NETLINK NBN TRUST (SGX:CJLU)
NetLink NBN Trust - Steady Ship
- Despite COVID-19 disruptions, NetLink Trust achieved resilient earnings in 1HFY21. 1H DPU of 2.53 cents (+0.4% y-o-y) was in line with our expectations.
- We believe its fibre connections can continue to grow in 2HFY21F and expect activity-reliant revenue to see sequential recovery during the period.
- Reiterate ADD on NetLink Trust and DDM-based target price of S$1.10. We like NetLink Trust as a defensive play amid global market volatility with its attractive dividend yield of 5.3%.
NetLink Trust's 1HFY21 results in line with expectations
- NetLink Trust (SGX:CJLU)'s 1HFY21 DPU of 2.53 cents (+0.4% y-o-y) was deemed in line, at 48.7% of our FY21F forecast. 2QFY21 revenue came in at S$92.5m (+3.9% q-o-q, -1.7% y-o-y). While the number of fibre connections continued to grow, total revenue was impacted by lower installations (high comparison base due to StarHub (SGX:CC3) migration last year) and diversion works (lower construction activities post-circuit breaker).
- As installation and diversion works are lower margin businesses, NetLink Trust was still able to achieve an EBITDA growth of 2.6% y-o-y to S$70.9m in 2QFY21. Excluding a one-off S$3.7m income tax under provision, core net profit rose S$25.0m (+6.4% q-o-q, +7.8% y-o-y) in 2QFY21.
Resilient growth in fibre connections
- NetLink Trust continued to see growth in all three types of fibre connections, and we believe the current growth trajectory is sustainable.
- Its residential segment reached 1.44m connections in 2QFY21 (+0.6% q-o-q, +1.9% y-o-y) as NetLink Trust reached more new homes and added connections to low-income households via initiatives such as IMDA’s Home Access programme.
- Non-residential connections resumed growth to 47.6k (+1.3% q-o-q, +1.8% q-o-q) after a dip in 1QFY21, which saw the circuit breaker impacting new additions.
- The non-building address point (NBAP) segment saw the fastest connection growth to 1,847 (+4.2% q-o-q, +17.7% y-o-y) as NetLink Trust supplemented local telcos’ rollout of 5G infrastructure.
Expect better activity-reliant revenue in 2HFY21F
- With the easing of social distancing measures, we expect activity-reliant revenue (installations, diversions) to see sequential recovery in 2HFY21F. Management noted that construction activities in Singapore have picked up since Aug and reached a more normalised level in Oct; this could drive stronger diversion revenue.
- With the expectation of a stronger 2HFY21F, we retain our NetLink Trust's FY21F dividend forecast of 5.20 cents (+3% y-o-y).
Reiterate ADD and target price of S$1.10
- We reiterate our ADD call and DDM-based target price of S$1.10. We like NetLink Trust as a defensive play amid global market volatility, given its high barriers to entry, strong earnings visibility and stability. In the current low interest rate environment, NetLink Trust offers an attractive FY21F dividend yield of 5.3%.
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
- Potential catalyst include stronger than expected growth in NBAP connections benefiting from telcos’ 5G infrastructure rollout.
- Downside risks include lower-than-expected interconnection pricing in the 2022F review.
ONG Khang Chuen CFA
CGS-CIMB Research
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https://www.cgs-cimb.com
2020-11-09
SGX Stock
Analyst Report
1.100
SAME
1.100
