NetLink NBN Trust’s IPO: How the Trust Rakes In The Cash

Singapore Telecommunication Limited’s (SGX: Z74) associate, NetLink Trust, has filed its preliminary prospectus to list on the Singapore stock exchange as NetLink NBN Trust.

As of 31 March 2017, NetLink Trust owned a network of about 76,000 kilometers (km) of fibre cable, 16,200 km of ducts, 62,000 manholes and 10 central offices. The vast network is connected to 1.1 million residential homes in Singapore. Furthermore, NetLink Trust’s network has also connected around 38,500 non-residential locations (think office buildings).

This valuable access is rented out to telcos such as M1 Ltd (SGX: B2F), StarHub Ltd (SGX: CC3) and Singtel.

With that in mind, let’s take a look at where NetLink Trust makes its dough.

How money flows in      

For the fibre network, NetLink Trust provides customers with three types of connections: residential end-user connection, non-residential end-user connections (think offices) and non-building address point (NBAP) connections. For each connection type, NetLink Trust collects a one-off installation charge for each termination point and more importantly, a monthly recurring connection charge.

NetLink Trust also rents out co-location rooms within its central offices. These rooms are used by its customers to house network equipment, servers, and other interconnecting equipment which are used to enable the delivery of fibre services. Furthermore, Singtel also leases office space from NetLink Trust under an agreement which runs till September 2021.  

Another source of rental revenue comes from the trust’s non-fibre infrastructure like ducts and manholes.  

Show me the money

Next, let’s take a look at how much NetLink Trust receives from each revenue source.

Source: NetLink NBN Trust’s IPO Prospectus  

Residential connections is by far the biggest revenue source. In the IPO prospectus, the revenue segment is described as:

“… revenue from residential connections primarily comprises recurring monthly fees received from Requesting Licensees for each residential end-user connection.”

For the financial year ended 31 March 2017 (FY2017), residential connections accounted for over 61% of NetLink Trust’s revenue. This revenue stream is the most important piece of NetLink Trust’s business, due to its size, and recurring nature. Notably, the contribution from residential connections has also grown over the past three fiscal years.

Ducts and manholes are the second biggest, and contributed almost 10% of the trust’s sales. As a percentage, the duct and manhole revenue is smaller than in FY2015. Singtel provides most of the revenue in this segment. The snippet below describes the ducts and manholes segment:

“… ducts and manholes service revenue primarily comprises revenues received from the provision of space in NLT’s [NetLink Trust] ducts and manholes and the provision of Reference Access Offer services, including access to NLT’s lead-in ducts and manholes. The majority of ducts and manholes service revenue is from Singtel, which uses the ducts and manholes spaces for its business needs.”

Meanwhile, non-residential connections has grown to a 7% sales contribution in FY2017, up from 4.8% in FY2015. The contribution makes it the third-largest source of sales. Like the residential connection revenue, the revenue is deemed to be recurring. The IPO prospectus describes this source of revenue: 

“… revenue from non-residential connections primarily comprises recurring monthly fees received from Requesting Licensees for each non-residential end-user 100 connection.”

The fourth largest revenue contributor comes from installation related revenue at 6.4%. Unlike the residential and non-residential connection sales, the revenue source here is one-off in nature. The segment is described in the following words:

“… installation related revenue primarily comprises one-time charges imposed on Requesting Licensees for the installation of a termination point at residential homes, non-residential premises and/or NBAPs, and charges for the relocation, repair, replacement or removal of existing termination points and/or fibre cables within the same residential home, non-residential premises and/or NBAP location.” 

Singtel’s central office rental provided 5.1% of the trust’s sales. This segment is explained in the following snippet:

“Central Office revenue primarily comprises revenue received from Singtel for the leasing of space and equipment at the Central Offices (other than co-location space) and ancillary services such as security, maintenance and administration services relating to the Central Offices.”

If we add this segment sales with to the duct and manhole sales – where Singtel is a major contributor – we can see that Singtel is a substantial revenue contributor to NetLink Trust, even without factoring in Singtel’s contribution in other revenue segments.     

A Quick Foolish takeaway

The five segments above, collectively, account for almost 90% of NetLink Trust’s sales. It should give investors a good sense of how the cash is flowing into NetLink Trust’s coffers. We will look at the trust’s growth prospects in the next article.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.