Netlink NBN Trust IPO July 10, 2017

The internet has formed an integral part of our lives, ranging from personal entertainment to business needs. In this week’s article, I will be sharing some information and my personal opinion on Singapore largest IPO since 2013 – Netlink NBN Trust.

Netlink is the foundation of Singapore’s Next Generation Broadband Network, which supplies high speed internet across mainland Singapore and its connecting islands. In simpler terms, this company installs and supply high speed fibre networks to residential homes and others.

1) Business Model and Breakdown Revenue

Source: Preliminary Prospectus for Netlink IPO

From the forecasted earnings for 2018, 68% of the revenue is derived from residential connections and non-residential connections. While Netlink doesn’t maintain a direct relationship with end-users, this revenue is generated through the requesting licensees, which are our telecommunication companies. For the usage of the fibre connection, these licensees (Singtel, M1, Starhub, MyRepublic, etc) will need to pay a recurring connection fee to Netlink.

Other main revenue contribution also includes one-off installation revenue, ducts and manhole revenue as well as leasing of their Central Office for others to house their network equipment.

2) Growth Prospects

Source: Preliminary Prospectus for Netlink IPO, complied by MPA

Recurring revenue from the subscription of fibre connection is perhaps the most attractive part of this business. Looking into the 2 biggest revenue segments, both present a good growth story.

Residential – With fibre infrastructure running through Singapore and competitive pricing by telecommunication companies, more end users will transit into fibre connections while phasing out slower technology such as ADSL and cable broadband. On top of the transition to faster internet speed, new BTO launches also pave the way for organic growth in the number of users. These will contribute to their top line numbers.

Non-Residential – While some telecommunication companies maintain their own fibre network, these are mostly concentrated in Central Business District (CBD) where larger organisations are located. Netlink in contrast, aims to expand its market share by targeting SMEs which are located in areas outside CBD. With more businesses tapping on cloud technologies such as SAAS (Software-as-a-Service) to improve productivity, these areas represent a good opportunity for Netlink to grow their customer base.

Source: Preliminary Prospectus for Netlink IPO, complied by MPA

NBAP (Non-Building Address Point) – NBAP refers to any location without a physical address such as bus stops or ATMs at public area. Transforming Singapore into a “Smart” Nation, the Singapore government has mandated an increase in connectivity speed offered as well as doubling the number of hotspots under the public Wi-Fi hotspot initiative (“Wireless@SG”). While the contribution for this segment is relatively low at less than 1%, there is a high growth potential with a projected CAGR of 86% on the number of connections over the next 5 years based on their prospectus.

3) Distribution Yield

With the IPO price fixed at $0.81 per share, this translates to a projected annualised yield of 5.43% for 2018 and 5.73% for 2019.

4) Time Table for Public Placement

Public Offer Opening Date: 10 July 2017, 7pm
Public Offer Closing Date: 17 July 2017, 12pm
Expected Listing Date: 19 July 2017, 3pm

Conclusion

High speed internet is extremely important in this day to many end users, ranging from students to businessmen. The demand for faster internet speed will be here to stay and fibre optic still remains one of the better and affordable solutions.

In my personal opinion, Netlink is a resilient business with proven profitability track records, operating in a tightly regulated environment with high entry barriers. The defensive nature of this industry may prove to be a good addition to a portfolio.

While the attractiveness of the listing price is anybody’s guess, investors looking to subscribe to the shares should be comfortable with the distribution yield and in for the long haul.

If you wish to know more information about stocks, you can speak to your designated Trading Representatives or a Dealer at a Phillip Investor Centre near you.