NETLINK NBN TRUST (SGX:CJLU)
NetLink NBN Trust - Trust Them To Deliver
- FY21 capex to grow at healthy rate.
- Opportunities outside residential.
- Higher Fair Value of S$1.10.
In-line quarter
- NetLink NBN Trust (SGX:CJLU)’s 3QFY20 results were broadly in-line.
- Revenue grew 2.9% y-o-y to S$91.6m, accounting for 24.8% of our full-year forecast. Growth was on the back of higher residential connections, though partially offset by lower installation-related revenue, diversion revenue and ducts and manholes service revenue. Excluding the impact of SFRS(I) 16, EBITDA margin for 3QFY20 would have been 72.8%, or 2.2 ppts higher y-o-y due to greater revenue contribution from residential connection services which carry higher EBITDA margins. See NetLink Trust Announcements.
- All-in, PAT grew 9.6% to S$21.5m, which is 24.8% of our full-year forecast.
Growth opportunities remain, though more modest on the residential end
- Residential connection growth has indeed been more modest this quarter, coming in at 0.8% q-o-q. However, this is not altogether surprising, given that the migration of coaxial cable subscribers to fibre by StarHub (SGX:CC3) ended on 30 Sep 2019. Still, NetLink NBN Trust is still working on initiatives to extend its reach to lower income groups and elderly homes.
- On the lower revenue contribution from ducts and manholes, management shared that there were two main reasons.
- First, the joint build projects with SingTel (SGX:Z74) have been slowing, but NetLink NBN Trust has instead been building it out themselves, which would allow them to earn regulated returns under the RAB model.
- Second, SingTel has also been gradually retrieving copper wires from the ducts, and hence there have been reduced payments to NetLink NBN Trust.
- Within the NBAP and segment fibre connections, management highlighted that opportunities remain from point to point connections, with demand coming from data center clients, for instance.
- Management noted that FY21 should see capex grow at a healthy rate – we believe this comes on the back of the need for network flexibility/resiliency, as well as the densification of networks in new estates.
Different fortunes vs. its telco peers
- NetLink NBN Trust’s gearing ratio is ~15.3% (D/A), as of 31 Dec’19, much lower than S-REITs under our coverage.
- In light of heavier 5G capex requirements and stiffer competition amongst MNOs, especially with TPG Telecom stating their intension to launch local commercial services in 2020, as well as accounting for more modest risk-free estimates, we lower our cost of equity from 6.6% to 6.2% and consequently, our fair value rises from S$1.03 to S$1.10.
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
OCBC Research Team
OCBC Investment Research
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https://www.iocbc.com/
2020-02-12
SGX Stock
Analyst Report
1.10
UP
1.030
