis to 7,000
DPU of 1.2 cents in FY19e/20e will be sustainable and without further leverage
Despite the attractive yield of 9%, there are 2 operational challenges ahead:
1. Core cable TV business still sliding as both ARPU and subscribers are declining q-o-q. There is a lack of visibility of a trough;
2. While broadband enjoys positive subscriber momentum, revenues are virtually flat due to the large cut in ARPU.

We cut our target price to S$0.14 (previously S$0.17). Taiwanese telecommunication peers are valued at a dividend yield of around 5% and EV/EBITDA of 11x. We are placing a 10 to 40% discount to these valuations due to the higher gearing at Asian Pay TV Trust.

ASIAN PAY TELEVISION TRUST (SGX:S7OU) highlighted that data backhaul would be a material revenue opportunity in the future. It entails wireless operators using Asian Pay TV Trust fibre connection to connect their base stations.
At present, Asian Pay TV Trust is already providing such a service, but the opportunity will become material when 5G is rolled out. In their current franchise areas, only two fibre options are available – Asian Pay TV Trust and incumbent Chunghwa Telecom.

2018 is the first year of decline in cable TV subscribers. More worrying is the acceleration of the decline. Subscribers fell by 7,000 in 4Q18, this is more than triple the 2,000 in the prior quarter.
ARPU for cable TV dropped for the 10th consecutive quarter to NT$494/month (or 3.3% y-o-y drop).

Despite the S$150mn capex programme in 2015-17 to roll-out digital cable TV set-top boxes in every home, APTT capex remains elevated. Capex in 2018 only declined $10mn to $75mn. We expect capex of S$65mn per year for the next two year. The capex is to expand the APTT fibre footprint for the broadband and data backhaul business.

Core business is still slipping. However, annual dividends of 1.2 cents over the next two years is sustainable and will not depend on further leverage. Our adjusted FCF (EBITDA less cash interest, cash taxes and total capex) for the next two years is around S$38mn p.a. and this is above their annual dividend of S$17mn.
There is sufficient financial runway for Asian Pay TV Trust to expand their fibre footprint for the future data backhaul opportunity.

We benchmark our target price to Taiwanese peers.
At S$0.14, Asian Pay TV Trust will be trading at a 10% discount to peers EV/EBITDA of 11x and a 40% discount in terms of dividend yield. The discount is warranted due to the 1.3x gearing at Asian Pay TV Trust compared to 0.3-0.6x for Taiwanese peers.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2019-02-28

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