Brokers’ take: Citi positive on new Digital Connectivity Blueprint for NetLink

CITI’S analysts were positive on NetLink NBN Trust : CJLU 0% after the Ministry of Communications and Information and Infocomm Media Development Authority said it would work with the telecommunications industry to upgrade Singapore’s existing Nationwide Broadband Network (NBN) for broadband speeds of up to 10 Gbps.

 The changes were unveiled as part of a new Digital Connectivity Blueprint announced on Monday (Jun 5).

On Tuesday, Citi said that NetLink already has a duct and fibre passive network that is capable of supporting such speeds.

Currently, NetLink designs, builds, owns and operates the NBN’s passive fibre network infrastructure.

The latest announcement, however, could see more operating companies upgrade their equipment, leading to an increased space and power demand for NetLink’s central offices – which in FY2023 accounted for 4 per cent of Netlink’s total revenues, said the analysts.

“It is worthy to note that the rates for the business are not regulated, whether under the regulated asset base regime or otherwise,” they added.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

They said this is a positive for NetLink, though it remains to be seen how much of an upside it would bring.

“Even on our base case, the stock offers a healthy estimated total return and hence we maintain our buy rating,” they said.

The brokerage kept its target price on the network infrastructure provider unchanged at S$0.99. (*see amendment note)

However, Citi also noted some downside risks – a larger interconnect rate reduction than anticipated as well as poor consumer sentiment leading to broadband service disconnections. 

Units of NetLink were trading flat at S$0.865 as at 11.41 am on Tuesday.

*Amendment note: The article earlier said that Citi had lifted its target price. Citi’s target price on NetLink was unchanged and the article has been corrected to reflect this.