4QFY22: Above Expectation; Network Expansion Lifts Fibre Connections
NetLink’s 4QFY22 core earnings came in at S$25.5m (-22% yoy, -1% qoq) mainly on
higher finance cost. Top-line growth remains robust at 4% yoy thanks to higher nonbusiness access point connections. FY22 core earnings of S$103.7m are above house’s
and street’s estimates. The group declared S 2.57 cent DPU, translating to a 5% yield
for FY22. The next regulatory review is expected for 2023. Maintain HOLD with a target
price of S$1.05.
RESULTS
• 4QFY22: Above expectations. NetLink NBN Trust (Netlink) reported a 4QFY22 core net
profit of S$25.5m (-22% yoy, -1% qoq), mainly due to higher finance cost (+24% qoq).
Revenue, however, grew 4% yoy and 3% qoq on continuous growth in the overall fibre
connections. This brings FY22 core net profits to S$103.7m (+1.4% yoy), accounting for
106% and 110% of our and consensus full-year forecasts respectively – above estimates.
The discrepancy from our end stems from better cost discipline.
• 5% dividend yield. 2HFY22 DPU was declared at 2.57 S cents, bringing full-year DPU to
5.13 S cents – in line with our expectations. This would translate to a 5% dividend yield.
• Resilient top-line on continuous fibre connections growth. NetLink continued to grow its
fibre connections (residential, non-residential and Non-Building Address Point (NBAP)) at
1% yoy and qoq to 1.519m. NBAP connections rose 20% yoy and 5% qoq due to higher
demand for point-to-point connections to support mobile network rollout, including 5G
network in Singapore. This resulted in NBAP revenue rising 67% yoy and 11% qoq in
4QFY22. In addition, diversion income also rose 69% yoy and 76% qoq, attributable to more
projects completed, in line with the reopening of more economic activities.
STOCK IMPACT
• Expect next regulatory review by 4Q22. Netlink expects the next regulatory review to be
carried out by the end of this year and to take effect from 2023 onwards. Netlink is currently
in discussions with the Infocomm Media Development Authority (IMDA) and at this juncture,
we expect the next return on regulated asset base (RAB) to be in line with the current 7%
(pre-tax WACC) rate of return. This will depend on the assumption of the forward yield curve
and debt premium.
• Safe haven; attractive 5% dividend yield. Management remains cognisant of the
company’s profile as a high-yielding, safe haven stock. As such, key criteria of any potential
new investment in the near horizon would have to include: a) country risk premium, and b) a
preferably stable cash flow via an asset sale and leaseback model. Importantly, Netlink will
have sufficient headroom to drive its acquisition ambition without compromising on cash flow
and dividends. There is however, no fixed timeline in terms of M&A activities and Netlink’s
management may even consider a JV or consortium outfit in its acquisition strategy.
EARNINGS REVISION/RISK
• None.
• We project an annual DPU of 5.2 S cents for FY23-25. This translates to a sustainable 5.3%
net dividend yield.
VALUATION/RECOMMENDATION
• Maintain HOLD and a DCF-based target price of S$1.05 (cost of equity: 6.3%, terminal
growth: 1.8%), or 16x FY23F EV/EBITDA, (1SD above its four-year mean EV/EBITDA of
13.8x).
• We continue to see the stock as a good shelter amid market volatility given its strong
earnings visibility, healthy balance sheet and cautious approach in terms of
overseas/domestic acquisitions.
SHARE PRICE CATALYST
• Key catalysts include: a) being a 5G beneficiary – more opportunities arising from mobile
operators’ fibre network densification demand, b) growth in demand for NBAP connections
with the rollout of 5G/Smart Nation initiatives, c) investors seeking defensive yield from
Netlink’s resilient, predictable, transparent and regulated cash flow, and d) earningsaccretive M&As.