SINGAPORE (Aug 31): UOB Kay Hian has initiated coverage on NetLink NBN Trust with a “buy” and target price of 93 cents, which implies an annualised distribution yield of 5.2% and 6% of the research house’s projects for FY18 and FY19, respectively.
In a Tuesday report, analyst Jonathan Koh says he likes the stock for its “resilient, predictable, transparent and regulated” revenue streams, as the group’s business is immune to competition with its extensive nationwide coverage and an established customer base.
The analyst further sees opportunities for the group to grow on Singapore’s Smart Nation initiative, which he says would have a positive impact on demand for the group’s non-building address point (NBAP) connections.
“Independent industry consultant Media Partners Asia (MPA) estimated the penetration for legacy asymmetric digital subscriber line (ASDL) and hybrid fibre-coaxial (HFC) based connections at 17.9% as of Mar 17. MPA expects all ADSL subscribers to migrate to fibre connections by Dec 19, and HFC-based services to cease by Dec 21. As such, residential fibre broadband subscribers are projected to increase at a 5-year CAGR of 7.2% in 2016-21,” notes Koh.
He also expects SMEs and cloud-based applications, among others, to drive the growth of NetLink’s non-residential segment, for which MPA projects subscribers to grow at a 5-year CAGR of 10.1% in 2016-21.
The stock is currently trading at book value.
“To date, NetLink has received aggregate grants of $732 million for the construction of passive fibre infrastructure. Without similar support from the government, it would be almost impossible for any potential competitor to provide a viable alternative or meet current regulated wholesale pricing,” says Koh.
As at 10.33am, shares in NetLink are flat at 82 cents.
