PhillipCapital analyst Paul Chew has maintained his “buy” call for Asian Pay Television Trust (APTT) with a lower target price (TP) of 13 cents from 15 cents previously.
In his report dated Nov 21, Chew says APTT’s earnings for the 3QFY2022 ended Sept 30 were below expectations due to the 5% weakness in the Taiwan dollar, with year-to-date (ytd) revenue and ebitda forming 73% and 71% of his FY2022 estimates.
For 3QFY2022, distribution was maintained at 0.25 cents per unit. The analyst raised his FY2023 distribution by 5% to 1.05 cents, paid half yearly. “Broadband enjoyed healthy 11% revenue growth, but weakness in basic cable dragged group revenue to fall 6% year-on-year,” says Chew.
He has lowered his ebitda by 6% due to cutting his Taiwan dollar (TWD) forecast, while his new TP of 13 cents is based on 8.5x FY2023 enterprise value (EV) to ebitda ratio (EV/ebitda), at a 20% discount to Taiwanese peers.
The current attractive dividend yield of 9.6%, or a $19 million payout, is supported by free cash flows of around $73 million per annum, says Chew.
Chew says he expects “modest growth” in ebitda for FY2023. “Cable subscribers have declined 14,000 over the past 12 months, but this was more than offset by a 33,000 jump in broadband subscribers,” he says.
Positively, Chew points out that broadband subscriptions have continued to grow strongly led by higher subscriber growth and improvement in average revenue per user (ARPU), which has risen 4% year-on-year (y-o-y) to TWD379 ($16.72) with more subscribers opting for higher speed.
“We estimate each cable subscriber contributes around $15 of revenue (excluding content
cost) compared with $14 for cable. Margins from broadband can offset the structural decline in cable TV,” he adds.
Chew believes the challenge that APTT faces is to lower content costs in line with falling cable TV revenue. As a percentage of revenue, content cost for 3QFY2022 hit a record 30.4% of cable TV revenue, excluding non-subscription revenue.
“As for the impact of rising interest rates, until 2025, if we assume a 2% point rise in interest rates, the impact is around $3 million to free cash flows,” he notes.
As at 11.47am, shares in APTT were trading flat at 10.7 cents with a dividend yield of 9.35%.