Netlink NBN Trust kept at 'buy' by analysts as market continues to hunt for yields

Netlink NBN Trust kept at 'buy' by analysts as market continues to hunt for yields

PC Lee
20/02/19, 12:04 pm

SINGAPORE (Feb 20): Maybank KimEng, UOB KayHian and DBS Group Research are maintaining their “buy” for Netlink NBN Trust (NLT) as the market continues to search for high yields as Fed turns more dovish.

In 3Q19, NLT reported revenue of $89 million, up 6.7% y-o-y and net profit of $19.6 million, down 9.4% y-o-y. In 9M19, net profit came in at $57.3 million. Residential fibre connections grew by a healthy 10.2% y-o-y and 3.5% q-o-q which is already higher than the projection provided in its IPO prospectus, due to accelerated migration to fibre for broadband and pay-TV.

See: NetLink NBN Trust beats 3Q projection by 18% with earnings of $19.6 mil

StarHub decided to migrate its customers of both residential broadband and pay-TV to an all-fibre network. It plans to cease provision of cable services after June 30 and retire its legacy hybrid fibre-coaxial (HFC) network.

Non-residential fibre connections grew 5.8% y-o-y and 0.4% q-o-q to 45,700. Revenue contributions from non-residential segment grew 1.1% q-o-q. The slower growth could be caused by weak business sentiment as a result of trade conflict. However, management says NLT has maintained its market share of 35%.

Non-building access point (NBAP) fibre connections grew 130.2% y-o-y and 14.2% q-o-q to 1,462. Revenue contributions from NBAP segment grew 1.5% q-o-q. NLT says it will continue to support telcos and government agencies on Smart Nation initiatives.

DBS says NLT's one big advantage over REITs and business trusts is that a potential rise in the cost of capital could lead to higher regulated returns from 2022 onwards, translating into higher distributions. NLT has also hedged its interest rates till March 2021 and growth in distributions should translate into higher yields.

NLT’s gearing is less than half of S-REITs’ with an ample debt-headroom to fund future growth; and NLT’s asset life is much longer than S-REITs as NLT incurs annual capex to replenish its regulated asset base, says DBS who has a target price of 87 cents or 32.6 times FY21F earnings.

Meantime, UOB says NLT is the most defensive stock listed on the Singapore Exchange as it has low volatility but high liquidity; caters to basic necessities; has stable, recurrent and regulated revenue streams; is a beneficiary of higher domestic interest rates; is protected by high barriers to entry; and has a blue-chip customer base. UOB has a target price of 92 cents or 40 times FY21F earnings.

On the other hand, Maybank says NLT will benefit from cable to fibre migration. StarHub’s more aggressive decommissioning of its cable network and migration of its subscribers to fibre broadband have been driving residential connections for Netlink. “This cements Maybank’s revenue forecasts moving into FY20E,” says UOB analyst Luis Hilado in his report. Maybank has a target price of 93 cents or 38.8 times FY21F earnings.

As at 11.54am, NLT units are trading 0.5 cent lower at 80 cents.

Right timing: STI’s upclimb supported by momentum and moving averages

SINGAPORE (Apr 20): There has been little change in the trend and chart pattern of the Straits Times Index. The index has been on a very glacial ascent towards 3,420, the target indicated when the index broke out of resistance at 3,190 in mid-Jan. Quarterly momentum eased during the past four trading sessions. The 100- and 200-day moving averages have turned positive. This coupled with positively placed DIs and rising ADX should continue to underpin the STI. The only cautionary signals are the somewhat overbought levels of short term stochastics and 21-day RSI, and stagnant vol....

SMI takes legal action against Hyflux; Maybank moves on Tuaspring

(Apr 20): SM Investments (SMI) has terminated its rescue agreement with Hyflux, it announced on Friday. Hyflux, on its part, had already on April 4 terminated the same agreement with SMI. SMI claims it has thus far abided by the agreement. “To clarify, SMI does not accept the purported termination of the Restructuring Agreement by Hyflux on 4 April 2019. This is because the termination was not in accordance with the terms of the Restructuring Agreement," said SMI. Under the agreement reached last October, SMI, led by Indonesian tycoon Anthoni Salim, was to have invested $530 million in....

CCT reports 3.8% higher 1Q DPU of 2.20 cents on higher property contributions

SINGAPORE (April 19): The manager of CapitaLand Commercial Trust (CCT) has reported a 1Q19 distribution per unit (DPU) of 2.20 cents, rising 3.8% y-o-y from 2.12 cents due to higher contributions from Gallileo and Asia Square Tower 2. Gross revenue and net property income (NPI) for the quarter increased by 3.5% and 3.4% to $99.8 million and $79.8 million, respectively. This comes after booking contributions from Gallileo – an office building in Frankfurt, Germany which the trust acquired a 94.9% stake in during June 2018 – as well as higher occupancy at Asia Square Tower 2, both of w....