NetLink NBN Trust's (NLT NBN) 2QFY19 results exceeded its IPO expectations. Revenue of S$90.6m was 6.7% higher than its initial forecast, on the back of higher diversion revenue as well as ducts and manholes service revenue.

The increase in diversion revenue of S$6.3m was due to the recognition of revenue from completed projects mainly for government agencies.

The higher ducts and manholes service was largely from recovery of costs from Singtel for ducts and manholes joint-build projects. This was however partially offset by lower than projected installation-related revenue. Consequently, EBITDA of S$61.2m came in 3.0% higher than its initial forecast.

2QFY19 EBITDA margin of 67.6% was 2.4%pts lower than projection, as diversion revenues carry lower EBITDA margins than that of the blended average. NLT NBN has declared a 1HFY19 DPU of 2.44 S-cents.

We maintain our BUY rating, but place our fair value of S$0.90 under review pending an analyst briefing.

Source: OCBC Research - 5 Nov 2018