• FY18 NPAT exceeded IPO forecasts
• 3.24 S-cents DPU 5% higher than forecast
• Stable growth outlook Installation-related revenue 44% below

IPO Forecast

NLT NBN’s FY18 (19 Jun 17 – 31 Mar 18) revenue of S$228.6m came in 1.8% lower than its forecast as installation-related revenue of S$10.3m was 44% lower than forecasted, but partly offset by higher revenue across all other segments. Installation-related revenue was lower due to slower than expected project deployment by some customers, as well as change in customers’ deployment requirements being different from management’s projections.

FY18 total expenses of S$186.3m was 4.5% lower than forecasted mainly resulting from lower:

1. operation and maintenance costs due to lower operating needs and deferments (timing reasons,
2. actual average headcount than forecasted,
3. other operating expenses due to deferred costs for IT maintenance, and
4. finance costs due to lower debt drawdown than projected given the stronger operational cash flow.

Consequently, FY18 profit after tax of S$50.0m came in 10.8% higher than forecasted.

Resilient Earnings a Key Thesis

Given the significant miss in installation-related revenue, we adjust our forecasts slightly to factor for the slower-than-expected growth of NBAP segment. That said, we also note that installation-related revenue formed only 4.5% of FY18 total revenue, indicating minor impact to our forecasts.

Over the longer-term, we remain positive over NLT NBN’s resilient business model and growth outlook with the development of new residential areas as well as increase in penetration rates. Furthermore, we continue to expect NLT NBN to be a key participant of growth in other connected services within the non-residential and NBAP space, especially with Singapore’s push to transform into a digital economy.

As of 31 Mar 2018, NLT NBN’s nonresidential network supports 43,855 nonresidential end-user connections, with 31,574 buildings reached, while its residential network supports 1,192,493 end-users, with 1,346,819 home reached and 1,482,711 home passed.

Slightly Lower FV of S$0.90

All considered and on above mentioned reasons, we forecast NLT NBN to deliver distributions to unitholders S$179.9m in FY19F and S$185.5m in FY20F. Consequently, we derive a lower S$0.90 (prev: S$0.91) fair value estimate.

Source: OCBC Research - 16 May 2018