• NetLink Trust’s 4QFY22 core earnings came in at S$25.5m (-22% y-o-y, -1% q-o-q) mainly on higher finance cost. Top-line growth remains robust at 4% y-o-y thanks to higher non-business access point connections. FY22 core earnings of S$103.7m are above house’s and street’s estimates.
• NetLink Trust declared S$0.0257 DPU, translating to a 5% yield for FY22. The next regulatory review is expected for 2023. Maintain HOLD with a target price of S$1.05.

NetLink Trust's 4QFY22: Above Expectations

• NetLink Trust (SGX:CJLU) reported a 4QFY22 core net profit of S$25.5m (-22% y-o-y, -1% q-o-q), mainly due to higher finance cost (+24% q-o-q). Revenue, however, grew 4% y-o-y and 3% q-o-q on continuous growth in the overall fibre connections. This brings FY22 core net profits to S$103.7m (+1.4% y-o-y), accounting for 106% and 110% of our and consensus full-year forecasts respectively – above estimates. The discrepancy from our end stems from better cost discipline.
• 5% dividend yield. 2HFY22 DPU was declared at S$0.0257, bringing full-year DPU to S$0.0513 – in line with our expectations. This would translate to a 5% dividend yield.
• Resilient top-line on continuous fibre connections growth. NetLink Trust continued to grow its fibre connections (residential, non-residential and Non-Building Address Point (NBAP)) at 1% y-o-y and q-o-q to 1.519m. NBAP connections rose 20% y-o-y and 5% q-o-q due to higher demand for point-to-point connections to support mobile network rollout, including 5G network in Singapore. This resulted in NBAP revenue rising 67% y-o-y and 11% q-o-q in 4QFY22. In addition, diversion income also rose 69% y-o-y and 76% q-o-q, attributable to more projects completed, in line with the reopening of more economic activities.

Expect Next Regulatory Review by 4Q22

• NetLink Trust expects the next regulatory review to be carried curve and debt premium.

Safe Haven; Attractive 5% Dividend Yield

• Management remains cognisant of the company's profile as a high-yielding, safe or consortium outfit in its acquisition strategy.

NetLink Trust - Earnings Forecast Revision & Recommendation

• We project an annual DPU of S$0.052 from NetLink Trust of overseas/domestic acquisitions.

• Key catalysts include:
  1. being a 5G beneficiary – more opportunities arising from mobile operators’ fibre network densification demand,
  2. growth in demand for NBAP connections with the rollout of 5G/Smart Nation initiatives,
  3. investors seeking defensive yield from NetLink Trust’s resilient, predictable, transparent and regulated cash flow, and
  4. earnings-accretive M&As.

Source: UOB Kay Hian Research - 18 May 2022