• Foundation of Singapore’s fibre network
• Defensive income streams
• Attractive stable outlook

The Foundation of Singapore’s Next Gen NBN

NetLink NBN Trust’s (NLT NBN) nationwide network, in our view, is the foundation of the Next Generation Nationwide Broadband Network (Next Gen NBN) over which ultra-high-speed internet access is delivered throughout mainland Singapore and its connected islands. NLT NBN designs, builds, owns and operates the passive fibre network infrastructure (comprising ducts, manholes, fibre cables and Central Offices) of Singapore’s Next Gen NBN.

Currently, NLT NBN’s network is the only fibre network with nationwide residential coverage in Singapore. As of 31 Mar 2017, NLT NBN’s network consisted of 10 Central Offices and ~76,000 km of fibre cable, ~16,200 km of ducts, as well as ~62,000 manholes. NLT NBN’s network also supported ~43,000 nonresidential end-user connections, and was deployed to approximately ~31,000 nonresidential buildings as of 31 Dec 2017.

Resilient Business Model With Steady Growth Outlook

With the increasing usage of fibre broadband services for day-to-day activities driven by growing demand for connectivity and rapid growth in data consumption from both residential and non-residential end-users, we believe NLT NBN has a resilient business model. Hence, we believe NLT NBN will be able to weather through various economic cycles given the defensive nature of its income streams.

Looking ahead, given NLT NBN’s current dominant position as the sole nationwide provider of residential fibre network in Singapore, we believe there is room to grow with the development of new residential areas as well as increase in penetration rates. Furthermore, we expect NLT NBN to be a key participant of growth in other connected services within the non-residential and NBAP space, especially with Singapore’s push to transform into a digital economy.

Initiate Coverage on NLT NBN With S$0.91 FV Estimate

All considered, we forecast NLT NBN to deliver distributions to unitholders of S$170.1m in FY18 on an annualized basis, S$181.1m in FY19F and S$185.4m in FY20F. Given its stable earnings outlook coupled with policy to distribute 100% of its cash available for distribution, we value NLT NBN based on a dividend discount model. Consequently, deriving a S$0.91 fair value estimate, we initiate coverage on NLT NBN.

Source: OCBC Research - 14 Mar 2018