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Asian Pay Television Trust (APTT)
23-03-2014, 04:11 PM (This post was last modified: 23-03-2014 04:20 PM by tanjm.)
Post: #181
RE: Asian Pay Television Trust (APTT)
I had a quick look at Starhub. It has been paying about 340 million in dividends a year. Its free cashflow for the last 2 years has been 461 and 291 million respectively (difference has been capex looks like). It is also fairly similarly indebted. It faces fierce competition in mobile, broadband and cable TV with SingTel in an almost saturated market.

So..... would anyone venture to explain why Starhub is a 5% yielder and APTT is a 10% yielder?

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23-03-2014, 04:21 PM
Post: #182
RE: Asian Pay Television Trust (APTT)
(23-03-2014 04:11 PM)tanjm Wrote:  I had a quick look at Starhub. It has been paying about 340 million in dividends a year. Its free cashflow for the last 2 years has been 461 and 291 million respectively (difference has been capex looks like). It is also fairly similarly indebted. It faces fierce competition with SingTel in an almost saturated market.

So..... would anyone venture to explain why Starhub is a 5% yielder and APTT is a 10% yielder? FX accounts for some of it of course, but this is a very wide gap.

Hi tanjm,

Agreed, granted competition is expected to increase for APTT due to rezoning, but the market is not saturated, it has only 67% penetration rate. I am not sure if market is over-accounting for this risk. I am not sure Starhub growth prospect is any more visible than APTT.

I think the gap can be due to the following:
1) Macquarie poor record, as in MIIF shares price, the US debt swap failure.
2) The complexity of a trust as compared to starhub as a plain company.
3) Prudential relentless sellling.

But then again, the yield gap is too big.

life goes in cycles, predictable yet uncontrollable; just like the markets, but markets give you a second chance
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23-03-2014, 04:28 PM
Post: #183
RE: Asian Pay Television Trust (APTT)
(23-03-2014 04:11 PM)tanjm Wrote:  I had a quick look at Starhub. It has been paying about 340 million in dividends a year. Its free cashflow for the last 2 years has been 461 and 291 million respectively (difference has been capex looks like). It is also fairly similarly indebted. It faces fierce competition with SingTel in an almost saturated market.

So..... would anyone venture to explain why Starhub is a 5% yielder and APTT is a 10% yielder? FX accounts for some of it of course, but this is a very wide gap.

Starhub

Total Debt: 687.5 mil
EBITDA: 732.7 mil
Total Debt to EBITDA: 0.94x

APTT

Total Debt: 975 mil
EBITDA: 195 mil
Total Debt to EBITDA: 5.00x

Huge gulf in their gearing.

(Not Vested)

Disclaimer: Please feel free to correct any error in my post. I am not liable for anything. Do your own research and analysis. I do NOT give buy or sell calls and stock tips. Buy and sell at your risk.
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23-03-2014, 05:07 PM
Post: #184
RE: Asian Pay Television Trust (APTT)
Since we are at the topic of debt, from the convenants:

The TBC Group’s financial covenants under the New Debt Facilities consist of the following, tested on the TBC Group on a quarterly basis:
Gross debt/EBITDA ratio not exceeding 5.75 times for the initial four quarters, gradually stepping down to 3.0 times after the sixth year;
• Interest coverage ratio of at least 2.50 times, gradually increasing to 3.00 times after the first 2.5 years; and
Debt service coverage ratio of at least 1.20 times, gradually decreasing to 1.05 times after the fourth year.

Which bring to the question, how are they going to bring the ratio down? The loans will be more or less the same, as stated in the prospectus, and CFO has replied amortization of loans will be minimum as they will be looking to refinance the loans come 2016-2017 ahead of 2020.

The way I see it, there are few ways to do it (or a combination)
1) Growth in EBITDA
2) Issue rights or do shares placement to pare down debts

Growth will come at 2015 earliest and given the debt ratio has to come down significantly by 2019, either the trust is confident of growth or they are going to shareholders for money soon.

life goes in cycles, predictable yet uncontrollable; just like the markets, but markets give you a second chance
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23-03-2014, 05:13 PM (This post was last modified: 23-03-2014 05:21 PM by tanjm.)
Post: #185
RE: Asian Pay Television Trust (APTT)
(23-03-2014 04:28 PM)Nick Wrote:  
(23-03-2014 04:11 PM)tanjm Wrote:  I had a quick look at Starhub. It has been paying about 340 million in dividends a year. Its free cashflow for the last 2 years has been 461 and 291 million respectively (difference has been capex looks like). It is also fairly similarly indebted. It faces fierce competition with SingTel in an almost saturated market.

So..... would anyone venture to explain why Starhub is a 5% yielder and APTT is a 10% yielder? FX accounts for some of it of course, but this is a very wide gap.

Starhub

Total Debt: 687.5 mil
EBITDA: 732.7 mil
Total Debt to EBITDA: 0.94x

APTT

Total Debt: 975 mil
EBITDA: 195 mil
Total Debt to EBITDA: 5.00x

Huge gulf in their gearing.

(Not Vested)

EBITDA is "Earnings before Interest, Tax, Depreciation and Amortization". So its a slippery concept esp the depreciation part. In theory, depreciation (absent of accounting tricks) should roughly mirror capex on average.

Depreciation for starhub was 270m while 25m for APTT.

On another measure, EBITDA over revenue, APTT is twice as efficient coming in at 65% versus 35% for Starhub.

One way to treat indebtedness is the "distance" of APTT from defaulting. EBITDA/interest costs is 8 times for APTT and a massive 36 times for starhub. APTT has no refinancing until 6 years from now, but if it did refinance at 200bp higher than now, its ratio would go down to 5 times - still ok. So while the ratio for starhub is much higher, if we are only concerned with defaulting, its not a linear comparison.

APTT's yield is very high. Even Asian non investment grade bonds currently yield on average about 7%.

I'm not saying it should yield like starhub, but that the yield gap is "ridiculous", esp considering that it is shielded from refinancing risk until several years from now and we can consider its EBITDA to be stable, if not slightly growing.

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23-03-2014, 06:00 PM
Post: #186
RE: Asian Pay Television Trust (APTT)
basically one is a telco company while the other is a financially engineered business trust.

Vested in both
GG


(23-03-2014 04:11 PM)tanjm Wrote:  I had a quick look at Starhub. It has been paying about 340 million in dividends a year. Its free cashflow for the last 2 years has been 461 and 291 million respectively (difference has been capex looks like). It is also fairly similarly indebted. It faces fierce competition in mobile, broadband and cable TV with SingTel in an almost saturated market.

So..... would anyone venture to explain why Starhub is a 5% yielder and APTT is a 10% yielder?

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23-03-2014, 07:48 PM (This post was last modified: 23-03-2014 07:49 PM by tanjm.)
Post: #187
RE: Asian Pay Television Trust (APTT)
Both are mature businesses with limited growth prospects and pay most of their free cash flow as dividends.

I am getting the feeling that the big gap is just due to refinancing risk which APTT will have in about 6 years. How to quantify this in a rough way?

What follows is just a very rough pencil and paper estimation... and ignores discounting for simplicity.

Assuming that cashflow is relatively constant for 6 years, this means that about 60% of the market price of APTT is covered by dividends in that time. Which can be taken that the market values the residual value at 40%.

There are 2 types of refinancing risk. The first is interest rates and the second is failure to refinance.

If interest costs were to double, APTT dividend yield will go down by about 20% (to say 8%). Which is still respectable and certainly worth more than 40 cents to the dollar. If you assume that APTT would be worth nothing in the event of failure to refinance, then the market, by implication, thinks there's a 60% chance of a failure to refinance - which is a hard to believe number.

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