Listed on SGX in 2017, NetLink NBN Trust (SGX: CJLU) builds, owns and operates this fibre broadband network infrastructure of Singapore’s Nationwide Broadband Network (NBN). An initiative led by the Singapore Government, NBN aims to enhance Singapore’s competitiveness through ultra-high-speed broadband access across the country.
During Budget 2024, now Prime Minister and Finance Minister Lawrence Wong underscored the benefits of enabling higher internet speeds of up to 10Gbps in Singapore. Following this, the Infocomm Media Development Authority (IMDA) announced that it will invest up to $100 million to upgrade Singapore’s Nationwide Broadband Network (NBN) – with more than half a million households expected to benefit from higher internet speeds by 2028.
With NetLink NBN Trust providing open access to Singapore’s fibre network, telco operators can focus on offering innovative products and services to consumers and businesses without incurring high fixed costs.
Here are 5 things you should know about NetLink NBN Trust’s fibre optic infrastructure network in Singapore.
#1 How does NetLink NBN Trust manage its operational costs and ensure efficiency in delivering its network services?
NetLink NBN Trust, together with its subsidiary NetLink Trust (referred together as NetLink) is an essential service provider, focused on delivering quality service as well as keeping costs down for end users.
This is achieved primarily through:
(i) running robust tender processes to ensure that we select vendors capable of providing the most optimal solutions at competitive prices, and for key components of the network, we negotiate multi-year term contracts to mitigate the risk of cost fluctuations;
(ii) constantly reviewing our internal processes and workflows to optimise efficiency;
(iii) continuously investing in both maintenance and growth capex to maintain our quality of services (QoS) targets and minimise downtime which is costly; and
(iv) maximising asset utilisation by growing the number of connections with the existing asset base.
#2 Could you provide insights into NetLink’s RAB vs non-RAB revenue?
NetLink holds a Facilities-Based Operations (FBO) license granted by the Infocomm Media Development Authority (IMDA), which allows NetLink to design, build, own and operate the fibre network infrastructure required for telecommunications (telco) services via the Nationwide Broadband Network (NBN).
This fibre network infrastructure largely forms our Regulated Asset Base (RAB). RAB revenue streams are regulated by IMDA and these include revenues generated from >1.5 million residential connections, >53,000 non-residential connections, >2,900 Non- Building Address Point (NBAP) and >3,500 Segment connections, ducts and manholes services, and co-location services. These form c.85% of NetLink’s total revenue in FY24, and are mostly recurring in nature and secured under long- term contracts.
Non-RAB revenue (c.15% of FY24’s revenue) is generally project-based and construction-related, and a large proportion of these are unregulated. Examples of non-RAB revenue would include revenues generated from leasing space at our central offices (non-regulated), provision of installation-related type service (regulated) and ancillary projects such as diversion arising from building or construction works (non-regulated).
#3 How does NetLink manage its debt levels and what is the company’s strategy for debt repayment and refinancing?
NetLink’s current debt levels are relatively low as evidenced by a healthy net debt to EBITDA ratio of 2.0 times, and net gearing ratio of c.23% (as at 31 March 2024). The weighted average debt maturity is approximately 2.4 years and given our strong liquidity position, there is limited or no debt service risk.
Approximately 78% of its borrowings are currently hedged, hence any change in interest rates is unlikely to have a material impact on the Group’s business in the near to mid-term. Its FY24 effective interest rate of 2.75% is relatively low in the current high interest environment, reflecting an effective hedging strategy. It continuously manages interest rate risks by monitoring the interest rate environment, its liquidity position and working capital and capex requirements.
NetLink’s goal is to optimise the Group’s balance sheet by making the best use of funds generated from operations or through borrowings with an aim to deliver an improved total return to unitholders. The Group’s financing strategy is centred around four pillars:
(i) Maintaining a manageable leverage ratio with headroom to undertake ongoing and future capex.
(ii) Hedging via interest rate swaps to mitigate interest rate exposure and stabilise borrowing costs.
(iii) Diversifying the sources of funding including by taking loans, revolving credit facilities from various banks and having a multicurrency debt issuance programme to provide financing options, when required.
(iv) Spreading debt maturities over an extended period.
#4 How is NetLink preparing for the potential impact of emerging technologies, such as the Internet of Things (IoT) and smart cities?
IMDA had on 21 February 2024 announced that it will invest up to S$100 million to upgrade the NBN, enabling Singapore to remain future-ready, and more than half a million households are expected to sign up and benefit from higher speeds of up to 10Gbps by 2028. IMDA also notes that digital technologies are developing rapidly and a higher-capacity broadband network provides the foundation to enable these future innovations and opportunities.
To this end, NetLink is working closely with the other telco operators to upgrade the NBN from now to 2026, which will form the backbone of future applications and innovation, at speeds up to 10 times faster than today. Along with the roll-out of 5G mobile services and faster Wi-Fi networks, the 10Gbps NBN will provide symmetric end-to-end 10 Gbps connectivity supporting Singapore’s global competitiveness and unlocking further economic opportunities.
#5 What are the key factors driving NetLink’s revenue growth and how to sustain this?
The Residential segment (c.60% of FY24’s revenue) has been a primary driver of NetLink’s revenue growth. With the penetration rate now over 90%, growth in this segment will slow down. This allows NetLink to shift its focus to the Enterprise and NBAP segments, which have scope for further growth.
NetLink is partnering other telco players to facilitate the deployment of Internet of Things (IoT) devices and other sensors on street furniture such as traffic lights, lamp posts, and bus stops. This entails the expansion of network coverage to ensure that most outdoor locations are fibre-ready or close to the nearest fibre node. There will also be ancillary project opportunities arising from time to time in light of Singapore’s continuous building (including redevelopments and new developments) and infrastructure development island-wide. Aside from that, NetLink also continues to explore investment opportunities in the digital infrastructure space.
NetLink Has Grown Distributions To Unitholder For 7 Consecutive Years Since Listing
NetLink is the only nationwide provider of fibre connections to residential properties, making it the dominant player in this sector. The barriers to entry for new players are high, both operationally and financially.
Moreover, NetLink has a resilient business model that is well-supported by predictable revenue streams and strong liquidity.
NetLink has grown its Distribution Per Unit (DPU) for seven consecutive years since its IPO in 2017, returning S$1.3 billion to unitholders. Based on the unit price of S$0.86 as at 28 March 2024, the Trust’s unit price yield of 6.2% outperforms the 10-year Singapore Government Bond, STI yield and FTSE ST REIT yield during the same period.
There are opportunities for growth given the acceleration in AI, data centres and Big Tech. This presents an opportunity for NetLink to ride on this expected increase in connectivity requirements.
Editor’s Note: Some answers for this article were extracted from the SGX 10 in 10 series published on 2 July 2024 and have been republished with permission. You can read more on Netlink NBN Trust the SGX website.
Read other featured companies from SGX’s 10 in 10 series on the DollarsAndSense website.
The post 5 Things To Know About NetLink NBN Trust (SGX: CJLU), Laying Optical Fibre Infrastructure To Power Singapore’s Broadband Network appeared first on DollarsAndSense.sg.
