NETLINK NBN TRUST (SGX:CJLU)
NetLink NBN Trust - DPU Immune To COVID-19
Sustained DPU despite headwinds; Maintain BUY
- NetLink Trust (SGX:CJLU)'s 1HFY21 earnings were slightly below, at 47% of MKE/consensus FY21E profit. Interim DPU was 0.4% above MKE’s estimate, despite the tough environment.
- We trimmed our NetLink Trust's FY21E PAT by 3.5% to reflect change in operational forecast and one-off under provision tax expense. But we raised FY21E DPU by 3.3% to reflect better operating cashflow. This lifts our DDM-based Target Price (COE: 6.3%, LTG: 1.5%) to S$1.11.
- Maintain BUY on NetLink Trust as 5.2% FY21E yield is sustainable.
NetLink Trust's Results hit by work stoppage
- NetLink Trust's 1HFY21 revenue fell 2.5% y-o-y to S$181.5m, in line with MKE/consensus. This was mainly due to weakness in diversion (-47.4% y-o-y), ducts and manholes (-6% y-o-y), and installation-related revenue (-44.3% y-o-y) due to construction work stoppage and foreign worker shortage amid COVID-19.
- Higher EBITDA margin of 77% (+4.4ppt) was a result of favourable sale-mix shift towards higher-margin residential connection business and government relief grants received.
- Core profit of S$44.8m (+1.5% y-o-y) was partially dragged by one-off tax expense of S$2.1m (1HFY20: S$1.9m tax credit) due to insufficient provisions in the previous year.
Diversion and installation divisions to normalise
- NetLink Trust’s manpower capacity has normalised to pre-Covid levels. Management is seeing a pick-up in general construction activities to pre-COVID levels since 2QFY21, which bodes well for its diversion and installation divisions. That said both divisions are unlikely to catch up on projects that have been delayed.
- Non-residential segment revenue were slightly below, at 47% of MKE’s forecast. It appears that the well-served and competitive non-residential market has tempered our revenue-growth assumptions.
- Meanwhile, growth of the residential division is capped by muted new connections due to COVID-19.
Defensive nature proven by stable DPU
- Although management did not comment on whether NetLink Trust's 2HFY21E DPU would match 1HFY21 levels, distributions have been stable and/or growing based on its track record.
- We forecast a higher cash distribution due to better-than-expected operating cash flow amid expanded EBITDA margins. NetLink Trust's FY21E DPU of S$0.05 translates to a dividend yield of 5.2%, offering better dividend visibility than many yield plays as 94% of its revenue is secured by recurring cash flows.
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
- Risks to the outlook for NetLink Trust include any negative revisions to its regulatory regime.
Kareen Chan
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-11-09
SGX Stock
Analyst Report
1.11
UP
1.070
