NetLink must move beyond household hook-ups for growth

AS fibre penetration rises, network provider NetLink NBN Trust has reaped gains from new households.

But it may be non-residential spaces that hold seeds of future growth.

Residential connections, where the group has a monopoly, still make up almost all of NetLink's revenue - S$56 million in the first quarter to June 30, up by 12.3 per cent year on year, with 1.38 million connections. The non-building address point (NBAP) and segment business is still the smallest top-line contributor.

But even new homes will eventually be saturated with hook-ups, especially after StarHub's cable-to-fibre migration exercise ends in September.

Though NetLink's need for 5G business opportunities is not yet pressing, the new mobile network and other Smart Nation technologies will inevitably be relevant to its finances.

NetLink noted as much in its latest outlook statement, which - besides citing new housing estates - described efforts to woo non-residential and NBAP customers. It named the Punggol Digital District and Jurong Innovation District as potential clients.

Tong Yew Heng, chief executive officer of the manager, said after results on Aug 5 that "our extensive fibre network puts us in good stead to support not only the connections in the residential and non-residential segments, but also Singapore's Smart Nation initiatives and applications".

On top of that, NetLink has also proposed that the Republic adopt a single wholesale network for Singapore's upcoming 5G services - rather than the two standalone networks, to be run by mobile network operators (MNOs), that the regulator has suggested.

Such a model could tap the existing nationwide fibre network that NetLink has already implemented, the group said in its position paper.

Its selling point - a neutral 5G host with "no conflict of interest to protect or treat its retail business preferentially" - overlapped with Phillip Securities research analyst, Alvin Chia's belief that "the smaller (MNOs) would rather own their own network than to lease it from a competitor" with 5G.

Future-ready play

To be sure, KGI analyst Joel Ng has said that "I don't think unit holders will be happy" if NetLink makes a play for 5G as a network wholesaler. "NetLink will have to fund the 5G capex with increased debt or higher interest payments, and suffer lower dividends in the short- to medium term without earnings visibility from its investment," he told BT.

NetLink now holds some S$634.8 million in unsecured borrowings, for a gross debt-to-Ebitda ratio of 2.5 times. Still, the manager has called this a "stable capital structure with debt headroom to fund future capex".

And Singtel chief executive Chua Sock Koong, whose company has a 24.8 per cent stake in NetLink, noted at a results briefing on Thursday: "Clearly, the mobile network is an active network, not a passive network like you have for fibre, so . . . the business case, the operating model, that's still something to be developed."

She added, chuckling: "With 5G, you'll probably still need a whole lot more fibre backbone, so that has got to be good for NetLink Trust's business."

Likewise, stock watchers are largely optimistic about NetLink's viability as a defensive, future-ready play on Singapore's battered telecommunication scene - even after a recent segmental setback: a 5.2 per cent drop in NBAP connections since March 31, to 1,505 as at end-June.

Fibre access

NetLink attributed the contraction to changes in the Smart Nation Sensor Platform initiative for sensors and smart devices islandwide. The group had hooked up fibre connections for above-ground (AG) boxes under the first phase of the scheme.

The AG box connections were cut, as the scheme moved into its second phase, with "smart lamp-posts" by Singapore Technologies Engineering. But the NBAP segment may still benefit from both private, 5G-led growth and public-sector projects.

UOB Kay Hian analysts wrote that higher demand for NBAP connections could be a stock catalyst, "should the Government accelerate the roll-out of Smart Nation initiatives". And, while noting that NBAP revenue "hardly moves the needle" now, Citi's Hussaini Saifee said: "Over the long term, we remain hopeful for growth in this segment as NetLink would benefit from providing fibre access points to the telcos for the 5G network roll-out and site densification."

These will come on top of non-residential enterprise connections, where NetLink also notched growth despite the fresh competition from market entrants such as SP Telecom (a joint venture between ST Electronics and Temasek's Singapore Power).