NetLink NBN Trust - OCBC Investment 2018-10-11: A Shelter In Times Of Trouble


NetLink NBN Trust - A Shelter In Times Of Trouble

  • Smart Nation on full throttle.
  • The TPG argument cuts both ways.
  • Fair Value of S$0.90.

Pushing the Smart Nation envelope

  • It was announced last week that a digital platform named CODEX (Core Operations, Development Environment, and eXchange) has been designated as the sixth strategic national project that the Smart Nation and Digital Government Group (SNDGG) has embarked on.
  • One of the features of CODEX involves a government data architecture for common data standards and formats that would facilitate seamless data sharing between agencies. The announcement noted that most government ICT systems are currently designed and built independently, which can thus limit economies of scale and interoperability.
  • CODEX would thus be pivoting away from this silo approach, and is another concrete step in SNDGG fulfilling its mandate to centralise coordination between agencies in order to hasten the implementation of the Smart Nation programme. This would be beneficial for NetLink NBN Trust, as an expedited schedule would present quicker additional opportunities for NetLink NBN Trust to leverage its nationwide fibre network.

~ ~ Where SG investors share

TPG’s entry a positive

  • In TPG Telecom’s (TPG) FY18 earnings call last month, we note that the group remains on track to achieve the required outdoor service milestone of coverage by end-2018 in Singapore, with its production network already covering in excess of 90% of outdoor areas. It was also mentioned that trial service would be conducted before the end of the year.
  • TPG’s entry, while a headwind (of varying degrees) for the incumbents, is actually positive for NetLink NBN Trust, as we have outlined in our previous report. See report: NetLink NBN Trust - Linking TP Up.  TPG would need to tap on NetLink NBN Trust’s fibre network infrastructure to connect a substantial portion of its base stations, potentially contributing to NLT NBN’s non-residential and NBAP revenue.

Stay defensive

  • With macro concerns ratcheting up, defensive names like NetLink NBN Trust have proven to be resilient. Over the course of the last 3 months, NetLink NBN Trust has achieved a total return of 6.1%, relative to the -1.1% and -2.8% registered by the FSTREI Index and STI Index, respectively.
  • We do acknowledge the inherent concerns with NetLink NBN Trust’s regulated business structure (e.g. regulatory review risks, uncertain opportunities in growing the regulated asset base), but these are relatively unaffected by the ongoing trade tensions.
  • We continue to stay constructive on NetLink NBN Trust and retain our fair value estimate of S$0.90.

Joseph Ng OCBC Investment Research | 2018-10-11
SGX Stock Analyst Report BUY Maintain BUY 0.900 0.900