NETLINK NBN TRUST (SGX:CJLU)
NetLink NBN Trust - Immune To COVID Impact
Strong dividend visibility; BUY
- NetLink Trust (SGX:CJLU)’s FY21E dividend yield of 5.2% offers clearer dividend visibility than many yield plays as 94% of its revenue is secured by recurring cash flows. Its strong cashflow is backed by fixed regulatory pricing till end-2022.
- NetLink Trust is a domestic-yield play while waiting for COVID-19 re-opening to play out. Changes to its regulated returns (7% pre-tax WACC) is the key risk to our view, but we do not expect this till end-2022 (Mar FY23).
- Reiterate BUY and DDM-based target price of S$1.11.
Strong cashflow backed by fixed regulatory pricing
- 94% of NetLink Trust's 2QFY21 revenue was backed by recurring cashflow, while 87% is under fixed pricing till the next review in end-2022. This provides clear dividend visibility. Its natural monopoly in the residential fibre connections segment will be driven by annual new household formation (10-year CAGR of 1.7%) and higher broadband penetration rate of 94%.
- Meanwhile, we expect the non-fibre segment to remain stable due to long-term contracts.
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 was previously delayed.
- While the non-residential market appears well-served and competitive, we still expect growth of 1.7% CAGR through FY21-23E as NetLink Trust starts new projects in schools and continues to improve presences in data centres.
- Meanwhile, growth of he residential division was capped by muted new connections due to COVID-19, but the segment should pick up once construction activity resumes.
Sustained dividend despite headwinds
- See NetLink Trust Share Price; NetLink Trust Target Price; NetLink Trust Analyst Reports; NetLink Trust Dividend History; NetLink Trust Announcements; NetLink Trust Latest News.
- NetLink Trust’s distributions have been stable and/or growing based on its historical track record. We forecast a higher cash distribution in FY21E due to better-than-expected operating cash flow amid expanded EBITDA margins. This is driven by favourable sales mix towards connection services.
- MarFY21E dividend of S$0.05 translates to a dividend yield of 5.2%.
Kareen Chan
Maybank Kim Eng Research
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https://www.maybank-ke.com.sg/
2020-11-30
SGX Stock
Analyst Report
1.110
SAME
1.110
