OCBC Investment Research Private Limited

19 May 2025

NetLink NBN Trust: A Steady Distribution Play in Singapore’s Digital Growth Story

Investment Thesis Overview

NetLink NBN Trust (NetLink) is strategically positioned as the backbone of Singapore’s Next Generation Nationwide Broadband Network. The company designs, builds, owns, and operates the passive fibre network infrastructure, which includes essential components like ducts, manholes, fibre cables, and Central Offices. [[1]]

NetLink benefits from the increasing reliance on fibre broadband for everyday activities, fueled by the rising demand for connectivity and the exponential growth in data consumption from both residential and non-residential users. [[1]] NetLink’s dominant position as the sole nationwide provider of residential fibre network in Singapore, positions it for further expansion, especially with the development of new residential areas. [[1]] NetLink is expected to capitalize on the growth in connected services within the non-residential and non-building address points (NBAP) sectors, aligning with Singapore’s ambition to become a digital economy. [[1]]

Rating and Fair Value

• Rating: BUY (as of 19 May 2025) [[1]]
• Last Close: SGD 0.91 [[1]]
• Fair Value: SGD 1.01 [[1]]

FY25 Performance and Outlook

NetLink demonstrated resilience in FY25 (financial year ended 31 Mar 2025), marked by a 1.1% year-on-year (YoY) increase in distribution per unit (DPU), despite a lower net profit. [[1]] The company anticipates stable DPU growth in the coming periods, supported by positive trends in residential connections observed in 4QFY25. [[1]]

Investment Summary

• 2HFY25 Performance: Net profit fell short of expectations, but DPU remained in line. [[1]]
• Revenue Decline: 2HFY25 revenue decreased by 1.8% YoY to SGD202.2m, primarily due to lower contributions from ancillary project revenue and reduced connections revenue. [[1]]
• Positive Growth Areas: Co-location revenue increased by 4.5% YoY, driven by higher demand for rack space rentals. Central office revenue rose by 4.7% YoY, reflecting the recovery of higher maintenance costs. Installation and other revenue increased by 8.9% YoY, boosted by a higher volume of residential service activations. [[1]]

Key Financial Metrics

• Market Cap (USD b): 2.7 [[1]]
• Daily Turnover (SGD m): 3.9 [[1]]
• Free Float: 74% [[1]]
• Shares Outstanding (m): 3,897 [[1]]
• Top Shareholder: Temasek Holdings Pte. Ltd. (26.0%) [[1]]

Financial Summary

The following table summarizes key financial forecasts for NetLink:

Key Ratios

Key financial ratios provide insight into NetLink’s efficiency and profitability:

[[1]]

2HFY25 Detailed Analysis

EBITDA increased by 0.9% YoY to SGD144.6m, while net profit decreased by 6.9% YoY to SGD46.9m in 2HFY25. [[2]] The decline in profit was primarily due to increased depreciation and amortisation costs, lower income tax credits, and higher finance costs, which were partially offset by higher EBITDA. Despite the lower net profit, a final distribution of 2.68 Singapore cents per unit was declared, marking a 1.1% YoY increase. This brought the full-year DPU to 5.36 Singapore cents, up 1.1% YoY. [[2]]

Segment Performance

• Residential Connections: Improved in 4QFY25, suggesting a stabilization after heightened churn in previous quarters. [[2]]
• NBAP and Segment Connections: Showed strong growth, driven by Singapore’s Smart Nation initiative. [[2]]
• Residential, Non-Residential, NBAP, and Segment Connections Growth in FY25: 1%, flattish, 9%, and 11%, respectively. [[2]]
• Quarterly Growth in 4QFY25: Residential connections grew by 0.4%, NBAP by 5.7%, and segment connections by 1.8% QoQ. Non-residential connections fell by 0.4% QoQ. [[2]]

The fair value estimate remains at SGD1.01 after adjustments. [[2]]

ESG Updates

NetLink’s ESG rating remained unchanged in the latest review in Aug 2024. [[2]]

• Business Ethics: Average relative to global peers, with board-level oversight but lacking a detailed anti-corruption policy. [[2]]
• Corporate Governance: Average relative to global peers. [[2]]
• Carbon Emissions: Robust initiatives to reduce carbon emissions compared to peers. [[2]]
• Data Protection: Faces regulatory risks due to stringent scrutiny in Singapore, with operations lacking certification to recognized data security standards (e.g., ISO 27001). [[2]]

2HFY25 Results Highlights

[[3]]

Potential Catalysts

• Significant growth in fibre end-user connections. [[3]]
• Strong NBAP growth from Smart Nation initiatives. [[3]]
• Higher-than-expected distribution payout. [[3]]
• Earnings-accretive M&A opportunities. [[3]]

Investment Risks

• Pricing for services regulated by IMDA and subject to review every five years. [[3]]
• Fibre technology becoming obsolete in the future. [[3]]
• Potential disruptions from pandemics. [[3]]

Valuation Analysis

Comparative valuation metrics against peers:

[[3]]

Company Overview (as of 31 March 2025)

NetLink’s nationwide network forms the foundation of Singapore’s Next Generation Nationwide Broadband Network (“Next Gen NBN”), facilitating ultra-high-speed internet access throughout mainland Singapore and its connected islands. [[4]] NetLink was listed on the Main Board of the Singapore Exchange Securities Trading Limited on 19 July 2017 and is a constituent of various indices including the FTSE ST Large & Mid Cap Index. [[4]]

FY25 Revenue Breakdown

• Regulated Asset Base (RAB) revenue: 85.0% [[4]]
• Non-RAB revenue: 15.0% [[4]]

By Segment:

• Residential: 60.5% [[4]]
• Non-Residential: 8.3% [[4]]
• NBAP & Segment: 4.6% [[4]]
• Ducts & Manholes Service: 6.4% [[4]]
• Co-Location & Other: 5.2% [[4]]
• Central Office: 4.1% [[4]]

Distribution per unit (S cents) and Net Asset Value per unit (S cents)

• FY25 Distribution per unit (S cents): 5.36 [[4]]
• FY25 Net Asset Value per unit (S cents): 61.4 [[4]]

Company Financials

Income Statement

Profitability Ratios

Credit Ratios

[[5]]