12 Key Takeaways From NetLink NBN Trust’s Latest Earnings Update

Last Friday (2 November 2018), NetLink NBN Trust (SGX: CJLU) released its earnings update for the second quarter and first half of its fiscal year ending 31 March 2019 (FY 2019). The reporting period is for the three months as well as six months ended 30 June 2018.

Netlink NBN Trust designs, builds, owns and operates the passive fibre network infrastructure of Singapore’s Next Generation Nationwide Broadband Network. The trust’s extensive network provides nationwide coverage to residential homes and non-residential premises in mainland Singapore and its connected islands. Here are 12 takeaways from Netlink NBN Trust’s latest results (numbers below refer to the second quarter of FY 2019 unless otherwise stated):

1. Revenue for Netlink NBN Trust stood at S$90.6 million, which was 6.7% higher than the projected revenue of S$84.9 million given in its listing prospectus. Diversion revenue was a big driver of the trust’s better-than-expected overall revenue; only S$0.8 million in diversion revenue was expected, compared to the actual number of S$7.1 million. There was an offset from installation-related revenue of S$5.1 million; the projection was for S$7.4 million.

2. EBITDA (earnings before interest, taxes, depreciation and amortisation) was S$61.2 million, 3.0% higher than the projected EBITDA of S$59.4 million.

3. NetLink NBN Trust’s EBITDA margin stood at 67.6% against a projection of 70.0% because of higher diversion revenue, which has a lower EBITDA margin profile than other revenue sources.

4. Profit after tax was S$18.7 million, 16.2% higher than projected.

5. NetLink NBN Trust’s balance sheet had S$152.9 million in cash and S$634.1 million in debt as of 30 September 2018.

6. Operating cash flow was S$61.1 million while capital expenditure was S$22.1 million, therefore free cash flow generated by NetLink NBN Trust for the quarter was S$39.0 million.

7. As of 30 September 2018, the trust had a net asset value per share of S$0.792, up from S$0.788 in the previous sequential quarter.

8. NetLink NBN Trust had 1.241 million residential fibre connections at the end of the reporting quarter, an increase of 2% since 30 June 2018. The IPO projection for fibre connections at year-end FY2019 was 1.278 million.

9. As for non-residential fibre connections, there were 45,514 connections for NetLink NBN Trust as of 30 September 2018, an increase of 1.6% since the previous quarter. The IPO projection is for 47,300 connections by the end of FY2019.

10. Non-building address points (“NBAP”) connections saw a big jump of 13.4% quarter-on-quarter, from 1,129 connections to 1,280. The fiscal year-end projection is for 1,592 NBAP connections.

11. NetlLink NBN Trust declared a distribution per unit (DPU) of 2.44 Singapore cents for the first half of FY2019. If the distribution of 2.44 cents is annualised, it is 5.2% higher than the projected DPU of 4.64 Singapore cents for FY2019 as stated in the trust’s IPO prospectus.

12. NetLink NBN Trust’s unit price is S$0.775  currently. Assuming an annualized DPU of 4.88 Singapore cents, the forward distribution yield would be 6.3%.

NetLink NBN Trust remains on track to achieve the number of end-user connections as stated in its prospectus, though its revenue may be impacted by lower installation revenues. With the recent news that StarHub Ltd  (SGX: CC3) intends to fully phase out its cable services by 30 June 2019 and switch to fibre, this represents more potential revenue for NetLink NBN Trust. The impending entry of the fourth telco in Singapore, TPG Telecom, would also represent growth opportunities for the trust.

NetLink NBN Trust reported a better-than-expected set of results and so, has also increased its DPU slightly above what was projected for FY2019. Although there is some risk of the trust’s overall revenue being impacted by lower installation revenue, the trust’s stable operating model and near-monopoly position means that unit-holders should be able to expect stable and consistent distributions.

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The Motley Fool Singapore contributor Royston Yang contributed to this article. Royston owns shares in NetLink NBN Trust.

The information provided is for general information purposes only and is not intended to be personalized investment or financial advice. The Motley Fool Singapore writer Chong Ser Jing does not own shares in NetLink NBN Trust.