SGX Yield Stock

Telco sues over ‘M1ssing M1llions’

M1 says ex-employee embezzled $2m and splurged on Porsches, Rolexes, Audemars Piguets and $200,000 live stingray

First there was the Lamborghini man, now there’s the Porsche man – as yet another tale of suspected embezzlement and lavish spending comes to light.

BT has learnt that Singapore telco, M1, is suing a former employee for having allegedly made off with some $2 million of its money – money which Matthew Yeo Kay Keng, 35, is said to have spent on two Porsches and an array of luxury watches, including three Rolexes and four Audemars Piguets, and a $200,000 live stingray.

According to court documents inspected by BT yesterday, M1 claims its former account manager sold 3,414 handsets to resellers, when he was employed between January 2008 and November this year, and pocketed the cash – $2.09 million of it.

M1 dismissed Mr Yeo on Nov 15 and filed a writ of summons against him the next day. The telco is suing Mr Yeo for breach of his employment agreement, breach of duty of fidelity, fraudulent misrepresentation and unjust enrichment. And it is asking the court to award it damages – which may or may not include restitution from Mr Yeo – as well as interests and costs.

M1 also obtained a court injunction against Mr Yeo on Nov 18, which prohibits him from removing any of his assets from Singapore, disposing of any of them or doing anything that might diminish their value – up to the value of $2.09 million, excluding interest accrued.

Mr Yeo – who has seven days to respond to the writ of summons – has not yet filed his defence. He was in police custody after being dismissed by M1, but BT was unable to confirm if he remains so.

The alleged crime was discovered earlier this month, when M1 conducted a review of its employees’ sales performance, according to the affidavit prepared by the telco’s chief financial officer, Lee Kok Chew. Mr Yeo had been employed as a sales executive from December 1997 to October 2006, before leaving and rejoining as an account manager in the corporate sales department in January 2008.

According to Mr Lee’s affidavit, Mr Yeo – whose duties were to meet with corporate clients and earn commission from the sales made – was found to have an unsatisfactory sales record, in that his subscription sales were low. M1 then conducted a check on a number of Mr Yeo’s clients and found that the number of handsets reportedly sold by Mr Yeo were far greater than the actual number of subscriptions keyed into M1’s system.

It then discovered that Mr Yeo had generated stock order forms for non-existent orders supposedly placed by his customers. The handsets were then allegedly sold by him to resellers for cash, which he pocketed.

Mr Lee, in his affidavit, said the company then conducted an interview with Mr Yeo on Nov 15 – during which Mr Yeo is said to have admitted to wrongfully and dishonestly taking the handsets for his own benefit. Mr Yeo then reportedly told the company that he received about $2 million from the sale of such handsets, of which he spent $230,000 on a Porsche in August this year, which he traded in for a $430,000 Porsche in October.

Mr Yeo is also said to have told M1 that he also spent the money on a Patek Philippe watch worth $50,000, three Rolex watches worth $8,000 each, and four Audemars Piguet watches worth between $15,000 and $30,000 each. He also allegedly claimed that he had only $500 in his UOB account, and that he was willing to sell his car, watches and fish – an Arowana worth $160,000 and a stingray worth $200,000 – to make up for what he had done.

Mr Lee’s affidavit said M1 subsequently found discrepancies in Mr Yeo’s statements. It found that he has several other bank accounts – with Maybank and Standard Chartered – as well as shares in a securities account with the Singapore Exchange.

The telco also found that Mr Yeo had been transferring money offshore – a total of $47,300 to a Yang Chi Kit in Hong Kong, a discovery which likely prompted M1 to obtain an injunction against the former account manager.

The injunction prohibits Mr Yeo from dealing in or disposing of his assets worldwide. The assets include his Porsche and his collection of high-end watches – which, in addition to those mentioned before, also include one Hublot, one Panerai, several IWCs, and one Porsche design watch – which are collectively estimated to be worth $621,000, and other brands of watches estimated to be worth $300,000. Other assets include his Floravale condominium, the cash in his various bank accounts, his shares, and his fish.

Mr Yeo is, however, allowed to spend $1,000 a week on his ordinary living expenses and a ‘reasonable sum’ on legal advice and representation. The injunction states that the unencumbered value of the assets that remain here must be at least $2.09 million.

News of this suit comes just days after it was revealed that Koh Seah Wee, a former senior executive of the Singapore Land Authority – who conspired to steal some $12 million from the statutory board – is suspected to also have stolen from another place of work, the Intellectual Property of Singapore, and to have spent part of that money on a $1.6 million Lamborghini.

Press ‘Play’

What’s New

• M1 has made its long‐awaited foray into the world of Pay TV with the launch of 1box. While the initial service is fairly modest, we believe this is just the tip of the iceberg with a bigger splash coming by 1H11 when content cross‐carriage is implemented. We expect M1 to be a beneficiary of the immense potential of the blurring of lines between TV and the Internet, particularly in the area of interactive IPTV.

Our View

• M1’s 1box is currently available as a value‐added service only for its fixed broadband subscribers. The four types of content – education, movies, games and music – are priced at $1.07‐5.35 per month or per view, on top of the monthly set‐top box rental of $5 (for broadband plans below 50Mbps) or $12 (for broadband plans above 50Mbps).

• While the 1box offerings are still modest, we expect more significant benefits for M1 when content cross‐carriage kicks in, and particularly when the proposed common featured set‐top box is ready. This settop box, developed by the Infocomm Development Authority of Singapore (IDA) and the Media Development Authority (MDA) under Project NIMS (Next Generation Interactive Multimedia Applications and Services), will replace the current multi‐box system and make it easier for subscribers to switch between service providers.

• The cost of entry into Pay TV is expected to be low for M1, as it will have no heavyweight content and its content will only be distributed to users upon subscription and on‐demand. Also, there will be no additional capex as there is no need for network investment. This is consistent with M1’s content‐light, low‐cost strategy.

Action & Recommendation

We maintain our BUY rating and target price of $2.63 (15x FY10F EPS). Dividend forecasts remain intact as capex assumptions are unchanged.