APTT – CIMB

Expansion on track

Though the economic weakness in Taiwan slowed the broadband penetration, APTT reported 4Q13 EBITDA that was in line at 2% below our forecast, underlining the stability of its business model. With capex guidelines set for the Taichung expansion, distributions have been given greater visibility. We reiterate our Add rating as a dividend yield of 10% remains attractive relative to the risk of the underlying cashflows. Our DCF-based target price is lower due to slower broadband penetration going forward. Our FY14-16 EPS is cut to reflect the higher depreciation; however, this will not affect distributions. We expect the granting of the commercial operating licence by end-1HFY14 to be a potential re-rating catalyst.

Results in line despite the drag from the economy

4QFY13 revenue was 2% below our forecast as broadband subscriber growth stalled and ARPU was weaker by 2% qoq. Management attributed the poor showing to the continuing drag from the weak economy, with households reducing costs. While the price competition from CHT in high-speed packages has been apparent, TBC still takes the lead in both speed and price. Basic cable and premium TV were also weaker though broadly in line with our forecast. We cut our FY14-15 revenue forecasts by 2% due to the lower subscriber base and ARPU. Expenses remained well controlled, allowing its asset EBITDA to expand to 65.8% in 4QFY13. We expect its margin to remain at similar levels.

DVR: a new revenue driver

We believe that management’s raised digitisation target for end-2014 from 55% to 70% (currently just 37%) was prompted by the success of the DVR-only product. We expect this to be a popular product, and our view is supported by the implied DVR-only revenues that are 45% above our forecast. We project revenues of S$3.6m in FY14, a fivefold increase yoy.

Taichung expansion clarified

Management provided further details on the Taichung expansion, reaffirming that FY14 distributions will not be impacted and that it expects an uplift from FY15. It guided for FY14 capex at S$40m-50m and S$20m-30m for FY15-16, levels that can be funded by its current debt facilities. A commercial operating licence may be granted by end-1HFY14.