PhillipCapital Research analyst Paul Chew has upgraded his recommendation for Asia Pay Television Trust (APTT) to “buy” from “accumulate”, with an unchanged target price (TP) of 15 cents after APTT’s results for the 1HFY2022 ended June met his expectations.
During the six-month period, APTT’s revenue and Ebitda of $145.4 million and $85.6 million came in at 49% and 48% of Chew’s full-year estimates, with a 2QFY2022 distribution maintained at 0.25 cents per unit.
Chew says that the upgraded call comes off the back of “recent share price weakness”. In his report dated Aug 16, Chew has kept his FY2022 Ebitda forecast and TP unchanged.
His TP is based on 9x FY2021 EV/Ebitda, a 20% discount to APTT’s Taiwanese peers. “The current dividend yield of 8.5% or $18 million payout, is well supported by an estimated free cash flows of around $80 million per annum,” writes Chew.
Broadband continued to be the growth driver for APTT with revenue from this segment growing from both higher volumes and prices, recording improvements on the fronts of subscriber numbers, average revenue per user (ARPU) and revenue in both the Singdollar (SGD) and Taiwan dollar (TWD).
APTT’s net subscribers added in 2QFY2022 were 9,000 and ARPU rose 5% year-on-year (y-o-y) to TWD377 ($17.37), notes Chew, who adds that higher speed broadband plans are driving prices while partnerships with mobile operators are helping APTT gain more subscribers.
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However, he maintains that there is a “secular decline” in demand for basic cable, with no change to the continuing weakness in basic cable TV revenue seeing APTT’s 18th consecutive quarterly decline of subscribers. “Local content is still popular but piracy issues and aggressive internet protocol TV (IPTV) are driving the loss of subscribers and the need to provide more discounts for customer retention,” he says.
Although APTT’s 2Q2FY2022 revenue of $71.8 million was a 2.5% y-o-y decrease compared to 2QFY2021, Chew attributes 1.8% points of this contraction to a stronger SGD. The company’s Ebitda shrank by 6.2% y-o-y to $42.4 million in 2QFY2022.
Still, the analyst says that APTT is a “competitively priced” broadband that is 40% to 50% cheaper than peers, with its collaborations with mobile operators driving both volumes and prices higher to boot.
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While ARPU is 20% lower than cable TV, the margins are higher because there is no content cost, which forms around 30% of cable TV revenue, says Chew. Meanwhile, broadband can keep group revenue stable as 5G takes over as the company’s new growth catalyst.
Of the company’s $1.44 billion debt, $1.3 billion is onshore TWD debt — of which 93% or $1.2 billion is hedged at a fixed rate of 0.94% until June 2025 — while its offshore debt of $154 million is at a floating rate of base plus 1.6% to 1.9%, he notes, adding that a 100 basis points (bps) rise in Singapore Interbank Offered Rates (SIBOR) will increase interest by $1.5 million — not a “significant impact” to free cash flow and thus supporting APTT’s “attractive” dividend yield of 8.5%.
To this end, Chew has raised his FY2022 Patmi estimates by $14 million from lower effective tax, interest rate and depreciation assumptions.
As at 5.09pm, shares in Asian Pay Television Trust were trading flat at 12 cents with a dividend yield of 8.55%.
