NetLink NBN Trust - OCBC Investment 2021-05-14: On The Lookout For Investments


NetLink NBN Trust - On The Lookout For Investments

  • Results broadly in-line; 2HFY21 EBITDA surge due largely to lower amount of write-off of capitalised project costs.
  • Exploring potential investments with a focus on telecoms infrastructure opportunities.
  • Maintain Fair Value of S$1.10 for NetLink Trust.

Slight DPU increase

  • NetLink Trust (SGX:CJLU) delivered a set of broadly in-line results. 2HFY21 revenue grew 1.6% y-o-y to S$187.0m on the back of higher residential, NBAP and segment connections revenue and installation-related revenue, though partially offset by lower non-residential connections revenue and ducts and manholes service revenue. EBITDA rose 5.9% y-o-y to S$103.5m in 2HFY21, owing largely to the lower amount of write-off of capitalised project costs, translating to an EBITDA margin of 69.8% (+2.9ppts). PATMI came in at S$50.0m (+47.1% y-o-y), largely due to higher EBITDA and lower finance costs.
  • On a full-year basis, NetLink Trust’s PATMI of S$94.8m constituted 99.4% of our full-year forecast.
  • 2HFY21 DPU of 2.55 S-cents (+0.8% y-o-y) has been declared, bringing the full-year amount to 5.08, representing a yield of 5.2% (as of 12 May last close).

Reviewing potential opportunities

  • NetLink Trust is in the midst of exploring potential investments with a focus on telecoms infrastructure opportunities that can generate stable cashflows. Management noted that they do not have a target number of investments to complete, and remain flexible in terms of investment stakes, depending on the type of project and the partners available, if any.
  • We understand that investments in higher growth / higher risk opportunities are not off the cards, but committed capital is likely to be smaller. In the residential segment, the group will continue to focus on new housing estates, while NBAP connections growth will in part be driven by the nationwide 5G rollout.

Fair Value of S$1.10

  • In terms of capex, FY21’s expenditure of S$60.2m was significantly below that of FY20’s (S$75.5m), but this was due to work stoppages across Singapore last year.
  • NetLink Trust's management remains optimistic for FY22, but notes that restriction in construction activities in Singapore arising from COVID-19 uncertainties could be a headwind. However, assuming the situation does not deteriorate, FY22 should be able to see a higher level of capex y-o-y.
  • We also understand that management is in the advanced stages of refinancing the group’s S$510m term loan, and NetLink Trust’s intention is to hedge its interest rate exposure after this refinancing.
  • We roll forward our valuations, but keep our fair value of S$1.10 for now. We remain constructive on NetLink Trust’s resilient business model, potential for inorganic growth opportunities, and attractive 5.2% yield for FY22F (based on 12 May closing).
  • See

Joseph Ng CFA OCBC Investment Research | https://www.iocbc.com/ 2021-05-14
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