NetLink NBN Trust - OCBC Investment 2021-08-27: Still Delivering A Steady Performance

NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Still Delivering A Steady Performance

NetLink NBN Trust (SGX:CJLU) delivered a credible set of 1QFY22 results. Revenue rose 5.0% y-o-y to S$93.4m, mainly due to higher installation-related revenue, residential, NBAP and segment connections revenue and diversion revenue. EBITDA rose 1.1% y-o-y; this would have been ~5% after stripping out government grants in both 1QFY21 and 1QFY22. PAT rose 5.3% y-o-y to S$24.8m mainly due to higher EBITDA and lower finance cost.
Residential and non-residential fibre connections rose 2k and 5k q-o-q, respectively. The notable jump in non-residential q-o-q connections was due partly to connections from smaller SMEs on the back of certain incentives.

On the upcoming regulatory review, NetLink NBN Trust's management shared that the two main drivers behind the determination of pricing were the pre-tax WACC and the regulated asset base (RAB), and believes that there shouldn’t be any surprises, all things considered.
We understand that the RAB remains higher than what it was in the last review period, and NetLink NBN Trust’s strong balance sheet will continue to support capex activity.
On pre-tax WACC, management noted that the interest rate environment has been benign but believes it might be more relevant to look at forward risk free rates and the peer group that the regulator references NetLink NBN Trust against.
In terms of expansion capex, management notes that the key driver is still new housing developments, and has guided for about 20-25k annual new housing units for FY22. Capex would also be needed to help support outdoor connections for Smart Nation initiatives, but these are of a relatively smaller magnitude.
On M&A, management has noted that it is still examining opportunities, with NetLink NBN Trust’s amount of investment dependant on factors such as risk profile and stability of cash flow of the target.
We keep our estimates for now, and maintain our Fair Value of S$1.10.

The company outperforms peers in addressing labor and governance-related risks. Although, despite operating in Singapore where the data security regulations are fairly strict, the company appears to have established moderate data security measures. NetLink NBN Trust's data security measures include employee training and periodic vulnerability scanning of the network. However, the company appears to trail leading peers in adopting best practices such as external audits of information management systems.
NetLink NBN Trust’s exposure to the risk of being implicated in corrupt business practices is low as it operates in Singapore, where the risk is perceived to be lower than that in most countries. Further, the company has detailed ethics guidelines and provision for whistleblower protection.
See

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2021-08-27

SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100