NetLink NBN Trust - Phillip Securities 2022-08-17: Residential Connections Normalising

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NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - Residential Connections Normalising

• NetLink Trust (SGX:CJLU)'s 1Q23 (1 Apr 2022 to 30 Jun 2022) revenue and EBITDA were within expectations, at 25/27% of our FY23e forecasts. Revenue rose 4.8%, supported by a sharp rebound in diversion revenue. Central office remains a drag as customers surrender more equipment space.
• Residential fibre connections rose 5,598 in 1Q23 (1Q22: +2,292). Last year was impacted by lockdowns and movement restrictions.
• Interest rate risk is well hedged, with 76% of the debt fixed at 1% until May 2026. Regulatory review of fibre prices is ongoing.
• Recent inflationary pressures and higher interest rates are positives. The planned capital expenditure (or regulated asset base) and WACC under consideration will be higher.

NetLink Trust's 1Q23: The Positive

Rebound in construction and installation activity.

• Residential connections are normalising post-pandemic. In the past two quarters, net connections were 11,842, triple the 3,946 a year ago. The rebound in construction and installation post-pandemic increased diversion revenue by S$1.8mil or 136% y-o-y. Customers in diversion include HDB and LTA.

NetLink Trust's 1Q23: The Negative

Central office revenue sliding.

• Major customer SingTel (SGX:Z74) is renting less space as less telecommunication equipment is housed in NetLink Trust’s seven central offices. NetLink Trust will look to alternate users for their central office space.

Outlook

• On the regulatory review, we expect a mild decline in the fibre price for residential connections. It is unlikely to impact NetLink Trust's dividend payout. Higher borrowings or lower capital expenditure can tide through any near-term shortfall, in our opinion.

Our NEUTRAL recommendation for NetLink Trust is maintained

• The modest growth in DPU reduces the attractiveness of NetLink Trust as an income-yielding investment. NetLink Trust's dividend spread over bond yields and other interest-yielding assets has not widened since interest rates started to climb this year.
• 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.
• No change to FY23e forecast. Our NEUTRAL recommendation and DCF target price of S$0.96 for NetLink Trust is maintained.

Paul Chew Phillip Securities Research | https://www.stocksbnb.com/ 2022-08-17

SGX Stock Analyst Report NEUTRAL MAINTAIN NEUTRAL 0.960 SAME 0.960