NETLINK NBN TRUST
CJLU.SI
NetLink NBN Trust (NETLINK SP) - 2QFY18 Maiden Results Tracking Expectations
- NetLink NBN Trust reported its maiden 2QFY18 results, in line with expectations and tracking forecast provided in its IPO prospectus.
- The number of its residential connections increased 4.4% hoh to 1,142,648.
- Going forward, growth would be driven by telcos acquiring new residential and corporate customers, augmented by expansion in NBAP connections due to Smart Nation initiatives and the fourth mobile operator.
- The stock provided resilient dividend yield of 4.9% for FY18 (annualised) and 5.9% for FY19. Maintain BUY. Target price: S$0.93.
RESULTS
- NetLink reported net profit of S$13m for 2QFY18, in line with our expectations and accounted for 24.2% of our FY18 forecast.
Revenue tracking forecast.
- The number of residential connections increased 4.4% hoh to 1,142,648 while the number of non-residential connections grew 1.5% hoh to 42,028.
- Revenue from residential and non-residential connections were tracking forecast. As of Sep 17, its passive fibre infrastructure had reached 1,320,035 homes and 30,821 commercial buildings.
- Installation revenue was less than expected as most new end-users already have fibre termination boxes within their premises. Installation revenue will be augmented by new service activation charges of S$53 per connection for residential end-users and S$64 per connection for non-residential end-users to be imposed starting Jan 18.
Earnings above forecast.
- EBITDA was 2.1% above forecast due to lower operating costs and staff costs. EBITDA margin was higher than forecast by 2.3ppt at 72.2%. Its net profit of S$13m was also 4.9% above forecast.
Strong financial position.
- NetLink NBN Trust has cash holdings of S$70.6m. It has a strong balance sheet with debt/EBITDA at 2.1x (before IPO: 2.4x) and EBITDA interest cover at 6.9x based on trialling 12-month financials.
STOCK IMPACT
On track to meet projections.
- Management assured investors that NetLink NBN Trust is on track to meet DPU of 2.93 S cents for FY18 (8-month period from listing date - 19 Jul 17 to 31 Mar 18) as per forecast provided in its IPO prospectus.
- No dividend was declared for 1HFY18 due to the short time period.
Continued expansion in residential and non-residential segments.
- NetLink NBN Trust has started to utilise the Hougang Central Office, its 10th central office, to serve new housing estates in the Northeastern area, such as Sengkang and Punggol. Management also plans to expand its network to serve the upcoming Tengah Estate, which would yield 42,000 new residential homes.
- NetLink continues to support retail service providers to acquire new corporate customers.
Singtel to cease ADSL connections.
- Singtel will progressively close copper-based ADSL connections for broadband, TV and digital voice in early-18. Singtel will work closely with customers to ensure a smooth transition to fibre connections.
Growth from NBAP connections.
- NetLink supports government agencies in their Smart Nation initiatives. Management indicated that government agencies would disclose more information on Smart Nation initiatives over the next six months.
- NetLink supports TPG Telecom to deploy its mobile backhaul network. TPG has given orders for non-building access points (NBAP) and has leased spaces at its central offices. TPG has to rapidly roll out its network due to requirement to provide nationwide coverage by Dec 18.
EARNINGS REVISION/RISK
- We keep our earnings forecast unchanged.
VALUATION/RECOMMENDATION
- Our target price of S$0.93 for NetLink NBN Trust is based on DCF methodology (cost of equity: 6.5%, terminal growth: 2%).
- The stock provides attractive distribution yield of 5.6% (annualised) and 6.0% for FY18 and FY19, respectively.
SHARE PRICE CATALYST
- Continued growth for residential and non-residential fibre connections.
- Growth in demand for NBAP connections should the government accelerates the rollout for the Smart Nation initiative.
- Investors seeking defensive yield from NetLink NBN Trust’s resilient, predictable, transparent and regulated cash flows.
Jonathan Koh CFA
UOB Kay Hian
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http://research.uobkayhian.com/
2017-11-13
UOB Kay Hian
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