Business

Brokers’ take

Compiled by Anita Gabriel

NETLINK NBN TRUST | BUY

FAIR VALUE: $0.91

MARCH 14 CLOSE: $0.815

OCBC Investment Research, March 14

With the increasing usage of fibre broadband services for day-to-day activities driven by growing demand for connectivity and rapid broad-based growth in data consumption, we believe NetLink NBN Trust has a resilient business model, and is hence able to weather various economic cycles given the defensive nature of its income streams.

Given NetLink's current dominant position as the sole nationwide provider of residential fibre network in Singapore, we believe that there is room to grow with the development of new residential areas as well as increase in penetration rates.

Furthermore, we expect NetLink to be a key participant of growth in other connected services within the non-residential and NBAP (non-building address points) space, especially with Singapore's push to transform into a digital economy.

All things considered, given its stable earnings outlook coupled with policy to distribute 100 per cent of its cash available for distribution, we value NetLink based on a dividend discount model.

SINGAPORE TELCOS

| NEGATIVE

Maybank Kim Eng Research, March 13

We review Infocomm Media Development Authority (IMDA) regulations governing the spectrum rights recently acquired by TPG to ascertain if there is an avenue for more positive scenarios for Singapore's incumbents.

The worst case scenario of a more aggressive tariff war cannot be ruled out, thus we maintain our negative view on the sector.

De-rating catalysts are expected from the start of operations by TPG or any insight into its tariff plans and strategy. Continue to "hold" Singtel and "sell" StarHub and M1.

Live-and-let-live scenario: We assume that TPG's competition will erode incumbents' wireless revenue, though not necessarily by double digits.

We estimate 2 per cent to 4 per cent declines for 2017-2019E (estimate).

Cut-loss scenario: We think this scenario would provide the quickest relief for the incumbents' operations and stock performances.

However, as any capex and start-up opex will naturally be forgone for TPG, we doubt that it would opt for such an exit without putting up a fight.

Go-all-the-way scenario: As IMDA regulations discourage any sale of its licence before it fulfils all its coverage commitments, TPG may opt for accelerated service roll-out and aggressive market-share grab. This could tempt an incumbent to take it out of the market.

With Singapore's wireless service revenue at $4 billion in calendar year 2017, a 10 per cent a year erosion over five years would translate to $1.6 billion of present value in potential lost revenue for the incumbents.

This amount is higher than TPG's spectrum costs and capex budget of $300 million for Singapore.

Theoretically, somewhere between its costs and the industry's destruction value is a price that an incumbent could pay for an acquisition or merger to stem revenue losses.

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision.

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