Asian Pay Television Trust (APTT)

[Shrivathsa]

APPT has issued a profit guidance for full year loss.

Interesting day to announce it, at the end of the year, after trading closed!

https://links.sgx.com/FileOpen/APTTProfi...eID=781925

From a dividend perspective, they have guided that they expect to maintain the guidance from the announcement "There will be no change to the distribution guidance of 0.525 cents per unit for H2 2023, and 1.05 cents per unit for the full year 2024".

[CY09]

The impairment it will make is non-cash by nature. On balance sheet, equity is SGD$1.125 billion, intangible assets are valued at SGD$2 billion. On SGX, the market cap is $0.125 billion. Likely Mr market is estimating that about $1 billion should be impaired.

I wonder how much will APTT impair though. It is a decent trust but post impairment, it will become highly levered and its offshore banking financing facility might be impacted

[weijian]

Hi CY09,

My suspect is that Mr Sporean Market values APTT based on its dividend yield, rather than the BV. After all, its BV is really intangible, unlike what you can see/touch like a property or factory, or even a brand name like OldChangKee.

Based on the results I shown in Nov2023, revenue has been on a steady decline. With higher risk free rates, this will be leading to a "material impairment loss" for FY23. My personal suspect is that without the former (declining revenue), the impairment loss (if any) wouldn't be "material". Of course, just my suspect. While Mgt has said that the accounting loss doesn't affect FCF and distributions, but these are just "effects" that we see. The "cause", ie changing customer habits will very soon change the FCF/distribution.

Finally, Mgt has said that the material impairment does not affect the financial covenants. They never make clear whether it is because the limits haven't been breached or it isn't a factor to start with. I don't remember that APTT has the sort of regulatory limit in terms of gearing like Spore REITs do. So even if gearing hits the roof, it is not going to breach any regulations (For REITs, its covenants probably has a clause that says it cannot breach its regulator's rules).

For example, if we want to apply for a mortgage loan from the bank, what matters most are 2 things - (1) Source of income and, (2) debt service ratio (DSR) to decide how much and whether to approve our loan. For source of income, I remember APTT's banks will only refinance its loans when it has renewed its license. For DSR, it is the interest cover ratio that we are familiar with. My guess is that these are the main factors affecting its existing loan facility. However, when the existing loan is due, it is highly probable that the banks will decide to give a lower refinancing amount. In the last few years, APTT has retained some cash to repay loans before it gotten new financing.

[CY09]

Their offshore sgd loan interest rate varies according to the leverage ratio as mentioned in the annual report. If leverage ratio goes higher presumably, offshore loan interest will increase

[CY09]

https://links.sgx.com/FileOpen/APTTUpdat...eID=803423

The decline in cable TV continues while broadband grows. Stripping off the one offs, the trust careful mgmt in cost has enabled profits to increase slightly. This means margin has improved despite the continuous revenue decline.

However, one has to take note APTT business is declining year on year. It is now expected to decline 5%.

Overall, I do think the 1.05 cents is sustainable and adequate cashflow has been used to pay down its debts

[weijian]

Hi CY09,

Bronte Capital's April2024 letter gave me an epiphany - good quality companies surprise you on their upside. So you could still make money, despite been wrong about the upside.
https://files.brontecapital.com/amalthea...202404.pdf

And inverting that - It will mean poor quality companies surprise you on the downside. And one could still lose money, despite been right about the downside.

I used to own APTT when it was rolled up as part of the now-defunct MIIF (it was known as TBC back then). Back in 2013, I was more than happy that MIIF was spinning it off because I could then sell it on the open-market. And I am glad I did - Once those millionaire investor-bankers from down-under decide to exit, one better exit too. These investment bankers had been paying money from the future and prior MIIF investors got paid ahead of time.

The investment bankers used to toute that Taiwanese culture is different and so cable TV is very sticky. It was right. However in the last decade, all the capital investments and technological investments into new entertainment mediums have accelerated habit change. A new generation will not pay for cable TV in its current form, when there are cheaper and better options around. Personally, I have anecdotal evidence that even my 83year old relative entertains himself via social entertainment now.

P.S. Quick check shows that APTT's ARPU for basic+premium cable TV are ~50% and 20% higher than Netflix Taiwan's basic and premium plans respectively. So still a long way to drop.

[CY09]

Thats the difficulty of investing. We are predicting if it is white/black and then the magnitude of how white or black it becomes.

For Aptt, it's basic cable ARPU is not of a fair comparison to Netflix because it includes advertising, which Netflix I presume does not.

Sticking my neck out but APTT should be able to last 10 years of 1.05 cents annual dividend as the cash flow shrinks due to the shrinking cable tv business. This is due to its dividend now only forming 30% of it's current free cash flow.

[CY09]

https://links.sgx.com/FileOpen/APTTPrese...eID=815783

The decline in Cable TV revenue continues. Personally, I am predicting that the end state is that TV and broadband will be 50-50 in revenue, totalling about SGD$100 million revenue per half year. This means another 25% decline in revenue to go.

Cashflow wise, I do think the trust looks alright with about $38 million annually in CAPEX. With interest expense likely to hover at the $39 million mark annually as the more expensive offshore debt returns to Taiwan, $14.5 million to maintain 1.05 dividends and 200 million revenue (which means about $114 mil in cash generating from Ops), I do think the trust still has some cash buffer to pay down debts as it goes.

In all, I do think the 1.05 dividend is secured but will not rise because APTT will use the excess cash to reduce their $1.2 billion debt. Its likely APTT will be able to pay down its debt over time. It seems a good investment to me at its current prices. A single digit yield is a possibility for this trust to be valued at

[weijian]

hi CY09,

APTT's share price in 2020 = 0.13cents
APTT's share price in 2024 = 0.08cents (loss of 5cents or ~40%)
APTT's total dividends paid in the last 5 years = 0.05cents
APTT's TSR over the last 5 years = (0.08-0.13)+0.05 = 0

If we assume a WACC of 2% per annum, it means we would have lost 10% (or we can think it as opportunity costs)

On hindsight, Mr Market has been remarkably correct over the last 5 years. In the absence of an external crisis and very clear numbers for all to see (ie. the low payout ratio), it is puzzling that Mr Market continues to give it a 12-13% yield.

What are things that Mr Market may have seen but remains unseen by OPMIs like us?

[money]

Just looked through its balance sheet, imo, it is in a terrible state with its high debt, 1.2 cents is probably sustainable in the next 2 years, but probably have to be cut further after that. What is worse is that in the interim, it may even raise money through a rights issue, so you may earn the 2.4 cents but you have to fork out more than that for the rights to maintain the same ownership of the company, not such a good deal. I would stay far far away from it.

haha just thought it would end up little different from Hyflux, well, i may be too pessimistic, but it is really unnecessary to bet on this counter even at today's share price, there wont be much upside unless some BB wants to push it up to make me look stupid

I agree with u on this. That's why i disagree with what ASSI/AK71 said on his latest post on APTT. if you value it purely on the expected 1.2 cents yield, then yes its still ok. but its a HIGHLY geared yield play. To me this counter need to drop another 20~30% to be worth the risk.

Many years ago, i think some of us have spotted how unsustainable the dividend is. 

Even if you see insiders buying stock, dont take it too seriously. 

I am still of the impression that the current dividend yield is unsustainable and i wont be surprised that they will need to raise more money in a rights issue