In Line; BUY Maintained

• NETLINK NBN TRUST (SGX:CJLU)'s 1QFY20 revenue, EBITDA and core profit were 25%-26% of MKE and consensus FY20 forecasts, with growth driven by cable to fibre migration.
• We maintain our forecasts and DDM-based (COE 6%, LTG 0%) Target Price of SGD0.94.
• With a virtual residential-fibre monopoly and guaranteed regulated returns, we continue to believe NetLink Trust provides a haven amid the current industry turbulence. Maintain BUY with risks to our outlook from any negative revisions to its regulatory regime.

Healthy Even Without Full Cable Migration

• Primary residential connections led its 7% y-o-y/5% q-o-q revenue growth, arising from continued cable to fibre migration. Management indicated that such conversions are not yet completed.
• Non-residential or enterprise connection revenue also continued to grow despite competitors’ plans to build more fibre to enterprise. See report: NetLink NBN Trust - More Competition In A Small Segment.

Minor Dampener

• On the other hand, revenue and connections for its non-building access point (NBAP) segment dipped q-o-q as about 100 circuits’ rental was cancelled from Phase 1 of the government’s Smart Nation sensor programme.
• Management expects no further cancellations and other government agencies continue pursuing their own deployment to support future growth. NBAP is only 2% of revenue but it was initially eyed as a growth segment.

No Change to Guidance

• Similar to end-FY19 guidance, management expects revenue growth from residential connection services and installations this year. Higher but undisclosed capex is also planned. Though such capex does not require pre-approval from the regulators, management proactively informs them of its targets in preparation for future rate-rebasing.
• Despite a lower interest-rate environment, it does not expect a mid-term review of its regulated returns.

5G Long-shot Upside?

• Management spoke more on the proposal it made during a 5G consultation held by the regulator, Infocomm Media Development Authority (IMDA) recently. Recall that NetLink Trust was among three parties that separately recommended a single 5G network provider model rather than two as initially indicated by IMDA.
• They had proposed a single network to be operated under a regulated asset base (RAB) framework, similar to the residential-fibre model.
• The majority of the proposals advocated a 2-network, non-RAB regulated model.
• IMDA will consider all the proposals before reaching a decision, likely by year-end.
• If NetLink Trust were awarded, this project with regulated returns could provide upside potential, in our view.

Source: Maybank Kim Eng Research - 6 Aug 2019