Summary: The Infocomm Development Authority (IDA) last night released the details for the tender of the next generation national broadband network (NBN).
The Request for Proposal (RFP) is the formal invitation to bid for the NBN. Under the RFP, IDA revealed the proposed structure of the NBN. It will be 3-tiered, consisting of a Network Company (NetCo), with Operating Company (OpCo) and finally the Internet Service Provider (ISP).
This is exactly as we had postulated in our 2008 Telco Strategy Report dated 27 Nov 2007. The RFP will be for the NetCo and to prevent monopoly, the NetCo will not be able to vie for OpCo or the ISP.
However it can participate at the lower levels of the NBN with others. IDA also revealed that the government will be willing to subsidise up to S$750m to build the NBN. To recap, the government’s intention for the NBN is to provide accessible and affordable high speed broadband to all. So we view that at the NetCo level, it is likely be tightly regulated to ensure open access and affordability to all.
In other words, the financial return from this mega project is unlikely to be attractive. We see better return from the OpCo and ISP levels, particularly since these companies will not be regulated and the investments quantum is likely to be much lower.
Finally, if we had to place our bets on the possible winner to build and own NetCo, we would put our money on SingTel. This is because we see SingTel as wanting to continue its dominance in the domestic market. However, as its dominance is due to its extensive but dated copper infrastructure, we see this as an opportune chance to tap on possible government’s subsidy to bid aggressively for NetCo to help replace its old network. We have a NEUTRAL weighting on the sector and HOLD rating on SingTel, with BUYs on M1 and Starhub. (Winston Liew)
Pacific Andes Holdings: Value emerging at current price level
Summary: Pacific Andes Holdings’ (PAH) shares have come off in recent weeks, in line with the volatility in the market. We feel this is not warranted and at current price of 63.5 cents, value is emerging again.
We continue to like the consumer theme in China and believe that PAH is well placed to ride out any uncertain market conditions in 1H 2008 even as economic indicators point to a slowdown in the US economy in 1H08.
PAH’s trading and fishing operations are fairly defensive and consumption patterns are likely to remain strong in the foreseeable future. Seafood consumption in China is projected to rise, brought on by increasing appetite for healthier food choices as affluence grows. We maintain our BUY rating and fair value estimate of 87 cents. (Carmen Lee)
For more information on the above, visit www.ocbcresearch.com for detailed report.
Link Hi: In the Crossfire of Sino-Foreign Export Wars
Summary: We visited Link Hi Holdings Limited (Link Hi) last week to have a look at its PRC operations. While Link Hi has a solid basic premise – a good product, it has been caught by a ‘perfect storm’ of punitive regulatory measures in the second half of the year.
It is unreasonable to assume that Link Hi will be able to come close to replicating its successes in 1H07. Link Hi is currently in the midst of realigning its strategy, with a shift in focus towards the domestic PRC market.
Link Hi is confident that it can steer through the storm and does not expect the regulatory changes to derail its growth plans for the next few years. But first, it has to ride out the next few months. We do not have a rating on the stock. (Research Team)
For more information on the above, visit www.ocbcresearch.com for detailed report.
NEWS HEADLINES
- JES Intl Hldgs launched its IPO, aiming to raise S$250m. It is the third Chinese shipbuilder to list on the SGX, following Yangzijiang Shipping and Cosco Corp.
- Australian-listed property group United Overseas Australia is seeking a secondary listing in Singapore, with net proceeds of S$19.1m to be used for expansion in Asia.
- Banyan Tree confirmed reports that investments at its resort project in Vietnam will increase from an earlier reported US$270m to just under US$900m.
- Maveric Ltd plans to enter the O&G business through a RTO deal with Kim Heng Marine & Oilfield, Kim Heng Maritime, Kim Heng Tubulars, Kim Heng Shipbuilding & Engineering. It will buy the entire issued and paid-up share capital of the group.
- A unit of Keppel Corp has finally secured the use of the onshore gas pipeline network to bring in contracted Malaysian natural gas for its power station.
- Parkway Hldgs is planning a JV with Koncentric Investments to construct and operate a green-field, multi-specialty hospital in Mumbai, India. Parkway will invest S$56.9m.
- CNA Group has secured RMB75m (S$14.6m) worth of new control & automation projects in China over the past 3 months. Its order book now stands at about RMB100m as at Dec 1.
- SGX’s revised minimum bid schedule for the securities market will take effect on Dec 24.
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