Analysts from CGS-CIMB Research, Maybank Kim Eng Research, and UOB Kay Hian have maintained their “buy” calls on Netlink NBN Trust (NLT) as its FY2021 results came in “within expectations.”
Netlink’s revenue of $368 million for the FY2021 stood 0.5% lower y-o-y, but came in at 99% of CGS-CIMB analysts Ong Kang Chuen and Darren Ong’s expectations for the FY2021.
The reduction in revenue was due to lower installation orders and diversion revenue during the circuit breaker period more than offset higher fibre connection revenue.
Netlink’s FY2021 profit after tax, which came in 3.1% higher y-o-y at $94.8 million, stood at 102% of the CGS-CIMB analysts’ FY2021 forecast.
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Similarly, Maybank Kim Eng’s Kareen Chan has acknowledged that Netlink’s core net profit stood within their estimates.
The growth in core net profit was mainly attributable to strong cost control, lower finance costs, as well as government grants.
On this, CGS-CIMB’s Ong Kang Chuen and Darren Ong have maintained their target prices at $1.10, while Maybank Kim Eng’s Kareen Chan has raised her target price from $1.11 to $1.13.
The CGS-CIMB analysts note that Netlink continued to see growth across all three types of fibre connections in 4QFY2021.
Its residential segment reached 1.45 million connections, which is up 0.3% q-o-q, and 1.4% higher y-o-y, despite construction delays, which slowed new home completion.
Non-residential connections grew to just over 48,000, 0.2% higher q-o-q, and up 0.9% y-o-y as Netlink partnered with more telco companies to raise adoption of fibre connections through special promotions.
The non-business access point (NBAP) segment continues to register the fastest growth to 1,996 connections rising 5.9% q-o-q, and a whopping 18.9% y-o-y, driven by local telcos’ continued rollout of 5G infrastructure.
As such, the analysts from CGS-CIMB see “inorganic growth opportunities” for NLT. The duo say that “exploration of investment opportunities in telecoms infrastructure businesses is a key focus for Netlink in FY2022.
Netlink is looking to invest in assets that can generate stable recurring cashflow and remains open to either acquiring a controlling or minority stake, depending on risk profile of the investment opportunity.”
SEE:Netlink NBN Trust reports DPU of 2.55 cents for 2HFY21, up 0.8%
While Maybank Kim Eng’s Chan agrees broadly with the above, she is slightly more optimistic about Netlink, saying that Netlink’s “virtual monopoly” in residential connections will continue to help it expand its residential network in new housing estates such as Tengah and Punggol.
In terms of non-residential connections, she notes the group will also continue to work proactively with telco players to acquire new non-residential and NBAP customers, so as to support digitalisation projects and the 5G rollout plan.
Back at home, NetLink does not foresee any manpower shortages, despite the stricter import of migrant workers amid the emergence of more virulent Covid variants.
As such, with a “naturally defensive” residential fibre monopoly business and 5.4% FY2022 yield, Chan continues to believe NetLink provides a haven as compared to many yield plays despite rising risk of Covid resurgence.
UOB Kay Hian offers an unchanged target price of $1.02, noting the higher distribution per unit for FY2021. Netlink declared a final dividend of 2.55 cents, bringing its full year DPU to 5.08 cents, which is up 0.6% compared to last year.
Analysts Chong Lee Len and Chloe Tan say, "the stock offers a sustainable dividend yield of 5% for FY2022-2024. In our view, the stock is defensive amid market volatility." They also note that Netlink has received a higher proportion of recurrent revenue in FY2021 at 93%, compared to FY2020's 91%.
"The resilient performance suggests strong underlying demand for fibre services amid rising data consumption." they add.
In a separate note on 16 May, PhillipCapital's Head of Research Paul Chew gave the stock an "accumulate" rating, along with an unchanged target price of $1.03.
He highlighted the growth in core residential revenue rising 1.5% y-o-y in 2HFY2021 to $119.4 million as Netlink added 9,424 residential connections, and forecasts a net addition of 25,000 connections for FY2022.
Chew is of the view that the impact of the pandemic on Netlink was "indirect", stemming from a slower build-out of homes in the country.
He does point out that non-residential connections, as well as connections in ducts and manholes are the "weaker spots", with non-residential revenue dropping 4% y-o-y despite a 0.9% improvement in connections to 48,108.
Chew added competition had resulted in rebates for customers, and revenue from ducts are expected to decline further with a drop in customer projects.
Overall, he expects "another stable year" in FY2022, saying capex should be higher, as reflected by a $12.4 million rise in capital commitments to S$48.7million.
"Non-business access point (NBAP) revenue is likely to gain traction from 5G rollout, although contributions remain marginal at 3% of revenue." he says.
Finally, OCBC Investment Research was the most optimistic of all the analysts, giving a "buy" rating and a target price of $1.10.
It also pointed out that Netlink results were "in line" with its estimates, agreeing with the factors mentioned by the other analysts.
OCBC highlighted the group is in the midst of exploring potential investments with a focus on telecoms infrastructure opportunities that can generate stable cashflows.
"Management noted that they do not have a target number of investments to complete, and remain flexible in terms of investment stakes, depending on the type of project and the partners available, if any." they point out
The team said it remains constructive on NetLink’s resilient business model, potential for inorganic growth opportunities, and attractive 5.2% yield for FY2022
As at 2.10pm on May 17, shares of Netlink are trading 0.15 cents higher or 1.02% up at 98 cents, with a FY2022 dividend yield of 5.5%, according to Maybank Kim Eng’s estimates.
