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


NetLink NBN Trust - Still Delivering A Steady Performance

  • NetLink NBN Trust not expecting surprises in next pricing review.
  • Still exploring potential investments.
  • Maintain Fair Value of S$1.10.

Good scorecard

  • 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.

Fair value estimate of S$1.10 for NetLink Trust

  • 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.

NetLink NBN Trust - ESG Updates

OCBC Research Team OCBC Investment Research | 2021-08-27
SGX Stock Analyst Report BUY MAINTAIN BUY 1.100 SAME 1.100