The share price for APTT (Asian Pay Television Trust) has been taking some heavy blows, down 15% since last year’s IPO on the Singapore Stock Exchange.

Headed by CEO Robert Thorpe, holding company APTT has a mandate to invest in pay-TV systems in Asia and pays a per-share distribution, currently at an annualized yield of 11%.

Company strategy, however, has received backing from one key investor, Temasek, which increased its investment in APTT while other cornerstone investors, including Prudential and Morgan Stanley, were selling their shares.

Temasek, Singapore’s sovereign wealth fund, doubled its stake to 7.58% in February, one day after Prudential pared its holdings to below the substantial shareholder threshold of 5%, beyond which investors must inform the exchange of their position.

Thorpe is holding course too, attributing APTT’s poor share price performance to a broader sell-off in Asian yield investments, triggered by the US Federal Reserve reining in its quantitative easing monetary program last year.

COMMUNICATING VALUE

Nonetheless, the company needs to get better at articulating its investor appeal.

The company’s primary focus is Taiwan, the only asset in APTT’s portfolio so far. 

The trust was formed last year around anchor asset Taiwan Broadband Communications (TBC), a cable network with more than a million revenue-generating units – counting analog, digital and broadband subscriptions separately – at the end of March 2014. These included 756,000 cable TV customers, 126,000 premium digital customers and 181,000 broadband subs.

“Instead of being a competitive landscape, Taiwanese cable has been a utility, infrastructure-type asset: very reliable, very predictable and very cash-generative,” Thorpe said, speaking at this year's Asia Pacific Pay-TV Operators Summit (APOS).

“We have to work hard at making sure analysts and investors understand the unique aspects of the Taiwan market,” Thorpe added.

The market for analog cable in Taiwan is saturated and subject to price caps, and therefore the future is all about upselling customers to digital pay-TV tiers and broadband services.

TBC is ramping up its digital targets, gunning for 70% digital set-top box penetration by year-end 2014 versus 42% or 280,000 households in 2013.

The key will be monetizing the installed digital base, which TBC has thus far proven good at with nearly half of its installed base in 2013 taking up digital premium packs.

According to industry analysts MPA, publisher of Media Business Asia, digitalization in Taiwan has started to gain serious traction with 2.3 million digital cable subscribers by the end of 2013. 

However, monetization is far from optimal as few operators have been able to match TBC’s upselling ability.

“Going forward, we remain positive that overall monthly digital cable TV ARPU will continue to grow, driven by improved up-selling and the growth of value-added services,” says MPA analyst Aravind Venugopal.

One concern remains a sluggish economy, which could discourage consumer uptake of more discretionary digital services and broadband.

Taiwan’s cable operators added 32,000 broadband subscribers in aggregate in 2013, compared to 69,000 the previous year. 

“We remain positive that subscriber additions will pick up again in 2014, as more players deploy digital services and free up bandwidth for broadband,” says MPA’s Venugopal.

NETWORK EXPANSION

TBC also recently received regulatory approval to expand its cable service in the central city of Taichung, opening access to a further 400,000 homes.

Completing this rollout will require between US$30-40 million in 2013 and an additional US$20-30 million in 2014, according to APTT projections, all of which will be funded through existing lenders.

“Our first priority is to achieve our numbers and pay our distributions [shareholder payments],” Thorpe commented at APOS. 

“Not far behind, our second priority is to continue growing our business by driving digital penetration rates up, as well as upselling and cross-selling to generate growth in the yield.”

Yields for the free cash generating APTT stock are also attractive and investors are hoping that aggressive digital growth in 2014 and the Taichung expansion will help boost medium-term prospects for the company. 

Risks include the local economy and competition in broadband from telco juggernaut Chunghwa Telecom.