NetLink NBN Trust - DBS Research 2022-03-09: Attractive 5.4% Yield For Its Low-Risk Profile

• In terms of sensitivity, we estimate that each 10-basis point rise in regulatory rate would have a +1% impact on NetLink NBN Trust (SGX:CJLU)'s EBITDA and vice versa.
• When NetLink debuted on the Singapore Stock Exchange (SGX) in July 2017, the 10-year Singapore bond’s yield was 2.1%. Currently, these risk-free bonds offer a yield of 1.9% and DBS Research projects bond yields of 2.10%/2.15% by the end of 2022F/23F.
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Regulatory objective of lower residential interconnect rate can be achieved with stable regulatory rate of 7% in our view.

• The number of residential connections has risen from 1.19m in FY18 to 1.46m in FY21, rising by 21% overall. On the other hand, RAB has gone up by ~3% over the same period to ~S$2.4bn in our estimates. As such, we estimate that residential interconnect rate of S$13.80 per month could drop by 10%-12% to maintain 7.0% rate of return on RAB. This might lead to a 6% decline in NetLink's FY24F EBITDA which will start inching up again with growth in subscribers and reach a new high in FY27F.
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With annual operating cash flow of ~S$270m, we don’t see any issue with Netlink’s distributions of ~S$200m.

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Sachin MITTAL DBS Group Research | https://www.dbs.com/insightsdirect/ 2022-03-09 SGinvestors.io

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