NetLink NBN Trust Maintains Steady Cash Flow Despite Rising Costs, Target Price Raised to S$0.96 November 12, 2026

Company Overview

NetLink NBN Trust delivered a steady but unspectacular set of first-half results for the financial year ending 2027. Revenue and earnings before interest, taxes, depreciation and amortisation (EBITDA) came in within expectations, reaching 49 per cent and 50 per cent, respectively, of Phillip Securities Research’s full-year forecasts. First-half EBITDA edged up 0.8 per cent to S$144.6 million, while distribution per unit (DPU) rose 1.1 per cent year on year to 2.74 cents. Revenue for the period was S$200.3 million, marginally higher than the S$199.9 million recorded in the prior corresponding half. Net profit, however, slipped 2.3 per cent to S$41.2 million. The improvement in other operating costs was attributable to the absence of a S$1.3 million write-off seen in the prior year and the reversal of an over-accrual of maintenance costs, the amount of which was not disclosed. Residential fibre connections are recovering following operators’ exercise of removing inactive connections.

Investment Positives

Fully hedged interest rate exposure

The standout positive in the our assessment is NetLink’s proactive management of its debt costs. The trust has fixed or hedged all S$991 million borrowings at an interest rate of approximately 2.4 per cent, with an average debt maturity of 4.4 years. This is a significant improvement from the position as recently as March, when only 48 per cent of borrowings were at a fixed rate. In a rising interest rate environment, this hedging strategy provides considerable certainty over finance costs for the medium term and underpins the stability of cash flows available for distribution to unitholders.

NetLink’s distribution yield of 5.8 per cent is supported by these stable cash flows and the fully hedged financing structure. For income-focused investors, the predictability of finance costs at 2.4 per cent offers a degree of comfort, particularly given the volatility in interest rate markets.

Investment Challenges

Slow recovery in residential connections

The key concern highlighted by the us is the pace of recovery in residential fibre connections. Following a contraction of approximately 6,000 connections in FY26 — driven by operators removing inactive connections — the net additions have turned positive. However, the annualised pace of recovery at roughly 10,000 connections is materially below Phillip Securities Research’s forecast of 20,000 connections. This shortfall suggests that the structural demand recovery may take longer than initially anticipated, potentially constraining revenue growth from the residential segment.

Rising cost pressures on EBITDA margins

We expect EBITDA margins to remain under pressure from multiple fronts. The completion of the Seletar central office has led to higher staff and maintenance costs. Additionally, NetLink’s new IT system incurs more in operating expenditure than in capital expenditure, adding a recurring cost burden. Together, these factors — IT costs, staff costs, and maintenance expenses — are expected to weigh on margins and limit EBITDA growth going forward.

Lack of DPU growth diminishes yield appeal

Perhaps the most significant challenge for NetLink is the absence of meaningful DPU growth. While the 5.8 per cent distribution yield is reasonable in absolute terms, the lack of growth in distributions makes it less compelling in an environment of rising inflation and interest rates. Income investors who can access alternative yield instruments with better growth prospects may find NetLink’s static yield profile less attractive.lack of growth in distributions makes it less compelling in an environment of rising inflation and interest rates. Income investors who can access alternative yield instruments with better growth prospects may find NetLink’s static yield profile less attractive.

Outlook

Our outlook for NetLink is cautious. EBITDA margins are expected to remain under pressure as the cost increases from the Seletar central office, the new IT system, and general staffing expenses continue to flow through. The absence of EBITDA and DPU growth means that distribution yield is likely to remain static, which reduces the trust’s attractiveness in an inflationary and rising-interest-rate environment. While the fully hedged borrowing structure provides stability on the finance cost front, this alone may not be sufficient to drive re-rating or deliver the kind of total returns that investors are seeking in the current climate.

Recommendation and Target Price

Phillip Securities Research maintains a NEUTRAL recommendation on NetLink NBN Trust with an unchanged target price of S$0.96. The current unit price stands at S$0.94, implying modest upside to the target. The recommendation reflects the trust’s stable but unexciting fundamentals — supported by fully hedged borrowings and a stable distribution yield of 5.8 per cent, but tempered by cost pressures, slow residential connection recovery, and the absence of meaningful DPU growth. There is no change to the FY27 forecast, recommendation, or target price.

Frequently Asked Questions

This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.