Asian Pay Television Trust

Asian Pay Television Trust (APTT): 4Q14 DPU came in at 2.13¢, bringing full year DPU to 8.25¢ (-7.6%), in line with IPO forecast.

In the last quarter, revenue improved 4% y/y to $81.8m (+4% y/y), underpinned by basic cable TV (+4.9%) and premium digital cable TV (+4.5%), with the broadband segment relatively stable (-0.5%).

But bottom line slipped 22% to $16.3m, weighed by higher operating expenses (+23%), resulting from higher depreciation and amortization costs (+37%), other operating expenses (+31%) and FX loss of $0.3m (4Q13: $2.3m gain). Excluding depreciation, EBITDA margin compressed 1.3 ppts to 59.7%.

For the year, overall number of subscribers in APTT's sole seed asset, Taiwan Broadband Communications(TBC), grew 1.3% to 1,072,000, mainly from premium digital cable TV, but at the expense of ARPU, which fell 5.8% as the trust focused on gaining market share. The broadband business also saw a 1.7% growth in subscribers but 3.3% slippage in ARPU, while basic cable TV subscribership and ARPU held steady.

Aggregate leverage rose 4.3ppt to 43.2%, as APTT undertook spending to build its network infrastructure across Taichung. Capex spending of $33m has peaked out in FY14 and is expected to ease to $20-25m and $10-15m in FY15 and FY16, respectively.

Management expects better results in FY15 across all segments, driven by the roll-out of digital set-top boxes which should translate to higher sales. By end-2015, penetration rate for digital set-top boxes is expected to grow from 82% to 100%.

Meanwhile, progress on APTT's network expansion is on track with network coverage of over 30% for homes in the new coverage area. Requisite regulatory licences have been obtained and marketing operations commenced in 4Q14.

Management has reaffirmed its FY15 DPU of 8.25¢, indicating an attractive forward yield of 9.1%. Key risk is TBC's relatively short cable TV operating licenses in Taiwan, which is renewed on a rolling nine-year basis and last renewed in 2008/09.

At $0.91, APTT is valued at 1.02x P/B.