Asian Pay Television Trust - Phillip Securities 2019-08-16: Earnings Still Downtrend, But A Place To Hide

ASIAN PAY TELEVISION TRUST (SGX:S7OU) | SGinvestors.io ASIAN PAY TELEVISION TRUST (SGX:S7OU)

Asian Pay Television Trust - Earnings Still Downtrend, But A Place To Hide

  • ASIAN PAY TELEVISION TRUST (SGX:S7OU)'s 2Q19 revenue met our estimates but EBITDA was modestly better than expected due to the significant fall in content cost.
  • Both subscribers and ARPU for cable TV still trending down. Broadband revenues finding some stability on a q-o-q basis.
  • Capital expenditure remains elevated at almost 25% of revenue (1H19) vs 22% a year ago (1H18).
  • The attraction of Asian Pay Television Trust is the committed two-year DPU of 1.2 cents per year (or yield of 7.1%). The yield stands out in the current environment of depressed interest rates. We raised our target price marginally to S$0.165 as we increased our EBITDA forecast and lowered our interest expense assumptions.
  • We peg Asian Pay Television Trust at around 9.5x EV/EBITDA. This is a 15% discount (prev 10%) to their much larger Taiwanese peer valuations. We are upgrading our recommendation from REDUCE to NEUTRAL.



The Positives


Gap down in content cost.

  • Broadcast cost was down 21% y-o-y. As a percentage of total revenue, there was a saving of 2.8% points compared to a year ago. Asian Pay Television Trust has signed new three year agreements at much lower prices. Content cost is entirely on fixed cost basis.

Broadband revenue starting to stabilise.

  • In broadband, Asian Pay Television Trust quarterly revenues have been on a downtrend since the S$13.1mn peak, four years ago. Subscriber growth has grown but pressure on ARPU has dragged down revenues. Cable TV ARPU has been sliding for almost three years. This quarter, broadband revenues have started to stabilise on a q-o-q basis as subscriber growth has been strong (+2% q-o-q). ARPUs are under pressure by aggressive pricing of unlimited mobile price plans.


The Negatives


Cable TV operating metrics still sliding.

  • The decline in TV subscribers since 1Q18 persist. ARPU is also contracting for the past twelve consecutive quarters. There are no signs the weakness in operations is abating anytime soon.

Capex still elevated.

  • No guidance has been given on capex for FY19 except it will taper down in FY20. Capex is to build up future backhaul business especially with the arrival of 5G. As present, capex is now ~25% of revenue compared to 22% in 1H18. We modelled 22% of revenue capex. The high capex has aggressively cut FCF down by 41%.


Outlook

  • Both pricing and subscriber base for Asian Pay Television Trust core cable TV business is declining. The lower broadcast cost was a welcomed surprise to lower the fixed cost structure of the cable TV business. Broadband is more profitable than cable TV. However, the fall in ARPU is not sufficient to stem the decline in total broadband revenues despite growing subscriber base.


Upgrade to NEUTRAL and target price of S$0.165 (previously S$0.16)

  • We raised our target price marginally to S$0.165 as we increased our EBITDA forecast and lowered our interest expense assumptions. We peg Asian Pay Television Trust at around 9.5x EV/EBITDA. This is a 15% discount (prev 10%) to their much larger Taiwanese peer valuations. We are upgrading our recommendation from REDUCE to NEUTRAL.
  • The attraction of Asian Pay Television Trust is the committed two-year DPU of 1.2 cents per year (or yield of 7.1%). The dividend yield stands out in the current environment of depressed interest rates. See Asian Pay Television Trust's dividend history.
  • Asian Pay Television Trust has sufficient cash-flow over the next two years to cover their guided 2-year DPU guidance.





Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2019-08-16
SGX Stock Analyst Report NEUTRAL UPGRADE REDUCE 0.165 UP 0.160



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