NetLink NBN Trust - Phillip Securities 2021-08-30: Fibre Connections Modestly Weaker

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NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Fibre Connections Modestly Weaker

• NetLink NBN Trust (SGX:CJLU)'s 1QFY22 (Apr 2021 to Jun 2021) revenue and EBITDA within expectations, at 25%/19% of our FY22e forecasts.
• Residential fibre connections increased by 2.3k this quarter, below our annual estimate of 25k. We expect a rebound in the latter part of FY22 with renewed home construction.
• No change in our estimates. ACCUMULATE rating and DCF target price of S$1.03 (WACC 5.9%) for NetLink NBN Trust unchanged. Yields of 5.2% supported by monthly recurring revenue from more than 2mil fibre connections in homes and businesses. Regulatory review of fibre rates expected in mid- 2022, likely implemented at end-2022.

NetLink Trust's 1QFY22 - The Positive

Non-residential connections highest in six quarters.

• Non-residential connections rose around 490 to 48.6k, the biggest increase in six quarters. The improvement came from higher take-up by small-medium enterprises. Non-residential is stable, around 8% of revenue.

NetLink Trust's 1QFY22 - The Negatives

Run-rate of residential connections below our model.

• We are expecting 25k new residential connections in FY22e. 1QFY22 new connections were only 2.3k. We expect improvements in 2HFY22 as HDB construction gathers pace. The 25k net additions represented a 1.7% increase to 1.44mil.

Ducts and manholes remained weak.

• Revenue from ducts and manholes declined 5% y-o-y to S$7mil. The weakness could persist as major customer SingTel (SGX:Z74) will have less use of these ducts for copper-wire installations.

Outlook

• FY22e should be a stable year for earnings and cash flows, supported by a large installed base of fibre connections. A 5-year regulatory review of prices will take place next year. There is limited visibility at present but fibre price charges may be moderately lower due to a decline in WACC and a higher base of connections. Offsetting this would be NetLink NBN Trust’s larger regulatory base and lower capex. Both should keep FCF at around S$200mil to sustain dividends.

Maintain ACCUMULATE and target price of S$1.03

• NetLink NBN Trust’s key attribute is stable dividend yields backed by monthly recurring revenue from more than 2mil fibre connections in homes and businesses.
• See
  • NetLink Trust's Share Price,
  • NetLink Trust's Target Price,
  • NetLink Trust's Analyst Reports,
  • NetLink Trust's Dividend History,
  • NetLink Trust's Announcements,
  • NetLink Trust's Latest News.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2021-08-30

SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 1.030 SAME 1.030