NetLink NBN Trust’s IPO: What Growth Can Investors Expect?

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. We have also looked at NetLink Trust’s market penetration in Singapore’s residential fibre subscriptions.

But then again, that all that happened in the past. It’s time to cast our eyes to the future and see what growth the trust can generate.

Mirror, mirror on the wall

In our previous article, we pointed out NetLink Trust’s biggest source of revenue, residential connections. The NetLink Trust also cited a study from Media Partners Asia (MPA – commissioned by NetLink Trust) that showed that demand for fibre connections will continue to be high in Singapore.

On the other hand, NetLink Trust’s fibre market penetration in Singapore is 82% of all broadband subscriptions. This statistic suggest that the market might be saturated at some point in the future.

With that in mind, what growth should investors expect from NetLink Trust? The graph below provides insight. 

Source: NetLink Trust’s IPO prospectus

According to a MPA study, residential wired subscriptions are expected to grow at a compounded annual growth rate (CAGR) of 2.5% between 2016 and 2021. Fibre subscriptions, which uses NetLink Trust’s network, is expected to grow at faster CAGR of 6.5% over the same time frame.  

To be sure, the growth expectations for fibre are not evenly distributed.

Fibre subscriptions are expected to grow 11.7% in 2017 but the growth rate will slow down to 2% in 2021. By 2021, MPA expects fibre subscriptions to make up 100% of the wired residential subscription market.

Old technologies such as ADSL and HFC will be phased out, NetLink Trust reports:

“Further, with respect to the residential segment, MPA believes that ADSL subscribers will migrate to fibre connections by December 2021, and HFC-based services will cease by December 2021. Accordingly, the Trust Group’s network is well positioned as the provider of the key infrastructure for the foreseeable future to service consumers’ increased demand for ultra-high-speed internet services and data.”

After 2021, it is possible that fibre subscriptions growth will ebb and flow according to the general market growth for wired residential subscriptions.

But wait, there’s more … 

While residential subscription fibre revenue is the most important for NetLink Trust, there are other areas in its business that could show higher growth. We will look at two other high growth areas for 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.