Asian Pay TV Trust 3Q Results- Stable 10% Dividend Yield and Paring Down Debts

Asian Pay TV Trust (APTT) has released their 3Q results, the first full results after their refinancing of debt. Of which significant new information can be found. The summary of the results is as follows:

• Overall Revenue Still in Decline as no of TV subscribers in Traditional TV continues to fall
• 90% of Onshore Debt has been hedged at 1.54% Taiwan TAIBOR, indicating overall debt interest rate to 3.6-3.7%
• Management guided the additional interest cost of S$2 million to S$3 million for this year with interest expense to decline by $2 million next year
• 2025 Dividend Still Set for 1.05 SG cents

Cashflow and Dividend

Declining EBITDA margins leads to downstream less cash generated. Over the next 7 years, it is likely APTT will generate $100-$120 million annually.

With annual CAPEX needs of $28 million, taxation of $10 million, interest expense of $40 million (and declining）, there is sufficient headroom to maintain the 1.05 SG cents dividend which requires $19 million over the next 7 years.

Another Important thing is paying down the Debt.

Over the past 5 years, APTT has started to shrink its debt. However, one would notice "Net debt to EBITDA" ratio has increased. Thish indicates APTT EBITDA (Cashflow) is shrinking faster than it is shrinking its debt.

This is a ratio to keep watch; a ratio that is 10 or above indicates the cashflow has fallen too fast relative to the shrinking of debt. APTT's Taiwanese bankers would be worried. That said, APTT's current 8.1 ratio is still good and it has an interest coverage ratio of 3.8 times. 

For REITs, ICR of below 2 times is where it is dangerous; however, APTT is at 3.8 times which shows it is relatively safe.

As an investor, I am looking at how fast APTT pays down before the next tranche of refinancing in 2032. If APTT is able to reduce the debt from 1,163 million to 800 million by 2032; I believe dividend will maintain.

Baseline Expectations and Target Price

Much of APTT's future hinges on how well the Trust Manager deleverages while it encounters slowing cashflow and overall revenue. If executed properly, the baseline is that APTT will provide 1.05 SG cents of dividend annually to shareholders.

This is my baseline scenario. In addition, I believe for its business model, a 8% dividend demanded is fair. Hence my target price for APTT is 13.1 Sg cents (25% upside for owning APTT).