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Asian Pay Television Trust (APTT): IPO.

Saturday, May 18, 2013

Usually, when people ask me about IPOs and if I would take part, I would answer in the negative.

Subscribing to what Warren Buffett thinks about IPOs and that is IPOs of stocks are almost always bad investments, I have not taken part in IPOs in many years. Warren Buffett is of the opinion that IPOs are rarely undervalued offers.

What about the IPO of APTT? Is this an exception?

Well, APTT will be holding TBC which was a business in MIIF's portfolio and we know that TBC was the crown jewel of MIIF's portfolio of businesses. With TBC removed from its portfolio, MIIF saw its unit price tumbled almost 70% yesterday.

At a unit price of 97c, APTT's distribution yield is estimated to be 7.5% in the first year and this is estimated to increase to 8.5% in the second year. With relatively high yields like these waved around, the IPO has attracted a high level of interest from institutional investors.

Indeed, Dow Jones Newswires reported in an article dated 2 May 2013 that 8 cornerstone investors were secured. These are investors who are willing to commit to holding significant stakes which shows their confidence in the Trust.

In a yield hungry world, investors fed up with a low interest rate environment could push up the unit price of APTT when it starts trading on 29 May 2013. Of course, there is no way of telling if this would happen but look at how Croesus Retail Trust saw its unit price rose 23% on its first day of trading recently and we get an idea of just how things could turn out for APTT. Although not really comparable, it suggests that Mr. Market could be quite happy with distribution yield compressing to just 6.5%.

In case you are wondering about gearing (and you should), APTT's gearing is about 40%, while Croesus Retail Trust's gearing is at 47%.

If a distribution yield of 6.5% is what Mr. Market is willing to accept, APTT could trade at $1.12 per unit. If Mr. Market demands a minimum of 7% yield in the first year, we could see APTT trading at $1.03 to $1.04 per unit. If news that the placement tranche was 3 times oversubscribed by institutional investors is reliable, chances are we will see APTT trading higher.

If you are interested in participating in the IPO, take note to do so by 12 noon, 27 May 2013.

Related posts:
1. MIIF: Asian Pay Television Trust (APTT).
2. MIIF: Lower fair value.


AK71 said...

About 80 per cent of the IPO funds will be used to buy the stakes held in TBC Group, which offers cable television and broadband Internet in Taiwan, from the Macquarie International Infrastructure Fund Limited and MKOF Media Investment, another Macquarie fund.

The remainder of proceeds will be used to pay down debt, the listing expenses and for cash awards to TBC Group’s senior management. The trust is slated to debut on May 29.


AK71 said...

According to its final prospectus, Asian Pay Television Trust managed to price its shares at 97 Singapore cents each - slightly above the mid-point of its indicative range.

The business trust has a forecast distribution yield of 7.5 per cent for 2013 and 8.5 per cent for 2014.

Up to 936 million units will be offered under the placement and the public offer, subject to an over-allotment option.

The public offer of 70 million units for retail investors opens on Friday and will close on May 27.

Trading will start on May 29.

CNA, 16 May 2013.

Jay said...

So, are you signing up for your entitlement units from your mIIF holding? I will probably now do so, and hope for a small post-IPO bump. But generally I share your scepticism in IPS's and similar capital measures. The sure earners in these exercises are laywers, accountants, banks and senior management.. if anything is left, maybe minority shareholders get some crumbles..

I wanted to get out of MIIF altogether, but too late...

AK71 said...

Hi Jay,

I agree that the ones who would surely make money from these exercises are people like the bankers and lawyers. We can only do what we think is best to safeguard our money. :)

I already sold my stake in MIIF at 19.7c when it resumed trading as I am not convinced that a 6.09% distribution yield is enough for the concession assets of HNE and CXP. HNE has 13 years left to its concession and its debt amortisation as well as its inability to up toll fees are double whammies. The forecast 1.2c DPU in the absence of TBC for MIIF is probably not even sustainable.

As for APTT, of course, it is anyone's guess how its unit price might move on 29 May 2013. Anyway, I have done the application at an ATM and will wait to see how it turns out. :)

Jay said...

My understanding is you dont need to do anything if you want to receive the APTT units instead of cash?

Btw, sorry for all the typos.. only now

AK71 said...

Hi Jay,

Yup. You only need to send the form back if you choose to receive cash instead of MIIF APTT units.

I am accepting the MIIF APTT units and applying for more APTT units in its IPO. That explains my visit to the ATM. :)

No problem with the typos. ;)

Jay said...

ohh, ok.. thanks for clarifying.. maybe smart to compensate for loss on the rest of MIIF...

I didnt manage to sell at 63c before the freeze, so now I'm stuck..

AK71 said...

Hi Jay,

I don't think we are any worse off even if we were to sell MIIF at 19c a unit. We are getting 44c per unit for the divestment of TBC. That works out to be 63c in total. ;)

In fact, selling MIIF at any price higher than 19c per unit is probably better than selling MIIF at 63c before the suspension. This is assuming that APTT's unit price holds at 97c or goes higher when the Trust starts trading.

My expectation is for a moderately higher price than 97c but, of course, Mr. Market doesn't care about my expectation.

Again, although it really doesn't matter what I think, I feel that MIIF units should be trading at a much lower price now for the higher level of risk investors are being asked to assume now.

ZHANG Zheng said...

This IPO has not opened to public who are not previous MIIF shareholders to subscribe, right? I cannot find the IPO Prospectus from SGX yet. Thanks.

AK71 said...

Hi Zhang Zheng,

Oh, I am sure it is open to the public. If I remember correctly, 90m units are set aside for public application.

Go to the ATM and select IPO application and you will see it. :)

Kelvin said...

HI AK71,

How have you been ^^. I have also applied for additional APTT units and hope to get some. How do you foresee the growth in TBC in the coming years. I sold down my MIIF in the beginning of the year so only left a few lots. ZzzZ

AK71 said...

Hi Kelvin,

I cannot see far into the future but the whole outfit should emerge stronger, post IPO, as its debts get paid down and finance costs are reduced. So, I am pretty sanguine about APTT at this point in time. :)

yeh said...

I asked my broker, he said he does not do private placement for this. So I have to apply through IPO. Thinking to apply 300lots. Not too sure how much I can get:(

AK71 said...

Hi yeh,

300 lots are a bundle! That is much more than what I am applying for. Anyway, good luck to both of us. :)

seefei said...

Yeh, I asked my broker for placement share also. He said this APPT is hot, his firm didn't get any. He said only IPO is expected not going to do get placed out. Hahaha...

AK71 said...

Hi seefei,

Hot? Probably. I do feel that there is a good chance of unit price going higher on day one of trading too.

For Croesus Retail Trust's IPO, people who applied for 201 to 500 lots only received 20 lots each or so I was told. Quite decent.

Kelvin said...

From what I see. Looks like I'm going to get nothing T_T. I only applied for 108 lots LOL

AK71 said...

Hi Kelvin,

The offer of 70 million units for retail investors is 3x more than what was available from Croesus Retail Trust. So, people applying for 201 - 500 lots could end up with 60 lots for APTT. ;p

Suresh Kumar said...

Hello AK71

can i use CPF for this IPO? Is there a minimum number of lots one has to apply for?


Surya Adi

AK71 said...

Hi Surya Adi,

I got this from the CPF's website:

Q: How do I use my CPF to apply for shares, property funds or bonds offered during an IPO under CPFIS-OA? Must I transfer my CPF from my Ordinary Account to my CPF Investment Account?

You need not transfer your CPF for the IPO. You may apply for the IPO in any of the available ways.

a. Use your agent bank's ATMs for your application. The amount of CPF needed will be transferred automatically from your Ordinary Account to your CPF Investment Account;

b. Use your agent bank's internet banking for your application. The amount of CPF needed will be transferred automatically from your Ordinary Account to your CPF Investment Account; or

c. Obtain a CPF cashier's order from your agent bank's counter and attach it to your IPO application form. The amount of CPF will likewise be transferred automatically.

I believe the minimum is 1 lot or 1,000 shares.

If you are in doubt, please call your broker for help. :)

Kelvin said...

Thanks for replying AK71, its really thoughtful of you to put in the effort to reply your readers such as that of looking up on the CPF website. BTW just out of curiousity did you apply for Croesus Retail Trust?? ^^

AK71 said...

Hi Kelvin,

I am curious too. So, doing a search and finding some answers benefit me as well. :)

Nope, I did not apply for Croesus Retail Trust because I believe that its gearing of 47% which is quite aggressive is the reason for its very high yield at IPO.

Although not strictly comparable, if Saizen REIT were to gear up to 47% as well, its distribution yield could easily exceed 9% at current prices! So, Saizen REIT is probably a safer investment.

Anyway, going by how Croesus Retail Trust's unit price behaved, Mr. Market seemingly does not care about high gearing. Instead, Mr. Market cares more about high yields. ;)

Kelvin said...

Btw whats SaizenREIT current gearing. They parred down their loans in the last quarter right, resulting in a drop in profits?

AK71 said...

Hi Kelvin,

Saizen REIT's latest gearing level is about 39%.

See presentation slides:
Saizen REIT: May 2013.

Garfield75 said...

Hi Ak, did you see mr ipo post on APTT ? I am quite divided:)

AK71 said...

Hi Garfield,

I think that analysis might have missed out the fact that a portion of the money from the IPO will be used to pay down debts.

The high level of gearing is one concern. High finance cost wipes out earnings. However, the situation will likely improve, post IPO.

All investments have risks. It depends on how comfortable we are with them. :)

yeh said...

Hi AK, now the people seldom watch TV as
More people will download movie or drama from Internet.
Will this affect the earning? Still good to buy?
Good prospect?

AK71 said...

Hi yeh,

I know many people who are worried about this. Actually, we have to be worried about Starhub's business too in this case.

I think pay TV satisfies a different type of demand. For example, I will go home and watch one particular program on our large screen TV every evening with my niece. I think there is a social dimension which cannot be replaced by watching drama streaming into our iPads. ;)

Of course, as demographics and lifestyles change, things could change too but these changes, if they take place, are gradual in nature. I do not expect a shocking overnight change to take place.

yeh said...

Thanks AK.
My hubby already applied some.
Wonder whether I still want apply.

AK71 said...

Hi yeh,

You were thinking of 300 lots.

Maybe, you want to scale down? ;)

yeh said...

I decided cut half:)

AK71 said...

Hi yeh,

150 lots? Sounds like a plan. ;)

ZHANG Zheng said...

Yes, I found APPT IPO in DBS internet banking. After a glimpse of its Prospectus, I am not clear about its finanical performance. At page 51 of Prospectus, its operating profit decreases from 156390 to 147741 to 132824 from 2010 to 2011 to 2012. At page 52, its net assets decrease from 587054 to 473496 to 370005. However, its net cash from operating activities (page 53) changes from 155543 to 185008 to 174774 at the same period.

Do you think that a declining operating profit is a major concern?

In addition, the divident is coming from its distributable free cash flows rather than the profits. Any comments on such practice?

Its forcasted distribution yields are too good to be rejected in today's low yield enviroments.

AK71 said...

Hi Zhang Zheng,

We must remember that Trusts like APTT are leveraged investments which pay out from cash flow and not from earnings.

So, its reduction in operating profits might not have any direct bearing on its ability to distribute income to unit holders.

APTT's staff costs hit a high of $41m in 2012, an increase of 24% or so. This will be something we have to keep an eye on.

Depreciation and amortisation are accounting items and do not really affect the amount of money available for distribution.

We want to note that profit before income tax expense will probably increase, post IPO, as debts are paid down and finance costs reduce.

Understand what we are investing in and the risks involved. See if the compensation we are offered for the risks is sufficiently attractive. :)

AK71 said...

Asian Pay Television Trust (APTV) is coming to market as a high-yield play via a business trust structure, offering initial yield of 7.5% for current year and 8.5% for 2014.

Given the defensive attributes of the business in a regulated
industry, being the sole licensed provider of cable TV services in five closely clustered franchise areas in Taiwan, and with a growing subscriber base of over 750,000 users, we think the issue will find favour with investors in the current yield-hungry environment.

Growth will be driven organically by cross-selling and bundling initiatives of its broadband and premium digital TV services.

APTV intends to distribute 100% of its distributable free cash flows.
Cornerstone investors for the issue include Quantum Partners, the
investment vehicle of George Soros, Prudential-linked funds, Signature Global Investors, a unit of Canada’s largest investment-fund companies, and Lion Global Investors, among others.

In terms of yield, APTV stacks up well against its peers, handily beating the 6.3% yield (2013) for the business trust sector and 4% for the Singapore-based telco players.

We see scope for yield compression to 7.5% (2014), suggesting a fair value of SGD 1.10, representing an upside of 13% from the IPO price.

Recommendation: Subscribe.

OSK DMG, 23 May 2013.


Hi AK and readers,

Looking forward to the opening of the trust tomorrow at 2pm. Fingers crossed on the number of allocated lots.

Was looking through the prospectus and with the first distribution on or before 8 October, aint too long of a wait too for our first ang bao.


Dear AK,

Been an avid reader of your blog for a humble half year and this is my first post.

Looking forward to the opening of the trust tomorrow at 2pm. Fingers crossed on the number of allocated lots.

Was looking through the prospectus and with the first distribution on or before 8 October, aint too long of a wait too.

AK71 said...

Hi Solidcore,

If I remember correctly, we can expect a twice yearly income distribution from APTT.

From various sources, it seems that the response to APTT's IPO is overwhelming. I also wonder how many lots would I get.


Hi AK,

As fate would have it, I am not a chosen one for this IPO :( 30 lots and unsuccessful

Hope you were more blessed than I am :)

yeh said...

AK, I applied 150 lot don't even get one lot!!(
This is the first IPO I applied so much n yet get NTH!

My hubby applied smaller lot, wish he get:)

AK71 said...

Hi Solidcare and yeh,

Did I get any? See my latest blog post on APTT! ;p

Cory said...

Hello AK, I saw 2 counters.

Asian Pay TV Tr
Asian Pay TV Tr 1

what is their differences ?

AK71 said...

Hi Cory,

You are a unit holder of the Trust? One is an odd lot counter. :)

Cory said...

Hi AK, no i am not. :)

So I assume the second one is the odd lock which trades by 1 share. I am guessing from the name.


AK71 said...

Hi Cory,

You made a well educated guess, I am sure. :)

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