NetLink NBN Trust - OCBC Investment 2021-02-26: Open To Inorganic Growth Opportunities


NetLink NBN Trust - Open To Inorganic Growth Opportunities

  • NetLink Trust's 3QFY21 profit after tax up 14.8%; first quarter with full availability of resources.
  • Healthy balance sheet provides dry powder for M&A should opportunity arise.
  • Maintain fair value estimate of S$1.10 for NetLink Trust.

Firm set of results

  • NetLink Trust (SGX:CJLU)’s 3QFY21 revenue rose ~3.5% y-o-y to S$94.8m with profit after tax rising ~14.8% y-o-y to S$24.7m. On a 9MFY21 basis, revenue fell 0.5% y-o-y due mainly to lower installation-related revenue. This was however partially offset by higher residential and NBAP & Segment connections revenue.
  • Per management, the full availability of resources has helped to drive installation and diversion revenue in 3QFY21, which has helped to narrow the 2.5% y-o-y revenue decline in 1HFY21 to 0.5% y-o-y decline in 9MFY21.
  • In more detail, we noted that Covid-related restrictions on workers ended in late-Aug, and most workers were available for construction activities by Sep 2020.
  • NetLink Trust's 9MFY21 EBITDA grew 3.6% y-o-y to S$209.9m, which includes government relief grants and lower operation and maintenance costs. PATMI for 9MFY21 grew 5.9% y-o-y to S$69.5m, constituting ~73% of consensus estimates.

Balance sheet gives the option of M&A

  • NetLink Trust's management noted that the bulk of the increase in 9MFY21 EBITDA was due to JSS and property tax. While these are non-recurring in nature, management shared their expectations of higher revenue from increasing connections and installation and diversion activities in FY22.
  • On the earnings call, NetLink Trust's management also noted that their balance sheet puts them in a position to explore acquisitions, in comparison to peers with net debt to EBITDA levels of 4-7x. We estimate NetLink Trust to have a net debt to EBITDA of 1.9x this FY. Management shared that they have not drawn on debt thus far in FY21 and will be unlikely do so for the rest of the financial year.
  • We note that an area of interest would be in telecom infrastructure, including infrastructure assets that telcos might look to spin off. Still, management highlighted that there is no urgency to make acquisitions given high valuations and could look at partnering others.

Maintain fair value estimate of S$1.10 for NetLink Trust

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-02-26
SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100