Asian Pay TV Trust is one of the companies I'm looking on SGX in the very beginning of my investing journey and one of those I actually started doing a homework for... or rather... an analysis.
A simple one.
I was pretty much attracted by the yield back then and I started to source out some in our local market.
I remember going through Mapletree GCC Trust at about 1.00 range (something that I pretty much regret till date), APTT at around 38-39 cents, AA REIT at 1.35 range and HPH Trust at 48 cents USD.
And yes, you're right. I've bought myself some dustbins in International Business Park at Jurong for my Valentine's day present to myself.
I got a little more curious when APTT prices scaled even higher up to 50s and 60s range in late 2017 and decided to pay a little more attention to it. To be honest, I'm pretty much disgusted by the level of debt APTT got itself in and I did punch myself a little for not acting back then.
The high level of CAPEX and FCF back then also serves as a warning for me to not enter a position with them. I felt that the risk taken for entering at that range could not be compensated by the dividends.
APTT had announced a dividend cut and will only be paying only 1.20 cents annually, at least for the next 2 financial year ahead when the 3rd quarter financial results are released.
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| From: APTT 3Q Financial Presentation |
How about now when it had fallen by 16-17 cents to 16-17 cents??
Is the compensation fair now? I'm not certain. But definitely, it looks much better than it is at 30, 40 and certainly 50 cents.
For those that had paid a higher entry price to APTT, this will translates to a big pay cut and probably even a big unrealized loss we're looking at.
How is it then to non-APTT shareholders?
With this move to cut their distribution, APTT will now have a much more sustainable payout ratio and in fact with some additional room, which could be used for repayment and certainly further development in the future.
Aside from this, with the completion of digital cable TV upgrade, CAPEX should start to taper off and this should bring in more positivity along with the dividend cut for its future cash flow, something which is extremely important. Hence, I would like to believe that the management is being prudent in doing so.
The position initiated with APTT is a relatively adventurous one, or rather like what some would call it, a risky one as compared to the other counters due to the high level of debt they are in and the business they're engaged with. However, if we look at things from a different angle, we might get to see some light.
APTT will continue to face headwinds and challenges in their business, but I believe at the new move should allow them to do more things than they originally could.
We must be reminded that as investors, we are paid for the level of risk we take. The risk to take today seem a little more delicious and tempting for me which resulted in my itchy fingers pulling the trigger.
With today's price hovering around 16 cents, we're looking at somewhere between 7.5% yield for this investment, which is somewhere what one would typically demand for APTT, probably even higher.
I'll certainly be happy to increase my exposure with APTT should the price continues to fall. I will soon write a little more about my thoughts on APTT.
*Coincidentally, right after my purchase, I happen to see many bigger hands scooping some of APTT shares!*
Read: APTT Q3 Financial Presentation
Hi Sleepydevil
ReplyDeleteThe share price does indeed looks interesting given their fcf can now cover their guidance of 1.2 cents but with a sunset business and a falling core business, my take is the reward is capped by the risk.
I think this is more of a special situation play and would rather investors avoid this company totally. There are.many better opportunities elsewhere with better valuation and businessmoat than to play with this company.
That's my take.
Hi B,
DeleteNice to see you dropping by! It had been sometime since we had a small comment section talk like this!
Valid points! Thank you very much for the wise inputs!
I do agree very much with your take that the sunset business APTT is engaged in is of a concern, in fact with a sea of red today, there is indeed many opportunity that is up for grab.
When the guidance is announced, Mr Market had reacted very strongly to it and had been extremely pessimistic with APTT, which I would try to be a little optimistic when I look at such situation, hopefully I will be a little more rational.
There is a considerable amount of risk to take when one were to invest in this company here, especially when they have a relatively huge debt with them and not forgetting on the risk for interest to be go up in the future.
The rise of interest will essentially means that APTT will be paying more money out of their earnings, which will cause the cash flow to be impacted once again. With the recent announcement of refinancing onshore facilities, the interest margin will be reduced. Maturity date had also been extended to 2021.
With the guidance, they will have a little more cash flow for themselves for debt repayment which will eventually bring down their level of debt. This will also push down it's gearing ratio to a slightly healthier one, however this will take sometime and based on their latest earnings, it might even take them years to do so.
When the "years" goes past, their business might not even be relevant anymore! But I would tend to believe that there is a little light to the end of the tunnel and a small little trading element is present in this trade.
In view of this, I would see that the management is trying to be prudent to improve on their sentiments, a big move to take for APTT that indirectly resulted caused a crash in their share price. A management in a business is relatively important to keep the company going.
To take a deeper look in their latest report, the RGU for premium Digital Cable TV and broadband has seen some small improvement since June 2018, however with a declining ARPU due to the intense competition they're facing in Taiwan and to the other providers as well. Once this is eased, I would believe that there is some turning point for them.
The uncertainty is what that punishes APTT and increases the risk for positions taken up with APTT. However, we must remember that APTT business could be phased out in the future, but it couldn't be easily replicated for things such as the 5G roll out, which might improve on their future earnings.
With the big cut in dividends, it also seems like APTT is starting to lean slightly away from a business trust. They will have cash flow to support other things now.
With the prudent approach, management from Hon Hai that is leading as well as the upcoming prospect, I would believe that there is some reward we could see some time ahead. At the price today, I see some bargain that I'd not see at 30 cents.
I believe that there is some value to be seen.
I might be wrong but I feel that the risk to take for the reward seem a little itchy for me to scratch!
this is a stock that I have been steering away from despite its high dividends yield because I do not fully understand its financials and why it was being bought when its prices kept dropping in the past.
ReplyDeletegood luck!
Hi MIM,
DeleteHonoured to have you here as well! :)
Indeed APTT shows a relatively terrible chart and TA could never explain it.
I think I’m naive but I believe there is some light to be seen at the end of the tunnel and I really need to curb my itchy fingers!