Netlink Trust

[BlackCat]

My quick thoughts on NLT:

Valuation: I think the 2.4c dividend (previous 6 months) is sustainable in the long term, with a few assumptions:
  - 80K new residential users this year due to starhub dropping cable.  No more new users after this.
  - The non-recurring Installations and Diversions profits remains the same (for easy calculation)
  - NPAB grows 70%.  Maybe over several years, smart nation
  - Recurring capex is 40m per year (lower end of the guidance in their prospectus).  Plus another 8m per year for Capex Reserve Requirement.
  -100% payout ratio

Long term risk: is either:
  - regulatory, like SMRT.  But fibre optic cables have no moving parts and don't even rust.  I don't see how they can f*** it up.
  - competition, like from SP Telecom, mentioned earlier.  Redundancy is a good reason to have a second network.
  - some new technology we can't imagine now.  

Long term growth: I agree with tanjim that 5G will require more base stations.  But I disagree in that I don't see it happening anytime soon.  What does anyone need faster internet speeds for?...either residential, work or mobile?  Can anyone here tell me what 5G could be used for?  Why would someone be willing to pay for a faster connection?  If telcos are going to spend a lot of money to rollout 5G, they have to have some idea of who would pay for it, not just "I'm sure we'll find someway to use it that we can't imagine yet..."

[touzi]

Long term growth: I agree with tanjim that 5G will require more base stations.  But I disagree in that I don't see it happening anytime soon.  What does anyone need faster internet speeds for?...either residential, work or mobile?  Can anyone here tell me what 5G could be used for?  Why would someone be willing to pay for a faster connection?  If telcos are going to spend a lot of money to rollout 5G, they have to have some idea of who would pay for it, not just "I'm sure we'll find someway to use it that we can't imagine yet..."

You might want to read up on Internet of Things. One of the most touted application is driverless or self-driving car. Government should have a lot interest in the rollout of 5G.

[touzi]

Competition from SP Telecom will probably result in Netlink lowering its prices. This is a commodity business, I don't think there will be much innovation. I wonder if IMDA will regulate the prices of SP Telecom or will it remove the regulation imposed on Netlink now that there is competition?

[WolfT]

Sp T would most probably affect Singtel Metro E. Most critical network would need a redundancy just in case. I am talking abt banking, tech company, govt network. To be frank, Netlink pricing is not expensive and should have room for more growth in the future.


Disclaimer: I am vested and would buy more if it drop to 80cts

[tanjm]

My quick thoughts on NLT:

Valuation: I think the 2.4c dividend (previous 6 months) is sustainable in the long term, with a few assumptions:
  - 80K new residential users this year due to starhub dropping cable.  No more new users after this.
  - The non-recurring Installations and Diversions profits remains the same (for easy calculation)
  - NPAB grows 70%.  Maybe over several years, smart nation
  - Recurring capex is 40m per year (lower end of the guidance in their prospectus).  Plus another 8m per year for Capex Reserve Requirement.
  -100% payout ratio

Long term risk: is either:
  - regulatory, like SMRT.  But fibre optic cables have no moving parts and don't even rust.  I don't see how they can f*** it up.
  - competition, like from SP Telecom, mentioned earlier.  Redundancy is a good reason to have a second network.
  - some new technology we can't imagine now.  

Long term growth: I agree with tanjim that 5G will require more base stations.  But I disagree in that I don't see it happening anytime soon.  What does anyone need faster internet speeds for?...either residential, work or mobile?  Can anyone here tell me what 5G could be used for?  Why would someone be willing to pay for a faster connection?  If telcos are going to spend a lot of money to rollout 5G, they have to have some idea of who would pay for it, not just "I'm sure we'll find someway to use it that we can't imagine yet..."

I actually don't have a firm conclusion about the 5G rollout. I agree its going to be expensive and IoT (mentioned by someone else) needs to make a business case for itself.

What I see might happen is that someone will deploy 5G or 5G-like tech in places where it makes sense (not nationwide). Then the whole thing will snowball/bootstrap when consumers start switching to telcos with 5G when they start having 5G compatible handsets with backward compatibility to LTE. 5G will come because of competition.

When we went from 3G to 4G, probably someone somewhere was grumbling similarly "why would someone be willing to pay for a faster connection" 8-).

Consumers gain and producers (telcos) suffer from competitive upgrading. The hope is netlink would continue to benefit whichever way the 5G happens.

[touzi]

A long article on 5G and IoT for your weekend reading pleasure.

https://www.scmp.com/tech/big-tech/artic...1556819509

[weijian]

A couple of interesting things about NLT AGM as summarized by the folks at Fifth Person. Point 7 (threat of 5G over fibre broadband) was also extensively discussed on VB.com and it falls very similarly to what some folks like tanjm/Sampling have mentioned.

In addition on Point 8 (dividend funded by FCF + loan), generally we know that the returns from NLT is a combination of return on capital and return of capital. But there is also a substantial amount of "return of (loaned) capital" - dividends funded by loans (Starhub/APTT comes to mind). For a "leasehold type of business", no matter how the CFO likes to phrase it (better capital efficiency), it is simply paying money currently out of future money.

10 things I learned from the 2019 Netlink Trust AGM

Netlink NBN Trust is the sole owner of Singapore’s passive fibre network infrastructure, which provides nationwide coverage of fibre broadband services. It is also responsible for the maintenance and operation of any infrastructure related to the fibre network, including ducts, manholes, fibre cables, and central offices.

As a business trust, Netlink distributes 100% of its cash flows after company expenses such as management costs and interest payments. This enabled the company to pay shareholders a healthy distribution per share of 4.88 cents over the past year. This translates into an attractive yield of 5.55% based on its closing price of S$0.88 on 8 August 2019.

While the dividend yield is enticing, it is important to find out whether the dividend can be maintained (or increased) going forward. In light of this, I attended Netlink Trust’s 2019 AGM for more business insights.

https://fifthperson.com/2019-netlink-trust-agm/

[corydorus]

If my math is right, using Reit Metric on gearing. Current I think is around 15%. Assuming div maintain, even after 10 years the gearing probably in mid 20%.

[weijian]

If my math is right, using Reit Metric on gearing. Current I think is around 15%. Assuming div maintain, even after 10 years the gearing probably in mid 20%.

hi corydorus,
Since NLT pays out of FCF, part of the return is from "return of capital" and means the denominator (asset) will drop. Does your calculation account for that?

[BlackCat]

If my math is right, using Reit Metric on gearing. Current I think is around 15%. Assuming div maintain, even after 10 years the gearing probably in mid 20%.

I think the real value of NLT's assets is based purely on the cashflows it generates.
Unlike properties, NLT's assets cannot be valued by comparison to similar transactions.  Could a bank repossess them?  They cannot even be sold! You would need govt permission.
So asset value is some meaningless accounting figure.  And gearing ratio is meaningless for NLT.  Interest coverage may be more appropriate.