NetLink NBN Trust - Phillip Securities 2019-12-16: A Key Player In The 5G Roll-out

NETLINK NBN TRUST (SGX:CJLU) | SGinvestors.io NETLINK NBN TRUST (SGX:CJLU)

NetLink NBN Trust - A Key Player In The 5G Roll-out

  • Countercyclical due to resilient business model and dominance in residential connections.
  • Expect run-rate growth of 25,000 residential fibre connections per annum.
  • NetLink Trust is a beneficiary of the 5G roll-out, NBAP could see a boost in the number of connections.
  • 5G unlikely to make NetLink Trust redundant, NetLink Trust infrastructure can accommodate higher speeds.
  • Maintain ACCUMULATE with an unchanged target price of S$0.99.



NetLink Trust - Background



NetLink Trust - 2020 Investment Merits/ Outlook


Dominance in residential fibre connections.

  • NetLink Trust’s resilient business model and dominance in the residential fibre end-user connection of 1.41mn allows it to enjoy stable and predictable revenue streams.
  • NetLink Trust boasts a strong EBITDA margin of ~70% which translate to a steady cash-flow to support the S$208mn distributions we forecast in FY20e. Distribution yield at our target price is 5.7%.

Beginning of run-rate growth for residential fibre connections.

  • The number of residential connections grew by 1.9% q-o-q (+13.7% y-o-y). The growth is largely due to StarHub (SGX:CC3)’s migration of its cable customers to NetLink Trust’s fibre. Majority of StarHub’s customers have been migrated and the exercise has ceased. There will no longer be contributions from the migration going forward. As such, we expect fibre connections growth to be lower in 2H20e compared to 1H20.
  • There is still modest growth stemming from 25,000 new households a year in Singapore.

5G will give NBAP connections a boost.

  • The Infocomm Media Development Authority (IMDA) launched a Call for Proposal (CFP) to facilitate the roll-out of 5G mobile network which is slated to cover half of Singapore by end-2020. NetLink Trust recently announced that they are supporting TPG Telecom on 5G trials in Singapore Science Park.
  • We expect the roll-out of 5G to benefit the growth of NetLink Trust’s NBAP connections especially when there is going to be two nationwide networks on a Standalone basis. Mobile Network Operators (MNOs) are likely to engage NetLink Trust’s extensive fibre infrastructure to lighten their CAPEX. These fibre connections will be used in the MNOs base stations.
  • After factoring that half of Singapore will have to be 5G covered by 2020, we modelled a 36% growth in NBAP connections bringing the total number of NBAP connections to 2,263.

No replacement threat yet.

  • Although 5G speeds can be faster than fixed fibre we do not see a replacement threat in the short to medium term. The amount of data consumed per household is considerable given that several devices will be connected onto fixed broadband. 5G will be too expensive to use solely for one's connectivity needs.
  • NetLink Trust’s fibre infrastructure can also accommodate speeds of 1GBps and higher should the telcos choose to upgrade their equipment. We also suspect that in the early stages of 5G implementation, the mobile network will not be able to take the capacity if we would migrate all our connectivity needs from fixed to wireless.


Recommendation






Alvin Chia Phillip Securities Research | https://www.stocksbnb.com/ 2019-12-16
SGX Stock Analyst Report ACCUMULATE MAINTAIN ACCUMULATE 0.990 SAME 0.990



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