More you need to know about Netlink Trust IPO

More you need to know about Netlink Trust IPO

Netlink Trust IPO #ipo..capturing news as it happens. One of the better prospectus written compare with Hrnet/WorldClass. Absolute must jeep due to the multiple growth story. 5 LEMONS!!! $NetLink NBN Tr(CJLU.SI)

—This post was solely written and contributed by our community member, @GrandpaLemon, in the InvestingNote platform and reposted on our blog.  This article was first posted here.

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Price: S$0.81 (https://www.reuters.com/article/us-netlink…)
NAV: S$0.8635 (3,336,639,000 / 2,898,000,001 Units) page 77
P/B: 0.93
DPU: 0.044
Yield: 5.43%
PE: 39.3
Market Cap: S$3.13 billion
Distributions: Semi (March and September)

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Comparison of Yields:
Netlink Trust 0.044/0.81 = 5.43%
Keppel DC Reit(AJBU) 0.0614/1.265 = 4.85%
AusNetServices(AZI) 0.0860/1.765 = 4.87%
ParkwayLife Reit(C2PU) 0.1212/2.620 = 4.63%

Comparison of PE
KIT – 53.3
Ausnet – 23.3
FLT – 28
Parkway Life Reit -17.2

SGX IPO Performance 2017: http://www.sgx.com/wps/portal/sgxweb/home/…

INDICATIVE TIMETABLE
10 July 2017, 5.00 p.m. : Opening date and time for the Public Offer.
17 July 2017, 12.00 noon : Closing date and time for the Public Offer.
18 July 2017 : Balloting of applications, if necessary.
19 July 2017, 3.00 p.m. : Commence trading on a “ready” basis.

THE OFFERING
The Trust . . . . . . . . . . . . . . . . . . . . . . NetLink NBN Trust
The Trustee-Manager . . . . . . . . . . . . NetLink NBN Management Pte. Ltd.
The Offering . . . . . . . . . . . . . . . . . . . . 2,898,000,001 Units offered under the Placement and the Public Offer, subject to the Over-Allotment Option
Offering Price Range: S$0.80 to S$0.93 per Unit.
Lock-ups: 6 months from the Listing Date(The Trustee-Manager, Holdco and Singtel)
Over-Allotment Option is exercised in full: Additional gross proceeds shall be S$100 million through the allotment of new units.

What You need to know:
*) The IPO represents around 75 per cent of NetLink Trust’s total shareholding and thus values the Trust at between S$3.06 billion and S$3.6 billion depending on the final IPO price. Singtel, which will pocket the proceeds from the IPO, will hold less than 25 per cent of the Trust after this exercise.
*) The Trust has a built-out network of 76,000 km of fibre optic cables with 16,200 km of ducts and 62,000 manholes.
It has, as of March this year 1.09 million end-user connections.
*) Around 61.3 per cent of its total revenue comes from residential connections.Singtel’s Group CEO Chua Sock Koong previously said the
company wanted to reduce its stake in NetLink to less than 25 percent.
It will own 24.99 percent of NetLink after the IPO.
*) DBS Group, Morgan Stanley and UBS AG were hired as joint global coordinators for the IPO, with Bank of America Merrill Lynch, Citigroup, HSBC, OCBC Bank and UOB also acting as joint bookrunners.

Prospectus Author:
The document is prepare by MPA: Media Partners Asia Ltd (the “Independent Industry Consultant”).

Acronyms:
NBAP: NON-BUILDING ADDRESS POINTS (NBAP) fibre connectivity
FBO: facilities-based operations (“FBO”) licence

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Financials:
*) The 2018 forecast for the amount of money available for distribution to unitholders was S$113.33 million and for 2019, S$179.35 million.
*) The Trust’s revenue for 2017 was S$300 million, up 16.3 per cent from 2016 revenue of S$258 million. In 2017, the Trust’s Opex (operating expense) was S$80 million.
*) The revenues on a pro forma basis were S$257.0 million and S$299.2 million for the financial years ended 31 March 2016 and 31 March 2017
*) EBITDA of the Trust Group prepared on a pro forma basis were S$186.4 million and S$223.8 million for the financial years ended 31 March 2016 and 31 March 2017, respectively.
*) As of 31 March 2017, the total assets of the Trust Group prepared on a pro forma basis were S$4,503.4 million
*) The Trust Group had total external debt of S$510.0 million as at 31 March 2017 and generated an EBITDA of S$223.8 million for the financial year ended 31 March 2017 prepared on a pro forma basis, translating to a conservative total debt / EBITDA ratio of 2.3x. The Trust Group expects to drawdown up to an additional S$210 million under its bank loans to fund capital expenditure during the years ending 31 March 2018 and 31 March 2019

 

KEY INVESTMENT HIGHLIGHTS OF THE TRUST GROUP

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a) Critical Infrastructure Enabling Singapore’s Next Gen NBN.
The Trust Group designs, builds, owns and operates the passive fibre network infrastructure (comprising ducts, manholes, fibre cables and Central Offices) of Singapore’s Next Gen NBN. As part of its support, the Singapore government provided funds under the grant established by the Singapore government to fund the Next Gen NBN

b) The Singapore government also continues to invest in initiatives, including the Smart Nation programme, which supports demand for wireless and wired high-speed
broadband and therefore demand for the Trust Group’s network as the enabling infrastructure

c) One of the Trust Group’s key stakeholders is Singtel, a global communications company, which was instrumental to the establishment of the Trust Group. Immediately after the Offering, Singtel will hold approximately 24.99%1 unitholding in the Trust

d) Resilient Business Model with Transparent, Predictable and Regulated Revenue Stream MPA believes that ultra-high-speed fibre broadband has become a “necessity” and is no longer “discretionary”, as many end-users are reliant on fibre broadband services for their day-to-day activities.

e) The provision of the Trust Group’s principal services is subject to, the FBO licence held by the Licensee, and to be held by NLT Trustee and the Trustee-Manager on a
joint and several basis following the Listing. These services include the mandated services set forth in the FBO licence, which have to be provided on pricing terms regulated by IMDA and prescribed in the Interconnection Offer and the Reference Access Offer (“RAO”).

f) The Trust Group receives a transparent and predictable revenue stream. As of 31 March 2016 and 31 March 2017, on a pro forma
basis, revenue generated from residential end-user connections, non-residential end-user connections and NBAP connections, as well as installation charges, represented 72.8% and 75.1% of the TrustGroup’s total revenue respectively.

g) With respect to each residential end-user connection, non-residential end-user connection and NBAP connection, the Trust Group receives two primary
revenue streams:
(i) a one-off installation charge for each termination point (upon the initial connection), and
(ii) a recurring monthly connection charge.

h) The Trust Group’s primary customers are Requesting Licensees made up of established players in the Singapore telecommunications market, including Singtel, Nucleus Connect (which is owned by StarHub), M1, MyRepublic and ViewQwest. Competition or churn among Retail Service Providers does not adversely affect the number of connections that the Trust Group provides.

i) The Trust Group generates a sizeable portion of revenue from the provision of services to Requesting Licensees in connection with its other non-fibre passive infrastructure, which is also regulated by IMDA. As of 31 March 2016 and 31 March 2017, on a pro forma basis, ducts and manholes service revenue contributed 11.0% and 10.0% of the Trust Group’s total revenue respectively. With respect to the ducts and manholes service revenue, in 2011, the Trust Group entered into a ducts and manholes services agreement with Singtel, for the provision of services to Singtel in respect of Singtel’s cables which fall within the scope of the agreement, including the right to
use, occupy and physically access the space in respect of the Trust Group’s ducts and manhole

j) The Trust Group provides co-location services under which space in co-location rooms within the Central Offices is made available to
Requesting Licensees, enabling Requesting Licensees to host active network equipment, servers and any other interconnecting equipment in order to deliver fibre services to end-users. As of 31 March 2016 and 31 March 2017, on a pro forma basis, co-location service revenue contributed 5.6% and 4.9% of the Trust Group’s total revenue respectively

k) A further portion of the Trust Group’s revenue is received from Singtel for the leasing of spaces in the NLT Central Offices to Singtel and for the provision of certain ancillary services arising from such leasing of spaces at the NLT Central Offices.Each option to renew is exercisable by Singtel by giving at least 12 months’
prior written notice to the Trust Group. As of 31 March 2016 and 31 March 2017, on a pro forma basis, Central Office revenue contributed 5.5% and 4.8% of the Trust Group’s total revenue respectively.

l) Currently, the Trust Group’s network is the only fibre network with nationwide residential coverage in Singapore. As of 31 March 2017, there were approximately 1.1 million residential end-user connections supported by the Trust Group’s network, representing approximately 76.3% of all residential home
passed premises in Singapore.

m) MPA expects that demand for additional residential end-user connections has been and will continue to be driven by the continued migration from HFC and ADSL to fibre connections, the increased consumption of online video and audio services and growing usage of cloud-based storage and computing services. For example, increased availability of high definition online video and audio services (such as YouTube, Netflix, Amazon Prime Video, Spotify) continues to change the way residential end-users consume both video and audio content and users’ demand for data

n) According to MPA, the total number of residential wired subscriptions is estimated to grow from approximately 1.29 million in December 2016 to approximately 1.46 million in December 2021, representing a CAGR of 2.5%. Over the same period, the number of residential fibre subscriptions3 is expected to grow at a higher CAGR of 6.5% from approximately 1.07 million to approximately 1.46 million. Residential fibre subscriptions3 is estimated to represent 82% of total residential wired subscriptions3 in 2016 and is expected to progressively increase to 100% by 2021

o) For the financial years ended 31 March 2015, 31 March 2016 and 31 March 2017, the Trust Group’s network availability
was 99.99% for all three years

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KEY RISKS
*) The Trust Group operates in a highly regulated environment, with its primary regulator being IMDA.
The Licensee, under relevant regulations, is subject to QoS Standards and certain conditions in relation to the Licensee’s FBO licence,
for which there have been instances of non-compliance,

*) Any failure of or damage to the Trust Group’s physical infrastructure could lead to significant costs and disruptions and,
if such disruption is caused by a third party, the Trust Group may be unable to fully recover its remediation costs.
The network is vulnerable to damage or cessation of operations from fire, flooding, other natural disasters, power loss, vandalism,
acts of terrorism, cyber-attacks and computer viruses, cable cuts and other events beyond the Trust Group’s control
For example, CityNet (in its capacity as trusteemanager of NLT) and OpenNet were penalised an aggregate of S$500,000 by IMDA in 2014 relating to
a fire incident at the Bukit Panjang Central Office caused by a third party that took place in October 2013 which
resulted in service disruptions, whereby IMDA deemed that CityNet (in its capacity as trustee-manager of NLT)

*) The Trust Group is required to maintain, repair, upgrade, protect and replace the Trust Group’s network and facilities, the cost of which could materially impact the Trust Group’s results and the Trust Group’s failure to do so could irreparably harm its business.

*) The Trust Group relies on certain key contractors and suppliers to construct, upgrade and
maintain its network. The Trust Group purchases its supplies pursuant to fixed term contracts for a term of typically three years. While there are a relatively large number of suppliers for materials of this type globally, demand for these materials, in particular fibre cables, especially from rapidly modernising countries like China, may lead to temporary shortages of materials in the market

*) The Trust Group is exposed to information technology and cyber security risks. As the Trust Group’s businesses and operations rely heavily on information technology, the Trust
Group is exposed to risks of cyber security threats, data privacy breaches as well as other network security and stability risks. The scale and level of sophistication of cyber security threats have increased especially in recent times

News:
http://www.straitstimes.com/business/netli…
http://www.nasdaq.com/article/singtels-net…
http://www.businesstimes.com.sg/companies-…
https://www.dowjones.com/scoops/singtel-in…
http://www.nasdaq.com/article/singtels-net…
http://www.nasdaq.com/article/singtels-net…
http://www.theedgemarkets.com.sg/netlink-n…
http://www.businesstimes.com.sg/companies-…

Singtel’s A+ rating hinges on NetLink divestment: Fitch
http://www.businesstimes.com.sg/companies-…

SGX Annoucement
http://infopub.sgx.com/Apps?A=COW_CorpAnno…

Shareinvestor:
What’s In It for SingTel Shareholders? — Barron’s Blog
http://www.shareinvestor.com/news/news.htm…

Prelim Prospectus:
http://www.shareinvestor.com/news/news.htm…

Updated Prospectus:
https://eservices.mas.gov.sg/opera/Public/…

Blogs:
Fool: https://www.fool.sg/company/?ticker=sgx-z74
http://investmentmoats.com/money-managemen…
1st time i see IPO writeup got part1 and part2: https://www.probutterfly.com/blog/analysis…
1 Chilli Mr IPO: http://singapore-ipos.blogspot.sg/2017/07/…
Mr IPO Update: http://singapore-ipos.blogspot.sg/2017/07/…

Once again, this post was solely written and contributed in the InvestingNote platform by our community member, @GrandpaLemon, and reposted on this blog. 

Original post is found here, where you can engage in discussion with other investors. 

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