Weaker than expected results
3Q15 revenue is S$81.6m, 1.3% lower QoQ and 1.3% higher YoY. This is below our expectations due to weaker non‐ subscription revenue at S$11.9m (2Q15: S$12.8m) and lower marginally lower ARPU for Cable TV at NTS$535 (2Q15: NT$537). While broadband and premium digital cable TV subscribers grew 2% and 3% respectively, faster than our projections, ARPU declined nearly proportionally.
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.
Weaker channel leasing revenue
Weaker revenue from channel leasing was mainly due to an exit of a home shopping network in Taiwan. While APTT has put in place another home shopping network to take over the contract, a lower rate is accepted. On the other hand, we are not overly concerned about weaker ARPU from premium digital cable TV and broadband as we believe that the decline is largely due to promoƟons, with revenue holding up so far with an increase in number of subscribers.
Still paying out more dividends than FCF
The distribution guidance of S$118.5m for FY15 still greater than our forecasted FCF of S$78m, while TTM financing costs is already ~S$49m. With a weaker growth outlook due to a stalled Taichung expansion, the shortfall looks increasingly unlikely to be closed. Although APTT could still borrow to fund the dividend programme while it has a healthy debt headroom of S$200m, the dividends may be unsustainable in the longer‐term.
Maintain HOLD in view of the slow expansion
We note that APTT has corrected 15% since our initiation on 17 March 2015. We reduce our TP to S$0.73 after factoring a weaker Taichung expansion and lower channel leasing revenue, while we keep APTT on hold as we project total returns of +2.2% over a 12 month horizon, assuming APTT maintains 8.25c / share distribution for FY2016. (Read Report)
Read Related Report
1) Asian Pay Television Trust - Higher finance and tax temper profits by DBS Group Research, published on 9 November 2015
Source : KGI Fraser Research