Move to replace broadband with fibre network to bode well for NetLink NBN Trust

Move to replace broadband with fibre network to bode well for NetLink NBN Trust

By: 
Samantha Chiew
07/11/18, 03:03 pm

SINGAPORE (Nov 7): Analysts are remaining upbeat on NetLink NBN Trust, as Maybank KimEng and OCBC Investment Research are maintaining their “buy” calls on the trust with a target price of 93 cents and 90 cents, respectively.

This came on the back of the trust posting DPU of 2.44 cents for 1H19, as revenue increased by 172.9% to $176.7 million, compared to $64.8 million last year and 4.8% higher than projection.

This was mainly due to higher diversion revenue and ducts and manholes service revenue.

See: NetLink NBN Trust posts 1H DPU of 2.44 cents; earnings outperforms projections

StarHub recently announced that it will be ceasing its cable services by July 2019 and will be migrating its broadband subscribers to fibre, where NetLink is the only provider in Singapore.

In a Monday report, Maybank analyst Luis Hilado says that with this, his current forecast of 95% residential fibre household penetration by FY21 could happen sooner.

On the other hand, OCBC analyst Joseph Ng says, “Leaving aside potential upfront benefits from additional residential terminal points required as a result of this exercise, NLT NBN should be able to collect additional monthly recurring charges arising from greater fibre connections.”

The trust’s management also does not expect this to move the needle significantly as the switch from Hybrid Fibre-Coaxial (HFC) to fibre has already been taking place, albeit with a higher intensity moving forward.

Meanwhile, the trust is also exploring its potential in telco network sharing discussions.

“Its relatively low gearing is meant to keep the powder dry for potential capex under its guaranteed return businesses,” says Hilado.

Nonetheless, NetLink is trading at an attractive FY19 yield of 5.9%. And Hilado believes that if capex remains low, there could be a special distribution towards the end of the current review period in FY22.

As at 3.01pm, units in NetLink NBN Trust are trading 1 cent higher at 79 cents or 1.0 times FY19 book.

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