Satellite Capacity Glut Weighs on APT’s 2014 Profits

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PARIS — Satellite fleet operator APT Satellite Holdings reported higher revenue but lower pretax profit in 2014 as it made profitable use of a borrowed Chinese satellite but was obliged to reduce prices given the oversupply in the Asia-Pacific.

Hong Kong-based APT said pressure on transponder-lease prices will continue in 2015 as more conventional and high-throughput-satellite capacity enters the region. The company said it is determined to maintain its market share and its satellite fill rates even if that means dropping lease prices.

“We have encountered a significant downward trend in lease price,” APT Chairman Yuan Jie said in a statement accompanying APT’s annual report. “Market competition in the Asia-Pacific region will become fiercer. The supply of traditional transponders will increase rapidly, and high-throughput satellites will emerge in the market.”

For the 12 months ending Dec. 31, APT reported revenue of 1.24 billion Hong Kong dollars ($160.8 million at year-end exchange rates). Pretax profit, at nearly 619 million Hong Kong dollars, was down 4.5 percent for the year.

EBITDA, or earnings before interest, taxes, depreciation and amortization, was 77 percent of revenue, compared to 78 percent in 2013 and 80 percent in 2012.

APT operates four satellites and has one on order – the Apstar 9 satellite under construction by the China Aerospace Science and Technology Corp. (CASC), which manages satellite manufacturing and launch services on Chinese Long March rockets.

In November 2013, APT contracted with CASC to build the Apstar 9 satellite, insisting on a tight delivery schedule including incentives and penalties associated with different delivery dates.

CASC is a majority shareholder of APT and Yuan is a CASC deputy general manager, but Hong Kong Stock Exchange rules set limits on CASC’s influence on company decisions and give minority shareholders rights to assure that major transactions are done on a value-for-money basis and are not sweetheart deals with the majority owner.

APT is paying $211.2 million for the construction and launch of Apstar 9, a Chinese DFH-4 platform that will carry 32 C-band and 14 Ku-band transponders and operate from 142 degrees east.

If it delivers Apstar 9 to the Chinese launch base by Sept. 10, CASC will receive a $1.5 million incentive payment. If delivery occurs after Nov. 30, daily penalties begin.

APT is the first established non-Chinese satellite fleet operator to order a Chinese-built telecommunications satellite. The DFH-4 platform, which outside China has been sold mainly to developing nations taking advantage of Chinese export-credit facilities, has been favorably reviewed by insurance underwriters after anomalies in its first two models.

APT said in its annual report that construction is proceeding smoothly and that the launch is scheduled to occur in the last three months of this year. Whether CASC will make the incentive-payment deadline is not clear.

One of the DFH-4 customers is the government of Laos, whose Laosat-1 is scheduled for launch this year.

APT is performing consulting services for the contract.

The Apstar 9 contract showed the advantage an organization like CASC has assembling satellite purchase deals. In addition to owning the satellite manufacturing and launch-service entities, CASC also owns China Satellite Communications Co., which is China’s principal satellite fleet operator.

As part of the Apstar 9 agreement, CASC threw in its Chinasat 5A satellite for APT’s use at the Apstar 9 orbital slot of 142 degrees east during the two-year Apstar 9 construction phase. The lease will end once Apstar 9 is declared operational in orbit. Chinasat 5A/Apstar-9A was launched in 1998 and is nearing retirement.

APT is paying $3.02 million for the use of Chinasat 5A, which it has renamed Apstar 9A. It turns out to have been a good move judging from the company’s 2014 financial statement.

The company said Chinasat 5A/Apstar 9A was the main factor in maintaining APT’s market share in 2014. It was also the main reason that the company reported a 7.4 percent increase in EBITDA even if the EBITDA margin dropped.

In 2014, 43 percent of APT’s revenue was from customers in Southeast Asia outside China and Hong Kong. Hong Kong customers accounted for 10 percent of revenue, and business in Greater China was 22 percent. Customers in India, Africa, the Middle East and Australia totaled 25 percent of revenue.

APT told investors it expects to contract in mid-2015 for a replacement satellite for Apstar 5, whose capacity is co-owned by Telesat of Canada under the name Telstar 18 at 138 degrees east. Ottawa-based Telesat has said it expects a contract to be signed by June.