NetLink's FY22 Results Slightly Below Expectation

• NetLink Trust (SGX:CJLU)'s FY22 PAT and EBITDA at S$91.3m (-3.7% y-o-y) and S$266.9m (-1.2% y-o-y) were below MIBG/consensus expectations, accounting for 83%/98% of our FY22 forecasts. This was mainly due to a re-measurement loss of S$12.4m relating to finance lease receivables. Excluding this loss, we calculate EBITDA rose by 4.8% y-o-y.
• We think the current rising interest rate environment will raise operational costs, lower valuations and reduce the appeal of bond-like equities such as NetLink Trust.
• We believe there is also risk that the upcoming regulatory revision may lower prices and revenue. However, NetLink Trust's dividends can be maintained through lower capex or additional financing. As such, we have reduced our FY23E earnings forecast for NetLink Trust by 5.2% on higher interest costs assumptions.

Healthy Growth in Connections

• Topline improved 2.5% y-o-y to S$377.6m, mainly attributed to y-o-y growth in Non-building Address Points (NBAP) connection revenue (+46%) on the back of higher P2P connections with the rollout of the 5G network. This is partially offset by lower Central Office revenue (-10% to S$18m) due to a drop in rental spaces that reduced rental income.
• Residential connection remained stable, growing 1% y-o-y as connections rose to 1.46m (+1.2% y-o-y).
• NetLink Trust's FY22 DPU was declared at S$0.0513, meeting MIBG/street estimates and translating to a sustainable yield of 5.1%.

Greater Focus on Acquisition in FY23E

• Moving into FY23E, key priority is to expand NetLink Trust’s residential of 2.5x as at 31 Mar 22 provides ample room to increase group debt.

Safe Haven With Consistent Yield

• Maintain BUY regulatory pricing as it is largely depend on the assumption of the forward yield curve and debt premium.

Source: Maybank Research - 18 May 2022