Netlink NBN Trust: A Defensive 6% Dividend Play to Own
CGS International | April 3, 2025
Key Highlights
– Reiterate Add rating and raise target price to S\$1.0 as we roll forward valuations to FY26F – NLT offers a steady 6% dividend yield for FY3/26F, on par with S-REITs’ average – Potential rerating catalysts include higher-than-expected churn by end users or installation by telcos – Believe NLT’s return to the STI reserve list could attract more investor interest
Defensive Play with Steady Growth
We increase our DDM-based target price for Netlink NBN Trust (NLT) to S\$1.0 as we roll forward our valuation base to FY26F. We continue to like NLT as a defensive play given its strong DPU visibility for FY25-27F, backed by steady growth in operating cashflow. Additionally, we believe investor interest in NLT could increase as it was re-included on the STI reserve list post the March review.
Residential Connections Underpin Recurring Income
Residential connections made up 60% of NLT’s 9MFY3/25 revenue. As the sole provider of residential fibre networks in Singapore, NetLink had c.1.52m residential connections as of 3QFY3/25, up 0.7% versus end-FY24. Over the past three years, NLT has seen residential connections growing at c.1.5% p.a. We believe NLT’s residential connections will continue to grow in line with the uptrend in public housing numbers.
Incremental Growth from Infrastructure Projects
NLT also engages in the diversion, installation, and leasing of co-location and central offices to telcos, which are often required in construction, infrastructure and township projects. According to the Building and Construction Authority (BCA), total construction demand from 2026F to 2029F could reach an average of S\$39bn-46bn p.a. We believe this bodes well for NLT as it grows its non-regulated asset base (non-RAB) revenue through incremental projects and network coverage expansion.
Measured Risks for 6% Yield
We expect NLT’s capex to taper off from FY26F onwards with the completion of the Seletar Central Office. Gearing is likely to hover around 30.6%, with 72% of the debt fixed and cost of debt at 2.72% as of Dec 2024. Key downside risks include unfavourable regulatory pricing and disruption to construction works.
Valuation and Recommendation
We value NLT using the Dividend Discount Model (DDM), deriving a target price of S\$1.00. NLT’s forward dividend yield of 6.2% is close to +1 standard deviation from its historical average of 5.8%. We reiterate our Add rating as we believe NLT offers a defensive 6% dividend play for investors.
