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Insider buying in APTT and Lu Fang Ming.

Monday, August 5, 2019

This blog is in reply to a comment from a reader regarding insider buying in APTT: HERE.

There is usually only one reason why insiders would increase their stakes especially if they should do so in a big way.

After all, no matter how rich we become, rationally, we don't want to lose money.

Personally, I believe that APTT is undervalued.

Otherwise, I would not have bought more as Mr. Market went into a depression.

See:

Gobbling APTT.

and

4Q 2018 and APTT.

It is good that insiders of APTT seem to think the same way.





This video is only about 2 years old.

When Mr. Market was more optimistic about APTT, some thought that the target price should be 64 cents.

Pretty mind boggling.

Some might also say it was irrational.

APTT's business really hasn't changed much.

The big change is that APTT no longer has leveraged income distributions for its investors.

That was what caused its unit price to plunge which, as I have explained in an earlier blog post, isn't rational either.






Of course, Mr. Market can stay irrational longer than we can stay solvent.

Always do our own due diligence and don't ride on other people's coattails. 


Remember, no one cares more about our money than we do.


Don't ask barbers if we need a haircut.







From an investing for income perspective, APTT's much higher income distribution to its shareholders in the past was unsustainable and I said so before too.

However, after being reduced drastically, its income distribution is probably more sustainable now.

Having said this, if the business remains very challenged and if its income continues to dip, income distribution should have to be trimmed, reasonably.

Investing in broadband infrastructure is the key to maintaining an edge that could compensate for the continuing weakness in its pay TV business.

Not paying an unrealistic dividend means that APTT has the internal resources to fund its broadband investment in order to stay competitive.




APTT's insiders should know more than we do and insider buying probably signals some confidence.

However, unless insiders have a very substantial stake or unless their purchase is a very significant percentage, insider buying might not be as meaningful.

This is the difference between insider buying in APTT versus insider buying in Centurion.

Insiders bought APTT's management from the Australians but, if I remember correctly, they don't hold a large stake in APTT itself.




Finally, APTT is in a business that is disrupted and there is a fog of war here.

So, telling myself that it is never wrong to book a gain, doing the novice TA that I do, that was what I did recently in the rally.

I booked a gain and took money off the table.

If APTT's unit price were to fall drastically, all else remaining equal, I could buy in again.

Remember what I said about speculative positions and how to size them: HERE.





Lu Fang Ming is very wealthy and if he were to lose half a million dollars, he might feel it like a pin prick but, for me, it would be like chopping off one of my arms.

Insider buying gives investors (and speculators) some measure of confidence but, still, we should be aware of our own capacity for pain and not throw caution to the wind.





Related post:
Sell into the rally and stay invested.

17 comments:

musette said...

Thank you so much for your insight on APTT.

I agree that we cant foresee the future but we can always size our positions and manage our risk . It more of a marathon rather than a race when on the wealth building process and theres so many things to learn.

Invest Sg said...

thank you for posting AK - to market to market.. see if can reload a bit :)

AK71 said...

Hi musette,

Yes, we cannot predict but we can certainly prepare. :)

Although not working towards financial freedom is probably a mistake, working towards financial freedom, we should remember that it is not a race and we should all work towards it at a pace that is sensible to us.

See:
Journey to financial freedom is not a race.

AK71 said...

Hi Invest Sg,

Mr. Market will do what he will do.

In the meantime, I will just sit back, relax and play Neverwinter. ;p

30YearOldInvestor said...

Hey AK

Thanks for sharing your thoughts on APTT.

Im also starting to see the value of sizing portfolio even though mine is XXXXXS size hahaha

Wish you all the best too :)

KC

AK71 said...

Hi KC,

Position sizing is important but probably neglected by many.

You might be interested in these blogs:
My investment portfolio, market value and positions sizing.
and
$500,000 stuck in a bad investment.

Good luck to us all. :)

Your Ka-ki! said...

Hi AK

How's breakfast ?

Are you not eating prata anymore ?

Any market action for you?

Unknown said...

hello ! do u think Mr Market will drop in upcoming months and if so , around when , in your opinion ? Not asking for a prediction but a general opinion ... thank you !!!!!

AK71 said...

Hi YKK.

Prata once in a while is a treat.

See latest update:
3Q 2019 passive income.

AK71 said...

Hi Unknown,

I do not know what Mr. Market will do next.

I can speculate but I don't think it is helpful.

What is more important for us regular folks is to be always prepared in case Mr. Market goes into a depression.

Do not be overly pessimistic or overly optimistic.

Be pragmatic.

See:
Sit with all that cash and do nothing?
and
Dumping all my investments in REITs.

Verseun said...

Hi AK,

Understand that you are in a period of hibernation from blogging, Neverwintering.

I respect your thoughts and opinions and would like your thoughts the below thesis:


1) My view is that Terry Gou is keen on a piece of the pie for 5G development. And that recent moves to make Lu Fang Ming the Chairman of APTT and selling his stake to him as well as a cash infusion of NT 7billion (SGD ~360m) into Asia Pacific Telecom is a sign of this. This is where Asian Pay TV comes in with its owns a hybrid co-axial cable in 1.2 million home in 5 franchise areas.

Hon Hai remits NT$7 billion back to Taiwan for 5G development
http://focustaiwan.tw/news/aeco/201911220012.aspx

2) I did some research on how Hybrid Co-Axial Fibres (HFC) are important to the rollout of 5G. 5G will require three main things from cable operators: electrical power; backhaul, and a small cell installation. APTT is also working on its backhaul and upgrading its broadband network. The small cell installation will require more Capex and APTT already has alot of debt, so a "restructure" which it is considering now would probably see some of its shares being bought back. Furthermore, in terms of growth broadband is the highest growing in terms of RGU and they are keen to capture a larger slice of the pie at 32% currently.

3) Most telecoms have said the future of 5G lies with enterprises rather than general consumers. As the need for higher speeds are required for a "Smart City" are from enterprises that need to build their network on cloud and automation. APTT also states repeatedly that it will "Continue to deploy fibre deeper into the network in 2019
to position APTT to benefit from Taiwan’s upcoming 5G rollout and drive data backhaul business".

Risk Factors

1) Cable makes up about 80% of APTT's revenue and is on the decline at a rather rapid rate. However, i feel that
a) Basic cable services will stabilise. A majority of basic cable users are elderly and watch cable TV at fixed times. Also Hokkien content are not provided by competition OTT providers like Netflix.
b) Unlikely to be massive migration to OTT. There will be a baseline in the decline and risk is limited as APTT is not a global player but one with 5 franchise areas to operate in.
c) No risk to non renewal of license, as no other operator has the capability to build the infrastructure. A speculative possibility is the SBS structure, government owned assets run by APTT as asset light.

2) Regulatory risks. APTT is subject to Regulatory risks like the requirement to digitise content that greatly increased its Capex at no addition to revenue. This is "money down the drain" and can occur again in future.

Overall , APTT is currently cheap and could reach a terminal state where it is zero growth with a sustainable business and attractive free cash flow.

a) APTT EV/EBITDA at 9.52x with ~60% EBITDA margins. Is better than telco peers
b) Its closest comparison would be Netlink Trust which trades at EV EBITDA is 12.14x and ~70% EBITDA Margins with way less debt.
c) On a FCF basis, APTT is at 30% FCF yield compared to Netlink's 5% FCF yield. And is a highly cash generative business (which explains why management used it as a cash cow previously).
d) APTT has more potential upside in terms of 5G. Even if it does not happen, Capex Requirements and Regulatory barriers prevent which prevent competition, enables APTT to be able to continue its business at a steady state (at a lower share price).

Its a case of heads I win , tails i dont lose so much.

Verseun said...

Hi AK,

Understand that you are in a period of hibernation from blogging, Neverwintering.

I respect your thoughts and opinions and would like your thoughts the below thesis:


1) My view is that Terry Gou is keen on a piece of the pie for 5G development. And that recent moves to make Lu Fang Ming the Chairman of APTT and selling his stake to him as well as a cash infusion of NT 7billion (SGD ~360m) into Asia Pacific Telecom is a sign of this. This is where Asian Pay TV comes in with its owns a hybrid co-axial cable in 1.2 million home in 5 franchise areas.

Hon Hai remits NT$7 billion back to Taiwan for 5G development
http://focustaiwan.tw/news/aeco/201911220012.aspx

2) I did some research on how Hybrid Co-Axial Fibres (HFC) are important to the rollout of 5G. 5G will require three main things from cable operators: electrical power; backhaul, and a small cell installation. APTT is also working on its backhaul and upgrading its broadband network. The small cell installation will require more Capex and APTT already has alot of debt, so a "restructure" which it is considering now would probably see some of its shares being bought back. Furthermore, in terms of growth broadband is the highest growing in terms of RGU and they are keen to capture a larger slice of the pie at 32% currently.

3) Most telecoms have said the future of 5G lies with enterprises rather than general consumers. As the need for higher speeds are required for a "Smart City" are from enterprises that need to build their network on cloud and automation. APTT also states repeatedly that it will "Continue to deploy fibre deeper into the network in 2019
to position APTT to benefit from Taiwan’s upcoming 5G rollout and drive data backhaul business".

Risk Factors

1) Cable makes up about 80% of APTT's revenue and is on the decline at a rather rapid rate. However, i feel that
a) Basic cable services will stabilise. A majority of basic cable users are elderly and watch cable TV at fixed times. Also Hokkien content are not provided by competition OTT providers like Netflix.
b) Unlikely to be massive migration to OTT. There will be a baseline in the decline and risk is limited as APTT is not a global player but one with 5 franchise areas to operate in.
c) No risk to non renewal of license, as no other operator has the capability to build the infrastructure. A speculative possibility is the SBS structure, government owned assets run by APTT as asset light.

2) Regulatory risks. APTT is subject to Regulatory risks like the requirement to digitise content that greatly increased its Capex at no addition to revenue. This is "money down the drain" and can occur again in future.

Overall , APTT is currently cheap and could reach a terminal state where it is zero growth with a sustainable business and attractive free cash flow.

a) APTT EV/EBITDA at 9.52x with ~60% EBITDA margins. Is better than telco peers
b) Its closest comparison would be Netlink Trust which trades at EV EBITDA is 12.14x and ~70% EBITDA Margins with way less debt.
c) On a FCF basis, APTT is at 30% FCF yield compared to Netlink's 5% FCF yield. And is a highly cash generative business (which explains why management used it as a cash cow previously).
d) APTT has more potential upside in terms of 5G. Even if it does not happen, Capex Requirements and Regulatory barriers prevent which prevent competition, enables APTT to be able to continue its business at a steady state (at a lower share price).

Its a case of heads I win , tails i dont lose so much.

AK71 said...

Hi Verseun,

The reply became quite long.

So, a blog it became:
APTT... and irrational competition.

Good luck to us all. :)

Betta man said...

This is good news or bad news ?

https://repository.shareinvestor.com/rpt_view.pl/id/cb220e6fd94667ece212ad29f2f35c72b406017678698c4cb790aa3b385d4038/type/si_news

AK71 said...

Hi Betta man,

There is an exchange regarding this latest development with another reader in the comments section of my latest blog.

See the comments section: HERE.

Verseun said...

It is important to form our own opinions like what AK taught. No one is a better steward of your money than you.

But based on whats happening

Pros
1) Dada Digital Convergence(subsidiary of Dafeng TV) is an important partner. According to Asian Pay Television Trust's announcement DDDC was referred to as a "strategic partner" and enable both Asian Pay Television Trust and Da Da Digital Convergence to achieve much more in terms of enabling wireless operators to tap our integrated networks for data backhaul. This is important if you see 5G playing a large role in future.
2) Dada Digital is a big player in the Cable TV market, together with APTT, they would form one of the largest player with 1 million subscribers (4% of the population of Taiwan). This is definitely synergistic.
3) Cost controls are working. While 4Q2019 revenue was down -6.5% YoY to S$79.5 million, the trust's EBITDA declined by a smaller -2.4% YoY to S$44.0 million. ARPU has also been stabilized

Cons
1) Main core business is eroding. Pay per TV is declining as evident of a trans-formative shift away from Cable TV.
2) It seems less likely now that Hon Hai and APT is going to play a larger role in APTT. This may or may not be a con, depending on whether you think that DaDa Digital would be a more "synergistic" partner than Hon Hai and APT.

AK71 said...

Hi Verseun,

Thanks for sharing your thoughts.

Indeed, no one cares more about our money than we do. ;)


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