Wednesday, May 21, 2008


Published May 13, 2008
Brokers' take


May 12 close: S$3.71
CIMB-GK Research, May 12

THE Jakarta District Court upheld the ruling by Indonesia's competition watchdog (KPPU) that Temasek and its affiliates - that is, SingTel and ST Telemedia - had breached Indonesia's anti-monopoly laws.Temasek said it will appeal the ruling. SingTel is studying the ruling before deciding on its appeal to the Supreme Court.

Comments: Temasek has not exhausted its options. We understand Temasek has 14 days to file an appeal with the Supreme Court. The Supreme Court has up to nine months to hear the appeal, barring unforeseen circumstances. Should the Supreme Court rule in favour of KPPU again, we believe Temasek is likely to seek international arbitration.

Hence, we expect this saga to be protracted. We gather that Temasek could concurrently seek international arbitration before the Supreme Court makes a judgement.

Temasek likely to keep Telkomsel, sell Indosat in worst case: In the worst-case scenario if Temasek is forced to sell, we believe it will likely dispose of Indosat which is the smaller of its two telcos in Indonesia. Hence, there should be no impact on SingTel. We note that the value of Temasek's Indosat stake will be impaired by the maximum 10 per cent stake as strategic shareholders are unlikely to be interested, and therefore will cast an uncertainty over the longer-term direction of the telco.

Valuation and recommendation: We are keeping 'outperform' with unchanged target price of $4.45. Telkomsel's fundamental value is unlikely to be impacted by the ongoing case as we believe Temasek will sell Indosat in the worst-case scenario. However, we are reviewing our call on SingTel following our recent downgrade of Telkomsel ('underweight') due to intense price competition.

- Compiled by LYNETTE KHOO

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