NETLINK NBN TRUST (SGX:CJLU)
NetLink NBN Trust - Shelter To Wait Out The Storm
Switch to NetLink for yield certainty; Reiterate BUY
- Reiterate BUY on NetLink Trust (SGX:CJLU) with DDM-based Target Price of SGD1.07.
- MAS’ move to call on banks to cap their FY20E dividends caused banks’ average FY20E yield to fall to 4%. NetLink Trust’s FY21E DPU of 5% offers a good option for investors to switch from banks for relatively higher dividend sustainability, given its strong cashflow is backed by fixed regulatory pricing till end-2022. It also offers a domestic-yield play amid COVID-19 re-opening uncertainties.
- Changes to its regulated returns (7% pre-tax WACC) is the key risk to our outlook but we do not expect this till end-2022 (MarFY23).
SG banks to cap dividends and offer scrip option
- MAS had called on local banks to cap their total DPS for FY2020 at 60% of FY19 and to offer scrip options for receiving dividends. This is an unexpected move by MAS as the regulator said it sees no need to restrict dividend policies in Apr 2020.
- While, local banks’ capital position is strong, MAS stated that it is a “pre-emptive” move to bolster banks’ resilience and ability to support lending to businesses and consumers, as well to absorb economic shocks in the event of a more adverse scenario.
Clearer DPU outlook than REITs, telcos, now banks
- With the latest move, local banks’ FY20E average yield has now fallen to 4.0%. NetLink Trust’s FY21E DPU of 5% offers a good option for investors to switch out of banks. NetLink Trust’s less volatile business offers a better yield play over telcos and certain REITs which exhibit higher DPU downside from capital preservation on weaker outlook and telcos’ declining ARPU.
- NetLink Trust’s FY21E DPU of 5.2% is on par with Singapore’s REITs’ FY20E (end-Dec) average yield of 5.3% and telco players’ 5.4%.
Strong cashflow backed by fixed regulatory pricing
- 95% of NetLink Trust's 1QFY21 revenue was backed by recurring cashflow, while 87% is under fixed pricing till the next review in end-2022, thus providing DPU visibility.
- Its natural monopoly in the residential connections segment will be driven by annual new household formation (10-year CAGR of 1.7%) and higher broadband penetration rate of 94%. Tele-commuting and home-based learning should accelerate the process. Its non-fibre segment is expected to remain stable on long-term contracts.
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
Kareen Chan
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-08-11
SGX Stock
Analyst Report
1.070
SAME
1.070
