NetLink NBN Trust - DBS Research 2020-11-10: Distribution Intact

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Distribution Intact

NetLink Trust's 2QFY21 earnings of S$21.3m (-8% y-o-y/ -9% q-o-q) were largely inline except for one-off tax expense.
DPU of 2.53 cents declared for 1HFY21 (1HFY20: 2.52 cents) was also inline.
Maintain HOLD for NetLink Trust, limited catalysts for stock.

NetLink Trust (SGX:CJLU)'s 2QFY21 results recorded one-off tax surprise. 2QFY21 revenue S$94.1m (-2% y-o-y/ +4% q-o-q) and net profit at S$21.3m (-8% y-o-y/ -9% q-o-q) were broadly inline except for the tax deduction of S$3.1m.
1HFY21 revenue was lower by 2.5% y-o-y due to lower installation-related revenue (recall that FY2020 saw Starhub customer migration contributing strongly to installation-related revenue), diversion revenue, ducts and manhole service revenue, partly offset by higher residential connections revenue.
2QFY21 EBITDA margin improved to 75.4% (2Q19: 73.0%) due to higher proportion of revenue from residential connections and government relief grants received (~S$4m).

During the quarter, lower availability of contractors affected diversion revenue due to stoppages of works nationwide, while ducts and manholes revenue saw lower completion of joint projects with requesting licensees and reduction of leasing revenue from NetLink Trust’s ducts. Diversion revenue will continue to be spread over the next 6 to 9 months as some construction works are being pushed back.

During 2QFY21, NetLink Trust incurred S$3.1m tax expense, a swing from previous tax credit of S$1.0m in 1QFY21 and 2QFY20 respectively. In YA2016 NetLink Trust had claimed capital allowances and applied for group tax relief for these capital allowances, and based on IRAS’ final assessment, there was an additional assessment resulting in income tax expense of S$3.7m for 1H21. Excluding the impact of the under provision in prior year charged to 1HFY21, income tax credit would have been S$1.6m for 1HFY21, compared to S$1.9m for 1HFY20. According to the management, the tax impact is one-off.

During 1HFY21, NetLink Trust's capex was at S$27.3m (1HFY20: S$43.9m) due to fewer capitalisable projects, in part due to works affected by COVID-19. Management is guiding for increased capex in 2HFY21.

As of 30 Sep 2020, NetLink Trust’s residential connections grew 0.6% q-o-q to reach 1.437m connections, tracking within our expectations.

On the other hand, non-residential fibre connections grew 1.3% q-o-q, tracking within our expectations, while Non-Building Access Points (NBAP) connections and segment connections increased 4.2% and 6.3% q-o-q, tracking behind our expectations.

Sachin MITTAL DBS Group Research | Rui Wen LIM DBS Research | https://www.dbsvickers.com/ 2020-11-10

SGX Stock Analyst Report HOLD MAINTAIN HOLD 1.020 SAME 1.020