The Positives
+ Cable TV ARPU flat QoQ. ARPU finally stabilise QoQ after falling for 13 consecutive quarters. However, subscribers are still contracting at a rate of around 5,000 per quarter.
+ Broadband revenue turning more stable. Another positive operating data was the flat QoQ broadband revenue. Subscribers responded well to the lower prices, as a result, Broadband subscribers rose 10% YoY in 4Q19. However, the pricing strategy resulted in a 12% YoY fall in ARPU. Nonetheless, this is a high margin business as there is no content cost and only the modem cost during installation.
+ Content cost falling to stabilize EBITDA. The run-rate for broadcast cost was around S$16mn per quarter two years ago. This has declined to around S$13mn in FY19. 4Q19’s content cost was down almost 11% YoY.1
The Negatives
– FY19 capex still elevated. FY19 Revenue and EBITDA is down around 6% YoY. However, capital expenditure remains unchanged at $75mn. Capex was incurred to deploy more fibre in the network, especially for the data backhaul business. Guidance is for capex to trend down in FY20e. Another drain on cash-flow was $20mn spent on intangibles in FY19.
Outlook
There are some positives we can look forward to in FY20e for APTT – (i) Further signs of stability in operational data which will signal business sustainability; (ii) Capital expenditure (and investments in intangibles) will start to trend downwards, as guided by APTT; (iii) Revenue from data backhaul from Taiwan mobile operators begin to contribute more meaningfully to APTT.
Maintain NEUTRAL and target price unchanged at S$0.165
Our target price of S$0.165 is maintained. We raised our FY20e EBITDA by 3% as we revised our revenue estimates upwards, and lowered further content cost. We peg APTT at around 10x EV/EBITDA. This is a 10% valuation discount to its much larger Taiwanese peers (Figure 2).
We look for further signs of revenue or EBITDA to stabilise before any re-rating and valuation discount to peers to be even narrower.
Paul has 20 years of experience as a fund manager and sell-side analyst. During his time as fund manager, he has managed multiple funds and mandates including capital guaranteed, dividend income, renewable energy, single country and regionally focused funds.
He graduated from Monash University and had completed both his Chartered Financial Analyst and Australian CPA programme.