Asian Pay TV Trust Review (Part 1) -3 Myths to Debunk.

The Asian Pay TV Trust is a business that seems to have created a sense of confusion among various investors on investment forum. Without scrutinizing the financial statements, it would be hard to assess the future and the risks associated with this business. Let me start with debunking some of the assertions made by some forummers.

Myth 1: “Target: $0.595 soon!!!  Good investment for income by collecting dividends!!! 12.7% Dividend Yield at current price of S$0.510…Hurray!”

Blade Knight: The revenue and distributable income may go down based on historical trending due to more competitive pricing to retain existing TV subscribers. This decrease coupled with the financing cost for unplanned CAPEX for digitalization of TV upgrade led to repeated revision downwards of the dividends over the last few years.

There is always the downside risk that the net income will be insufficient to cover for operating expenses and to also pay off the mammoth financing cost from the S$1.5 billion debt. Unit holders may even have to play the White Knight in such scenario by subscribing to rights issue to raise cash to ensure business continuity and to stave off immediate liquidation law suits by creditors.

Myth 2: “The unbelievably high yield sounds too good to be true, which prob isn' t, if you know what' s really underneath the hood. Might work for a short punt though”.

Blade Knight: But management of APTT did mention that for 2018, they will be offering discount TV packages to grab market shares as well as to  continue to build on the business strategy of up-sell and cross sell of services across Taiwan Broadband Communication’s (“TBC”)  subscriber base to drive growth in future cash flows.

Depending on your outlook, if one thinks that TBC is a stable business that is well positioned for future growth and one likes the business strategies, then this is a sound business well worth the risk undertaken by investor.

Myth 3: “No more CAPEX. So cash paid out reduced and dividend increase.”

Blade Knight: This is not true. The financing or the CAPEX was mainly through additional borrowings. Hence a reduction in project CAPEX will not lead to an increase in dividends available for distribution. It does however stabilize the pool of distributable income as financing cost will not increase from additional drawing down of credit line. For 2018, there will be an overall decrease in financing cost due to 0.3% decline in interest rate payable from the Onshore Facilities followed by the completion of the sale of the Trustee-Manager.

So is Asian Pay TV Trust an up and coming rising Star? Is the current share price excessively discounted right now such that there will be inevitable favourable upside gain? Or the current price has not hit rock bottom and will slide down even further?

P.S: Please stay tune and go on to the analytics on the latest 2017 financial statements as illustrated in the Part 2 Review for Asian Pay TV Trust once it is out.