Asian Pay Television Trust - Phillip Securities 2019-05-16: Market Pricing In A Large Premium

ASIAN PAY TELEVISION TRUST (SGX:S7OU)

Asian Pay Television Trust - Market Pricing In A Large Premium

ASIAN PAY TELEVISION TRUST (SGX:S7OU)'s 1Q19 revenue and EBITDA were marginally above our estimates. ARPU from cable TV business was more resilient than expected. Broadband disappointed with a steep drop in ARPU.
Cable TV subscribers contracted for the fifth consecutive quarter.
The strategic review announced by the company on 15 April 2019 has virtually removed all valuation discounts of Asian Pay Television Trust against its Taiwanese peers. Since the review, Asian Pay Television Trust's share price had appreciated 38%.

Asian Pay Television Trust’s peers are trading at a dividend yield of c.4.4% and a EV/EBITDA multiple of 11x. Our target price of S$0.16 is an aggressive 10% discount to these peers.
We are downgrading Asian Pay Television Trust to REDUCE.

Cable TV ARPU has been sliding for almost three years. This quarter, it only contracted NT$1 q-o-q. A possible reason could be the reduced competition in Taipei. Aggressive headline prices in that region previously compelled Asian Pay Television Trust to provide more discounts. Such activity has subsided.

The decline in cable TV subscribers that began in 1Q18 has continued into this quarter, with no signs of this abating anytime soon. The strategy is to push more broadband services to existing cable subscribers. Approximately 30% of cable TV subscribers have Asian Pay Television Trust broadband services. The downside is the need to lower prices aggressively to penetrate broadband.

Capex was lower this quarter by S$3mn on a y-o-y basis. However, as a percentage of revenue, capex stands at 20%. This is elevated compared to some Taiwan telecommunication peers where capex to revenue is only 13%. Management guided that capex this year will be lower than that in 2018.
Our FY19e capex is 22% of revenue. The capex covers the deployment of fibre deeper into the network.

Broadband was meant to be the growth engine. However, revenue in 1Q19 form this segment dropped to S$11.9mn, the lowest since listing. Subscribers expanded by 7.8% y-o-y to 220k, but ARPU dropped by 8.8% to NT$404.
Competition is intense from unlimited mobile data plans, as well as from a popular product called the Android box, whicih can be used to view OTT content via the internet. These so-called BandOTT boxes help drive the usage of higher data speed from current 50MBps to 300-500MBps. Around 64,000 of such boxes have been deployed, more than double the 31,000 boxes a year ago.

Operating metrics are still slipping, but a positive has been the slower decline in ARPU for the cable TV business. Management reiterated that the big growth driver for Asian Pay Television Trust would be the data backhaul business to support the wireless operators especially when 5G rolls out. Any impact will be materialised within five years. Asian Pay Television Trust is already providing such services but the contribution is low.
Wireless operators will still prefer Asian Pay Television Trust’s network. This is because they have not built their own fibre network, and the alternative would be to use the network of their competitor and incumbent Chunghwa Telecom.

The strategic review announced by the company on 15 April 2019 has virtually removed all valuation discounts of Asian Pay Television Trust against its Taiwanese peers. Since the review, Asian Pay Television Trust's share price had appreciated 38%. See Asian Pay Television Trust's share price history.
Asian Pay Television Trust’s peers are trading at a dividend yield of around 4.4% and a EV/EBITDA multiple of 11x. See Asian Pay Television Trust's dividend history.
Our target price of S$0.16 is an aggressive 10% discount to these peers on an EV/EBITDA basis.
We are downgrading Asian Pay Television Trust to REDUCE.
Operationally, the business remains on a downtrend and we expect EBITDA to contract 8.8% in FY19e.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2019-05-16

SGX Stock Analyst Report REDUCE DOWNGRADE ACCUMULATE 0.16 UP 0.140