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NetLink NBN Trust’s IPO: Who are its Customers?

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

The business trust’s initial public offering (IPO), which drew in roughly $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.

There are a few reasons why there was keen interest in the IPO.

NetLink NBN Trust owns a network of about 76,000 kilometres (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 this makes it the sole nationwide provider for residential fibre. 

For the financial year ended 31 March 2017 (FY2017), NetLink Trust collected around $300 million in revenue. That’s a healthy amount of sales, but the majority comes from just three customers.

Guess who?

NetLink NBN Trust’s IPO prospectus shared three customers, which accounted for more than 10% of its revenue:

Source: NetLink NBN Trust’s IPO prospectus

From the summary above, we can see that “Customer A” contributed around 50.6% of FY2017’s sales, while “Customer B” and “Customer C” accounted for 28.4% and 12% of revenue respectively. The major customers were not named, but it’s not hard to make a guess.

For instance,  Singapore Telecommunications Limited (SGX: Z74) had 559,000 fibre broadband customers at the end of March 2017. At $15 per month, the connection fee should add up to over $100 million in annual revenue or 33% of NetLink NBN Trust’s FY2017 revenue. We also know that NetLink NBN Trust derives the bulk of its central office revenue (5.1% of FY2017 sales), and ducts, manholes and central office revenue (9.9% of FY2017 sales).   

On that note, Singtel could be “Customer A”.   

At the end of March 2017, StarHub Ltd (SGX: CC3) reported 370,000 fibre broadband customers. At this level, NetLink NBN Trust should have collected around $67 million in annual connection fee revenue. That puts StarHub as the most likely candidate to be “Customer B”.

Finally, M1 Ltd (SGX: B2F) said that it had 168,000 fibre broadband customers on 31 March 2017. That adds up to $30.2 million in connection fees. So, M1 could be “Customer C”.

Collectively, the trio made up about 91% of the business trust’s FY2017 revenue.

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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.