NetLink NBN Trust - OCBC Investment 2019-02-15: Steady As She Goes

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Steady As She Goes

NETLINK NBN TRUST (SGX:CJLU)’s 3QFY19 exceeded its IPO projections across a number of metrics.
Revenue of S$89.0m was 3.4% higher than forecast, brought about by higher diversion revenue as well as ducts and manholes service revenue. Similar to preceding quarters, these were partially offset by lower than projected installation-related revenue.
Total expenses of S$71.7m was 0.4% lower than projection, largely on the back of lower depreciation and amortisation expenses, finance costs and other operating expenses.
Finance costs came in 11.0% lower than projection at S$5.0m, due to stronger operational cash flow. EBITDA margin was firm at 70.6%, which was in-line with projections.
3QFY19 PAT came in at S$19.6m, or 17.6% higher than projection.

Operationally, we note that NetLink NBN Trust has grown its number of residential fibre connections by 3.4% q-o-q to 1.284m connections, surpassing its projection of 1.278m connections by the end of FY19. We believe this was in part due to the effect of STARHUB LTD (SGX:CC3) placing more orders with NLT NBN, as the former will be ceasing cable services from July 2019. The number of non-residential fibre connections grew more modestly at 0.5% q-o-q to 45.7k.
While we believe that it might be challenging to hit the FY19 target of 47.3k connections, we note that this segment has a much smaller contribution than the residential connections to top-line, 8.5% for Q3FY19 revenue.
Non-Building Address Point connections remain on track to hit the full-year target of 1,592 connections, on the back of Smart Nation initiatives and continued demand from Requesting Licensees.
Separately, management noted the trend of reduction in the cost of fibre, which should help in lowering purchasing cost over time.

We maintain our Fair Value estimate of S$0.90 for now.
Annualising the 2.44 S-cents DPU paid for 1HFY19 (NetLink NBN Trust declares semi-annual distributions), this would give an annualised FY19F yield of 5.7%, based on 14 Feb’s closing price of S$0.805.

Joseph Ng OCBC Investment Research | https://www.iocbc.com/ 2019-02-15

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