Analysts are divided on the prospects of NetLink NBN Trust after the provider of fibre network services posted a mixed set of results for 1Q FY20 ended June 30.
See: Netlink NBN Trust reports 12.4% growth in 1Q21 profit after tax to $23.5 mil in business update
On one hand, Maybank Kim Eng has kept its “buy” rating for the trust albeit with a lower target price of $1.07 from $1.08 previously.
On the other hand, DBS Group Research has maintained its “hold” recommendation for the trust with an unchanged target price of $1.02.
NetLink reported earnings growth of 12.4% to $23.5 million from $20.9 million a year ago.
Revenue, however, fell 3.3% y-o-y to $89 million from $92 million.
Maybank KE says it continues to favour NetLink because 95% of its 1Q FY21 revenue is pegged to recurring cash flows and long-term contracts.
Moreover, the trust’s estimated FY21 yield of 5% offers a better dividend visibility than other yield plays given its stable business.
“NetLink should be able to fulfil its installation and diversion order backlog once its manpower situation eases,” Maybank KE analyst Kareen Chan writes in a note dated Aug 6.
While DBS acknowledges that the trust is currently offering a reasonable yield of 5% at current levels, there are risks ahead.
The brokerage warns that NetLink’s earnings before interest, tax, depreciation and amortisation could be “adversely impacted” from FY23 onwards.
This will come on the possibility that the trust’s regulatory weighted average cost of capital of 7% could be lowered amid a low interest rate environment, it points out.
As at 3.01 pm, Netlink was flat at 97 cents with 11.9 million units changed hands.
