In a Tuesday report, analyst Sachin Mittal says underground infrastructure such as ducts, manholes and fibre have long asset life as they are less exposed to weather and other elements that cause wear and tear.
More importantly, the fibre technology used by NetLink Trust is largely future proof as bandwidth can be improved by upgrading the active data transmission equipment at the ends.
DBS expects NetLink Trust’s distributions to grow at 4.6% CAGR over FY18-20F.believes the market is concerned that a rising interest rate environment could lead to a higher yield spread in the long term.
In the longer term, the business trust can also benefit from potentially higher returns on the Regulated Asset Base (RAB) business from 2022 onwards in case of higher cost of debt.
NLT is yielding 5.8% with close to 92% of the revenue being regulated in nature, says Mittal.
About 80% of the total revenue is regulated under the Regulated Asset Base (RAB) model, whereby NetLink Trust will generate fixed returns.
In addition, projected FY19F total debt-to-EBITDA ratio of 3.2x is conservative versus an average of 5.3x for the business trusts in Singapore/Hong Kong and 7.5x for regional developed market utilities and infrastructure plays.
Potential catalysts for the stock include newsflow on TPG Telecom’s backhaul rollout leveraging on NLT’s infrastructure in early 2018 as well as widened scope of Smart Nation initiatives, leading to a healthy growth in distributions in the long term.
As at 10.59am, shares in NetLink Trust are up 0.5 cent at 81.5 cents or 47.7x 2018F earnings with a forecast net dividend yield of 5.8% in 2019.
