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


NetLink NBN Trust - Steady As She Goes

  • Firm set of results.
  • StarHub effect’ coming through.
  • Unchanged Fair Value of S$0.90.

FY19 revenue forecasts within reach

  • 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.

Residential connections powering ahead

  • 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.

5.7% FY19F yield

  • 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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