Month: March 2012
STEng – BT
ST Kinetics cries foul, starts battle to clear its name
Blacklisted in India but not charged, it seeks international arbitration
A leading Singapore defence supplier says that it has been treated unfairly in India – the world’s biggest importer of arms – and will seek international arbitration to protect its reputation.
But first, it will try to convince an Indian court today of the merits of its case.
Singapore Technologies (ST) Kinetics, formally barred this month from doing business with India’s defence procurement agency, the Ordnance Factory Board (OFB), is trying to get the decision reversed.
‘Any decision reached thus far has been an administrative one and so we are awaiting a proper legal decision,’ a spokesman for ST Kinetics told BT.
ST Kinetics was blacklisted following initial investigations conducted by India’s Criminal Bureau of Investigation, which was probing Sudipta Ghosh, the former director-general of OFB, over the award of defence contracts. Ghosh has since been charged with corruption. No charges have been levelled against ST Kinetics, but it finds itself being barred from doing business with OFB.
ST Kinetics has been arguing that no incriminating evidence has been produced against it, and that it has been blacklisted purely on the basis of circumstantial evidence.
The case is due for another hearing today in the Delhi High Court, where the Singapore-based company is opposing the action taken against it, even though it faces no formal charges. Regardless of the outcome, ST Kinetics will continue to pursue legal avenues to clear its name, the spokesman for the company said.
BT understands that ST Kinetics has also approached the Indian Supreme Court, where a hearing is due on March 26. It is understood that the company is fighting for the Supreme Court to rule that the case be resolved via international arbitration since there have been no criminal charges filed against the company by the Indian government.
The company was dragged into the case following a report by the Comptroller and Auditor-General of India (CAGI), which outlined the behaviour of Ghosh, who is at the heart of the case, and his involvement with ST Kinetics and six other defence companies ranging from India, Israel, Russia and Switzerland.
ST Kinetics had an agreement with Ghosh’s agency to supply 50,000 Singapore Assault Rifles (SAR) 21 carbines to the Indian Home Affairs Ministry (MHA). Ghosh claimed that ST Kinetics would co-produce the weapons with an Indian partner. No such arrangement existed, the report said. However, an Indian media report dated Aug 27, 2010 stated that such an agreement did exist and even said that it had been shown the relevant Memorandum of Understanding (MOU) by an ST Kinetics senior official. The MOU, signed April 30, 2008, reportedly specifies a workshare and production arrangement, with more than 50 per cent of the weapon order produced by OFB, the report in the StratPost, a South Asian defence publication, said.
A recent report said that India has leapfrogged China to become the biggest importer of arms in the world. Between 2007 and 2011, it accounted for almost 10 per cent of global arms imports.
Even though ST Kinetics does not have any defence contracts in India, it has commercial business in addition to the presence there of other ST subsidiary companies, making it important for the company to clear its name of these allegations.
In fact, BT has learnt that when news of the case first broke in 2009, Indian media reports mistakenly suggested that Singapore Technologies, the parent group, had been implicated. The fallout for the rest of the group has since been minimised as it has been made clear that it was only ST Kinetics that had been dragged into the case, and no other ST company was involved.
As the blacklisting order refers only to OFB, it is unclear if ST Kinetics will be allowed to do business with other defence entities in India. The company was in the process of bidding for other defence contracts when its blacklisting was announced. BT has learnt that just last week, it took part in a trial for an Indian Ministry of Defence artillery guns order.
‘We will wait to see what happens but will pursue all roads to clear our name,’ the company spokesman said.
TELCOs – BT
SingTel, StarHub share prices neck-and-neck
While the former drifts, the latter gains 4% on top of last year’s 11%
THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.
As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.
In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.
Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.
Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.
For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.
StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.
In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.
‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.
That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.
Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.
The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.
‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.
TELCOs – BT
SingTel, StarHub share prices neck-and-neck
While the former drifts, the latter gains 4% on top of last year’s 11%
THE share prices of telco rivals SingTel and StarHub have been within spitting distance of one another over the last week, for the first time since 2006.
As SingTel’s share price spent the year either moving sideways or in slight decline, StarHub’s price has picked up considerably, narrowing the share price gap to just three cents yesterday. SingTel closed at $3.11, while StarHub closed at $3.08.
In terms of market capitalisation, however, the two telcos are still worlds apart. SingTel weighs in at the top of the Singapore Exchange with almost $50 billion while StarHub is just over a tenth of that value, at $5.2 billion.
Investors who bought into StarHub stock when it listed in 2004, however, would have made out a lot better than people who bought SingTel stock at the same time.
Excluding dividends, since StarHub went public, it has returned more than 200 per cent, from around 90 cents to about $3 today. During the same period, SingTel’s share price rose about 41 per cent.
For argument’s sake, an investor in M1 – the smallest telco of the three – would have seen a 61 per cent gain in share price over the same period. The counter closed at $2.51 yesterday, having climbed steadily from $2.41 since mid-January. Its market cap now stands at about $2.27 billion.
StarHub stock in particular saw a stellar 2011, recording the largest share price gain among the telcos – slightly over 10 per cent. Since the start of the year, it has chalked up an additional 4 per cent in gains.
In contrast this year, SingTel has spent the year knocking about sideways, starting the year at $3.14 and closing trading yesterday at $3.11. Nomura analysts noted in February that this rangebound trading has been going on for a while.
‘The stock has been stuck in a trading range of around $2.80-3.40 for the past two years . . . We do not see too many scenarios of it breaking this trading range, unless there is some possible business restructure,’ the Nomura report said.
That restructuring recently came to fruition when SingTel announced a full-scale organisational overhaul with a new emphasis on the digital sector. Even so, CIMB analyst Kelvin Goh – who holds a ‘neutral’ rating on SingTel with a target price of $3.36 – remained ‘cautious on SingTel as we think its earnings growth will be under pressure from its overseas operations’.
Other analysts are standing by SingTel, with DBS Group Research’s Sachin Mittal deeming it his top pick in Singapore as Bharti looks to gain ground in India. Mr Mittal had a ‘buy’ rating on SingTel with a $3.32 price target at the start of the month.
The sector as a whole, however, gets a vote from OCBC’s Carey Wong, who is overweight on telcos. He has ‘buy’ ratings for all three firms.
‘With markets likely to remain volatile, we believe that the telcos’ defensive earnings and attractive yields offer a safe harbour for the less risk-adverse investors,’ he said in his report.
MIIF – AmFraser
High-yield TOP pick
• High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.
• Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.
For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.
• Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.
From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.
• Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.
• Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.
MIIF – AmFraser
High-yield TOP pick
• High-yield TOP pick: In our 13 Mar 2012 report titled “The Yield Hunt”, we named MIIF our top high-yield pick with a 9.6% dividend yield, ahead of three other stocks with a history of increasing dividends. We think investing in high-dividend-yield stocks is a way to protect and to grow wealth, particularly in an inflationary and uncertain environment.
• Fund out, funds in: Over the last months, we saw MIIF’s once-largest shareholder Abu Dhabi Investment Authority (ADIA) reduce its stake from 10% to 6% today. We think it is possible that it is looking to exit from this investment entirely, thus putting a near-term cap on MIIF’s share price.
For every seller there is a buyer, and we note that a couple of funds have bought up MIIF in force. These are Asset Value Investors (7.5%) and Long Investment Management Int’l (6.2%); both are value-focused. While we can only speculate on ADIA’s reasons for selling, the strong buying by two separate value-funds is indicative of their private valuations being sufficiently in excess of the market price.
• Another way to value MIIF is to note that management has already valued the three assets using the latest information, a lot of which is private and superior to publicly available data, resulting in an NAV of $0.8123 per share.
From this figure we would subtract the present value of all future expenses, totalling $125m (we have conservatively estimated this figure on the high side), equivalent to $0.1057, for a FV of $0.707, not too different from our DCF FV of $0.691.
• Price supports; dividend yield promotes outperformance. MIIF’s share buybacks are backed by S$110m in cash and a dividend yield in excess of 9%. We note that its share price tracks the market fairly closely (up until the recent outperformance), and the very high yield should ensure outperformance relative to the market each year.
• Focus on underlying value especially from a portfolio perspective: In our eyes, MIIF is a strong dividend play (9.6%) with significant capital gains potential (20%) for a total upside close to 30%. This combination is rather difficult to find elsewhere. The dividend is also likely to increase with asset growth—we forecast the next dividend growth in 2014F. We reiterate our Buy call with an unchanged FV of $0.690.