For those of you who may be hearing about this company for the very first time, in a nutshell, here is one of its businesses – I’m sure all of you will have one of this at your home:

Photo: NetLink Trust's Termination Point at My Residence
Photo: NetLink Trust’s Termination Point at My Residence

One of NetLink Trust’s (SGX:CJLU) business is in the provision of fibre network in our homes – in fact, they are they only fibre network provider with nationwide residential coverage in Singapore (hence it has a monopoly here.) As at 31 March 2020, they have provisioned more than 1.4 million end-user connections.

That’s not it – the company also provides fibre networks in non-residential premises (they have provisioned over 47,000 connections as at 31 March 2020), as well as providing Non-Building Address Points (or NBAPs for short) connections across Singapore – to elaborate, NBAPs are locations without a physical address or postal code, such as roadside points, bus stops, traffic lights, or carparks.

NetLink Trust was listed on the Main Board of the Singapore Exchange Securities Trading Limited on 19 July 2017 at an IPO price of S$0.810. Had you subscribed to its IPO and stay invested in the Trust till date (it is currently trading at S$0.980), you are now sitting on an unrealised capital gain of about 21% in about 3 years – that’s excluding all the dividend payouts you have received.

So, does NetLink Trust make a good long-term investment? In this post, you will learn about its historical financial performance, as well as its distribution payout to unitholders over a 3-year period (between FY2017/18 and FY2019/20 – the Trust has a financial year-end every 31 March.) On top of it, you will also learn about its most recent first quarter results for the quarter ended 30 June 2020 (i.e. Q1 FY2020/21), compared against results recorded in the same time period last year (i.e. Q1 FY2019/20), as well as whether or not the Trust is considered cheap or expensive based on its current vs. its historical valuations.

Let’s begin…

Historical Financial Performance of NetLink Trust between FY2017/18 and FY2019/20

The following table is the Trust’s historical performance over a 3-year period:

FY2017/18FY2018/19FY2019/20
Revenue
(S$’mil)
$228.6m$353.6m$370.2m
Net Profit
(S$’mil)
$50.0m$77.4m$78.1m

NetLink Trust's Revenue and Net Profit between FY2017/18 and FY2019/20

Both the Trust’s top- and bottom-line saw year-on-year (y-o-y) improvements every single year over the past 3 financial years, with its revenue recording a compound annual growth rate (CAGR) of 17.4%, and its net profit recording a CAGR of 16.1% – both of them are at pretty resilient growth rates in my personal opinion.

NetLink Trust’s Distribution to Unitholders between FY2017/18 and FY2019/20

The Trust declares a distribution to its unitholders on a semi-annual basis – once when it releases its second quarter results, and once when it releases its fourth quarter results.

Let us take a look at its distribution payout to unitholders over the past 3 financial years:

FY2017/18FY2018/19FY2019/20
Distribution
Per Unit
(S$’cents/unit)
3.20
cents
4.90
cents
5.10
cents

NetLink Trust's Distribution Per Unit between FY2017/18 and FY2019/20

Just like its financial results (which we have looked at in the previous section), the Trust’s distribution per unit to unitholders have also gone up every single year over the past 3 years – and a CAGR of 16.8%.

NetLink Trust’s Latest Q1 FY2020/21 Financial Results (Compared against Q1 FY2019/20)

NetLink Trust is one of the companies that have changed to half-yearly reporting with effect from this financial year – meaning for the first and third quarters, they will only provide a summary of their financial performances.

Let us take a look at its top- and bottom-line performance in the first quarter of FY2020/21, compared against the same period last year (i.e. Q1 FY2019/20):

Q1 FY2019/20Q1 FY2020/21% Variance
Revenue
(S$’mil)
$92.0m$89.0-3.3%
Net Profit
(S$’mil)
$20.9m$23.5m+12.3%

It was a mixed set of results reported by the Trust, where its top-line saw a 3.3% y-o-y decline, mainly attributed to a drop in installation revenue (by S$4.7m) due to fewer installation orders and service activations compared to the same time period last year, when StarHub was migrating its coaxial cable subscribers to fibre. Also, as a result of Covid-19-related issues in the quarter which contributed to a lower availability of contractor resources, along with restricted access to homes and buildings, installation works were affected.

Is NetLink Trust’s Current Unit Price Considered Cheap or Expensive?

One of the ways I use to find out whether or not a company’s current traded price is considered cheap or expensive is to compare its current valuations against its historical average.

The following table is NetLink Trust’s valuations over the past 3 financial years I have computed:

FY2017/18FY2018/19FY2019/20Average
P/E Ratio63.741.745.350.2
P/B Ratio1.01.11.21.1
Distribution
Yield
4.0%5.9%5.6%5.1%

Based on the Trust’s current traded price at S$0.980 (at the time of writing), its valuations are as follows:

P/E ratio: 48.9
P/B ratio: 1.3
Distribution Yield: 5.2% (computed based on a distribution payout of 5.1 cents/unit in FY2019/20)

Looking at its current vs. its 3-year average valuations, it does seem like at its current unit price, the Trust is trading at a slight discount due to its slightly lower-than-average current P/E ratio, coupled with his slightly higher-than-average current distribution yield.

In Conclusion

What I personally like about the Trust is that it has a monopoly, in that they are the only fibre network with nationwide residential coverage in Singapore. Additionally, with new towns and residential buildings coming up, it only bodes well for the Trust (as they all need fibre network connections.) Also, I like the Trust for its improving financial results and distribution payouts (to unitholders) over the years.

On the flip-side, the Trust currently has business operations in Singapore, and there is only so much a small country like Singapore can grow. Also, in my opinion, its P/E ratio (at 48.9 currently) is a bit on the high side.

In terms of its growth prospects in the remaining quarters of the current financial year 2020/21, as Singapore is currently in Phase 2 of the safe re-opening, where works are allowed to once again resume, I’m quietly confident that its top-line will record a better set of results compared to the first quarter (where works were disrupted due to the 2-month circuit breaker period implemented by the Singapore government to curb the further community spread of Covid-19.)

However, despite having said that, this post is by no means a buy or sell recommendation for the units of NetLink Trust. Everything that you have just read (including my personal opinions) is for educational purposes only. Please do your own due diligence before you make any investment decisions.

Disclaimer: At the time of writing, I am not a unitholder of NetLink Trust.

 

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