APTT – AmFraser

APTT declared second‐half DPU of 4.13c. Consistent with our expectations, APTT reported revenue of S$78.7mil and asset EBITDA of S$51.8mil for the quarter ending Dec 2013. While APTT witnessed a weaker‐than‐expected showing in its Broadband segment, this was cushioned by sturdy Basic Cable TV and Premium Digital Cable TV growth. APTT also reaffirmed its distribution guidance of 8.25c for FY14.

Network expansion plans on track. Taiwan Broadband Communications (TBC) has commenced with its network expansion works in Q413, which will provide it with the opportunity to deliver its services to an additional 400k homes across the greater Taichung area. APTT expects to achieve network coverage of at least 30% of the homes in the new areas in the first half of 2014. Upon attaining at least 30% of network coverage of the new homes and subject to National Communications Commission’s network inspection, TBC will be able to commence commercial operations in the new areas.

Distributions will not be negatively impacted by network expansion. Capex relating to the network expansion is expected to be between SS$40‐S$50mil in 2014 and will be funded by existing borrowing facilities. The network expansion is expected to be completed in early 2016. We reiterate that TBC’s expansion across greater Taichung will not negatively impact its FY14 distributions and are currently projecting a DPU accretion of 0.2c in FY15 as a result of the expansion.

Revving up the digitization push. Premium digital cable TV remains a particularly exciting growth segment, underpinned by TBC’s ongoing digitization initiatives. TBC has attained digital set‐top box penetration rates of 40% as at end‐2013 and has increased its digital set‐top box penetration target from 55% to 70% by end‐2014.

Maintain BUY at FV S$1.01. We lower our target price as we introduce our estimates for FY16. We note that FY14 projected DPU is lower due to the absence of an excess cash balance that was available for distribution at the time of the IPO. Our projected FY14 DPU of 8.25c translates into a distribution yield of 10.3%, and this is very compelling in our view.