SINGAPORE (Dec 17): Maybank Kim Eng is maintaining its “buy” call on NetLink NBN Trust with an unchanged price target of 93 cents, post a reverse roadshow that left the brokerage’s positive view on the stock intact.  

NetLink remains Maybank’s preferred pick in the Singapore telco sector considering how competition risks are unabated in the wireless space, in the research house’s view.

In particular, Maybank believes the trust’s excess cash on its balance sheet could be made available for special distribution should there be no triggers for higher capex by the end of the current financial period.

The research house is assuming $60 million in capex per year until FY22E, which is on the highest end of the group’s management guidance for $40-60 million per year. It is also expecting refinancing of loans as they mature in FY21E, and notes that investments beyond NetLink’s current core business would be unlikely and would require unit holder approval.

“As fibre remains highly scalable eg from current 1Gbps to eventually 10Gbps or higher when equipment permits, we believe it will be the relevant broadband delivery mechanism for a long time. As NetLink only provides dark/unlit fibre back haul, it has no capex pressure to upgrade equipment for faster transmission,” explains analyst Luis Hilado in a Monday report.

“The advent of 5G, which promises much faster wireless speeds than 4G, may be a substitution threat to fixed broadband but with 100% residential fibre coverage in Singapore and 95% household penetration expected by FY21E, we see less incentives for households to ‘cut the cord’ once 5G becomes a mass-market service after 2020,” he adds.

Going forward, the analyst continues to like NetLink’s business model and virtual monopoly of residential fibre connections, which he believes should also help to support a 100% payout of the trust’s distributable cash policy.

“With the telco incumbents seeking to cut costs and capex partly through network sharing, there may be opportunities for NetLink to be a 5G conduit,” says Hilado.  

As at 10:07am, units in NetLink are trading flat at 76 cents, which implies a FY19E net dividend yield of 5.92%.