NetLink NBN Trust - OCBC Investment 2020-11-09: Getting Back Into The Groove


NetLink NBN Trust - Getting Back Into The Groove

  • Healthy 1HFY21 DPU of 2.53 S-cents (+0.4% y-o-y).
  • Moving past 1Q operational issues associated with COVID-19.
  • Maintain Fair Value of S$1.10.

Encouraging scorecard

  • NetLink Trust (SGX:CJLU)’s 2QFY21 revenue fell 2% y-o-y, but increased 4% q-o-q to S$92.5m.
  • As a recap, NetLink Trust's 1QFY21 was broadly affected by lower activity-based installation and diversion revenue resulting from COVID-19. In 2QFY21, we saw residential fibre connections, non-residential fibre connections and NBAP connections rise by ~9k / 600 / 75 q-o-q, respectively. EBITDA rose ~3% y-o-y while PBT rose 10% y-o-y to S$24.4m.
  • NetLink Trust has declared a dividend of 2.53 S-cents for 1HFY21 (+0.4% y-o-y), which translates into a 5.4% yield as of 6 Nov close. Management shared that while their 1H cashflows were quite stable (helped also by government grants), they prefer to adopt a conservative stance due to the COVID-19 situation.

More normalised activity levels

  • We note that while NetLink Trust’s capacity to fulfil new service requests has normalised, it still remains wary of any further impact from the pandemic. Moving forward, we expect NetLink Trust to continue to expand its network in new housing estates.
  • The group has been working with Requesting Licensees (who provide fibre services to Retail Service Providers that in turn provide retail fibre services to end-users) to both meet future demand and acquire new non-residential and NBAP customers. NetLink Trust will also continue to render support to mobile operators with the deployment of fibres in support of their respective mobile network infrastructure.
  • Management noted that orders from MNOs have been increasing, which could potentially relate to 5G. As MNOs are able to rollout non-standalone 5G networks by leveraging on the existing network, further activity could take place with the standalone 5G roll-out, though no timeline has been shared.
  • Separately, NetLink Trust has also customised offerings that are targeted for SMEs, and also looks to improve its presence at major data centers. We understand that NBAP and point-to-point connections have been increasing over the last few quarters.

Fair Value of S$1.10

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-11-09
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