Public Announcement: This will be the last article covering NetLink NBN Trust (“NLNT”) till further notice. The reason is due to the continued distribution by the trust based on EBITDA which have led to a decrease in net asset value over the last few years. This means that the base value of their assets continues to be eroded, which may lead to issues in the future. NLNT had a net asset value of SGD0.815 per share as of 31 March 2018.
On 10 February 2025, NLNT announced their third quarter business update for FY2025. Overall, it was noted that profit after tax continues to decrease, likely an impact from the IMDA review. The debt maturity profile of NLNT has shortened to 1.6 years, which is lower than most of the REITs in the market. Investors should assess over the next few quarters if this improves.
Disclaimer: Not financial advice. All data and information provided on this site is for informational purposes only.
Photo source: https://fifthperson.com/2019-netlink-trust-agm/
Financial Highlights
Revenue
| Metrics | Current | Previous |
|---|---|---|
| Revenue | -0.4% | -0.2% |
| Rating | Neutral | Neutral |
Revenue for the first nine months of FY2025 decreased by 0.4% to SGD308 million when compared to the SGD309 million for the same period in the previous financial year. Management disclosed that this was primarily due to lower contributions from ancillary projects (non-RAB revenue). This was partially offset by higher installation-related revenue. This metric remains Neutral.
Earnings Per Share
| Metrics | Current | Previous |
|---|---|---|
| Earnings per share | No Update | -8.8% |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 10 February 2025, earnings per share was not included in the business update for the third quarter of FY2025. However, they have disclosed that profit after tax have decreased by 12.9% when compared to the same period in the previous financial year.
Together with the decrease in earnings per share for the first half of FY2025 by 8.8% to SGD0.0124 per share from SGD0.0136 per share for the same period in the previous financial year, this metric remains Unfavorable.
Operating Cash Flows
| Metrics | Current | Previous |
|---|---|---|
| Operating Cash Flows | No Update | -5.6% |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 10 February 2025, operating cashflows was not included in the business update for the third quarter of FY2025.
The metric was Unfavorable as of 30 September 2024 as operating cash flows for the first half of FY2025 saw a decrease by 5.6% to SGD145 million from SGD153 million for the same period in the previous financial year.
Gearing Ratio
| Metrics | Current | Previous |
|---|---|---|
| Gearing Ratio | 30.6% | 25.3% |
| Rating | Favorable | Favorable |
Gearing ratio increased to 30.6% as of 31 December 2024. This metric remains Favorable as there is sufficient headroom for NLNT to pursue growth opportunities and they will not be weighed down significantly by interest rate changes.
Interest Coverage
| Metrics | Current | Previous |
|---|---|---|
| Interest Coverage | 6.3x | 6.2x |
| Rating | Favorable | Favorable |
If using the same computation as REITs (EBIT/net interest expense), for the first nine months of FY2025 the EBIT of the trust is SGD85 million while net finance costs is SGD13 million. This translates to interest coverage of 6.3 times. This metric remains Favorable.
Debt Maturity Profile
| Metrics | Current | Previous |
|---|---|---|
| Debt Maturity Profile | 1.6 years | 1.9 years |
| Rating | Unfavorable | Neutral |
Weighted average term to maturity of their debt shortened further to 1.6 years as of 31 December 2024. This metric has shifted towards Unfavorable, as it indicates that more than half of their debts may be classified as current liabilities over the next few quarters if remain unchanged.
Price to Book Ratio
| Metrics | Current | Previous |
|---|---|---|
| Price to Book Ratio | 1.36 | 1.36 |
| Rating | Unfavorable | Unfavorable |
Based on the announcement on 10 February 2025, net asset value was not included in the business update for the third quarter of FY2025.
The Price to Book (“P/B”) ratio remained unchanged at 1.36. This is computed using the closing share price of SGD0.855 on 28 February 2025 and the net asset value of SGD0.630 per share as of 30 September 2024. The P/B ratio metric remains Unfavorable.
As of 28 February 2025, the Market Capitalization is approximately SGD3,332 million.
Website: Yahoo Finance: NetLink NBN Trust (CJLU.SI)
Dividend
| Year | Yield | Total |
|---|---|---|
| 2024 | 6.23% | SGD 0.053 |
| 2023 | 6.16% | SGD 0.053 |
| 2022 | 6.07% | SGD 0.052 |
| 2021 | 5.98% | SGD 0.051 |
| 2020 | 5.92% | SGD 0.051 |
As there is no dividend declared for the first quarter of the calendar year 2025, I will use the total dividend for the calendar year 2024 of SGD0.053 per share to measure. With a closing share price of SGD0.855 as of 28 February 2025, this translates to a healthy dividend yield of 6.23%. For my benchmark, a general reasonable yield would be around 5.25%. The dividend yield is Favorable.
Website: Reasonable Dividend Yield 2025Q1 – 5.25%
Interest Rate Sensitivity
The Federal Reserve on 30 January 2025 have kept interest rates unchanged at a range of 4.25% to 4.50%. This is due to significant uncertainty in the U.S. economic landscape, with a healthy set of macroeconomic fundamentals that have changed little in recent months, but coming decisions from the Trump administration on immigration, tariffs, taxes and other areas that could prove disruptive.
Website: Fed leaves rates unchanged, sees no hurry to cut again
As the interest rate may change further, NLNT may be subjected to change in their cost of debt. Their debt profile as of 31 December 2024 is as below.
| Description | Amount (SGD’000) |
|---|---|
| Total Debt | $835,000 |
| Debt Not Hedged (%) | 28.1% |
| Debt at Floating Rate Exposed | $234,635 |
| EBITDA FY2024 | $292,399 |
I have thus performed a sensitivity analysis using the information.
| Change in Interest Rates | Change in Distributable Income (SGD’000) | Change as % of FY2024 EBITDA |
|---|---|---|
| 50 bps | $1,173 | 0.4% |
| 100 bps | $2,346 | 0.8% |
| 150 bps | $3,520 | 1.2% |
| 200 bps | $4,693 | 1.6% |
Do note the above is my estimation which may be different from management’s estimation. Nonetheless, if the interest rates were to increase by the basis points above, NLNT may experience a fall in EBITDA accordingly which may in turn affect distribution.
Key Things to Note
IMDA Regulatory Review
On 27 November 2023, NLNT has completed the regulatory price review by Infocomm Media Development Authority (“IMDA”). The review determines the new pricing NLNT can charge since 2017 when it was listed.
Website: General Announcement::Completion of Price Review
With the completion of the price review, it is noted that the monthly recurring charge for residential has decreased by 2.17% to SGD13.50 from SGD13.80. Non-building address point has also seen a decrease by 4.47% to SGD70.50 from SGD73.80. No change for non-residential at SGD55.00. These revised prices will take effect from 1 April 2024, with no material impact on the financial year ending 31 March 2024.
The result is that from FY2025 onwards, we may see revenue decrease. Assuming all other costs remain constant, this will translate to lowered profit and likely dividend as well. This has been noted with the business update for the first nine months of FY2025 where revenue and profit after tax saw decreases.
Growing towards asset light
NLNT by no means it is an asset light Company. However, from an accounting point of view, they have been paying out dividends that are higher than their earnings. This is possible because of the high depreciation, which is a non-cash adjusting expense, resulting in high EBITDA as compared to profits.
For illustration purposes, imagine a scenario where you are in the business of car rental. The useful life of cars in Singapore companies are generally 10 years. This is due to the Certificate of Entitlement (“COE”) lasts only 10 years, and the value of the car is thus depreciated over its 10 years useful life. However, over the course of the 10 years, at the end of the useful life with the expiry of the COE, you will need to pay an equivalent amount to purchase a new car with a new 10-year COE. The new purchase would not be possible if you pay out dividends based on EBITDA and have no cash savings from the dividend expense.
What management is saying is that the assets of NLNT do not have a high replacement cost at the end of its useful life. and the assets will still be able to continue to operate indefinitely. Thus, they do not need to save money from the depreciation expense for a potential replacement of the assets.
The result is that the net asset value of the Company will continue to decrease as they continue to pay out the dividends sustained using EBITDA. NLNT had a net asset value of SGD0.815 per share as of 31 March 2018, and it has decreased since then. Eventually if they would like to secure new financing, their balance sheet will seem to have insufficient assets to pledge as collateral for new borrowings.
Website: Annual Reports And Related Documents
Investors will need to take note if they are comfortable with the idea that their assets are able to last longer than the pre-determined useful lives as of reporting date.
Summary
| Metrics | Financials | Rating |
|---|---|---|
| Revenue | -0.4% | Neutral |
| Earnings per share | No Update | Unfavorable |
| Operating Cash Flows | No Update | Unfavorable |
| Gearing Ratio | 30.6% | Favorable |
| Interest Coverage | 6.3x | Favorable |
| Debt Maturity Profile | 1.6 years | Unfavorable |
| Price to Book Ratio | 1.36 | Unfavorable |
| Overall | Neutral |
Overall, the metrics for NLNT remain unchanged at Neutral. Do note that the financial position of NLNT seems to have weakened this quarter, especially as the debt maturity profile continue to shorten. Investors will need to monitor over the next few quarters if there are any adverse impacts.
Background
NLNT was established in 2017 primarily for the purpose of owning all of the units of NetLink Trust (“NLT”), through which NLNT owns the only nationwide fibre network supporting Singapore’s Next Generation Nationwide Broadband Network (“Next Gen NBN”).
NLNT designs, builds, owns and operates the passive fibre network infrastructure of Singapore’s Next Gen NBN. An initiative led by the Singapore government, the Next Gen NBN aims to enhance the competitiveness of the economy through nationwide ultra-high-speed broadband access. By providing an open, wholesale access to our fibre network, telecommunication operators can focus on offering innovative products and services to consumers and businesses without incurring high fixed costs.
NLNT offer primarily three types of end user connections:
- Residential
- Non-residential
- Non-Building Address Point (NBAP)
NLNT was listed on the Main Board of the Singapore Exchange Securities Trading Limited on 19 July 2017. It is a constituent of the FTSE ST Large & Mid Cap Index, FTSE ST Singapore Shariah Index and the MSCI Global Small Cap – Singapore Index.
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Website: NetLink NBN Trust (SGX: CJLU): 2025 Half Year Result
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