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Why NetLink NBN's Profit Fell 10% But Cash Distributions Rose In H1 FY26 · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome to the Deep Dive. Today, we're getting into the numbers for Netlink NBN Trust.
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  Specifically, their H1 results for fiscal year 2026.
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  They're pretty central to Singapore's digital backbone. We're looking at their
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  financials up to September 30th, 2025.
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  And right away, there's something interesting, sort of a puzzle in the figures
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  we've got here. Revenue is up slightly.
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  And maybe more importantly for investors, the distribution per unit, the DPU, that's also up.
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  But, and here's the kicker, profit after tax for POT actually fell quite a bit,
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  actually down about 10 percent.
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  So higher distributions, lower profit. How did that work? That's what we need
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  to unpack. It's a great place to start because it really highlights how Netlink operates.
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  You can't just look at standard profit metrics in isolation.
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  Remember, their core business is owning and managing Singapore's passive fiber
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  network infrastructure. Think ducks, cables, the physical stuff.
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  And crucially, it's run under a regulated system, the regulated asset base or RAB model.
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  Right. The RAB, that's the value of their network that the regulator agrees
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  on, which then allows them to earn a stable return on it.
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  Exactly. So the period we're looking at, April, September, 2025,
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  is all about how their spending and investments interact with that regulated framework.
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  Okay, let's start with revenue then. The top line. It grew, but only just.
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  1.1%, climbing from $204.8 million to $207.1 million year on year.
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  Doesn't sound like much, but in this kind of regulated utility space,
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  even small moves matter.
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  So what drove that increase? Well, the sources point to a couple of things.
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  Higher ancillary project revenue
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  was one. Looks like they finished more government projects in the period.
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  And also co-location revenue was up. More customers taking up rack space in their facilities.
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  Yeah, and there was also a specific one-off item in co-location.
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  A cost recovery tied to network upgrades.
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  Ah, the upgrade to support, what was it, 10 GBPs?
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  That's the one. So those elements helped push the overall revenue figure up.
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  But there's an offset. because the revenue from their core business,
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  the actual connections, that was actually a bit lower.
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  Oh, interesting. So overall revenue up, but connection revenue down.
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  How did that happen? Well, let's break it down.
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  Residential connection revenue dipped slightly, about half a million dollars.
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  Now, this wasn't fewer people wanting broadband. The numbers show connections
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  actually went down slightly from around 1.52 million to 1.51 million. Okay.
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  But the sources say this is mainly due to RL cleanup terminations.
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  Basically, the telcos, the requesting licensees, cleaned up their records and
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  removed inactive lines.
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  Ah, I see. So it's like an administrative adjustment by the telcos impacting
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  Netlink's reported numbers for that period, not really a drop in underlying demand. Precisely.
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  It's a data hygiene thing, not a market trend. Got it.
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  What about the other connection types, NBSE and Segment?
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  Similar story there, but for a different reason. That revenue was also down
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  slightly, about $0.6 million. But here, the number of connections actually increased.
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  Think demand from mobile network rollouts, that kind of thing.
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  So more connections, but less revenue. That seems counterintuitive.
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  It does, but it's down to contractual terms. They provided higher rebates for
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  some point-to-point connections because customers hit certain volume milestones.
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  Okay, so a rebate kicked in, which temporarily lowered the recognized revenue,
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  even though the underlying business activity was growing. Exactly. Growing connections.
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  But a temporary revenue dip due to those pre-agreed rebates.
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  All right, let's move down the income statement.
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  This is where that paradox really hits home. EBITDA.
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  Earnings before interest, tax, depreciation, and amortization.
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  That was basically flat year on year.
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  $143.5 million. But because revenue was only slightly up, the EBITDA margin actually dipped a bit.
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  Fell 0.8 percentage points to 69.3%. Yeah, a slight margin squeeze.
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  What caused that? Higher operating expenses.
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  The main culprits flagged were increased property tax, specifically linked to
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  that new Selatar Central Office coming online. Ah, the Quito.
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  Okay. And also just generally higher IT-related costs. Usual stuff,
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  but enough to nudge the margin down slightly.
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  Okay, so a bit of cost pressure on EBITDA. But then we get to the big one.
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  Profit after tax, down 10.2%. From $48.5 million to $43.5 million.
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  That's a significant drop. It is.
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  And this is really where the accounting reflects their strategic investment decisions.
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  The overwhelming reason for that PT drop was a big jump in depreciation and amortization.
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  It rose 5.2% to total over $92 million for the half year. Wow,
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  $92 million just in depreciation.
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  Yeah. And the main driver, the completion and capitalization of that new Sellitar
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  Central office we mentioned.
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  Right. So explain that connection. They finished building this big new facility. Exactly.
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  And once it's finished and officially put into service, it gets added to their
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  asset base on the balance sheet. It's capitalized.
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  And the moment it's capitalized, you have to start accounting for its wear and
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  tear over its useful life.
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  That's depreciation. And because Salatarsio is a huge investment.
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  It triggers a huge new depreciation charge, hitting the profit and loss statement
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  straight away, which naturally pulls down the profit after tax figure quite sharply.
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  So it's not that the underlying business suddenly became less profitable in
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  cash terms. It's an accounting consequence of bringing a major long-term asset online.
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  That's the key takeaway. It's a
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  planned accounting impact resulting from a necessary strategic investment.
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  And this is where the RAB model provides comfort, that Sellitar CO investment
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  becomes part of their regulated asset base.
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  Meaning they'll eventually earn a return on it through the regulated pricing?
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  Correct. It's eligible for regulatory recovery over the long term.
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  So they're essentially trading lower near-term reported profit for a larger
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  return-generating asset base in the future.
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  Makes sense. Did anything offset that PIT drop? A little bit.
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  They actually had a higher income tax credit. This is partly due to the lower
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  profit itself, but also thanks to some tax benefits from new debt they issued.
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  Ah, the QPDS notes, Qualified Project Debt Securities.
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  Yes, they issued $300 million of those in September.
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  That specific type of debt comes with certain tax advantages,
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  which helped cushion the blow to PI somewhat.
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  Okay, so PI was down due to strategic investment accounting.
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  But you mentioned earlier the good news for unit holders was that the distribution
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  per unit DPU actually increased by 1.1% to 2.71 Singapore cents.
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  How did they manage that if profit was down? Because Netlink has a policy to
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  distribute 100% of its CFD.
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  That's cash available for distribution. Right, CFD, not PAT.
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  And CFD calculation is different. Very different. Crucially,
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  CFD excludes major non-cash items, like depreciation.
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  Ah, so that huge $92 million depreciation charge that hammered Pat.
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  Didn't actually impact the cash available to distribute to unit holders.
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  Because it wasn't a real cash outflow in the period. Clever.
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  So the underlying cash generation held up better than the profit figure suggests.
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  It did. And management also made some really savvy moves on their balance sheet
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  during the half year that further supported the CFD and the DPU increase.
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  What did I do? The big one was a major debt refinancing.
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  They issued $300 million in new 10-year fixed rate notes back in September.
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  At what rate? A very attractive 2.65%. Fixed for 10 years.
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  Wow. Locking in 2.65% for a decade in that environment seems like a great move.
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  Absolutely. Huge amount of certainty there.
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  And they used the proceeds to pay down existing debt, likely stuff that was
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  on variable rates or maturing sooner.
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  So what did that do to their overall debt profile?
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  Significantly improved it. Their weighted average debt maturity jumped from
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  just 1.3 years up to 3.7 years.
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  Much more stable. Gives them breathing room. Definitely. And maybe even more
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  importantly, the proportion of their debt that's now at a fixed interest rate
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  went from about 70% up to 100%. 100% fixed rate. That removes a lot of interest rate risk.
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  Completely. It shields them from right hikes and makes their financing costs highly predictable.
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  This financial prudence flows through to stronger cash flow from financing activities.
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  We saw a big swing there from using cash in a prior period to generating $27
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  million in cash from financing this time.
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  That stability directly supports the CKD and ultimately the distributions to you, the unit holder.
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  And their overall debt level, gearing. Still very comfortable.
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  They reported net gearing at 18.8% using a revised calculation based on net
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  debt to total assets, which is pretty standard.
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  Okay, let's look ahead then. What's the outlook? The global picture is still
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  pretty uncertain, right?
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  Geopolitics, economic jitters. Yeah, the company acknowledges that volatility,
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  although they do note some easing of inflation and interest rate pressures,
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  specifically in Singapore.
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  But how does Netlink itself feel positioned?
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  The core message is resilience, anchored by that regulated business model.
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  The interconnection offer framework provides price certainty.
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  Which means predictable revenue and cash flow, insulating them somewhat from
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  wider economic storms. Exactly.
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  That's their shield. So what are their strategic priorities moving forward?
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  They can't just stand still.
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  No. And they've outlined three main areas. First.
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  Keep investing strategically in the network. They need to meet growing demand
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  across all the connection types, residential, business, NBAP,
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  segment connections for things like 5G. Makes sense. Keep the core strong.
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  What else? Second, operational excellence. There's specifically mentioned cost
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  discipline and lean management.
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  That's clearly aimed at tackling those rising operating costs we saw impacting
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  EBITDA. Trying to offset some of that pressure.
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  And the third priority. This one's interesting.
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  Exploring new investment opportunities.
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  Specifically in related areas, telecoms and other infrastructure businesses.
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  So potentially looking to grow beyond just the regulated fiber network, diversification.
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  It signals an appetite for that, yes. A measured expansion, perhaps.
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  But they're also very clear, those operating cost pressures and the high depreciation,
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  especially from Solitar CEO and ongoing network upgrades, they aren't going away overnight.
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  So PAT will likely remain under pressure in the near term. That seems to be the expectation.
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  But again, they frame it as a necessary cost of strategic investments that are
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  eligible for recovery under the RRB framework and position them for the long
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  haul. Okay, so let's wrap this up for you, the listener.
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  The big picture from Netlink's H1FY26 results seems to be one of deliberate strategic choices.
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  Management clearly prioritized strengthening the balance sheet,
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  locking in that cheap, long-term fixed-rate debt, using those tax-efficient
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  QPDS notes, and making major capital investments like the Sellitar CO.
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  Mm-hmm. And they prioritized that over maximizing the short-term profit-after-tax figure.
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  Relying instead on the stability of the regulated model and the CAFD calculation
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  to keep distribution stable and even growing slightly for unit holders,
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  despite that headline profit drop. Exactly.
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  It's a classic regulated utility play in many ways focusing on long-term asset-based
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  growth and financial stability.
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  Which brings us to, I guess, a final thought or question for you to consider.
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  We know the vast majority of their revenue, over $173 million this half,
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  comes from the regulated RA side. It's safe. It's predictable.
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  The question is, how much focus and capital can they realistically deploy into
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  potentially higher growth, but maybe riskier non-RABE areas,
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  like those new investments they mentioned? And the flip side.
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  And how quickly will these big investments like Sellitar actually work their
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  way through the regulatory process to translate into higher allowed returns
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  and really boost that core RE revenue? Getting that balance right between the
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  regulated core and potential new growth avenues, that's why the key challenge ahead.