• 4Q19 revenue and EBITDA were around 5% better than our expectations. Revenue and EBITDA fell 6% and 3% respectively in 4Q19. DPU guidance of 1.2 cents for FY20e is maintained.
• Some signs of stability in operations – cable TV ARPU flat QoQ after 13 quarters of decline and broadband revenue modest rise QoQ
• We were surprised by the stability in certain operational data. Cable TV ARPU finally stopped sliding albeit subscribers are still contracting. Broadband subscribers responded well to the lower prices offered, which helped to keep revenues stable.
• APTT has guided that data backhaul services offered to Taiwanese mobile operators will materialise when 5G services are rolled out. At present, there are limited data points for us to model this market opportunity. Our target price will peg APTT at around 10x EV/EBITDA. This is a 10% discount to their much larger Taiwanese peer valuations. We maintain NEUTRAL and keep our target price unchanged at S$0.165.

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.

Source: Phillip Capital Research - 12 Feb 2020