NetLink Trust - Maybank Kim Eng 2018-09-17: Post-initiation FAQ


NetLink Trust - Post-initiation FAQ

Resistant to operational risks; maintain BUY.

  • Following our recent initiation of NetLink Trust (see NetLink Trust: Safety First ), we summarise key issues raised by investors and maintain our positive view on its underlying defensive business. We believe our forecast of a 95% fibre connection penetration rate by FY21E is viable and that 5G is more likely an opportunity than threat.
  • Maintain our DDM-based (COE of 6%, LTG 0%) Target Price of SGD0.93 and BUY.
  • Any challenge to its current level of regulated returns is the main risk to our outlook.

Fibre the only way to go

  • With 82% of fixed-broadband subscribers on fibre vs a 95% fixed-broadband household penetration, a critical element of our forecasts is the migration of all fixed broadband to fibre.
  • We note that Singtel (SGX:Z74) and StarHub (SGX:CC3) have stopped marketing their non-fibre broadband services; with the latter announcing the end of further cable-based deployment in Apr 2018. Some 97% of Singtel’s fixed-broadband subscribers were on fibre as of June. The rest will likely migrate by year-end. 
  • Essentially, as subscribers’ contracts end, typically after two years, the option for faster fibre at similar pricing should make the shift enticing and likely.

~ SGinvestors.io ~ Where SG investors share

5G more opportunity than threat?

  • We believe 5G in its current form in Singapore is not a major threat to fibre-broadband demand. Given pervasive fixed-broadband and WiFi availability, telco incumbents are not as keen on the fixed-wireless-substitute attributes of 5G, unlike other fixed-broadband-challenged countries.
  • In our initiation report (p 10), we discussed a scenario of NetLink becoming a 5G champion, as it has for fixed broadband. In this scenario, there is upside to capex that provides guaranteed returns.
  • ~ SGinvestors.io ~ Where SG investors share

Interest rates’ short- & long-term implications

  • We acknowledge that higher interest rates could dampen NetLink’s relative yield attractiveness. However, if such an environment is prolonged into its mid-period and end-period regulatory review, it creates the possibility of an upward revision in its current 7% pretax WACC-regulated return.

Swing Factors 


  • Stronger-than-expected demand may enable an increase in regulated capex that will provide additional guaranteed returns. 
  • Increased business expansion outside the CBD could provide new non-residential connections in areas where NetLink is the virtual sole fibre provider. 
  • ~SGinvestors.io ~ Where SG investors share
  • Market earnings risk-aversion cycles could boost interest in NetLink’s stable returns. 


  • Any downward revision in the regulated returns during the next review period impacts long-term fair value. 
  • Pricing competition in the non-residential segment. 
  • Rising interest rate cycle would reduce the attractiveness of NetLink and similar stocks in the same asset class. 

Luis Hilado Maybank Kim Eng Research | https://www.maybank-ke.com.sg/ 2018-09-17
SGX Stock Analyst Report BUY Maintain BUY 0.930 Same 0.930