SINGAPORE (Feb 11): Analysts remain bullish on NetLink NBN Trust, after the fibre network infrastructure operator posted a set of results for 3QFY2020 ended December that were within expectations.

NetLink Trust on Feb 10 reported a 9.6% jump in 3QFY2020 earnings to $21.5 million, as revenue rose 2.9% to $91.6 million on the back of higher residential revenue.

Residential connections revenue climbed 12.8% to $58.7 million in 3QFY2020 – accounting for 64.1% of total group revenue.

However, the increase was partially offset by lower installation-related revenue, diversion revenue as well as ducts and manhole service revenue.

See: NetLink Trust posts 9.6% rise in 3Q earnings to $21.5 mil on higher revenue

Going forward, the group says it remains fully supportive of Singapore’s objectives towards the deployment of 5G infrastructure and growth of the 5G innovation ecosystem.

It adds that it is monitoring the development of the 5G network in Singapore and will explore opportunities associated with the new market development.

“We continue to believe that Singapore’s 5G rollout should be a growth driver for [NetLink Trust’s] Non-Building Address Points (NBAP) connections, as it goes beyond its existing trials with M1 and TPG Telecom,” says OCBC Investment Research in a note on Feb 11.

OCBC is keeping its “buy” rating on NetLink Trust, but is placing its fair value estimate of $1.03 under review pending an analyst briefing.

The way UOB Kay Hian lead analyst Chong Lee Len sees it, the stock offers good earnings visibility and sustainable dividend yield of 5% for FY2020 to FY2021.

Chong recommends that investors “buy” on share price weakness, with a target price of $1.05.

“The stock has outperformed the STI by 8% year-to-date and we expect further outperformance as investors seek shelter in high dividend yielding stocks amid external volatility,” Chong says.

The analyst notes that NetLink has a low gearing with gross debt/EBITDA at 2.4 times. Assuming NetLink keeps within the threshold of 4 times for gross debt/EBITDA, Chong estimates that this gives the group sufficient debt headroom of $400 million for FY2020 to finance further expansion.

Chong sees NetLink as a “clear beneficiary” of the 5G rollout on the back of higher connections and higher installation-related revenue.

Units in NetLink Trust closed flat at $1.00 on Tuesday.

According to UOB valuations, this implies an estimated price-to-earnings (P/E) of 45.4 times, a price-to-book (P/B) of 1.3 times, and a dividend yield of 5.0% for FY2020F.