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NetLink NBN Trust’s IPO: How Big Can it Become?

Singapore Telecommunication Limited ’s (SGX: Z74) associate, NetLink Trust, has filed its preliminary prospectus to list on the Singapore stock exchange as NetLink NBN Trust.

NetLink Trust has a history stretching back almost a decade in Singapore. We have looked at how the trust has built a wide network of fibre cable that reaches 1.1 million residential homes in Singapore. From there, we have also picked up on how it turns this valuable network into a source of cash.

But that all that happened in the past. It’s time to cast our eyes to the future.

Where are we now?

Residential connections is, by far, NetLink Trust’s biggest revenue source, accounting for over 61% of revenue for the financial year ended 31 March 2017 (FY2017). The contribution from residential connections has also grown over the past three fiscal years, expanding from 51.2% in FY2015 to where it is today.

The segment’s is summarized in the table below:

Source: NetLink NBN Trust’s IPO Prospectus  

As the biggest segment, the burden of growth falls on increasing residential connections. But before we look at growth, it is important to know where NetLink Trust stands in terms of market penetration. The graph below, prepared by Media Partners Asia (MPA – commissioned by NetLink Trust) shows the wired broadband penetration in Singapore.

Source: NetLink NBN Trust’s IPO prospectus

Singapore has one of the highest broadband penetrations in the world at 88% of households. At the present time, the Lion City only trails Korea, which has a penetration that exceeds 100%.

NetLink Trust also reported:

“As of 31 March 2017, there were approximately 1.1 million residential end-user connections supported by the Trust Group’s network, representing approximately 76.3% of all residential home passed premises in Singapore.”  

Not all wired broadband connections are fibre-based, though. The graph below shows the share of fibre-based connections as a percentage of residential wired broadband subscriptions.

Source: NetLink NBN Trust’s IPO prospectus

Again, Singapore ranks high in global household fibre connections with an 82% share of residential wired broadband subscriptions. The high penetration is down to a few reasons, NetLink Trust reports:

“Singapore’s high rate of adoption of fibre broadband technology is evident from the globally competitive broadband speeds.”

“Singapore’s continued need for fibre connectivity is supported by the relatively high purchasing power among the Singapore population and affordable fibre broadband services offered by Retail Service Providers. Average monthly residential wired broadband internet subscription prices in Singapore is less than many other markets such as Australia, Hong Kong, Japan, Malaysia, New Zealand, Taiwan, and the United Kingdom, even though Singapore has a higher GDP per capita, according to MPA.”

More importantly, MPA also expects fibre connections will be in demand in the future:

“MPA expects that demand for additional residential end-user connections has been and will continue to be driven by the continued migration from HFC and ADSL to fibre connections, the increased consumption of online video and audio services and growing usage of cloud-based storage and computing services.”

The anticipated demand bodes well for NetLink Trust’s growth in the future. On the other hand, the high fibre penetration rate also suggests that the market might saturate at somewhere in the future.  

We will look at the growth rates to expect from the business trust in our next article.   

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chin Hui Leong doesn’t own shares in any companies mentioned.