NetLink NBN Trust – Organic growth from here November 4, 2019 817

PSR Recommendation: ACCUMULATE Status: Maintained
Last Close Price: S$1.01 Target Price: S$0.990
  • Results were within expectations, residential fibre connections rose 13.7 YoY
  • NBAP and segment connections increased by 4.3% and 9.4% QoQ respectively
  • NLT is supporting M1 and TPG Telecom on their 5G trials in Marina Square and Singapore Science Park I and II
  • Maintained ACCUMULATE with a higher TP of S$0.99. We adjusted our WACC downwards to 5.9% to reflect the lower interest rate environment.


The Positives

+ Residential connections grew healthily. The number of residential connections grew by 1.9% QoQ (+13.7% YoY) to 1.41mn. The growth is partially due to StarHub’s migration of its cable customers to fibre and new household connections. Majority of StarHub’s customers have been migrated and the exercise has ceased. There will no longer contribution from the migration going forward. As such, we expect connections growth to be lower in 2H20 compared to 1H20. However, there is still modest growth going forward with a run-rate of 25,000 new households each year and possibly two fibre installation in some homes.

+ NBAP & segments connections regained momentum. Non-Building Address Point (NBAP) and segment connections posted a growth of 4.3% and 9.4% QoQ respectively. NBAP connections returned to growth after last quarter review of the Smart Nation Sensor Platform programme (SNSP). There is more positive demand coming from smart nation initiatives (Punggol and Jurong digital district), TPG Telecom and 5G. NLT is supporting M1 and TPG Telecom on their 5G trials in Marina Square and Singapore Science Park I and II. We expect the future roll-out of 5G to boost NBAP connections.


The Negative

­– Muted non-residential connections growth. Non-residential connections grew 0.4% QoQ (+2.7 % YoY) to 46,742. Recognising that growth is muted, management is closely working with retail service providers to penetrate new customers. NLT reiterated that the focus for non-residential connections will be in government agencies and small & medium enterprises (SMEs). There are approximately 200,000 SMEs that are currently not using any fixed wired broadband. Non-residential connections account for an average of 8.3% of NLT’s total revenue.



The group expects higher revenues from key connections services to be higher in FY20e due to strong residential connections growth and installation-related revenues. CAPEX guidance for FY20e is maintained higher than FY19 due to on-going efforts to densify network, expanding reach to all buildings and investing in street infrastructure for NBAP connections (IoT, sensor deployment and 5G). There is no indication for a mid-term price review, the next review is due in ~ 2 years time. NLT declared a distribution of 2.52 cents a 3.3% increase YoY. The S$98mn distribution is well supported by strong cash-flow from operations of S$135mn. NLT possesses a strong balance sheet with gross debt/EBITDA at 2.4x.


Maintained ACCUMULATE with higher TP of S$0.99.

We increased our FY21e EBITDA by 1% reflecting the stronger demand for NLT’s fibre for the 5G roll-out. We adjusted our WACC downwards to 5.9% to reflect the lower interest rate environment. Our valuation is based on DCF (WACC 5.9%, Terminal growth 1%). NLT is our favourite pick in the telecommunications sector due to its resilient business model and an attractive distribution yield of 5.6%.



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Alvin Chia
Research Analyst
Phillip Securities Research Pte Ltd

Alvin covers telecommunication and technology sector.

He graduated with a bachelor of commerce, majoring in Accounting and Finance from Monash University.

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