DBS Group Research’s Sachin Mittal says NetLink’s has a “resilient” business model supported by “predictable” revenue streams.
The group should see an “uptick” in revenue over the next four years, according to the DBS analyst, after the “adverse impact” of lower interconnect rate in FY2025 ended March 31.
Under the Regulated Asset Base (RAB) model, NLT 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.
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The next four years will benefit from a rise in connection numbers based on a fixed interconnect rate, says Mittal.
NLT’s yield spread of 330 basis points (bps) above the Singapore government’s 10-year bond yield of 2.6% is “attractive”, says the DBS analyst. This is above the previous four-year average of 319 bps, he notes.
“We expect NLT’s distribution per unit (DPU) to rise by 1%-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 adds.
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Still, Mittal is maintaining “buy” with an unchanged target price of 98 cents.
Mixed trends
Meanwhile, CGS International (CGSI) analysts Li Jialin and Lim Siew Khee see “mixed operating trends” at NLT.
Aside from revenues across its business segments, Li and Lim point to NLT’s net gearing reporting, which became aligned with other listed trusts starting 1QFY2026; NLT has shifted from reporting net debt over total equity to net debt over total assets, therefore resulting in a lower gearing of 20% from 28.3% in end-March.
NLT’s effective average interest rate fell 23 bps q-o-q, while management increased its hedging ratio from 70.1% to 78.9% in 1QFY2026. “We expect some interest savings in the coming quarters,” add the CGSI analysts.
CGSI is keeping “add” on NLT with an unchanged target price of $1.
‘Soft’ quarter
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Citi Research thinks NLT’s “healthy” dividend yield and US$2.7 billion market cap puts the stock potentially on the radar for the Singapore Equity Market Development Programme (EDQP) as a small- and mid-cap pick.
With this, analyst Luis Hilado has added a “90-day short-term upside view” on NLT, with a “buy” call and $1.02 target price.
While NLT reported a “soft” quarter, Hilado thinks it is “not likely enough to knock the stock off course from delivering stable to slightly higher DPU”.
As at 11.42am, units in NLT are trading 0.5 cents, or 0.56% up, at 90 cents. NLT units have risen 3.45% year to date.
