Asian Pay Television Trust - Phillip Securities 2020-08-11: Foreign Exchange Boost

ASIAN PAY TELEVISION TRUST (SGX:S7OU)

Asian Pay Television Trust - Foreign Exchange Boost

Asian Pay TV Trust (SGX:S7OU)'s 2Q20 revenue and EBITDA exceeded our estimates due to Taiwan dollar appreciation.
Cable TV subscribers continue to decline. It contracted 4,000 during the quarter but was balanced out by higher broadband customers of 4,000.
Dividends, as expected, was cut to 0.25 cent per quarter following the 25% increase in shares outstanding following the rights issue.
We maintain our BUY recommendation on Asian Pay TV Trust with an unchanged target price of S$0.15.

Despite the contraction in core cable TV business, we favour Asian Pay TV Trust because the dividends are sustainable, upside optionality from 5G (backhaul) revenue and growth in broadband subscribers to offset cable TV contraction.

FCF of $13mn this quarter more than covers the dividend payment of $4.3mn. Dividends payable will rise to S$4.5mn per quarter after the higher share base post rights issue. The higher FCFs was due to a fall in capex by around S$5mn y-o-y.

Broadband subscribers continue its steady climb for the eleventh consecutive quarter to 246,000. Revenue rose 7% y-o-y but down 0.6% in constant currency terms following ARPU decline of 9% y-o-y compensated by subscribers rising 9.3% y-o-y.

As expected, following the rights issue, Asian Pay TV Trust lowered dividends to 0.25 cent per quarter (previously 0. 30 cents). Asian Pay TV Trust will announce their FY21 dividend policy in 3Q20 results.

There was a S$5.4mn one-time programming settlement fee paid by Asian Pay TV Trust to the content agents. It is additional programming cost after negotiations that started in 2019.

There was an unexpected jump in broadcast and production cost. The reason was timing in accruing the cost but will stabilize on an annual basis. We are assuming programming expense was lower last year on expectations that negotiations with broadcasters for lowering cost would be successful. This did not materialize.

Cable TV remains the weak spot with subscribers contracting around 4,000 per quarter. But total subscribers for Asian Pay TV Trust, including broadband and premium digital TV, have started to rise. Total subscribers are rising around 2% per year but blended ARPU (*Blended ARPU based on total revenue less total subscribers) is declining by 5%.
We still expect total revenue to contract. We raised our EBITDA forecast by 4% due to the change in foreign exchange assumption. Other changes in our forecast were higher broadcast and programming cost, the inclusion of the settlement fee and incorporating proceeds from the rights issue.

The three reasons for our BUY recommendation for Asian Pay TV Trust are as follows:
1. Dividends are sustainable: Dividends far exceeded FCF during FY14 to FY18. Asian Pay TV Trust had to gear up to pay dividends. Following the massive cut in dividend in FY19, we now expected dividend of S$18mn per year to be well covered by FCF of S$58mn. This makes the current yield of 7.8% attractive and maintainable, in our opinion.
2. Upside from 5G: Asian Pay TV Trust capex is still elevated at S$65mn per year. We believe the capex is to increase capacity into their fibre backbone in preparation of 5G backhaul business. Mobile operators looking to launch 5G services will prefer to tap on Asian Pay TV Trust backhaul to connect to their base stations rather than using an incumbent and competitor network.
3. Operational more stable: Subscriber growth in premium TV and broadband will help in stemming the decline in revenue. Broadband has higher margins as there is no content cost.
See Asian Pay TV Trust Share Price; Asian Pay TV Trust Target Price; Asian Pay TV Trust Analyst Reports; Asian Pay TV Trust Dividend History; Asian Pay TV Trust Announcements; Asian Pay TV Trust Latest News.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-08-11

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.15 SAME 0.15