“Falling interest rates will make NetLink’s stable distribution yield of 5.5% more attractive,” writes Chew in a Nov 5 note, two days after the release of its results. “It also allows lower refinancing costs for the $510 million due May 2026. Incremental interest expense could rise $7.5 million.”
NetLink, which enjoys a monopoly on designing, building, owning and operating the fibre network infrastructure in Singapore, posted revenue of $207.1 million for 1HFY2026, 1.1% higher y-o-y and 2.4% h-o-h, meeting 50% of full-year consensus estimates.
For three months ended Sept 30, revenue of $104 million was flat y-o-y but up 1.5% q-o-q.
Meanwhile, NetLink’s 2Q2FY2026 ebitda of $72 million was up 1.9% y-o-y and flat q-o-q, also in line with estimates.
See also: NetLink NBN Trust DPU up 1.1% y-o-y to 2.71 cents for 1HFY2026
NetLink’s 2QFY2026 ebitda margin was 69%, just above 68% in 2QFY2025 but just below the consensus forecast of 70%.
NetLink reported a distribution per unit of 2.71 cents for 1HFY2026, up 1.1% y-o-y.
Chew thinks NetLink’s free cash flow is likely to improve as capital expenditure normalises after the opening of its $110 million Seletar Central Office, unveiled on Oct 7. The group’s 11th central office will serve Singapore’s northern and northwestern regions, which span across 40,000 new homes.
See also: NetLink NBN Trust’s ‘healthy’ 6% yield and US$2.7 bil market cap puts it on EQDP radar: Citi
“The cost of Seletar is part of the regulated asset base (RAB), and NetLink's return on capital is through monthly recurring fibre charges to households,” notes Chew.
Tax efficiency
Under the RAB model, NetLink has secured a 7% regulatory return from April 2024 for five years, unchanged from the previous term. Residential pricing was cut 2% to $13.50 per connection, and non-residential remains at $55. In the Non-Building Access Points (NBAP) segment, which contributes under 5% of revenue, connection pricing declined 4.5% to $70.50 per connection.
During the quarter, NetLink reported gross positive net additions of 823, reversing its declines of over 10,600 in 1QFY2026, from ongoing database housekeeping by telcos. Its residential connections inched up by 792 connections q-o-q but non-residential connections fell 87 q-o-q. Notably, NBAP and segment connections saw the largest net increase of 652 connections q-o-q.
1HFY2026 NBAP and segment revenue dipped by 1.5% h-o-h despite a 4% h-o-h addition to connection counts. According to CGS International analysts Li Jialin and Lim Siew Khee, management attributed the lower revenue to a customised incentive offered to a telco customer upon achieving a pre-set target volume.
In September, NetLink Treasury, a wholly-owned subsidiary of NetLink NBN Trust, issued $300 million 2.65% 10-year notes under its $1 billion Multicurrency Debt Issuance Programme. Proceeds were used to subscribe to $300 million 10.5% 20-year bonds issued by NetLink Trust.
NetLink Trust intends for the bonds to meet the conditions to qualify as Qualifying Project Debt Securities (QPDS), similar to the existing $1.1 billion QPDS bonds issued at IPO in July 2017.
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Should the bonds qualify as QPDS, the interest paid by NetLink Trust will be deductible for tax purposes, and the interest income received by NetLink NBN Trust will be exempt from Singapore’s income tax.
CGS Li and Lim forecast additional tax credit of some $5 million on a full-year basis. “We believe the new QPDS issuance will enhance its tax efficiency and mitigate the reduction in net profit. While we revise down our FY2026-FY2028 net profit forecasts, we expect operating cash flows of $243 million to $292 million to fully cover our distribution estimates of $211 million to $216 million.”
In a Nov 5 note, Li and Lim maintain their “add” call on NetLink with a slightly higher target price of $1.05, up from $1 previously.
Narrowing yield spread
But the biggest bull is DBS Group Research’s Sachin Mittal, who is staying “buy” on NetLink with a target price of $1.08.
NetLink's distribution policy is to payout 100% of its cash flow. Hence, Mittal says there is “high visibility” of NetLink’s distributions, and he expects it to trade narrower towards 300 basis points (bps) from its current yield spread of 356 bps.
The Singapore Government 10-year bond yield of 1.94% — also known as risk-free rate — implies a yield spread of 356 bps, above its last four-year average of 321 bps.
NetLink’s yield-spread is “too attractive”, says Mittal. “We expect the yield spread to drop below the four-year average towards 300 bps as there were worries about changes in [NetLink’s] regulatory rate of return in the past, which is not an issue for the next four years [and] NetLink has built a track record of high consistency in distribution payouts, warranting a lower risk.”
Mittal expects NetLink’s distribution per unit (DPU) to rise by 1% annually “over the next few years”.
Units in NetLink NBN Trust closed flat at 98 cents on Nov 6, up 12.1% year to date.
