CFA Society Singapore
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.
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.