NetLink NBN Trust - Maybank Kim Eng 2019-02-14: In Netlink We Trust

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - In Netlink We Trust

NETLINK NBN TRUST (SGX:CJLU)'s 9MFY19 results again beat MKE and consensus estimates thanks to exceptionally strong duct/manhole and diversion revenue in 3Q. Core connection revenue continued to track our full-year forecast.
We maintain our numbers and DDM-based Target Price (COE 6%, LTG 0%) of SGD0.93.
Catalysts are expected from residential connection growth driving sustainable healthy DPU.
Any challenge to its current regulated returns is the main risk to our outlook.

NetLink Trust's 9MFY19 core connection revenue for residential and non-residential form 74%/73% of MKE’s FY19E forecasts. Residential connections showing q-o-q acceleration at +3%. Duct/manhole and diversion revenue lifted consolidated revenue and EBITDA to 79%/77% and 78%/75% of MKE/consensus forecasts.
With lower-than-expected finance charges, core profit was 82%/75% of MKE/consensus numbers. But as opex spiked in 4QFY18, we are watchful of another potential spike and thus maintain our FY19E forecasts.

As expected, STARHUB LTD (SGX:CC3)’s more aggressive decommissioning of its cable network and migration of its subscribers to fibre broadband have been driving residential connections for NetLink Trust. This cements our revenue forecasts moving into FY20E, at the least.

Management discussed the current fibre-broadband technology that enables its network to deliver up to 10Gbps download speeds vs current retail offers of 1Gbps. Speeds will be further enhanced to 25-45Gbps with technological developments.
In our view, this limits risks of “cord cutting” when 5G is commercially available as fibre will always be faster.
Also, NetLink Trust potentially stands to benefit from fibre-backhaul needs to support 5G.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-02-14

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