PhillipCapital has maintained its “buy” call on Asian Pay TV Trust (APTT) with a target price of 15 cents.

This came on the back of the trust announcing its 2Q20 results, which saw distribution per unit (DPU) decline to 0.25 cents from 0.3 cents a year ago. The trust said that this lower amount of DPU of 0.25 cents is expected to remain until the end of 2020. 

During the quarter, APTT also saw net profit plunge some 32% y-o-y to $4.8 million, due to higher operating costs and stiffer competition. But revenue inched up 4.8% y-o-y to $75.6 million, following an increase of 6,000 users to its Premium digital cable TV platform and 4,000 Broadband subscribers and the appreciation of the Taiwan dollar. 

See: Asian Pay TV's 2Q20 net profit plunges 32.1% to $4.82 mil; declares DPU of 0.25 cents

Overall, revenue and earnings before interest, taxes, depreciation, and amortisation (EBITDA) exceeded the house’s estimates. 

However, head of research Paul Chew said cable TV remains the weak spot, with subscribers contracting around 4,000 per quarter. But total subscribers for APTT, including broadband and premium digital TV, have started to rise. Total subscribers are rising around 2% per year but blended average revenue per unit (ARPU) is declining by 5%. 

As such, he still expects total revenue to contract. 

Meanwhile, Chew has expected the DPU cut to 0.25 cents per quarter following the 25% increase in shares outstanding following the rights issue. 

However, he said that dividends are still sustainable, and noted, “Following the massive cut in dividend in FY19, the expected dividend of $18 million per year is expected to be well covered by Free Cash Flow (FCF) of $58 million.”

“This makes the current yield of 7.8% attractive and maintainable, in our opinion.” Chew said.

Despite the contraction in core cable TV business, he favours APTT because the dividends are sustainable, upside optionality from 5G (backhaul) revenue and growth in broadband subscribers to offset cable TV contraction.

Operationally, APTT seems like it is more stable as subscriber growth in premium TV and broadband is expected help in stemming the decline in overall revenue. The broadband segment also enjoys higher margins as there is no content cost.

As for APTT’scapital expenditure (capex), $65 million per year is still deemed “elevated”, and Chew believes that the trust has incurred this high capex to increase capacity into its fibre backbone in preparation of 5G backhaul business.

As such, mobile operators looking to launch 5G services can tap on APTT backhaul to connect to their base stations rather than using an incumbent and competitor network.

As at 12.57pm, shares of APTT were trading flat at 13 cents, with a price-to-book ratio for FY20 of 0.2 and forecasted dividend yield of 8.1%.