New port in a storm
Although its post-IPO performance has laggedbehind, APTT is still set to deliver a stable dividend pay-outdue to its defensive utility-like Taiwan cable TV business. As growth weakens across Asia, a highand stable dividend yield should remain attractive.
We remain unconcerned about new licence approvals as a capital-intensive build out suggests new competition is not a credible threat. While bond yields have ticked upwards, rates in Taiwan are expected to remain low for some time, keeping financing costs low. Initiate coverage with an Outperform call. Our target price is based on DCF (COE 10.2%, LTG 1.0%).
Defensive Taiwan pay TV
APTT owns and manages TBC, Taiwan’s third-largest cable operator with 15% market share. The defensive characteristics of Taiwan’s utility-like cable TV industry plus TBC’s sole operator status in its five franchise areas support stable dividend pay-outs. Taiwan content costs are low given the lack of a dominant genre with the top 20 channels mostly locally produced and these low content costs support APTT’s above-industry EBITDA margin of over 60%. Barriers to entry are high given the cost of physical infrastructure rollout.
We project distributable cash flow to post a CAGR of 2.6% in FY14-19, supported by revenue CAGR of 3% over the same period, and EBITDA margin expansion given the scalability of TBC’s assets and operating model.
Re-zoning risk controlled
In May, the industry regulator granted construction permits to three licensees, including TBC, in Taichung, to allow them to expand their networks in the greater Taichung zone. While prima facie competition risks have increased, the cost of network deployment (estimated to be more than US$200m) should see competition contained for the foreseeable future.
Yield plays stabilising
Since listing, QE tapering and spiking Singapore long bond yields have caused yield plays to weaken considerably. However, stabilising Singapore bond yields and the stable Taiwan rate outlook mean APTT’s high yields remain attractive, in our view. Our target price indicates a CY14 yield of 8.2%, still a discount of 180bp to S-REITs and a 410bp discount to pay TV-related names.
Publish date: 30/07/13