Is NetLink NBN Trust a value trap?

Investors must be wondering if NetLink NBN Trust would do an Asian Pay TV Trust (APTT) or Hutchison Port Holdings (HPH) Trust. Both the unit prices of APTT and HPH suffered catastrophic meltdowns in recent years due to declining business fundamentals. Incidentally, Temasek Holdings is a major shareholder in all the three trusts.

Even though both APTT and HPH Trust are favoured by investors for their high yields, the plunge in their unit prices would have offset the returns. Thus, the important lesson for NetLink NBN Trust investors is never judge a trust by its yield. Always make the effort to understand the business fundamentals when investing in equities. While big boys like Temasek Holdings can afford to lose monies in their investments, retail investors surely don’t have such deep pockets.

There are analysts who claimed that NetLink NBN Trust is a low risk counter. But the funny thing is, NetLink NBN Trust never made it to the top ten institutional net buy list for the past one year. This means that for some unknown reasons, fund houses had been giving this trust the cold shoulder. Obviously it is still early days to judge NetLink NBN Trust but let’s take a look at its investment moat and examine the underlying risks.

NetLink NBN Trust competitive advantage

NetLink NBN Trust designs, builds, owns and operates fibre network infrastructure of the Next Gen NBN. The company’ strategic advantage lies in its monopoly in the fibre network in the residential market. As of 31 December 2018, NetLink NBN Trust supports approximately 1.3 million residential end-user connections. The residential connections provide the basis for the strong cashflow because of the recurring fee business model.

The revenue sources primarily come from the one-off installation for each termination point (upon the initial connection) or service activation; and a monthly recurring connection charge. The bulk of the recurring income comes from the residential connections segment – 58.5% (non-residential revenue accounted for only 8.5% while NBAP connections was 1.9%).

Although the income for the fibre broadband connection is recurring, it is also [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.]

In a bid to raise financial literacy and reward SG Wealth Builder members, I am pleased to launch the Best SGX stock research campaign. Winner of this contest gets to receive cash prize of $1000!

The rationale for launching this activity is to level the playing field for retail investors, who often lack access to quality SGX stock research, especially homegrown SME stocks. Through this SGX stock research campaign, I hope to raise interest in SGX stocks among local investors, and at the same time, encourage members to share ideas and showcase their analytic skills. The winning entry will be published in this blog for learning purposes.

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