NetLink NBN Trust - Maybank Kim Eng 2020-08-06: Slow Start But Trusty Dividend

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Slow Start But Trusty Dividend

NetLink NBN Trust (SGX:CJLU)'s 1QFY21 core profit came in at 23% of our FY21E, but in line with consensus.
We trimmed our FY21E PAT by 4.9% to reflect lower than expected installation and diversion revenues due to a shortage of foreign workers. Our DDM-based Target Price (COE: 6.3%, LTG: 1.5%) is consequently reduced by 0.9% to SGD1.07.
Maintain BUY as its 5% FY21E yield is sustainable.

Persistent labour constraints, restrictions on site/house visits amid COVID-19 and changes to its regulated returns (7% pre-tax WACC) are key risks.

NetLink NBN Trust's 1QFY21 revenue fell 3.3% y-o-y to SGD89m on lower activity in installation and diversion revenues as foreign workers’ availability shrunk amid the COVID-19 outbreak.
Non-residential segment fell (-3.8% y-o-y/-6.7% q-o-q) as new connections, which require site visits, could not be carried out due to manpower shortage and temporary closure of businesses during the Circuit Breaker. Residential segment growth (+5.4%/ +0.4% q-o-q) was also capped by house visit restrictions and manpower issues.

That said, residential/non-residential connection request activities have recovered back to pre-COVID-19 levels in Aug. We maintain our residential and non-residential connections forecast as we expect the two segments to catch up in the remaining quarters. This is driven by the rising trend in telecommuting, home-based learning, as well as better offerings for SMEs.

See our initiation coverage report NetLink NBN Trust - Maybank Kim Eng 2020-07-27: Underground Shelter To Dividend Downside. We continue to like NetLink NBN Trust as 95% of its 1QFY21 revenue is pegged to recurring cash flows and long-term contracts. Its FY21E yield of 5% offers a better dividend visibility than other yield plays given its stable business.
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NetLink NBN Trust should be able to fulfil its installation and diversion order backlog once its manpower situation eases.

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2020-08-06

SGX Stock Analyst Report BUY MAINTAIN BUY 1.07 DOWN 1.080