Update on Singtel 10 May 2008

Singtel has had some news this week that caused the stock to fall.

On 5 May 2008, India’s largest cellular service provider Bharti Airtel and South Africa’s telecom market leader MTN Group confirmed talks over a possible deal. Ending weeks of speculation, Johannesburg-based $9.68 billion MTN Group said, “The discussions are exploratory in nature and may or may not lead to any transaction.

SingTel owns 30.5 percent of Bharti Airtel.

The issue however is that the funding for this deal will have to be worked out and it does appear that there is division between market analysts as to whether this is positive or negative for Bharti Airtel and Singtel.

Perhaps the most balanced report that I have read thus far with some form of detail rather than pure speculation on how the financing will be done is that Bharti had tabled a bid for MTN at 165 rand per share and had secured $12 billion from banks to finance the deal, which would make Bharti a top player in emerging markets telecoms. The FT said Goldman Sachs and Standard Chartered had each pledged to underwrite $6 billion of the amount Bharti needed to purchase the controlling stake, citing people close to the situation. Bharti would fund the balance by issuing equity.

From the looks of it this deal is going through and it will be positive for Bharti.

The other piece of news that caused Singtel stock to fall is the Indonesian district court ruling on the anti-monopoly issue. This is more of a political issue and hopefully it will be resolved. In any case the court gave Temasek the option of either selling its stake in one of the Indonesian operators or reduce its holdings in both companies by half within 12 months.

Temasek owns 56% of SingTel, which has a 35% stake in Telkomsel. And Singapore Technologies Telemedia, which Temasek fully owns, controls 75% of Asia Mobile Holdings (AMH). AMH in turn owns 40% of Indosat.

Hence if Temasek was really forced to sell, and they chose to divest the ST Telemedia stake instead of the Singtel one then Singtel stock will be unaffected or minimally affected directly. However if Temasek were to choose to halve their holding in both companies then that spells trouble for Singtel.

On the plus side, Singtel is announcing results on Wednesday 14 May 2008. And we do expect dividend. In fact as bearish as Citigroup analysts are lately, they still made these comments :

"Why Hold and Not Sell? (1) 4.0% yield coming up – we see 15.6cents as total
DPS with FY08 results (May 14th); (2) Management credibility affords safe
haven status; (3) Limited downside – our bear-to-bull range is S$3.51- S$4.20."

In terms of the technicals,

Singtel has been trading in a tight channel from around $3.60 - $4.05 since Oct 2007 despite the big drop in the broader market. A show of strength in this "defensive" stock.

Looking at the current price of $3.71 (last close) and intraday low of $3.65 we are close to the $3.60 support level. RSI is in the oversold region and looking at the historical data, Singtel seldom spends too long in the oversold region. With results and likely dividend being announced, the share price is likely to be supported once again.

However should Singtel choose not to give out dividend and instead announce cash injection to be a joint party with Bharti to buy South Africa's MTN. Then the stock might drop below the $3.50 $3.60 support level.

Review of trades this week (5-9 May 2008)

1) COSCO Entry price	3.11
30 day ATR	0.22
1.5X ATR30	0.33
Cut loss stop on 1.5ATR30	2.78
Recommended cut loss	0.355
Loss on recommended cut loss	-701.7552702
Target price	3.92
Profit on target price	1570.163065
Reward/risk ratio	2.237479548

COSCO hit my trailing stop of 3.29.

Sold COSCO 3.29
Profit = $300

2) First Resources (bought 17 April 2008))

Long
Entry price 1.03
30 day ATR 0.09
1.5X ATR30 0.135
Cut loss stop on 1.5ATR30 0.895
Recommended cut loss 0.885
Loss on recommended cut loss -1517.878899

Target price 1.38
Profit on target price 3414.575381

Reward/risk ratio 2.249570361

First resources as expected rose after oil prices made their rally. However I was a bit uneasy with this rise for a few reasons.

1) Oil prices have risen way too fast and too steeply ( a correction looks to be coming)
2) USD$ was supposed to drop after the Fed rate cut and hence lead to oil prices going up. USD$ has actually strengthened while oil rose. This leads me to believe the high oil prices are due to traders' actions and speculation on certain news driving prices beyond their true demand/supply chain value.
3) First Resources increase was not due to any share buy back. Which leads me to admit I was wrong in my assumption that First Resources wanted to increase their share price. Looks more likely they will be there to lend support to the stock price counter to the downside rather than supporting it on the upside.
4) Global focus is now on oil prices, food prices and inflation which will soon be tackled.

Hence I decided to set a profit protection level of 5.9% when the rally in First Resources reached above those levels. As a result I sold at 1.10 when they retreated slightly. On hindsight I could have added another 5% return if I had just waited for another hour for the crude palm oil futures to trade a bit more.

In any case I'm happy with the 5.9% return.

Sold on 8th May 2008 at 1.10
Profit $613

2) Singtel (Bought on 9th May 2008)

Long
Entry price	3.66
30 day ATR	0.09
1.5X ATR30	0.135
Cut loss stop on 1.5ATR30	3.525
Recommended cut loss	3.57
Loss on recommended cut loss	-231.2547714
Target price	3.89
Profit on target price	406.476691
Reward/risk ratio	1.757700775

Knowing that the market might be taking a downturn after hitting resistance levels, but not totally sure, I was looking at going into the defensive stock options.

Namely, Singtel, SPH and Starhub. These 3 stocks have been trading in distinct channels even during the Oct 2007 to March 2008 drop in the broader markets. Use of RSI to trade along with the levels within the channels looked to be a possible trading idea.

An analysis of the 3 stocks in terms of PE ratios and P/NAV ratio showed the following

SPH :
PER = 16.7
P/NAV = 3.48
PER x P/NAV = 58

Starhub:
PER = 16
P/NAV = 4
PER x P/NAV = 64

Singtel:
PER = 15.3
P/NAV = 2.875
PER x P/NAV = 44

Do note that Singtel's figures are not based on latest figures as they will be announcing results on 14 May 2008. However between the 3 stocks it looks like Singtel's valuations are still the most attractive.

Chart wise the support levels for Starhub were at 2.96 and 2.75, SPH at around 4.25 and for Singtel 3.60. Hence the price levels showed that Singtel was much closer to the support level. All 3 were in oversold RSI region.

Hence decision was made to queue for Singtel at 3.66 based on the ATR30 and market depth support levels.

I managed to get my limit order filled at 3.66 around 4pm.

However news about the Indonesian district court ruling plus a drop on wall street will cause the stock to fall further on Monday. It is possible that I may have to cut losses. A decision will have to be made whether to do that versus holding the defensive stock. I will have to research further on this over the weekend.

Bought Singtel 3.66
Last done price 3.71
Unrealised profit = $40


Total to date trade summary :

Up to date realized profit/loss = $2242 + $300 + $613 +$280 (dividend for COSCO) = $3435

Unrealized profit/loss = $40

Update on Singtel 29 March 2008

Singtel is still trading in its channel. Watch for any breaks above 4.05. I would probably only buy on a break of 4.22 if the market has indeed turned bull across worlwide indices!

In any case RSI is in overbought range for this counter. One trading idea would be to short when it hits around $4 and market indices show weakness and resumption of bear trends. But then again I just remembered one of my trading rules is NOT to short blue chips.

Singtel

Singtel is sideways trading channel between $3.60 - $4.00. RSI is currently overbought. Prices still above 200 day moving average. Singtel is very resilient.