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.
- The run-up in share price to our target price is the main rationale for our downgrade. NetLink Trust offers an attractive yield of 5.1% that is well supported by captive recurrent revenues. However, we currently find limited catalyst to raise our target price.
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
Paul Chew
Phillip Securities Research
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https://www.stocksbnb.com/
2020-02-14
SGX Stock
Analyst Report
0.990
SAME
0.990
