APTT’s yield alluring, but are the risks justifiable?
Asian Pay Television Trust (APTT), which is structured as a business trust, is focused on pay-TV businesses through its seed asset Taiwan Broadband Communications (TBC) Group. APTT distributes semi-annually and its first distribution per unit is guided to be 4.8 cents that is payable in September/October 2013. Since its debut on 29 May 2013 at an IPO price of S$0.97, APTT’s share price has declined by about 12.9%. We DO NOT have a ratingon APTT. At its current price of S$0.845, this leads us to consider whether investors are overpricing in the risks pertaining to APTT’s business. In today’s quick take, we therefore seek to explore some of the key investor concerns.
Risk of a non-renewal of cable licenses. We believe risks on this front are negligible, given TBC Group’s track record in satisfying the National Communications Commission of Taiwan (NCC)’s regulatory audits, digitization intiatives and its strong local content. Substantial capex needs and lengthy lead times for infrastructure development are major deterrents for new market entrants, reducing risks of a non-renewal of APTT’s cable licenses.
Re-zoning of franchise areas. NCC’s recent re-rezoning of franchise areas permits cable TV operators in Taiwan to apply for extensions of their current franchise areas. We highlight that new system operators must provide only digital cable TV services, ensuring that new competitors will not encroach on TBC Group’s existing Basic Cable TV market. TBC’s massive scale, technical expertise and well-entrenched market position should stand it in good stead to pursue expansions while long lead times and heavy capex needs could keep market players at bay.
Rate cap reductions. Rate cap reductions in future years would negatively impact APTT’s DPU. We believe APTT is most susceptible to this risk, although this could be mitigated by maintaining the quality of its cable network and services provided.
Trading at a forecasted yield of 10.6%, this begs the question: are investors overpricing in the risks here? As detailed in our analysis, we perceive the overall risk to be low. As things stand, APTT’s risk-reward tradeoff is looking more attractive than before and it could certainly be worth taking a closer look at this high-yielding play.
Publish date: 09/07/13