Delivering stable performance
Noise from re-measurement loss; Maintain BUY
Netlink’s consolidated 9MFY22 revenue at SGD282m (+1.9% YoY) and net profit at SGD62m (-12% YoY) marginally missed MIBG/Street estimates due to higher operating expenses impacted by a re- easurement loss of SGD12.4m relating to finance lease receivables. Excluding this loss, we expect stable EBITDA growth YoY. We continue to like NetLink as its 5.6% FY22E yield offers strong dividend visibility. Changes to its regulated returns (7% pre-tax WACC) are key risks. Maintain BUY and DDM-based TP (COE: 6.3%, LTG: 1.5%) of SGD1.13. We transfer coverage to Kelvin Tan.
Within expectations
3QFY22 revenue grew to SGD282m (-0.9% YoY, -1.2% QoQ) driven by higher revenue from Non Building Address Point (NBAP) & Segment connection (+45.9% YoY, 9.0% QoQ), residential (+2.4% YoY, 1.7% QoQ) and Co-location (+4.1% YoY, 2% QoQ), though partially offset by competition in NonResidential and Central Office revenue. While EBITDA and PAT came in lower by 6.2% and 5.2% respectively YoY, the decrease relates to a remeasurement loss from reduction in rental rates upon the renewal of the Central Office lease agreements with SingTel from Sep 2021. 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% YoY growth (+4.4% QoQ) 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’s core driver. Residential fibre connections have seen more modest growth to 1.458m (1.0% YoY, 0.5% QoQ). This is largely in line with the Group’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, the Group continues to explore potential inorganic growth opportunities in telecoms infrastructure that are likely to generate a stable cashflow. With gross debt/EBITDA of 2.6x and cash balance of SGD113m (as of 31 Dec 21), we believe Netlink should have sufficient headroom to drive its acquisition ambition without compromising dividends. With 93% of revenue from recurring cashflow, we believe Netlink 5.6% dividend yield offers an attractive spread even as interest rates rise.