Broker: UOB Kay Hian
Date of Report: Monday, 04 August 2025

NetLink NBN Trust: Stable Yields and Resilient Performance Make This Fibre Network Operator a Safe Haven for Investors

Overview of NetLink NBN Trust

NetLink NBN Trust (SGX: NETLINK SP) is Singapore’s leading passive fibre network infrastructure provider, playing a critical role in the nation’s Next Generation Nationwide Broadband Network (Next Gen NBN). With a robust position as a regulated monopoly and a predictable revenue model, NetLink appeals strongly to investors seeking defensive, high-yielding assets in an uncertain market.

Key Investment Thesis: High-Yield Safe Haven Amid Market Volatility

– Buy Recommendation Maintained: UOB Kay Hian reiterates its BUY call with a target price of S\$0.98, offering a potential upside of 9.5% from the last close of S\$0.895. – Attractive Dividend Yield: The trust boasts an appealing dividend yield of 6.1%, making it a preferred choice for income-focused investors. – Stable Revenue Base: NetLink’s regulated asset base (RAB) and non-RAB segments together ensure resilient cash flows, even as operating costs fluctuate. – Conservative and Opportunistic Growth Strategy: Management remains focused on prudent acquisitions, prioritizing stable, sale-and-leaseback models and low country risk.

1QFY26 Financial Performance: Muted but Stable

Despite ongoing cost pressures, NetLink delivered results broadly in line with expectations for the quarter ended 30 June 2025:

Key takeaways:
Revenue grew modestly (+1.9% YoY), thanks to higher installation-related and ancillary project contributions.
EBITDA and PATMI were softer, down 1.9% and 9.2% YoY respectively, due to margin compression from an unfavourable product mix and higher operating costs.
Margins declined, with EBITDA margin dropping 2.7 percentage points YoY, and net margin down 2.8 percentage points YoY.

Segment Performance: Resilience and Growth in Non-RAB Revenue

NetLink’s revenue structure is underpinned by both regulated and non-regulated streams. In 1QFY26:

• Regulated Asset Base (RAB) revenue: Slight increase (+0.4% YoY), despite a drop in total connections due to the termination of dormant lines. Excluding these, net additions would have been positive.
• Non-RAB revenue: Surged by 10.3% YoY, led by:
  • Installation-related revenue: +12.8% YoY
  • Ancillary project revenue: +26.6% YoY
  • Co-location revenue: +9.9% YoY
• Residential connections: Slight dip (-0.7% YoY), attributed to dormant connection terminations.
• Non-residential connections: Also declined (-0.9% YoY), due to licensee consolidation and delayed terminations.
• Non-building address points (NBAP) and segmental connections: Solid growth (+15.0% and +9.7% YoY respectively), supported by Singapore’s smart city and enterprise demand.

Revenue by Segment (1QFY26)

Financial Position and Debt Profile: Stability and Flexibility

– NetLink’s net finance costs rose slightly (+1.1% YoY). – Effective average interest rate improved to 2.46% from 2.72% in the prior quarter. – Borrowings increased marginally to S\$874 million, with 78.9% now on fixed rates, up from 70.1%. – Management is optimistic about upcoming refinancing opportunities, with expectations for further reduction in average interest costs. – Net gearing remains conservative at 20%, giving ample headroom for acquisitions without jeopardizing dividend payouts.

Growth Prospects Supported by Digital Economy and Smart Nation Initiatives

NetLink is poised to benefit from several structural drivers:

• 5G Rollout: Increased fibre network densification for mobile operators is expected to drive new demand.
• Smart Nation and Digital Economy: Accelerating deployment of NBAP and enterprise fibre connections, supporting Singapore’s transformation into a smart city.
• Data Centre Connectivity: Rising requirements for high-speed, reliable links to support the burgeoning data centre sector.
• Technology Upgrades: Supporting the Infocomm Media Development Authority and customers in delivering 10Gbps-enabled national broadband infrastructure.

Acquisition Strategy: Disciplined and Cautious

NetLink’s management remains open to both domestic and international acquisitions, with a preference for:

• Low country risk opportunities
• Stable, sale-and-leaseback asset models
• Joint ventures or consortium partnerships when appropriate

There is no fixed timeline for mergers and acquisitions, and the company is clear that any deal must not compromise its cash flow strength or dividend policy.

Valuation and Outlook: Defensive Play with Strong Earnings Visibility

– Target price remains unchanged at S\$0.98, based on a DCF model (WACC: 5%, terminal growth: 1%). – At this level, NetLink is valued at approximately 14x FY26 EV/EBITDA, in line with its long-term mean. – Backed by a 6.1% dividend yield, the stock stands out as a robust shelter for investors during periods of market volatility.

Key Financials Summary (Year Ended 31 March)

Catalysts and Risks

Share Price Catalysts:

• 5G adoption and densification of fibre networks by mobile operators
• Growth in NBAP demand from smart city initiatives
• Defensive yield appeal amid market volatility
• Potential earnings-accretive M&A deals

Risks:

• Slower-than-expected uptake in new connection types
• Higher-than-expected operating or financing costs
• Regulatory changes affecting RAB or pricing

Conclusion: NetLink NBN Trust Remains a Top Defensive Pick

With its resilient business model, high yield, and measured growth approach, NetLink NBN Trust stands out as a compelling choice for investors seeking stable returns and downside protection. The company’s strong balance sheet, prudent acquisition strategy, and exposure to long-term digital infrastructure trends further reinforce its status as a safe haven in today’s volatile markets.
Report prepared by UOB Kay Hian. For information only. Not investment advice. Please consult your financial adviser for suitability.