NetLink NBN Trust - OCBC Investment 2023-11-29: Completion Of Pricing Review

• NetLink announced on 27 Nov 2023 that the Infocomm Media Development Authority (IMDA) has completed its review of the wholesale prices, terms, and conditions of the NetLink Trust Interconnection Offer (ICO) for the next 5-years.

New pricing effective from 1 Apr 2024

• - Read this at SGinvestors.io -
• Pricing for non-building address point (NBAP) connection service will be lowered from S$73.8 to S$70.5.
• On the other hand, the non-residential end-user connection charge will remain at S$55.0 per month.

WACC remains at 7% while RAB is higher

• We understand that the reduction in prices is largely due to a higher number of connections. NetLink’s regulatory asset-based revenue model has two key determinants:
  1. - Read this at SGinvestors.io -
  2. return on capital (pre-tax WACC).
• RAB has increased compared to the last review period due to higher CAPEX as NetLink continues to invest in its network and services.
• For the return on capital, risk-free rate would be a key component. It is to our surprise that WACC which is sensitive to interest rates, remained unchanged at 7% in the new pricing model. NetLink's management explained that this is due to IMDA taking a long-term, blended view of the risk-free-rate, taking into consideration of its performance over the past 20 years as well as long-term projections.

NetLink's DPU forecast & target price

• Read more at SGinvestors.io.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2023-11-29 SGinvestors.io

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