SembCorp Marine Ltd - Gentlemen, start your engines (CIMB)

OUTPERFORM Maintained

S$5.20 Target: S$6.80

Mkt.Cap: S$10,842m/US$8,905m

S$600m contract from PTTEP

Sembmarine’s order drought is finally over, following a S$600m contract from PTTEP International, Yangon. The contract is for the construction and hook-up/commissioning of an integrated processing and living-quarters platform. This could mark the end of the order drought for Sembmarine after a quiet 2Q11 as its order wins climb to S$2.1bn (42% of our S$5bn target) with unexercised options of about S$2bn. Enquiries and the order pipeline for production platforms are strong including a potential US$1bn contract from PTTEP where SMOE is a frontrunner together with joint bidder, Saipem. Other near-term contracts could include two semi-sub orders from Songa for Statoil (estimated at US$1bn), which could be awarded to Sembmarine by end-2011. No change to our earnings estimates or target price of S$6.80, based on 18x CY12 P/E, at the upper end of its previous trading cycle. Stock catalysts are still expected from stronger-than-expected new orders , margins and upside from Petrobras wins.

The news

SMM has secured a S$600m contract for the construction and hookup/commissioning of an integrated processing and living-quarters platform for PTTEP International, Yangon. Work will begin in Oct 11 with completion in Nov 13. The new platform features a 15,000-metric-tonne topside integrated with a 128-men livingquarters module to be installed at a water depth of 150 metres in Block M9, Andaman Sea, offshore Myanmar.

Comments

Catching up. This could mark the end of the order drought for SMM after a quiet 2Q11 with the last rig contract (US$428m) secured in March from Noble. YTD orders have reached S$2.1bn (42% of our S$5bn target) with options for eight jack-up rigs worth about S$2bn.

There are more. Enquiries for platforms remain high in the market and the current platform contract is in addition to a US$1bn topside PTTEP contract which SMM is still in the running for with Saipem (refer to our report dated 3 May 11). Statoil has also indicated that it is likely to contract up to six Cat-D semi-subs in the next 12 months after ordering the first four rigs from Songa Offshore recently (to be built by Daewoo Shipbuilding at US$565m per rig). We believe the remaining two (estimated at US$1bn in total) could be awarded to Sembmarine by end-2011 as it is one of the qualifying yards against DSME.

Still hopeful on Brazil. Although Petrobras’s capex plans for its remaining 21 drillships have changed from pure ownership to chartering from drilling contractors, their local-content requirement is unchanged and SMM remains one of the final bidders along with Keppel Corp. We continue to expect an award of these drillships by end-2011/early 2012.

Valuation and recommendation:

Maintain Outperform and target price of S$6.80, still based on 18x CY12 P/E, at the upper end of its previous trading cycle. Stock catalysts are still expected from stronger-than-expected new orders, margins and upside from Petrobras wins.

Mewah International - Expect weaker 2Q11 earnings (DBSVickers)

HOLD S$0.855 STI : 3,088.70

(Downgrade from BUY)

Price Target : 12-Month S$ 0.90 (Prev S$ 1.23)

Reason for Report : 2Q11 result preview

DBSV vs Consensus: Below-consensus expectations on FY11 earnings. Less bullish outlook on long-term margins

• Further analysis of MPOB data points to weaker than-expected 2Q11 sales

• Spot refining margins may not reflect actual 2Q11 margins because buyers are delaying purchases

• Cut CY11F-13F volume and margin assumptions

• TP cut to S$0.90; downgrade to Hold on limited upside

Slower sales. Mewah’s Consumer Pack division key export destinations in Africa and the Middle East are Nigeria, Togo, Benin, Angola, Iraq, UAE, and Saudi Arabia. Upon closer analysis of 2Q11 export volumes to these countries (MPOB data), we found they had dropped 18% from a quarter ago, implying corresponding slower volumes for Mewah.

Destocking pressure. The weaker shipments amid falling prices imply customers in Mewah’s key markets are delaying purchases. This should translate into narrower refining spreads – contrary to our earlier view of rising margins (based on daily spot spreads in Bloomberg). Unless this margin pressure is industry-wide, we believe the most plausible reason is loss of market share. In this case, volume recovery could take longer than we expected.

Earnings cut. Reflecting weaker 2Q11 expectations, we cut CY11F-13F sales volumes by 0.4-1.8% and gross margins by 0.2-0.5%. We also cut our long-term gross margin forecasts to 7.7-8.0% from 8.6-9.5% to account for more CPO suppliers building their own refineries (e.g. Sime Darby). Please note that there would still be a seasonal 2H11 volume uptick and initial contributions from specialty fats and refining capacity expansions in 2H11 and 2H12, respectively.

Downgrade to Hold. CY11F -13F EPS are cut by 6.5-14.5% and target price to S$0.90, implying limited 5% upside. Accordingly, we downgraded our rating on Mewah to Hold in the absence of compelling catalysts.

M1 Limited - Not much to talk about (CIMB)

NEUTRAL Maintained

S$2.57 Target: S$2.63

Mkt.Cap: S$2,330m/US$1,914m

• Within expectations. Annualised, M1’s 1H11 results are within expectations, at 2% below our forecast and 1% above consensus. M1 declared a 6.6ct DPS for 2Q11, in line with our forecast. Highlights were slower revenue qoq due to lower handset sales and a qoq recovery in margins. We make no changes to our earnings forecasts for FY11-13 or DCF-based target price of S$2.63 (WACC: 8.5%). Maintain NEUTRAL as M1 lacks re-rating catalysts though downside should be limited by its dividend yields of 6-7%.

• Operating trends. 2Q11 revenue dropped 5% qoq due entirely to lower handset sales (-22.4% qoq) from lower sales volume. Revenue rose 10% yoy as 2Q10 was hit by a supply constraint for iPhones which had slowed handset sales. Service revenue, however, increased 2% qoq and 3% yoy, led by postpaid and growing contributions from fixed lines, both driven by an expanding subscriber base. EBITDA margins recovered by 2% pts qoq due primarily to lower handset costs and SACs but dropped 3.3% pts yoy due to higher handset costs from higher volumes.

• Fibre affected by low number of homes reached. M1 disclosed that NGNBN had passed 70% of homes but the number of homes reached was below 40%. The latter was attributed to the difficulty of obtaining access to condos and disagreements over who would bear the cost of pulling in fibre and lower awareness among heartlanders. M1’s fibre customer base doubled in 2Q from 1Q, to an estimated 10K from about 5K in 1Q. About 10k-12k subscribers come off contracts each month and it would take 1-2 years to address the entire base.

• Own OpCo. M1 will be launching its own corporate OpCo in 3Q11 to increase its competitiveness, offer customised solutions and lower its opex. Fixed margins should improve with the scale as it has to bear start-up costs now.

• Guidance kept. M1 has maintained its guidance of PAT growth for 2011. 1H11 growth of 7% yoy is fairly indicative of the full year and it is reasonable to assume the same run rates. We forecast yoy growth of 11% for 2011 PAT. M1 also keeps its 80% payout and would be monitoring the economy, its free cash flow, and gearing before deciding on any capital management.

Conference-call highlights

Smartphones reaching mass market. About 63% of its postpaid subscribers in 2Q11 possessed smartphones, up from 60% in 1Q11. More Android phones are now being sold due to more models available and at lower prices. It expects sales of iPad2 to rise in 3Q11 as it had limited stocks in 2Q11.

Opportunities in pay TV. A common set-top box for NGNBN is still about 12-18 months away. However, M1 believes that project NIMS (common set-top box) when introduced as well as recent cross-carriage regulations would open up opportunities in pay TV. This is because these two measures would unbundle content and may change customer behaviour as subscribers would watch content directly rather than sign on for an entire bundle. The measures would also address the customer base not previously addressed and there would be no need to pay for premium content.

Ezra Holdings Ltd - AMC integration remains on track (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$1.485

Fair Value: S$1.87

AMC consolidation drags net profit lower. Ezra Holdings (Ezra) reported a 51% YoY increase in revenue to US$164.8m but saw a 75% fall in net profit to US$6.6m in 3QFY11, mainly due to a fall in gross profit margin (17% vs. 31% in 3QFY10), with the consolidation of newly acquired AMC. Administrative expenses also rose 42% to US$16.7m in 3QFY11 with the inclusion of AMC and higher overheads due to the set up of overseas offices. Net profit was lower than expected, but if we were to exclude AMC's net loss in the last quarter, Ezra's 3Q11 net profit would have accounted for about 21% of our full year estimate.

Finally a little more clarity on AMC. We estimate that AMC suffered a loss of around US$7.5m to US$10m in 3QFY11, but management expects the entity to perform better in 4QFY11 (we are expecting just breakeven in 4Q). Much depends on the integration progress and the speed in which third party costs can be eliminated. In particular, management has "realigned a lot of services" that AMC used to outsource, and Ezra aims to bring more of such activities in-house to lower costs. Management also revealed that there was a lack of optimization in vessel utilization in AMC previously, and the group has since reorganized the fleet.

EOC looking at potential listing. EOC, which is listed on the Oslo Bors, is eyeing a second public listing in Asia. We understand that it will be a second primary listing, and not a secondary listing. On the other hand, we do not expect Ezra to issue new shares to raise funds in the next 12 months. Management mentioned that any new significant capex plans will only be in 2013/2014, while capex guidance for 2012 should be around US$150m.

Contract wins may be a catalyst for the stock. With slightly more clarity on the AMC front, we have lowered our earnings estimates for FY11 and FY12, and deem FY12 to be more reflective of the group's earnings after further integration. As such, we roll forward our valuation to 14x FY12F earnings (from blended FY11/12F previously) for the offshore marine and energy business, and our fair value estimate slips to S$1.87 (prev. S$2.05). A potential catalyst would be higher-thanexpected contract wins with healthy margins for the subsea business, which has amassed a decent order book of more than US$300m YTD. Maintain BUY.

ECS Holdings Ltd - Set for a record year; initiate with BUY (OCBC)

Initiating Coverage BUY

Current Price: S$0.765

Fair Value: S$1.08

Playing the volume game with leading IT vendors. ECS Holdings (ECS) is a leading Information and Communications Technology (ICT) products and services provider with a strong presence in six regional countries. The group thrives on developing a strategic and established relationship with major IT vendors, which include Apple, HP and Microsoft. We expect ECS's earnings momentum to gain traction moving forward, as it had recently clinched new distributorship agreements with Dell and also nationwide distribution rights for Apple's iPad and iPhone in China. A full-year of contribution is expected to accrue in FY11. Nevertheless, we acknowledge that the distribution business carries thin margins; hence ECS would have to depend on strong volume growth to enhance its profitability.

Diverse product offerings and extensive distribution channels. Given ECS's long-standing relationships with a number of leading IT principals, it has the ability to distribute a wide and diverse range of commercial and consumer product categories to its customers. This competitive advantage is further boosted by its extensive distribution network comprising of more than 23,000 partners and resellers. Looking ahead, ECS will also continue its efforts to negotiate with vendors on a regional instead of a standalone-country basis to increase its scalability and gain better economies of scale and scope.

Poised for a record year. We believe that ECS is poised for a record performance in FY11, underpinned by factors highlighted earlier as well as increasing focus and penetration in higher growth markets. This is further supported by the continued recovery in the ICT sector, especially in the Asia-Pacific region. Enterprises in these areas are stepping-up their IT infrastructure upgrading to enhance their competitiveness and consumers are armed with an increasing willingness and ability to splurge on popular electronic devices. We are forecasting double-digit growth for both its revenue and core earnings in FY11 and FY12. Our estimates translate to a CAGR of 10.4% and 22.9% for its top-line and core PATMI during the period from FY06 to FY12F respectively.

Attractive valuations; initiate with BUY. We value ECS based on a PER methodology and ascribe its historical median PER of 7x to our FY11F core EPS forecast. This represents a 25% discount to its peers' CY11 PER of 9.3x, which we think is justifiable due to its low free float (10.3%) and trading liquidity. Nevertheless, our fair value estimate of S$1.08 still implies an attractive upside potential of 41.2%, supported by a healthy prospective dividend yield of 5.0%. As such, we initiate coverage on ECS with a BUY rating.

CapitaCommercial Trust - A “sweetener” in place (DBSVickers)

BUY S$1.45 STI : 3,088.70

Price Target : 12-Month S$ 1.59

Reason for Report : 2Q11 Results

Potential Catalyst: Higher rental reversions

DBSV vs Consensus: below, lower rental version compare to peers

• 2Q results inline with expectations, on better operational performance

• Market Street CP redevelopment plans firmed up, call option to purchase remaining stake granted

• Maintain BUY, TP S$1.59

Results in line with expectation. On a yoy basis, 2Q gross revenue and NPI declined by 9.6% and 5.9% to S$91m and S$69.8m respectively. However, performance remained relatively stable on a qoq basis. Meanwhile, portfolio occupancy dropped marginally to 97.7% affected by 6 Battery Road AEI. The trust also recorded a revaluation gain of S$153.4m (+2.8% yo-y). Stripping that off, 2Q DPU was at 1.92cents, making up 56% of our FY11 numbers or 52% of street estimates.

Operations gaining traction. The trust has another 7.5% of its office leases (in terms of gross revenue) up for renewals for 2H11. With the recovery in office rents, the spread between current and expiring leases is narrowing, indicating lower downside risk from negative rental reversion. Meanwhile, precommitments for 6 Battery Road AEI had risen with 74,400sf or 79% of the total upgraded space (93,700sf) taken up.

MSCP redevelopment to commence in Sept. Tenants in the carpark had vacated the building since June 2011. A Grade ‘A’ office building will be jointly developed by MSO Trust, which is held by CapitaLand (50%), CCT (40%) and Mitsubishi Estate Asia (10%). Total development cost is expected to be S$1.4 b. The site, currently held by CCT, will be acquired by MSO at S$56m which is 5.1% above its latest valuation. CCT is also granted a call option to buy the completed asset within 3 years after the TOP date at the prevailing market value or not lower than 6.3% pa CAGR on the estimated cost of return.

Maintain our buy call with an unchanged TP at $1.59. Balance sheet is strong with a gearing of 26.9%. The group has also just completed its refinancing exercise for the year and should be in a good financial position to undertake the MSCP project, which will start in Sept. Our TP at $1.59 offers 14% total return.

Capitacommercial Trust - DPU uplift from MSCP to come later (CIMB)

UNDERPERFORM Maintained

S$1.46 Target: S$1.46

Mkt.Cap: S$4,129m/US$3,390m

• Negative reversions for rest of 2011; maintain Underperform. 2Q11 results met expectations, at 25% of our FY11 forecast and consensus estimate. Despite a 15bp cap-rate compression for its Grade-A assets, operational indicators continued to decline with revenue down 9.2% yoy on negative rental reversions from 6BR and OGS. This trend is expected to persist in 2H11 with expiring leases locked in at peak levels in 2008. Plans for MSCP redevelopment have been finalised with CCT potentially gaining full stakes by 2015. However, the DPU uplift is also not expected until then. We raise our DDM-based target price by 7% to S$1.46 (8% discount rate) to account for this. Maintain Underperform on valuations (1x P/BV), with limited near-term catalysts in sight for organic growth in the next 6-12 months.

• Renewal rents in 2011 locked at peak levels. Cap rates for CCT’s Grade-A assets (Cap Tower and OGS) fell from 4.15% to 4%, resulting in a S$145m revaluation gain for 2Q11. Operationally though, gross revenue continued to trend down by 9.2% yoy, primarily from negative rental reversions for 6BR and OGS and lost rental income from earlier disposals. Debt headroom is ample for acquisition growth, but the likely lack of immediately DPU-accretive assets for purchase is evident given physical cap rates of 3-4%. 6BR which makes up 20% of CCT’s rental income, with average expiring rents this year locked in at a peak of S$15.4psf. We expect (so does CCT) negative rental reversions to persist in the remainder of 2011.

• Plans for MSCP redevelopment firmed, but uplift to come only in 2015. CCT has firmed up a 40:50:10 JV agreement with CapLand and Mitsubishi Estate Asia to redevelop MSCP into a Grade-A office tower. The development is expected to cost S$1.4bn (CCT’s share S$560m) and would be completed by 2015. CCT expects a yield on cost of 6% or S$12-14psf gross rents on completion, a level we think is achievable. More meaningful upside potentially could come from its call option to acquire the remaining stakes from its partners upon completion, at a minimum price that must yield a least a compounded return of 6.3% p.a. to the sellers. The option is valid for three years starting at the completion date, giving CCT the flexibility to optimise yield upside. For the MSCP redevelopment, execution will be its priority for now, with the DPU uplift coming much later in 2015.

STX OSV Holdings (KimEng)

Up-to-date in 60 seconds

Background: STX OSV is one of the leading global designers/shipbuilders of offshore and specialised vessels used in the offshore oil and gas exploration and production, as well as oil services industries. Based in Norway, it operates nine strategically located shipbuilding facilities with five in Norway, two in Romania, one in Brazil and one in Vietnam.

Recent development: Substantial shareholder STX Europe has agreed to sell part of its equity interests in STX OSV to investment funds affiliated with OZ Management LP (Och-Ziff). The placement of 215.59m ordinary shares at $1.33 per share by STX Europe amounts to about 18.27% of the total issued share capital of STX OSV.

Key ratios…

Price-to-earnings: 8.4x

Price-to-NTA: 2.6x

Dividend per share / yield: 3.0 cts / 2.1%

Net cash/(debt) per share: (NOK0.41)

Net debt as % of market cap: 6.2%

Share price S$1.46

Issued shares (m) 1,180

Market cap (S$m) 1,722.8

Free float (%) 26.8%

Recent fundraising Nov 2010 – IPO comprising 180m new shares @ $0.79

Financial YE 31 December

Major shareholders STX Corp – 50.75%, Och-Ziff – 20.0%

YTD change +28.1%

52-wk price range S$0.785-1.495

Our view:

Share overhang removed. As part of the placement, STX Europe also entered into a separate lock-up agreement with Och-Ziff last Friday, whereby it agreed not to dispose of any additional shares in the company until 12 November 2012 subject to certain limited exceptions.

No major surprise. The sale of vendor stake was no surprise to the market, given that STX Europe had been forced to reduce the size of STX OSV’s offering during the latter’s IPO in November last year. This was despite setting the issue price at the lower end of the indicative range as a result of poor equity market conditions then. Post the placement exercise, STX Europe will continue to retain a majority stake of 50.75% in STX OSV while Och-Ziff’s shareholding will increase to 20.0%.

Order momentum to continue. Going forward, STX OSV is well-positioned to ride the OSV upcycle, possibly in FY12, given its technical capabilities and established track record with customers. The stock currently trades at an undemanding valuation of 8.4x FY11 and 8.2x FY12 consensus PER.

M1 (KimEng)

Event

The results are within expectations. M1’s 1H11 net profit rose 6.6% to $85.4m, or 52% of our full-year forecast. It was encouraging to see fixed network sales jump 41% QoQ as this is a key reason for our bullishness on M1. The number of fibre broadband subscribers doubled from 1Q11. Also, mobile data usage is expected to be a potent earnings driver and as the first telco to roll out LTE (Long Term Evolution), M1 is all set to benefit as it races to be the first to cover the whole nation by 1Q12.

Our View:

While M1 did not disclose its fibre subscriber base, it did say fibre subs doubled QoQ. We believe this still underestimates the potential size of the market as home reach (cable terminates in home) still lags behind home pass (cable terminates in building) which has reached 70% of Singapore. By our estimates, fixed revenue could start to become sizeable by next year, at a forecast 6% of group revenue.

SAC fell further to $296 and should remain tame now that the heavily-subsidised iPhone has fallen to below 50% of incremental sales (from as high as 80% previously). Even if the new phone bears a radically new form factor, we reckon enough alternative OS choices exist (eg, Android) such that SAC should not be as skewed as in the past by the iPhone. iPhone 5 is expected to be launched in the US in 3Q11.

We expect increased data usage, driven by higher penetration of smartphones (63% of M1’s postpaid base) and tablet computers, to be a key catalyst in 2011-12. LTE could surprise on the upside, as unlike early 3G days when adoption was held back by a lack of devices, LTE dongles are already available and more terminals (ie, handsets) are expected to hit the market by year-end.

Action & Recommendation

Maintain BUY. M1 remains our top telco pick in Singapore. We raise our target price to $2.95 (from $2.88) on slightly more adventurous assumptions for fixed network.

Sembcorp Marine (SMM SP) – S$600m new order for offshore platform secured (KimEng)

Previous day closing price: $5.20

Recommendation – BUY (maintained)

Target price: $6.66 (maintained)

Sembcorp Marine’s (SMM) SMOE subsidiary has secured an offshore contract worth close to S$600m for the construction of an integrated processing and living quarters platform. The customer is a Myanmar subsidiary of Thailand’s PTTEP. SMOE will carry out the engineering, procurement, construction, transportation, installation, hook-up and commissioning of the unit in the Andaman Sea, offshore Myanmar, at a water depth of 150m. Some of the features of the module include processing modules and accommodation for up to 118 personnel. Construction will commence in October this year and completion, including installation, should take place by November 2013.

While SMM’s bread-and-butter rig-building market has been relatively quiet over the past two months in the current economic climate, the company continues to engage customers, resulting in specialised high-value contracts such as this. This latest contract win is broadly within our assumptions for SMOE, and we are not changing our forecasts at this time. SMM’s total orderbook stands at an estimated US$4.5b. We also believe that it is a matter of time before the rig-building cycle resumes to encompass not only the jackup market but the floaters as well, including drillships and floating production units.

We maintain our BUY recommendation on SMM and target price of $6.66.

Sembcorp Marine: Announces big job win close to S$600m (DMG)

(BUY, S$5.20, TP S$6.30)

Single biggest order post-crisis; maintain earnings forecasts. Sembcorp Marine (SMM) announced that its wholly owned subsidiary, SMOE, has won a contract close to S$600m from PTTEPI, boosting its order book to S$5.8b. We maintain our earnings forecasts which assume S$5.5b order win this year on 13-15% operating margins. Maintain BUY with an unchanged TP of S$6.30. Our TP values the stock at 19.5x FY11 P/E and implies 21% upside from its last close.

Project to be completed in Nov 2013. The contract from PTTEP International (PTTEPI) for the integrated processing and living quarters platform is valued at nearly S$600m. Scope of work includes engineering, procurement, construction, transportation, installation, offshore hook-up and commissioning of the platform in Block M9, in the Andaman Sea, offshore Myanmar. Construction is expected to start in Oct 2011 and the project is scheduled for completion in Nov 2013.

Robust demand for shipyard space. We believe share price will be boosted from this news, after falling 13% from its last peak in Apr 2011. With the oil prices trading significantly above the investment threshold of most oil majors, we believe order flows for shipyards will remain robust. YTD, SMM has won S$2.1b new orders and has eight options for newbuild jackup rigs yet to be taken up. We estimate that the total value of the eight options is worth S$2b. Aside from the newbuild market, we expect a strong pickup in production related projects such as FPSO and platforms. SMM will benefit the most from jobs with tight timelines.

M1: Pushing The NGNBN Boundaries (DMG)

(BUY, S$2.57, TP S$2.85)

There were no surprises in M1’s 1HFY11 results with an expected interim DPS of 6.6cents/share declared (payable on 11 Aug). The main highlights from the results call were the doubling of NGNBN customers QoQ even as the protracted rollout issues continued and the change in sales mix of handsets which pulled down device cost sharply. We keep our forecast which assumes core profit growth of 8-10% for FY11/12, underpinned by relatively stable margins and progressively stronger NGNBN contribution from FY12. M1 remains a BUY on NGNBN and dividend upsides.

In line. M1’s core profit of S$81.5m, stripping-out forex gain of S$4m in 1HFY11 was in line with our/consensus, at 48% of full year forecasts. While service revenue grew 2.1% QoQ from the low base in the preceding quarter, overall revenue still fell 5% QoQ (+10% YoY) as handset sales slipped 22.3%. Consequently, the 13% sequential decline in handset cost (due to the change in the type of handsets sold and buyers leaning towards Android models) and stable A&P contributed to the steady EBITDA margin QoQ of 42%. M1 said it had limited stocks of the new iPad2, launched in May with the positive impact only felt from 3QFY11. In tandem with the higher wholesale cost for fixed services, fixed services revenue expanded 41% QoQ, making-up 4% of overall revenue.

LTE and NGN updates. We understand from management that the number of homes passed for NGNBN has reached 70% (target 95% by 2012) although the percentage of actual access to homes is merely 40% owing to operational and administrative impediments. M1’s NGNBN customer base has nonetheless doubled QoQ. While it was the first in South East Asia to launch LTE (see our note dated 21 June), M1 expects take-up to improve with at least 2 LTE devices set to be introduced by HTC and ZTE later this year and blanket coverage from 1Q2012. M1 targets to launch its own NGN Opco in 3QFY11 which it views as an avenue to strengthen its enterprise offering and allowing it to lower the cost of rollout.

Best of breed- dividend upside potential and a pure play on NGN. We make no change to our forecast noting that management expects the underlying revenue growth trend in 1HFY11 to continue and has reaffirmed its previous FY11 guidance (earnings to grow from FY10/capex of S$100m including LTE and 80% dividend payout). M1’s recurring dividend yield of 6% makes it a defensive bet under prevailing market conditions with stock re-rating catalysts coming from: (i)the higher take-up of NGNBN services; and (ii) potential for further capital management. Maintain BUY based on DCF derived fair value of S$2.85.

Ezra Holdings: Poor 3QFY11 results; earnings likely bottomed (DMG)

(BUY, S$1.485, TP S$1.80)

3QFY11 results below expectation; cut earnings and TP. 9M11 net profit of US$27.9m (-49% YoY) was 42% of our FY11F and 40% of consensus estimates. 3QFY11 net profit fell 75% YoY due to losses at EMAS-AMC, expansion in interest expense and higher admin cost. We downgrade our earnings estimates for FY11-12F by 37% and 23% respectively: (1) higher losses for its subsea unit in FY11F from US$10m to US$15m; (2) increased admin cost: 3QFY11 up 42% YoY; (3) weaker margins for offshore support unit as renewal of new charters will come in lower vs. previous contracted rates. Following the earnings revision, we lower our TP from S$2.40 to S$1.80 based on unchanged 15x fully diluted FY12F EPS (assume conversion of the convertible bonds). Maintain BUY. Upside catalysts are: (1) subsea order wins; (2) rationalisation of non-core divisions; (3) successful integration of AMC into the Group and turnaround in earnings in FY12.

US$85m new subsea jobs; orderbook target on track. Ezra secured US$85m contracts for subsea work in Indonesia, Papua New Guinea, Russia and Western Australia. We estimate that this boosted their subsea order book to US$361m. Given the high number of subsea tenders in the market and limited number of competitors, we believe Ezra will win its share of subsea jobs. Current win-rate implies that the company is on track to meet its target of US$1b by Mar 2012.

Orders will drive subsea turnaround in FY12. We understand that EMAS-AMC contributed close to US$10m losses in 3QFY11 due to low vessel utilisation: vessel utilisation was around 50% and restructuring of vessel hire remains a work in progress. We expect subsea unit to be the main driver of earnings growth as order book is building up and fleet utilisation should head above 70%.

EOCL seeking another primary listing in Asia. Its 47% Oslo-listed associate, EOC, is exploring a second primary listing in Asia by offering new shares. The second FPSO, Lewek Emas, is expected to contribute from mid-Aug 2011.

CapitaCommercial Trust: Slowdown in negative rental reversion impact (KimEng)

(NEUTRAL, $1.46, TP S$1.38)

2Q11 DPU in line with expectations. CapitaCommercial Trust (CCT) reported lower 2Q11 DPU of 1.92S¢ (+4.3% QoQ; -2.5% YoY) due to 1) smaller portfolio size (sales of Robinson Point in Apr 2010 and Starhub Centre in Sep 2010), 2) negative rental reversion and lower occupancy at Six Battery Road. Rental reversion is likely to stay negative in 2011. However, the extent of negative reversion will decline as office rental rates are expected to rise further going forward, underpinned by expectations of a robust Singapore economy in 2011. We raised our FY11-FY12 DPU estimates by 1.1-0.9% respectively to account for slightly higher than expected interest expense savings from the recent loan financing at the RCS Trust level which has a cost of debt of ~3.03-3.09% (prev est: 3.3%). Coupled with the half-year rollover in our 10-year DDM valuation (COE: 8.7%; TGR: 3.0%), we raise our TP to S$1.38. Maintain NEUTRAL.

Signed JV agreement with CapitaLand (CapLand) and Mitsubishi Estate Asia (MEA) to redevelop Market Street Car Park (MSCP). As part of the JV agreement, MSCP was sold to MSO Trust which is jointly owned by CCT, CapLand and MEA in their respective 40%:50%:10% interest. Total redevelopment cost is S$1.4b (c. S$1,900psf based on net lettable area) and the project is expected to be completed in end 2014. Upon completion, the Grade A office tower is expected to have a stabilised annual rental yield of >6.0%. As MCSP has ceased operation in end Jun 2011, we expect the gross rental income to decline by ~S$2m/year, which represents only <1% of CCT’s total gross rental income.

Extent of negative rental reversion expected to decline in subsequent quarters. Average rent of CCT’s remaining leases expiring in 2011 is S$13.91 psf, which is higher than average Grade A office rent of S$10.60 psf (2Q11). We expect negative rental reversion to end in late 2011/early 2012, while strong positive rental reversion to occur only in 2013. Given CCT’s rich valuation with FY11-FY12 dividend yield spread at close to pre-crisis mean spread of 2.9%, we maintain NEUTRAL on this counter at this juncture.

CapitaCommercial Trust (CCT): 2Q11 DPU of 1.92 S cents (OCBC)

For 2Q11, CapitaCommercial Trust (CCT) reported a distributable income of S$54.4m or an estimated DPU of 1.92 S cents, bringing the total distribution for 1H11 to 3.77 S cents. Given the current unit price of S$1.46, this translates to an annualized distribution yield of 5.2%. Relative to 2Q10, we saw a 2.5% dip in distributable income. In addition, gross revenue also fell 9.2% on a YoY basis to S$91m. These dips are mainly due to the absence of contributions from Robinson Point and Starhub Centre which were divested in Apr and Sep last year, respectively. Continued asset enhancement works at Six Battery Road also resulted in lower occupancy rates this year. Management indicates that current signing rents are still below levels for expiring leases and expects to see negative rental reversion continue this year. We will be speaking to management later to get more updates and in the meantime, we put our BUY rating and S$1.63 fair value estimate under review.

Oil and Gas sector: May be volatile but a floor will remain (OCBC)

China may become largest driver of oil prices in a decade. Though China is the second largest consumer of oil, its per capita oil consumption is only about a tenth of the US, hence there exists a huge potential for demand growth. Assuming the country's urbanization strategy remains on track, we estimate that China may become the largest driver of oil prices over the next five to ten years. Indeed, we find that the correlation between China's industrial growth and the WTI oil price has increased from 0.45 in May 2001-2006 to 0.65 in May 2006-2011, and we would increasingly look to the country's forecasted economic growth for signals in the oil price.

Oil price volatility theme to resurface in the future. However, the influence of speculators in the oil market has increased over the years. World production of oil has not kept up with demand growth, and the impact of speculation can be greater felt in a tight demand-supply situation. Coupled with the increased sensitivity of oil prices to supply disruptions, unless we see an easing in the demand-supply situation, we believe that volatility in oil prices may be increasingly prevalent in the future.

How will this affect capital expenditure? Undeniably, the volatility of oil prices negatively impacts investments in the oil and gas sector. However, supposing the developed countries continue their fragile economic recoveries and China's growth remains on track, we believe that oil prices should remain above US$75/bbl which should sustain most capital expenditure in the sector. In particular, in the upstream offshore segment, we expect the rig order momentum to remain strong; the increasing number of permit approvals in the US Gulf of Mexico should spur interest in semisubmersibles, probably by early next year. Demand for large production platforms is also holding up, and Sembcorp Marine's subsidiary, SMOE, has been bidding for work as well.

Maintain Overweight. We maintain our Overweight rating in the offshore oil and gas sector given its solid long-term fundamentals. Under our sector coverage, Keppel Corporation [BUY, FV: S$13.00] and Sembcorp Marine [BUY, FV: S$6.30] remain as our preferred picks, as they are well-positioned to benefit from the positive outlook of the jack-up and semi-submersible rig market, FPSO conversion and production platform segments. Meanwhile, Ezion Holdings [BUY, FV: S$0.84] is a promising counter for investors looking at small- and mid-cap plays as we expect a jump in FY11-12 core earnings with deliveries of its liftboats.

Global Logistic Properties - Demonstrating strong execution (DBSVickers)

BUY S$1.995 STI : 3,088.42

Price Target : S$ 2.80

Reason for Report : Post POA conference notes

Potential Catalyst: New acquisitions, organic leasing growth

DBSV vs Consensus: Slightly below

• Leading logistics player with value add capabilities

• Strong execution track record to secure tenant stickiness

• If successful, potential acquisition in Japan under a fund structure could generate fee income and enhance ROE

• Maintain Buy, TP S$2.80 on parity to RNAV

Execution on track. Global Logistics Properties (GLP) participated in our POA conference last week with good investors’ responses. Attention was focused on operating environment in Japan (postearthquake) and China as well as the latest media report on the possible acquisition of Lasalle Investment Management's Japan logistics portfolio. Management provided an update in the two countries and highlighted its competitive advantage with a leading market position and reiterated its long-term strategy.

Capturing robust demand and providing value-add capability. In terms of operations, demand for its logistics space in China remains robust as consumption expenditure continues to be strong. In addition to the vast network, GLP’s development value-add capability makes it the preferred partner and secures tenant stickiness. Recent collaboration with China's largest online apparel retailer, Vancl, to address its rapid growth and logistics needs through site selection, project planning and logistics facility leasing on a nationwide basis is a case in point. Also, the strategic partnership with Unicharm, a Japan-based leading manufacturer of baby care, feminine care and healthcare products, to develop logistics facilities for its manufacturing bases in China and to start its built to suit development agreement with the project GLP Tianjin Xiqing Economic Development Area, highlights the group's multicapability edge. In Japan, the group confirmed that it had submitted a bid to acquire a portfolio of over 20 industrial distribution and warehousing properties owned by Lasalle Investment Management in Japan. If successful, GPL will acquire the portfolio in a fund structure with one or more institutional investors. This is in line with the group's strategy to establish its emerging Fund Management platform and generate fee income, which can be extremely ROE enhancing.

Maintain Buy. GLP offers investors exposure into the largest Asian logistics facilities pure play. We derive a RNAV of S$2.80 using a sum of parts analysis that captures the value of underlying assets as well as potential reinvestment opportunities from balance sheet capacity deployment. Our target price of S$2.80, pegged at parity to asset backing, offers 40% upside.

F & N - Gearing up for life after Coke (DBSVickers)

BUY S$5.80 STI : 3,088.42

Price Target : 12-Month S$ 7.20

Reason for Report : Post-POA update

Potential Catalyst: Better operating results and margins; corporate restructuring, M&As

DBSV vs Consensus: Market generally positive on conglomerate structure

• F&N received good response at DBSV POA Conference recently, where it focused on business updates

• We saw strong interest in its F&B segment, where management remains upbeat

• Property headwinds and risks have been priced in

• Diversified revenue base is positive; maintain Buy rating and S$7.20 TP

Strong interest in F&B. F&N management met with over 40 buy-side fund managers/ analysts at our Pulse of Asia conference last week. The focus was on its F&B business, especially its growth initiatives for the medium/ longer term. In the near term, investors were concerned about margins - management hopes to see margins bottom out in 3Q if not 2Q. The Group continues to gear up in response to the termination of its bottling agreement with Coca-Cola in Malaysia on 30 Sep 11, and hopes to make up for the revenue shortfall with other initiatives. We estimate that Coco-Cola contributes c.3% to the Group’s PBIT.

Property policy risks priced in. Not surprisingly, both management and investors largely shared common views of policy headwinds in Singapore’s property sector. However, the group is known to be cautious, and management felt downside in this segment is limited. Most of its land bank costs below S$340 psf. Its strategies and sales targets for China and Australia remain the same.

Maintain Buy, TP S$7.20. We continue to like the Group’s diversified conglomerate structure, and expect its F&B brand franchise to continue to grow even after its bottling agreement with Coca-Cola ends in September. Our target price is based on 15% discount to our RNAV of S$8.43, implying 24% potential upside from current levels.

Elec & Eltek International Company (KimEng)

Up-to-date in 60 seconds

Background: Elec & Eltek International Company (EEIC) is the largest manufacturer of printed circuit boards (PCB) in China. Together with other manufacturing sites under its parent company, Kingboard Chemical, it is one of the top 10 largest in the world. Its worldwide market share exceeds 25%, with an expected capacity of 58m sq m by end-2010.

Recent development: E&E first announced its intention to seek a dual primary listing in Hong Kong in March this year. No new shares were issued as the listing was done by way of introduction. 86m Singapore shares (46% of outstanding shares) were transferred to Hong Kong, where trading started last Friday.

Key ratios…

Price-to-earnings: 8.8x

Price-to-NTA: 1.8x

Dividend per share / yield: US$0.40 / 10.3%

Average last 3 years’ free cash flow: US$59.1m

Average last 3 years’ dividend payout: US$44.5m

Share price US$3.90

Issued shares (m) 187.7

Market cap (US$m) 728.3

Free float (%) 25.1%

Recent fundraising activities Nil

Financial YE 31 December

Major shareholders Kingboard Chemical Holdings (69.2%); Value Partners (7.7%)

YTD change +20%

52-wk price range US$2.50-4.00

Our view:

Valuations have caught up following HK dual listing. With E&E now dual-listed in Hong Kong and Singapore, stock valuations have caught up with the rest of its peers in Hong Kong. When we first wrote on this cheap PCB stock last September, it traded at only 5-6x earnings (US$2.70) while its peers fetched 10x earnings. By the time the dual listing was announced, the stock had risen to $3.30. Currently, it is trading at 9x earnings, in line with the sector average.

Good news and catalysts priced in for now. While management believes the stock is still undervalued, we would be cautious for now. As mentioned, valuations have caught up with its peers. Unless the whole sector is further re-rated, upside appears limited. Moreover, earnings are showing some downward pressure. Profits for 1Q11 fell 12% YoY on higher raw material costs, while a US$5m one-off charge for dual-listing expenses will feature in 2Q11.

Ezion Holdings (KimEng)

Event:

Ezion continues to develop its liftboat business with two project-specific contracts in the last three months and the ongoing delivery of its newbuilds. Its improved capital structure allows it to take full advantage of the opportunities that its liftboat business provides. We maintain our BUY recommendation and target price of $0.99.

Our View:

The partial divestment of one liftboat and the outright sale of another over the past year has lightened Ezion’s asset base and improved its financial structure significantly. As of its 1Q11 reporting, the company has a net cash balance of just over US$10m.

This is a much improved capital structure from when Ezion first launched its liftboats. Back then, it raised cash from the issuance of new shares and special purpose financing arrangements, with average interest rates running at around 7% pa and gearing at 0.7x.

Furthermore, due to the pickup in operating cash flow following the successful introduction of liftboats in the market, Ezion is able to enjoy much better terms from financial institutions, and can now fund its new projects with 20% equity or less.

Ezion has modified its approach, as evidenced by its last two liftboat projects. It is also able to convert and refurbish existing jackup rigs to liftboats, according to the operational requirements of clients. This significantly shortens the time to market to as little as seven months. A newbuild, on the other hand, requires a construction time of at least 15 months. Going forward, we see Ezion using a combination of both methods to bring more vessels into its fleet.

Action & Recommendation

Ezion has demonstrated that it has the resources, capability and balance sheet to further build on its liftboat business, which will drive earnings beyond our current three-year forecast core net earnings CAGR of 30%. While core FY11 earnings are muted from start-up costs, FY12 is boosted by liftboat deployments. We reiterate our BUY recommendation and target price of $0.99, based on PEG of just 0.5x or FY11F core PER of 12.5x.

Portek International: Competing offer from Mitsui (DMG)

(ACCEPT OFFER, S$1.40, TP S$1.56)

Mitsui offers S$1.40 per share for Portek, trumps ICTSI’s offer by 17%. Mitsui & Co has announced a voluntary conditional offer for Portek at $1.40 per share, representing a 17% premium to the offer by ICTSI. This values the entire firm at an equity value of $221m, and represents P/Es of 17x FY10 and 14.4x FY11F, on our estimates. Mitsui is a general trading company in Japan with a diverse business portfolio spanning mineral resources trading, lifestyle businesses and ownership of infrastructure assets with a market capitalization of US$32b. In its offer documents, it highlighted its intention to expand the transportation logistics business, which encompasses, among other things, terminal operation and development. The acquisition of Portek will enable it to gain immediate access to emerging market port operations and leverage on Portek’s existing platform and management expertise to expand its terminal operations. Separately, Portek also released its nine months results ended March 2011 yesterday. Net profit was up 16% yoy to $9.5m, with substantial improvement in the engineering division (operating profit +108% to $5.3m) offsetting a 14% decline in earnings from port management.

Accept revised offer. Mitsui has secured irrevocable undertakings from major shareholder Larry Lam and members of his management team, who together owned 78.3m shares or 51.3% of the outstanding float. Technically, this will render the offer unconditional. We think the offer, while at 10% discount to our fair value estimate of $1.56 per share, is fair and enables shareholders to realize a meaningful premium over the ICTSI offer. Investors should take up this latest revised offer.

Macquarie International Infrastructure Fund (MIIF) (DMG)

(UNRATED, S$0.56)

A $1b portfolio. Macquarie International Infrastructure Fund (MIIF) was the first infrastructure fund to be listed on SGX, back in 2005. Following a series of asset sales over the past few years, the group made a full exit from its investments in Europe and North America, whilst at the same time increasing its exposure in Asia. Currently, the group has 3 key investments: 1) a 47.5% stake inTaiwan Broadband Communications (TBC), one of the 3 leading cable television operators in Taiwan providing integrated entertainment and communications to more than one million households; 2) a 81% stake in Hua Nan Expressway (HNE), a commuter toll road in Guangzhou; 3) a 37% stake in Changshu Port, a multi-purpose port dealing in steel, forestryrelated products and containers. Cash made up the remaining 14% of MIIF’s S$1b investment portfolio.

Lessons from the financial crisis. Prior to the financial crisis, MIIF was invested in a wide mix of operating assets and listed funds in far-flung locations, from the UK to Canada to China.Debt was often piled high at the asset level as debt funding was cheap and abundant. The onset of the financial crisis resulted in a credit crunch and forced a number of its investments to focus on debt-reduction measures and even suspending dividend payments. MIIF’s distribution payout was affected as a result, leading to a downward spiral in the stock price. To strengthen its balance sheet, the group carried out a number of asset sales and moved to reduce gearing at individual asset levels. Today, MIIF is in a healthy financial position, while the streamlined portfolio is reporting strong operational performance, leading to higher distribution payouts that are more sustainable.

On the lookout for new investments.With a stronger balance sheet, MIIF is on the lookout for new investments. Its criteria for new acquisitions are 1) the acquisition must be yield-accretive, 2) the acquisition should offer double-digits internal rate of return. MIIF is highly selective in the type of infrastructure assets it targets to acquire, preferring low-risk investments that have a dominant market position, sustainable or predictable cashflows and offering potential for long term capital growth. It currently has $140m of cash to deploy, and has conducted share buybacks to enhance per unit value.

Trading with the highest yield in the business trust sector. For the 6 months ended June 2011, MIIF distributed a DPU of 2.75 cents. On an annualised basis, the payout of 5.5 cents would translate to a yield of 9.8%, among the highest for SGX-listed business trusts. On a P/B basis, the stock price has narrowed the discount to its NAV, from as much as 76% during the height of the global financial crisis, to the current 32%. We find MIIF interesting given its high and sustainable yield, which is higher than the sector average. The stock is misunderstood given its chequered past, and could potentially improve its ratings as underlying asset performance continues to improve.

CCK plans foray into Jakarta

It’s targeting Indonesian capital for investment in manufacturing and retail activities

KUCHING: Sarawak-based CCK Consolidated Holdings Bhd (CCK), which has embarked on a regional expansion for its poultry and seafood business, is targetting Jakarta as its next investment destination in manufacturing and retail activities.

Group managing director John Tiong Chiong Hiiung said CCK was now conducting a feasibility market study in the Indonesian capital city as it had a big population.

“Hopefully by the end of this year, we can make a decision (whether to set up a business base in Jakarta),” he told StarBiz yesterday.

Tiong said CCK had invested about US$2mil (RM6mil) in a manufacturing plant and four retail stores in Pontianak, west Kalimantan, Indonesia.

He said the Pontianak factory produced chicken hot-dogs and burgers.

“The demand and growth potentials in Pontianak are good. We plan to open more retail stores there and also in Kota Kinabalu, Sabah, which are our new frontiers,” he added.

CCK group now owns and operates a chain of 40 wholesale and retail stores, trading departments and processing plants throughout Sarawak, Sabah and Peninsular Malaysia. There are five retail stores in Kuala Lumpur.

In the last 12 months, the group opened two new stores each in Pontianak and Kuching and set up chicken hatchery and chicken breeder houses in Sabah. It ventured into Pontianak two years ago.

CCK operates an integrated supply chain of breeder, hatchery and broiler farms. Its poultry division is equipped with the latest breeding farm technologies, computer-controlled hatching chambers and automated abattoir.

The abattoir, the only in Sarawak with a HACCP certification, is capable of processing some 4,000 birds per hour.

“Currently, we sell about 25,000 dressed chicken a day in Sarawak,” said Tiong.

He said the group's capital expenditure was between RM10mil and RM15mil a year.

With further expansion, it is targetting an annual revenue growth of between 15% and 20%.

For the financial year ended June 30, 2010, CCK recorded a group turnover of RM355.7mil an increase of 8.3% over RM328.6mil in 2009. Group pre-tax profit rose by 40% to RM23.5mil from RM16.8mil in 2009.

The poultry and retail sector contributed 65% and 17% respectively to the group revenue in the last financial year. Other sectoral contributors were rations (12%) and prawn (6%).

CCK is also involved in prawn aquaculture and processing, largely for the export markets.

Singapore REITs: Sustainable growth (DBSVickers)

· High yield spreads and a strong S$ continue to attract investors to S-REITs

· MCT, FCT, MLT expected to deliver strong earnings growth in coming quarters

· Relative value in smaller cap REITs like Cache and FCOT

S-REITs outperformed benchmarks but still offer an attractive 350 bps over long bonds. Having outperformed the FSSTI and developers by 3% and 13% respectively YTD, S-REITs currently offer a weighted average yield of 5.9%, which remains an attractive c350bps over the long-term government bond. The current high yield spread and a strong S$ will continue to sustain investor interests in S-REITs.

Looking for “positive earnings surprises”. As we approach the upcoming second reporting quarter for 2011, we believe that earnings growth sustainability will remain a key focus. We remain positive that Hospitality S-REITs should continue to deliver strong results, judging by latest statistics posted by the Singapore Tourism Board, but we believe that street has already priced in strong growth expectations. Retail REITs are expected to see positive rental reversions going forward supported by the current positive consumer sentiment. FCT (BUY, TP S$1.73) is expected to deliver a good set of numbers in the coming quarters, as reconstruction works at Causeway Point have passed the most crucial stage, with committed occupancy at over 99%. In addition, the impending purchase of Bedok mall will act as a re-rating catalyst for the stock. MCT (BUY, TP S$1.05) should also see strong reversionary rental growth of c10% in the coming quarters, coming off from a first renewal cycle at its Vivo city retail mall.

Acquisition-driven growth. S-REITs have collectively acquired cS$1.9bn of assets YTD, which should start contributing to earnings in the coming quarters. After two months of relatively flattish DPU, we believe MLT (BUY, TP S$1.07) is poised to deliver a strong uptick in earnings momentum, boosted by recently completed acquisitions.

Value proposition in smaller cap S-REITs. We see relative value amongst certain smaller cap S-REITs. Cache ( BUY , TP S$1.11), which currently offers a yield of over 8.0%, is attractive, backed by transparent earnings structure and armed with a low leverage of 26%, has the headroom to acquire further. FCOT (BUY, TP S$1.05), at a P/BV of 0.6x, is unjustified in our view, given the yield enhancing steps taken by management and plans to re-finance its expiring loans should result in future interest savings.

Singapore Press Holdings Ltd - Slowdown in print-ad revenue (CIMB)

S$3.91 Target: S$4.24

Mkt.Cap: S$6,238m/US$5,091m

• In line; maintain Neutral. 3Q11 core net profit of S$114.8m is in line with our forecast and consensus, accounting for 30% of our FY11 estimate. 9M11 core net profit forms 77% of our full-year estimate. Though profit is in line, earnings quality is weaker with a decline in the print business propped up by stronger investment income. Though we had been expecting margin pressures for its print business, we were slightly surprised by the yoy weakening in ad revenue. We fine-tune our FY11-13 EPS estimates by 1%, with higher investment income assumptions offset by higher taxes and opex. Accordingly, our SOP target price falls to S$4.24 from S$4.29. Maintain Neutral with continued cost pressures, the low likelihood of accretive property acquisitions and a potential slowdown in ad-revenue growth amid weaker macro-economic sentiment. SPH should, however, be supported by dividend yields of about 6%.

• Ad revenue weakened yoy. Excluding revenue from Sky@eleven in 3Q10, operating revenue rose a smaller 4% yoy (2Q11: +8%) as higher rental and other revenue offset weaker print revenue. Though a moderation had been expected, the 4% decline in ad revenue in 3Q11 took us by surprise. This was the result of an 8% fall in classified revenue, stemming from reduced ad demand from the property and auto sectors. With companies potentially turning more cautious in the midst of weak macro-economic sentiment, any growth in ad revenue could be muted.

• Print cost pressures persisted. Margins remained hit by higher newsprint costs (+10% yoy) on a higher charge-out rate of US$666/MT. Staff costs, however, slid 8% yoy, though this was mainly due to lower provisions for variable bonuses (with a weaker print business) which offset increments and a bigger headcount.

• Stronger rentals for property but accretive acquisitions remain remote. Rental revenue grew 23% yoy and 9% qoq on a stronger performance from Paragon and with tenants progressively starting operations at Clementi Mall (which opened officially in May 11). Accretive retail property acquisitions remain remote, in our view, with continued aggressive bids by developers. SPH lost out on a bid to a CMT/CMA/Capland JV for the Jurong Gateway site in May 11.

Singapore Press Holdings (KimEng)

Event:

Singapore Press Holdings’ (SPH) 3QFY Aug11 operating revenue rose by 4.4% YoY to $328.8m (excluding the Sky@Eleven effect). The weaker classified ad revenue, which dragged down Newspaper & Magazine revenue, was partially offset by healthy revenue growth in its rental, Internet and exhibition businesses. However, with no compelling growth catalyst in sight, we downgrade our recommendation to HOLD with a lower target price of $4.32.

Our View:

Year-to-date, the group’s operating profit (excluding investment income) of $305.4m came in slightly below expectations due to minor gestation losses at Clementi Mall, higher staff costs and weaker classified ad revenue.

Based on our page count of The Straits Times’ Saturday edition, the volume of classified ads declined by 19% YoY between March and May, and continued to slide in June. The weakness was attributed to the slower demand in both the residential property market and automotive sector, and could further undermine print ad revenue. We believe the cover prices of the group’s newspapers and magazines are unlikely to be raised as management continues its drive to boost subscription. The last increase in 2008 was only its third in 23 years.

On the bright side, SPH saw a doubling of net income from investments to $23.7m and a 64.5% YoY jump in revenue from its exhibition business to $22.7m in 3QFY Aug11. Consequently, the group’s investible fund increased to $1.3b from $1.2b in the preceding quarter.

Action & Recommendation

We see the pursuit of new media businesses as the current focus of the group. Any drastic deployment of cash is unlikely in the near future as the search for a group chairman is underway. We trim our FY Aug11F-13F earnings by 6-7% to take into account higher operating costs for its mall operations and higher staff cost assumptions (print ad growth assumption: 5% FY Aug12F-13F). We also downgrade our rating on SPH to HOLD with the target price reduced from $4.60 to $4.32.

Singapore Telecom Companies:2Q11F Preview and key sector issues (DBSVickers)

· 2Q11F earnings of StarHub & M1 are likely to reinforce sector’s appeal as bastion of stability.

· Potential decline in smartphone sales in 2H11F to benefit StarHub more; Downgrade M1 to HOLD after its recent run-up.

· Cross-carriage to start from Aug 1, but may not have sharp teeth to make a difference.

2Q11F earnings should reaffirm sector’s defensive appeal. M1 is likely to report 2Q11 earnings of S$42.5m (0% QoQ, +4% YoY) on 14th July, as its fair value accounting may not leave much scope for improvement. StarHub is likely to report 2Q11 earnings of S$74m (+7% QoQ, +27% YoY) on 4th August in a seasonally strong 2Q as it recovers from the impact of “dunning” in 1Q11.

Potential decline in smartphone sales in 2H11F & FY12F may benefit StarHub. High penetration of smart phones (60-65%) in Singapore may imply lower smartphone sales in 2H11F, implying lower subsidy burden at StarHub & SingTel. Lower smartphone sales, on the other hand, may adversely impact M1’s earnings due to its unique practice of fair value accounting. While M1 is a key beneficiary of National Broadband Network, it may take another 2-3 years to show significant profit contribution from the new business.

StarHub is our new top pick after M1’s recent outperformance. YTD total returns are 15% for M1 (our previous top pick) versus 11% for StarHub and –1% for STI. At current price, M1 offers 6-7% dividend yield based on 80-100% payout ratio vs assured 7% for StarHub. MI offers flat earnings in FY12F versus mid-single digit growth at StarHub.

Cross-carriage to start from Aug 1, but impact may be muted. Cross-carriage applies only to the “exclusive” content signed after Mar 12, 2010. Firstly, StarHub has locked-in most of the popular content on exclusive basis before Mar 12 for 3-5 years. Secondly, content can still be signed on “non-exclusive” basis where pay TV operators negotiate the price as opposed to bidding earlier. As long as other pay TV operators do not buy “non-exclusive” content rights, they would not be able to cross-carry those contents.

Portek International (KimEng)

Up-to-date in 60 seconds

Background: Portek is a turnkey provider of equipment and services to ports, especially refurbished cranes. It also operates a small chain of ports globally. Founded in 1988 by Mr Larry Lam, the company listed on the Mainboard of the Singapore Exchange in 2002.

Recent development: On 1 June 2011, Manila-based port operator, International Container Terminal Services Inc (ICTSI), made an unsolicited voluntary conditional offer to acquire Portek at $1.20 per share, valuing the company at $182m. On 8 June, however, Portek said it had already been in talks with another potential party prior to this, thus raising the prospect of a bidding war.

Key ratios…

12-month trailing PER: 14x

Price-to-book: 2.9x

Dividend per share / yield: S 2.57 cents / 2%

Net cash position: $14.8m

Share price S$1.30

Issued shares (m) 152.5

Market cap (S$m) 198.25

Free float (%) 30

Recent fundraising activities Nil

Financial YE 30 June

Major shareholders Larry Lam – 42%

YTD change 175%

52-wk price range S$0.40-1.335

Our view:

A twist to the tale After the ICTSI offer, an arbitration court in Paris ruled in favour of the termination of a profit-sharing arrangement between Portek and a local partner in Gabon. This should result in higher profit recognition of at least $3.4m pa from FY Jun11, against FY Jun10’s net profit of $12.6m. Taking this into account would value ICTSI’s offer at just 11x historical PER, and CEO Larry Lam might have hoped to get a sweeter deal.

White knight to the rescue. An offer from Mitsui & Co was announced this morning, at $1.40 per share. This is likely to be a friendlier bid than ICTSI, since Portek’s management had been engaged prior to the bid. It has also received irrevocable undertakings from parties (CEO Larry Lam and management team) which hold approximately 50% of the total shareholding.

ICTSI’s first offer unsuccessful. The $1.20-per-share offer, which had a deadline of 20 June, will now be unsuccessful with ICTSI left holding about 17% of Portek shares which it bought from the open market.

Part 3 to the saga? We do see synergies between ICTSI and Portek’s business and believe the former would still be interested in a price higher than Mitsui’s, given that it trades at more than 20x earnings itself. However, minority shareholders may want to cash out immediately, since any further battle for control could turn into a deadlock, with Mitsui already effectively controlling more than 50% of shares.

CHEUNG WOH TECH (Lim&Tan)

S$0.25-CWOH.SI

􀁺 The company reported its maiden quarterly results, with 1Q ended May ’11 sales up 3.9%, thanks to higher demand from automotive customers (+47%), but offset somewhat by weaker demand from HDD (-19%) and precision metal stamping (-26%) customers due to disruption in their customer’s supply chain on the back of the Japanese disaster as well as weaker demand conditions.

􀁺 The 3.9% growth represents a significant moderation compared to last year’s 22% growth.

􀁺 Bottom-line unfortunately fell 55% to $2.9mln due to faster rise in raw material, labor and other operating expenses. The higher tax rate also did not help.

􀁺 The 55% decline in profit is a sharp reversal from last year’s 29% rise.

􀁺 While we do not have a rating on Cheung Woh Tech, we believe its results would provide some indication of what can be expected of some of its peers such as Armstrong, Broadway and Adampak.

􀁺 We are currently neutral to negative on the sector and believe that investors should continue to await for better re-entry levels sometime in late 2011 when the sector typically benefits from the seasonal ramp as well as consolidation of the major HDD players Seagate/Samsung & Western Digital/Hitachi.

Sim Siang Choon (KimEng)

Up-to-date in 60 seconds

Background: Sim Siang Choon (SSC) is best known as a retailer and distributor of sanitary hardware and fixtures used in bathrooms, toilets and kitchens. Jit Sun Investments, the private investment arm of the Lee Family that runs Ezra Holdings, owns a 35.2% stake in SSC, which it purchased for $10m last year. SSC has ventured into the oil and gas exploration and production (E&P) segment with the purchase of Interlink Petroleum Limited (IPL).

Recent development: SSC’s management recently outlined its plans for the company. These include raising new capital and changing the company’s name to that of its E&P subsidiary, Loyz Oil. SSC also intends to sell off its sanitary hardware business.

Key ratios…

Price-to-earnings: 47.1x

Price-to-NTA: 2.4x

Dividend per share / yield: $0.003 / 1.0%

Net cash/(debt) per share: $0.021

Net cash as % of market cap: 4.7%

Share price S$0.455

Issued shares (m) 266.5

Market cap (S$m) 121.3

Free float (%) 13

Recent fundraising Nil

Financial YE June 30

Major shareholders Jit Sun Investments – 35.2%

YTD change 0.0%

52-wk price range S$0.175-0.60

Our view:

Foray starts with IPL. IPL, an Indian oil and gas exploration company, was injected into SSC last year. Its main assets are two oilfields in Gujarat, India. However, the size of the reserve is as yet not fully determined, as SSC is in the process of evaluating it.

Casting its net wider. SSC is also on the lookout for more concessions to acquire, mainly in the Australasian region. It has tied up with a company called Rex Oil & Gas, which has proprietary technologies that may reduce exploration risks and costs.

New shares to fund ambitions. To fund its E&P activities, SSC has proposed to raise $12m through the issuance of redeemable exchangeable preference shares, which are convertible to 30m new SSC shares (a dilution of 11.3%) at 40 cents per share. This proposal is subject to shareholders’ approval at an EGM scheduled for 25 July 2011.

Some way to go. While the rationale for venturing into E&P is sound with the growing demand for oil, SSC has some way to go to establish itself as a credible player in the market. With its sharp 122% price rise over the past 12 months and a P/B of 2.4x, the market certainly has put a lot of faith in its new direction, especially with its parentage.

Tuan Sing Holdings (KimEng)

Event

We review the redevelopment potential of Tuan Sing’s old office properties in the CBD in the light of a more visible office development pipeline from the Singapore-Malaysian joint venture company, M+S Pte Ltd. The outlook for the office property market remains positive and the key catalysts for a re-rating for Tuan Sing remain intact. Maintain BUY with a target price of $0.64.

Our View:

The scale of the sites to be developed by M+S Pte Ltd may pose some risks to the office rental market from 2015 onward, even though these developments will be completed in phases over several years.

There is a rising supply of office space from the completion of new developments and secondary office space that surface when tenants relocate to their pre-committed new premises. Nonetheless, the average gross rental for Grade A office space continued to register healthy QoQ growth in 2Q11 and offices in the CBD fringe continued to draw interest from buyers. In 2011, 0.8m sq ft of existing office stock will be removed for redevelopment. Hence, office net absorption is still expected to be healthy in the next five years.

Tuan Sing, the landlord of Robinson Towers and International Factors Building, is expected to redevelop these buildings to take advantage of tenants’ flight to quality and the companies’ need for expansion. Given the relatively low estimated redevelopment cost, we believe Tuan Sing will be well-positioned to price out its competitors (including M+S Pte Ltd) in the rental market.

Action & Recommendation:

The redevelopment of its office properties and the potential acquisition of coal mining assets are key near-term catalysts for a re-rating of this mini-conglomerate. Reiterate BUY with a target price of $0.64, pegged at a 15% discount to its RNAV of $0.76.

LAND TRANSPORT - Opera tors seek fare increase of up to 2.8% (DMG)

SBS Transit and SMRT have both applied for fare hike of 2.8%, in accordance to the maximum fare adjustment formula set by the governmentappointed Fare Review Mechanism Committee (FRMC) in 2005. Results of the application will most likely be announced in 4Q11 by the Public Transport Council (PTC). Given SMRT’s earnings are predominantly driven by Singapore’s train service (accounted for 58% of FY11 EBIT), it will experience the most impact compared to ComfortDelGro (CD). Our sensitivity analysis shows that a fare hike of 2.8% could raise SMRT’s and CD’s net profit by 11% and 6.6% respectively. Maintain OVERWEIGHT on the sector on the back of 1) resilient growth in ridership number, 2) potential fare hike, and 3) imminent award of Downtown Line in 2H11.

Maximum fare adjustment formula is tied to CPI, WPI and productivity gains. In order to cap overall fare increases in small, regular steps, the land transport operators are allowed to apply for fare adjustments according to FRMC-stipulated formula. Besides taking into consideration of the maximum fare adjustment request put forth by operators, the PTC also takes into consideration of other factors such as profitability of the two transport companies, as well as Singapore’s economic condition. This is evident from the fare adjustments carried out in 2008-2009 (2008: +0.7% fare hike; 2009: -4.6% fare hike) vs maximum allowable adjustments of +3%-+4.8% respectively. Our current estimates for both SMRT and CD are based on ~0.5% hike in fare prices of Singapore’s MRT and bus services.

Prefer CD within the sector. We continue to favour CD (BUY/TP S$1.80) over SMRT (NEUTRAL/TP S$1.94) due to the former’s 1) greater overseas growth potential, and 2) cheaper valuation. In addition to margin improvements from ridership increase, we think CD will be looking at acquisition of more land transport companies in foreign markets in order to achieve overseas growth. Separately, previous concerns regarding CD’s forex exposure due to its extensive overseas operations in UK & Ireland (9M10: 13% CD’s EBIT), Australia (9M10: 16% CD’s EBIT), and China (9M10: 12% CD’s EBIT) is overblown, evidenced from the minute forex impact on CD’s results in the last three quarters. Given the approximately even contributions from the emerging (China) and developed nations (UK, Ireland, Australia), we reckon the chances of adverse forex movement from sustained strengthening of S$ against the local currencies of CD’s overseas operations as low.

Mun Siong Engineering: MOU in Vietnam may help secure more contract wins (DMG)

The news: Mun Siong Engineering (MS Engineering) announced that it has entered into a MOU with PetroVietnam Maintenance and Repair Joint Stock Company (PVMC) to develop business opportunities in refineries, fertilizer plants, chemical plants and other oil and gas facilities in Vietnam for mutual advantages and benefits. PVMC is part of the Vietnam National Oil and Gas Group (PetroVietnam) which provides diversified technical services for the oil and gas industries in Vietnam.

Our thoughts: The MOU would allow PVMC and MS Engineering to utilize their knowledge, experience and expertise to assist each other in implementing projects in refineries, petrochemical, chemical and oil and gas industries in Vietnam. Both parties will provide services that are required in process plant such as pre-commissioning, process plant maintenance, turnaround services and other specialized engineering services. With a huge demand for oil and gas structure maintenance and repair in Vietnam, we think potential contract wins for MS Engineering lies ahead. In addition, with the expected wave of downstream investments on Jurong Island, we believe the demand for MS Engineering’s mechanical and electrical and instrumentation services in Singapore would be boosted. Maintain BUY with TP of S$0.25, based on our DCF valuation (WACC of 12.1% and terminal value of 1%).

DBS - Expect good loan growth but NIM flatness in 2Q11 (DMG)

NEUTRAL

Price S$14.94

Previous S$15.00

Target S$15.00

Expect unexciting 2Q11 earnings… We are forecasting DBS 2Q11 net profit of S$720m, representing a 11% QoQ decline from 1Q11’s S$807m. This factors in sequentially lower net trading income and slightly higher provisioning. We see net interest income remaining unexciting. As we expect SIBOR to remain soft till mid-2012, we see little catalyst driving DBS share price. DBS remains NEUTRAL with target price of S$15.00, pegged to 1.3x 2011 book, close to the historical average of 1.35x P/B.

… with risk of lower net trading income. This weakness is largely attributed to (1) our estimate of lower 2Q11 net trading income – recall that 1Q11 net trading income rose a sterling 57% QoQ, which was driven by robust customer flows from both corporate and consumer customers. The non-customer segment of trading income is typically volatile; and (2) higher provisions sequentially (after 1Q11’s 20% QoQ decline).

DBS net interest income seen to be unexciting. SIBOR remained soft in 2Q11, with the 3-mth SIBOR averaging 0.44%, similar to that for 1Q11. Whilst we expect good loan growth (MAS data showed industry May 2011 loan expanding 12.6% YTD), the softness in SIBOR will negate the positive, as DBS has a low S$ loan-deposit ratio of 60% (versus OCBC’s 82% and UOB’s 77%). We expect NIM to remain close to 1Q11’s 1.80%, and sequentially flattish net interest income. However, we have raised our DBS FY11F loan growth to 13.5%, from 11.5% previously. Correspondingly, our FY11 net profit forecast has been raised by 2.7% to S$2.89b.

We note that 1Q11 provisioning of S$125m was lower than the 2010 quarterly average of S$228m. Whilst we note that Singapore economic conditions remain good, we assume that DBS may book in sequentially higher 2Q11 provisions.

Other Key Highlights:

HK mortgage rates have risen over past few months. There has been some increase in HK home mortgage rates in the recent few months. From a spread of ~1.6% over HIBOR six months ago, the spread is now ~2.3% over HIBOR. However, it should be noted that HK deposit costs have also risen due to competition (1) the attractiveness of CNH deposits has added upside pressure on HK$ deposit rates (2) China banks using HK as a booking centre for USD loans has led to shortage in US$ and HK$, and added upside pressure on HK deposit rates. NIM pressure on DBS HK should ease on the back of the increases in both lending and deposit rates.

Rubber play GMG may be just the kind of S-chip SGX needs

By VEN SREENIVASAN

THE largest supplier of natural rubber to a country which consumes a third of the global supply. A strong balance sheet to support upstream and downstream capacity expansion as rubber prices continue to surge.

Surely a winning proposition for any company?

Yet, GMG Global's stock price has been stagnating as market players remain fixated on situational punts.

Listed in 1999, GMG is the only pure natural rubber play on the Singapore Exchange (SGX). It has some 43,000 hectares of rubber plantation land in the African countries of Cameroon and Cote d'Ivoire (Ivory Coast), only half of which are now under cultivation. It has also bought into two processing plants in Kalimantan, Indonesia, with a total capacity of 55,000 tonnes. Last year, it acquired a controlling stake in Thai rubber processing company Teck Bee Hang.

Its Ivory Coast operations - which account for 20 per cent of GMG's gross profit - are back onstream after a month-long suspension during the political turmoil in that country.

GMG is one of the world's only few listed rubber plays which has a presence in plantation, processing and distribution. But more critically, the company is the single largest supplier of natural rubber to China.

It is 51 per cent owned by Beijing-headquartered Sinochem, one of China's Tier-1 state-owned enterprises (SOEs). Sinochem bought into GMG for $265 million, at an average of 26.5 cents per share, in 2008. A year later, it picked up its share of a $100 million rights issue, taking its average price in GMG down to 17 cents per share. Sinochem officials have said that the SOE could raise its stake in GMG to around 60-70 per cent over time.

Sinochem is also the biggest rubber trader in China - supplying over 15 per cent of the needs of a country which consumes a third of the world's rubber production.

Secure distribution

The Sinochem parentage gives GMG secure distribution into one of the most dynamic rubber markets in the world, significantly reducing its exposure to third-party clients elsewhere.

The global rubber sector has been facing a tightening supply-demand squeeze over the past year due to a combination of underinvestment in plantations and processing, and rising demand for the commodity from China, India and the rest of the world. Natural rubber is used in everything from car parts to home appliances and medical-scientific equipment.

China's demand for this commodity has grown at an average of 10 per cent annually. The only domestic rubber supply is some 500,000 tonnes from Hainan, in southern China. According to Sinochem officials, China considers rubber to be a more critical strategic asset than oil.

The Association of Natural Rubber Producing Countries estimates that natural rubber consumption in China would rise 9 per cent to 3.6 million tonnes this year, while in India, it is on target to grow 5.2 per cent to 991,000 tonnes. Not surprisingly, rubber futures have gained 20 per cent so far this year, extending last year's 50 per cent rally.

Analysts expect the rubber price rally to last well into 2012 and beyond.

In a report last week, DBS Vickers noted that robust demand and slow supply response could shift the natural rubber stock-usage ratio lower over the next 10 years.

'On average, we expect NR (natural rubber) prices to remain above US$3,500/tonne over this period - significantly higher compared to previous decade's average of US$1,597/tonne,' it said. 'We believe GMG is a key beneficiary of strong rubber prices, given its significant upstream contribution and growing processing volumes.'

BOA Merrill Lynch seems even more bullish.

'The (company's) upstream earnings, in our view, deserve a peak multiple (full production cycle) given a robust rubber price cycle,' it noted last week, pasting a 46-cent price target on the stock. 'The target multiple reflects our optimistic view of the rubber price extending its rally (our 2011E price is US$5,500/tonne) as well as GMG's imminent upstream expansion.'

The growing demand and rising price boosted GMG's net profit for the full year to end-December 2010 more than ninefold to $45 million.

Armed with some $130 million in cash, no debt and controlled by a Tier-1 SOE from the world's biggest consumer, GMG remains well positioned to consolidate its already dominant position in the natural rubber market.

If it executes its plans, GMG could be just the kind of 'S-chip' which the local bourse sorely needs.

STX OSV Holdings Limited - Parent pares down stake to 50.75% (DBSVickers)

BUY S$1.42, Price Target: S$1.86

Sale of shares in STX OSV by parent. STX Europe, the parent company of STX OSV, has announced that it has agreed to sell an 18.3% equity stake in the latter, comprising 215.6m shares, to affiliates of OZ Management LP (Och-Ziff). Goldman Sachs, the Sole Global Coordinator in STX OSV’s IPO, has consented to this sale of shares.

At 6.3% discount to Friday’s closing price. The placement was priced at S$1.33/share, representing a 6.3% discount to Friday’s closing price of S$1.42, and is expected to net STX Europe gross proceeds of S$286.7m.

STX Europe remains controlling shareholder with 50.75%. Following this, STX Europe will remain the largest shareholder of STX OSV with 50.75% stake, while Och-Ziff’s shareholding will increase to 20.0%. As part of this exercise, STX Europe has entered a separate lock-up agreement with Och-Ziff to which it agreed not to dispose of any additional shares in STX OSV until 12 November 2012 with certain limited exceptions.

Sale to partially fund STX group’s bid for a 15% stake in Hynix? The sale of shares is to improve STX OSV’s trading liquidity, and also to secure operating capital for the STX group, reduce its corporate debt, loan to shareholders and for general corporate purposes. This exercise comes on the back of media reports that STX Corp, the holding company of STX Group, has submitted a LOI to bid for a 15% stake in Hynix Semiconductor, worth c. US$2.2bn, so as to diversify its business portfolio.

Sale of stake by parent is not a surprise. Recall that STX Europe has been widely expected to sell down its stake in STX OSV, as it had disposed fewer vendor shares than planned during the latter’s IPO in November 2010 due to prevailing poor market conditions. Indeed, the disposal of an 18.3% stake is in line with expectations that STX Europe will still hold a majority stake in STX OSV post placement.

Removes share overhang concern. While this placement at a 6.3% discount to the last traded price could lead to near term pull-back in the share price of STX OSV, we believe this removes the share overhang concern, and clears the way for the stock to re-rate in the medium to longer term on order wins and earnings performance.

No change to our numbers, TP and recommendation. We expect near to mid-term catalysts to come from 1) the confirmation of the second PSV; 2) announcement of funding approval for the 8 Transpetro LPG Carriers;and 3) materializing of orders (especially for PSVs, OSCVs, and now even AHTS) from the high volume of enquiry observed by the group. The stock remains attractively valued at FY11/12 PE of 8.3x/7.8x, supported with a FY11 dividend yield of 3.6%.

First REIT: Proposed acquisition of South Korean Hospital (OCBC)

First REIT (FREIT) announced last Friday evening that it has entered into a conditional sale and purchase agreement to acquire the Sarang Hospital in Yeosu City, South Korea for a total consideration of US$13m (~S$16m). FREIT expects to complete this acquisition in Aug 2011 and fund it using USD bank borrowings. We estimate that FREIT's gearing ratio would increase from 13.6% to 15.9% as a result of this acquisition. We view this move positively as management highlighted that the proposed acquisition would be yield accretive. NPI yields for the Sarang Hospital is estimated to be ~9.0%, higher than our projected FY11F distribution yield of 7.7% prior to the acquisition. Moreover this Korean hospital represents FREIT's first foray into Korea and would provide a means of diversifying its revenue stream as current assets include three nursing homes in Singapore and six properties in Indonesia. The lease term lasts for ten years (option to renew for another ten years thereafter) with an annual rental escalation of 2.0%, similar to its Singapore assets. We are placing our BUY rating and S$0.80 fair value estimate UNDER REVIEW pending a discussion with management.

BreadTalk: Unaffected by food inflation (OCBC)

Slew of activity in June. Breadtalk had an eventful month in June as it announced the establishments of three joint ventures. The announcements were expected as BreadTalk seeks to accomplish its expansion plans in China and Taiwan for its bakery and food court segments. For the bakery segment, BreadTalk will enter into a JV via its Shanghai BreadTalk subsidiary to manufacture and sell frozen dough for bread and Danish pastries to bakery outlets in China. The partnership will seek to take advantage of its partner's manufacturing technology to complement its existing store development expertise and brand power to cultivate a strong value chain in China's bread market. For its food court segment, the company entered a JV to establish and operate food courts in Guangzhou under its "Food Republic" and "???" trademarks as well as firmed up a JV to oversee its food court operations in Taiwan. All three joint ventures are not expected to have any material impact on the earnings per share and net tangible assets of BreadTalk Group for this financial year.

Food inflation continues to climb but BreadTalk's key ingredient unaffected. With 30% of its cost of sales attributed to the cost of raw material such as vegetable oil, wheat, flour, eggs, etc, rising food inflation will have an impact on BreadTalk's margins. A broad gauge of 55 food commodities as measured by the United Nations' Food and Agriculture (FAO) showed an increase of 1% for the month of June as prices of sugar, meat and dairy increased. Although June's levels are about 1.6% lower from its all-time peak in Feb, the FAO expects prices to remain elevated over the next few years with agricultural output growth slowing to 1.7%/year through to 2020 versus 2.6% over the previous decade. Fortunately, there has been some temporary reprieve for BreadTalk. Prices of wheat, one of its key ingredients, declined 21% over June due to a higher-thanexpected increase in output production.

Margins should remain relatively intact; maintain BUY. With the reduction in wheat prices, we anticipate an offsetting effect on raw material costs from the general increase in prices of other ingredients. As such, we do not foresee any deviations from our gross margin forecasts of 54-55% and continue to put faith behind BreadTalk's management ability and its growing brand recognition. Furthermore, its recent JV announcements have reiterated its continuous commitment to expansion as well as enhance its operational capabilities. We maintain our BUY rating for BreadTalk but pared our our discounted cash flow-to-firm fair value estimate by 10% from S$0.74 to S$0.66 on account of its lack of trading activity.

HSU FU CHI (Lim&Tan)

S$4.00-HFCS.SI

􀁺 Nestle is proposing to acquire 60% of Hsu Fu Chi (HFC) by purchasing 43.52% stake via a scheme of arrangement in accordance with the Singapore Code on Takeovers and a 16.48% from the founding Hsu Family.

􀁺 The offer price to be made in cash is $4.35, or 9% above its last trade price and only 5 cents below its all time trading high achieved on 30 June ’11.

􀁺 The scheme is subject to minority shareholder approvals and to date, Arisaig, Winmoore and Star Candy who owns 8.95%, 1.68% and 14.81% of the company respectively has given irrevocable undertaking to vote in favor of the deal. In addition, they have also agreed to be bound by certain nonsolicitation provisions during the term of the deal.

􀁺 The approval of the scheme will require more than 75% of shareholders to vote in favor of the offer. With the above mentioned shareholders in total representing 58% of minority shareholders, we believe the scheme would likely be put through.

􀁺 The proposed transaction is to allow minority shareholders to realize their investments at a good profit considering the low trading liquidity, create a partnership between Nestle and HFC and to delist the company from SGX.

􀁺 The deal would value HFC at 30x PE in line with its peers trading in Hong Kong and Taiwan. This is quite fair for minority shareholders.

􀁺 The only obstacle would be that the deal needs to be cleared by anti-trust authorities in China.

SINGAPORE PROPERTY (Lim&Tan)

􀁺 Share prices have generally rebounded since National Development Minister Khaw raised the possibility of doing away with HDB’s Design Build and Sell Scheme.

􀁺 A likely doing away with the Executive Condo scheme, which we would not rule out, would only be good news for the private sector.

􀁺 We have picked CapitaLand, City Developments, Ho Bee, UOL, Wing Tai, as the more attractive stocks.

􀁺 Other latest developments include:

BUKIT SEMBAWANG ($4.51, up 3)

- sold 80 of the first 100 units released at Skyline Residences at Telok Blangah, at $1800 - 1900 psf.

- Bt Semb had bought Fairways, soon to be demolished to make way for Skyline, just before the Financial Crisis, and had made heavy provision for it.

- We are surprised that the new condo is being launched at prices comparable to Keppel Corp’s Reflections @ Keppel Bay, a waterfront development. (There are an estimated 330 units at the 1129-unit development not sold, ie 71% take-up.)

CITY DEVELOPMENTS ($10.94, up 11)

- sold 150 units at Blossom Residences executive condo in the Bukit Panjang district at $685 psf.

- There are a total of 602 units.

WING TAI ($1.51, up 2.5)

- Sold a unit at Le Nouvel Ardmore (JV with City Developments) at $4200 psf to Cheng Wai Kin, a brother of Chairman Wai Keung and Deputy Chairman Edmund.

- Le Nouvel is another “designer” condo, with world-renowned Jean Nouvel as the architect.

CAPITALAND ($3.07, up 12)

- Launched another 180 units at d’Leedon at unchanged price of $1680 psf average.

- There are a total of just over 1700 units at d’Leedon; and to date, only 391 units out of 470 units launched (650 after the latest), have been sold, or 23% take-up.