Stable performance
? NLT’s FY22 results were in line; revenue/core net profit at 100%/102% of our
FY22F forecast. FY22 DPS of 5.13Scts represents a 5.2% yield.
? Connection growth across all three segments of fibre connection continued.
? ICO review likely to only be completed early-2023. Rising rates environment
should alleviate concerns over a cut in regulatory WACC. Reiterate Add.
FY3/22 results in line with expectations
Netlink NBN Trust’s (NLT) FY22 core net profit of S$103.7m (+7.6% yoy) was in line with
our expectations, at 102% of our FY22F forecast. Topline grew 2.5% yoy to S$377.6m,
driven by higher connections revenue, partially offset by lower central office revenue.
Excluding the impact from exceptional items, core EBITDA grew at a slower pace of 0.5%
yoy to S$279.7m due to higher operations and maintenance costs – attributable to rental
charges incurred for use of lead-in ducts to provision of fibre for landed homes, as well as
higher security and manning costs and repair works in the Central Offices. FY22 DPS of
5.13Scts/share represents a 5.2% dividend yield, in line with expectations.
Healthy growth in fibre connections in 4Q22
NLT saw healthy growth across all fibre segment connections in 4QFY3/22. Its residential
segment saw net additions of 6k to reach 1.46m connections (+0.4% qoq, +1.2% yoy).
Non-residential connections also saw stronger additions, and now stand at 50.3k (+1.0%
qoq, +4.6% yoy). The bright spot remains the non-building address point (NBAP)
segment, which is the fastest growing with 4,305 total connections (+8.7% qoq, +37.0%
yoy) as NLT supplemented local telcos’ rollout of 5G infrastructure and smart nation
linked initiatives.
Regulatory review of ICO to be completed early-2023
NLT is currently undergoing review of its services (including pricing) offered under its
interconnection offer (ICO) for the next review period (2023-2027) with Infocomm Media
Development Authority (IMDA). NLT expects the review to only be completed in early
2023, mainly due to additional time required for IMDA to complete the public consultation
process on changes in certain non-price terms and conditions. With a rising rates
environment, we believe concerns over a cut in regulatory WACC should subside. We
conservatively price in a 3% reduction in ICO pricing for the next review period in our
forecasts, given a higher denominator (with increase in number of fibre connections), but
believe that NLT’s strong operating cash flow generation can continue to support stable
DPU growth of c.1.5% p.a. without meaningfully impacting its debt profile.
Reiterate Add
Reiterate Add. We fine-tune our FY23-24F forecasts and keep our DDM-based TP at
S$1.10. Potential re-rating catalysts include earnings-accretive acquisitions and strongerthan-expected growth in NBAP connections, as NLT benefits from telcos’ 5G rollout.
Downside risks include lower-than-expected ICO pricing in the upcoming review.