Under the RAB model, NetLink has secured a 7% regulatory return for the five-year period beginning April 2024, unchanged from the previous term. Residential connection prices have been cut by 2% to $13.50 per link, and non-building access points (NBAP) rates fell 4.5% to $70.50.
The impact of the lower interconnect rates will be offset by growth in connection volumes over the next four years, notes DBS Group analyst Sachin Mittal, who reiterates his “buy” call with an unchanged target price of 98 cents.
NetLink’s forward yield of 5.9% implies a spread of 330 basis points over the 10-year Singapore government bond yield of 2.6%, above the four-year average of 319 bps. “We expect NetLink’s distribution per unit (DPU) to rise by 1% to 2% annually over the next few years, and the yield spread to narrow towards 250 bps, to reflect the resilient nature of its distributions,” Mittal writes in a note dated May 16.
CGS International analysts Lim Siew Khee and Li Jiali also maintain “add” on NetLink with an unchanged target price of $1.
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They expect residential connections, which accounted for 60.5% of FY2025 revenue, to rise in line with the uptrend housing numbers in Singapore. Contribution from the co-location segment is also expected to pick up as NetLink’s Seletar Central Office becomes operational.
“While ancillary project revenue in FY2025 is lower by 27% y-o-y, [Netlink’s] management remains optimistic it will see positive contribution from this in FY2026, citing the ongoing construction activities in Singapore,” state the CGSI analysts.
Moreover, the analysts expect lower capital expenditure (capex) for network upgrading works in FY2026, in comparison to capex in FY2024 and FY2025. “Fixed rate borrowing stood at 70.1% as of March 25 and is expected to increase to 80% after June 2025, according to NetLink. The effective average interest rate dipped by 3bp in 4QFY2025. Management expects it to remain largely stable at this level.”
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Meanwhile, PhillipCapital analyst Paul Chew maintains his “neutral” stance on NetLink with the same target price of 87 cents.
While growth is expected to pick up in FY2026 on the back of higher residential and non-residential connections, Chew notes that free cash flow (FCF) will stay negative in the near term due to elevated capex for network upgrades to support 10 Gbps bandwidth and IT systems.
The $510 million term loan at a 1.1% interest rate is due for refinancing in mid-2026, too. “If we assume a 2% point rise in interest cost, the incremental interest expenses are around $10 million,” Chew estimates.
He adds that the increased capex will not translate into higher immediate revenue. “The higher capex is guaranteed a regulatory revenue, but no incremental revenue. Returns are from maintaining current connection rates. The new central office in Seletar will not generate rental revenue, unlike existing locations.”
As at 1.42 pm, shares in Netlink are trading at 91 cents flat.
