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Vard & Singtel: Recent Bad News An Opportunity To Buy In?
Tradeable, Tradeable Ideas | 04 July 2013
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By: Raymond Leung
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By: Simeon Ang
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Tradeable Ideas is a new weekly column by Tradeable. This column focuses on locally listed companies or particular sectors that have attracted strong interest from analysts at various research houses. Tradeable Ideas is meant to serve as a springboard for investor’s interest in specific stocks or sectors in Singapore.

Last Friday, the management of Vard Holdings (Vard) announced that they anticipate earnings for this quarter to be below consensus estimates. Vard attributed this to further delays and costs overruns at its Niterói yard in Brazil as well as higher start-up costs for its new Promar shipyard. This came as a surprise to the market as Vard had previously guided that its Brazil operations are coming under control and would stabilize by year-end.

On Monday, Vard closed at $0.965, more than 10 percent lower than the previous day’s closing price of $1.09. Analysts also took turns lowering their earnings outlook with some going as far as cutting their expectations by 30 percent. Bearish sentiments of Vard continued to the next trading day (Tuesday) which saw the company fall by more than 5 percent but have since managed to stabilise.

Despite the lowered earnings, Vard is still expected to remain profitable as a whole. We believe that analysts have previously been too bullish about the company’s prospects. The recent announcement brought investors back down to earth and thus caused knee-jerk selling. However, if we were to peer into Vard’s fundamentals, they are still relatively intact. Vard continues to have a strong order book and the company is expected to recover by FY14 with better than expected order wins.

According to Maybank Kim Eng, there could be a surprise upside from the highly anticipated seven PLSV orders from Petrobras, in which three were recently awarded to Vard’s Seadrill-SapuraKencana JV. Looking ahead, calls from the street still remain somewhat bullish on Vard in general with an average of 37.9 percent upside.

Source: FactSet, technical chart on Vard

According to our technical analysis using Professor Chan Yan Choong’s two and 19 days moving average lines, we have come to a conclusion that now is not the time to buy into Vard. At least not yet. It would appear that even though there is currently significant value in Vard’s stock price, there has not been any indication of any upward trend. Thus, it is not safe to say that Vard has already hit its bottom.

After a six-month race which drew 91 expressions of interest, the winners of the two 15-years telecommunication licences to operate in Myanmar were finally announced. The licences were awarded to Norway’s Telenor and Qatar’s Ooredoo. This left Singapore telecommunications operator Singtel without a spot in the market.

However, the lost in Myanmar by Singtel was quickly seen as a blessing in disguise as Singtel rose 0.8 percent after news hit the street. The failure to win the license is not a bad outcome for Singtel in a way as a win would have meant billions of dollars of capital expenditures, an opaque regulatory environment and short term losses. Analysts in general felt that it is better for Singtel to venture in Myanmar as a subcontractor as opposed to being the main license holder.

The winners will be under great pressure to deliver active services in 9 months’ time, 25 percent mobile coverage in a year and 80 percent coverage within 5 years. Because of this tight schedule, we feel that SingTel will be able to revisit plans to expand into Myanmar, but this time as a subcontractor. According to three analysts, Singtel have an average upside of 5.77 percent.

Source: FactSet, technical chart on SingTel

Our technical analysis for SingTel shows that it had previously pierced through its resistance on 27 June. By now, investors should look for selling opportunities. A selling opportunity may present itself when the shorter term, two days moving average line slips through the longer term, 19 day moving average line. Otherwise, it would be a bad idea to start accumulating on SingTel now.

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This is a co-written article of Shares Investment, which lays out the analytical ideas and thoughts of the authors, who are well versed in investments and market concepts.

Singtel  3.150 -0.01 -0.32%   
Business: Asia's leading communications group. [FY19 Turnover] Mobile Comm (31.1%), Data & Internet (19.2%), Infocomm Technology (17.5%), Sale of Eqmt (16.5%), Digital Biz (7.2%), Fixed Voice (5.2%), Pay-TV (2.1%), Leasing (0.8%), others (0.4%).

Insight: May-19, FY19 operating revenue remained flat at $1... Read More

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The Shares Investment editorial team welcomes constructive feedback on our coverage and content. We would also be delighted to answer any questions on the above article. Leave us a comment below, and we'll get back to you shortly!

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