SINGAPORE (Feb 7): Netlink NBN Trust (NLT) on Monday announced that its 3Q18 earnings came in at $21.7 million, 32.5% higher than IPO forecast, due to lower operating and staff costs.
For the same reasons, the trust’s EBITDA was 10.8% higher at $63.2 million from $57.0 million last year, while total expenses for 3Q18 of $63.8 million was $5.3 million lower than forecast.
Revenue for the quarter was $83.4 million, exceeding forecasts by 0.6%.
See: NetLink NBN Trust reports 3Q earnings of $21.7 mil; 32.5% higher than IPO forecast
Following the results annoucement, DBS is maintaining its “buy” call on NLT with an increased target price of 97 cents.
In a Tuesday report, analyst Sachin Mittal says, “We argue that NLT should trade at FY19F yield of 4.9% (versus 5.7% now) reflecting lower earnings volatility and ample debt-headroom for future growth.”
The trust’s business environment is less volatile as 92% of it is regulated.
With a projected FY19 total debt-to-EBITDA ratio of 3.2 times, which is much lower than the 5.3 times average for Business Trusts in Singapore and Hong Kong. This implies that there is room for higher growth by optimising its capital structure.
The analyst believes that the market is concerned about the rising interest rates which may lead to a search for higher yield.
“NLT has hedged its interest rates till March 2021 and growth in distributions (4.6% CAGR over FY18-20F) should translate into higher distribution yields,” says Mittal.
He also believes that the trust has a unique advantage over REITs and business REITs as any potential rise in the cost of capital might lead to higher regulated returns from 2022 onwards, translating into higher distributions.
Meanwhile, fourth mobile operator TPG Telecom this year is arriving this year and will require about 3,000 base stations by end-2020.
The analyst believes that TPG could use NLT’s fibre network to connect to its base stations and the requirements of HetNet base stations could also be a growth area for NLT.
Furthermore, growth opportunities for the group could arise from the government’s Smart Nation Programme, which will require the deployment of a network of sensors and monitoring equipment across Singapore to support applications.
NLT already had over 300 NBAP connections, of which 49 were used for the purpose of supporting Phase 1 of the Smart Nation Platform.
UOB Kay Hian is also reiterating its “buy” call on Netlink NBN Trust with a target price of 93 cents.
In a Wednesday report, analyst Jonathan Koh says that the group is executing well on cost control as EBITDA was 10.8% above the company’s forecast due to lower operation and maintenance costs, staff costs and other operating expenses.
Koh believes that the group is on track to meet its DPU forecast of 2.93 cents for FY18 according to its IPO prospectus.
In addition, Since NLT is the sole network company for Next Gen NBN, it dominates the wholesale provision of dark fibre connections for residential premises.
Its cash flows are defensive and resilient as wholesale pricing is regulated and fixed for five years after each review.
Hence, even if a fibre broadband subscriber switches from one service provider to another due to competition, NLT will not be affected.
The group is also continuing its expansion in residential areas as it has started to utilise its Hougang Central Office to serve new housing estates in the Northeastern area. It also has plans to expand its network to serve the upcoming Tengah Estate, which would yield about 42,000 new homes.
Meanwhile, it also continues to support retail service providers to acquire new corporate customers.
As at 11.10am, shares in NLT are trading at 82 cents or 44.3 times FY18 earnings with a dividend yield of 3.6%.
