On 10 July 2017, NetLink NBN Trust registered its final prospectus with Monetary Authority of Singapore, paving the way for the biggest IPO of the year. The offering price is $0.81. Initially, the offering price was estimated by analysts to be between $0.81 and $0.93. The low-end of the offering price could be indication of weak demand from the big boys.
With net asset of $3.07 billion and total units of 3.02 billion, the Net Asset Value (NAV) is about $1.01. Given that the offering price is only $0.81, NetLink NBN Trust IPO is considered surprisingly under-valued. It should be noted that the majority of the assets is the network infrastructure, which are recognised initially at their fair value at the date of acquisition and then depreciated over their remaining useful lives. The estimated remaining useful life for the purposes of calculating depreciation for NLT’s network assets is between 25 and 50 years, depending on the type of assets.
As cited by several local investment bloggers. there are a few risks that investors need to note for NetLink NBN Trust.
First, a few bloggers had mentioned that although NetLink NBN Trust has a monopoly in the residential fibre network, it is tightly regulated by IMDA. Hence, its ability to set price is curtailed by the regulators. But I don’t see this as a major concern because Singapore government is known to be business-friendly and it will not be in the government’s interest if NetLink Trust is making annual losses.
In any case, the Trust’s distribution is based on cash flows available for distribution and not on whether the Trust makes an accounting profit or loss. This type of structure is different from a typical listed company which issues dividends to shareholders based on annual profits or losses. In fact, NetLink is highly cash generative as the net cash from operating activities was $196 million for the year ended 31 March 2017. Previous year was $133 million.
Investors may point out that although NetLink has cornered the fibre network for the residential market, it may face competition in the non-residential segment. This is because retail service providers can choose to set up their own fibre networks in industrial parks and Central Business District (CBD).
For areas where the Requesting Licensees have their own fibre networks, demand for use of the Trust Group’s network is likely to be lower. However, I don’t see this as a risk because NetLink NBN Trust is currently also leading in this segment with a market share of 32% of the estimated 121,3004 corporate wired broadband connections.
Furthermore, NetLink NBN Trust’s network is [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
Read my other articles on NetLink NBN Trust:
- Three things about NetLink Trust
- Singtel’s NetLink Trust IPO application approved
- Singtel’s shares to rocket on NetLink Trust IPO?
- Can Singtel fight gravity?
- Singtel at a cross-road
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