SINGAPORE (Nov 15): UOB KayHian is keeping its “buy” call on NetLink NBN Trust unchanged given the stock provides an attractive annualised distribution yield of 5.6% and 6.0% for FY18 and FY19, respectively.
“Investors seeking defensive yield from NetLink Trust’s resilient, predictable, transparent and regulated cash flows,” says analyst Jonathan Koh.
NetLink Trust’s maiden 2Q18 results which came in line with UOB’s expectations and tracking forecast provided in its IPO prospectus.
NetLink Trust’s quarterly net profit of $13 million was 4.9% above IPO forecast and accounted for 24.2% of UOB’s FY18 forecast.
EBITDA came in 2.1% above forecast due to lower operating costs and staff costs. EBITDA margin was higher than forecast by 2.3ppt at 72.2%.
The number of residential connections increased 4.4% h-o-h to 1,142,648 while the number of non-residential connections grew 1.5% h-o-h to 42,028. Revenue from residential and non-residential connections were tracking forecast. As of Sept 17, its passive fibre infrastructure had reached 1,320,035 homes and 30,821 commercial buildings.
Installation revenue was less than expected as most new end-users already have fibre termination boxes within their premises. Installation revenue will be augmented by new service activation charges of $53 per connection for residential end-users and $64 per connection for non-residential end-users to be imposed starting Jan 18.
Management assured investors that NetLink Trust is on track to meet DPU of 2.93 cents for FY18 (Jul 19 to 31 Mar 18) as per forecast provided in its IPO prospectus. No dividend was declared for 1HFY18 due to the short time period.
Looking ahead, Koh says growth would be driven by telcos acquiring new residential and corporate customers, augmented by expansion in NBAP (Non-Building Address Points) connections due to Smart Nation initiatives and the fourth mobile operator.
NetLink Trust supports government agencies in their Smart Nation initiatives. Management has indicated that government agencies would disclose more information on Smart Nation initiatives over the next six months.
NetLink Trust also supports TPG Telecom to deploy its mobile backhaul network. TPG has given orders for NBAP and has leased spaces at its central offices. TPG has to rapidly roll out its network due to requirement to provide nationwide coverage by Dec 18.
Shares in NetLink Trust are trading at 83 cents with 5.9% FY19 dividend yield.
