NetLink Trust: Is the Stock a Buy After Latest Q1 FY2024 Results?

September 6, 2023

Broadband stock Singapore

For Singapore investors, the city state’s listed companies are a dividend investor’s dream. That’s because many Singapore stocks are mature, profitable businesses with reliable cash flows.

In this environment of higher interest rates and economic uncertainty, that counts for a lot. One of those types of companies in Singapore – that has a strong moat and predictable business – is NetLink NBN Trust (SGX: CJLU).

That’s because the company designs, builds, and operates the passive fibre network infrastructure of Singapore’s Next Generation Nationwide Broadband Network (NBN).

As a result, it effectively owns the broadband infrastructure in Singapore, ensuring a reliable stream of income as businesses as well as consumer upgrade their connections.

NetLink Trust is also a reliable dividend payer to shareholders since it was spun out of Singapore Telecommunications Ltd (SGX: Z74) as a separately-listed company in 2017.

So, for dividend investors, here’s what they need to know about the firm’s latest Q1 FY2024 earnings (for the three months ended 30 June 2023) and whether the stock is a buy.

Solid growth in fibre connections

NetLink Trust saw solid growth across all fibre segment connection in its latest Q1 FY2024 period with residential and non-residential segment connections rising 1.3% and 3.3% year-on-year, respectively.

Meanwhile, its non-building address points (NBAP) segment saw a robust 23.9% year-on-year growth in connections.

In terms of its profits, NetLink Trust saw net profit for the period rise 2.1% year-on-year to S$28.2 million.

Revenue for the infrastructure provider was up 6% year-on-year to S$104 million for the latest quarter – this was mainly driven by higher connections and ancillary work orders.

As readers can see below, the company’s revenue generation is fairly predictable as only around 12% of its revenue doesn’t come from long-term contracts/recurring cash flows.

NetLink Trust Q1 FY2024 revenue

Source: NetLink NBN Trust Q1 FY2024 earnings presentation

ICO review on pricing to conclude soon

Given NetLink Trust operates like a utility – with 90% of its revenues coming from regulated sources – the upcoming interconnection offer (ICO) review with the Infocomm Media Development Authority (IMDA) has been front and centre for most investors.

The company expects the review to be concluded soon and should provide more clarity on the pricing that NetLink Trust is able to charge going forward.

Overall, consensus expectations in the market are for the IMDA to not materially impact the business model of NetLink Trust.

Solid financial footing for NetLink Trust

It was another predictable quarter for the Singaporean broadband and connections provider. Its gearing ratio remains at an extremely comfortable level, at only 23.6%.

The company’s effective average interest rate has risen by 80 basis points (bps) over the past year to 2.6% as of 30 June 2023.

However, its EBITDA coverage ratio is at a very conservative 16.8 times while operating cash flow for the period was S$81.1 million.

Stable dividend payer

For investors, NetLink Trust operates almost like a bond proxy given its predictable nature and lower volatility, versus other yield names.

The company’s FY2023 dividend per share (DPS) of 5.24 Singapore cents means NetLink Trust shares currently offer investors a dividend yield of 6.1%.

It has managed to grow its DPS at a compound annual growth rate (CAGR) of 1.8% over the past four years, meaning investors also get a bit of dividend growth with the higher yield.

Disclaimer: ProsperUs Head of Content & Investment Lead Tim Phillips doesn’t own shares of any companies mentioned.

Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.

He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. He is also a certified SGX Academy Trainer.

In his spare time, Tim enjoys running after his two young sons, playing football and practicing yoga.

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