Saturday, December 12, 2015

Asian Pay TV Trust- hindsight analysis

I'm Vested interest through my wife portfolio

At one point of time, both me and I owned the counter, but I cut my stake to reduce over-exposure.

If we take 8.25 cents dividends, the yield is 12%, Mr market is not that inefficient, the odds are very high that it will not be sustained. 

2 years ago, I blog about APTT. It has 3 growth areas. Taichung as a new franchise area, organic growth through cross-selling. Cross selling suppose to add rev through more broadband and/or prenium digital TV. 


This is their projection. If u look at Q3 results, althought in terms of number of subscribers, they deliver some results, but that is offset by the lowering of ARPU. Poor pricing power=low moat

Taichung provisional license is obtained for a year already. In their last webcast presentation in 2014, they expect contribution from Taichung to only show in 2016. But in my opinon, looking at the subscribers no. In basic cable TV, I do not think 2016 will make a difference. They are basically not making any headway in Taichung at all. Unless Q4 show some significant increase, I would think Taichung venture is a bad investment.

It is a bad investment because capex For Taichung is high and paid by debts. They will be better off staying in their existing 5 franchises.

2016 will be the year when Taichung expansion will be completed and since they have achieve 100% digitalization of set up box, I expect Capex after 2016 to be lower and become more maintainence  in nature. How much is their Capex. I would think 24 mio is a conservative number since management guided 10-12% of Ebita is for maintenance type of capex. 

So if we take capex of 24 mio, interest cost of about 44-48 mio and the conservative  OCF of 120-140 mio, sustainable FCF will be 50-70 mio. And roughly 4 cents distribution plus minus ...

This estimate is even lower than the 5.5 cents distribution estimated by KGI analyst. I would think 4 cents would more likely be a worst case scenario and would happen only in 2017. If I am management, i would not so drastically cut distributions suddenly and would use debts to fill some of the gaps first and perhaps further defer expansion capex and hope Taichung picks up. 

But according to the analyst report, 

"Uncertainty on Taichung expansion
Capex for network build expansion in Taichung is guided lower at S$10m‐S$15m for 2015 (2Q15: S$20m‐S$25m). The rollout of Cable TV is stalled as Asian Pay Television Trust (APTT) is not agreeable to the pricing mechanism proposed by the content providers in the expansion region due to cost concerns. As new competitors have agreed to this, APTT’s strategy is to wait, as APTT believes these competitors are unprofitable and a resolution of this issue may happen in 2016. Meanwhile, we no longer project an increase in subscribers from Taichung."

So if Taichung cannot fail the gap, and 2016 see no resolution. 4 cents distribution is a real reality 

I think there is high probability of bad news than good since SGX issue a query of unusual trading activity ( drop of more than 5% in high volume ) on Friday and there is yet any reply.

My guess are:

A new lower guidance for dividends for 2016 is leaked and/or

Taichung expansion hit a snag and the management confirmed it. DBS research made no mention about APTT stopping the rollout due to content costs. 

Maybe I will ask my wife to set cut loss at 10%? And that will be 51 cents?? 



4 comments:

  1. The mgmt really has to lower distributions to shareholders. This is because it is taking on more debts to sustain the yield. And with more debts, it means a higher interest expense which is rising faster than its revenue growth.

    I think 4 cents is a real possibility. APTT scenario mirrors rickermers maritime where mgmt guided their dividends but had difficulty to maintain the dividends.

    ReplyDelete
    Replies
    1. Actually if they dun do Taichung, I believe their sustainable distribution could could be higher.

      We will know very soon if Taichung is a bad eye ... 2016 is here. 6 more months and we can give a fair verdict

      Delete
  2. Hi SI,

    I must say I m v surprised to hear u/wife vested! I remembered u told me that the dividends is not sustainable.

    After 24 Aug black Monday, I decided to hold more cash n sold off Aptt entirely at 0.79. I must say I m extremely lucky to do so.

    ReplyDelete
    Replies
    1. Rolf,

      I believed I told u the dividends are unstainable UNLEss Taichung pick up the gap.

      It was trading at 11% yield at the point of entry and given Taichung is a ? I thought the risk profile is worth it.

      In fact, my wife collected 2 years of dividends and hence 16.5 cents. Break even price 58 cents.

      Delete