Maybank KimEng started Netlink NBN Trust at Buy with S$0.93 target price, calling it a defensive yield play.
“As Singapore’s de facto fibre broadband network monopoly, NetLink offers a captured market and stream of sustainable cashflows to support capex and its 100 percent cash distribution policy,” the brokerage said in a recent research note.
“We believe NetLink’s business structure is less volatile than other yield plays such as REITs and telcos,” it said, pointing to better earnings stability and visibility and an estimated average 3 percent distribution per unit (DPU) growth over fiscal 2019-22.
It estimated core profit compound annual growth rate (CAGR) of 24 percent over fiscal 2018 to 2021.
Maybank KimEng also noted that NetLink’s gearing of 15-17 percent over fiscal 2019-21 comes in well below REITs and telcos, which were around 24 percent to 107 percent, and it cited the possibility that raising gearing could lead to increased payouts.
Netlink NBN Trust has 82 percent of Singapore’s households on its residential fiber network deployment as of June, with the brokerage forecasting that will rise to 95 percent by fiscal 2021, the note said.
“Demand for broadband services for the average Singapore household is nearly akin to the need for basic utilities,” the note said.
On the non-residential side, the trust has a 34 percent share of the fixed broadband market, which it plans to increase via small-and-medium enterprises and enterprise digitalization efforts, it said.
“The telco incumbents have concentrated their efforts in the central business district (CBD) and as such NetLink has been able to tap non-CBD market demand,” it said. “Meanwhile, although currently low in revenue representation, the non-building access point (NBAP) business segment can become more meaningful in the long term as the Singapore government continues to deploy sensors and automation as part of the Smart Nation initiative.”
Netlink NBN units ended Friday up 0.64 percent at S$0.785.