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


NetLink NBN Trust - Count On Them, Singapore

  • Good set of 1QFY20 numbers.
  • NBAP drop not a concern.
  • Fair Value of S$0.95.

In-line quarter

  • 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.

Steady as she goes

  • 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