NetLink NBN Trust - UOB Kay Hian 2019-05-15: FY19 Earnings Beat Management’s Projections


NetLink NBN Trust - FY19: Earnings Beat Management’s Projections

  • NETLINK NBN TRUST (SGX:CJLU)'s 4QFY19 net profit of S$20m exceeds management’s projection by 12% on the back of a 3% q-o-q growth in residential connection and good cost discipline. FY19 net profit rose to S$77.4m, surpassing projection by 18%.
  • A DPU of 2.44 S cents was declared for the quarter, bringing FY19 DPU to 4.88 S cents, 5% higher than projection.
  • Maintain BUY as NetLink Trust offers an attractive shelter against external volatility. Target price: S$0.92.


FY19 earnings exceed management’s projections.

  • NETLINK NBN TRUST (SGX:CJLU) reported revenue of S$88m (+8.9% y-o-y) and net profit of S$20m (+30.9% y-o-y) for 4QFY19. Net profit was S$77.4m for FY19, which accounted for 105% of our full-year forecast of S$73m. Earnings exceeded management’s projection by 18%, with residential connections driving bottom-line growth.

Residential: Acceleration in migration to fibre.

  • NetLink Trust conitnues to benefit from the migration of StarHub’s customers to an all fibre-network. Residential fibre connections grew 11% y-o-y and 3.4% q-o-q to 1,328m, surpassing projection by 3.9%. Revenue from the residential segment grew 3.6% q-o-q.

Non-residential: Gradual growth.

  • Non-residential fibre connections grew 5% y-o-y and 1% q-o-q to 46,000. Revenue from the non-residential segment grew 0.8% q-o-q. The slower growth could be caused by weak business sentiment as a result of the US-China trade conflict, we opine.

NBAP: Increased 9% qoq to 1,587 connections.

  • Non-building access point (NBAP) fibre connections grew 8.5% q-o-q to 1,587. Revenue from the segment grew 7.3% q-o-q. NetLink Trust will continue to support telcos and government agencies on Smart Nation initiatives.

Lower installation and diversion income in 4QFY19.

  • Installation and diversion revenue (5% of group revenue) fell 23.8% and 74.4% q-o-q in 4QFY19 respectively. This was due to:
    1. some requested licences (RLs) undertaking the installation of their own for NBAP and non-residential connections; and
    2. deferred revenue from service activation charges (effective 1 Jan 18) for services that have not yet been performed.

Good cost control.

  • NetLink Trust's 4QFY19 EBITDA margin of 71.7% is ahead of projection due to lower IT maintaince costs, lower professional fees and reversal of over-accruals for opex.


  • DPU of 2.44 S cents declared for 2HFY19 (book closure: 24 May 19). FY19 DPU stands at 4.88 S cents, 5% higher than the projected DPU. This translates to an attractive net dividend yield of 5.8%.
  • NetLink Trust's focus for FY20 includes:
    • higher revenue driven by higher residential connections and installation-related revenue;
    • continuing to invest in expanding the network and utilising the S$10m capex reserves on projects that will improve the network’s capability and resiliency.
  • Regulated capex will be higher in FY20 as management seeks to improve the network.


  • We maintain FY20-21 net profit projections of S$80.9m and S$88.8m respectively.
  • Key drivers include 8% and 5% y-o-y growth in residential connections for FY20-21.


  • Maintain BUY and DCF-based target price of S$0.92 (cost of equity: 6.5%, terminal growth: 1.8%), or 16.2x EV/EBITDA. Yields would be compressed to 5.4%.


  • 5G opportunities. Management actively monitors the development of the 5G network in Singapore and explores opportunities associated with the new development.
  • Growth in demand for NBAP connections should the government accelerate the rollout of Smart Nation initiatives.
  • Investors seeking defensive yield from NetLink’s resilient, predictable, transparent and regulated cash flows.

Chong Lee Len UOB Kay Hian Research | Chloe Tan Jie Ying UOB Kay Hian | https://research.uobkayhian.com/ 2019-05-15
SGX Stock Analyst Report BUY MAINTAIN BUY 0.920 SAME 0.920