CGS-CIMB analysts Ong Khang Chuen and Darren Ong have kept “add” on Netlink NBN Trust with an unchanged target price of $1.10 after the trust’s results for the 1QFY2022 ended June stood in line with their expectations.
During the quarter, Netlink NBN Trust saw revenue increase by 5.0% y-o-y to $93.4 million. Profit after tax (PAT) and EBITDA stood 1.1% and 5.3% higher y-o-y at $24.8 million and $69.5 million respectively.
Netlink NBN Trust also continued to see growth in all three types of fibre connections, something which both analysts expect to remain in FY2022.
The trust has also begun negotiations with the Infocomm Media Development Authority (IMDA) on the interconnection offer (ICO) pricing for the next review period from 2023 to 2027.
Management has said that it does not expect any surprises from the review. The analysts themselves expect the review to be completed in mid-2022 and have factored in a 5% reduction in ICO prices across all three types of fibre connections.
Calling their estimates “conservative”, the analysts say they believe the trust can nevertheless “sustain stable dividends, given its strong cash flow generation”.
They add that it has the ability to tap on its strong balance sheet to fund future capital expenditures (capex).
“With significant debt headroom, Netlink NBN Trust continues to seek for M&A opportunities within the telecom infrastructure space,” they write in an Aug 24 report.
To this end, the analysts deem earnings-accretive acquisitions and stronger-than-expected growth in NBAP connections as potential re-rating catalysts. Downside risks include lower-than-expected ICO pricing in the upcoming review.
Meanwhile, UOB Kay Hian analysts Chong Lee Len and Chloe Tan have, too, kept “buy” on Netlink NBN Trust with the same target price of $1.08.
The analysts say they deem the trust’s results for the 1QFY2022 to be within expectations of their full-year estimates.
In their report dated Aug 25, the analysts see a stable FY2022 for the trust as its business remains resilient amid market volatility.
The trust is also seen as a “safe haven” with an attractive dividend yield of 5.3%.
The yield comes as the analysts project the trust to report an annual distribution per unit (DPU) of 5.1 cents for FY2022 to FY2024.
“Management remains cognisant of the company’s profile as a high-yielding, safe haven stock. As such, key criteria of any potential new investment in the near horizon would have to include: a) country risk premium, and b) preferably stable cash flow via an asset sale and leaseback model,” write Chong and Tan.
“Importantly, Netlink will have sufficient headroom to drive its acquisition ambition without compromising on cash flow and dividends. Gross debt/EBITDA of 2.5 times as of June 30 provides ample room to increase debt for the group,” they add.
As at the time of writing, Chong and Tan have advised investors to accumulate shares on its current price weakness.
“At our target price, the stock trades at 17 times FY2021 EV/EBITDA, +1 standard deviation (s.d.) above its three-year mean EV/EBITDA of 15.3 times,” they write. “We expect the stock to further outperform as investors seek shelter in high dividend-yielding stocks amid external volatility.”
“We continue to see the stock as a good shelter amid market volatility given its strong earnings visibility, healthy balance sheet and cautious approach in terms of overseas/domestic acquisition approach,” they add.
Shares in Netlink NBN Trust closed flat at 97 cents with an FY2022 dividend yield of 5.36%, according to CGS-CIMB’s estimates.
