Analysts at UOB Kay Hian (UOBKH), Maybank Securities and DBS Group Research are keeping “buy” on Netlink NBN Trust despite its lower-than-expected FY2024 ended March results.
UOBKH Chong Lee Len and Llelleythan Tan Yi Rong note that while higher connections drove Netlink’s revenue higher, the soft FY2024 ebitda and net profit were due to an $8.8 million one-off writeoff of decommissioned network assets in 4QFY2024 as well as higher finance costs, respectively.
Excluding the one-off expense, Netlink's FY2024 ebitda and net profit would have formed around 98% of UOBKH’s full-year forecasts — within the analysts’ expectations.
Despite the miss, Netlink’s dividends are in line with Maybank’s expectations, says analyst Hussaini Saifee. He points out that Netlink’s 2HFY2024 dividends of 2.65 cents translates to an annualised dividend yield of 6.1%.
With predictable revenue streams, Netlink remains cognisant of its profile as a high-yielding, safe haven stock, Chong and Tan note. As such, key criteria of any potential new investment in the near horizon would have to include country risk premium and a preferably stable cash flow via an asset sale-and leaseback model.
“Importantly, Netlink has sufficient debt headroom to drive its acquisition ambition without compromising on cash flow and dividends. There is, however, no fixed timeline in terms of mergers and acquisition activities and management may even consider a joint venture or consortium outfit in its acquisition strategy.
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“Netlink sees growth opportunities arising from the digital economy, 5G rollout, connectivity into data centres and Singapore’s Smart Nation initiatives. The group is also well-positioned to support Infocomm Media Development Authority and its customers in their technology upgrade to deliver a 10Gbps-enabled National Broadband Network,” they add.
Meanwhile, DBS analysts highlight that from April 2024, residential connection pricing was lowered by 2% to $13.50 per connection while non-residential is unchanged at $55 per connection. In the non-building access points segment, which contributes less than 5% of the total revenue, connection price has been lowered by 4.5% to $70.50 per connection.
Due to the impact of this price revision, the analysts forecast the overall revenue to be flattish in FY2025 followed by low single growth in FY2026, although they do not anticipate any adverse impact on Netlink’s distributions.
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Maybank and DBS are keeping their target prices at 97 cents and 98 cents respectively, while UOBKH has lowered their target price to 98 cents from $1.01 previously.
In its May 20 note, OCBC Investment Research, noting the attractive dividend yield of 6%, kept its "buy" and 97 cents fair value on the counter. "Management reiterated its commitment to keep the distribution stable given NetLink’s strong cashflow and any loss from the reduction in monthly charge could be potentially offset by an increase in the number of connections."
As at 12.14pm, units in Netlink are trading 0.5 cents lower or 0.58% down at 86 cents.
