Analysts like NetLink NBN Trust for its strong dividend yield and outlook.
UOB Kay Hian is downgrading its call on NetLink NBN Trust to “hold” from “buy” with a target price of $1.08, as the stock is new trading close to the target price.
This comes on the back of NetLink announcing its 1HFY2022 ended September results, which saw DPU increase by 1.2% y-o-y to 2.56 cents, while revenue grew 3.6% y-o-y to $187.9 million.
However, Ebitda and profit after tax (PAT) were lower by 9.4% and 10.5% y-o-y, respectively, due mainly to a remeasurement loss relating to finance lease receivables arising from the reduction in rental rates upon the renewal of the Central Office lease agreements with the lessee from September 2021. In addition, there were lower government grants recorded in this period as compared to the amount received in prior corresponding period.
See: NetLink NBN Trust posts 1.2% increase in 1H DPU to 2.56 cents
With a 1HFY2022 core net profit of $52.5 million, representing a 17.2% y-o-y increase, the results are deemed to be within the research house’s expectations as it accounts for 53% of its full-year forecast.
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In a Nov 5 report, lead analyst Chong Lee Len believes that NetLink’s FY2022 outlook remains stable. “Key priorities include connecting more residential homes that are not on fibre (especially low-income households) via the Infocomm Media Development Authority’s (IMDA) Home Access programme,” says Chong, noting that IMDA will bear the two-year subsidised fibre broadband connectivity and Netlink’s pricing would not be affected in this initiative.
For non-residential and NBAP, Netlink will focus on adding more capacity to densify network and support 5G infrastructure. It also aims to deepen penetration on data centres’ point-to-point connections. More importantly, Netlink reiterated that its business remains resilient amid market volatility.
Overall, Chong sees the stock as a “safe haven” with its attractive dividend yield of 5.3%.
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“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: country risk premium, and preferably stable cash flow via an asset sale and leaseback model,” says Chong.
“Importantly, Netlink will have sufficient headroom to drive its acquisition ambition without compromising on cash flow and dividends. Gross debt/EBITDA of 2.6 times as of end-September provides ample room to increase debt for the group,” he adds.
To that end, the analyst projects an annual DPU of 5.1 cents for FY2022-2024, translating to a sustainable 4.9% net dividend yield.
“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,” says Chong.
On the other hand, PhillipCapital has maintained its "accumulate" recommendation on the stock with a target price of $1.03.
Despite 1HFY2022 showing positive results, analyst Paul Chew is still concerned that residential connection remain soft. "New residential connections in 1HFY2022 were only 3,946. A steep drop from 9,915 in 1HFY2021. Our forecast for FY2022 is lowered from 25,000 to 10,000 new connections," says Chew.
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On the outlook, Chew sees FY2022 as NetLink's recovery from the circuit breaker disruption.
"Installation revenue from NBAP and diversion work rebounded from a low base last year. There is still a lingering impact from the pandemic due to delay in home construction, impacting residential connections. The increase in capital expenditure will depress dividends in the near term, but will build up the regulated asset base and yield returns in the next regulatory review," says Chew.
CGS-CIMB too has kept its "add" rating on NetLink with an unchanged target price of $1.10.
Analyst Ong Khang Chuen likes the stock for its resilient and strong operational metrics with continued fibre connection growth across all three fibre segments. He also notes that NetLink is on the lookout for M&A investments and has an estimated debt headroom $360 million to fund future investments.
As at 3.00pm, units in NetLink are trading at $1.02, giving it a FY2022 price-to-book ratio of 1.5 times, according to UOBKH's estimates.
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