Noise From Re-measurement Loss; Maintain BUY

• NetLink Trust (SGX:CJLU)’s consolidated 9MFY22 revenue at S$282m (+1.9% y-o-y) and net profit at S$62m (-12% y-o-y) marginally missed MIBG/Street estimates due to higher operating expenses impacted by a re-measurement loss of S$12.4m relating to finance lease receivables. Excluding this loss, we expect stable EBITDA growth y-o-y.
• We continue to like NetLink Trust as its 5.6% FY22E yield offers strong dividend visibility.
• Changes to its regulated returns (7% pre-tax WACC) are key risks.

NetLink Trust's 3QFY22 Within Expectations

• NetLink Trust's 3QFY22 revenue grew to S$282m (-0.9% y-o-y, -1.2% q-o-q) driven by higher revenue from Non Building Address Point (NBAP) & Segment connection (+45.9% y-o-y, 9.0% q-o-q), residential (+2.4% y-o-y, 1.7% q-o-q) and Co-location (+4.1% y-o-y, 2% q-o-q), though partially offset by competition in Non-Residential and Central Office revenue.
• While NetLink Trust's EBITDA and PAT came in lower by 6.2% and 5.2% respectively y-o-y, the decrease relates to a re-measurement loss from reduction in rental rates upon the renewal of the Central Office lease agreements with SingTel from Sep 2021.
• NetLink Trust's management states that the reduction in rental rates is not expected to have a material cashflow impact in FY22 or subsequent years.

Stable Growth Momentum Boosted Top Line

• NBAP and Segment recorded 21.8% y-o-y growth (+4.4% q-o-q) in connections driven by the increase in base stations as Singapore remains on track in its 5G rollout plan, as well as government agencies’ projects to digitalise outdoor locations. The NBAP segment is likely to see sustained growth momentum especially with Singapore smart nation initiatives. These trends will accelerate well with increasing P2P connections and more diversity connections from data centres come through.
• Nevertheless, residential revenue remains NetLink Trust’s core driver. Residential fibre connections have seen more modest growth to 1.458m (1.0% y-o-y, 0.5% q-o-q). This is largely in line with NetLink Trust’s focus of improving take-ups from first-time fibre users and connecting low-income households via IMDA’s Home Access program.

Safe Haven for Dividend Play

• Given resiliency of the business model, NetLink Trust continues to explore potential inorganic growth opportunities in telecoms infrastructure that are likely to generate a stable coverage to Kelvin Tan.

Source: Maybank Research - 15 Feb 2022