Asian Pay Television Trust (APTT)

[tanjm]

Actually I think their debt/assets is around 0.5. Starhub has a similar debt/asset ratio. In any case, as most of the assets are intangibles, it is fairly meaningless. What may matter more is the ratio of operating cashflow / interest payment. On that score, APTT's ratio is 4 (i.e. cashflow is 4 times interest).

Comparing with Starhub again, I note that at end 2012, their have a total of 536K households subscribing to paytv with another 444K households paying for broadband. APTT, by comparison, has only 175K broadband customers versus 751K basic paytv subscribers. Aside from the recent announcement, this may indicate some scope for organic growth by selling more broadband and premium TV (though I would be cautious as Taiwan is not as "wired" and well off as Singapore).

As for debt profile, I note that the IPO prospectus says that they will refinance almost the entire debt at IPO with a 930 million 7 year term loan at a all-in interest rate of about 4% (inclusive of hedges).

Starhub pays about 4-5% yield while APTT pays 10+% currently.

Their annual cashflow minus interest cost is 144 million forecasted for 2014. If I take out 54 million as the implied set aside for capital expenditure (note that depreciation is of this order of magnitude), i end up with 90 million, which translates to an adjusted yield of 8% at the current price without considering any growth possibilities. In otherwords, you should anticipate that APTT will eventually raise cash and one way to anticipate this is to set aside some yield when evaluating it.

I do have one troubling question though... There's an apparent contradiction in their prospectus. They state they will amortize a portion of the principal of their term loan over 7 years. However, in the 2014 forecast cashflow, I find no mention of this repayment. If someone can point me to a resolution, would be good.

[jim_city]

I do have one troubling question though... There's an apparent contradiction in their prospectus. They state they will amortize a portion of the principal of their term loan over 7 years. However, in the 2014 forecast cashflow, I find no mention of this repayment. If someone can point me to a resolution, would be good.

Ammortisation usually does not have a cash flow impact - sort of like depreciation. I suspect that they mean ammortising any fair value gains when they need to revalue the fair value of the loan. But I read that para and it seems to be worded like it means paying off the loan.... So I cannot confirm for certain...

Still, I do not think they will plan to pay off the loan in 7 years... that would mean negative cash flow, wouldn't it. They would probably pay off only the interest and refinance when the loan is almost due...

By the way, there are so many different versions of what the gearing level is.. I am also a bit confused now.. ... I got mine from page 11 of the latest ppt slides in their Sept 2013 announcements..

Thank you for your comparison to Starhub.. I meant to do something like that but was too lazy..... haha...

[tanjm]

I'm still waiting for a response from investor relations on the amortization question.

For a business like APTT, the major risks are:
1. Regulatory.
2. Refinancing.
3. Estimating capital expenditure.

For (1), Taiwan is the better place to be compared with other jurisdictions such as China (HPT), or India (Religare). The authorities are more market oriented and predictable.

For (2), APTT have secured a big loan to a consortium of banks till 2020.

For (3), One method is to (as I have simplistically done) compute a yield that would result if they set aside an amount of money each year.

Regarding their broadband business. I have read their major competitor is Chunghwa Telecom (CHT). CHT appears to sell only fairly low speed internet access (judging from their website). So the question whether they can grow their broadband business is really due to customer preference for high speed internet - i'm not sure how to answer that. APTT appears to believe there's opportunity there given their upgrade of their networks completing in 2014.

[Drizzt]

on another aspect how strong is the IP rights and content production costs in Taiwan. As far as I can see you cannot have a Toggle coming in and have better and attractive content immediately, they have to bleed the singtel way since the cost of content is substantial. unless taiwanese like their taiwan shows and the content cost is extremely low and there is no exclusivity

[tanjm]

I think basic paytv is is defensive, barrier for entry for a competitor as well as low growth for aptt. We should simply assume it is stable. Aptt is banking on high speed Internet and new franchise areas for growth.

Having said that, aptt seems attractive at current prices even at zero growth.

[Greenrookie]

I just noticed about 130million of tax provision for additional tax payable since 2006! If APT manage to seek exemption for this, it will be extra for the p&l.

Hi buddies,

How does tax provision work? When APTT make a provision fr tax from 2006to 2010, is it non cash in nature? I mean, if the negotiation with tax bureau of Taiwan does not pan out, it should affect real cash flow, but if it turn out better than they expect, te write back is just accounting profits right?

Also, I read fr prospectus any expansion beyond their franchise area will need to be met with a number of conditions such as building and deploying 100% of network. What is estimated for such a capex, as I believe APTT did not have such an expansion capex in the past. It is quite significant because they must set up shop even before consideration for license.

They have only 1 major supplier ( fr content) whose agreement will run out in 2015, and have many competitors, 2 vee time and west coast cable TV have already muscled into Taichung ...

I am still trying to figure out if its worth te risks with Ye high yield

[Greenrookie]

I found an excel on cable tv system operators in Taiwan. See attached ...

Me bad, I mix up Taichung City and Taichung country

[valuebuddies]

I just noticed about 130million of tax provision for additional tax payable since 2006! If APT manage to seek exemption for this, it will be extra for the p&l.

Hi buddies,

How does tax provision work? When APTT make a provision fr tax from 2006to 2010, is it non cash in nature? I mean, if the negotiation with tax bureau of Taiwan does not pan out, it should affect real cash flow, but if it turn out better than they expect, te write back is just accounting profits right?

Also, I read fr prospectus any expansion beyond their franchise area will need to be met with a number of conditions such as building and deploying 100% of network. What is estimated for such a capex, as I believe APTT did not have such an expansion capex in the past. It is quite significant because they must set up shop even before consideration for license.

They have only 1 major supplier ( fr content) whose agreement will run out in 2015, and have many competitors, 2 vee time and west coast cable TV have already muscled into Taichung ...

I am still trying to figure out if its worth te risks with Ye high yield

Hi Greenrookie,

If the tax provision being written back, it gives additional extra-ordinary profit and yet eliminate the possibility of cash outflow. But if the negotiation with the tax authority fails, I don't see it as negative either.

On the expansion side, I am not really concerned on the amount of capex, but the most worry part is the high debt burden. Interest rate risk is just too high and I am not sure if TBC hedges the risk. In view of the NCC's effort on the re-zoning of the franchise areas, I believed that some sort of exemption would be given against the stated conditions.

Competition wise is neither a great concern IMO, what TBC provides in its TV contents is arguably good and is not overlapping with the competitors. And the broadband segment is merely contributing less than 20% in revenue.

By the way very good info from your excel sheet regarding the TV segments, thanks.

[tanjm]

but the most worry part is the high debt burden. Interest rate risk is just too high and I am not sure if TBC hedges the risk.

In a value oriented forum, I'm not sure why this statement is made when the answer is in both the IPO documents and the qtrly result presentation report.

[valuebuddies]

but the most worry part is the high debt burden. Interest rate risk is just too high and I am not sure if TBC hedges the risk.

In a value oriented forum, I'm not sure why this statement is made when the answer is in both the IPO documents and the qtrly result presentation report.

Thank you for your comment, I would have find it out if I am vested, unfortunately not.