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3 Things I Learnt from NetLink NBN Trust’s 2019 Annual Report Management Statements

NetLink NBN Trust (SGX: CJLU) is involved in designing, building, owning, and operating the passive fibre network infrastructure (comprising of ducts, manholes, fibre cables and central offices) of Singapore’s Next Generation Nationwide Broadband Network (Next Gen NBN). The business trust was listed here in July 2017.

NetLink NBN Trust released its annual report for the financial year ended 31 March 2019 (FY2019) recently. I learnt a few things as I was reading through the chairman’s and chief executive officer’s statements. Here are three things that stood out for me.

Growth in connections

The business trust continues to see demand for its fibre network. As of 31 March 2019, the number of residential and non-residential connections increased by 11.3% and 5.4%, respectively, year-on-year.

The number of Non-Building Address Points (NBAPs) also grew to 1,587 mainly due to the entry of Singapore’s fourth mobile operator, TPG Telecom. An NBAP allows connection to any location in Singapore that does not have a physical address or assigned postal code. The robust growth in end-user connections led to the outperformance of NetLink’s financial results against the initial public offering (IPO) projections.

Going forward, the trust expects “residential fibre connections to grow closer to 100% penetration in the medium-term from about 88% today”. Part of the reason could be due to the transition of Asymmetric Digital Subscriber Line (ADSL) and Hybrid Fibre Coaxial (HFC) connections to fibre.

Rising demand for data

Fibre optic is very relevant in today’s fast-moving world, especially amid Singapore’s push to be a Smart Nation. NetLink’s chairman, Chaly Mah, explained:

“We firmly believe that fibre optic communication is the future of high speed data transmission and is the clear solution for Singapore’s fast-growing bandwidth needs. Backed by our strong balance sheet, we will continue to invest in our network in the long-term to expand our reach and intensify the density of our coverage islandwide to ensure that our fibre network infrastructure is future-ready.”

As of 31 March 2019, NetLink had a debt-to-equity ratio of just 21%, allowing it to gear up for investments if it wishes to.

New housing estates and business districts in Singapore also fuel demand for NetLink’s fibre connections. To that effect, NetLink’s chief executive, Tong Yew Heng, said:

“For greater connectivity and to be ready for future digital applications, we plan to build a denser fibre network in new housing estates such as Tengah and upcoming technology parks such as Punggol Digital District and the Jurong Innovation District. These estates are likely to utilise our fibre network more extensively. This layering of a denser fibre network upon our existing fibre infrastructure positions NetLink favourably as Singapore embarks on 5G rollout from 2020, …”

5G connectivity

The Singapore government announced plans to start rolling out fifth-generation (5G) mobile network technology from next year. NetLink believes it is “well-positioned to support the future deployment of 5G network”. Furthermore, it added that the “use of our existing nationwide fibre infrastructure may also help speed up the deployment, save costs and reduce disruptions to consumers in Singapore”.

According to a survey conducted by the Telecommunications Industry Association in 2017, 5G operators consider fibre important for the new technology. The strong preference for fibre could be due to its scalability, security, and ability to handle the vast amount of traffic being generated.

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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 Sudhan P owns shares in NetLink NBN Trust.