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Views from the trenches: Listcos given unfair valuations

The Edge Singapore
The Edge Singapore  • 7 min read
Views from the trenches: Listcos given unfair valuations
(From left): Singtel's Arthur Lang; Thakral Corp's Inderbethal Singh Thakral; UMS Holding's Stanley Loh and Frencken Group's Dennis Au
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Veterans like Lim & Tan remisier S Nallakaruppan recall the palpable excitement in 1993 when citizens were offered discounted IPO shares of Singapore Telecommunications Z74 -

(Singtel) using their CPF money.

That move sparked an epic period of market excitement, making Singtel the most widely held stock in Singapore, with around 330,000 shareholders today. Singtel was also the most valuable listed company for years until it was surpassed by the three banks.

Following its FY2024 earnings, trading volume has increased and the share price has risen as more investors recognise the progress made. However, Singtel’s share price now is still some way to go from its previous peak of more than $4 back in 2015.

Analysts have pointed out that Singtel’s share price at current levels does not properly accord the right valuation. Its stake in associate company Bharti Airtel is comparable to Singtel’s own market cap. This means its other stakes in Indonesia, Thailand, the Philippines, plus its domestic Singapore and Australia businesses, are ignored.

see also: How to jump-start the market

Unfair valuations
There are downsides if the share price of a Singapore-listed company is unfairly stuck with low valuations. For one, this makes it difficult for companies with growth ambitions to use their shares as currency or issue capital to acquire other companies, says Singtel group CFO Arthur Lang: “It is very important to do that now because there are tremendous opportunities in Southeast Asia. Singapore and Southeast Asia are very attractive destinations and companies should be able to capitalise on this,” he adds.

See also: S'poreans say air-con, holidays, dining out are essentials: SMU, IPS study

Besides growing the business and making higher profits, companies — even one as big as Singtel — need to need to market their stocks to investors too. Lang recalls a recent meeting with the chief investment officer of a family office, who did not realise Singtel’s domestic business makes up a small proportion of its entire portfolio that spans vast fast-growing emerging markets. “To this CIO, Singtel becomes a safer way to play the growth in India, Indonesia and Thailand given the currency weakness or fluctuation faced by many of these companies.

Here, the Singdollar has been strengthening. That means a growth of 3%–5% just by investing in Singtel and they are in the money,” says Lang.

“Hence, we should think about providing more investor education and marketing not just to institutional investors but also by adopting a coordinated outreach to retail investors to further encourage them to invest their savings in stocks that generate a healthy dividend or return,” he adds.

See also: MAS imposes civil penalty action of $70,000 against Tay Joo Heng for insider trading

Similar comments can be heard at Thakral Corp, which was listed in 1995, just two years after Singtel. Over the years, under the leadership of the Thakral family, the company has evolved from a China-focused distributor of consumer goods to an investor with a portfolio of hotels and offices in Japan. It is also generating more growth from its niche but growing market of retirement resorts for the over-50s in Australia.

With a pipeline of about 6,500 homes spread over 11 resorts across Australia, CEO Inderbethal Singh Thakral believes Thakral’s share price does not represent good value for his company. Its share price has hovered at around 60 cents since early 2023, versus a net asset value of $1.17 as at Dec 31, 2023. “Our market cap is not reflecting any of these numbers and future growth potential, which is quite sad,” says Bethal, who personally feels underwhelmed. “There are structural issues with the Singapore market,” he adds.

In his view, listed companies are not receiving enough support. As a result, companies like Thakral must actively seek media coverage.

Thakral also calls Singapore home and despite Bethal’s displeasure with the market, he does not seem to be going anywhere. “Singapore is such a beautiful place. I don’t want to leave this place. We will stay here for our own reasons. This is the best place to be but the market doesn’t care enough,” says Bethal.
The experience of semiconductor players
While the Singapore Exchange S68 -

(SGX) may not be attracting its fair share of IPOs, proponents point out that the bourse is still serving the market well as a platform for secondary fundraising. On Jan 29, UMS Holdings 558 - , which had its IPO back in 2001, raised $51.6 million via a placement of 40 million new shares at $1.29 each. The placement price was a discount of nearly 7% off the market price when it was made, which attracted many subscribers and enlarged its share base by around 6%. The placement, which was handled by CGS International, was not underwritten but ended up 2.55 times covered. UMS executive director Stanley Loh recalls how, in the earlier years, the manufacturer serving the semiconductor capital equipment sector, struggled to attract coverage and even had to pay for its first research report. “In recent years, it has not been bad. We’ve done well so we’ve gotten more coverage,” says Loh.

Years ago, UMS attempted to have a dual listing in Korea to tap into the semiconductor ecosystem there, says Loh. Unfortunately, a non-Korean company ahead of UMS in the application process was caught for fraud. “The Koreans became afraid and asked us 1,000 questions. So, in the end, we didn’t go. From time to time, we’ve thought about Hong Kong, but we don’t have any Chinese operations, so no,” says Loh.

Since the start of the year, several Malaysia-listed companies similarly plugged into the global semiconductor chain, have seen their stocks rise as investors accorded valuations of between 20 to 50 times earnings based on the forecast of earnings growth in an impending upcycle. UMS, which runs an extensive facility in Penang, where many of its Malaysia-listed counterparts are based, fetches earnings multiples in the mid-teens at best.

When asked, Loh says he has no idea what should be done to solve this valuation issue, given how fund managers are willing to pay a heftier premium for certain companies listed elsewhere even though he claims UMS is better run. Still, Loh is glad the recent placement was fully taken up. “At least it is better than nothing,” he says.

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Dennis Au, president and executive director of Frencken Group E28 -

, says he has been asked “many times” why he remains listed in Singapore when the company isn’t getting the “right” valuation here. “If you were in Malaysia, with your business, your revenue and your size, you would be the market darling, they tell us,” says Au, whose company’s corporate headquarters is in Penang. “But we’re not there.”

Au says his customers, including key Dutch and other European MNCs, are “very happy” that Frencken is listed in Singapore, which is perceived to have tougher regulatory requirements versus other places. He singles out SGX’s recent ESG-related (environmental, social and governance) requirements as a plus. “I just had a customer who came to us to say they would like to commit. They look at us very favourably because we have already gone down the ESG journey. They see us as a good model for them to include in their ESG commitment,” adds Au. “Would we be the same if we were in other markets? Probably not.” Still, he is not ruling out a secondary listing elsewhere. “We are comfortable where we are but we also never say no to anything.”

reporting for all stories by Nicole Lim, Goola Warden, Felicia Tan, Douglas Toh, Jovi Ho, Samantha Chiew, Khairani Affifi Noordin and Chan Chao Peh 


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