BH Global Marine (KimEng)

Background: BH Global Marine (BHGM) is a total solution provider for specialty electrical products and engineering services to the offshore oil and gas industries. Its three major business divisions are supply chain management, manufacturing and engineering services. Its clientele of 800 local and global customers include ship owners, operators, repair contractors and shipyards.

Recent development: BHGM recently said that it has entered into an agreement with Takamul Investment Company to set up a 51:49 joint venture, named Gulf Specialty Steel Industries LLC (GSSI), in the Sultanate of Oman. Takamul is majority‐owned by Oman Oil Company S.A.O.C, a commercial company whollyowned by the Government of the Sultanate of Oman.

Key ratios…

Price‐to‐earnings: 6.6x

Price‐to‐NTA: 0.87x

Dividend per share / yield: 0.7 cts / 3.6%

Net cash/(debt) per share: S$0.013

Net cash as % of market cap: 6.9%

Share price S$0.192

Issued shares (m) 480.0

Market cap (S$m) 92.16

Free float (%) 36.4%

Recent fundraising activities Oct 2010: Issuance of 30m TDRs, raising net proceeds of S$20.4m

Financial YE 31 Dec

Major shareholders Beng Hui Holdings – 59.7% (management’s holding vehicle)

YTD change ‐31.4%

52‐wk price range S$0.175‐0.365

Our view

Another form of partnership. We understand that this latest collaboration is to replace the jointventure arrangement between Sky Holding Pte Ltd, BHGM’s 60%‐owned subsidiary, and Al Lawami International LLC, pertaining to the proposed JV company, Oman Sky Steel Industries LLC, which was terminated earlier.

Next growth driver. According to management, GSSI will be engaged in the manufacture of galvanised steel wire products, mainly for use in armouring cables and security fences. The investment cost of S$3.5m was funded through proceeds from its TDR issue.

A changed business. Despite the cyclical nature of the offshore oil and gas sector, BHGM has successfully diversified its business risk through its newly‐formed engineering services division. Notably, sales contribution from this segment climbed to about 51% of its overall revenue in 2Q11. To better meet customer demands, it plans to enhance its product/service offerings by adding new products and seeking synergistic M&A acquisitions. In the meantime, management is looking to expand its regional footprint particularly in Indonesia, the Middle East and India.

Appears undervalued. The stock currently trades at FY11 PER of about 6.0x (or 0.87x P/B). We note that major shareholders have also been actively buying shares in the open market given the undemanding valuation and supported by decent dividend yield of almost 4%.

Cambridge Industrial Trust - Growing distributions (DBSVikcers)

BUY S$0.46 STI : 2,733.97

Price Target : 12-Month S$ 0.58 (Previous S$0.56)

Reason for Report : Post results update

Potential Catalyst: Strong 3Q11 results

DBSV vs Consensus: Contribution from new acquistions

• 3Q11 DPU of 1.08 Scts (+6% qoq) in line

• Deployment of cash to develop projects/new purchases; FY12/13 earnings continue to grow

• Offers F Y11-13F yields of over c10-11%, BUY!

Results in line; DPU growth continued in 3Q11 Gross revenues and net property income were up by 13.9% and 10.3% to S$20.7 m and S$17.6m respectively. This increase was contributed by additional rental income from new acquisitions, which more than offset income loss from its divestments. Occupancy levels remain high at 98.7%. Interest costs also saw a dip of 43% yoy due to refinancing at a lower all–in rate of 4.1% (5.9% previously). As a result, distributable income came in at S$12.9m, +19% yoy. DPU was lower by 8.8% yoy due to increased share base from share placement in April’11, but is an improvement from a quarter ago.

Deployment of cash to develop projects/new acquisitions. Cambridge REIT (CREIT) continue s to expand its portfolio with the announcement of the signing of a new built-to-suit project (BTS) at Seletar Aerospace Park View and the acquisition of 25 Pioneer Crescent for a total of S$23.7m. These properties will be leased back on long-term contracts with Air Transport Training College (ATTC) for the former site for 30 years, and the latter for 15 years lease with option to extend for further 15 years. This together with continued asset enhancement program at various properties and other BTS projects, we slightly raised our FY12/13 earnings to account for new acquisitions/BTS projects.

Attractive FY11-13F yield of c10-11%. Ongoing asset recycling by the manager will ensure that CREIT’s portfolio remain fresh and relevant. Gearing of 33% is comfortable and with no debt refinancing over the next 2 years. The credit & risk profile of CREIT has vastly improved compared to GFC period in 2008-09. Prospective FY11-12 DPU yield of 9.5-11.1% is attractive. Maintain BUY with revised TP of S$0.58 as we roll forward our numbers to FY12.

CapitaCommercial Trust - Sturdy Balance Sheet (DBSVickers)

BUY S$1.10

Price Target : S$ 1.49 (Prev S$ 1.59)

At a Glance

• 9M11 DPU accounted for 83% of our FY11 forecast

• Healthy renewals sustain high portfolio occupancy of 97.7%

• Gearing at 27.4%, the lowest among its office peers.

• Maintain BUY at a lower DCF-based TP of $1.49

Comment on Results

Revenue in line with expectations .3Q11 gross revenue and NPI declined by 8.6% and 9.2% yoy to S$91m and S$69.8m respectively largely due to negative rental renewals and impact of the ongoing AEI works at 6 Battery Road. However, Raffles City's robust performance, lower property tax payment and interest savings mitigated the decline. Hence, DPU fell by a smaller 7.8% yoy to 1.83 cents. 9M11 DPU forms 83% of FY11 DPU.

Still healthy take-up rates sustain high occupancies. The trust renewed another 151,000 sf of its office leases in the current quarter, taking year-to-date renewals to about 415,000 sf. Meanwhile, pre-commitments for 6 Battery Road AEI works had also gained traction from 79% a quarter ago to 98% for the 93,700 sf of upgraded space.

Correction in market rents is likely to have minimum impact on performance. While office take-up is likely to moderate and asking rents should see some correction amid current uncertain economic environment, we expect minimum impact on CCT earnings with only 5.5% of office leases (in terms of total gross revenue) due for renewal this year and 9.3% in FY12. Meanwhile, average portfolio office rent in the 3Q remained flattish at S$ 7.79 psf VS the S$ 7.84 a quarter ago.

Recommendation

Strong balance sheet to withstand uncertain times. We like CCT for its strong balance sheet with net gearing of 27.4%, healthy cash reserve and its ability to drive renewals to sustain its portfolio occupancies. Maintain BUY with a lower DCF-based TP of $1.49 as we roll our numbers forward into FY12 and adopt flattish market rental growth for FY12.

M1: 3Q11 should be in line with expectations. (OCBC)

3Q11 results should be fairly in-line. M1 Ltd will kick off the earnings season for the telcos when it releases its 3Q11 results on 17 Oct (after market close). As we do not see any special events taking place in the Sep quarter this year, unlike the launch of the iPhone 4G in late Jul last year, we believe results should come in fairly in line with our forecasts. For the top-line, we are expecting it to show increases of 3.8% YoY and 3.9% QoQ to S$255m; and net profit should improve by a sharper 9.4% YoY (+0.7% QoQ) as M1 probably did not have to incur higher handset subsidies this time compared to 3Q10.

New iPhone 4S could be a wildcard. Apple will be launching its new iPhone 4S on 28 Oct here via all the three telcos, and this could potentially throw our forecasts off. While market watchers were initially disappointed that it was not iPhone 5 and hence only expecting muted demand for the iPhone 4S, the pre-orders in the US have been overwhelming . So far, the three local telcos have yet to offer any pre-ordering for the iPhone 4S; however, it could still happen closer to the launch date. But based on anecdotal evidence, current iPhone 4 users are likely to wait for iPhone 5 which could be announced as early as Apr next year.

Aggressive NBN promotion. Another notable development in the recent Sep quarter was M1's aggressive promotion of its NBN (fiber broadband) services during the recent COMEX IT show, where M1's 100Mbps package was going for just S$39/month (with a two-year contract) as compared to its usual S$59 monthly subscription (also with a two-year contract). While M1 was reportedly "very delighted" by the response for promotion , we also understand that there is still a fairly long queue to actually hook up these new subscribers, with some waiting as long as six weeks to get connected. But this is outside of M1's control as the physical hook-up is done by OpenNet, where the infrastructure operator is facing a big backlog of installations. As such, any additional revenue boost would come in 4Q11; but probably with much thinner margins due to the aggressive promotion.

Maintain BUY. For now, we are maintaining our estimates for both FY11 and FY12 until we get better clarity from management after the analyst conference call. We also keep our BUY rating and S$2.79 DCF-based fair value.

CapitaCommercial Trust (CCT): No surprises for 3Q11 results (OCBC)

3Q11 results in line. For 3Q11, CapitaCommercial Trust (CCT) reported a distributable income of S$51.9m or a DPU of 1.83 S cents, bringing the total distribution YTD to 5.59 S cents. This is line with our expectations and YTD distributions form 75.0% of our annual forecast. We also saw gross revenue fall 8.6% on a YoY basis to S$89m. This was mainly due to the absence of contributions from StarHub Center sold in Sep10, and lower occupancy and rentals at Six Battery Road (6BR) which is undergoing asset enhancement works (AEI). Given the last unit price of S$1.10, the annualized distribution yield stands at 6.8%.

Firm occupancy numbers. Overall portfolio occupancy tracked down marginally to 97.2% versus 97.7% last quarter, mainly due to lower occupancy at One George Street (OGS) as a tenant moved out. Market talk is that Llyods, Wong Partnership and Julius Baer will also move out of OGS due to demand for more space, and CCT is currently seeking new tenants at ~S$11 psf. In terms of net property income (NPI), we saw a 30% YoY dip at 6BR due to ongoing AEI. NPI at Capital Tower also fell 6.5% YoY as a major tenant (11%) left the building and negative rental reversions continued.

Mixed rental reversions in FY12. We expect to see rental reversions stay negative in 4Q11 and turn mixed in FY12. Despite expectations of reduced economic growth nest year, we could still see positive reversions at a few buildings, such as Raffles City with leases expiring at S$6.99 psf. Barring a severe economic crisis, we forecast rental reversions for CCT's portfolio to turn positive in FY13. Note that the average rental of leases expiring then would be an undemanding S$7.62 psf.

6BR and Market St office on track. Demand for the upgraded space at 6BR continues to be firm with 98% of the upgraded space (19% of net leasable area) already pre-committed - up from 79% announced in 2Q11. Nomura, which occupies 12% of the building, would have its lease expire in Nov 11 and management plans to upgrade this space as well, with 29% of the space already pre-committed. The Market Street office tower is also on track to complete in 2014 as planned.

Maintain BUY. We had downgraded the office sector to NEUTRAL on 17 Sep 2011 and forecast office rentals to fall 5-10% by FY13. Despite a weaker office outlook, however, we still see value in CCT given its quality portfolio and prices trading at ~30% discount to NAV. Maintain BUY with a fair value estimate of S$1.41 due to softer rental assumptions, versus S$1.45 previously.

ASL Marine Holdings - Momentum builds (DBSVickers)

BUY S$0.49 STI : 2,737.75 (Upgrade from Hold)

Price Target : 12-Month S$ 0.66 (Prev S$ 0.59)

Reason for Report : New contracts and raised earnings forecasts, upgrade in recommendation

Potential Catalyst: Order wins

DBSV vs Consensus: Lower on lower margin assumptions

• New shipbuilding orders of S$267m almost doubling orderbook; book-to-bill ratio up to 2.2x from 1.7x.

• Raised FY12/13 order wins to S$350m/S$250m; and corresponding earnings by 6%/17%.

• Upgrade to BUY, with 35% upside to revised S$0.66 TP.

Significant order wins. ASL has secured 5 new shipbuilding contracts worth S$267m, comprising 2 PSVs, 1 dredger, and 2 barges. These orders are significant, almost doubling ASL’s shipbuilding orderbook, which stood at S$310m as of mid August 2011. With this latest batch of orders and 1Q12’s orderbook draw down, we estimate ASL’s current orderbook to be c. S$518m, the highest level since end June 2009, with a book-to-bill ratio of 2.1x.

New orders extend recent flurry of contract wins by Singapore yards. This latest batch of orders adds to the flurry of contracts secured by Singapore-listed offshore yards since mid-September, which now stands at c. S$1.3bn. These contracts, secured amid the rising risk of recession and concerns over a contagion of the Eurzone crisis, should boost investors’ confidence in the longer term fundamentals of the sector.

FY12 YTD order wins surpass expectations; raise FY12/13F earnings by 6%/17%. ASL’s FY12 YTD order wins now stand at S$295m, exceeding our full year forecast of S$150m. As such, we raise our FY12/13 order wins assumption to S$350m/ $250m (up from S$150m/S$200m previously), leading to a corresponding 6%/17% increase in our FY12/13F earnings.

Upgrade to BUY, TP raised to S$0.66. ASL now boasts a significantly enhanced order backlog and earnings visibility, with earnings expected to rebound 23% y-o-y in FY13. Valuations are undemanding, trading at 6.4x/5.2x FY12/13 PE (FY ending June) and 0.5x FY12 P/BV, following a c. 26% correction since early July. As such, we upgrade ASL to BUY (from Hold), with +35% upside to our revised TP of S$0.66 (prev S$0.59).

S i2i (KimEng)

Background: Formerly known as Spice i2i or Mediaring.com, S i2i is a telecommunications service provider with a strong focus on mobile internet solutions. The company is evolving from just a backend IP communications business into a mobile internet solutions provider with its own brand of handsets, valued‐added services such as S‐Unno (a mobile application which allows international calls at low cost rates), and a regional network of handset and mobile device retailers in Singapore, Malaysia, Thailand and Indonesia.

Key ratios…

Price‐to‐earnings: nm

Price‐to‐NTA: 0.6x

Dividend per share / yield: na

Net cash (debt) per share: US$0.004

Net cash (debt) as % of market cap: 8.8%

Share price S$0.046

Issued shares (m) 5,382.1

Market cap (S$m) 253.0

Free float (%) 51.6

Recent fundraising activities Jan ’11 – 1‐for‐1 rights issue 2.74b shares @ S$0.055/share, July ’10 – 1‐for‐1 rights issue 1.37b shares @ S$0.10/share

Financial YE Mar 31

Major shareholders Spice (27.1%), Lee Pineapple Company (13.2%)

YTD change ‐61.6%

52‐wk price range S$0.04‐0.13

Our view

Newly acquired businesses in place. After a reverse takeover in 2009 by Indian conglomerate Spice Group, S i2i embarked on a strategic growth plan that led to a series of acquisitions of mobility businesses. The company spent a total of S$262m to acquire three handset distributors and retailers in Malaysia, Thailand and Indonesia to extend its regional influence. They are CSL Entities, NewTel Corporation and most notably, Affinity Group.

No positive impact on bottomline yet. On the bright side, S i2i saw a jump in revenue of 160% YoY to US$162m for the first quarter to June 2011, driven by the newest acquisitions, CSL and Affinity Group. On the flip side, it posted a net loss of US$6.5m due to higher operating overheads, marketing and infrastructure costs coming from the completed acquisitions.

But at least one acquisition looks promising. The most significant acquisition appears to be Affinity Group. Its mobile handset brand, Nexian, has a 25% market share in Indonesia. This targets the low‐end pricing segment and is aided with distribution channels and cellular connections from major operators in Indonesia. Through this acquisition, S i2i became the first Singapore company with the largest market share in the mobile market in Indonesia. Affinity Group was profitable with net profit of US$29.7m reported in FY Dec10.

Singapore Press Holdings (KimEng)

Event

Singapore Press Holdings (SPH) reported FY Aug11 results that were in line with market expectations and marginally better than we expected. A final dividend of 17 cents per share was declared (KE estimate: 18 cents), bringing full‐year dividend to 24 cents per share, or almost 100% payout. Amid softening advertising demand, the group’s other pillar of growth, retail property investment, would mitigate the weakness in core media earnings and drive a stock re‐rating. Maintain BUY with a target price of $4.17, based on a total return of 16.7%.

Our View

In the absence of property development revenue, total revenue dipped by only 9.4% YoY to $1,251.0m due to strong growth in its rental and exhibition businesses. Net profit fell by 22% to $388.6m. Comparing like‐for‐like, newspaper and magazine pre‐tax profit was flat at $365.6m; rental profit was up 32% YoY while investment income was up 39.6% YoY, driven by earlier gains in equities investments. The mild increase in staff costs (+2.3% YoY), the largest cost component, was a positive. Overall, operating margin was sustained at a healthy 30%.

Circulation levels were maintained at an average of 1m copies daily for FY Aug11 and with SPH’s penetration into the digital space since August this year via iPad and iPhone applications, the group’s advertising market share should remain well‐protected. Management has yet to see a notable slowdown in advertising demand in view of the weak economic outlook.

SPH will remain conservative in the asset allocation of its $1.3b investible fund. The payout of surplus capital to shareholders is unlikely as management may be drawing up plans to bid for well‐located mixed‐use commercial sites (next to MRT stations) to be launched by the Urban Redevelopment Authority for tender submission in 4Q11.

Action & Recommendation

Our DPS forecast is currently based on 100% of EPS estimates (forward yield of 6.4%). Successful tenders for commercial sites are potentially positive catalysts which would be better received given the success of Clementi Mall. Reiterate BUY.

FJ Benjamin: Retailers turn towards Asia (DMG)

(BUY, S$0.32, TP S$0.44)

Slowdown in the West = Opportunity in Asia. As the global economy continues to be faced with uncertainties and the financial markets remain volatile, we think there could be a negative drag on consumer spending. Nonetheless, for now, the Asian consumer is expected to continue spending, supported by the still healthy Asian economy. With the slowdown in Europe and US, retail brands have been expanding in Asia. A number of retail and lifestyle brands have set up outlets in Singapore and HK recently (eg. Louis Vuitton, Van Cleef & Arpels, Abercrombie & Fitch). This is an opportunity for FJB to strengthen its brand portfolio, as it can seek to bring in retail brands keen on Singapore. Maintain BUY with TP of S$0.44.

Cautiously expanding. During the global financial crisis (GFC), FJB’s share price slid ~70%, as earnings were almost wiped out by provisions for store closures and inventory obsolescence. Operating profit fell 58%, as revenue dipped 10% over the period. Although the current global outlook is uncertain, demand for lifestyle brands is still healthy supported by a growing Asian middle class that is increasingly affluent (especially in China and India). Management is cautiously optimistic of the next few quarters. It intends to continue with its expansion plans, especially in its Indonesia with 12 new outlets, given the healthy domestic demand and relatively huge market.

Expected to remain resilient. Management had put through tight inventory management policies during the GFC, which helped FJB maintain gross margins at ~40%, despite the fall in business. As economic growth slows, even if the Asian consumer spends much less, we believe that FJB’s healthy balance sheet (5.5% net gearing at end FY11), stable cash flows and its abilities at managing inventory and costs while maintaining margins, would help it ride out the uncertainty. FJB is currently trading at 13.8x FY11 P/E. Our DCF-based TP of S$0.44 implies a forward P/E of 16x, just below its historical average of 18x. Maintain BUY.

Capitacommercial Trust - Distress valuations! (CIMB)

Current S$1.07

Target S$1.17

Previous Target S$1.17

Up/downside 9.02%

We believe that market is valuing CCT’s assets at distress valuations, unjustified given its much stronger balance sheet vs. last crisis. Also, CCT’s exposure should be mitigated by yield protection for One George Street and its under-rented portfolio.

CCT’s 3Q11 and 9M11 DPU were in line, forming 25% and 77% of our full-year estimates, respectively. Having already factored in an office slowdown, we are keeping our forecasts and DDM-based target price. Maintain Trading Buy.

Mitigation for rental downside

3Q11 NPI was down 9% on negative office rental reversions and absence of rental income from Starhub Centre (sold in 3Q10). While an office slowdown is imminent, we expect income downside to be mitigated by yield protection from One George Street (significant lease expiries next year), with rents on expiring leases pegged at levels closer to current market and a long WALE of 4.7years.

Renewing leases ahead of expiries

We believe that CCT’s proactive approach towards reducing upcoming lease expiries should mitigate risks from a sharp rental falloff on expiries. CCT signed office leases amounting to 151k sf of renewals and new leases in 3Q11, including a forward lease renewal with EDB. These took uncommitted office leases expiring in 2011 and 2012 down to 9% and 15% from 11% and 19% respectively in 2Q.

Strong balance sheet to tide through dark clouds

CCT’s strong balance sheet position should tide it through looming dark clouds. With potentially less revaluation downside risk given sub-peak asset valuations and rentals, we do not see CCT revisiting its previous trough.

Distress implied asset valuations unjustified

Trading at 0.7x P/BV, we believe that market is valuing its Grade A office portfolio at distress cap rate of 7% and capital values of S$1.4k psf, way below S$1.7k psf for prime office assets during the last downturn. We deem this unjustified given its stronger balance sheet this time round.

ASL Marine Hldgs Ltd - Pickup in newbuild orders (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.49

Fair Value: S$0.54

Secures S$267m worth of shipbuilding contracts. ASL Marine (ASL) announced that it has secured new shipbuilding contracts worth about S$267m for the construction of five vessels. Two platform supply vessels are scheduled to be completed in 2013, one dredger in 2014 and two barges in 2012. We estimate gross margins of 8-9% for these projects, and correspondingly tweak our overall gross profit margin for FY12 slightly lower from 14.6% to 14.2%.

Starting to see a revival in new orders. New order flow has picked up for ASL Marine, with the group securing S$426m worth of new contracts in the past four months alone. In comparison, only about S$93.5m new orders were clinched in CY2010. We estimate that these contracts bring ASL's order book to about S$570m (~34 vessels), compared to its low of S$218m as at end 3QFY11. Channel checks reveal that newbuild enquiries are picking up, although competition remains intense in the industry as the previous drought in new orders has resulted in available capacity in many yards in the region.

Unlikely to be a direct beneficiary of new orders in Malaysia for now. There has been increased interest in Malaysia's offshore and marine sector following the government's announcement that it intends to boost domestic oil production. Though ASL is active in the offshore shipbuilding space and two of its yards are in SE Asia, we do not see it as a direct beneficiary for now. It is difficult for foreign players to penetrate the Malaysian market, as the government is keen for oil and gas related work to be awarded to domestic companies to keep work inside the country. That is not to say that this market is totally closed out to the group; there may be chances for partnerships with Malaysian companies through joint ventures. Meanwhile, we note that ASL's customers are mainly from Asia ex Malaysia, Europe and Australia.

Maintain HOLD. We like ASL's diversified business model which includes shipbuilding, repair and chartering operations. The group also builds a good range of vessels without heavy reliance on a particular type of product. We are encouraged by the pick up in new orders, but it is still early to conclude that the recovery is a sustainable one. With the slight adjustment in our gross profit margin assumption, our fair value estimate slides from S$0.57 to S$0.54, still based on 10x FY12F core earnings. Maintain HOLD given limited upside potential for now.

Keppel Corporation (POEMS)

Buy (Upgrade)

Closing Price S$8.42

Target Price S$9.86 (+17.1%)

• We see good chance of winning Petrobras tender.

• Secures US$245mil. jackup rig order from Ensco plc.

• Upgrade to Buy from Hold with fair value raised to $9.86.

What has changed?

Upstream reported last week that Petrobras received bids for the charter of 21 ultra-deepwater rigs from Ocean Rig and Sete Brasil. It is understood that Keppel is bidding with a semisubmersible design, which will be built at BrasFELS existing yard in Angra dos Reis.

We believe that Keppel stands a high chance of securing some of contracts given the sheer size of the award and that it is separately bidding in three out of seven tenders.

Secures jackup order from Ensco

Keppel recently announced that it has won a contract to build an enhanced KFELS Super A class harsh environment jackup rig from Ensco plc. The contract arose from the exercise of an option that was part of Ensco’s order of two KFELS Super A Class rigs on 10 February 2011. The rig is scheduled for delivery in 3Q2014.

We note that the contract value of this rig is approx. 10% higher than the previous order of KFELS Super A Class rigs in February (also from Ensco). While this might be mainly due to escalation clauses (higher equipment, material costs and strengthening USD/SGD exchange rates), the willingness to exercise this option at higher prices sends a positive signal about the market in our view.

Upgrade to Buy with fair value of $9.86

We upgrade Keppel Corp to Buy from Hold with a revised target price of $9.86 to take into account potential Petrobras win. At our target price of S$9.86, Keppel will be trading at approximately 13.5x FY12e EPS. This is 1.5 times higher than its historical valuation of 12 times FY12e EPS, which we think is justified given that Keppel stands a good chance of being awarded some Petrobras contracts. Keppel’s strong orderbook and good dividend yield should also limit any downside at current levels.

Cosco Corporation (S) Ltd-Sailing through rough waters (POEMS)

Hold (Maintained)

Closing Price S$1.025

Target Price S$0.91(-11.22%)

• We see slight improvement in operating conditions, particularly in shipping and steel costs.

• However, negative sentiments and weak fundamentals will likely cap further upside.

• Maintain Hold recommendation with a revised target price of $0.91.

2Q11 Results flashback

Cosco Corp reported 2Q11 PATMI of $32 mil. (-53.4 % Y-o-Y) respectively. PATMI fell sharply mainly due to 1) lower profits from dry bulk shipping 2) lower margins from marine engineering projects and 3) higher tax expenses due to deferred tax benefit adjustments. Since the release of 2Q11 results, Cosco’s share price has greatly underperformed the market.

Slight improvement in operating conditions

Cosco does not hedge the prices of its steel raw material costs with derivative contracts. As a result, it has incurred losses on construction contracts in the past few quarters as steel prices soared. However, we observed that steel prices have softened in the past few weeks due to concerns over the health of the global economy and fall in Chinese demand. This should provide some relief on cost pressures for Cosco.

Negative sentiments and weak fundamentals to cap further upside

Cosco’s disappointing results in 2Q11 has caused investors to become more wary of its ability to execute its record offshore orderbook profitably. In addition, it faces the danger of order cancellations for both its marine engineering and dry bulk ship building projects if macroeconomic conditions were to deteriorate further. We believe these factors will continue to overshadow any improvements in its operating conditions (lower steel prices, higher BDI) or future offshore wins, capping further upside for the stock.

Valuation:

We arrive at our revised target price of $0.91 after lowering our P/E assignment for Cosco to 14x FY12e EPS (from 15x previously) to reflect weaker sentiments in the shipbuilding sector. We also cut our EPS forecast for 2011e and 2012e to 7.2 cents and 6.6 cents respectively as we lower our expectations of future offshore order wins and margins for Cosco shipyard operations (stemming from poor execution and lower value of ship building contracts secured post-crisis). Maintain HOLD with revised target price of S$0.91.

Sembcorp Marine Ltd (POEMS)

BUY (Maintained)

Closing Price S$3.70

Target Price S$4.31(+16.49%)

• Lowering our target price on the back of weakening sentiments.

• Trailing in jackup order wins to Keppel Corp.

• Price catalysts include Petrobras win and new yard.

• Maintain BUY with revised target price of $4.31.

Weakening sentiments

Amid deteriorating macroeconomic conditions, softer oil prices, and potential glut in rigs entering the market in 2013/2014 we observed that rig buyers have turned more cautious in ordering new rigs in recent months. The slowdown in jackup rig orders experienced by Singaporean yards in 3Q11 is evidence that sentiments have indeed turned cautious.

Still trailing behind Keppel

We note that SembCorp Marine has continued to trail behind Keppel Corp in terms of jackup order wins. Keppel’s flagship rig, the B class rig, has been immensely popular with a whopping 20 units of B class (including variations) rigs secured since November 2010.This has resulted in a swelling of Keppel’s orderbook and its orderbook to revenue ratio now surpasses that of SembCorp marine. While we acknowledge that SembCorp marine has smaller yard operations compared to Keppel Corp, we note that such a lead has been rather unprecedented.

Future price catalysts still exists

Despite it trailing in jackup order wins to its main competitor, we believe potential price catalysts still exist for SembCorp Marine. SembCorp Marine is in the race for Petrobras ‘s 21-rig tender and an award will be a boost to its share price. It is understood that SembCorp Marine has put through a drillship design and the rigs will be built at Jurong Shipyard’s new Espirito Santo yard. While we expect margins from this win to be relatively lower than on current contracts (due to learning curve), it shall allow SembCorp Marine to break into the drill ship segment. In addition, a Petrobras win will provide its new Espirito Santos yard with the necessary baseload to justify its construction.

In the long run, we also expect SembCorp Marine to catch up on order wins as Keppel and Korean yards become increasingly filled. We think that the scenario will be a repeat of the last rig building cycle (2004-2008) when SembCorp Marine’s orders lagged Keppel Corp at the start of the cycle (2004-2007) but caught up subsequently in 2008. This time though, it might take longer for Keppel Corp’s growth in backlog to render it uncompetitive due to a lack of semi-submersible orders in the industry (but this may change with awards from Petrobras). Finally, we believe the partial completion of SembCorp Marine’s new yard facility in 2H2012 will be an added boost to the company. The new yard is expected to reduce operating costs, improve construction time and allow SembCorp Marine to handle more repair jobs.

Valuation

We value SembCorp Marine based on our SOTP methodology to arrive at our target price of $4.31.We lower the value of SembCorp Marine’s core business to reflect a weaker competitive position vis-à-vis Keppel Corp and an uncertain macroeconomic environment, which may result in a slowdown in future rig orders. We also lower its share of investment in Cosco Corp and Cosco shipyard group. Our target price of $4.31 implies a valuation of 15x average of FY12E earnings, in line with its historical average valuations. With an upside potential of 16% from its previous closing price, we maintain our BUY recommendation on SembCorp Marine.

Singapore Press Holdings - Downside risks (CIMB)

Current S$3.78

Target S$3.90

Previous Target S$4.24

Up/downside 3.14%

Downside risks

While SPH’s 6% yields are fairly attractive, we see downside with street yet to factor in a sufficient falloff in ad growth momentum and investment income. Balance sheet is however strong, which coupled with recurring cash flows, could prompt us to revisit the stock.

FY11 core profit was in line at 102% of our estimate though final dividend of 17scts beat our expectations on a higher payout. We are however lowering our EPS estimates on reduced ad revenue forecast and investment income. Coupled with lower property valuations, we lower our sum-of-parts target price to S$3.90 from S$4.24. Maintain Neutral.

Falloff in ad growth momentum imminent

While print revenue chalked up a modest 5.7% yoy growth in FY11 on stronger display ad sales, we see downside for growth momentum next year amidst a slowing domestic economy. Print revenue fell by 17% in the last downturn. With slowdown in economic growth next year, we moderate our FY12 print revenue growth estimate to +2%.

Reprieve from moderating cost pressures

Cost pressures could alleviate, given a variable performance component in staff cost and a moderation in newsprint costs (spot: US$680/MT). These could offer some reprieve should top-line growth fall.

Risks from investment portfolio

FY11 earnings were propped up partly by a 28% increase in investment income. With equities (mainly M1 and Starhub holdings) and investment funds (some S-REIT holdings) accounting for 33% and 25% of its investible funds, downside risks could prevail on a deep market correction.

Revisit at lower valuations

While dividend yields of 6% are fairly attractive, we see downside in ad growth, investment and property portfolio. We are lowering our valuations of Paragon and Clementi Mall. Balance sheet is however strong, which coupled with recurring cash flows, could prompt us to revisit the stock at lower valuations.

Pinewood M'sia to be ready by May 2013

By PAULINE NG

IN KUALA LUMPUR

FOLLOWING a delay of more than a year, RM309 million (S$125 million) integrated media studios facility Pinewood Iskandar Malaysia Studios will be completed by May 2013.

In a filing to the stock exchange yesterday, construction company Sunway Bhd said one of its wholly- owned units, Sunway Construction Sdn Bhd, had accepted the letter of award for the building of the integrated media studios facility in Johor over a 19-month construction period. The target completion for the project is May 10, 2013.

Under a strategic agreement entered into with Pinewood Shepperton plc in December 2009, Khazanah Nasional will develop the studios which will provide more than 100,000 square feet of film stages ranging from 12,000-30,000 sq ft, and nearly 60,000 sq ft of TV studios, a number of offices, workshops and post- production facilities.

Then, the UK company had said the new studios would provide it with 'a presence in the heart of Asia'. 'Malaysia's excellent digital connections, low- cost base and proximity to Singapore mean that Pinewood Malaysia Studios will be ideally placed as the creative hub of the region.'

CEO Ivan Dunleavy had also observed the new studios would allow the company, which will get consultancy and brand licence fees for sales and marketing services, 'to build a meaningful new revenue stream, exploiting our expertise and brand internationally'.

In any event, the Malaysian sovereign fund views the creative sector as having the potential to move employment up the value chain and is one of six service-based areas accorded tax and employment incentives by the government to attract companies to set up in the special economic zone. The other services areas are education, financial advisory and consulting, healthcare, logistics, and tourism.

Even so, only a handful of companies have responded, most preferring to wait and watch Iskandar's development before committing.

Since its launch in the last quarter of 2006, the development of the zone (which stretches over some 2,200 sq km) has been slower than anticipated, in part because of the 2008 Dubai financial crisis. Pinewood Iskandar, for example, was initially scheduled to be completed by end-2012.

Malaysia's natural attractions - tropical rainforests, mountains and beaches - will offer film locations that are very different from Pinewood's five other studios in the UK, Canada, Dominican Republic, Los Angeles and Germany.

But animation is another area of interest and it received a boost from the recent nomination of Saladin for an award at the Emmys. Nearly all the production crew in the 13-part TV series - co-produced by government agency Multimedia Development Corporation and Qatar's Al-Jazeera Children's Channel - were Malaysians.

http://www.businesstimes.com.sg/sub/news/story/0,4574,460057-1318535940,00.html?

Stamford Land: Recycling capital, unlocking value (DMG)

(BUY, S$0.515, TP S$0.78)

Stamford Land (STL) is undervalued and trading at a steep discount of 56% to its SOTP valuation. We like STL for: 1) its quality assets comprising prime commercial and hotel properties in Australia; 2) resilient earnings outlook underpinned by strong hospitality earnings and development profits; 3) management’s efforts to unlock value through capital-recycling initiatives, which should narrow the valuation gap. BUY with a TP of S$0.78, pegged to 30% discount to our SOTP of S$1.12/share.

S&L deal highlights STL’s massively undervalued hotels. STL’s hotels are sitting on a surplus of S$365m over book value, or S$0.42/share, on our estimates. Management has, in the past, received numerous offers for its hotel portfolio, with one offer valuing its hotels at A$850m (S$1.1b). Recently, it signed an MOU for the sale and leaseback for three of its hotels: the Stamford Plaza Melbourne, Stamford Grand Adelaide and Stamford Plaza Sydney for an indicative consideration of A$316m. The sale price represents a 112% premium over its book value. On deal completion, STL will avail itself to cash proceeds of ~S$400m and continue to manage the hotels.

Record earnings ahead. On the earnings front, STL is poised to deliver a record year for FY12, as the group completes and recognises the profits from its flagship Sydney residential project, the Stamford Residences and Reynell Terraces. The project has been 90% pre-sold and with its completion in the current quarter, STL is on track to receive > S$200m sale proceeds. We expect its hotels to deliver steady earnings growth (EBITDA CAGR of 5% over FY11-13), underpinned by a resilient domestic corporate travel market and limited supply pipeline. Meanwhile, its recurrent income will be boosted by a full year’s contribution from its Perth office property.

Trading at steep discount to our SOTP valuation.STL is trading at a 54% discount to our SOTP valuation of $1.12. We believe this is overly steep given management’sability to unlock value and grow NAV through capital-recycling initiatives. Ascribing a 30% discount, we derive a fair value of S$0.78, implying a 52% upside. The counter offers a yield of 6%, with prospects for additional payouts upon a successful asset sale, in our view.

F J BENJAMIN - Retailers turn towards Asia (DMG)

BUY

Price S$0.315

Previous S$0.44

Target S$0.44

Retailers turn towards Asia

Slowdown in the West = Opportunity in Asia. As the global economy continues to be faced with uncertainties and the financial markets remain volatile, we think there could be a negative drag on consumer spending. Nonetheless, for now, the Asian consumer is expected to continue spending, supported by the still healthy Asian economy. With the slowdown in Europe and US, retail brands have been expanding in Asia. A number of retail and lifestyle brands have set up outlets in Singapore and HK recently (eg. Louis Vuitton, Van Cleef & Arpels, Abercrombie & Fitch). This is an opportunity for FJB to strengthen its brand portfolio, as it can seek to bring in retail brands keen on Singapore. Maintain BUY with TP of S$0.44.

Cautiously expanding. During the global financial crisis (GFC), FJB’s share price slid ~70%, as earnings were almost wiped out by provisions for store closures and inventory obsolescence. Operating profit fell 58%, as revenue dipped 10% over the period. Although the current global outlook is uncertain, demand for lifestyle brands is still healthy supported by a growing Asian middle class that is increasingly affluent (especially in China and India). Management is cautiously optimistic of the next few quarters. It intends to continue with its expansion plans, especially in its Indonesia with 12 new outlets, given the healthy domestic demand and relatively huge market.

Expected to remain resilient. Management had put through tight inventory management policies during the GFC, which helped FJB maintain gross margins at ~40%, despite the fall in business. As economic growth slows, even if the Asian consumer spends much less, we believe that FJB’s healthy balance sheet (5.5% net gearing at end FY11), stable cash flows and its abilities at managing inventory and costs while maintaining margins, would help it ride out the uncertainty. FJB is currently trading at 13.8x FY11 P/E. Our DCF-based TP of S$0.44 implies a forward P/E of 16x, just below its historical average of 18x. Maintain BUY.

China Healthcare Limited (KimEng)

Background: China Healthcare Limited (CHL) owns and manages eight medicare centres and nursing homes in Singapore and one in Malaysia, under the “ECON Healthcare” brand. It also owns West Point Hospital (WPH), the only private licensed hospital in Singapore to provide acute and convalescent care in a 24‐hour setting.

Recent development: CHL recently announced a joint venture with Sweden’s SCA Group, a hygiene products supplier, to provide dedicated home‐care services to the elderly in China. Locally, its new medicare centre in Yio Chu Kang began operations in June this year, which would contribute positively to its FY Mar12 results.

Key ratios…

Price‐to‐earnings: 17.1x

Price‐to‐NTA: 2.0x

Dividend per share/yield: Nil

Net cash/(debt) per share: (S$0.038)

Net gearing: 30.4%

Share price S$0.25

Issued shares (m) 287.218

Market cap (S$m) 71.80

Free float (%) 28%

Recent fundraising activities Oct 2010: Rights issue of 57.4m, rights shares @ $0.125 on 1:4 basis

Financial YE 31 Mar

Major shareholders Founder Mr Ong & spouse (49.1%), Sam Goi Seng Hui (23.1%)

YTD change +56.3%

52‐wk price range S$0.125‐0.260

Our view

Not an S‐chip. Not to be mistaken for an S‐chip by its name, CHL is a Singapore‐grown company with 24 years of experience in the healthcare business. It changed its name from ECON Healthcare to the current one to reflect its focus on growing its business in China.

Targeting China’s elderly market. CHL currently has two consultancy and management projects for retirement villages in Tianjin and Suzhou, as well as a 35% stake in a hospital equipment manufacturer in China. A previous investment in a Health Park has resulted in an impairment of $9.2m in FY Mar10. The scale of its China business in terms of profit contribution remains small but it is in a unique market with huge potential. China has the highest elderly population in the world at about 200m.

Expansion plans to drive topline growth. CHL is transforming the existing 58‐bedded WPH into a 100‐bedded facility and also adding new medical facilities to it. In Malaysia, it is building a new 200‐bed Medicare Centre in Taman Perling. These expansion plans should continue to drive its topline growth.

Valuation not cheap, but upside exists. CHL has managed double‐digit topline growth for the past five years. At historical PER valuation of 17.1x FY Mar11 earnings, valuation does not look cheap. However, with the low base earnings, potential growth after the expansion plans and further headway in China could be positive earnings drivers and catalysts.

China XLX - Poised for short-term rebound (DBSVickers)

BUY S$0.265 STI : 2,693.05

(Upgrade from FULLY VALUED)

Price Target : 12-Month S$ 0.40 (Prev: S$0.34)

Reason for Report : Results preview, recommendation upgrade

Potential Catalyst: Urea ASP increase

DBSV vs Consensus: Our forecasts are among the lowest on the back of weak urea margins.

• Upgrade to BUY. Stock is oversold and offers trading potential with 51% upside to our TP.

• Valuation undemanding at GFC trough level.

• Short-term catalyst from robust 3Q net profit growth of >200% yoy and qoq.

• Key risks are stretched balance sheet and persistent industry overcapacity issue.

Bottom-fishing opportunity emerges. China XLX’s share price collapsed 57% since early 2011, under-performing STI by c.40% on the back of weak 1H earnings and investors’ risk aversion towards small-mid cap and S-chips. Current valuations at GFC trough levels of 0.76x 12-month forward P/BV and 7.6x PE are attractive entry points in our view. In addition, China XLX now trades at wider discounts of c.20% to its own HK shares and 30% to HK peers vs the norm of 10% and 20% respectively.

Possible 3Q earnings surprise. Unexpectedly strong 3Q results could be a short-term price catalyst. We expect China XLX to report more than 200% yoy and qoq growth in 3Q net profit to c. RMB90m, largely attributable to higher margin spread of RMB150/t. Results will be due on 24th Oct (before market open).

Upgrade to BUY; TP revised to S$0.40. Our TP is raised to S$0.40, as we roll over our valuation to blended FY11/12 EPS, still based on 12x PE (-1.0SD), translating to 1.1x P/BV (-1.0SD). This is justifiable given the current gloomy industry outlook and global economic slowdown. In spite of our conservative forecasts (16-17% below consensus) and valuation methodology, current share price still offers 51% upside to our TP, suggesting stock is oversold and undervalued. Upgrade to BUY with trading opportunities ahead of strong 3Q results. Key risks remain China XLX’s stretched balance sheet, ASP fluctuations and industry overcapacity concern.

Singapore Exchange - A recession soap opera is bad (CIMB)

Current S$6.24

Target S$5.93

Previous Target S$8.14

Up/downside -5.05%

A long-drawn recession is SGX’s bane. Although SGX benefits from current volatility, volumes suffer in a protracted recession when market interest peters out. Current share price have factored in that anticipated market lethargy though. We maintain our Neutral call, albeit with a lower DDM-based target price (r: 9.5%, g: 3.5%). Being overly bearish at this stage assumes REACH and derivatives initiatives will fail – too bearish. We cut FY12-14 ADT assumptions by 16-18% and earnings fall 12-14%. We would be convicted buyers at 16x CY13 P/E, or S$4.67.

Potential beneficiary of near-term volatility Securities and derivatives clearing form 65% of revenues. Trading volumes tend to pick up in times of volatility. Whilst equity markets crashed in 3Q, SGX 1Q12 ADT is up 9% qoq while derivative volumes are up 18% qoq. 1Q12 results is certainly no reason to sell the stock.

Mid-term pain from anemic trading volumes However, as the dust settles on the market, volatility dissipates and trading volumes dry up. In 2008-09, turnover velocity was at 70-90% in the initial months of the sell-off but slowed to 50% by Dec-08. We believe the same could happen. Potentially weak earnings in coming quarters should be expected, though to a certain extent, this is reflected in share price now.

New initiatives in place for longer-term growth Since his appointment in 2009, CEO Magnus Bocker has introduced various new initiatives to take SGX to the next level. SGX now boasts of the world’s fastest trading engine. It has also introduced new products and services and had some success in wooing international listings. We recognise these initiatives as management’s efforts to improve market breadth. As long as the listing pie grows and new participants (from REACH) come on-board, the structural limits to revenue continue to be pushed out.

Valuations are reasonable, but downside risks remain From its peak six months ago, SGX has shed 26%. Now, it trades at 21x CY13 P/E (after earnings cut), in line with its historical forward average. Against trough valuations, SGX is still 46% higher. We would be convicted buyers at 16x CY13 P/E, or S$4.67, a 13% premium from its 14.2x trough multiple.

Mapletree Logistics Trust - Likely resilient, even in downturn (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.825

Fair Value: S$1.06

Sanguine view on MLT's outlook. We recently met Mapletree Logistics Trust (MLT) management for an update and came away with a positive view on its outlook. Despite the current uncertain economic backdrop, MLT shared that it has already secured a majority of the leases that are up for renewal in 3Q11. We believe some of these renewals may be made at higher rates than its passing rents, as the previous leases might have been secured at depressed levels during the financial crisis. Latest datapoints from Jones Lang LaSalle (JLL) showed that Singapore factory/ industrial rental growths have moderated (0-3% QoQ) in 3Q11, but were still 35-67% above their last troughs in end 2009. Hence, we anticipate MLT to report another round of positive rental reversion for the renewals, when it releases its 3Q11 results on 20 Oct.

Stable diversified portfolio. Management also highlighted that its portfolio is well-diversified, both in terms of geography and tenant types. We note that its end-users are also relatively well-spread across various industries, while its leases are typically covered by security deposits (average of 7.7-month coverage as at 30 Jun). Moreover, its annual portfolio occupancy rate has remained consistently high, even in market downturns (It has never fallen below 98.0% since its listing. In 2Q11, the rate was at 98.9%, an improvement from 98.3% seen in 1Q11). This clearly shows the resilience of its portfolio, in our view.

Continued focus on yield optimization. For 2Q11, the group announced a commendable 26.6% and 24.6% YoY growth in gross revenue and NPI respectively, due to contributions from its acquisitions made over 2010-11. In the same quarter, it also divested its properties at 9 and 39 Tampines Street 92. This reflects the MLT's ability to recycle capital to optimize its yield. Going forward, we expect the group to continue to focus on this yield and growth strategy. While we believe it may be more selective in investments in this uncertain economic condition or even be facing difficulty in finding sizeable yieldaccretive third party acquisition, we note that MLT has a strong pipeline from its sponsor (~S$300m completed or near completion).

Maintain BUY. We continue to like MLT for its resilient portfolio, proven track record and strong sponsor support. Aggregate leverage may be a concern (40.6%), but MLT said it has sufficient resources and is already in advanced talks with banks to refinance its debts maturing in 2012. Maintain BUY with revised fair value of S$1.06 (S$1.01 previously), after incorporating its 2Q11 results.

GMG Global - Weaker rubber price outlook (DBSVickers)

FULLY VALUED S$0.225 STI : 2,640.30

Price Target : 12-Month S$ 0.19 (Prev S$ 0.22)

Reason for Report : Impute new rubber and FX rates

Potential Catalyst: Acquires new processing plants/plantations

DBSV vs Consensus: Earnings below consensus on lower rubber prices (in anticipation of surplus rubber in 2012)

• 2008/09 global crisis caused FY09 earnings to tumble 89% y-o-y on weaker margins, despite 16% higher volumes

• Raised equity risk premium (ERP) on slower global GDP growth; TP cut to S$0.19

• FY11-13F earnings adjusted by -4% to +35% after revision to rubber prices and FX rates

• Maintain Fully Valued; 16% potential downside

Natural rubber (NR) prices collapsed during 2008/09 global financial crisis, and slashed GMG’s FY09 earnings by 89%, despite 16% higher volumes. We expect NR prices to ease next year but not revisit GFC lows if a recession recurs (not our base case). NR stock/usage ratio is forecast to drop to a record low 11.8% this year – even without supply cuts that typically accompany a weak price environment.

But GMG’s share price could still drop because of risk aversion. In anticipation of slower GDP growth ahead, we raised equity risk premium (ERP) assumption to 10.5% from 6.5%, and GMG’s Beta to 1.07 from 1.03 given the recent market volatility. We also extended our DCF valuation by 15 years to better capture long-term value creation from its 45,000k ha new concession in Cameroon. These translate into a lower TP of S$0.19.

FY11F-13F earnings are adjusted by -4% to +35% after raising FY11F rubber price to US$4,675/MT from US$4,200 (for TSR20) and selling expenses in FY12-13F, and cutting Teck Bee Hang (TBH)’s gross margins to 6.3-6.4% from 7.0-7.4% due to tougher operating conditions (volatile rubber prices). The impact would be partly offset by 20k MT p.a. increase in TBH’s capacity from FY12F, and smaller ASP discounts to benchmark prices (use of forward contracts).

Maintain Fully Valued for expected 15% drop in core profit next year (our FY12F TSR20 price of US$4,251 is below consensus) and 16% downside to revised TP of S$0.19. In the worst case (intensified risk aversion), the share price could drop to S$0.13 based on -1SD of mean PE.

CITYSPRING (Lim&Tan)

S$0.37-CITS.SI

􀁺 It was unfortunate investors ignored news that CitySpring through Basslink, bought back on Sept 30th A$170 mln worth of bonds issued by the latter at A$155 mln, ie there should be a gain to be booked in, interest expense correspondingly reduced and cash flow boosted by the release of the A$20 mln escrow account..

􀁺 The 1- cent drop on Oct 3rd to 38 cents underscored the extent of the loss in confidence in this business trust. And Basslink has been a headache since CitySpring bought it just over 4 years ago.

􀁺 (The funds for the redemption came from the S$204.8 mln proceeds from the rights issue.)

􀁺 Hopefully, news that S&P has removed the Negative outlook rating and reinstated it to Stable will be better received. (The overall rating remains at BBB minus.)

􀁺 Key point is that CitySpring’s cash flow is stable enough to more than enable it to continue with its distribution policy, even though with the continued poor stock market performance, prospects for growth via acquisition are not bright.

􀁺 Treat CitySpring then as a utility stock / trust, offering yield of >7%.

􀁺 BUY

WANXIANG (Lim&Tan)

S$0.139-WANX.SI

􀁺 The major shareholders of WanXiang an S-Chip (that manufactures flavors and fragrances) is proposing to privatize the company via a voluntary delisting at 20 cents a share or 43.9% above its last traded price of 13.9 cents, but below its July ’07 IPO price of 29 cents and way off its all time high of 60.5 cents hit shortly after its IPO on 23 July ’07 (its all time low was 3.5 cents in Dec ’08).

􀁺 The major shareholders together with their concert parties have received irrevocable undertakings of 67.15% of the outstanding shares to vote in favor of the delisting proposal.

􀁺 The major shareholders need at least another 7.85% of minority shareholders to vote in favor of the offer as well as not more than 10% to object to the delisting proposal before the deal can pass.

􀁺 At 20 cents, the company would be valued at S$63mln, trailing PE is 6.3x, price to sales is 0.5x and price to book is 1.2x.

􀁺 While the privatization valuations are off its IPO levels (9x PE then), the widespread dis-trust of SChips given the numerous frauds and trading suspensions suggest that Wanxiang’s major shareholders will likely succeed given that there is no known institutional shareholder who owns more than 5% of the company who could potentially block the deal.

SKY CHINA PETROLEUM - What’s The Market Saying? (Lim&Tan)

S$0.067-SKYP.SI

􀁺 We do not expect CEO Liu Qingzeng’s 1.1% addition to his stake (to 22.11%) to interest anyone.

􀁺 He is likely trying to lend some support after the hit to share price caused by Monday Oct 10th announcement of Ernst & Young’s abrupt resignation as Sky’s auditors. (Sky’s Audit Committee dispatched CFO to China to verify cash balances of the company, which at end Jun ‘11 stood at S$58.7 mln, down from end ‘10’s $65.8 mln. Sky has no back debt.)

􀁺 And this was in turn because of the recent resignation of Ernst Young Hua Min as auditor of US-listed Sino Tech, whose Chairman-cum-Executive Director is also Liu Qingzeng.

􀁺 The last time Liu bought Sky shares was in August, after the share price collapse of Sino following allegations its import agent, supplier and principal customers appeared to be shell companies and its technology questionable. He bought just over 9 mln Sky shares at around 11 cents.

􀁺 Recall how the listing of Sino Tech in Oct ’07 had so excited investors in Sky Petroleum that SGX had to query Sky for reasons to explain the surge in its share price.

􀁺 Interestingly, Tan Sri Quek Leng Chan, through Guoco Group, brought his stake in Sky below 5% after selling 10.15 mln shares on Oct 15 ’07. Stock was then trading at around 62 cents. We believe QLC has since sold out completely.

􀁺 And so would have Dubai Investments and Prudential Asset, whose stakes fell below 5% in Oct ‘07 and Apr ‘06 (when the stock was at 56 cents) respectively. (Source: Bloomberg)

􀁺 In Oct ’10, Sky placed out 60.28 mln new shares to14 investors, at 17.68 cents each.

􀁺 Finally, note that at 6.7 cents, Sky’s market cap of S$22.9 mln is actually below the company’s profit of S$25.6 mln for 12 months to June ’11!

SMRT Corporation Ltd - Lower energy costs expected in 2Q12 (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price : S$1.81

Fair Value : S$2.04

2Q earnings preview. SMRT is due to announce its 2Q12 results before the end of the month. As a recap, its 1Q12 earnings had been impacted by higher operating expenses, which led to a squeeze on gross profit and EBITDA margins. Staff costs were elevated on a YoY basis due to the increase in headcount for Circle Line (CCL) operations while higher energy tariffs raised electricity and diesel costs as well.

Modest revenue growth with reprieve in energy costs. Our 2Q12 forecasts have called for a modest 4.9% YoY (+2.0% QoQ) increase in revenue to S$258m on the back of increased MRT and bus riderships. While operating margins will continue to remain under pressure from the higher staff costs and energy costs on a YoY basis, we are anticipating an improvement over 1Q12 performance due to the softening of electricity prices over the past three months after energy prices came off on poorer macro-economic growth projections. In addition, SMRT's staff force has stabilized in the previous quarter ahead of full CCL operations and no significant increases in headcount are expected. That said, a net margin of around 17.7% for 2Q12 is possible in our view, a better showing when compared to 1Q12's net margin of 14.2%.

Still some potential kinks in CCL. Full operations of the CCL commenced on 8 Oct to much fanfare and publicity. However, preliminary feedback from commuters have been somewhat negative with common complaints mostly about lengthy wait times and congested train carriages during peak hour travels. Although ridership patterns will require more time (approximately six to nine months) before becoming more certain, SMRT could potentially increase the number of train runs in order to accommodate the demands for greater travel efficiency, which would in turn increase their operating costs vis-à-vis electricity costs. Currently, SMRT is expecting to utilize around 29-32 trains during peak hours (20 trains offpeak) with an average of 3.5 and 7-minute headway respectively.

Ridership levels to receive boost from curbing of vehicle growth rates. Transport Minister Lui Tuck Yew recently revealed plans to reduce the vehicle growth rate from its current 1.5%/year over the next three years. Coupled with possible adjustments to the Electronic Road Pricing (ERP) system, car ownership will likely become more expensive, resulting in more taking public transport. With other railway lines in the pipeline i.e. Thomson and Eastern Region Lines, the higher connectivity should provide growth catalysts for SMRT's ridership levels.

Maintain BUY. With a decent dividend yield (4.3% FY12F vs. 3.6% FY12F for STI), we maintain BUY with an unchanged fair value of S$2.04.

Lian Beng Group - Bulldozing ahead (KimEng)

Event

 Lian Beng reported a 76% YoY jump in net profit to $19.3m for 1QFY May12 on the back of a 21% YoY increase in revenue to $135.8m. Excluding a one‐time gain of $7.9m from the sale of an industrial property in New Industrial Road at Bartley, earnings from its core construction business were in line with expectations. Orderbook stood at $761m as at August 2011. Maintain BUY on the stock’s attractive valuation of 3.3x FY12 PER.

Our View

 Lian Beng’s 1QFY May12 construction revenue was within our estimated recognition schedule and net margins were maintained at 10.2% (FY May11: 10.4%). No material contribution came from the property development segment. Cash position was further bolstered to $181.4m and borrowings lowered to $106.2m (FY May11: $139.8m). Consequently, net cash improved to $75.2m, or 42.4% of market capitalisation.

 The group has announced plans for its freehold industrial land at Mandai Estate. The land will be divided into three plots. The first plot will be developed into a 141‐unit industrial project called M‐Space. We expect development profits to exceed $30m based on an ASP of $650 psf. The second plot will house a 4,700‐bed workers’ dormitory. When operational, we estimate it will contribute $3m p.a. to the group’s bottomline, thereby strengthening its recurring income base. The third plot is still in the planning stages.

 Midlink Plaza, a commercial building at Middle Road that was put up for sale in August this year, was sold for $126.8m to a consortium in which Lian Beng owns an effective 19% stake. The site can be redeveloped into a hotel and the consortium has the option to own and operate it, or to sell it upon completion. We expect Lian Beng to be awarded the construction contract, worth an estimated $45m, but have yet to factor in any earnings contribution from this project.

Action & Recommendation

We maintain our BUY recommendation on Lian Beng with a target price of $0.62, pegged to 6x FY12 PER.

PEC Ltd (KimEng)

Background: PEC is an engineering, project management and maintenance services provider to the oil and gas, petrochemical and pharmaceutical industries. The majority of its business is in Singapore, but it also carries out projects in the UAE and China. Its revenue is around 70% of project works, while the remainder consists of maintenance contracts, primarily for projects it has constructed.

Recent development: Despite the weak environment, PEC continues to secure new contracts, the most recent being a five‐year maintenance contract for ExxonMobil’s Singapore facilities. It has also secured $45m worth of project works recently to push its orderbook (ex‐maintenance) to over $300m.

Key ratios…

Price‐to‐earnings: 6.1x

Price‐to‐NTA: 1.0x

Dividend per share / yield: 3.0cts / 3.8%

Net cash: $159m

Net cash as % of market cap: 79%

Share price S$0.785

Issued shares (m) 255.2

Market cap (S$m) 200.3

Free float (%) 33.7

Recent fundraising Nil

Financial YE 30 June

Major shareholders Management – 58.7%

YTD change ‐31.2%

52‐wk price range S$0.735‐1.380

Source: Company data

Our view

Earnings stable. PEC’s recently reported FY Jun11 earnings were slightly below expectations due to weaker performance at its associates. However, core earnings and operating margins have remained firm. This is expected to be maintained going forward, partially through its $300m orderbook.

Expansion plans afoot. Following its IPO in 2009, the company has yet to fully deploy its cash raised of $26m and is looking for more acquisitions. It has announced plans to expand beyond the oil and gas sector into infrastructure and energy‐related facilities. It also recently established a subsidiary in Myanmar.

Valuations attractive, sentiment not. PEC’s share price has lost 31% of its value since the beginning of the year. It currently trades at just 6x consensus forward earnings. The company has $159m in cash and practically no debt whatsoever. This represents some 62 cents per share, or 79% of its share price. Stripping out the cash from its capitalisation, PEC’s forward earnings multiple is just 2.7x.

Ripe for a rebound? We expect this stock to continue to be exposed to negative sentiment due to the cyclical nature of the industry that it operates in. However, given its relatively stable earnings backed by a decent orderbook and cash‐backed share price, there is potential for a major rebound for PEC should the market recover. Consensus estimates peg fair value at between $0.90 and $1.36 per share.

Lian Beng Group: Earnings surged on sale of property (DMG)

(BUY, S$0.335, TP S$0.71)

Lian Beng Group’s (LBG) 1QFY12 core earnings were in-line with our estimates, with PBT (excluding one-off items) coming in at S$15.1m, up 14% YoY on the back of strong construction demand. 1QFY12 revenue came in 21% higher YoY at S$135.8m. LBG is set to ride on Singapore's current building boom and its ventures in private residential and industrial developments will help boost its bottom line. LBG’s net cash per share of 14.2S¢ would be used for its property business. Maintain BUY with a TP of S$0.71, based on a target P/E of 7x FY12 earnings.

Core earnings in line with expectations. 1QFY12 earnings surged 74.7% YoY, coming in at S$19.1m, mainly on the back of a S$7.9m gain on sale of property. Stripping away the one-off gain, 1QFY12 PBT would still have grown 14% YoY. 1QFY12 revenue jumped 21% YoY to S$135.8m, on the back of a strong performance from LBG’s construction, property development and ready-mix concrete segments.

Acquired Midlink Plaza. LBG, as part of a consortium, bought Midlink Plaza (along Middle Road) for S$126.8m (its effective stake is 19%). The consortium has plans to redevelop this property into a 16-storey hotel with 450-500 guest rooms, pending approvals from the authorities. There is a possibility that LBG may be awarded the job to construct the hotel. However, there is no earnings impact in the near term, since we estimate regulatory approvals for the hotel design may come only eight months from now. Midlink Plaza is a 9-storey stratatitled retail-cum-office development, with gross floor area of 128,076 sqf and is ~200m to Bugis MRT station. The property lies in the heart of URA’s designated district for cultural, educational and entertainment in Bugis.

Strong order books and attractive valuation. On the back of strong order books of S$761m, we estimate LBG’s FY12 earnings to come in at S$53.5m, which suggests a prospective P/E of 3.3x (peers at 6.4x blended FY11 and FY12 P/E). Maintain BUY.

Lian Beng Group Ltd - Promising start to FY12 (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$0.335

Fair Value: S$0.51

Strong 1Q - improvements for both top and bottom lines. Lian Beng reported a strong set of 1QFY12 numbers - the company recorded 21% YoY top line improvement and 76% (unadjusted) net profit increase. Top line was largely in line (S$136m actual vs. S$134m forecast) but net profit was some way ahead (S$19m actual vs. S$11m estimate). This sharp increase in earnings is mostly attributable to gains from sale of its property on New Industrial Road, where it recognised gains of ~S$7.8m in other operating income. Without these non-recurring gains, Lian Beng's YoY net profit improvement appears more modest at 6%, but still slightly ahead of our estimates.

Steady revenue contribution from construction. Top-line improvement for Lian Beng was possible due to steady revenue contribution from its core construction business and readymixed concrete segment. Looking forward, we believe this trend will continue for the remainder of FY12 - given Lian Beng's good execution capabilities, we believe its construction contracts completion will be on track and free of delays. We also believe demand for its concrete products should remain fairly stable given the amount of residential and infrastructure projects planned in the near term. Sales from its secondary focus in development will also remain fairly robust as Lian Beng continues to add new development projects (industrial and commercial recently) as some of its residential projects move closer to being fully sold.

Foray into new developments - Midlink Plaza. A new addition to Lian Beng's property development portfolio is the redevelopment of the Midlink Plaza. Lian Beng (19% stake), together with a consortium, acquired the site (GFA of 128076 sqft) for S$126.8m, and plans to redevelop the office-cumretail building into a 16-storey hotel with approx. 450-500 rooms. Redevelopment of the site is subject to authority approvals and is unlikely to see redevelopment works begin within the next 2-3 quarters. Therefore, this foray into commercial development will not impact near-term earnings estimates.

Maintain BUY and fair value estimate of S$0.51. We continue to like Lian Beng for 1) its excellent track record in both private and public residential construction; 2) its strong order books, currently on track for completion; and 3) its undemanding valuations. Given the completion of their construction projects thus far, we expect FY12 earnings to remain strong. We maintain our BUY rating for Lian Beng, with a fair value estimate of S$0.51, representing 53% upside.

Sunway Construction seals RM308mil Iskandar Malaysia Studios deal

KUALA LUMPUR: Sunway Construction Sdn Bhd (SunCon), a unit of Sunway Holdings Sdn Bhd, has secured a RM308.9 million contract from Iskandar Malaysia Studios Sdn Bhd to build an integrated media studios facility in Pulai, Johor, said Sunway.

The project, known as Pinewood Iskandar Malaysia Studios, comprises a TV block (two TV studios and two scene docks), a film block (five film studios), and an annex block consisting of a viewing theatre, a VIP cade and an audience holding area.

It will also have a production block (film studio annex which includes offices, post-production services, dressing room and wardrobe store), a technical block, a workshop block (11 workshops and associated office), a central energy plan block, and an ancillary building (guard house, pyrotechnic store, one block refuse chamber, staff carparks and 4.05ha backlot for filming).

The project is expected to be fully completed on or by May 10, 2013 and will contribute positively to the earnings of the group for the year ending Dec 31, 2012 onwards, said Sunway in a filing to Bursa Malaysia here. - Bernama

Goodpack - Near term vulnerability (DBSVickers)

HOLD S$1.48 STI : 2,640.30

Price Target : 12-Month S$ 1.35 (Prev S$ 1.69)

Reason for Report : Increasing equity risk premium

Potential Catalyst: Automotive parts contract wins

DBSV vs Consensus: Below consensus on slower IBC additions

• In the last GFC, FY09 earnings fell 12% on lower demand for natural rubber (NR) and 50% jump in overheads

• Higher share in synthetic rubber implies greater vulnerability to recession

• Raised ERP to 10.5% on slower GDP growth forecast. Thus cut TP to S$1.35

• Maintain Hold – cautious on potential near-term volume cut back

Performance likely to follow last GFC. Goodpack’s top line grew 3% y-o-y in FY09, as its market share for SR increased from 10% in FY08 to 15.3%; while its NR revenues dropped by 19%. The tepid revenue growth was insufficient to compensate for higher costs base from prior year’s investment in intermediate bulk container (IBC) fleet as well as expansion of international network. Consequently, FY09 earnings fell by 12%, as overheads surged 50% – while depreciation jumped by 31%. Rise in effective tax rate to 9.4% from 7.2% further dragged earnings.

More vulnerable in potential recession, as Goodpack has increased its exposure to the more volatile SR market (54% of FY11 revenues) – demand of which typically falls nearly twice that of NR in downturns. The ability of SR revenues to offset lower NR revenues is further reduced given its higher market share in SR now (27% share in FY11).

TP lowered to S$1.35 due to higher equity risk premium (ERP) in our DCF estimates to 10.5% from 6.5% to account for slower GDP outlook. No change in earnings forecasts made. In a worst case scenario, the counter could be de-rated to -1 standard deviation PE of 11.3x equal to S$1.14 per share.

Hold call maintained on 9% downside to our revised TP of S$1.35. We are cautious on near term outlook as weaker consumer sentiment could further delay replacement demand for tyres and hence lower usage of Goodpack’s IBCs. However, we maintain HOLD for its global dominance, unique business model as well as stronger financial position.

MIDAS (Lim&Tan)

S$0.34-MIDS.SI

􀁺 China state owned 21st Century Business Herald reported that after the high speed rail crash in July ’11 and metro train crash in Sept ’11, China has decided to slowdown their rail projects going forward and a high level official was quoted as saying that more than 80% of rail projects currently being built will face construction slowdowns along the entire chain to beef up the quality and safety aspects. Most of these projects may face completion delays of more than a year.

􀁺 Rail projects in China already completed were also asked to postpone their formal opening of operations while the government has also temporarily suspended all plans with foreign companies to build high speed railways abroad.

􀁺 After unsuccessfully trying to place out shares to raise Rmb10.2bln, China CNR Corp, one of only 2 railway companies in China (and a key customer of Midas) announced that they will be scrapping their share placement exercise and instead will target to raise Rmb7.1bln via a discounted rights offering.

􀁺 The continued negative news-flow on the railway sector suggests that while Midas is only 6 cents away (currently at 34 cents) from its all time listing low of 28 cents (28 Oct ’08), we would still not attempt to bottom-fish as yet.

Micro-Mechanics Holdings - Lowering estimates on weakening industry outlook (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$0.445

Fair Value: S$0.45

Worsening outlook signals tough times ahead. The outlook for the semiconductor sector has taken a turn for the worse since our last update on Micro-Mechanics Holdings (MMH) on 31 Aug 2011. This stems from the tepid macro economy, excess inventory levels and increasing consumer pessimism. Industry watchers Gartner and IHS iSuppli have also recently pared their forecasts for global semiconductor sales. Gartner now believes that the industry could register a 0.1% decline in 2011, a sharp contrast to its previous projection for a 5.1% growth made in 2QCY11 (forecasts for 2012 also lowered from 8.6% to 4.6%). IHS iSuppli on the other hand, still expects the industry to grow in 2011, albeit at a slower pace of 2.9% versus its previous forecast of 4.6%. Outlook in 2012 is expected to remain bogged down by the stagnant economy, with sluggish revenue growth of 3.4% predicted.

Healthy balance sheet will enable MMH to weather the storm. We opine that MMH's healthy balance sheet would provide the group with a buffer against the increasing cyclical risk in the sector. The group carries no debt and its NTA per share increased from 25.5 S cents in FY10 to 26.5 S cents in FY11. It managed to stay profitable during the 2008-2009 financial crisis and also reported positive net operating cashflow during those testing times. We believe that MMH would continue to showcase its resilience in today's difficult operating environment, backed by its strong management team.

Maintain HOLD for the yield. In light of the weakening macroeconomic environment which is expected to take its toll on the cyclical tech sector, we are lowering our estimates for MMH and now expect revenue and net profit to decline by 1.3% and 7.8% instead of a 4.8% and 2.1% rise in FY12 respectively (FY13 earnings estimates also cut by 8.1%). Demand for MMH's products is strongly correlated to semiconductor chip production as lower utilisation rates and high semiconductor inventory levels would lead to a reduction in need for consumable tools and parts. Notwithstanding our lower forecasts, we are keeping our dividend estimates for FY12 at 3 S cents, unchanged from FY11. This is due to the healthy balance sheet of MMH and its track record of paying decent dividends over the years. At this level, it implies a prospective yield of 6.7%, which should provide some downside support to MMH's share price. Maintain HOLD for its attractive yield with a new fair value estimate of S$0.45 (previously S$0.50), still based on 10x FY12F EPS.

SATS Ltd - Value in selling Daniels? (OCBC)

Maintain HOLD

Previous Rating: HOLD

Current Price: S$2.10

Fair Value: S$2.36

SATS confirmed it is in talks to sell Daniels. After news reports said it is looking to sell its U.K. subsidiary Daniels Group (Daniels), SATS Ltd (SATS) formally clarified via the SGX website that it is 1) presently in talks with interested parties about the potential sale of Daniels; 2) there is no certainty that the deal will be done; and 3) Daniels will remain part of SATS if a sale does not materialise. Details from the news reports and SATS' announcement are at best sketchy. Thus, it is uncertain if the sale will happen and there is no clarity on the transaction details, except for the two price tags of GBP150m and GBP200m mentioned in news reports.

Scenario analysis of the impact of selling Daniels. There is not enough publicly available information to determine the impact of the purported sale of Daniels. Instead of speculating, our scenario analysis illustrated in Exhibit 1 explores the possible impact on SATS' fair value. Based on three possible net margins of 5%, 7% and 9% and two possible price tags of GBP150m and GBP200m, the scenario analysis resulted in six outcomes, ranging from a low of S$2.13 to a high of S$2.41 per share. Also, SATS should be able to book a gain on the sale of Daniels if the eventual sale price is GBP150m (S$302.8m) or higher since, at the end of FY11, SATS' UK operations had a total book value of S$302.2m.

Daniels as a part of SATS. One thing we can infer from the purported sale of Daniels is the management probably does not view Daniels as an integral part of its vision for the future. And selling Daniels makes strategic sense for the group. While Daniels contributes revenue and is profitable, it has less synergistic values than other parts of SATS and is presumably harder to manage, since its operations are primarily located in the UK. By selling Daniels, SATS will also be able to remove a low-margin business, which is also susceptible to foreign exchange gains and losses.

Maintain HOLD. Since there is not enough publicly available information to determine the impact of the purported sale of Daniels, we maintain our fair value at $2.36 per share. Our fair value currently represents a 12.4% upside; but considering that uncertain equity market conditions are likely to prevail in the near to even medium term, we maintain our HOLD rating on SATS. We would be buyers closer to S$2.00.

Eu Yan Sang: Raising funds for China expansion (DMG)

(BUY, S$0.74, TP S$0.99)

EYS has signed a non-binding term sheet for the proposed issue of an unsecured S$25m notes due 2016 and 22m warrants on the basis of 1:1 at an exercise price which has yet to be determined but would be set at a minimum of S$0.86p/share. The issue is expected to raise net proceeds of S$24.3m which will be used mainly to fund its more aggressive expansion into China where it currently has four outlets in Guangzhou and intends to have 10-12 by year end. We view this move positively as China holds great potential. The potential dilution from the exercise of the warrants is minimal at 5% and upon conversion, would further raise another S$18-19m. Re-iterate BUY and TP of S$0.99, pegged at an unchanged 15x FY12F earnings.

Details on S$25m notes. The proposed S$25m principal notes due 2016 will be issued in denominations of S$200,000 each and mature 60 months (five years) from date of issue, paying an interest semi-annually: a) 3% p.a. up to the third year of issue and thereafter b) 4.5% p.a. up to maturity. Note holders have the option of a put option on the third year of issue.

Details on 22m warrants. The 22m warrants are exercisable within five years from the date of issue. The exercise has yet to be determined but will subject to a minimum of S$0.86 p/share, representing a premium of 18% to the weighted average price of S$0.73 on 3Oct11.

S$25m to fund China expansion. The Group intends to use the proceeds from the proposed issue to: a) fund business expansion into China and other countries in the region (S$10m), b) fund acquisitions of or investments in commercial real estate related to Group’s operations (S$10m) and c) remaining for working capital and general business purposes.

Epicentre: Impact following Steve Jobs' passing (DMG)

(BUY, S$0.52, TP S$0.60)

Following the announcement of Apple’s founder Steve Jobs’ passing, Epicentre tumbled 10%

before closing up 1% yesterday. Likewise, shares of Apple Inc’s remained relatively unchanged.

We believe this is reflective of investor confidence in the future of Apple. Jobs had named his

successor Tim Cook whom he had relinquished his position to on 24Aug11 and with the current

products it has in its stable, the general market believes Apple’s current products will last

several product cycles due to its forefront technology. We re-iterate our BUY call on Epicentre

with a TP of S$0.60, pegged to 9x FY12F P/E. At current price, stock offers a decent 6% yield.

Passes on a day after new product launch. On Wednesday, Apple’s founder Steve Jobs

passed away at age 56 following a long battle with cancer. He was the man behind the creation

of the Mac, iPhone and the iPod. In January he had relinquished his day-to-day duties at Apple

but still remained very much hands-on until 24Aug11 when he announced he could no longer

meet his duties, naming Tim Cook as his successor. His passing comes a day after Tim Cook

unveiled its latest smartphone, the iPhone 4S.

Future of Apple? Apple Inc’s stock price has remained relatively stable, just slipping 0.4%

following Jobs’ death. Epicentre saw its stock dive 10% after the news but closed unchanged

yesterday. The resilience of Apple’s share price is reflective of investor’s confidence in the future

of the company as Jobs has managed to select and train a reliable successor. His creations

such as the iPhone, iPad and Mac is likely to be able to survive several product cycles ahead.

According to industry research firm Gartner, the iPad currently dominates the tablet industry with

a 73% market share and expects it to have at least 50% market share through 2014. For the

record, Epicentre commands an estimated 30% market share of the iPad market in Singapore.

Supply Chain Sector: We favour SCMs with less upstream and industrial exposure (DMG)

(OVERWEIGHT)

Concerns on global economic growth have escalated in recent weeks. Within the supply chain management (SCM) sector, the most adverse effect from an economic slowdown will be felt on corporates that have (1) greater exposure to industrial commodities and (2) more upstream industrial commodity assets. Within the three corporates we cover under this sector, Glencore meets the criteria. We believe Glencore’s earnings could be most adversely affected, whereas Olam’s is seen to be most resilient given its greater dependence on agriculture produce (77% of gross contribution). Since global equity markets started their sharp downtrend in early Aug 11, Glencore’s share price has fallen 15% in S$ terms, whereas Olam’s has fallen 16%, and Noble by 32%. We feel that the risk-reward trade-off favours investors buying into Olam and Noble, while holding Glencore.

Glencore susceptible to softness in industrial commodity prices. Between end-Jul and end-Sep 2011, copper and zinc prices fell 28% and 24% respectively, and these two industrial commodities are key contributors to Glencore’s earnings, as Glencore has upstream businesses for these commodities. If prices for these commodities remain soft, Glencore’s earnings could see re-rating going forward. Our Glencore target price of HK$52.13 is derived from SOTP methodology.

Olam’s earnings seen to be resilient. Olam has the greatest percentage exposure to agriculture produce, amongst its peers. Olam has also shown its execution capability by recording a 3-year net contribution CAGR of 33%. New projects such as the Gabon urea manufacturing facility (to be operational mid-2014) will also boost earnings. With Olam’s earnings resilience, we recommend investors to BUY into Olam given its current attractive price. Our Olam target price of S$2.98 is derived from a 3-stage DCF model.

Noble’s potential listng of agri business to support share price. Noble has just announced its intention to possibly list its agri business on the SGX. We believe this will unlock value as the agriculture business deserves a higher P/E than the industrial business in the current global economic climate. Noble’s earnings is also seen to improve with recent acquisitions such as Sempra Energy Solutions in 2010. Given the sharp decline in Noble’s share price since end Jul 11, we see value. Noble is on our BUY list, with a target price of S$2.00, derived from a FY11 P/E multiple of 15.3x.

Offshore & Marine: Petrobras opens tender for 21 rigs (DMG)

(Overweight)

Singapore yards may get something out of the latest Petrobras tender. We have highlighted in our previous reports that Petrobras is a wildcard that the market has largely ignored given persistent disappointment in the timing of the contract award. Upstream reported today that Petrobras has opened the bids for the charter of 21 ultra-deepwater rigs and we are more confident that the full award will materialise this time. Last year, we were skeptical on the full award of all the 28 rigs given potential hurdle in financing the newbuilds. With the setup of Sete Brasil as a holding company for all the rig assets with the backing from pension funds, banks and Petrobras, we think chances are higher this time around that all the remaining 21 rigs will be awarded. We believe that Keppel and SMM could win up to six rigs each. A win from Petrobras will be a bigger boost to SMM’s order book and we believe share price could show greater reaction as well. We are Overweight on the offshore & marine sector.

Keppel, SMM and Odbrecht could win up to six newbuilds. Key takeaways from the latest Upstream report: (1) Petrobras has received offers for five rigs from Ocean Rig and 21 rigs from Sete Brasil. Ocean Rig is the lowest bidder with a day rate of US$584k. Sete Brasil is partnering several domestic and foreign players (see Figure 1) to own the rigs with day rates in the range of US$619k for the drillships and “slightly higher” for the semi-submersible rigs. (3) Shipyard construction costs are estimated at US$600-700m/rig. The first contract for seven drillships awarded to EAS was priced at US$662m/rig. We believe the shipyard contracts will come in at the top end of the estimated range. Key risks in running a shipyard in Brazil are execution risk (potential delays) and cost control (shortage of skilled workers and wage inflation).

Impact: More significant for SMM. With the Brazilian-built ultra deepwater rigs costing US$600m-700m/rig, Keppel and SMM could win up to US$4.2b (S$5.4b) each. Currently, Keppel and SMM has outstanding order book of S$10.2b and S$5.8b respectively. A win in Brazil will be more significant to SMM’s order book and we believe its share price could react better than Keppel. Wining an order could also allow Sembcorp to establish a presence in Brazil. Valuations in the sector are attractive: stocks are now trading at 9-10x forward P/E vs. trough of 4-5x during the global financial crisis and 22-30x during the peak.

China Aviation Oil (KimEng)

Background: China Aviation Oil (CAO) is the largest purchaser of jet fuel in the Asia Pacific. It supplies 90% of jet fuel imports to China’s aviation industry. The country’s three major international airports are its key clients. Its other business includes petrochemical and oil trading.

Recent developments: Over the weekend, CAO announced its US$32m investment for a 26% equity stake in Oilhub Korea Yeosu Co. Ltd (OKYC), a joint‐venture company that is building an oil storage terminal in Yeosu, South Korea. This follows hot on the heels of another investment in a greenfield oil storage terminal project in Johor, Malaysia, announced on 6 October.

Key ratios…

Price‐to‐earnings: 9.2x

Price‐to‐NTA: 1.5x

Dividend per share / yield: S$0.02 / 2.2%

Net cash/(debt) per share: S$0.05

Net cash as % of market cap: 5.5%

Share price S$0.91

Issued shares (m) 718.2

Market cap (S$m) 653.6

Free float (%) 28.5

Recent fundraising Nil

Financial YE 31 December

Major shareholders China National Aviation Fuel Group (51.0%), BP Plc (20.0%)

YTD change ‐41.6%

52‐wk price range S$0.83‐1.71

Source: Company

Our view

Strategic asset for oil trading business. The investment in Johor is a joint venture with Malaysian company Centralised Terminals Sdn Bhd (CTSB) to build and operate an oil storage terminal for jet fuel, gasoil and fuel oil at the Port of Tanjung Langsat in Johor (Terminal Three Facility). CAO will own a 26% equity stake in the facility with an equity investment of US$10m over the next two years. The facility will provide CAO with a steady income stream when it is completed by 2013, as well as a platform for expanding its oil trading business outside China.

Adding value to customers. OKYC will be jointly owned by CAO, Korea National Oil Corp (29% stake) and several other Korean conglomerates such as Samsung C&T Corp and LG International Corp. This investment strengthens CAO’s ability to ensure jet fuel supply to its China customers.

FY11 earnings may set new high. CAO reported strong 1H11 earnings on the back of robust volumes and associate earnings. Despite the gloomy global economic outlook for 2H11, the company expects to achieve record earnings for the full year with 1H11 net profit already making up 75% of its FY10 net profit. Valuations are attractive at 9.2x historical PER after the recent sell‐down, with growth prospects aided by strategic investments and robust growth in China’s aviation industry.

City Developments Limited (KimEng)

Event

City Developments Limited (CDL) recently announced that it will take a 30% effective stake in a development acquired by Millennium & Copthorne (M&C) in Ginza, Tokyo. M&C owns the remaining 70% stake. The acquisition allows M&C to gain a strategic foothold in Ginza at what we believe is a reasonable price. Going into 2012, the potential slowdown in M&C’s European (ex‐London) operations is unlikely to have a significant impact on its bottomline. Maintain HOLD.

Our View

M&C will be working with Mitsui Fudosan to redevelop the prime site in Ginza into a deluxe 325‐room hotel, expected to be completed by end‐2014. Mitsui Fudosan will be the project manager and also the eventual lessee to operate the hotel. M&C estimates the total development cost including land to be £113m, or £349,000 per key. We think this is a fair price, as we estimate the breakeven Average Room Rate (ARR) to be £173/night, when we think the hotel may eventually command an ARR of £200/night.

Meanwhile, the ongoing Eurozone debt crisis could weigh on the hospitality business in Europe, particularly if demand for business travel shrinks. However, we believe that the impact on M&C will be minimal as Europe ex‐London generally accounts for less than 5% of its EBITDA. In contrast, London, its biggest market in Europe accounting for about 25% of earnings, should perform well next year as the city hosts the 2012 Summer Olympics from 27 July to 12 August.

In Singapore, we expect CDL to moderate the pace of its new launches. In particular, we think the launch of high‐end projects such as Lucky Tower will likely be deferred until the jitters in global markets dissipate. On the other hand, the raising of the monthly income ceiling to buy executive condominium units from $10,000 to $12,000 should benefit CDL, which has an inventory of about 700 unsold EC units from Blossom Residences, as well as the yet‐to‐be‐launched site at Choa Chu Kang.

Action & Recommendation

Given the strong likelihood of a recession next year, we see few positive catalysts to upgrade our call. Maintain HOLD with a target price of $11.05, pegged at 15% discount to RNAV.