Netlink Trust Exceeds Expectations for 2Q-FY2019

by: Dean Goh

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When Netlink NBN Trust (“Netlink”) hit IPO in July last year, ProButterfly provided an extensive analysis of the Trust’s prospects in a 2 part series:

The analysis revealed how Netlink holds a near monopoly within its business environment and thus, expressed optimism at the economic moat NetLink provides its investors. Further, with its provision of passive infrastructure for fibre network services, it is poised to ride on the Smart Nation initiative by the Singapore government, of which ultra-high speed internet access would form the foundation for its success. Fibre network infrastructure would thus provide for this capability. Amongst other growth areas in non-residential end-user connections and of course, non-building address points (i.e. sensors, wearables etc.), Netlink has a promising future.

In the coverage of Netlink’s IPO, it was also shown that the Dividend Discount Model valued the Trust at between $0.74 and $0.80, which led to the view that Netlink was slightly overvalued at an IPO price of $0.81. True enough, in the past 6 months, Netlink mostly traded between $0.75 and $0.79.

Hence, with its earnings report for 2Q FY19 just released, how have things been looking for Netlink more than one year after its IPO listing?

Review of Financial Figures

Comparison of 2Q FY19 (ended 30-Sep-2018) to 2Q FY18 (ended 30-Sep-2017)

  • Revenue increased by 39.9% to $90 million
  • Net Profit increased by 43.9% to $18.7 million
  • Net Profit Margin increased from 20.0% to 20.6%
  • Earnings per Unit (basic and diluted) increased by 45.5% to $0.48
  • Net Cash from Operating Activities increased by 42.0%
  • EBITDA Interest Cover increased from 6.9x to 14.1x

Comparison of 2Q FY19 (Actual values) to 2Q FY19 (Projected values)

  • Revenue was 6.7% higher
  • EBITDA was 3.0% higher
  • EBITDA Margin was 2.4 percentage points lower
  • Net Profit was 16.2% higher

Reasons for the following variances in actual figures:

  1. Higher revenue than projected - “Revenue was higher than projection mainly due to higher Diversion revenue and ducts & manhole service revenue”. However, investors should caution against this optimistic revenue performance as Diversion revenue is not a “recurring, predictable” source of cash flow for Netlink.Diversion Revenue formed around 6.0% of Netlink’s total revenue for the first half of Netlink’s FY19.
  2. Lower EBITDA margin for 2Q FY19 compared to projected value - Higher diversion revenue, which boosted revenue figures for Netlink, carried lower EBITDA margins compared to the overall EBITDA margins of the Trust.

Review Connection Figures

Netlink also looks set to achieve their connection targets for the respective connection types (i.e. residential connections, non-residential connections, and non-building address points) with steady growth in connection numbers quarter to quarter since its IPO listing. Quarter to Quarter Growth slowed as expected for 2Q FY19 as more users have started to use Netlink’s services.

Over the next 2 quarters (3Q FY19 and 4Q FY19), Netlink would also require a much lower average quarter growth as compared to quarter to quarter growth over the past 5 quarters if it were to meet its forecasted connection numbers for FY19 (with the exception of non-residential fibre connections). Thus, Netlink is likely to meet its connection targets for Residential Fibre Connections and for Non-Building Address Points for FY19.

Source: Netlink NBN Trust

Source: Netlink NBN Trust

Source: Netlink NBN Trust

Moving Forward

Netlink operates in a near monopoly industry and is expected to take full advantage of the government’s Smart Nation initiative and the increased demand for cloud based business processes by SMEs. The 2Q FY19 earnings report by Netlink presents a positive image of Netlink’s financial health and is ability to meet its forecasted financial figures.

Netlink’s DPU for the first half of FY2019 is 2.44 cents. Annualising this figure would mean that Netlink’s distribution yield would be 6.26% for FY19 (as Netlink’s price is 78.0 cents at the point of writing). This annualised figure of 4.88 cents is 5.2% higher than the projected figure of 4.64 cents for FY 19 in Netlink’s IPO prospectus. Netlink also looks set to meet its forecasted connection numbers for the various connection types which contributed to 67% of its revenue for the first half of FY19.

Hence, more than a year after its IPO, Netlink Trust is certainly worth another look.


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If this article has really benefited you, then you would certainly love to check out our most popular post related to REITs and Business Trusts. We hope that you will gain much insight from ProButterfly's coverage of this sector:


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