NetLink NBN Trust - Phillip Securities 2020-02-14: Slower Growth Expected

NETLINK NBN TRUST (SGX:CJLU) | SGinvestors.io NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Slower Growth Expected

  • NetLink Trust (SGX:CJLU)'s 3Q20 revenue and EBITDA were marginally below our expectations. Project-related installation and diversion revenue was lighter than expected.
  • Growth in residential revenue has peaked. The migration of StarHub (SGX:CC3) customers from cable to fibre has been ended. Net addition of residential fibre in 2Q20 was the slowest since listing.
  • NBAP is an exciting opportunity as 5G rolls out in Singapore, but any material contribution will be several years ahead.
  • There is no change to the attractive utility type revenues of NetLink Trust. Nevertheless, we are downgrading to NEUTRAL from ACCUMULATE due to the recent share price run-up. Our target price is unchanged at S$0.99.
  • Growth will be more sanguine as the migration from cable to fibre has completed.



The Positives


Recurrent residential revenue growing, albeit more modestly.

  • Residential revenue rose almost 13%, supported by residential fibre connections growth of 10.7% y-o-y to 1.42mn. Net addition of 10.5k fibre connection in 3Q20 was the slowest in nine quarters (i.e. since listing). Residential revenue accounts for 64% of total revenue, the highest since listing.

Non-residential gaining some momentum.

  • Non-residential connections rose by 3.7% y-o-y to 47,408. On a quarterly basis, the net addition of 666 connections is the highest in four quarters. Government agencies and small & medium enterprises are the targeted segments for NetLink Trust.


The Negative


Clearer signs of decline in ducts and manhole revenue.

  • This category accounts for 8% of total revenue. Revenue has been trending down from S$9.3mn per quarter last year to currently S$7.6mn. There is two parts to the revenue –
    • joint-build project work with SingTel (SGX:Z74) to build new ducts;
    • contractual revenue from SingTel for copper and fibre cables placed in these ducts.
  • The decline is due to NetLink Trust building the ducts themselves and SingTel removing their older copper wires from the ducts.


Outlook

  • NetLink Trust remains a utility with several growth drivers. Longer-term growth will be supported by higher capital expenditure, continuous household formation, 5G rollout and Smart Nation initiatives.


Downgrade to NEUTRAL with unchanged Target Price of S$0.99.






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-02-14
SGX Stock Analyst Report NEUTRAL DOWNGRADE ACCUMULATE 0.990 SAME 0.990



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