Hong Kong-based APT Satellite Holdings is a regional satellite operator with global ambitions. After the group posted an impressive jump in half year revenues, SatelliteFinance’s Jason Rainbow speaks with Huang Baozhong, vice president of marketing and…
Hong Kong-based APT Satellite Holdings is a regional satellite operator with global ambitions. After the group posted an impressive jump in half year revenues, SatelliteFinance’s Jason Rainbow speaks with Huang Baozhong, vice president of marketing and sales, to find out where the company is heading next.
Jason Rainbow: APT posted HK$559.1m (US$71.7m) in revenues for the six months to 30 June 2013, up 39% compared with the same period last year. What were the main drivers behind this surge?
Huang Baozhong: Well, it did not happen all of a sudden. A restructured and greatly improved management team is the first reason.
The second is the redemption of Apstar 2R in 2009. After the financial crisis, satellite operators worldwide became very cautious about new investment. But we took advantage of it to negotiate with Telesat Canada to buy back the Apstar 2R satellite, which we had leased to them under an agreement long ago. The orbital slot for this satellite is 76.5E, so it is considered to be a very valuable asset for its future development rights.
We were then able to commission our replacement satellites programme with Apstar 7 and Apstar 7B in September 2009 and April 2010, respectively, in order to ensure a 100% successful replacement cycle. And this strategy is very effective. We increased our revenue in the same year that Apstar 2R joined our satellite fleet and started to boost our profits – that was the foundation for growth.
Future growth will be mainly driven by media broadcast, and less through data backhaul. Previously, APT’s focus has been on telecommunications, where the margin is very low and the churn rate is high. We are getting more and more broadcasters using our satellites, especially after the replacement of Apstar 2R by Apstar 7.
JR: And the Apstar 7 satellite that replaced Apstar 2R was part of this new drive?
HB: Yes, we launched Apstar 7 in 2012, and we’ve sold nearly all the new capacity on it. It has C-band that covers most of the world, and Ku-band that is focused on China, Middle East and North Africa, Africa, as well as a steerable beam currently focusing on South East Asia. Roughly speaking most of the Islamic countries are within the footprints. It also has spot beams, which we sold to DTH firm Skynet in Myanmar last year.
So there was a very good fill rate before we even launched the satellite, and that’s an important part of our current success. But we’ve also recently adjusted the price for the transponders and this helped us to grow our revenue, and of course profit, because if the capex is fixed the more revenue you have the more profit you generate.
JR: What is your take on the controversy caused by the US Department of Defense’s use of Apstar 7 for military operations in Africa – given APT Satellite’s connections with China?
HB: I think this is really nonsense, although this of course can impact on us. Generally speaking, we are a Hong Kong business company, we are listed on the Hong Kong Stock Exchange and we are governed by the laws of Hong Kong. All our information is transparent, and we have to make disclosures under the listing rules and corporate governance compliance.
We have an independent board of directors, and effective checks and balances have been maintained by our principal shareholders from Singapore, Taiwan and of course China.
In terms of our organisational structure, we are more or less the same as AsiaSat. We don’t understand why the US Senate treats AsiaSat and APT differently. There’s no reason for that. The mainland Chinese shareholders never have had control over APT. They effectively only hold roughly 33% of the company, as of 3 September 2013. They do not have absolute control over the listed company and its daily operations. Under Common Law, directors owe a duty to the company as a whole instead of individual shareholders.
And when the US Pentagon considered using our satellite they clearly checked all this.
We want to stick with conducting business professionally and ethically. That is our way of doing business. In fact, we are not supposed to know who the end-users of our customers are and such important content should have been encrypted. APT has been in the field for over 20 years and we care for the needs of our customers. Financially, our satellite is performing very well and we don’t have to rely on a single customer.
JR: How do you see the benefits of being a public company?
HB: In 1996 we listed on both the New York Stock Exchange by ADR Level 3 and Main Board in Hong Kong. In 1998, we delisted from New York, but we kept a listing in Hong Kong. It means we’re very disciplined. We are subject to tight requirements in corporate governance and transparency. But also it increases your credentials for customers, and gives more channels to finance your projects, as well as raising your profile for investment in capital markets or debt markets.
JR: How many of APT’s satellites are currently in operation?
HB: Right now we have seven satellites, and among them two are in inclined orbit: Apstar 1 and 1A. Three are in operation: Apstar 5, 6 and 7. We are also going to take additional capacity from our principal shareholder China Satcom’s Chinasat 12 and Chinasat 5A satellites to satisfy our customers’ capacity needs.
And we have two other satellites, Apstar 9A, which will become operational on 1 November serving mainly Malaysia and Indonesia, and Apstar 9, which will be launched in the second half of 2015.
JR: And didn’t you have another satellite called Apstar 7B?
HB: After the launch of Apstar 7 we transferred the ownership of Apstar 7B to China Satcom. This satellite was then renamed as Chinasat 12 and has since been successfully launched. This is the additional capacity which we can take from China Satcom to satisfy our customers’ transponder needs under the existing framework of the continuing connected transactions agreement.
JR: How are you financing the Apstar 9 that is slated to be launched in two years?
HB: We have a very good financial status, as we’ve just discussed. Our debt is low and gearing (debt to equity ratio) is about 39% at end of 2012. Our operations can generate a lot of cash to finance future satellite projects. In the first half of this year our EBITDA margin stood at 84.8%. So we don’t have any problem with getting enough internal resources to develop new satellite projects. What we care about is whether the market can substantiate new satellites.
JR: Do you usually secure debt to build satellites?
HB: We have some debt from a bank in Hong Kong. And we are able to repay all our loans, but since the interest rates on them are so low it means we can still make use of them. So there’s no rush to refinance it. The banks are certainly eager to lend us more.
JR: About two years ago, China Great Wall bought a minority stake in APT Satellite. Are you looking to bring in a new investor again soon?
HB: This is something that would need to be considered by the shareholders and board of directors.
JR: How many more satellites do you have in the pipeline?
HB: We are looking for opportunities to further stretch our business arms to the east and western parts of the world. Right now we are only a regional operator, but of course we are also quite ambitious to become closer to being a global operator.
But that will take time and will be limited by the availability of orbital slots. So we don’t exclude the opportunity to work together with other operators to jointly build or operate other satellites.
JR: When you talk about ‘stretching your arms’, does that mean the Americas and the Far East?
HB: We think first we’ll stretch more into Africa and Europe. If you look at our footprints at the moment we can not fully cover Africa. And we can not cover all of the European countries, like the UK.
JR: With orbital slots being limited, would you consider acquisitions to grow?
HB: We will not rule out any possibility. But we have also check list just like other investors, including financial analysis and regulatory issues.
Our future growth depends on a variety of issues. But I’m so proud that even in such a difficult environment we’re still doing very well. If you look at the figures we’re the best in the world.
JR: What are your thoughts on the Asian satellite market – is it too fragmented? Do you expect there will be consolidation and do you anticipate playing a role if so?
HB: Yes it is very fragmented. The demand for consolidation is there, but the operation of satellites is not a simple commercial business. There are a lot of factors to consider, such as national pride, which explains why even small countries want to have their own satellites.
JR: Do you think national pride is putting the brakes on consolidation?
HB: It is definitely preventing consolidation from occurring at the speed that it should be happening. The likelihood is there only for companies in the private sector. But on the national levels it is difficult.
JR: Lastly, how much of a competitive threat do you see in the region from the global operators, such as SES, Intelsat and Eutelsat?
HB: We faced competition in the market from day one. But we have become bigger and stronger. And I think the big players are facing more pressure than regional operators like us. We are focusing on only one or two regions, and they have to cater for global need. And to be successful you need focus. This is my viewpoint.
