• Revenue and EBITDA were within expectations. 4Q20 revenue and EBITDA rose 5.2% and 13.2% YoY respectively, excluding a S$15.4mn write-off of a capitalised IT systems project.
• Revenue growth was driven by residential connections which rose 9.3% YoY as the number of connections expanded 7.5% YoY to 1.427mn.
• DPU in 2H20 was 2.53 cents, a 3.7% improvement over 2.44 cents in 2H19.
• We are raising our target to S$1.03 (previously S$0.99) as we roll-over our terminal values higher. We are upgrading from NEUTRAL to ACCUMULATE. Growth will be muted but the healthy dividend yield and stability in the operations will be enviable investment merits.

The Positives

+ Core recurrent residential revenue expanding. Residential fibre connections rose by 7.5% YoY to 1.42mn. However, the quarterly net addition of 6.27k fibre connection was the weakest since listing – this is within expectations. Our forecast of 25k net connections for FY21e is in-line with household formations in Singapore.

+ Full year distributions rose 3.5% YoY. The full-year distribution per unit was 5.05 cents, a jump of 3.5% YoY. This payout of S$197mn for FY20 is backed by free cash-flows of S$187mn. Capital expenditure for FY21e is expected to be relatively stable.

The Negative

­– Ducts and manhole the weak spot. Ducts and manhole is weakest revenue segment for NetLink. The decline will be structural, due to fewer copper cables installed by Singtel.

Outlook

NetLink has been relatively unaffected by the outbreak. Understandably, there will be some delays in construction and installation. Segments at risk are the installation and diversion revenue, as well as the new residential connections. However, it is worth noting that these segments only account for 8% and <2% of revenue, and the impact will be temporary. Any credit risk on residential customer are borne by the telcos.

Upgrade to ACCUMULATE with higher TP of S$1.03.

We find NetLink attractive due to the recurrent revenues from the monthly subscription for the residential connections, plus contracted revenues from Singtel. We raised our target price from S$0.99 to S$1.05 as we roll-over the terminal values for NetLink.