NetLink NBN Trust - DBS Research 2018-11-05: Distributions & EBITDA Beat IPO Projections

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NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Distributions & EBITDA Beat IPO Projections

• NetLink Trust’s 2Q19 revenue, EBITDA, and net profit were ahead of IPO projections and our forecast.
• 1H19 distribution per unit of 2.44Scts was 5% ahead of IPO projections and 4% ahead of ours.
• Netlink to benefit from StarHub’s accelerated migration to fibre by July 2019.
• Maintain BUY and Target Price of S$0.87; Attractive 6.4% yield.

What’s New

Revenues, EBITDA, and net profit higher than IPO projections and our forecasts.

• NetLink Trust’s 2Q19 revenue of S$90.6m and net profit of S$16.9m were 6.7% and 16.2% higher than IPO projections. Higher than projected revenues from diversion, ducts and manhole services was offset by lower than projected installation-related revenues. Higher than projected revenues outpaced the increase in cost (4.4% higher than projection).
• EBITDA of S$61.2m was higher than IPO forecast of S$59.4m despite margin of 67.6% being lower than projected (70%), as diversion revenues typically carry lower margins.

Operational figures ahead of expectations.

• As of 30 Sep 2018, Netlink had 1.23m residential connections, 45.5k non-residential connections, 1,280 Non-Business Address Points (NBAP) connections, and is on track to achieve its projections of 1.28m, 47.3k and 1,592 NBAP connections in the next 6 months.

Higher-than-expected DPU declared for 1H19.

• Netlink declared DPU of 2.44 Scents for 1H19 (FY19 projection: 4.64 Scents).
• Assuming equal distributions (twice a year), this is 5.2% higher than its IPO projection.
• Annualising the DPU for 1H19, stock offers c. 6.3% yield at current price.

StarHub’s accelearted migration to benefit Netlink in FY20F.

• StarHub (SGX:CC3) intends to migrate 100% of its subscribers on co-axial cable to fibre by July 2019 versus earlier expectations of 2020. There are about ~78,000 co-axial cable broadband subscribers and even mote cable TV subscribers who will migrate to fibre.
• Beyond FY20F, Netlink should benefit from ~2% growth in the number of households and Singapore household wired broadband penetration rising towards 100% from ~92% in FY20F in ~90% currently.

Sachin MITTAL DBS Group Research | https://www.dbsvickers.com/ 2018-11-05

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