Analysts at CGS-CIMB Research, UOB Kay Hian and DBS Group Research have maintained their “add” and “buy” calls on Netlink NBN Trust following the trust’s 3QFY2024 ended December announcement of results that are within their expectations.
CGS-CIMB analyst Ong Khang Chuen highlights that Netlink saw further growth across all its fibre segment connections. Notably,residential fibre, which accounts for 60% of the revenue contribution, added 9,000 connections during the quarter, surpassing 1HFY2024’s 7,000 new connections.
Armed with predictable revenue streams, Netlink remains cognisant of the company's profile as a high-yielding, safe haven stock, UOBKH analysts Chong Lee Len and Llelleythan Tan notes. 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 (24.3% net gearing) 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,” they point out.
NLT’s revised interconnection offer pricing for the next five years will take effect from 1 Apr 2024. However, the analysts note that the revised prices would not have a material impact on Netlink’s FY2024 DPU as well as FY2025-FY2026 DPU and earnings.
Meanwhile, DBS analysts say Netlink’s yield spread of 331 basis points is still attractive compared to its 3-year average 324 basis points. The Singapore government’s 10-year bond yield of 3% implies a yield spread of 331 basis points, higher than the last 3-year average of 324 basis points.
The analysts expect Netlink’s DPU to rise by 2% annually over the next few years and for the yield spread to narrow towards 250 basis points to reflect the resilient nature of its distributions.
CGS-CIMB, UOBKH and DBS are keeping their target prices at 95 cents, $1.01 and 98 cents respectively.
Units in Netlink closed 0.5 cents or 0.6% up on Feb 8 at 85 cents.
