APTT – DBSV

High yield maintained

  • 3Q14 EBITDA of S$48.0m (+3% y-o-y,-1% q-o-q) was c.5% below expectations; quarterly distribution of 2 Scts per share in line
  • Softer economy led to muted premium cable and broadband growth, offset by lower opex
  • Stock offers 9.4% yield on 8.25 Scts distribution in FY14; FY15 distribution to be equal or better
  • Maintain BUY with unchanged TP of S$ 0.91

Highlights

Revenue impacted by softer economy

  • Revenue of S$ 80.5m (+2% y-o-y and q-o-q) was c.2% below our expectations. Growth in premium cable and broadband lagged expectations with lower than expected subscriber growth and Average Revenue Per User (ARPU). The company expects to miss its forecasted revenue target of S$ 323.8m in FY14. EBITDA dropped on lower revenues
  • Lower revenues were partly offset by lower than expected operating expenses. EBITDA is expected to remain strong via expansion into Greater Taichung area due to its better access to funding and superior content portfolio.

Outlook

Network expansion on track

  • Operations in the new coverage areas are expected to commence in 4Q14. APTT is expected to ramp up capex to S$ 20m – 30m in 4Q14, up from S$ 9.5m in 3Q14. The benefits of capex spend is expected to be seen in FY15. Further capex of S$ 20m – 30m is expected in FY15-FY16, in line with our expectations. Existing borrowing facility sufficient for growth capex
  • APTT has ~S$88m of funding facility available for growth capex, with most of the tax settlement already done (~S$ 4m remaining). This should be sufficient for expected capex of S$ 40m-60m in the next few years.

Valuation

Maintain BUY with DCF-based (WACC 7.2%, terminal growth 0%) TP of S$0.91.

APTT – Lim & Tan

  • As highlighted as a possibility by us earlier, Temasek Holdings has finally emerged as a substantial shareholder in Asian Pay TV Trust (APTT) after having bought 54.612mln shares at 80 cents (via married deals), raising their stake to 108,959,812 shares or 7.58% of the company. (The transaction was done on 28 Feb’14.)
  • The above is positive for APTT as since its listing in mid-2013, both Prudential and Morgan Stanley have been paring down their holdings in the company and these open market share sales have negatively impacted APTT’s share price, with the stock having declined consistently since its listing to hit an all time low of 71.5 cent in Dec’13 against its IPO price of 97 cents.
  • Prudential had ceased to be a substantial shareholder on 27 Feb’14 when it sold 5,150,000 shares at 80 cents each, reducing their stake to 67,327,000 or 4.69%.
  • While conjectural, the uncanny timing of Prudential’s sales and Temasek’s purchases lead us to guess that Temasek could have likely taken out a large part of Prudential’s remaining 67,327,000 shares, resulting in continued strength of APTT’s share price despite negative news of Prudential’s cessation being a substantial shareholder of APTT.
  • Since our initial BUY report on APTT on 13 Jan’14, the stock has risen 6.4%, outperforming the Singapore market’s 1% decline and with its still attractive dividend yield of 10% coupled with share over-hang from Prudential likely removed by Temasek and “stamp of approval” from Temasek (now a substantial shareholder with 7.58% stake), we maintain our BUY recommendation. (APTT is currently trading cum-div of 4.13 cents, which goes ex-div on 19 Mar’13)