NetLink NBN Trust’s IPO: 3 Strengths Investors Should Know

Shares of NetLink NBN Trust (SGX: CJLU) started trading on Wednesday.

The business trust’s initial public offering, which drew in approximately $2.3 billion in proceeds, is the largest IPO in Singapore’s stock market since 2011 and the second largest in Asia this year, after Korea’s NetMarble Games.

In NetLink Trust’s IPO prospectus, there was a SWOT (Strengths, Weaknesses, Opportunities, and Threats) analysis of the trust’s business prepared by Media Partners Asia. The analysis was commissioned by NetLink Trust.

In two previous articles, I shared the “W” and “T” areas of the trust’s business. Today, let’s look at the “S” aspects.

3 strengths of NetLink Trust

MPA noted the following strengths at the business trust:

“Only nationwide fibre network infrastructure provider in Singapore.”

As of 31 March 2017, NetLink Trust owns a network of about 76,000 kilometers (km) of fibre cable, 16,200 km of ducts, and 62,000 manholes. The vast network connects 1.1 million residential homes in Singapore and has connection points up to each floor of 1.4 million residential homes. In essence, NetLink Trust is the sole provider of fibre infrastructure to residential homes in Singapore.

Any company that wants to provide broadband connectivity to residential homes will have to go through NetLink Trust.

Another strength that MPA highlighted was:

“Price competition amongst the RSPs [retail service provider] as well as residential subscriber switching between RSPs do not negatively impact NetLink Trust’s revenue base.”

NetLink Trust’s connection fees are regulated by the Info-communications Media Development Authority (IMDA). In effect, RSPs such as Singapore Telecommunications Limited (SGX: Z74)StarHub Ltd (SGX: CC3), and M1 Ltd (SGX: B2F) will be paying the same price to NetLink Trust. In other words, each RSP may lower their consumer-facing prices to provide the best value to consumers, but NetLink Trust will not have to lower its prices based on competition amongst RSPs.

The third strength highlighted by MPA was:

“Based on currently known and available technology, wired fibre broadband remains the most efficient and effective way of transmitting large amounts of data from point-to-point directly at high bandwidth with low latency. Future-proof with limited substitution risk.”

MPA believes that there is limited substitution risk from current available technologies. For instance, MPA highlighted some comparative downsides of wireless broadband technologies (like 3G): They are slower with caps on data usage, have longer latency, and their connections can become congested.

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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.