NetLink NBN Trust (SGX: CJLU), or Netlink, designs, builds, owns, and operates the passive fibre network infrastructure of Singapore’s next-generation Nationwide Broadband Network (NBN). Netlink provides extensive coverage to residential homes and non-residential premises in mainland Singapore and its surrounding islands.
Netlink was spun off from Singapore Telecommunications Limited (SGX: Z74), or SingTel, back in July 2017 as part of SingTel’s undertaking to the Info-communication Media Development Authority (IMDA) to divest its 100% stake in Netlink to less than 25% before 22 April 2018. After Netlink’s IPO, SingTel still owns a 24.99% stake in the trust. As a business trust, Netlink does not have any restrictions on borrowing levels (unlike REITs, which have a statutory gearing limit of 45%), and it also pays out 100% of its cash available for distribution as a dividend.
Investors may be wondering if Netlink can continue to pay a steady dividend. Let’s look at a few characteristics of the trust in order to determine this.
A resilient business
Netlink, under the Netlink Group, is the only telecommunication company regulated by IMDA under the Regulated Asset Base (RAB) regime, which allows the trust to recover the cost of investment and operating expenditure as well as earn a regulated rate of return for its fibre network assets. As 80% of revenue is derived from this RAB-regulated asset model, Netlink, therefore, has very stable and predictable revenue streams. The remaining 20% is contributed by other services such as rental of space and installation revenue.
Netlink is the sole network provider for residential fibre broadband in Singapore, and competitors who wish to enter this industry face formidable barriers to entry in the form of the cost and duration to build a similar network in Singapore. Any competitor also needs to have the blessing of the Singapore government, as Netlink is receiving government grants in order to operate. The monopolistic nature of Netlink’s business provides investors with assurance that their revenue would not be challenged by competitors anytime soon.
Growth and outlook
The trust is not standing still and is continuing to expand its network in new housing estates. Netlink established 1.328 million residential fibre connections as of 31 March 2019 and is expecting to grow this over time as the government releases new HDB estates for sale. Though Netlink faces competition for its non-residential fibre connections, this division has also managed to grow slowly but steadily, hitting 46,207 connections as of 31 March 2019.
With 5G networks being announced and the impending arrival of the “Internet of Things” connectivity, this provides strong prospects for Netlink to increase its Non-Building Address Points (NBAP) connections.
Netlink NBN Trust is able to provide a steady dividend
Based on the above characteristics, I conclude that Netlink is more than capable of paying out a steady and consistent dividend. Last year’s full-year dividend amounted to 4.88 Singapore cents per share, which translated to a trailing dividend yield of 5.5% at the last traded price of S$0.88.
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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 Royston Yang owns shares in NetLink NBN Trust.