FY22 results slightly below expectation
FY22 PAT and EBITDA at SGD91.3m (-3.7% YoY) and SGD266.9m (-1.2% YoY)
were below MIBG/consensus expectations, accounting for 83%/98% of our
FY22 forecasts. This was mainly due to a re-measurement loss of SGD12.4m
relating to finance lease receivables. Excluding this loss, we calculate
EBITDA rose by 4.8% YoY. 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. We believe there is also risk
that the upcoming regulatory revision may lower prices and revenue.
However, dividends can be maintained through lower capex or additional
financing. As such, we have reduced our FY23E earnings by 5.2% on higher
interest costs assumptions. Maintain BUY with a 7% lower TP of SGD1.05
for potential total shareholder return upside of 12%.
Healthy growth in connections
Topline improved 2.5% YoY to SGD377.6m, mainly attributed to YoY 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 SGD18m) due to
a drop in rental spaces that reduced rental income. Residential connection
remained stable, growing 1% YoY as connections rose to 1.46m (+1.2% YoY).
FY22 DPU was declared at SGD0.0513, 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’s residential network
in new housing estates like Tengah and Yishun. It will also continue to work
with telco players to acquire new non-residential and NBAP customers to
support digitalisation projects and its 5G rollout plan. Management
continues to seek inorganic growth with stable cashflow within the
telecom infrastructure space. More importantly, Netlink will have
sufficient headroom to fulfil its acquisition ambitions without
compromising cash flow and dividends. Gross debt/EBITDA of 2.5x as at 31
Mar 22 provides ample room to increase group debt.
Safe haven with consistent yield
With a naturally defensive residential fibre monopoly business and 5.3%
FY23E dividend yield, we believe Netlink provides a safe haven as
compared to many yield plays despite rising operational costs due to the
growing inflationary environment. Still, we acknowledge that there could
be a slight overhang given uncertainty over the outcome of the regulatory
pricing as it is largely depend on the assumption of the forward yield curve
and debt premium.