Citi Research analyst Luis Hilado has kept his “buy” call on Netlink NBN Trust with an unchanged target price of $1.06 as he sees the counter as “due for a re-rating” if rates fall.
“With the re-rating of Singapore REITs (S-REITs) on the potential for interest rates to pivot in 2H2024, we reiterate our positive outlook on Netlink’s ability to sustain its healthy distribution per unit (DPU) and yield (above 6%) despite the recent interconnect rate cuts that impact its FY2025 revenues and profits,” Hilado writes in his Jan 2 report.
Management had previously highlighted that the potential impact of the cuts could translate to $3 million but that sum could be recovered through organic subscriber growth after 12 months.
“Although such translates to profit pressure, with its payout policy based on cash available for distribution (CAFD) and FY2024 net debt to ebitda at below 2x, we believe management has the capability to bridge support DPU, if needed, by funding part of capex with leverage,” says Hilado.
“In addition, the stock trades at over +1 standard deviation (s.d.) vs five-year historical yield mean of 5.7%, and should thus be set for a re-rating if rates fall,” he adds.
As at 11.49am, units in Netlink are trading flat at 85 cents.
