NetLink NBN Trust - OCBC Investment 2020-02-12: Trust Them To Deliver


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

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-02-12
SGX Stock Analyst Report BUY MAINTAIN BUY 1.10 UP 1.030