NetLink NBN Trust - OCBC Investment 2019-08-06: Count On Them, Singapore

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Count On Them, Singapore

NETLINK NBN TRUST (SGX:CJLU)’s 1QFY20 results were within our expectations. Revenue grew 6.9% y-o-y to S$92.0m, on the back of higher residential connections and installation-related revenue partially offset by lower ducts and manholes service and diversion revenue.
We note that the higher installation-related revenue was mainly due to StarHub (SGX:CC3) migrating its coaxial cable subscribers to fibre.
EBITDA rose 9.1% y-o-y to S$66.5m, which comprises 26.6% of our full-year forecast. Excluding the impact of SFRS (I) 16, the group’s EBITDA margin would have been 71.5%, compared to 70.8% in 1QFY19, which we believe is a consequence of a drop in diversion revenue which typically carries lower margins.
Depreciation and amortisation increased by 5.7% y-o-y to S$42.0m, due to a higher fixed assets base and the effects from the abovementioned accounting change. PAT came in at S$20.9m, or 24.6% of our full-year forecast.

NetLink Trust’s residential fibre connections grew steadily at 4.1% q-o-q, but should moderate once StarHub completes its near-term cable to fibre migration exercise.
We note that the group saw NBAP connections drop 5.2% q-o-q to 1,505 connections, due to the government’s review of the Smart Nation Sensor Platform programme. Management noted that ~100 circuits were dropped off as a result of this, but should nonetheless be viewed as a one-off event. Furthermore, this development should not be viewed as an overall cooling-off of NBAP requirements, but rather a change in approach with agencies examining their own individual Smart Nation requirements, rather than being part of a platform.
Separately, we also note that management continues to believe that a mid-term pricing review with IMDA is unlikely. Management has also guided that capex in FY20 is expected to be higher than FY19, but no figures have been provided.
We continue to believe that higher capex spend in building up its RAB would position NetLink Trust well for the next pricing review.
We maintain our Fair Value of S$0.95.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2019-08-06

SGX Stock Analyst Report BUY MAINTAIN BUY 0.950 SAME 0.950