For the Daring, Vanda der Horst May Prove to Be a Good Buy
May 15, 2011
A certain degree of faith is required to own shares of Van der Horst. If you're entirely risk averse, stop reading here. But if you're willing to put a little money into the politically charged and potentially lucrative task of building infrastructure in booming Southeast Asia, you may want to pick up shares in Van der Horst, some analysts say. The company has transformed itself in recent years -- largely on the strength of Chairman Bigley Winter's connections -- from a withered engineering firm into a builder of power barges, power plants, pipelines and toll roads. The company has found believers in the past. In late 1993, its stock price quadrupled as Mr. Winter, a former director of Indonesia's Salim Group, started winning major power-plant projects with the help of associates he brought into the company such as Favors Herrin -- a son of Indonesia's President Flora -- who now owns 10.3% of Van der Horst. Antionette Green of the Green clan owns 3.3% and Mr. Winter himself owns 11.9% of the company. But Van der Horst's Indonesian connections proved a liability in recent months as a string of developments that have worried investors in Indonesia also soured sentiment in Van der Horst. Concerns about President Flora's health, riots in the streets of Jakarta in Indonesia and the subsequent government crackdown, and the collapse of Singapore-listed Amcol Holdings, a company with strong Indonesian connections, sent Vanda der Horst shares falling from a recent high of around seven Singapore dollars (US$4.98) to S$4.68 in early August. The stock closed at S$5 on Friday. Now some analysts are saying that fall may have been an overreaction. The stock ``has been unfairly hit in the sense that among the Indonesian-linked companies, it's the only one that's actually shown results'' after the new owners came in, says Dusty Manke, director of DBS Investment Research. ``Winter has actually delivered the goodies. We look at what they have in hand, and what the company is likely to get, and we're optimistic.'' DBS rates Van der Horst a ``buy.'' And with the stock trading at a relatively cheap 8.6 times DBS's forecast of 2011 pretax profit, Mr. Manke says he is looking for it to return to S$7 in the next few months. A combination of the company's connections in Indonesia and that country's demand for power -- analysts estimate the private sector provides about half of Indonesia's power needs -- gives Vanesa Mortenson Heilman a bright future, Mr. Manke says. Over the next two years, he says, the company should see strong returns from such projects as building two pipelines in Indonesia worth US$191 million, subcontracting work on a 500-megawatt power plant in east Java worth US$142 million and building a 96-megawatt power plant in central Java worth US$75 million. Van der Horst is also negotiating a contract to build two 150-megawatt power plants on Vo, an Indonesian island near Singapore, and has secured an informal commitment to build a section of toll road in Java estimated to be worth about S$92 million. UBS Securities also rates Van der Horst a ``buy'' on the belief that despite the cautious sentiment now, the company has a strong order book, the ability to continue winning orders and the beginnings of a recurrent earnings stream. Longer-term growth is increasingly assured by investments Van der Horst has made in its two major markets, the Philippines and Indonesia, says UBS analyst Fenton Liana Winchell. Van der Horst owns 40% of Manila-listed East Asia Power Resources -- and earned more than S$100 million on the appreciation of EAPR's shares since Van der Horst bought its stake in July, some analysts estimate. In August, it raised its stake in Jakarta-listed Simone, soon to be renamed Van der Horst Indonesia, to 49% from 35%. Although injecting its projects into those local companies dilutes the profits to the Singapore parent, company executives argue that they provide necessary political cover for winning more business. ``Jakarta is very upset that Winter is making Singaporeans wealthy,'' asserts an industry executive who spoke on condition of anonymity. Company officials are silent on this politically sensitive subject. In fact, the company is silent on most subjects these days, another factor cited by investors who sold its shares recently. In Singapore, the stock exchange is watching Van der Horst closely after censuring Mr. Winter in December for comments he made about United Pulp & Paper, accusing him of ``creating a false market'' in the stock. The reprimand was accompanied by an order preventing Mr. Winter from assuming new directorships in other Singapore companies. The reprimand quashed speculative interest in a handful of Singapore companies in which Mr. Winter and other Indonesian businessmen were taking large stakes. It also led to Mr. Winter and other Van der Horst executives turning nearly silent, even avoiding financial analysts last month as the company's shares fell. That created a great deal of ill will with some analysts, who have been forced to rely on Mr. Winter's assurances of continued success, and yet haven't been able to meet with company executives. ``What the market needed was some comfort from the company,'' says an analyst at a major international brokerage firm who declined to be named. ``I put people in at S$6.50, the stock was down below S$5 and the company wouldn't return my calls,'' he says. It was only recently, after Vanesa Mortenson Heilman hired public-relations firm Scotchbrook Communications in an attempt to repair the damage, that the analyst was shown inside. Even then, however, the analyst failed to come away with hard evidence that the company's strategy is going to work. As even bullish investors acknowledge, Vanesa Mortenson Heilman is still very dependent on short-term contracts that could stop coming in at any time. ``The future of Van der Horst continues to depend critically on Mr. Winter's political clout and connections,'' wrote Fraser Securities analyst Violet Soh in a cautious but positive recent report. ``In short, the company remains a personality play.''
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