[h=2]Lacklustre performance expected for Temasek[/h]
July 7th, 2014 |
Author: Editorial
The media reported today (7 Jul) that Temasek Holdings
would likely be reporting a lower performance in terms of its returns for last
financial year.
This is due to the lacklustre performance by Singapore stocks and Chinese
bank counters over the past year. Presently, Chinese banks and Singapore stocks
make up a major component of Temasek’s portfolio.
According to CIMB Research, Temasek may have increased the value of its
holdings by about 4 percent to a record $224 billion in the year to March
31.
=> From inflow of CPeeF?
China Construction Bank and Industrial & Commercial Bank of China are
among the top four bank stocks in Temasek’s portfolio. The share prices of
Chinese banks declined as China’s economy heads for the weakest expansion in 24
years amid rising debt and a clampdown on shadow banking.
China Construction Bank lost 13% in Singapore dollar terms, while Industrial
& Commercial Bank of China fell 11%. Standard Chartered lost 18%. Temasek’s
stake in China Construction Bank alone was valued at $17.8 billion as of March
31 and comprises 8% of its total portfolio.
Analysts estimated that financial firms made up 31% of Temasek’s total
holdings as of March 2013. “They (Temasek) built up very big stakes in the
Chinese banks, and it’s now going to be very difficult to divest that without
making a loss,” one analyst said.
Also, Singapore’s Straits Times Index (FSSTI) lost 3.6% in the 12 months
through March. Temasek is the biggest shareholder in about a third of the 30
members in the index. Its biggest listed holding by value, Singapore
Telecommunications Ltd, rose 1.7%. DBS gained 1.1%. SIA lost 3.7% during the
period.
China accounts for 23% of Temasek’s portfolio, second only to Singapore’s 30%
in terms of country mix, according to its annual report last year.
According to Temasek’s website [Link],
its Total Shareholder Return (TSR), which measures compounded annual returns,
including dividends but not capital injections, for the financial year ended 31
March 2013 (in Singapore dollar terms):
Average risk-adjusted hurdle rates for Temasek have been around 8-9% through
the years. Annualised core inflation in Singapore has been about 2.0% over the
past 10 years, its website said.
However, Temasek had a negative return of 30% in the year ended March
2009.
According to the website of the Institutional Investor’s Sovereign Wealth
Center, Temasek is the world’s 10th-biggest state investor. GIC ranks 5th. The
world’s biggest is Norway’s Government Pension Fund Global, with an estimated
US$869 billion of assets under management.
Olam International
In March this year, Temasek offered to take over Olam International valued at
$5.3 billion at the time. When the offer closed, Temasek and its related parties
own or control 80% of Olam.
However, prior to the takeover announcement, Olam’s share price had run up
considerably since the first week of February 2014, when the stock market
re-opened after a short break for Chinese New Year. From a low of $1.425 (4
Feb), Olam went up almost in a straight line to $2 (12 Mar), taking a 2-week
breather (21 Feb – 4 Mar) only at the $1.70 – $1.80 level. For the 3 months
prior to its run, Olam actually saw a deterioration in share price from $1.58 to
$1.42.
Olam ran up despite less than stellar results. On 14 February 2014, Olam
released their results for the second quarter and half year ended 31 December
2013 [Link]
which showed that profit dropped 12.5%.
Trading volume jumped along with the jump in share price. For the 3 months
prior to Olam’s price rise, average daily volume was a mere 3 million shares.
When Olam’s price went up, daily volume rose to as high as 18.29 million shares
(11 Mar) and averaged 9 million shares, 3 times its average volume of 3 million
shares for the previous 3 months.
There has been a general rise in farm commodity prices recently. The S&P
GSCI Agricultural Index has advanced 13% this year, with price surges in coffee
and cocoa. But even given this scenario, the outsized gains enjoyed by Olam on
the back of hefty volume cannot be explained.
At 6.52 a.m. on 14 March 2014, Olam announced through SGX that it was the
subject of a takeover bid by Temasek Holdings subsidiary Breedens Investments at
$2.23 per share. It is very disquieting that Olam only chose to request a
trading halt as it was putting the finishing touches to the bid, and not earlier
when the price ran up on heavy volume for over a month.
Even more disquietingly, SGX never once queried Olam on its trading activity.
In other words, SGX never once publicly asked Olam if it knew of any reason(s)
for the surges in price and volume, which SGX is supposed to do as a responsible
regulator.
Facing mounting criticisms and market talk in social media, SGX finally
issued the following “lacklustre” statement on 16 March, titled “SGX clarifies
Olam International issue” [Link]:
Market commentaries noted that in the six weeks from 3 Feb 2014, Olam’s share
price increased 34.8%, higher than those of its peers such as Wilmar
International which rose 11.2% and Noble Group which rose 12.6% over the same
period. During the period, the Straits Times Index rose 2.3%.
Such comparisons should be conducted with care as the financials and outlook
of individual companies may differ even if they are within the same industry.
While we do not prescribe a view of value or pricing of stocks, we note that of
the 13 analysts who issued reports on Olam in February 2014, seven raised their
target price by an average of 10.4% with the highest increase being 21.4%.
The 13 analysts had target prices of $1.50 to $2.00 for Olam. In the case of
Wilmar, eight analysts raised their target price by an average of 2.6% with the
highest increase being 4.8%. For Noble, one analyst raised the target price in
February. Trading in these three stocks were within the price ranges set out in
the research reports, suggesting they were trading within the general market
view of these stocks with Olam shares reflecting a more positive market view.
would likely be reporting a lower performance in terms of its returns for last
financial year.
This is due to the lacklustre performance by Singapore stocks and Chinese
bank counters over the past year. Presently, Chinese banks and Singapore stocks
make up a major component of Temasek’s portfolio.
According to CIMB Research, Temasek may have increased the value of its
holdings by about 4 percent to a record $224 billion in the year to March
31.
=> From inflow of CPeeF?
China Construction Bank and Industrial & Commercial Bank of China are
among the top four bank stocks in Temasek’s portfolio. The share prices of
Chinese banks declined as China’s economy heads for the weakest expansion in 24
years amid rising debt and a clampdown on shadow banking.
China Construction Bank lost 13% in Singapore dollar terms, while Industrial
& Commercial Bank of China fell 11%. Standard Chartered lost 18%. Temasek’s
stake in China Construction Bank alone was valued at $17.8 billion as of March
31 and comprises 8% of its total portfolio.
Analysts estimated that financial firms made up 31% of Temasek’s total
holdings as of March 2013. “They (Temasek) built up very big stakes in the
Chinese banks, and it’s now going to be very difficult to divest that without
making a loss,” one analyst said.
Also, Singapore’s Straits Times Index (FSSTI) lost 3.6% in the 12 months
through March. Temasek is the biggest shareholder in about a third of the 30
members in the index. Its biggest listed holding by value, Singapore
Telecommunications Ltd, rose 1.7%. DBS gained 1.1%. SIA lost 3.7% during the
period.
China accounts for 23% of Temasek’s portfolio, second only to Singapore’s 30%
in terms of country mix, according to its annual report last year.
According to Temasek’s website [Link],
its Total Shareholder Return (TSR), which measures compounded annual returns,
including dividends but not capital injections, for the financial year ended 31
March 2013 (in Singapore dollar terms):
- 1-year TSR was 8.86%
- 3-year TSR was 4.94%.
- 10-year TSR was 13%
- 20-year TSR was 14%
- 30-year TSR was 15%
- since inception in 1974, TSR was 16%
Average risk-adjusted hurdle rates for Temasek have been around 8-9% through
the years. Annualised core inflation in Singapore has been about 2.0% over the
past 10 years, its website said.
However, Temasek had a negative return of 30% in the year ended March
2009.
According to the website of the Institutional Investor’s Sovereign Wealth
Center, Temasek is the world’s 10th-biggest state investor. GIC ranks 5th. The
world’s biggest is Norway’s Government Pension Fund Global, with an estimated
US$869 billion of assets under management.
Olam International
In March this year, Temasek offered to take over Olam International valued at
$5.3 billion at the time. When the offer closed, Temasek and its related parties
own or control 80% of Olam.
However, prior to the takeover announcement, Olam’s share price had run up
considerably since the first week of February 2014, when the stock market
re-opened after a short break for Chinese New Year. From a low of $1.425 (4
Feb), Olam went up almost in a straight line to $2 (12 Mar), taking a 2-week
breather (21 Feb – 4 Mar) only at the $1.70 – $1.80 level. For the 3 months
prior to its run, Olam actually saw a deterioration in share price from $1.58 to
$1.42.
Olam ran up despite less than stellar results. On 14 February 2014, Olam
released their results for the second quarter and half year ended 31 December
2013 [Link]
which showed that profit dropped 12.5%.
Trading volume jumped along with the jump in share price. For the 3 months
prior to Olam’s price rise, average daily volume was a mere 3 million shares.
When Olam’s price went up, daily volume rose to as high as 18.29 million shares
(11 Mar) and averaged 9 million shares, 3 times its average volume of 3 million
shares for the previous 3 months.
There has been a general rise in farm commodity prices recently. The S&P
GSCI Agricultural Index has advanced 13% this year, with price surges in coffee
and cocoa. But even given this scenario, the outsized gains enjoyed by Olam on
the back of hefty volume cannot be explained.
At 6.52 a.m. on 14 March 2014, Olam announced through SGX that it was the
subject of a takeover bid by Temasek Holdings subsidiary Breedens Investments at
$2.23 per share. It is very disquieting that Olam only chose to request a
trading halt as it was putting the finishing touches to the bid, and not earlier
when the price ran up on heavy volume for over a month.
Even more disquietingly, SGX never once queried Olam on its trading activity.
In other words, SGX never once publicly asked Olam if it knew of any reason(s)
for the surges in price and volume, which SGX is supposed to do as a responsible
regulator.
Facing mounting criticisms and market talk in social media, SGX finally
issued the following “lacklustre” statement on 16 March, titled “SGX clarifies
Olam International issue” [Link]:
Market commentaries noted that in the six weeks from 3 Feb 2014, Olam’s share
price increased 34.8%, higher than those of its peers such as Wilmar
International which rose 11.2% and Noble Group which rose 12.6% over the same
period. During the period, the Straits Times Index rose 2.3%.
Such comparisons should be conducted with care as the financials and outlook
of individual companies may differ even if they are within the same industry.
While we do not prescribe a view of value or pricing of stocks, we note that of
the 13 analysts who issued reports on Olam in February 2014, seven raised their
target price by an average of 10.4% with the highest increase being 21.4%.
The 13 analysts had target prices of $1.50 to $2.00 for Olam. In the case of
Wilmar, eight analysts raised their target price by an average of 2.6% with the
highest increase being 4.8%. For Noble, one analyst raised the target price in
February. Trading in these three stocks were within the price ranges set out in
the research reports, suggesting they were trading within the general market
view of these stocks with Olam shares reflecting a more positive market view.
