Company Overview

Listed in 2017, NetLink NBN Trust owns the only nationwide fibre network supporting Singapore’s Nationwide Broadband Network (NBN), over which ultrahigh-speed internet access is delivered throughout mainland Singapore and its connected islands. NetLink Group designs, builds, owns, and operates the passive fibre network infrastructure of Singapore’s NBN. NetLink Group’s extensive network provides nationwide coverage to residential homes and non-residential premises in mainland Singapore and its connected islands. Link to Stock Screener company page.

1. How does NetLink NBN Trust manage its operational costs and ensure efficiency in delivering its network services?

• NetLink NBN Trust, together with our 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 NonBuilding 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.  
• 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.

• Our 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:
   
  •  Maintaining a manageable leverage ratio with headroom to undertake ongoing and future capex.
     
  • Hedging via interest rate swaps to mitigate interest rate exposure and stabilise borrowing costs.
     
  • 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.
     
  • Spreading Debt Maturities Over An Extended Period.

4. 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 the 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.

5. 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.

6. What Are Some Key Trends Observed Within This Industry?

We have observed the following key trends that have a more direct but mixed impact on NetLink’s business:

• Fibre take-up will likely increase with (i) Digital Transformation across artificial intelligence (AI), IoT, and big data analytics which are used to improve network management, customer service, and operational efficiency, and (ii) Singapore’s Smart Nation Initiative to enhance digital infrastructure to support smart city applications, including smart homes, smart transportation, and smart healthcare.

• However, these positive developments may be offset by consolidation and competition. For example, we have seen Nucleus Connect and MyRepublic being merged into Starhub. With margins continuing to be challenging, we expect this trend to continue.

• Other trends that have an impact on mobile network operators are (i) 5G Deployment and Adoption as Singapore has been aggressively rolling out 5G networks for nationwide coverage and major telcos have been investing heavily in 5G infrastructure, but even so, mobile substitution of fixed broadband is unlikely to occur anytime, (ii) Enhanced Services and Bundling as telcos are expanding their service offerings beyond voice and data, into digital entertainment, cloud services, and cybersecurity with the aim of delivering greater value to customers.

7. Sustainability and ESG have increasingly been a key focus, how is NetLink committed towards sustainability?

• NetLink has established a sustainability governance structure to provide oversight on our sustainability efforts. Our Board oversees and sets the direction for our sustainability strategies and goals, including climate-related risks and opportunities. The Board’s Risk and Sustainability Committee (RSC) supports the Board in this area.
   
  • A Sustainability Framework, focusing on three key areas which comprise 10 material topics with set targets, adopting the latest Global Reporting Initiative (GRI) 2021 Guidance.
     
  • Conduct a quantitative scenario analysis to estimate the impact of climate change on our business and disclose our climate-related risks and opportunities according to the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations.
     
  • Support the United Nations Sustainable Development Goals (SDGs) and align our sustainability commitments with 7 SDGs through our material topics.
     
• Collectively, these initiatives provide a transparent and comprehensive way of understanding our ESG impact and allow us to focus our efforts. Our performance against our targets is closely monitored and provided to the RSC on a regular basis and we have also engaged sustainability experts to guide us in this journey.

8. What are some ESG goals and how does NetLink measure its progress?

• A full disclosure of our commitment, goals and performance can be found in our FY24 Sustainability Report (page 84 to 136 of our Annual Report). Highlights of our key achievements in FY24 are as follows:
   
  • On Business Practices, we focus on our commitment to responsible and ethical business practices supported by sound governance. We maintained zero incidents of significant non-compliance with laws and regulations, and zero incidents of personal data breaches even though a cybersecurity incident in FY24 had affected our internal operations. There were no disruptions to fibre broadband connectivity.
     
  • On Environment, we focus on reducing our environmental footprint, improving resource efficiency and ensuring our operations remain resilient to climate change risks. We aim to reduce our Scopes 1 and 2 emissions by 50% by FY30 (using FY22 as a baseline) and achieve net zero by 2050. In FY24, we recorded Scopes 1 and 2 emissions reduction of 61.8% relative to the base year. We also continue to implement our decarbonisation initiatives such as (i) enhancing energy efficiency at our central offices; and (ii) reducing and recycling fibre cable waste.
     
  • On People and Communities, we focus on expanding and boosting our network and its robustness, and our reliability to serve communities, and support industry efforts and innovation in Singapore. We also strive to create a safe, inclusive and equal-opportunities workplace for our employees. In this, we continued to maintain 100% island-wide fibre coverage and achieved 99.99% network reliability.

9. What Is NetLink’s Value Proposition to Its Unitholders and Potential Investors?

• NetLink has strong liquidity and we have been growing our distributions to unitholders. NetLink has grown its Distribution Per Unit (DPU) for seven consecutive years since our IPO in 2017, returning S$1.3 billion to our 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. 10. Why should investors take a closer look at NetLink?

• 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.

• NetLink also has a resilient business model that is well-supported by predictable revenue streams. Given that 85% of our FY24 revenues are derived from RAB sources, which are mostly recurring in nature and secured under longterm contracts, management believes that we are well-positioned to offer stable returns to investors.