NetLink NBN Trust - CGS-CIMB Research 2022-11-03: Built For The Tough Times

NetLink NBN Trust - Built For The Tough Times

  • NetLink NBN Trust (SGX:CJLU)’s 1HFY23 (Apr to Sep 2022) core net profit of S$54.6m (+3.9% y-o-y) was in line with expectations, at 52%/54% of our/Bloomberg consensus FY23F estimates.
    • Topline grew 6.2% y-o-y to S$199.6m, driven by higher ancillary project revenue and connections revenue, though partially offset by lower central office revenue.
    • Core EBITDA grew 4.7% y-o-y, in tandem with the higher revenue, reflecting good cost control by NetLink Trust.
    • DPU grew 2.3% y-o-y to 2.62 cents, in line at 50% of our/Bloomberg consensus forecasts.
  • Boosted by a recovery in construction activities, ancillary project revenue surged 157% y-o-y to S$11.8m. Project pipeline remains healthy for 2H, mainly relating to infrastructure projects driven by Land Transport Authority (LTA). NetLink Trust also continued to see growth across all three fibre connection segments in 2QFY23, with residential/non-residential/NBAP and segment connections growing 1.6%/5.1%/35.9% y-o-y.
  • Interconnection offer (ICO) pricing review for the next review period (2023-2027) with Infocomm Media Development Authority (IMDA) is still ongoing. NetLink Trust expects the review to only be completed in 1HCY23 (slightly delayed). Management believes that adjustments to rates, if any, will only be implemented with a few months’ lag once the final decision is announced.
  • NetLink Trust's net gearing stood at 18.6% as at end-Sep, providing good debt headroom for inorganic growth opportunities; NetLink Trust continues to explore opportunities to invest in telecoms infrastructure businesses overseas that are likely to generate stable cashflows.
  • As of 1HFY23, NetLink Trust’s effective average interest rate stood at 1.9%, with 74% of its debts hedged into fixed rates (till Mar 2026). We estimate that every 50bp increase in weighted average interest rate costs could negatively impact NetLink Trust's EPS by 2.9%.
  • We fine-tune our FY23-25F DPU estimates but tweak down our DDM-based target price for NetLink Trust to S$0.92 with a higher cost of equity assumption of 6.85% (vs. 6.10% previously). We continue to like NetLink Trust as a defensive play amid the macro uncertainties, given its strong earnings visibility and stability.

Above is the excerpt from research report by CGS-CIMB.
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ONG Khang Chuen CFA CGS-CIMB Research | 2022-11-03

Previous report by CGS-CIMB:
2022-08-16 NetLink NBN Trust - Steady Ship.

Price targets by 3 other brokers at NetLink Trust Target Prices.
Listing of research reports at NetLink Trust Analyst Reports.

Relevant links:
NetLink Trust Share Price History,
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NetLink Trust Dividends & Corporate Actions,
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