Results in Line With Consensus/MKE; Maintain BUY

• NetLink Trust (SGX:CJLU)'s 9MFY21 earnings of S$69.5m were in line at 77/74% of MKE/ Factset consensus estimates and it’s on track to meet our full-year forecast.
• Business activity is back to pre-Covid levels. We maintain our forecasts and DDM-based target price (COE 6.3%, LTG: 1.5%) of S$1.11 for NetLink Trust.
• Given its strong balance sheet, NetLink Trust is starting to explore overseas acquisitions within the telco infrastructure sector.
• Risk to our outlook includes regulatory changes that would affect NetLink Trust.

Resilient Results; No Changes to Our Forecasts

• NetLink Trust's 9MFY21 revenue of S$276.3m (-0.5% y-o-y) was fairly stable, achieving 74% of MKE/consensus forecasts.
• Lower installation-related revenue (- 29.1% y-o-y to S$11.9m) was partially offset by higher takings from the residential (+3.3% y-o-y to S$178.2m) and non-building address points & segments (+18.1% to S$6.4m).
• The residential segment continued to be the key driver of total revenues (64.5%) and connections rose to 1.44m (+1.5% y-o-y).
• Concurrently, connections of the non-residential division grew 1.3% y-o-y to 48,000. EBITDA margin expanded to 76% (+3ppt) on government grants (c. S$7.2m) arising from property tax and Job Support Scheme. As a result, NetLink Trust's 9MFY21 PAT rose 5.9% y-o-y to S$69.5m.
• We made no changes to our FY21 forecasts.

Back to Normal; Searching for Inorganic Growth

• NetLink Trust’s workforce has returned to pre-Covid levels such as Tengah and Punggol.
• Given its strong balance sheet, NetLink Trust is keen to explore acquisitions in the telco-infrastructure sector of companies with utilities-like business models. NetLink Trust is comfortable to gear up to stage of searching.

Stable Dividend Outlook for NetLink Trust

• Management has a stable sheet and stable cash inflows. We believe NetLink Trust's 2H21E DPU will at least match that of 1H21 DPU of S$0.0253.
• Our FY21E DPU estimate of S$0.051 translates to a dividend yield of 5.4%, offering better dividend visibility than many other yield plays as 93% of NetLink Trust’s revenue is backed by recurring cash flows.
• Earnings-accretive acquisitions would provide upside to our target price and dividend forecasts, we believe.

Source: Maybank Kim Eng Research - 25 Feb 2021