NetLink NBN Trust - CGS-CIMB Research 2020-12-10: Steady Ship


NetLink NBN Trust - Steady Ship

  • We believe NetLink Trust’s fibre connections can continue to grow in 2HFY21F and expect activity-reliant revenue to see sequential recovery during the period.
  • Helped by stronger operating leverage, we forecast 14% y-o-y growth in EBITDA in 2HFY21F, and expect FY21F dividend to be at 5.20 cents (+3% y-o-y).
  • Reiterate ADD and DDM-based target price of S$1.10. In the current low interest rate environment, NetLink Trust offers an attractive dividend yield of 5.3%.

Resilient growth in fibre connections

  • NetLink NBN Trust (SGX:CJLU) continued to see growth in all three types of fibre connections in 1HFY21 (Apr 2020 to Sep 2020), and we believe the current growth trajectory is sustainable. We forecast the stronger connection numbers to drive topline growth of 3.5% y-o-y in 2HFY21 (Oct 2020 to Mar 2021).
  • NetLink Trust’s residential segment reached 1.44mil 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% y-o-y) in 2QFY21 after a dip in 1Q, 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 2HFY21.
  • NetLink Trust's 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.
  • Due to stronger operating leverage, we expect NetLink Trust to achieve EBITDA growth of 14% y-o-y to S$141.3m in 2HFY21F.
  • On the back of stronger 2HFY21, we retain our FY21 (Apr 2020 to Mar 2021) dividend forecast of 5.20 cents (+3% y-o-y).

Reiterate ADD and target price of S$1.10

ONG Khang Chuen CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-12-10
SGX Stock Analyst Report ADD MAINTAIN ADD 1.100 SAME 1.100