The Positives FY19

+ Growth in residential connections. Residential connections grew to 1.33mn connections surpassing IPO projections and our forecasts by 3.9% and 2.1% respectively. The increase is partially due to the continued migration of StarHub’s HFC customers to NLT’s fibre network. This migration exercise was brought forward by StarHub and is scheduled to be completed by 30 June 19. We believe the increase is also contributed from new housing estates such as Punggol, Tengah and Sengkang. We expect higher residential connections as NLT progressively rolls out its fibre network into these new estates and to unconnected landed properties. We have modelled in a 10% growth in residential connections for FY20e.

+ Potential for 5G. The consultation paper on 5G published recently has stated IMDA’s desire for 5G to be a standalone network. A standalone network requires more fibre connections. NLT is engaging with mobile operators to support the transition to 5G.

The Negatives FY19

– Lower than expected Non-residential & NBAP connections. Non-residential and NBAP connections missed our forecasts by 3.2% and 5.8% respectively. In recent news, SP Telecom announced plans of building their own fibre infrastructure to compete in the non-residential space.  We do not foresee much impact to NLT. The non-residential space is already faced with intense competition from retail service providers like Singtel and StarHub. We have dialled back on our growth estimate and expect non-residential to be stable going forward. The smart nation infrastructure is taking longer than expected to roll out however management has guided there is more positive demand in FY20e.

Outlook

Management guided for higher residential and installation-related revenue in FY20e. This is on the back of strong demand for fibre in the residential segment. We expect CAPEX to be higher in FY20e. We think non-residential will enjoy stable growth and for NBAP connections to gain traction in FY20e. We are optimistic on 5G and the growth potential it may bring to NLT.

Maintain ACCUMULATE with a higher TP of S$0.93 (prev. S$0.89)

We roll over our valuations to FY20e. Maintain ACCUMULATE with a higher TP of S$0.93 (prev. S$0.89) our valuations is based on DCF (WACC 6%, Terminal growth 1%).