ShareJunction - Stock Forum Messages

NetLink NBN Tr Last:1.0 -

NetLink NBN Trust

Comparing annual report of 2022 & 2023, notice that there is no new shares issued. There is no dilution of equity unlike other reits.

beetlejuice ( Date: 24-Aug-2023 09:37) Posted:

不鸣则已 , 一鸣惊人 . Very well written bro. Bravo.

Alignment ( Date: 24-Aug-2023 09:32) Posted:

You are correct of course that strictly speaking, a high interest rate has a potential negative impact on value via potentially higher interest costs and also on the theoretical cost of equity that the market uses to value the equity value. Against that though, there is a potential positive impact if a higher interest rate results in a better outcome in the regulatory review. This is indeed the whole point of the regulatory regime - it is meant to ensure the company achieves an appropriate return over time over and above its cost of capital. If the company' s interest cost increases, so should the allowable return to compensate.

The company' s " game" is therefore to negotiate as high a return as possible in the regulatory review (e.g. the cost of capital assumptions used to calculate the allowable return) relative to its actual cost of capital (i.e. the assumed interest rate in the regulatory review vs the actual interest cost to the company). To that end, I think it is clear that a delay in the regulatory review process will have helped the company. because this will have allowed the company to capture these higher interest rates in the assumptions used. Also, given each regulatory review period is several years long, capturing these higher interest rates in the allowable return means a higher return for several years, and likely longer than the increase in interest rates.

In summary, the impact of interest rates on the company is complicated, and in the very long term is meant to net out even via the regulatory review process (this is what makes the company attractive because it is a stable business irrespective of interest rate environment). However in the shorter term there are opportunities to game the system depending on the timing of interest rate changes relative to when the review process is concluded, and this I think is one of those times.

.

不鸣则已 , 一鸣惊人 . Very well written bro. Bravo.

Alignment ( Date: 24-Aug-2023 09:32) Posted:

You are correct of course that strictly speaking, a high interest rate has a potential negative impact on value via potentially higher interest costs and also on the theoretical cost of equity that the market uses to value the equity value. Against that though, there is a potential positive impact if a higher interest rate results in a better outcome in the regulatory review. This is indeed the whole point of the regulatory regime - it is meant to ensure the company achieves an appropriate return over time over and above its cost of capital. If the company' s interest cost increases, so should the allowable return to compensate.

The company' s " game" is therefore to negotiate as high a return as possible in the regulatory review (e.g. the cost of capital assumptions used to calculate the allowable return) relative to its actual cost of capital (i.e. the assumed interest rate in the regulatory review vs the actual interest cost to the company). To that end, I think it is clear that a delay in the regulatory review process will have helped the company. because this will have allowed the company to capture these higher interest rates in the assumptions used. Also, given each regulatory review period is several years long, capturing these higher interest rates in the allowable return means a higher return for several years, and likely longer than the increase in interest rates.

In summary, the impact of interest rates on the company is complicated, and in the very long term is meant to net out even via the regulatory review process (this is what makes the company attractive because it is a stable business irrespective of interest rate environment). However in the shorter term there are opportunities to game the system depending on the timing of interest rate changes relative to when the review process is concluded, and this I think is one of those times.

.

Extracted from Joelton's post "Management noted that discussions were still ongoing and that the delay was not disadvantageous to the group." So should be fine lah. Vested & adding in dribs & drabs since IPO day. 💰 🧧

Joelton ( Date: 23-Aug-2023 12:16) Posted:

More praise for Netlink NBN Trust following ' stable' 1QFY2024, rising DPU

Analysts praise Netlink NBN Trust&rsquo s CJLU 0.59% &ldquo stable performance&rdquo in 1QFY2024 ended June, with net profit up 2.1% y-o-y to $28.2 million, driven by higher revenue contributions across most business segments.

Among four research houses cited here, UOB Kay Hian Research analysts Chong Lee Len and Llelleythan Tan have the highest target price on Netlink, which they call a &ldquo high-yielding, safe haven stock&rdquo with 6.2% dividend yield.

In an Aug 21 note, Chong and Tan maintain &ldquo buy&rdquo with an unchanged forecast of $1.05.

Netlink builds, owns and operates the passive fibre network infrastructure of Singapore&rsquo s Next Gen NBN. Management sees growth opportunities arising from the digital economy, 5G rollout, connectivity into data centres and Singapore&rsquo s Smart Nation initiatives.

&ldquo Importantly, Netlink has sufficient debt headroom, at 23.6% net gearing, to drive its acquisition ambition without compromising on cash flow and dividends,&rdquo note the UOBKH analysts. &ldquo There is, however, no fixed timeline in terms of M& A activities and Netlink&rsquo s management may even consider a JV or consortium outfit in its acquisition strategy.&rdquo

Results for the upcoming Infocomm Media Development Authority (IMDA) regulatory review were not announced in the latest 1QFY2024 business update, but Netlink expects the review of its interconnection offer (ICO) prices, terms and conditions to be concluded latest by end-2023, or 3QFY2024.

In addition, adjustment to rates should be implemented within a few months&rsquo lag once the final decision is announced, says management.

UOBKH thinks 3Q2023, or 2QFY2024, is a more likely timeline. &ldquo Management noted that discussions were still ongoing and that the delay was not disadvantageous to the group.&rdquo

Netlink has been investing in its network assets to cater to the growing end-user demand for residential, non-residential, non-building address points (NBAP) and segment connections. These investments would in turn increase its regulatory asset base.

UOBKH expects the next return on the regulatory asset base to be slightly higher, in view of the unprecedented elevated interest rates environment and expected higher cost base from inflationary pressures.

Distributions might rise 2%-3%

Netlink, which is 24.8% owned by Singapore Telecommunications (SingTel) Z74 0.43% , pays distributions semi-annually. For FY2023, Netlink paid distribution per unit (DPU) of 5.24 cents, marking another increase since its IPO in 2017. In FY2018, FY2019, FY2020, FY2021 and FY2022 DPU was 4.88 cents, 5.05 cents, 5.08 cents and 5.13 cents respectively.

DBS Group Research thinks this could rise further in FY2024, staying &ldquo buy&rdquo with an unchanged target price of 98 cents.

Netlink is trading at a 12-month forward distribution yield of 6.0%, implying a yield spread of around 300 basis point (bps), says DBS in an Aug 18 note. &ldquo The Singapore Government&rsquo s 10-year bond yield is at 3.2%, implying a yield spread of around 300 bps but similar to the last 12-month average. We think that Netlink may raise distributions by only 2%-3% in FY2024, despite a rise in regulatory weighted average cost of capital (WACC).&rdquo

DBS estimates that every 10 bps change in regulatory WACC will have a +1% impact on its ebitda. &ldquo We expect a 30-50 bps hike in regulatory WACC, but, in our view, Netlink may focus on long-term sustainability of its distributions. We expect Netlink&rsquo s DPU to rise by 2% annually over the next few years, and the yield-spread to narrow towards 250 bps, reflecting Netlink&rsquo s resilient nature of distributions.&rdquo

Similarly, Maybank Securities forecasts that the Singapore 10-year bond yield will drop to 2.75% by end-2023. Its analyst Kelvin Tan thinks this might increase the yield spread further, leading to a rally in Netlink&rsquo s share price. &ldquo We expect DPU to rise steadily by 2%-3% in FY2024 and yield spread to taper to 250 bps as Netlink focuses on long-term sustainability of its distribution.&rdquo

Maybank&rsquo s Tan keeps his &ldquo buy&rdquo call in an Aug 18 note with an unchanged target price of 97 cents.

Finally, CGS-CIMB Research analyst Ong Khang Chuen continues to like Netlink as a defensive play &ldquo amid the macro uncertainties, given its strong DPU visibility and stability&rdquo .

Ong reiterates his &ldquo add&rdquo call on Netlink with an unchanged target price of 95 cents. &ldquo Potential re-rating catalysts include earnings-accretive acquisitions and stronger NBAP connections growth as Netlink benefits from telcos&rsquo 5G rollout. Downside risks include lower-than-expected ICO pricing in the upcoming review.&rdquo

i think it will not be beneficial to the stock for this high interest rate. there should be a correction to the price once this price review is announced. maybe tricking all to park money in this stock due to the high dividend then only announce the price review results. just my own personal thinking.

Any colour on why the results of the regulatory review is taking so long would be helpful. In theory it should have been decided last year.

One consequence might be that the calculation of the allowable return in the next regulatory period will factor in the significant increase in long term interest rates during this period of delay. This would clearly be very beneficial for Netlink NBN Trust. Perhaps this is the reason.