Brokers' take
Add BT as a preferred sourceNetLink NBN Trust | Buy Dec 17 close: S$0.76 Target price: S$0.93 Maybank Kim Eng, Dec 14
We hosted senior management in a series of investor meetings and came away with our positive view intact. NetLink's business model and virtual monopoly of residential fibre connections combined with a healthy balance sheet should support 100 per cent payout of distributable cash policy. With competition risks unabated in the wireless space, it is our preferred pick in the Singapore telco sector. Any changes to its 7 per cent pretax weighted average cost of capital (WACC) regulated returns are a key risk to our outlook.
As fibre remains highly scalable, 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 full residential fibre coverage in Singapore and 95 per cent household penetration expected by 2021, we see less incentives for households to "cut the cord" once 5G becomes a mass market service after 2020.
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