Asian Pay Television Trust

AmFraser Research, July 9

ASIAN Pay Television Trust (APTT), 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, payable in September/October. Since its debut on May 29 at an initial public offering (IPO) price of S$0.97, APTT's share price has declined by about 12.9 per cent. We do not have a rating on APTT.

At the price of S$0.845, this leads us to consider whether investors are overpricing in the risks pertaining to APTT's business. In this quick take, we therefore seek to explore some of the key investor concerns.

Risk of non-renewal of cable licences: 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, digitisation initiatives and its strong local content. Substantial capital expenditure (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 licences.

Re-zoning of franchise areas: NCC's recent re-rezoning of franchise areas permits cable TV operators in Taiwan to apply for extension of their current francise 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-time and heavy capex needs could keep market players at bay.

Rate cap reductions: Rate cap reductions in future years would negatively impact APTT's distribution per unit. 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 per cent, 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 trade-off is looking more attractive than before and it could certainly be worth taking a closer look at this high-yielding play.

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