Introduction to NetLink NBN Trust

NetLink NBN Trust (NetLink), a key player in Singapore’s broadband infrastructure, builds, owns, and operates the passive fibre network infrastructure of Singapore’s Next Generation Nationwide Broadband Network (Next Gen NBN). The company is recognized for its stable revenue streams and high-yielding stock profile, making it a preferred choice for investors seeking safe-haven investments amid volatile markets.

Q3 FY25 Financial Highlights

NetLink reported softer results for the third quarter of FY25 due to lower interconnection prices and increased operating costs. Despite these challenges, the company maintained its stable revenue base, driven by growing overall connections.

• Revenue: S\$103.3 million, down 0.8% year-on-year (yoy).
• EBITDA: S\$73.3 million, down 7.6% yoy.
• Profit After Tax (PATMI): S\$25.6 million, down 20.4% yoy.
• EBITDA Margin: 71.0% (down from 76.2% in Q3 FY24).
• Net Margin: 24.8% (down from 30.9% in Q3 FY24).

The quarterly results were in line with expectations, forming 74% of the full-year forecasts for revenue and PATMI. The decline in profitability was partially attributed to a one-off reversal gain of S\$6.2 million in Q3 FY24.

Segmental Revenue Breakdown

Fibre Business Revenue

The Fibre Business segment, which includes residential, non-residential, and NBAP (Non-Building Address Points) connections, along with installation and ancillary revenues, generated total revenue of S\$92.8 million in Q3 FY25. Key highlights include:

• Residential Connections: S\$61.6 million, down 0.6% yoy and quarter-on-quarter (qoq).
• Non-Residential Connections: S\$8.5 million, down 2.0% yoy but up 1.8% qoq.
• NBAP and Segment Connections: S\$4.9 million, down 4.8% yoy but up 1.8% qoq.
• Installation Revenue: Increased by 15.7% yoy to S\$7.2 million despite a 7.0% qoq decline.
• Ancillary Project Revenue: Declined by 14.8% yoy to S\$5.7 million, though up 27.2% qoq.

Ducts, Manholes, and Central Office Revenue

This segment contributed S\$10.5 million in Q3 FY25, with ducts and manhole services generating S\$6.6 million (down 3.8% yoy) and central office revenue at S\$3.9 million (down 0.8% yoy).

Stock Performance and Valuation

NetLink’s stock price stood at S\$0.85, with a target price of S\$0.98, representing an upside potential of 16.5%. The stock is trading at a Price-to-Earnings (PE) ratio of 33.1x for FY25, with a dividend yield of 6.3%. The valuation metrics indicate a strong appeal for income-focused investors.

• Dividend Yield: The dividend yield is projected to increase steadily from 6.2% in FY24 to 6.5% by FY27.
• Debt Metrics: The net debt-to-equity ratio is expected to rise from 23.0% in FY24 to 32.3% in FY27, offering sufficient headroom for future acquisitions.

Strategic Outlook and Growth Opportunities

NetLink is well-positioned to capitalize on growth opportunities arising from Singapore’s digital economy, 5G rollout, and Smart Nation initiatives. The company is also exploring potential mergers and acquisitions (M&A) and joint ventures to enhance its revenue streams. Specific focus areas include:

• Increased demand for fibre network densification from mobile operators as part of the 5G rollout.
• Expansion of NBAP connections linked to Smart Nation initiatives.
• Providing connectivity solutions for data centers.
• Supporting the Infocomm Media Development Authority (IMDA) in delivering a 10Gbps-enabled national broadband network.

Key Financial Projections

• Revenue: Expected to grow from S\$411.3 million in FY24 to S\$436.9 million in FY27.
• EBITDA: Forecasted to increase from S\$286.5 million in FY24 to S\$305.0 million in FY27.
• Net Profit: Projected to rise from S\$103.2 million in FY24 to S\$112.7 million in FY27.
• EBITDA Margin: Stabilized at approximately 69.8% over the forecast period.

Investment Recommendation

The analysts maintain their BUY recommendation for NetLink NBN Trust with a DCF-based target price of S\$0.98 (WACC: 5%, terminal growth rate: 1%). The stock’s strong earnings visibility, robust balance sheet, and attractive dividend yield make it a compelling choice for defensive investors. Key catalysts for future performance include:

• Increased demand for fibre connections driven by 5G and Smart Nation initiatives.
• Potential earnings-accretive M&A activities.
• Stable and predictable cash flows supported by regulated revenue streams.