STX OSV HOLDINGS - Another vessel contract secured (DMG)

BUY

Price S$0.895

Previous S$1.56

Target S$1.56

A new order win; world class OSV builder valued at sub-5x P/E. We view the latest contract win from Trom Offshore win positively: (1) total YTD 2011 order win is estimated at NOK5.7b, 60% of our FY11F new order forecast and management remains confident of meeting our targets; (2) outstanding order book is estimated at NOK16.8b, 1.4x annual revenue; (3) STX OSV has filled more than 50% of its vessel delivery capacity in 2013 and this provide strong topline visibility. Share price has fallen 34% in the past one month as investors fear a repeat of the global financial crisis. We continue to like STX OSV for its exposure to the deepwater vessel newbuild sector and attractive valuations. Share price is now trading at 4.4x FY12F P/E with net cash (excluding construction loans) of S$0.36 per share, after 5S¢ dividend payment on 20 Sept 2011. We maintain BUY on the stock.

New vessel to be delivered in 2013. Trom Offshore Supply, a privately owned OSV company based in Norway, has awarded STX OSV a contract for the design and construction of one platform supply vessel (PSV). The PSV08 vessel, a STX design, is scheduled for delivery in 1Q2013. The hull of the vessel will be built in STX OSV Bralia in Romania and towed to STX OSV Brevik in Norway for final outfitting. Based on previous orders of similar designs, we estimate the contract to be value at NOK300m. Trom has an existing order at STX’s yard in Norway for a PSV09 which will be delivered in 2012.

Speculation of parent company selling controlling stake? An independent M&A intelligence service reported that STX Group has retained two major brokers to sell its controlling stake in STX OSV. While the news is purely speculation at this point, we cannot rule out such a move. Although the recent share placement by STX Europe to Och-Ziff in Jul 2011 came with an agreement not to dispose any additional shares in STX OSV until 12 Nov 2012, we note that the agreement came certain limited exceptions, which were not revealed. From our observation, we think STX OSV is independent of the STX Group, and any potential sale would have minimal operational impact on the company. We see any weakness in its share price as an opportunity to accumulate.

Singapore Airlines Ltd - Weakness factored into estimates, maintain BUY (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$11.30

Fair Value: S$12.59

Comparing SIA's operating statistics with the just released IATA numbers. Singapore Airlines (SIA) saw passenger kilometres (RPK) grew 3.0% YoY and passenger capacity (ASK) increased by 5.1% YoY in August. In 8MCY11, SIA passenger kilometres were up 2.1% while passenger capacity grew 6.0%. The difference in the growth rates of passenger capacity and passenger kilometres were 2.1ppt and 3.9ppt in Aug 2011 and 8MCY11, respectively. Compared to the recently released International Air Transport Association's (IATA) global airlines' operating data for Aug 2011, SIA's faster capacity increase than load increase outstrips those of worldwide and Asia Pacific averages. This resulted in SIA's Aug 2011 passenger load factor falling to 76.6%, below both the load factors of international flights worldwide and in Asia Pacific of 81.2% and 78.9% respectively. SIA may continue to experience falling passenger load factors if 1) it continues its 5% capacity increase for the rest of FY11 and 2) the upcoming peak air travel months disappoint.

Cargo capacity was better managed, but cargo load factor continues to fall. In Aug 2011, SIA's cargo kilometres (CTK) shrank by 0.1% YoY but cargo capacity (ACTK) was up 0.2% YoY. In 8MCY11 numbers, cargo kilometres are up 3.7% while cargo capacity is up 5.0%. The difference in the growth rates of cargo capacity and cargo kilometres were 0.3ppt and 1.3ppt in Aug 2011 and 8MCY11, respectively. When compared to the IATA industry numbers, SIA has managed its cargo capacity increase much better than airlines worldwide and in Asia Pacific, which saw cargo capacity growth outpaced cargo kilometres by ~5ppt. However, as previously mentioned in our report, IATA said cargo volumes around the world have stagnated in recent months because world trade has stopped expanding. Coupled with increasing cargo capacity, cargo load factors have been on a downtrend.

Weakness factored into our estimates, maintain BUY. SIA's falling load factors in both passenger and cargo segments are expected and have previously been factored into our earnings model. Although SIA's share price has fallen 0.9% since we issued our initiation report on 28 Sep 2011, it displayed some of its defensive nature when compared to the 4.5% drop in the FTSE STI over the same period. We are maintaining our fair value estimate of S$12.59 per share, representing a potential upside of 11.4% from current level, and also maintaining our BUY rating.

KSH Holdings (KimEng)

Background: KSH Holdings is a construction and property development company with operations in Singapore, Malaysia and China. In Singapore, it takes on projects in both the public and private sectors. The company also engages in property development through joint ventures and currently co‐owns seven residential sites.

Recent development: KSH was awarded a contract worth $49.9m from Mount Alvernia Hospital to work on additions and alterations, as well as to build a new medical block. Its outstanding orderbook is thus boosted to $385.0m, which should last until May 2014.

Our view

Successfully garnered high‐end luxury projects. Private residential projects contribute to 76.9% of KSH’s orderbook. Year‐to‐date, the company has won two condominium contracts, Eight Courtyards and Ardmore Three, worth $78.8m and $138.m, respectively. It is also involved in the construction of Centennia Suites, Madison Residences and Watten Residences. The company is expected to actively bid for both private and public projects, given the strong supply of flats launched this year.

Landbank progress strong. KSH was part of a consortium that bought Hong Leong Garden Shopping Centre for $171.1m, of which it will have a 12.25% stake. The project will be funded internally via cash and loans. This brings the company’s landbank to 269,223 sq ft of GFA. Its recent launch of Lincoln Suites, Cityscape@Farrer Park and The Boutiq saw strong uptake, with the projects having sold 78%, 20%, and 70%, respectively.

Stronger balance sheet. Currently, KSH is far from its 2009 trough of $0.077. Compared with 2009, the company now has a stronger balance street with almost zero net gearing and a healthy landbank. In addition to trading at 37% below book value, it is relatively cheap compared with its peers’ P/B at 0.8x.

Key ratios…

Price‐to‐earnings: 3.1x

Price‐to‐NTA: 0.55x

Dividend per share / yield: $0.02 / 9.6%

Net cash (debt) per share: ($0.003)

Share price S$0.205

Issued shares (m) 343.7

Market cap (S$m) 70.6

Free float (%) 37%

Recent fundraising activities Mar 09 – warrants issue 1‐for‐1 at $0.01; warrants are convertible to share at $0.10 1‐for‐1

Financial YE 31 March

Major shareholders Choo Chee Onn – 20.3%; Tok Cheng Hoe – 15.6%; Lim Kee Seng – 15.6%; Kwok Ngat Khow – 15.6%

YTD change ‐16.1%

52‐wk price range S$0.20‐0.29

SMRT Corporation (KimEng)

Event

The final two stages of the Circle Line (CCL) will start operations from tomorrow. There will be 12 new stations, bringing the total number of CCL stations to 28. We understand that an extension with another two stations stretching from Promenade to the Marina Bay area will be launched in 1Q12. Despite the potential jump in ridership, we expect higher energy costs as a result of increased train runs to weigh on SMRT’s EBIT margin. Reiterate HOLD.

Our View

The average ridership on the CCL currently is about 180,000 per day. With the opening of Stages 4 and 5 tomorrow, SMRT aims to achieve breakeven ridership of 330,000 per day in 6‐9 months’ time once commuters’ travel patterns stabilise. In our view, this projection seems overly optimistic given that the gestation period may be longer than expected. Ultimately, management targets a steadystate ridership of 400,000‐500,000 daily.

Rail revenue, however, will continue to lag ridership growth because of lower average fares with the implementation of the distance‐based fare system in July last year. We expect margin pressure to persist in the next few quarters with increased train frequency, which will further bump up electricity consumption. But there will be respite for SMRT from lower average tariffs in 2HFY Mar12 following the recent slide in fuel oil prices.

Rental income, on the other hand, should receive a boost as retail space totalling 868 sq m at three new CCL stations – Holland Village (596.2 sq m), onenorth (248.3 sq m) and Botanic Gardens (23.5 sq m) – has been fully leased out. According to management, the entire CCL with a combined retail space of 3,150 sq m, or 80 shops, now enjoys a high occupancy rate of more than 90%.

Action & Recommendation

With no major near‐term catalysts in sight, we maintain our HOLD recommendation on SMRT with a target price of $1.82. The share price should be wellsupported by a decent dividend yield of almost 5%.

VENTURE (Lim&Tan)

S$6.46-VENM.SI

􀁺 We are lowering our recommendation on Venture from BUY to HOLD for the following reasons:

- channel checks reveal that management’s previous bullish expectations of a better 2H 2011 may not materialize due to order delays and push-outs due to the ongoing global financial uncertainties caused by the European debt crisis as well as weak demand in the US;

- the above has been backed up by the numerous downgrades in the technology industry in recent times;

- while Venture’s big volume mass market OEM business with HP has been transferred to Hon Hai over the last 2 years, it still has some ODM business with them and the current top level changes is causing some order push-outs;

- another customer in the test and measurement segment is also seeing some supply chain issues;

- the above suggests that the traditionally stronger 2H may not materialize this year;

- we are lowering our profit forecast from $188mln to $165mln, representing a 12% yoy decline from last year’s $188mln;

- with consensus estimates at $188mln, we are thus 12% lower than the market;

- this would bring its PE up from 9.4x to 10.7x, which is in line with Hon Hai’s 10.5x, but at a premium to US peer Flextronics and Jabil’s 7x;

- despite the potential downward adjustment in consensus earnings estimates, we do not believe the stock is a sell as we believe that the company will still be able to sustain its 55 cents dividend payment early next year (when they report full year results) giving an attractive yield of 8.5% (payout ratio of 90%), and it is trading at about 1x price to book, at the lower end of its historical trading range.

Singapore Post - Dividend play; upside from buybacks & growth (DBSVickers)

BUY S$1.01 STI : 2,603.12

(Upgrade from HOLD)

Price Target : 12-month S$ 1.17

Reason for Report : Change in recommendation

Potential Catalyst: Share buybacks

DBSV vs Consensus: Broadly inline

• Generates S$50m cash annually after paying dividends; deployed in six M&A transactions YTD

• Singpost still needs to deploy idle cash, so share buybacks are likely to continue

• Upgrade to BUY with unchanged TP of S$1.17. We see a favorable +23% reward versus –4% risk

Singpost is a cash machine; deployment of cash is key. Free cash flow usually exceeds earnings, as regular capex of S$10-15m is less than depreciation expenses of S$20-25m. Singpost pays 6.25 Scts DPS each year, which translates to S$120m in dividends versus free cash flow of ~S$170m.

Six M&A transactions done in the last six months. SingPost has used S$65m to acquire stakes in six regional companies in the logistics, e-commerce and e-substitution sectors. Contribution from these acquisitions is estimated to be minimal in FY12F as Singpost invests in people and resources to manage these businesses. However from next year onwards, these investments will start to pay off.

Share buybacks may continue to deploy idle cash. Singpost pays fixed rate of 3.5% on its 10- year bonds while it stands to gain over 6% yield by buying back its own shares. Treasury shares can also be used later for regional expansion.

Trading at 13% discount to its average 1-year forward PE of 13.8x. Singpost has been resilient to market volatility, falling 10% vs. 20% decline in broader STI over the last two months. We upgrade stock to BUY at our TP of S$1.17 based on DDM (cost of equity 7.7%, growth rate 2%) for its >6% yield and steady earnings growth through acquisitions. We assume that dividends can grow by 2% p.a. in the long term.

Tat Hong Holdings Ltd - Maintain HOLD with lower fair value of S$0.59 (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.655

Fair Value: S$0.59

Weakness in Australia construction sector. According to Australia Industry Group (AIG)'s recent findings, the downturn in the country's construction industry continues to deepen in Aug 2011, driven by a further fall in activity and sharp reduction in new orders. The seasonally adjusted AIG Performance Construction Index declined 4.0 points to 32.1, marking the 15th consecutive month that the index has fallen below the critical 50 points, separating between expansion from contraction. We suspect it may take some time before we see a recovery in Australia's construction sector. As the country is a key market for Tat Hong Holdings (TAT) and accounted for more than half of the group's revenue (FY10: 59%; FY11: 54%), delays in its recovery could have a substantial impact on TAT’s near-term financial performance.

Increased activity in energy/resources projects. On the other hand, our channel checks indicate increased level of activity in a number of oil & gas and mining projects. In particular, the LNG market in Australia is attracting considerable degree of interest. However, many of these projects are at the conceptual or design stage and construction has yet to commence. But once these projects move into the construction phase, TAT should be able to benefit from increased demand for its cranes and other equipments as it has an established presence there through its Tutt Bryant subsidiary.

AUD has strengthened against SGD. Meanwhile, AUD has appreciated against SGD by about 5% over the recent quarter. This may result in translation gains, mitigating the weakness in the Australia market. We estimate that for every 1% gain in AUD, TAT could see a 0.5% to 0.6% gain in revenue. However, unless AUD continues to strengthen at the same or faster pace for the rest of the year, any translational gains on the group's bottom line are likely to be negligible. For transactional currency risk, we believe that TAT hedges 50% to 100% of the risk through the use of derivative contracts.

Maintain HOLD with lower FV of S$0.59. Due to the lack of clarity in Australia's construction outlook and the uncertainty in the timing of its recovery, we put off adjusting our estimates for now and await clearer signs of a recovery. However, we are lowering our valuation peg from 11x to 9x (one standard deviation below its long-term average) on blended FY12/FY13 EPS, in line with the weaker overall market. Maintain HOLD with a lower fair value estimate of S$0.59.

Trek 2000: Bright future in a dim market (DMG)

(BUY, S$0.30, TP S$0.45)

This recent series of highly positive events underline the bright future of Trek. We continue to favour the counter due to 1) boost in licensing income due to legal settlements, 2) wide adoption of the iSDIO card (Trek’s modified FluCard®) as it has become the industry standard and 3) iSDIO card’s potential to expand beyond the camera market. Reiterate BUY recommendation with an unchanged TP of S$0.45 based on 7x FY12P/E.

Million dollar settlement on ThumbDrive® sets a positive precedent. Trek has reached an out-of-court settlement with Verbatim, which Trek filed a complaint against for the alleged infringement of its USB-flash drive patents. We believe that Trek will receive a licensing fees ranging between 2% and 3% based on Verbatim’s USB-flash drive sales figure, translating to an additional profit of US$1m yearly (33% of FY10 earnings). Following this precedent, we expect the rest of the alleged companies (Imation Corp, IronKey, Kingston Technology, Patriot Memory, RITEK Corp and Advanced Media) to follow suit.

Officially the industry standard; Toshiba and Panasonic embrace. The worldwide SD Association announced that the iSDIO card to be the standard for all future Wi-Fi memory cards. The iSDIO card is the creation of a partnership between Trek and two major industry players, Panasonic and Toshiba. We have seen adoption commence with the first batch of 100,000 iSDIO cards shipped to Toshiba (known as the Toshiba FlashAir WiFi SD Card). Currently, the SD card market is estimated to worth US$2b with Toshiba being the largest producer.

Expanding beyond cameras. iSDIO card’s potential to expand beyond the camera industry has seen through the recent inking of a contract between Trek and PLUS Corporation (second largest electronic whiteboard producer in the world). Effective from FY12, Trek will deliver approximately 50,000 units to PLUS. On top of that, discussions are currently in place as Panasonic expresses strong interest in the expansion of the usage of the iSDIO card in its office automation and consumer electronics businesses.

SATS: In talks to sell UK business (DMG)

(BUY, S$2.18, TP S$2.53)

Looking to sell UK food business. SATS announced that it is in discussions with third parties to sell its UK businesses - the Daniels Group and International Cuisine. At the point of the announcement, no firm agreement has been made, and management made no disclosure on the price it is looking at. The UK business accounted for 21% of SATS FY11 revenue. Assuming a PBT margin of 8%, this translates to ~S$29m contribution to SATS PBT (12%). The Daniels Group was owned by SFI when SATS bought over SFI in early 2009, for ~S$490m. Assuming 50% of that acquisition price was apportioned to the UK business, a sale price of £150m (~S$305m) (according to news reports) could potentially yield SATS a gain of ~S$60m (5.4 S¢/share).

Funds for other operations? Management had always maintained that its business volume in the UK has been steady, but results have been impacted by the weak sterling. Hence, if the opportunity arises and the price is right, we think it would be better for SATS to realise its fouryear investment in the UK non-aviation food segment. While the deal to shed UK business is not cast in stone yet, there is a possibility that SATS may use the funds from the sale, to expand into other businesses, such as the cruise industry. SATS is one of the contenders to manage and operate the new International Cruise Terminal at Marina South.

Maintain BUY, lower TP to S$2.53. SATS’ share price has come off along with the market volatility in recent weeks. Margins are likely to remain under pressure for the next few quarters and growth in passenger travel and freight volumes could possibly slow down, given the global economic uncertainty. Nonethless, SATS’ business generates steady cash flows. We continue to like SATS for its steady dividends. We have adjusted our WACC assumptions (new: 7.4%, old: 6.6%), and our DCF-based TP is lowered to S$2.53 (from S$2.92 previously).

Biosensors International Group - More positives from JWMS (DBSVickers)

BUY S$1.125 STI : 2,528.71

Upgrade from Hold

Price Target : 12-Month S$ 1.71 (Prev S$ 1.40)

Reason for Report : Company update

Potential Catalyst: Product approval in China

DBSV vs Consensus: Higher on more optimistic licensing revenue

• Acquisition of an additional 50% in JWMS is positive for earnings

• Expect licensing revenue to be strong

• FY12/13F earnings raised by 56%/34%

• China catalyst still to come. Upgrade to Buy, TP raised to S$1.71

Positive on BIG’s prospects. BIG has completed the acquisition of the remaining 50% stake in joint venture company, JWMS. We believe its outlook will be rosier on the back of : (i) higher earnings contribution from JWMS; (ii) sustained strong licensing revenue from Terumo; and (iii) longer term catalysts from the approval of BioMatrix Flex for the China market.

50% acquisition of JWMS is a plus. BIG now gets to consolidate JWMS’ financials. BIG is also now well positioned to take advantage in the event BioMatrix Flex is approved for sale in China.

Robust growth from licensing revenue. We remain optimistic on the licensing sales from Terumo in Japan and expect licensing sales growth of close to five times to over US$80m in FY12F. We believe further growth opportunities exist as Terumo is still only in its initial stages of marketing the NOBORI stent in Japan.

Catalyst still to come. BioMatrix Flex’s approval for sale in China will be a longer term catalyst for BIG. Hypothetically, a 5% market share could add another 8% to FY12F’s revenue of US$312m.

Upgrade to Buy, SOTP-based TP S$1.71. We have raised FY12/13F earnings by 56%/34% after taking into account consolidation of JWMS and strong licensing revenue outlook. We SOTP valuation of BIG at S$1.71 translates to 16x forward earnings, equivalent to peers and -0.5 standard deviation PE. Upgrade to Buy with 52% potential upside.

SembCorp Marine Ltd - FPSO conversion work from repeat customer (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$3.11

Fair Value: S$5.70

S$130m FPSO conversion work. Sembcorp Marine (SMM) announced recently that its wholly owned subsidiary, Jurong Shipyard, has secured an FPSO conversion project worth about S$130m from MODEC. The VLCC tanker, MV TAR II, will be converted to an FPSO, and SMM's work scope will involve the installation of an external turret mooring system and process facilities. Delivery to MODEC is scheduled to be in 2Q13.

Bound for Brazilian waters. According to an earlier press release by MODEC, the group had signed a contract with OSX 3 Leasing B.V. (subsidiary of OSX Brazil) for the engineering, procurement, construction, installation and commissioning of an FPSO unit for the Campos Basin in offshore Brazil. The complete unit will be delivered to OSX in 3Q13. According to Upstream1 , OSX has received several orders from OGX (both companies are part of the EBX Group, owned by Brazilian tycoon Eike Batista) for five FPSOs and two wellhead platforms with a six floater to be added by year end. Brazil remains as a major source of work where oil related companies are hopeful of securing more orders.

Close relationship with MODEC. This is the eighth FSO/FPSO MODEC will provide in Brazil, and is also the fourth (out of the eight vessels) that Jurong Shipyard will be converting for MODEC, illustrating the close relationship that SMM enjoys with its customer. Three of the other vessels went to Cosco Dalian Shipyard while one went to Keppel.

Secured S$2.8b worth of new orders YTD. SMM has secured S$2.8b worth of new orders YTD, accounting for 62% of our full year estimate. The group has eight outstanding rig options worth about S$2b which we estimate should expire by 1H12. Meanwhile, it is also in the running for tenders such as Statoil's category B well intervention and light drilling semisubmersible rig. As the contract value of individual projects can be substantial (recall PTTEP's S$600m integrated platform order), the securing of two such projects would increase SMM's order book considerably. However, should we fail to hear of more new orders in the near term, the group would be exposed to higher earnings risk and we would look to revising down our new order estimates for the year. Meanwhile, we keep our earnings estimates intact for now and maintain our BUY rating with S$5.70 fair value estimate.

"Sembcorp bags Modec FPSO deal". Upstream. 4 Oct 2011.

Beyonics Technology Limited (KimEng)

Background: Beyonics was listed on the Singapore Exchange in 1995. It is engaged in electronics manufacturing and precision engineering services in Asia, and has manufacturing facilities in Singapore, Malaysia, Indonesia and Thailand. The group is currently involved in a takeover by a private equity firm, Shaw Kwei & Partners Ltd (SKP).

Takeover offer: The proposed acquisition will be effected through a scheme of arrangement whereby all the company shares will be transferred to the acquirer. Shareholders will receive $0.26/share in cash. SKP intends to delist the company with the existing chairman and CEO continuing to be involved in the businesses.

Key ratios…

Price‐to‐earnings: na

Price‐to‐NTA: 0.5 cents

Dividend per share / yield: S$0.005/ 2.0%

Net cash/(debt) per share: S$0.02

Net cash: $12.19m

Share price S$0.245

Issued shares (m) 535.38

Market cap (S$m) 131.17

Free float (%) 79.98%

Recent fundraising activities May 2005: 1‐for‐4 rights issue of 120.3m rights shares @ $0.31

Financial YE 31 July

Major shareholders Chay Kwong Soon (15.9%); Goh Chan Peng (4.1%)

YTD change 19.51%

52‐wk price range S$0.155‐0.255

Our view

Fair deal for longsuffering shareholders? The company’s shares will be transferred to SKP fully paid and free from encumbrances. Given Beyonics’ cash position of $0.11/share, SKP is paying only $0.15/share and is getting the company at a steep discount of 47% to NAV. Arguably, the offer price is fair when the P/NAV is compared with that of the peer average of 0.48x and shareholders are given a chance to exit from a loss‐making company (FY Jul11 net loss: 3.26 cents/share). However, longsuffering shareholders may not yield to the offer; the stock price hit $0.595 at its peak in 2007.

Chance for a better deal? Approval by a majority of shareholders holding not less than 75% in the company shares is required for the scheme to go through. SKP has received irrevocable undertaking from key shareholders of only 19.98% of the total shares. In the event of a competing offer, SKP may set a higher consideration price, conditional upon an acceptance level of 50% of total shares.

Ezion Holdings (KimEng)

Event

Ezion’s share price has declined by 32% over the past month, while the Straits Times Index has fallen by a less precipitous 9%. However, its fundamentals remain rock solid and probably the best in the offshore services sector. Earnings will be boosted by contributions from liftboats, while prospects are looking even better than ever. Selling pressure on the stock may continue as it is widely held by institutional investors who may be looking to exit the regional markets. However, with a core PER of just 4.0x, Ezion looks to be an attractive BUY. Our target price stands at $0.99.

Our View

Ezion’s liftboats are generating solid earnings and continue to be in demand. We understand that the liftboats are still attracting strong interest from several regional state‐owned oil companies eager to get their hands on this asset for their operations.

Ezion’s windfarm‐specific variant is also attracting further interest from a North Asian customer, while its latest liftboat, the accommodation jackup, is set for deployment ahead of schedule in the North Sea. It is already receiving praise from customer Maersk, and management said there could be significant interest from other customers.

Upstream recently reported that ShoreAsco has been selected as the preferred bidder to operate a mega‐scale marine supply base in Darwin, Australia, that could eclipse Ezion’s own planned marine base. However, we note that the A$0.5‐1.0b project has yet to receive several key approvals including federal and environmental consent. At any rate, we have not factored in any contributions to Ezion’s earnings and potential contributions will be small, relative to its liftboats and supply boats.

An overhang for Ezion’s share price is that Ezra continues to hold a 14% stake in the company. With Ezra’s own fund‐raising intentions such as its perpetual capital securities and a potential London dual listing likely put on hold, the worry is that Ezra may raise cash by selling its stake in Ezion. However, we believe that Ezra is not keen to sell at current valuations.

Action & Recommendation

We see no reason to change our FY11 forecast of 42% net earnings growth. Our target price of $0.99 is based on PEG of just 0.5x or FY11F PER of 12.5x.

HARD DISK DRIVE SECTOR (Lim&Tan)

• Beyonics’ takeover offer at 26 cents or more than 30% above its last traded price was a surprise to us as the company’s fundamentals is at its weakest state since listing (made its first ever loss) and is expected to remain weak for the foreseeable future due to the weak state of the hard disk drive & PC market, continuing cost pressures, volatile raw material and forex rates and continued execution issues at its base plate business.

• On the other hand, these continued difficulties could also be a reason why the company’s founder and Chairman Chay KS and CEO CP Goh who together owns close to 20% of the company have decided to vote in favor of the takeover offer despite being priced at only 0.5x price to book compared to the average of 2.9x for the other hard disk drive players who were bought out in the past few years (Unisteel, Seksun, Amtek and MMI). However, we note that Unisteel, Seksun, Amtek and MMI were all very profitable and generating ROEs between 12-29% compared to Beyonics’ loss making situation.

• Past takeover situations suggest that the higher the ROE, the higher the buyer was willing to pay on price to book basis. For example Amtek was bought out at 1.5x price to book versus its ROE of 12% then while Unisteel’s ROE was 29% and its buy out price to book was 4.9x.

• While the business of Beyonics is expected to remain challenging due to continued cannibalization of the Nand-flash market as tablet computers and smart phones use it instead of the hard disk drive and consolidation of the major hard disk drive players, the private equity player SKP how is proposing to buy the company is very experienced in restructuring Asian manufacturing companies to help them cut costs and improve operating efficiencies. One of the founders of SKP was involved with turning around Flextronics’ Asian manufacturing operations in the past.

• The other hard disk drive related players include Broadway (currently trading at 0.6x price to book), Cheung Woh (0.6x), Miyoshi (0.6x), Armstrong (1.2x) and Adampak (1.2x).

• While we would not rule out further takeover situations in the sector, we also note that the major hard disk drive players such as Seagate and Western Digital which used to trade at 4-5x price to book during their heydays in 2007-2008, have been derated to 1.1x for Western Digital and 1.7x for Seagate currently due to cannibalization of the Nand Flash market.

• As a result of the above, we do not believe that potential buyers would be as generous as in the past, but those players who are trading below book values would likely have better chances.

• We are however staying Neutral on the sector (despite low valuations) given the sector’s weak outlook going forward.

Wilmar Int’l Ltd - Lower S$4.78 fair value on weaker China outlook (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$4.45

Fair Value: S$4.78

Massive sell-down in share price. Wilmar International Limited's (WIL) shares were sold down over the past two days, likely spooked by the looming specter of a hard landing for China's massive economy; although we note that experts remain mixed over the likelihood of such an event happening. Its share price has taken a tumble of 13% over the last two days; and it is also 36% off its 52-week high and down 21% YTD.

Looming specter of China hard landing. With the US economy looking to slide back into the doldrums and the EU debt crisis still seen as far from being resolved, investors have increasingly turned to China as the last bastion of growth. However, the latest economic numbers coming out of China are also not looking all that encouraging, with industrial production slowing for the third straight month in Aug. As China could face a more complicated environment for the rest of the year; the government expects the industrial value-added output to grow 13.5% this year. Meanwhile, we suspect the market could also be spooked by recent reports of the increase in small business failures in China, as it is unlikely that the country can escape the economic pain of its big customers.

Impact on WIL. As WIL derives 60% of its earnings from China in 1H11, any significant economic contraction would have an impact on its performance. We believe that its crushing business may be the most affected, due to the additional 12.3m tonnes of soy crushing capacity that China is reportedly adding this year to bring the country's total to some 100m tonnes1 ; China National Grain and Oils Information centre also expects utilization for this year to be around 55%. This suggests that there is still quite a lot of excess capacity in the industry. In addition, should consumption taper off sharply, the overall crushing margins will likely take a big hit (we incorporate a 40% chance of weaker margins in our FY12 numbers). On the other hand, we are less concerned with WIL's cooking oil business, given that raw material prices are easing and WIL has also managed to raise its ASPs by 5% in Aug.

Paring fair value to S$4.78. In line with the weaker overall market, as well as the more muted outlook for China, we are reducing our valuation peg from 16x to 12x (-1 standard deviation from its 4-year mean) and when applied against its FY12F EPS, we derive a new fair value of S$4.78. Given the limited upside, we maintain our HOLD rating.

Study to identify suitable rail link between JB and Singapore

PETALING JAYA: A six-month study is being done to identify the most suitable rapid transit system link between Johor Baru and Singapore.

This was in line with the agreement made between the governments of Malaysia and Singapore when Keretapi Tanah Melayu moved out of Tanjung Pagar in Singapore on June 30, said Transport Minister Datuk Seri Kong Cho Ha.

“We are doing a joint study on where the crossings should be and what type – whether underground tunnel or above ground on a bridge or something else,” he said at a press conference after the handover of a mobility van by the Japanese Embassy to the Damai Disabled Persons Association yesterday.

Kong said that on the Malaysian side, the station would be located at Johor Baru Sentral because the Customs, Immigration and Quarantine facilities were available there.

He said the rail transit system would reduce congestion on the road as thousands of Malaysians travel to Singapore each day by bus, taxi, motorcycle and car.

The Straits Times reported that Malaysia and Singapore were seeking a consultant to undertake an engineering study for a rapid transit system linking the two countries.

Singapore’s Transport Minister Lui Tuck Yew who visited Kong on Tuesday said both countries would invite tenders at the same time and a joint Malaysian-Singapore team would evaluate and pick one company.

Earlier, Kong expressed concern over the rising number of people who become disabled due to road accidents.

The ministry donated RM10,000 to the association while the Japanese Embassy deputy chief of mission Koichi Ito handed over a mock cheque for RM145,516.

Koichi hoped the mobility van could be used for the disabled to have access to more job opportunities and to make their travels easier.

He also said the grant was approved for the association on March 11, just before the tsunami hit Japan.

Koichi said the Japanese were grateful for the sympathies and the assistance Malaysians had offered to tsunami victims.

Cache Logistics Trust - Defensive stock with attractive yields (OCBC)

Maintain BUY

Current Price: S$0.94

Fair Value: S$1.14

Defensive stock. We continue to maintain our positive view on Cache Logistics Trust (CACHE) and rate it as one of our preferred picks in the S-REIT space. Defensiveness and attractive yields have become the investment community buzzwords in recent months amid the market uncertainty, and we think CACHE fits into these themes smugly. The stock has posted a slight loss of 2.6% YTD, significantly outperforming FTSE ST REIT Index and STI, which were down 15.9% and 20.7% respectively during the same period. Operationally, CACHE is also relatively well protected from the market downturn and negative rental reversions due to the master lease arrangement for its portfolio. Specifically, this provides for long lease durations (weighted average lease to expiry of 5.1 years in 2Q11), with locked-in annual rental escalation of 1.5-2% and a triple-net lease structure for the contracted lease term, which in turn provides organic growth and earnings predictability for the group.

Attractive yields. CACHE also has one of the more attractive DPU yields in the sector. We estimate that the group would give out 8.3-8.6 S cents in FY11-12 (in line with Bloomberg consensus), representing yields of 8.8-9.1%. This is higher than the sector average consensus yields of 7.8-8.0%.

Acquisitions made are DPU accretive. CACHE made its maiden acquisitions in Mar, with the purchase of 6 Changi North Way and 4 Penjuru Lane, Singapore. In Jun, it announced that the acquisition of chemical warehouse facility in Shanghai from its sponsor CWT Limited, marking its foray into China. More recently, CACHE reported the completion of acquisition of purpose-built four-storey bonded warehouse at 22 Loyang Lane, Singapore. These acquisitions, we note, have NPI yields of 7.4-8.6% (relatively consistent with estimated NPI yield of 7.7% for its existing portfolio) and are DPU accretive.

Financial resources available. With additional debt headroom of ~S$60m before it reaches the regulatory aggregate leverage ceiling of 35% (from 30.2% currently) without a credit rating, CACHE has the financial resources to fund more acquisitions, possibly from CWT. We note that the latter has properties that are granted the Right of First Refusal to CACHE. We would not be surprised if the group announces more acquisitions in coming quarters, as several of these properties have completed construction.

Maintain BUY. We now revise our forecasts to include its 2Q11 results and contribution from 22 Loyang Lane. Our RNAVbased fair value now stands at S$1.14 (previously S$1.06), representing an attractive upside potential of 21.6% (excluding FY11F DPU yield of 8.8%). Maintain BUY on CACHE.

Breadtalk Group Ltd - Sell-off overdone; 3Q pickup to continue (OCBC)

Maintain BUY

Current Price: S$0.47

Fair Value: S$0.66

Sell-off overdone. Since our last report issued on 15 Aug, BreadTalk's share price has fallen 13.8%, exceeding the decline of the Straits Times Index, which has fallen 11.9% over the same period. Although the drop in share price is not surprising given the current state of global economic concerns, with BreadTalk's positioning as a provider of relatively stable consumer products i.e. bread, food court operations, we deem the sell-off to be somewhat overdone at this point, especially with retail sales figures pointing to increased spending and BreadTalk's historically stronger 2H performance.

Restaurant spending up over the past five months. According to the latest July retail sales released by the Singapore Statistics Department, F&B service providers saw an overall increase in sales of 1.6% MoM as restaurants and food caterers saw increased takings for July of 3.3% and 1.9% MoM, respectively. As a group, the F&B service providers have experienced sales growth for five consecutive months.

Historical pickup in 3Q11 performance to continue. Historically, BreadTalk tends to exhibit the highest QoQ revenue growth in 3Q as compared to the other quarters (+14.4% FY08; +12.5% FY09; +14.1% FY10). From our communications with management, this trend is likely to continue. Based on our projections, the Bakery segment should remain the main revenue contributor at around 46% while the restaurant and food court operations should record QoQ revenue improvements as well. Although the restaurant segment operating profits could potentially remain depressed due to initial start-up costs incurred by the commencement of Bangkok's first Din Tai Fung restaurant, early reports on Bangkok's DTF have been encouraging (e.g. peak period wait time of 40 minutes). In terms of its costs, with recent declines in raw material prices, we expect gross profit margins to show slight improvements and surprise on the upside of our forecast range of 54-56%.

Share buybacks could provide some interim support. In the interim, management has initiated some share buybacks of about 853K shares since end Jun. At current share prices, we do expect management to remain active in this area.

Maintain BUY. We leave our 2H11 projections unchanged, and based on its healthy fundamentals, we believe the group can weather the current global slowdown, as seen in its topline growth in the previous downturn in 2009. We are maintaining our BUY rating with an unchanged fair value estimate of S$0.66.

Noble Group - Potential listing of agriculture business on SGX (DBSVickers)

BUY S$1.21 STI : 2,531.02

Price Target : 12-Month S$ 1.70

Noble announced this evening that an application has been filed to possibly spin-off and list its agriculture business on the Singapore Stock Exchange (SGX).

The company notes that no final decision has been made on the possible listing and the transaction is subject to market conditions. Based on our FY12 earnings forecast, Noble's agriculture business represents c.23% of the group’s gross profit.

Announcement of possible spin-off of the agriculture segment is ahead of expectations as we had thought Noble would wait for their oil plantations to start producing first.

We see this announcement as a positive development with the following potential impacts on Noble:

1. Proceeds will alleviate funding needs for expansion of its agricultural business - subject to valuation

2. Possible debt retirement at the holding company level resulting in interest savings

Pending further details, we are maintaining our Buy rating and TP of S$1.70.

Sembcorp Marine: Secures S$130m contract from MODEC (DMG)

(BUY, S$3.07, TP S$5.46)-Flash

No slowdown in FPSO jobs; maintain BUY. Jurong Shipyard, a wholly owned unit of Sembcorp Marine (SMM), has won a contract to convert a very large crude carrier (VLCC) into a FPSO for MODEC. The contract is valued at S$130m. The FPSO, to be named MV “Tar II”, is expected to be ready by 2Q13. We see further order book opportunities in the FPSO segment: International Maritime Associates (IMA) has identified 53 new projects to be awarded in the next 12 to 18 months and we expect SMM to benefit from this positive trend. We maintain FY11-13F EPS estimates and TP at S$5.46. Maintain BUY.

Eight jackup options remaining; could bid for Statoil semi-sub. We estimate that SMM has an outstanding order book of S$5.8b with deliveries up to 2014. YTD order win of S$2.75b is slightly below our full-year estimate of S$3.5b, but we think this is achievable. The company has eight options for newbuild jackup rigs worth S$2b. Most of these options are in-the-money as rig prices have increased by 5-10% since the start of 2011. Aside from the options, Upstream reported on 30 Sep 2011 that Helix has teamed up with Jurong Shipyard to bid for Statoil’s Category B semi-submersible drilling rig which could be worth more than US$500m.

Valuations. Share price has fallen ~43% since beginning Aug 2011 and is now valued at 10x FY12F P/E and 2.5x FY11F P/B. Net cash of S$1.1b (excluding customer down payments) is equivalent to 18% of its current market cap or S$0.54/share. We expect cash level to be significantly boosted in 3Q11 following the completion of Songa Eclipse. During the global financial crisis, SMM’s valuation reached a low of 1.83x P/B. On current estimates, this would translate into S$2.22/share (based on FY11F BV).

HPH Trust: Asset Backed Yield (Now within proper range) (DMG)

(BUY, S$0.62, TP S$0.75)

We initiate coverage on HPH Trust with a BUY rating and TP of US$0.75. Our TP is based on DCF on distributable income using 8.34% WACC. We like HPH Trust given: (1) the three deep-water container ports under its portfolio are strategically located in the Pearl Delta River (PRD) with dominant market share; (2) Sell-down in shares has more than reflected the slowdown in throughput volumes. We think FY12F yield at 9.0% is attractive.

Market leader in the PRD. HPH Trust’s major assets are Hongkong International Terminals (HIT) (100%), COSCO-HIT (50%) and Yantian Ports (51.6-56.4%). The three ports have dominant positions in Hong Kong and Shenzhen. Collectively, the ports accounted for 38% of container throughput volume in the PRD in 2010. HPH Trust also has the support from its sponsor, Hutchison Port Holdings (HPH). HPH is the world’s largest container port operator and owns 27.6% of HPH Trust.

Forecast payout higher than most Singapore listed REITs. HPH Trust has committed to pay out 100% of its distributable income. We forecast FY11F (annualised) and F12F DPU of US5.34¢ and US5.57¢ respectively. At current share price, HPH Trust offers 8.6% and 9.0% dividend yield for FY11F (annualised) and FY12F respectively. The yield is higher than the average yield for Singapore listed REITs and business trusts.

Valuation: DCF-derived TP implies 7% yield and 13.7x adjusted FY11F P/E. From a P/E perspective, current share price looks expensive at 20.8x FY11F P/E vs. other listed Chinese ports at 7-10x but this is due to higher depreciation charges following the transfer of assets into the trust at fair value. Adjusted FY11F P/E of 11.4x (based on current price) implies a slight premium to peers (144 HK and 1199 HK). We think the premium is justified given the ports have dominant market position in the PRD.

Key risks: (1) Strong dip in container volumes below our forecasts; (2) rising competition from neighbouring ports which could put pressure on pricing; (3) forex risk; (4) unable to channel dividends from subsidiaries up to the Trust level.

SEMICONDUCTOR (Lim&Tan)

􀁺 Samsung, the world’s largest chip producer said that the current global economic uncertainties coupled with continued weakness in the PC market and falling consumer confidence in the key US and European markets suggest down side risks to their previously bullish growth outlook for the semiconductor industry going forward.

􀁺 As a result, the company is planning to reduce their capex budget for the remaining of the year as well as next year.

􀁺 In line with the above announcement, Gartner also revised down their previous marginal growth forecast for semiconductor producer’s capex budget next year to a sharp decline of 19%.

􀁺 Gartner said that the slowdown seems to be across the board and may last until mid-2012.

􀁺 Even investment for Nand-Chips which had experienced strong growth previously due its use in the highly popular iPads has also softened recently.

􀁺 The above justifies our continued negative view on the semiconductor sector.

􀁺 We have a sell on Stats Chippac, a view we have maintained since late 2010 (the stock remains stuck in a well-entrenched downtrend channel established since late 2010). Other stocks with exposure to the sector include Rokko, MIT, AEM, Hisaka, Micro Mechanics, Serial System and ISDN.

PACIFIC SHIPPING TRUST (Lim&Tan)

US$0.375-SGXL.SI

􀁺 The Teo family has proposed to take PCT private via voluntary delisting, with an offer price of US$0.43 a unit, 15% above the last traded price of 37.5 cents, but 4% off the IPO price of 45 cents back in 2006. (PCT was the first listed shipping trust, and indisputably the best of the lot.)

􀁺 The proposal needs, among others, to be passed by at least 75% of votes at an EGM to be convened, and is subject to the offerors getting at least 75% of the trust at the close of the offer.

􀁺 We are surprised with the proposed delisting, given financing has largely been arranged for the construction of 9 new vessels (7 bulk carriers and 2 multi-purpose vessels) costing US$333 mln, and to be delivered between Sept ’11 (PST has recently taken delivery of 1 bulk carrrier) and 2014.

􀁺 But this will raise PST’s gearing, which is already on the high side, at almost 50% at end Jun ’11.

􀁺 While the latest distribution (annualized 3.236 cents based on payout for H1 ’11) seems sustainable, translating to 8.6% at last traded price, the Teos are likely to succeed with their offer, given the nervous state of the stock market, and also given the general disappointment with shipping trusts, specifically cuts in distribution not very long after listing.

R H Energy Ltd (KimEng)

Background: R H Energy is one of the leading integrated specialist technical services providers to the oil, gas and petrochemical industries in China. Its production and manufacturing facilities are strategically located in Langfang, Hebei Province, close to its three major customers, PetroChina, CNOOC and Sinopec.

Recent development: The group recently announced that it has won the largest pipeline inspection services contract by PetroChina, which has an expected revenue of RMB42.67m over a two‐year period. Under the contract due to be completed by 3Q13, R H Energy will provide engineering inspection services to the natural gas pipeline project in south China.

Key ratios…

Price‐to‐earnings: 4.8x

Price‐to‐NTA: 0.86x

Dividend per share / yield: S$0.025 / 18.0%

Net cash/(debt) per share: (US$0.011)

Net gearing: 8.5%

Share price S$0.139

Issued shares (m) 284.93

Market cap (S$m) 39.61

Free float (%) 40.5

Recent fundraising activities July 2007: IPO comprising 72.0m new shares @ $0.32 per share

Financial YE 31 December

Major shareholders Petchem Holdings (59.0%); Jin Weihua (3.6%)

YTD change ‐12.4%

52‐wk price range S$0.129‐0.184

Our view

Moving upstream in the value chain. Earlier in July this year, the group also obtained shareholders’ approval at the EGM to diversify its business to include the exploration, development and production of oil and gas resources. Separately, it will dispose of its two subsidiaries, namely, Hunan Baili and Wuhan Petrochemical. According to management, the strategic move is complementary to its existing service offering in the oil and gas industry.

Improved working capital position. The asset sale is expected to be completed by the end of 3Q11. With the receipt of net proceeds of about US$28.8m, management believes this will provide the necessary cash flow to fuel further growth of its existing business, which has an outstanding orderbook of US$33.5m.

Completion of new acquisition. In the meantime, the acquisition of Zoneda Energy is still on track to be completed in 3Q11. Zoneda is in the process of applying for the relevant permits to conduct feasibility work on the oil properties in Alberta, Canada. In view of China’s credit tightening policy, the cash proceeds will help to fund its initial capital requirements to develop the newly‐acquired oil properties.

Trading below book value. There is currently no analyst coverage on this stock but we note that it is trading at 0.86x NAV of US$0.123 (or S$0.16) as at end‐June 2011. The group has declared a tax‐exempt one‐tier special dividend of 2.5 Singapore cents for its 1H11 results.

Keppel Land (KimEng)

Event

Keppel Land’s share price has fallen by 41.5% since the beginning of August on the back of its sizeable portfolio of Singapore office properties, as well as the difficult residential markets in Vietnam and China. Nevertheless, we believe KepLand is in a better financial position now compared with 2009, and valuations remain attractive. Maintain BUY.

Our View

Even though we have been sounding caution on the Singapore office sector, KepLand’s office exposure has been largely mitigated by high commitment rates. The recently opened Ocean Financial Centre (OFC) is about 80% leased out while MBFC Ph2 is already about 60% pre‐committed one year ahead of completion. We reiterate our belief that International Grade A developments are likely to outperform older Grade A and B developments in the coming cyclical office downturn, both in terms of rents and capital values. We currently value OFC and MBFC at $2,400 psf.

In August, KepLand launched The Luxurie in Sengkang and sold more than 82% of the 220 units launched at an ASP of about $980 psf – in line with our overall assumption of $1,000 psf. While we maintain that the mass market residential segment is likely to see a price correction of up to 10% by end‐2012, KepLand’s reduced inventory of unsold mass market units mitigates its downside risks.

Overseas, conditions for the residential markets in Vietnam and China remain challenging. Despite continued policy risks in China, the demand for reasonably priced township projects persists, as seen by the healthy take‐up during the launch of Phase 6 of The Botanica in Chengdu. However, we are less positive on the Vietnam market in the medium term, with most developers withholding new launches until sentiment improves.

Action & Recommendation

KepLand is in a better financial position now with a net gearing of 0.38x, compared to 0.52x in 2009 before it did a rights issue. Despite the economic headwinds, we believe that valuations are attractive, even as we lower our target price to $3.00, pegged at a wider discount of 40% to RNAV. The potential monetisation of OFC in FY12 could be a positive catalyst. Maintain BUY.

S'pore, M'sia to call a tender for Rapid Transit System

Engineering firms from both countries can participate

SINGAPORE and Malaysia will soon call a tender for the Rapid Transit System (RTS) which will connect Johor Bahru and the island republic.

On a one-day introductory visit to Malaysia yesterday, Singapore Transport Minister Lui Tuck Yew said that engineering companies from both sides of the Causeway will be invited to participate in the tender. According to media reports, RAdm Lui, who is also Second Minister for Foreign Affairs, said that the rapid transit project was 'on time and on track', and that a tender for engineering studies will be called in the fourth quarter of this year.

'The preparatory work has almost been done (and) a tender will be put out in both Malaysia and Singapore. We'll have a joint team to evaluate this and select a consultant.'

RAdm Lui said that the study will be done in two phases. The first phase involves picking an engineering consultant to look into all options available for the construction of the system, and advise both countries on difficulties and challenges under each option. This will take 11 months.

The joint management committee will then decide which option to go for before the second phase begins. 'Because of such complexities, it will take another 18 months thereafter once we decide on the option,' RAdm Lui was quoted by Channel NewsAsia as saying.

RAdm Lui's visit follows a series of introductory visits to Malaysia by Singapore cabinet ministers in recent weeks. During the visit, he met with his Malaysian counterpart Kong Cho Ha at the Transport Ministry in Putrajaya. Mr Kong said that Malaysia prefers the RTS to be linked to Singapore via an undersea tunnel, which will free up space above the sea for other activities. Ultimately, however, the decision will depend on the outcome of the study, he said.

A place in the Iskandar sun for SMEs

Special business park in region will cater to their needs

By CHEN HUIFEN

(SINGAPORE) Start-ups and SMEs will have a place in Iskandar Development Region's flagship Medini region alongside the bigger boys who are picking up their choice plots of land across the Causeway.

Small is big: Iskandar's SME business park will give attention to those which may not have the resources or need to have their own buildings

There will be a business park dedicated to Small and Medium Enterprises (SMEs) that may not have the resources or need to have their own buildings and the master planner is looking for partners to get the project going.

'When you actually sit down and speak to the SMEs, you quickly realise that not many have the finance and the resources to come and buy their plot from us and build their own building,' said Keith Martin, CEO of Global Capital & Development (GCD), which holds the concession to develop Medini.

'So what we are trying to do now is seek investor-developer partners to set up SME business parks. So we're actually facilitating the provision of SME business space.'

Medini is one of the five zones within the Iskandar Development Region. It rests between the Straits of Johor in the south and Horizon Hills in the north. The area has already drawn investment commitments from some of the bigger firms, including Raffles Education Corp, Management Development Institute of Singapore, Parkway Holdings and Europe's Pinewood Studios Group.

The SME business park will sit in the Medini Business District, one of four development projects in the Medini region. To illustrate that the area will be flexible to the needs of the users, Mr Martin pointed to one of the complexes, which will have two office blocks connected by a large corridor that is naturally ventilated. Units within the block will be modularly built to provide greater flexibility in the sizes required by different types of SMEs. GCD is looking for commercial space operators and investors, and is casting its net in the region as well as the US and Europe.

Mr Martin thinks there will be interest because of the real demand that will be driven by anchor investors, such as Pinewood Studios Group. The TV and film production company, which is behind works such as James Bond, Harry Potter, Batman and Superman, has committed to invest RM400 million ($165 million) in Medini by 2013. The presence of Pinewood Iskandar Malaysia Studios, projected to create 3,000 jobs, is expected to draw complementary services providers including the likes of creative designers, costume makers, audio professionals and stylists.

SMEs involved in the media industry will see the opportunities to have a presence alongside Pinewood Studios, reckoned Mr Martin. But the business park could also be relevant to those engaged in high technology, research, product development, business processing, telecommunications, call centres and data centres.

'We're looking more for the service-oriented SMEs,' he added.

GCD is promoting Medini as a node for companies looking for a dual platform: one in Medini and the other in Singapore or Kuala Lumpur. Mr Martin noted that in the past, Singapore firms have largely expanded their operations further afield to places such as China, India, Vietnam, Laos and Thailand because there did not exist an option such as Medini.

He said: 'So I think we'll see a significant change in the SME mindset because they can see now that this platform exists just across the Causeway, without having to overstretch themselves by going a step too far, possibly in some examples like India or China. Of course there have been some success stories in those expansion ... but generally, wouldn't it just be easier to drive across the Causeway to see and visit your factory, or your SME that is expanding?'

Medini is also a focal point for joint development by Khazanah Nasional and Temasek Holdings. The two sovereign wealth funds from Malaysia and Singapore are joining hands in co-developing two plots of land in the Medini Lifestyle and Medini Living zones.

Keppel Corporation (POEMS)

Hold (Maintained) Closing Price S$7.47

Target Price S$8.50(+13.8%)

• Secures US$199 mil jackup rig order from Safin Gulf FZCO.

• Lowering our expectations on future rig order wins.

• Maintain Hold with fair value lowered to $8.50.

Another B class in the bag

Keppel Corp announced last evening that it has secured a US$199 mil. order for a KFELS B Class jack up rig from Safin Gulf FZCO. The rig is scheduled for delivery in 3Q2012 and will be a refurbishment and upgrade of a KFELS B class rig that Keppel FELS purchased earlier in the year. We also understand from Keppel that the rig was purchased from an undisclosed party in the secondary market earlier this year. The buyer, Safin Gulf FZCO is part of privately owned Safin GmbH which is among the 10 largest independent steel trading and distribution companies in the world. This will be the first rig to be owned by Safin Gulf FZCO.

Lowering our expectations

While we are encouraged by the order win, we note that the pace of new rig orders have slowed significantly since 1H2011.We believe that this is due to the current economic uncertainty as well as the growing number of rig orders in the pipeline (for delivery by end 2013/early 2014) which has resulted in a more cautious ordering stance among drilling operators and speculators. We also think that there is a high chance that this rig order win was secured mainly due to its early delivery date of 3Q2012 versus late 2013/early 2014 for new rigs being ordered now. Therefore, we cannot take this order win as a good indication that sentiments are still as upbeat.

Perhaps another indication of the current sentiment among buyers will be the rate of exercise of rig options granted to buyers earlier on. We learn from the company that it now has five options outstanding after some expired recently. We estimate that four options were expired and they were likely from Discovery Offshore (2 options), Asia Offshore Drilling (1 option) and Dynamic Offshore (1 option). The expiry of these options lends further support that sentiments have indeed weakened.

Maintain Hold with fair value of $8.50

Keppel Corp share price has fallen 38% since our last report, in tandem with weak market conditions. Although we lower our expectations on future rig order wins due to the worsening macroeconomic conditions, we believe that this might already been amply reflected in Keppel’s share price performance and unless the macroeconomic situation deteriorates further, lower prices should not be warranted. We also think that Keppel’s strong orderbook and good dividend yield (approx. 5%) will provide support to its share price at current levels. Thus, we maintain our HOLD recommendation with a lower fair value of S$8.50.At our target price of S$8.50, Keppel will be trading at approximately 12x FY12e EPS, in-line with its historical average valuation.

Midas Holdings: Double whammy; but still a BUY (OCBC)

Double whammy for China's rail transport sector. Outlook for Midas Holdings (Midas) has grown increasingly murky in recent times. The highspeed train collision in China in Jul this year was followed by yet another collision last week, this time between two metro trains in Shanghai. This could result in a delay in the awarding of metro contracts by the various municipal governments as China has ordered a nation-wide safety investigation. Media reports have also claimed that China has postponed construction of 80% of its railway projects. While a delay was expected, this amount does seem substantial, in our opinion, and would affect the earnings visibility of upstream railway parts suppliers such as Midas. The rail transport industry contributed 73.5% of Midas' total revenue in 1H11. However, it is not known yet whether the Chinese government would be reducing its target for railway investments for its 12th Five-Year Plan. We believe that a scale-back in the magnitude of its investments seems plausible, as the financial condition of China's Ministry of Railways (MOR) is showing signs of deteriorating. Media reports have stated that MOR had delayed payments amounting RMB60b to two railway contractors, while its debt outstanding has also increased (RMB2.09t at end 2QCY11 versus RMB1.98t at end 1QCY11).

Patience is a virtue. While these series of events have created a nearterm overhang on China's rail transport sector, we believe that the longterm prospects are still positive. This is driven by the fundamental need to fulfil China's rising transportation needs and continued economic development. As China intends to develop more mega cities, in areas such as Chengdu and Wuhan, we believe that this rising urbanisation augurs well for the sector due to the expected increase in demand for high-speed and metro trains. Meanwhile, we believe that Midas would increase its focus on the power and industrial machinery industries in the near term to mitigate the impact of a delay in rail transport contract wins.

Maintain BUY on valuation grounds. We are keeping our estimates for now until there is greater clarity on the Chinese government's railway policies. Nevertheless, given the macroeconomic uncertainties and significant de-rating of China's railway sector related stocks, we see the need to lower our valuation peg on Midas to 8x blended FY11/FY12F EPS (previously 16x), in-line with the average forward PER of its railway parts manufacturing peers. Consequently, our fair value estimate is reduced from S$0.805 to S$0.435. Notwithstanding this, we are maintaining our BUY rating on valuation grounds as its share price has already tumbled 64.0% YTD and the stock is currently trading at FY11F P/NTA of 0.7x.

Midas Holdings: Lack of near-term upside catalysts (DMG)

(NEUTRAL, S$0.375, TP S$0.40)

Midas’ share price has come off 7% since our Aug update, in-line with STI’s dismal performance and continued to be weighed down by negative news flow in Sep e.g. Shanghai metro train crash and delay in Ministry of Railways’ (MOR) issue of bonds. Also, fixed asset railway investments have been dipping over the past few months to RMB35b in Aug11, down 54% YoY. We now assume lower FY11-FY12 extrusion order wins of RMB600m-RMB300m (old: RMB700m-RMB750m), and smaller NPRT contribution of RMB29m-RMB29m (old: RMB29m-RMB57m). Our corresponding net profit estimates are revised down by 5%-28% respectively to RMB250m-RMB200m, with a 20% YoY contraction in FY12. While we see the negatives as largely priced in at trough 0.7x forward PBR, we believe investors will take a more prudent approach before building position. Hence, share price is likely to trend side-ways in near-term until comfort can be gained on MOR’s financial healthy and order wins recovery. Given a lack of near-term catalyst, we downgrade Midas to NEUTRAL with a lower TP of S$0.40 (old: S$0.65), pegged to 12x FY12F PER (old: 15x FY11F PER).

It never rains but pours. After a widely publicised Wenzhou high speed train crash in Jul11, the industry continues to be plagued by a negative turn of events in Sep e.g. 1) Shanghai metro train crash on 27Sep11, 2) reports that PRC’s MOR delayed ~RMB60b payment to its contractors, causing some projects to suspend and 3) reports that MOR postponed its RMB20b bond issue scheduled on 26Sep11 to 12Oct11, with rising borrowing costs. It was further reported that interest rates ranged between 5.13%-6.13% for 7-year tenure and 5.53%-6.53% for 20-year tenure, compared to Oct 2010’s 4.39% for 15-year tenure issue.

Assume lower order wins. We now assume FY11-FY12 extrusion order wins of RMB600m-RMB300m (old: RMB700m-RMB750m), and revise down our revenue estimates to RMB1.2b-RMB0.9b (old: RMB1.3b-RMB1.2b). Extrusion order wins tallied RMB323m YTD. Close to 88%-50% of our FY11-FY12 estimates for extrusion are backed by announced order wins respectively.

Assume lower NPRT contributions. Our assumption for NPRT’s revenue is reduced to RMB1.6b p.a. (old: RMB1.6b and RMB3.2b) over the next two years, resulting in lower associate’s contribution of RMB29m-RMB29m (old: RMB29m-RMB57m). NPRT’s order wins tallied RMB3.1b YTD.

Valuations at trough but could be a value trap. While we see the negatives as largely priced in at trough 0.7x forward PBR, we believe investors will take a more prudent approach before building position in the company. Hence, share price is likely to trend side-ways in near-term until comfort can be gained on MOR’s financial health and order wins recovery. We downgrade Midas to NEUTRAL with a lower TP of S$0.40 (old: S$0.65), pegged to 12x FY12F PER (old: 15x FY11F PER), -1SD to its three-year historical mean of 16x.

Key risks. Key risks to our revised recommendation include a swift resolution in PRC railway safety issues and high funding costs (e.g. a possible injection of liquidity by the PRC government), as well as the award of a stream of large contract wins.

Ascendas REIT - Acquires Business Park property in Beijing for RMB 300m (DBSVickers)

HOLD S$2.02 STI : 2,621.40

Price Target : 12-Month S$ 2.14

Tapping sponsor links in China. Ascendas REIT announced the acquisition of Ascendas Z-Link, a Business Park property located in Zhongguancun Software Park ("Z-Park"), within the Haidian district in Beijing. The property was acquired from a related party of its sponsor, the Ascendas China Industrial and Business Park Fund, for RMB 300m.

Z-Park is a state-level park sponsored by the National Ministry of Information Industry catering to information technology and research & development (R&D) companies and is understood to be dubbed as China’s “Silicon Valley” due to its pioneering efforts in the innovation and creativity industry. It is also located in close proximity to China’s top universities such as Peking University and Tsinghua University. This acquisition, in our view, is in line with AREIT management’s China strategy of selectively acquiring Business & Science Park assets in major tier one cities.

100% leased building with quality names. The 27,430sqm business park asset is understood to be fully leased. Major tenants include quality household names like Baidu,Inc.com and Raisecom Technology Co, Ltd. Hence, earnings quality is likely to be relatively solid. The presence of these technology giants further affirms Z-Link’s good location within the technology hub in Haidian District.

Upon completion of this acquisition, A-REIT's China exposure will still be relatively small at c1.1% of asset value and is expected to continue growing as management looks for higher yielding acquisitions. We will like to highlight that management has previously indicated that China’s presence in its portfolio will grow to be capped at 15% of total assets/earnings exposure in the longer term.

Earnings impact minimal, maintain HOLD with S$2.14 TP. The acquisition is likely to be fully funded by debt and we estimate earnings accretion to be minimal at c0.02 Scts based on an initial yield of 8.2%. Gearing is estimated to remain at c35%, which is conservative even after accounting for funds to be utilized for the development of its projects in Singapore.

We continue to like A-REIT for its diversified portfolio and management’s track record of delivering earnings growth for unitholders, but current upside to our TP is limited. As such, we maintain HOLD rating and DCF-derived TP of S$2.14. A-REIT currently offers a FY12-13 yield of about 7.0%.

Keppel Corporation - Secured a US$199m jack up rig (DBSVickers)

BUY S$7.47 STI : 2,621.40

Price Target : 12-month S$ 10.38

Keppel FELS has secured a contract for its high-specification KFELS B Class rig from Safin Gulf FZCO (Safin) worth US$199m.

The rig is on a fast track delivery till 3Q12, as it involves the refurbishment and upgrade of a KFELS B Class jack-up rig that Keppel FELS purchased earlier this year. The high-specification KFELS B Class rig will be installed a full 15,000 psi BOP system, 70-feet cantilever outreach, with upgraded mud pit storage capacity of 4,000 bbls and be able to accommodate up to 150 personnel.

Earnings will be recognised in FY12, raising visibility to c.70% in terms of coverage for FY12's revenue. This order will raise KEP’s FY11 YTD order wins to S$8.3bn, accounting for 92% of our forecast contract wins of S$9b for this year, book to bill estimated at a healthier 2x vs SMM's low book to bill of 1.5x.

Keppel Corp has been able to secure offshore contracts in the past few months, albeit at a slower pace vs 1H11. This jack up contract comes in the midst of macro uncertainties, indicating strong underlying demand for high spec jack ups. However, order flows could slow, in the face of weakening oil prices, risk of recession, and a potential credit crunch caused by financial dislocation in Europe which could deter capex commitment for such orders.

No change to our earnings forecasts or base case TP of $10.38. The stock has been sold down to our recession TP of $7.42, which pegged O&M earnings PE at 8.7x and Kepland’s TP at $1.82. While valuation is undemanding, dividend yield at 5.4%, the stock remains vulnerable to a) weakening oil price – dropped 10% over the past month to US$76/b(WTI) b) possible financial dislocation which will defer order flows in the event of a credit crunch. Using GFC valuation parameters, its crisis level TP is S$5.40 which implies O&M earnings at 5x PE and Kepland TP at S$1.32.

Lian Beng Group Ltd - Initiate with BUY - Strong order book with room for more (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.340

Fair Value: S$0.52

Capable in both private and public residential construction. Lian Beng has an impressive track record in both private and public segments of residential property construction. The company made its name as a Housing Development Board (HDB) main contractor by 1993 and over the years, it has also gotten an array of private residential construction projects under its belt. If private construction demand falls significantly in an event of severe economic downturn, we believe Lian Beng's track record with HDB gives it an edge to weather such decline.

Current order book among strongest ever. The company has c.S$839m worth of ongoing contracts to complete till 1H14. This provides a strong foundation for management to work on. Its strong order book will give Lian Beng more leeway to selectively tender for projects, always keeping an eye on profitability. FY11's net margin is the highest in the company's history, and we believe it can remain fairly stable in the near term.

Broader revenue base complementary to construction. In addition to its booming construction business, Lian Beng grew its ready-mixed concrete business substantially in recent years and also participated in property development with a good degree of success. However, property development will be a secondary focus for Lian Beng in the near future, whereas the company will continue to expand its construction materials business. We like its expansion into construction materials as it offers the company self sufficiency and margins protection. Its concrete business has grown quickly in scale and Lian Beng is planning to spin it off for listing on the Taiwan Stock Exchange.

Initiate with BUY - Strong order book with room for more. We like Lian Beng for 1) their track record in both private residential and public housing construction projects; 2) its strong order book which gives management room to focus on winning contracts which are more margins accretive; and 3)its undemanding valuations against peers. The company trades below local construction peers' average P/E, despite recording one of the highest ROEs. We believe Lian Beng is well positioned to win more projects in private residential space and a beneficiary of increased HDB supply. Therefore, we believe the discount on Lian Beng compared to peers is unwarranted. Applying a 5x forward P/E multiple to FY12F EPS, we derive a fair value estimate of S$0.52, implying c.52% upside; initiate with BUY.

Singapore Exchange - Bearing the brunt (DBSVickers)

FULLY VALUED S$6.40 STI : 2,621.40

(Downgrade from Buy)

Price Target : 12-Month S$ 5.40 (Prev S$ 9.50)

Reason for Report :Earnings and TP downgrade

Potential Catalyst: Recovery of trading volumes

DBSV vs Consensus: TP and earnings towards the lower end of consensus

• Trading volumes and value to be subdued before clear signs of recovery are visible

• Cutting volume and value assumptions; earnings trimmed by 16-25% over FY12-13

• Downgrade to Fully Valued, TP lowered to S$5.40.

Challenging environment ahead. Trading volumes tend to increase as de-risking takes place but as recessionary risks accelerate, trading volumes and values tend to dissipate. Similar trends were seen in 3Q08 (SGX: FY1Q09) – post Lehman collapse – where trading volumes and values peaked and subsequently tapered down until 2Q09 (SGX: FY4Q09) when the global recovery became visible and confidence restored in the equities market. Derivatives activities tend to pick up during volatile times but soften thereafter. With market outlook looking grim, it appears challenging for trading volumes and values to hold up.

Earnings cut by 16-25% over FY12-13. Against this backdrop, we cut our securities daily average volumes and values to 1.32bn and S$1.45bn from 1.89bn and $1.83bn in FY12; and to 1.42bn and S$1.40bn from 2.08bn and S$1.98bn in FY13. Our FY12-13 earnings are reduced by 16-25%. We assume velocity at 60%. Our 90% dividend payout ratio is maintained which provides a decent 4-5% yield to SGX. SGX will be announcing its 1QFY12 results on 17 Oct (pm). We estimate 1QFY12 net profit at S$85m coupled with a 4 S cts base DPS.

Downgrade to Fully Valued with TP lowered to S$5.40. SGX is currently trading below its 5-year historical mean PE multiple at 21x (calendarised) forward EPS vs the STI trading below -1 SD. Our revised TP of S$5.40 is based on the DDM model assuming 90% dividend payout, 6% growth (from 8%) and cost of equity of 11%, which implies 18x target PE to CY12 EPS of S$0.31. By applying its 5-year historical trough PE of 12x (in Mar 09), we derive a bear case TP of S$3.80.

Poh Tiong Choon Logistics Limited (KimEng)

Background: Poh Tiong Choon (PTC) is a mainboardlisted

logistics company set up in 1950 and

headquartered in Singapore. Upon listing in 1999, the

group’s business grew from transportation to include

bulk cargo handling, warehousing, LPG trading,

terminal management and chemical logistics.

Recent development: Since October 2009, different

substantial shareholders have been consistently

buying back shares from the open market, with the

most recent transactions done just last week at $0.45

per share.

Key ratios…

12‐mth trailing PER: 10.0x

Price‐to‐book: 1.62x

Dividend per share: S2.75cts (FY10)

Net debt position: $16.8m

Share price S$0.435

Issued shares (m) 215.8

Market cap (S$m) 93.9

Free float (%) 45.4

Recent fundraising activities Nil

Financial YE 31 Dec

Major shareholders Poh Choon Ann (chairman) – 23.8%; Poh Sin Choon (founder) – 12.9%; Poh Choon Her – 7.6%; Adrian Ho – 10%;

YTD change +8.8%

52‐wk price range S$0.365‐0.485

Our view

Potential privatisation? Together, the substantial shareholders, ie, the Poh family and Mr Adrian Ho, hold about 54% of the company. All the five board members and key executives (excluding independent directors) are from the Poh family.

Profitability on a downtrend. Stagnating revenue and cost pressures in the form of oil and manpower appear to have dampened profitability across all its business divisions. Profitability at its biggest division, transportation, contracted by 55.6% to $5.9m in FY10. However, free cash flow is still strong at a 1H11 run‐rate of $9m a year, which should keep the group going.

Key assets may be interesting. The group owns several assets which are probably undervalued on its balance sheet. These include a factory building. We estimate the total market value of these assets to be $78.2m against a group net debt position of $16.8m.

Venture Corporation (KimEng)

Event

The volatile operating environment is creating downward pressure on forecasts for Venture. We cut our FY11‐12 forecasts by 7‐10% and target price to $8.12 (13.5x FY11F) on the back of recent travails at major customer Hewlett‐Packard (HP), supply chain issues of a “significant” Test & Measurement client and further US$ weakness. However, Venture is staunchly protecting its cash flow and dividendpaying capacity. Margins are also likely to stay intact despite a weak topline, demonstrating its superior business model. Maintain BUY.

Our View

Changes among Venture’s customers have resulted in a need to trim our FY11‐12 forecasts further. HP’s CEO changes have created uncertainty even in the enterprise Printing & Imaging segment (17% of 1H11 revenue), which will be flattish. Test & Measurement (25.5% of 1H11 revenue) will continue to taper off due to a large customer’s inability to take enough delivery of a key component.

Industrial Products, however, is doing well on strong demand for metering instruments while Retail Store Solutions remain steady. Together, they accounted for 26.4% of 1H11 revenue. Further, Venture expects to keep net margins in the middle of its 6‐8% band due to high ODM content in its product mix and intensive cost control (eg, workforce down to 13,000 from 17,000 before the 2008 crisis).

Also, we reckon its $0.55 DPS is defensible. Management is already taking steps to reduce working capital requirements. Working capital hit a peak of $684m in 4Q10 and the target is now $550m. With component shortages easing, we expect working capital tied up in inventory to be freed, even as we expect trade payables to also gradually improve.

Action & Recommendation

Maintain BUY on Venture as the dividend yield of 8.5% (based on FY11’s first and final $0.55 DPS) is attractive and defensible. However, our target price has been reduced to $8.12 (from $9.68) on lower earnings estimates.

CHINA ESSENCE (Lim&Tan)

S$0.20-CESS.SI

􀁺 With reference to the previous statement dated 13 Aug ’11 where management said that they are in the process of finalizing the refinancing of the HK$250mln zero coupon guaranteed convertible bonds (CB) due 2011 and that the refinancing was expected to be concluded within 2 months (13 Oct ’11), in an update announcement, management said that the terms of the refinancing agreement are currently still being discussed between Morgan Stanley (the key CB holders) and they will make appropriate announcements on further developments in due course.

􀁺 In addition, the company is also in the midst of preparing the agreement with DBS on the term loan facility of up to US$40mln maturing end Dec 2013. The availability of the facility is subject to the completion of legal documentation and fulfilment of conditions precedent.

􀁺 We note that based on the company’s previous update provided on 29 July ’11 where the agreement with DBS was supposed to be finalized by 29 Aug ’11, we believe that the delay could be attributable to the current global financial crisis as well as their agreement with Morgan Stanley with regards to their CB.

􀁺 The company’s current cash on hand of Rmb797mln is just enough to cover their CB and borrowings. If they have to repay their debt obligations immediately, they would not have enough for working capital purposes.

􀁺 For 1Q ended June ’11, the company made its first ever loss of Rmb4mln versus profit of Rmb18mln a year ago and Rmb35mln a quarter ago. Even during the depths of the last crisis, the company still remained profitable on a quarterly basis of about Rmb7-8mln.

􀁺 At 20 cents, the stock is currently valued at 0.28x price to book versus its low of 0.16x during the last crisis in early 2009, when the stock hit just under 10 cents.

STAMFORD LAND (Lim&Tan)

S$0.465-SGXL.SI

􀁺 As Chairman Ow Chio Kiat (OCK) had earlier indicated, Stamford Land is enhancing shareholder value by entering a MOU to sell and lease back (S&L) 3 hotels in Australia.

􀁺 The buyer, whose identity is “required to remain undisclosed” (we expect it to be a real estate investment trust), will pay A$316 mln / S$401.3 mln for Stamford Plaza Melbourne, Grand Adelaide and Plaza Sydney Airport Hotels.

􀁺 The significance is that Stamford Land will realize a book profit of A$167.3 mln / S$212.5 mln, which works out to 24.6 Singapore cents a share, and which will theoretically raise book value by 42% to 83.6 cents a share.

􀁺 For illustrative purpose, assuming the other 5 hotels are worth similar premium, Stamfored Land’s revalued asset value shoots up to >$1.20 a share.

􀁺 Book value of Property Plant & Equipment at end Jun ’11 was S$488.77 mln, ie S$300 mln excluding the 3 hotels under the proposed Sale & Leaseback. A similar 1.2x premium translates to S$336 mln surplus or 39 cents a share.

􀁺 (Note that Stamford Land had, in 2008, received an unsolicited A$850 mln bid for its hotel portfolio.)

􀁺 We expect OCK to declare a special dividend if the S&L deal goes through. (Stock went ex-3 cents dividend in August.) He will also likely be even more “inspired” to proceed with the redevelopment of the North Ryde, Sydney property.

􀁺 We maintain BUY.

Yanlord Land Group Limited (KimEng)

Background: Yanlord Land is a China‐based property developer synonymous with delivering high quality properties. It has a strong track record of achieving higher ASPs than comparables, and has significant exposure in key cities like Shanghai, Chengdu and Tianjin.

Recent development: Despite the challenging conditions in the Chinese property market, Yanlord recently sold 155 of the 257 apartments launched at Yanlord Sunland Gardens in Shanghai on the very first day. It achieved an ASP of RMB 46,500 psm for total contracted presales of RMB1.7b.

Key ratios…

Price‐to‐earnings: 3.5x

Price‐to‐NTA: 0.5x

Dividend per share / yield: S$0.0122 / 1.7%

Net gearing: 0.45x

Share price S$0.71

Issued shares (m) 1,943.8

Market cap (S$m) 1,383.6

Free float (%) 34.5%

Outstanding convertible bonds S$23.8m due 2012, convertible to 9m shares at $2.65/share; S$375m due 2014, convertible to 144.8m shares at $2.62/share

Financial YE 31 Dec

Major shareholders Founder Zhong Sheng Jian (65.4%); Aberdeen Asset Mgt (5.1%)

YTD change ‐57.7%

52‐wk price range S$0.70‐1.88

Source: Company

Our view

Brand premium remains intact. The ASP achieved for Sunland Gardens is substantially higher than the ASP of RMB24,000 psm for the projects in the vicinity, testifying to Yanlord’s superior brand equity as a quality high‐end developer. Based on our estimated breakeven of RMB28,400 psm, pre‐tax margin for the project is approximately 39%.

Total pre‐contracted sales of RMB8.7b. As of 1H11, Yanlord had achieved pre‐contracted sales of RMB6.4b. Together with pre‐sales of RMB572m achieved as of end‐July from Tianjin Yanlord Riverside Gardens and that achieved from Sunland Gardens, the total pre‐contracted sales stand at around RMB8.7b. This will be progressively recognised over the next 1‐2 years.

At trough valuation. The stock currently trades at an all‐time low P/B of 0.51x, after declining by 42% in the past two months. We think the market has priced in an overly bearish scenario with respect to China’s property market, as well as Yanlord’s fundamentals.

Sino Grandness: Proposed issue of RMB100m CBs by its subsidiary (DMG)

(BUY, S$0.42, TP S$0.50)

SFGI announced that its subsidiary Garden Fresh HK (GFHK) has entered into a conditional subscription agreement for issue of RMB100m zero coupon bonds due Oct 2014. While there is no share dilution, we note a minimum RMB133m payback value or 18% p.a. effective interest rate based on our scenario analysis. We revise down our FY11F-FY12F earnings estimates by 4%-9% to RMB162m-RMB172m respectively. We caution that should GFHK fail to generate sufficient cash flow to meet early redemption obligations, SFGI could see claw-backs to its assets as it acts as the guarantor. Given a cautious sentiment towards S-Chips, we lower our target multiple to 4x (old: 6x) FY11F P/E, +0.5SD to its historical mean of 3.5x and derive a lower TP of S$0.50 (old: S$0.76). Maintain BUY.

Rationale. We understand the main intention is for an eventual listing of its fast growing beverage business, which saw a three-fold jump in revenue to RMB178m in 1H11.

Our scenario analysis. Based on the announcement, we identify a best case that leads to an eventual IPO of GFHK by Oct 2014 at 9x RMB250m FY13 earnings. Here, CB holders will likely prefer a 6.7% stake worth RMB150m (vs. redemption at RMB100m principal). However, to support revenue growth to RMB1.3b, we believe GFHK would need more funding for working capital needs, which could lead to a fourth funding exercise under the group since SFGI’s 2009 listing. A worst case scenario would be a non-reply from relevant stock exchange for GFHK’s IPO application, meaning a possible RMB195m repayment or a steep 35% p.a. effective interest cost.

Our base case. Based on our forecasts, we believe the most probable case will be an eventual IPO at ~6.7x FY13 RMB100m earnings estimates, and happens to be one whereby CB holders will be indifferent between conversion and redemption. We assume sufficient internal resources to support growth and haven’t factored in possible fair value gains into our valuation model.

Other details. The CBs can be converted to shares ranging from 6.7% and 19.9% in the subsidiary depending on financial performance. Near term milestone is a minimum RMB80m net profit for FY2012. Net proceeds are estimated at RMB80m, after applying a 13% discount rate to principal sum and deducting RMB7m professional fees. RMB70m will be used for PPE for beverage business, and RMB10m will be used for advertising and promotional activities.

OKP Holdings: King of the road (DMG)

(Initiating Coverage – BUY, S$0.555, TP S$0.80)

OKP Holdings (OKP), the only listed road specialist in Singapore, is set to ride on the nation’s building boom, benefiting from major public works like the S$6-7b North-South Expressway. OKP’s strategic tie up with China Sonangol (CS), which owns 14.2% of OKP, is a gateway to more potential projects. OKP has already secured the building project of luxury condominium Angullia Park from CS, the developer. With a cash hoard of S$98.6m (net cash of 31.9S¢ per share) and a financially strong partner like CS, OKP’s already strong construction earnings may be given an added boost with property. With a record gross order book of S$433.3m, FY11 looks set to be a banner year, with earnings likely to leap over 25% YoY. At current price, OKP trades at 8x prospective P/E, which is a justified premium to peers at ~6.5x, due to its leading position as a road specialist and its heafty cash position. Net of cash, OKP’s FY11 and FY12 P/E falls to 3.4x and 3.1x respectively. Initiate with BUY and TP of S$0.80, based on a target P/E of 6.2x (net cash).

A leading road specialist; strong gross order book of S$433.3m. As at end Aug, OKP has a healthy order book of S$433.3m (+39.8% since Feb 11), spread across 13 projects. The contracts will run till FY14, lending some visibility to its earnings. Solid earnings over the years have allowed the contractor to build up on its cash hoard. With spare capacity to take on sizable projects and strong financial position, OKP is in the right position to ride on the road in Singapore.

Potential earnings booster from property development. CS has acquired Amber Towers and we think OKP could be slated either to jointly develop the property together, and/or go in as a contractor. We have not factored any earnings from its role as a potential developer.

Valued at a justifiable premium to peers. On the back of strong construction demand, we estimate earnings to hit S$21.3m in FY11. Based on net cash target P/E of 6.2x FY12 earnings, we derive a TP of S$0.80 (upside of 44.1%).

Kingsmen Creatives: Share price holding steady (DMG)

(BUY, S$0.56, TP S$0.76)

Kicker from new F1 deal. Kingsmen is the supplier of some Grandstands and Corporate Suites for the F1 race over the five-year contract. It is still not known if Singapore would continue to host the F1 race for a further five years, but if no agreement is reached after next year’s race, Singapore will have to continue hosting the event for another two years (i.e. there will be an F1 race for at least the next three years). On top of the contract value (~S$5m annually), there are additional billings each year for variation orders. Should Singapore continue to host the F1 for a further five years, we believe Kingsmen would remain a choice contractor. Assuming the same contract value and the same parcels of work are assigned, we can expect better margins from the F1 event as the fixed cost of the grandstands would have been fully depreciated.

Greater visibility would help secure more projects. Being involved in the F1 event would help elevate Kingsmen’s visibility in the events space. This would open up more regional opportunities for Kingsmen. Kingsmen is in various stages of discussions for several regional theme park projects. Securing a regional theme park contract would give Kingsmen’s earnings a boost. The upcoming major events next year, such as the Singapore Airshow, are keeping Kingsmen busy. Retail customers are continually refurbishing or setting up new outlets.

May need to raise funds in near future. Kingsmen is looking to build an office building in Singapore as the lease for its current premises will end in 2016. There is a possibility that it may need to undertake fund raising activities for this purpose in the near future.

Share price showing resilience. Kingsmen’s share price has remained stable, hovering around S$0.56, despite the market volatility over the past weeks. We continue to like Kingsmen for its attractive dividend yield. Maintain BUY with TP S$0.76, pegged to 9x FY11F earnings.