NetLink NBN Trust - CGS-CIMB Research 2021-05-12: Resilient In Times Of Uncertainty


NetLink NBN Trust - Resilient In Times Of Uncertainty

  • NetLink Trust’s FY21 results in line; revenue/core net profit came in at 99%/102% of our FY21F forecasts. FY21 dividend of S$0.0508/share represents a 5.2% yield.
  • Connection growth across all three segments of fibre connection continued; NetLink Trust is looking at inorganic growth opportunities to drive growth.
  • We reiterate our ADD call with an unchanged DDM-based target price of S$1.10.

NetLink Trust's FY21 results in line with expectations

  • NetLink Trust (SGX:CJLU)’s reported FY21 core net profit of S$96.4m (+3.1% y-o-y) was in line with our expectations, at 102% of our FY21F forecast. Topline fell 0.5% y-o-y, as lower installation orders and diversion revenue during the circuit breaker period more than offset higher fibre connection revenue. The growth in core net profit was mainly attributable to strong cost control, lower finance costs, as well as government grants.
  • NetLink Trust's FY21 dividend of S$0.0508/share represents a 5.2% dividend yield, in line with expectations.

Core fibre business continues to demonstrate resilience

  • NetLink Trust continued to see growth across all three types of fibre connections in 4Q21. Its residential segment reached 1.45m connections (+0.3% q-o-q, +1.4% y-o-y), despite construction delays, which slowed new home completion. Non-residential connections grew to 48.1k (+0.2% q-o-q, +0.9% y-o-y) as NetLink Trust partnered with more telco companies to raise adoption of fibre connections through special promotions.
  • The non-business access point (NBAP) segment continues to register the fastest growth to 1,996 connections (+5.9% q-o-q, +18.9% y-o-y), driven by local telcos’ continued rollout of 5G infrastructure.

Inorganic growth opportunities on the cards

  • Exploration of investment opportunities in telecoms infrastructure businesses is a key focus for NetLink Trust in FY22. NetLink Trust is looking to invest in assets that can generate stable recurring cashflow and remains open to either acquiring a controlling or minority stake, depending on risk profile of the investment opportunity.
  • NetLink Trust’s balance sheet is robust, with gross debt/EBITDA at 2.5x and EBITDA interest cover at 14.8x. Assuming a debt ceiling of 4x gross debt/EBITDA, we estimate that NetLink Trust has a debt headroom of S$415m to fund future acquisitions.

Reiterate ADD, with a Target price of S$1.10

FOONG Choong Chen CFA CGS-CIMB Research | Darren ONG CGS-CIMB Research | https://www.cgs-cimb.com 2021-05-12
SGX Stock Analyst Report ADD MAINTAIN ADD 1.100 SAME 1.100