UOB KayHian: NetLink NBN Trust is the ‘ultimate defensive stock’

Singapore two-dollar bills

NetLink NBN Trust is “the ultimate defensive stock,” and likely the most defensive share listed in Singapore, UOB KayHian said in a note on Monday.

“NetLink has dominant market share of 90 percent for residential and 35 percent for non-residential fiber connections,” the brokerage said, adding growth was projected at a three-year compound annual growth rate (CAGR) of 6.2 percent for residential and 8.5 percent for non-residential over 2018-21.

The company caters to basic necessities, it said.

“Fixed broadband connections are basic necessities as many daily activities now require access to Internet and cloud-based services,” UOB KayHian said.

NetLink NBN also has stable and recurrent revenue streams, with the interconnection offer prices determined by the regulated asset base methodology and prices fixed for five years, it said.

“They are unaffected by market competition, including new entrants penetrating the fixed broadband market, and economic cycles. NetLink is also unaffected by churn when fiber broadband subscribers switch from one retail service provider to another,” the note said.

NetLink NBN also benefits from high barriers to entry, it said, noting it is the sole network company for Next Gen NBN and has received aggregate grants of S$732 million for infrastructure construction.

“Without similar support from the government, it would be almost impossible for any potential competitor to match NetLink’s extensive nationwide coverage or current regulated wholesale pricing,” UOB KayHian said.

NetLink NBN also will be unaffected by the entry of TPG Telecom, the fourth telecom player into the Singapore market, it said.

“On the contrary, TPG Telecom is a customer and relies on NetLink’s NBAP connections for backhaul transmission,” it said.

It kept a Buy call and raised its target price slightly to S$0.95 from S$0.93.

NetLink NBN Trust units ended Monday flat at S$0.785.

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