Still a Shelter in Storm; BUY

• We hosted senior management in a series of investor meetings and came away with our positive view intact.
• NetLink Trust’s business model and virtual monopoly of residential fibre connections combined with a healthy balance sheet should support 100% payout of distributable cash policy. With competition risks unabated in the wireless space, NetLink Trust is our preferred pick in the Singapore telco sector.
• Our unchanged DDM-based (6.0% COE, 0% LTG) target price is SGD0.93. Any changes to its 7% pretax WACC regulated returns are a key risk to our outlook.

Fibre for Back Haul; Well Into the Long Haul

• 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.
• 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.

Capex and Ergo Revenue Opportunities Abound

• 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. Its RAB provides guaranteed returns on capex, unlike the incumbents.
• In its COPIF (Code of Practice for Info-Communication Facilities in Buildings) 2018, regulator IMDA has mandated an increase in fibre access points in new homes to four from two currently. Of the two, only one is typically in use today. This implies expectations of greater long-term fibre usage that may provide additional connection revenue to NetLink.

No Capex Opportunity? DPU Opportunity Instead

• Meanwhile, if there are no triggers for higher capex by the end of the NetLink Trust’s current rate review period, we believe excess cash on its balance sheet could be made available for special distribution.

Source: Maybank Kim Eng Research - 14 Dec 2018