- NLT’s 1QFY3/23 results were in line; net profit came in at 26%/27% of our/Bloomberg consensus FY23F forecasts.
- Ancillary project revenue was the key driver for 1Q revenue growth. NLT also saw healthy connection growth across all three segments of fibre connection.
- Reiterate Add as we retain our view that NLT is a defensive play amid the current backdrop of rising inflation and a potential economic slowdown.
1QFY3/23 results in line with expectations
Netlink NBN Trust’s (NLT) 1QFY3/23 net profit of S$27.6m (+11.3% yoy) was in line with expectations, at 26%/27% of our/Bloomberg consensus FY23F estimates. Topline grew 4.8% yoy to S$97.9m, driven by higher ancillary project revenue and connections revenue, though partially offset by lower central office revenue. EBITDA grew 5.0% yoy, in tandem with the higher revenue, reflecting good cost control by NLT.
Stronger revenue growth aided by construction recovery
Boosted by recovery in construction activities, ancillary project revenue surged 136% yoy to S$4.4m and was the key driver for NLT’s 1Q revenue growth. Meanwhile, NLT continued to see healthy growth across all fibre connection segments during the quarter. Its residential segment saw net additions of 6k to reach 1.47m connections (+0.4% qoq, +1.4% yoy), faster vs. 1QFY22’s net addition of 2k connections. Non-residential connections also grew to 50.8k (+1.0% qoq, +4.5% yoy). The non-building address point (NBAP) and segment connections remained the fastest growing with 4,649 total connections (+8.0% qoq, +36.7% yoy) as NLT supplemented local telcos’ rollout of 5G infrastructure and projects that required a higher level of network resiliency.
Robust balance sheet, with net gearing at 20.8%
Net gearing stood at 20.8% as of end-Jun, providing good debt headroom for inorganic growth opportunities; NLT continues to explore opportunities to invest in telecoms infrastructure businesses overseas that are likely to generate stable cashflows. As of 1QFY23, NLT’s effective average interest rate stood at 1.8%, with 77% of its debts hedged into fixed rates (till Mar 2026). NLT has a S$156m loan facility due to be refinanced in FY23F. We estimate that every 50bp increase in weighted average interest rate costs could negatively impact EPS by 2.9%.
Reiterate Add with a slightly lower TP of S$1.04
Reiterate Add as we retain our view that NLT is a defensive play amid the current backdrop of rising inflation and a potential economic slowdown given its strong earnings visibility and stability. We keep our earnings forecasts unchanged but our DDM-based TP is lowered slightly to S$1.04 as we factor in a higher risk-free rate given the higher interest rate environment. Potential re-rating catalysts include earnings-accretive acquisitions and stronger-than-expected growth in NBAP connections as NLT benefits from telcos’ 5G rollout. Downside risks include lower-than-expected ICO pricing in the upcoming review.