Brokers' take: UOB Kay Hian positive on Netlink's ability to generate sustainable dividend yield

FIBRE network infrastructure provider Netlink NBN Trust could be a "high yielding, safe haven stock" generating about 5.3 per cent per annum in dividends from FY2022 to FY2024, UOB Kay Hian suggested.

This comes as the trust looks to take advantage of the increase in fibre take-up locally as well as investment opportunities in South-east Asia.

In a research note released on Friday, UOB Kay Hian noted that the trust will be able to increase fibre take-up by working with the Infocomm Media Development Authority's Home Access programme to connect low-income households. Demand for fibre connections will also rise as Singapore typically adds 20,000 to 25,000 new homes a year.

Additionally, the trust's number of non-building access points (NBAP) connections grew by 18 per cent in FY2021 to 1,996 connections. The ongoing Smart Nation initiatives are expected to further drive demand for such connections, the research house said.

On top of this, the research house expects the trust to benefit from Singapore's 5G network roll-out as joint 5G nationwide licensees StarHub and M1 and localised licensee TPG work closely with Netlink to deploy their 5G infrastructure.

"Besides, as the government continues to encourage higher productivity through digitalisation, Netlink aims to continue improving network capacity, flexibility and resiliency to support the government's 5G rollout targets. In all, we expect residential, nonresidential and NBAP connections to grow by 2 per cent, 3 per cent and 20 per cent respectively in FY2022," the research house said.

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Within South-east Asia, the trust is also evaluating new investments to drive future earnings growth. The research house said this could come in the form of telecommunication assets that can generate stable cash flows, such as fibre networks, telecoms towers, in-building systems and distribution antennas.

Furthermore, the trust is also considering new investments in the region to drive future earnings growth. As South-east Asia's telecoms sector is currently going through a 5G technology refresh, the region's telecoms operators are studying ways to monetise existing passive assets, which the trust could assess as long as earnings and cash flow are sustainable.

The research house maintains "buy" on the counter, with a target price of S$1.08, in view of its current unit price weakness.

"We expect the stock to further outperform as investors seek shelter in high dividend yielding stocks amid external volatility," the research house said.

As at Friday 4.09pm, Netlink NBN Trust shares were trading flat at S$0.95.