UOB Kay Hian (UOBKH) upgraded its call on NetLink NBN Trust : CJLU 0% to “buy” from “hold”, while highlighting the fibre network infrastructure provider as a “high-yielding, safe-haven stock”.

However, UOBKH reduced its target price marginally to S$1.02 from S$1.05 to reflect a lower terminal growth rate of 1 per cent, versus the earlier 2 per cent assumption.

In a report on Monday (Mar 20), UOBKH analysts said they raised FY2023 to FY2025 net profit forecasts by 7 to 15 per cent on higher fibre connection assumptions across most segments.

This came after NetLink’s core earnings for 9M FY2023 exceeded expectations to form 81 per cent of the brokerage’s full-year forecasts for the group.

Profit after taxation and minority interests (Patmi) for FY2023 is now expected to come in at S$108.4 million versus S$101.5 million previously, and at S$118.9 million for FY2024 versus the previous forecast of S$106.2 million. The group is expected to turn in a Patmi of S$128.3 million for FY2025, as opposed to the earlier projected S$111.3 million.

UOBKH predicted NetLink will post a dividend yield of 6.4 per cent over FY2023 to FY2025, which its analysts believe will be supported by the group’s stable revenue streams and operating cash flows.

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“Importantly, NetLink has sufficient debt headroom to drive its acquisition ambition without compromising on cash flow and dividends,” they noted.  

Ahead of the group’s expected completion of its regulatory review by H1 2023, the analysts also anticipate NetLink’s next return on regulated asset base to come in slightly higher. This is in view of higher interest rates and inflationary pressures, which are projected to result in a higher cost base.

“Despite the recent share price weakness, we continue to see the stock as a good shelter amid market volatility given its strong earnings visibility, healthy balance sheet and cautious approach in terms of overseas or domestic acquisitions.”

Shares of NetLink NBN Trust were trading unchanged at S$0.84 as at 10.57 am on Monday.