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Netlink Trust
20-07-2017, 09:58 PM,
Post: #31
RE: Netlink Trust
(20-07-2017, 08:33 PM)karlmarx Wrote:
(19-07-2017, 11:08 PM)grubb Wrote: The whole point of a business trust is to allow it to distribute more than its accounting profits, because it has very high depreciation, which is because it has very high upfront capex. 

You could be skeptical of Singtel's motives in cashing out, fair enough. But P/E is the wrong metric to gauge its valuation, IMO.

Hi grubb, thank you for bringing up this point. Indeed, NetLink NBN Trust could distribute more dividends than its accounting profits, but this is only because its 1) capital expenditure is less than its depreciation and 2) it funds its dividends with loans.

1) From page 88 of the IPO prospectus it says, 'Excluding non-recurring capital expenditure, the Trustee-Manager expects the annual capital expenditure to be in the range of S$40 million to S$60 million for Forecast Period 2018 and Projection
Year 2019.' Depreciation ranged from $114m to $122m from FY15 to FY17. Why is depreciation double of recurring capital expenditure? Perhaps they depreciate their PPE too quickly? On page 95 it says, 'In computing the regulatory depreciation, the useful life of ducts and manholes is assumed to be 35 years and fibre (and related infrastructure) is assumed to be 25 years.' Their depreciation policy seems sensible. So again, why is depreciation double of capital expenditure? Is Singtel only spending half of what is required to upkeep the assets? Or did Singtel sell the assets to NetLink NBN Trust at twice its cost, and hence twice the depreciation?

2) On page 82, it is shown that the projected dividend of $113m for 2018 (which provides the projected yield of 5.43%) is funded by $118m from a revolving loan facility. For 2019, the projected divided of $179m (which provides the projected yield of 5.73%) is supported by $75m of loans and $42m of depreciation; its depreciation is $153m while capital expenditure is only $111m.

Since the projected dividends for 2018 and 2019 are mainly supported by loans and depreciation, I'm not so sure if it is wise for unitholders to expect their dividends to be sustained in this manner, for the long term. Does the Trustee-Manager intend to continue making loans to pay to unitholders? Is the Trustee-Manager not spending enough capital expenditure to upkeep the assets, or did the unitholders purchase the assets at inflated price (and hence, depreciation)?

By the way, the projected yield for 2018 is 3.61%, not 5.43%. 5.43% is the annualised yield. Quite sneaky of them to market like this.

Do correct my understanding if it is incorrect.

Hi karlmarx,

There is a part in the prospectus (sorry I'm too lazy to find the page number) which says that the PPE will last longer than the depreciation schedule. So it is only normal that maintenance capex is less than depreciation, and its not a sign that they are under-investing.

The loans are drawn down to fund the capex in 2018 and 2019. Netlink still has a little way to go to fully deploy its network. I believe there is a section in the prospectus where they say that they need to add 50% excess capacity of what is needed, following which we will see recurring capex at the amount you pointed out.

Projected yield for 2018 is 3.61%, because the period is between July or Aug starting after IPO (sorry I can't remember) to March 2018. following that, the full year will be from march to march. 

As for how dividends are going to be sustained, they will be funded by cash generated which will be more than accounting profits. What we have not discussed is the pricing, because this is controlled by MDA, and they are using the RAB model which allows Netlink to recover its costs + a WACC. So maybe 20-30 years later once Netlink has recovered all its costs from the initial deployment of the network, MDA may cut the pricing significantly (not considering the additional capex starting from today). But thats a discussion 20 years later anyway so who cares. I'm not clear on the RAB model myself so feel free to comment. Thanks.

btw i'm not selling netlink or anything. this is not a opinion to buy or sell.

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21-07-2017, 10:48 AM, (This post was last modified: 21-07-2017, 10:58 AM by tanjm.)
Post: #32
RE: Netlink Trust
(20-07-2017, 09:58 PM)grubb Wrote: As for how dividends are going to be sustained, they will be funded by cash generated which will be more than accounting profits. What we have not discussed is the pricing, because this is controlled by MDA, and they are using the RAB model which allows Netlink to recover its costs + a WACC. So maybe 20-30 years later once Netlink has recovered all its costs from the initial deployment of the network, MDA may cut the pricing significantly (not considering the additional capex starting from today). But thats a discussion 20 years later anyway so who cares. I'm not clear on the RAB model myself so feel free to comment. Thanks.

This underlines my point. The main risk is regulator risk. They control the price at which Netlink trust can charge for access to residential broadband. This long term, you cannot assess any specific current method IMO. You can only try to guess at the philosophy behind the regulator and make a bet it stays consistent.

In my opinion, in line with modern practice, the regulator will want to make it economically viable for netlink trust to efficiently maintain the network (which is regarded as a core strategic pillar). This means that cost of capital has to come into play. The cost of capital is in turn influenced by the rate of inflation and current interest rates. It should take into account any incentive for necessary new capital expenditure to maintain non-obsolescence.

Also, if we are looking 15-30 years down the line, there will be a leverage effect from the deployment of IOT in every day life. Some of the IOT will go wireless (because they aren't inherently traffic intensive), but some may come down to Netlink trusts ducts and manholes. Which means the fee that service providers pay Netlink trust is supported by a bigger pie.

Actually, I have a question : Singtel, M1 etc have cell towers right? But the cell towers have to connect to the back bone somewhere. So whos wired connection do they use? I won't be surprised if SingTel has its own wired network to support this, but what about starhub/m1... ?

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21-07-2017, 10:58 AM,
Post: #33
RE: Netlink Trust
(21-07-2017, 10:48 AM)tanjm Wrote:
(20-07-2017, 09:58 PM)grubb Wrote: As for how dividends are going to be sustained, they will be funded by cash generated which will be more than accounting profits. What we have not discussed is the pricing, because this is controlled by MDA, and they are using the RAB model which allows Netlink to recover its costs + a WACC. So maybe 20-30 years later once Netlink has recovered all its costs from the initial deployment of the network, MDA may cut the pricing significantly (not considering the additional capex starting from today). But thats a discussion 20 years later anyway so who cares. I'm not clear on the RAB model myself so feel free to comment. Thanks.

This underlines my point. The main risk is regulator risk. They control the price at which Netlink trust can charge for access to residential broadband. This long term, you cannot assess any specific current method IMO. You can only try to guess at the philosophy behind the regulator and make a bet it stays consistent.

In my opinion, in line with modern practice, the regulator will want to make it economically viable for netlink trust to efficiently maintain the network (which is regarded as a core strategic pillar). This means that cost of capital has to come into play. The cost of capital is in turn influenced by the rate of inflation and current interest rates. It should (by right) take into account any necessary new capital expenditure to maintain non-obsolescence.

Also, if we are looking 15-30 years down the line, there will be a leverage effect from the deployment of IOT in every day life. Some of the IOT will go wireless (because they aren't inherently traffic intensive), but some may come down to Netlink trusts ducts and manholes. Which means the fee that service providers pay Netlink trust is supported by a bigger pie.

Actually, I have a question : Singtel, M1 etc have cell towers right? But the cell towers have to connect to the back bone somewhere. So whos wired connection do they use? I won't be surprised if SingTel has its own wired network to support this, but what about starhub/m1... ?

Hi Tanjm, the cell towers are connected to their own back bone. But for Hetnet deployment (in the future) it is very likely StarHub will have to utilized NLT's fibre because NLT's fibre are available at more areas than Starhub's own back bone. It is also likely that TPG will use NLT's backbone

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21-07-2017, 11:07 PM, (This post was last modified: 21-07-2017, 11:09 PM by WolfT.)
Post: #34
RE: Netlink Trust
(21-07-2017, 10:48 AM)tanjm Wrote:
(20-07-2017, 09:58 PM)grubb Wrote: As for how dividends are going to be sustained, they will be funded by cash generated which will be more than accounting profits. What we have not discussed is the pricing, because this is controlled by MDA, and they are using the RAB model which allows Netlink to recover its costs + a WACC. So maybe 20-30 years later once Netlink has recovered all its costs from the initial deployment of the network, MDA may cut the pricing significantly (not considering the additional capex starting from today). But thats a discussion 20 years later anyway so who cares. I'm not clear on the RAB model myself so feel free to comment. Thanks.

This underlines my point. The main risk is regulator risk. They control the price at which Netlink trust can charge for access to residential broadband. This long term, you cannot assess any specific current method IMO. You can only try to guess at the philosophy behind the regulator and make a bet it stays consistent.

In my opinion, in line with modern practice, the regulator will want to make it economically viable for netlink trust to efficiently maintain the network (which is regarded as a core strategic pillar). This means that cost of capital has to come into play. The cost of capital is in turn influenced by the rate of inflation and current interest rates. It should take into account any incentive for necessary new capital expenditure to maintain non-obsolescence.

Also, if we are looking 15-30 years down the line, there will be a leverage effect from the deployment of IOT in every day life. Some of the IOT will go wireless (because they aren't inherently traffic intensive), but some may come down to Netlink trusts ducts and manholes. Which means the fee that service providers pay Netlink trust is supported by a bigger pie.

Actually, I have a question : Singtel, M1 etc have cell towers right? But the cell towers have to connect to the back bone somewhere. So whos wired connection do they use? I won't be surprised if SingTel has its own wired network to support this, but what about starhub/m1... ?

The backbone is either Singtel lease line or Net link NGNBN and of course some of their own cabling. Most will use both as a protection in case there is a downtime in one of them. 
I hope it drop somemore , hope to buy at 76cts!
The thing about karma, It always comes around and bite you when you least expected.

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22-07-2017, 09:44 AM,
Post: #35
RE: Netlink Trust
(21-07-2017, 10:48 AM)tanjm Wrote:
(20-07-2017, 09:58 PM)grubb Wrote: As for how dividends are going to be sustained, they will be funded by cash generated which will be more than accounting profits. What we have not discussed is the pricing, because this is controlled by MDA, and they are using the RAB model which allows Netlink to recover its costs + a WACC. So maybe 20-30 years later once Netlink has recovered all its costs from the initial deployment of the network, MDA may cut the pricing significantly (not considering the additional capex starting from today). But thats a discussion 20 years later anyway so who cares. I'm not clear on the RAB model myself so feel free to comment. Thanks.

This underlines my point. The main risk is regulator risk. They control the price at which Netlink trust can charge for access to residential broadband. This long term, you cannot assess any specific current method IMO. You can only try to guess at the philosophy behind the regulator and make a bet it stays consistent.

In my opinion, in line with modern practice, the regulator will want to make it economically viable for netlink trust to efficiently maintain the network (which is regarded as a core strategic pillar). This means that cost of capital has to come into play. The cost of capital is in turn influenced by the rate of inflation and current interest rates. It should take into account any incentive for necessary new capital expenditure to maintain non-obsolescence.

Also, if we are looking 15-30 years down the line, there will be a leverage effect from the deployment of IOT in every day life. Some of the IOT will go wireless (because they aren't inherently traffic intensive), but some may come down to Netlink trusts ducts and manholes. Which means the fee that service providers pay Netlink trust is supported by a bigger pie.

Under the RAB model, NLT is allowed to get a pre-tax return for their invested capital of 7%pa for the period 2018-2023, which has been worked out based on WACC. If the same model is used for subsequent periods (which we should expect so), then should interest rate moves up, WACC will also be adjusted upwards and hence the yield from NLT should also increase.
I take comfort in this inflation protection element over the longer term, which I feel has not been sufficiently appreciated by the market.

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19-03-2018, 10:40 PM,
Post: #36
RE: Netlink Trust
When is its first cash payout coming? Are they paying trustholders once or twice a year?

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