SINGAPORE (May 18): OCBC Investment Research remains positive over Netlink NBN Trust’s resilient business model and growth outlook over the longer term, with the development of new residential areas as well as increase in penetration rates.

Furthermore, OCBC continues to expect NLT NBN to be a key participant of growth in other connected services within the non-residential and non-building address points (NBAP) space, especially with Singapore’s push to transform into a digital economy.

As of March 31, NLT NBN’s non-residential network supports 43,855 non-residential end-user connections, with 31,574 buildings reached, while its residential network supports 1,192,493 end-users, with 1,346,819 home reached and 1,482,711 home passed.

In FY18 (June 18 2017 to March 31) NLT NBN reported revenue of $228.6 million, 1.8% lower than its forecast as installation-related revenue of $10.3 million was 44% lower than forecast.

Installation-related revenue was lower due to slower than expected project deployment by some customers, as well as change in customers’ deployment requirements being different from management’s projections.

FY18 total expenses came in at $186.3 million, 4.5% lower than forecast mainly resulting from lower operation and maintenance costs due to lower operating needs and deferments, actual average headcount than forecast, other operating expenses due to deferred costs for IT maintenance and finance costs due to lower debt drawdown than projected given the stronger operational cash flow. Consequently, FY18 profit after tax of $50 million came in 10.8% higher than forecast.

“Given the significant miss in installation-related revenue, we adjust our forecasts slightly to factor for the slower-than-expected growth of NBAP segment,” says analyst Eugene Chua,  “That said, we also note that installation-related revenue formed only 4.5% of FY18 total revenue, indicating minor impact to our forecasts.”

All considered and on above mentioned reasons, we forecast NLT NBN to deliver distributions to unitholders $179.9 million in FY19F and $185.5 million in FY20F.

“Consequently, we derive a lower $0.90 fair value estimate,” says Chua.

As at 3.31pm, shares in NLT NBN are trading at 82 cents or 48 times FY19 forecast earnings.

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