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

By: 
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.

Living it up

SINGAPORE (Mar 25): This is the season for indices. On March 20, Singapore was ranked 34th in the World Happiness Index — less happy than Taiwan, but far more cheery than Hong Kong and China, as well as its neighbours, Thailand, Malaysia and Indonesia. Globally, the Scandinavian and north European cities top the index; and New Zealand, Canada and Austria round out the top 10. The index this year focuses on happiness and the community, taking into account how happiness has evolved over the years, as affected by technology, social norms, conflicts and government policies. A week earlier, th....
Read More >>

The charismatic bankrupt who allegedly pulled the strings behind Singapore's largest stock manipulation scandal

SINGAPORE (Mar 26): Garbed in purple overalls, John Soh Chee Wen cuts a relaxed figure as he takes his seat. The garment falls fittingly on his athletic frame, not unlike a designer suit. It could well have made a fashion statement, save for the word "prisoner" emblazoned in white across the back. As his legal team huddled around him before the start of the trial, the 60-year-old is a picture of calm. At one point, he casually flashes a thumbs up at his lead counsel, N Sreenivasan, a managing director and senior counsel at Straits Law LLP. Then, as he turns back to his seat in the dock, ....
Read More >>

OCBC still bullish on banking stocks after a lacklustre FY18

SINGAPORE (Mar 26): OCBC Investment Research remains bullish on Singapore’s banking space while keeping its sector “overweight” with “buy” calls on both DBS and UOB, which have been given fair value estimates of $29.31 and $28.30, respectively. Both stocks had dividend yields of 4.8%, with DBS and UOB trading at the respective book values of 1.3 times and 1.1 times, or at an average of 1.2 times historical book as at the close of Wednesday. In a Tuesday report, OCBC analyst Carmen Lee notes that raising this average to 1.3 times book and factoring a 10% premium for DBS over the....
Read More >>