NetLink NBN Trust - Maybank Kim Eng 2019-05-14: Financial Health Is Wealth


NetLink NBN Trust - Financial Health Is Wealth

Yields & growth intact; BUY maintained

  • NETLINK NBN TRUST (SGX:CJLU)'s FY19 EPS beat MKE/consensus estimates by 11%/4%, from stronger-than-expected revenue. With this, we raise our FY20/21E revenue/EBITDA/EPS and our DDM-based (COE 6%, LTG 0%) Target Price to SGD0.94. See Fig1 in attached PDF report for forecast revisions and Fig2 for MKE vs consensus forecasts.
  • With a naturally-defensive residential fibre monopoly business and 6% sustainable yields, we continue to believe NetLink Trust provides a haven during the current industry turbulence due to wireless competition and general economic uncertainties.
  • Maintain BUY where any negative revisions to its regulatory regime are the key risk to our outlook.

Accelerated residential growth

  • NetLink Trust's FY19 revenue, EBITDA and EPS were above MKE/consensus forecasts.
  • 4QFY19’s 3% q-o-q/11% y-o-y acceleration in residential connections was particularly marked, as households continued to migrate from cable broadband to fibre. Finance costs were also lower than our estimates and guidance. See Fig3 in attached PDF report for summary on NetLink Trust's quarterly income statement.
  • With cable migration expected to be nearly over by 1QFY20, we bring forward our residential-connection assumptions and raise FY20/21E revenue by 3%/1%.

Not all rosy but not a big problem

  • Non-residential or enterprise connections were slightly below our forecasts. Potential increased competition from incumbent telcos and SP Telecom (see report) which aims to build out its own non-residential fibre network temper our revenue-growth assumptions.
  • The same goes for NBAP connections. But both only contribute less than 11% to NetLink Trust's revenue (See Fig4 in attached PDF).

  • We have assumed an additional SGD20m capex to take FY20E spending to SGD80m. This should be funded by debt, given a sub-20% gearing level. Weighing just 0.4% on FY21E profits, we see its additional depreciation charges as part of management’s preparations for the next round of rate review in FY23E for an expanded rate base from which returns are guaranteed.

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2019-05-14
SGX Stock Analyst Report BUY MAINTAIN BUY 0.94 UP 0.930