ANALYSTS have raised their target prices on NetLink NBN Trust : CJLU 0% while highlighting the fibre network infrastructure provider as a defensive play amid market volatility.

This comes as NetLink reported strong earnings of S$54.7 million for the second half of its fiscal year ended March, up 6.9 per cent from S$51.2 million in the previous year.

Research teams from UOB Kay Hian (UOBKH), CGS-CIMB, Maybank Securities and Lim & Tan Securities continue to like NetLink for its strong earnings visibility and stability, as well as high yields.

UOBKH noted that the fibre network trust has an attractive distribution yield of 5.9 per cent.

CGS-CIMB, meanwhile, believes NetLink will be able to sustain a stable distribution per unit growth of 2 per cent per annum without meaningfully impacting its debt profile, given its strong operating cashflow.

On Monday (May 22), UOBKH raised its target price on the counter to S$1.05 from S$1.02, implying a potential upside of 16 per cent from NetLink’s last trading price of S$0.905 as at the midday trading break. NetLink’s units were up 0.6 per cent or S$0.005 at the time.

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At the new price, its units trade at a FY2023 enterprise value which is 16 times UOBKH’s estimated earnings before interest, tax, depreciation and amortisation. The research team has maintained its “buy” call on the counter.

Maybank also raised its target price on the stock to S$0.97 from S$0.95, implying a potential upside of 7.2 per cent.

Both UOBKH and Maybank maintained their “buy” calls on NetLink. On the other hand, Lim & Tan Securities recommended “hold” on a lower yield spread between NetLink and the higher Singapore treasury yield rates of about 2.9 per cent.

In a separate note on Friday, CGS-CIMB maintained its “add” call on the counter and increased its target price to S$0.95 from S$0.90, implying a potential upside of 5 per cent.

NetLink’s net profit of S$109.3 million for the full year ended Mar 31, 2023, was mostly in line with CGS-CIMB’s and UOBKH’s expectations. The trust’s full-year profit after tax, meanwhile, exceeded Maybank’s expectations.

UOBKH has raised its earnings estimates for the FY2024-25 period by 1 per cent to 2 per cent, driven by higher fibre connection assumptions across most segments.

UOBKH’s Chong Lee Len and Llelleythan Tan now forecast the trust’s profit after taxation and minority interests (Patmi) to be S$119.5 million for FY2024, up from its previous forecast of S$118.9 million. They also expect Patmi to come in at S$131.3 million for FY2025, up from S$128.4 million; and S$142.8 million in FY2026. (There is no previous forecast for FY2026.)

Ahead of the group’s expected completion of its regulatory review by mid 2023, CGS-CIMB has “conservatively” priced in a 3 per cent fall in interconnection offer pricing for the next review period, given a higher number of active fibre connections.

Maybank analyst Kelvin Tan and UOBKH expect NetLink’s next return on regulatory asset base to be higher. This comes amid an unprecedented elevated interest rates environment, increased capex investments and an expected higher cost base from inflationary pressures, said UOBKH’s analysts.

When it comes to growth opportunities, both Maybank and UOBKH believe NetLink has sufficient debt headroom to drive mergers and acquisitions (M&A) without compromising on cash flow and dividends.

Maybank’s Tan noted that the group is seeking inorganic growth with stable cashflow within the telecom infrastructure space.

But UOBKH’s Chong and Tan noted that there is no fixed timeline for the group’s M&A activities. They added that the trust “may even consider a joint venture or consortium outfit in its acquisition strategy”.