NetLink NBN Trust - Phillip Securities 2020-05-11: Stability At The Core

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

NetLink NBN Trust - Stability At The Core

  • NetLink Trust (SGX:CJLU)'s 4Q20 revenue and EBITDA rose 5.2% and 13.2% y-o-y respectively, excluding a S$15.4mn write-off of a capitalised IT systems project. Revenue and EBITDA were within expectations.
  • Revenue growth was driven by residential connections which rose 9.3% y-o-y as the number of connections expanded 7.5% y-o-y to 1.427mn.
  • NetLink Trust's DPU in 2H20 was 2.53 cents, a 3.7% improvement over 2.44 cents in 2H19.
  • We are raising our target to S$1.03 (previously S$0.99) as we roll-over our terminal values higher. We are upgrading from NEUTRAL to ACCUMULATE.
  • Growth will be muted but the healthy dividend yield and stability in the operations will be enviable investment merits.





The Positives


Core recurrent residential revenue expanding.

  • Residential fibre connections rose by 7.5% y-o-y to 1.42mn. However, the quarterly net addition of 6.27k fibre connection was the weakest since listing - this is within expectations. Our forecast of 25k net connections for FY21e is in-line with household formations in Singapore.

Full year distributions rose 3.5% y-o-y.

  • The full-year distribution per unit was 5.05 cents, a jump of 3.5% y-o-y. This payout of S$197mn for FY20 is backed by free cash-flows of S$187mn. Capital expenditure for FY21e is expected to be relatively stable.


The Negative


Ducts and manhole the weak spot.

  • Ducts and manhole is weakest revenue segment for NetLink Trust. The decline will be structural, due to fewer copper cables installed by Singtel.


Outlook

  • NetLink Trust has been relatively unaffected by the outbreak. Understandably, there will be some delays in construction and installation. Segments at risk are the installation and diversion revenue, as well as the new residential connections. However, it is worth noting that these segments only account for 8% and < 2% of revenue, and the impact will be temporary. Any credit risk on residential customer are borne by the telcos.


Upgrade to ACCUMULATE with higher Target Price of S$1.03.






Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2020-05-11
SGX Stock Analyst Report ACCUMULATE UPGRADE NEUTRAL 1.03 UP 0.990



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