NetLink NBN Trust - Maybank Kim Eng 2021-02-25: Back To Normal


NetLink NBN Trust - Back To Normal

Results in line with consensus/MKE; Maintain BUY

  • NetLink Trust (SGX:CJLU)'s 9MFY21 earnings of S$69.5m were in line at 77/74% of MKE/ Factset consensus estimates and it’s on track to meet our full-year forecast.
  • Business activity is back to pre-Covid levels. We maintain our forecasts and DDM-based target price (COE 6.3%, LTG: 1.5%) of S$1.11 for NetLink Trust.
  • Given its strong balance sheet, NetLink Trust is starting to explore overseas acquisitions within the telco infrastructure sector.
  • Risk to our outlook includes regulatory changes that would affect NetLink Trust.

Resilient results; no changes to our forecasts

  • NetLink Trust's 9MFY21 revenue of S$276.3m (-0.5% y-o-y) was fairly stable, achieving 74% of MKE/consensus forecasts.
  • Lower installation-related revenue (- 29.1% y-o-y to S$11.9m) was partially offset by higher takings from the residential (+3.3% y-o-y to S$178.2m) and non-building address points & segments (+18.1% to S$6.4m).
  • The residential segment continued to be the key driver of total revenues (64.5%) and connections rose to 1.44m (+1.5% y-o-y).
  • Concurrently, connections of the non-residential division grew 1.3% y-o-y to 48,000. EBITDA margin expanded to 76% (+3ppt) on government grants (c. S$7.2m) arising from property tax and Job Support Scheme. As a result, NetLink Trust's 9MFY21 PAT rose 5.9% y-o-y to S$69.5m.
  • We made no changes to our FY21 forecasts.

Back to normal; searching for inorganic growth

  • NetLink Trust’s workforce has returned to pre-Covid levels since Aug 20. Its diversion and installation divisions would resume with the pickup in construction activities in Singapore. This should also spur residential connections as NetLink Trust continues to expand into new estate areas such as Tengah and Punggol.
  • Given its strong balance sheet, NetLink Trust is keen to explore acquisitions in the telco-infrastructure sector of companies with utilities-like business models. NetLink Trust is comfortable to gear up to S$1b for such acquisitions/ strategic investments. SingTel (SGX:Z74)’s Optus towers were cited as an example of such asset.
  • So far, no specific target or country has been identified yet as NetLink Trust is still in the initial stage of searching.

Stable dividend outlook for NetLink Trust

Kareen Chan Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2021-02-25
SGX Stock Analyst Report BUY MAINTAIN BUY 1.110 SAME 1.110