CapitaMalls Asia - Watch for capex (CIMB)

Share price has crept up since Oct though group fundamentals have not changed. Look ahead, we see capex needs and leverage becoming increasingly stretched, as NPI remains tepid. With its recent dual listing in HK, we believe equity-raising may be on the cards.

We downgrade CMA from Neutral to Underperform on concerns over its capex commitments and valuations. Our core EPS has been cut 4-5% on slower NPI pick-up. Our TP dips to S$1.15 (still at 35% disc to RNAV of S$1.77) from S$1.17 on lower CMT valuations.

Watch for capex needs

CMA has been aggressive in acquisitions, committing to over S$2.5bn of purchases in 2011. While its NPI gestation is well known, we believe the market will increasingly focus on its capex needs and rising leverage. Some of its large-scale China investments have yet to go through formally, with debt obligations yet to show up on its books. While CMA maintains that access to Rmb debt funding is not a problem, funding costs have increased substantially, with the group understood to be paying PBoC rates + 20%.

A closer look at gearing

Assuming its projects are debt funded, progressive drawdown could lift CMA’s net gearing from 6% to 40-55% in FY11-13, with look-through gearing (incl. net debt of associate REITs and private funds) rising further to 67-84%. CMA has guided for optimum gearing of 60-70%, which provides little margin for comfort, in our view.

NPI growth to remain tepid; risks of cash call in 2012

We estimate that its operating cash flows will be unable to cover its development capex needs in the near future. 3Q11 results suggest that NPI growth could remain tepid for 2012 on start-up costs and rental gestation. A pick-up could come only by 2013, by our estimates. Its China portfolio yields on costs are still sub-optimal at 6%, and lower for new malls at 5%. A potential divestment of ION to CMT could prop up financials but this would come at the expense of recurring earnings (35%) and likely cash calls from its associate. Share price has crept up to 0.9x P/BV. With its recent dual listing in HK, we believe equity-raising in 2012 is possible.

Leader Environmental Technologies: Rainy days, please stay (OSKDMG)

(BUY, S$0.118, TP S$0.30)

LET posted a decent set of 3Q11 results with RMB30.3m in PATMI (+15.3% YoY) on the back of RMB83.8m in revenue (-12.4% YoY). Despite falling revenue, bottom line still improved thanks to the hike in gross margin (+10 ppt) as the group now selectively cherry-picks projects. In view of the credit tightening in China, the group decided to undertake fewer projects and delayed some of the work to be carried out next year. Hence, we slashed our earnings estimates by 26.0% in FY11 and 13.4% in FY12 to S$16.6m and S$23.8m respectively. Nevertheless, we are still confident over the group’s long-term prospects once the credit conditions improve as the Chinese government will still have to meet its aggressive 2015 emission cut target. Reiterate BUY, with a lower TP of S$0.30 based on 8.2x FY12 P/E (-1.5 SD industry P/E).

Taking precautionary measures. Due to credit tightening measures in China, many SOEs such as steel manufactures who are Leader’s key customers have postponed spending and reviewed the credit terms for environmental projects. Consequently, the group undertook fewer EPC projects and selectively chose those with higher margins and better credit terms amongst the many opportunities available. In view of the macro conditions, we favour this defensive stance despite resulting in slower growth rate than previously anticipated. Nonetheless, we remain upbeat over the group’s long-term prospects as there are already signs that the government will loosen up credit as the inflation problem eases.

Solid track record gains Industrial recognition. Leader has recently been awarded the 200 “Best Under A Billion” by Forbes Asia and “Technology Fast 500” by Deloitte, joining the ranks of established companies such as Google (2007), Yahoo(2007), Apple (2007), Baidu(2011). The accolades demonstrate that the group has shown strong sales and earnings growth as well as a sound balance sheet.

CSE Global: Strong order-book and attractive industry dynamics (OCBC)

Attractive industry dynamics. CSE Global (CSE) is a medium-sized player in the global system integration industry, providing mainly industrial control, automation and telecommunication solutions to the oil & gas sector. Its products are highly specialised (e.g. telecoms network for offshore platforms) and/or used in high integrity environment (e.g. subsea wellheads). The combination of high entry barriers and robust demand for such specialised services allows CSE to earn 9-12% net margins while competing against global players such as ABB and Siemens.

Well-managed growth strategy. CSE's revenue and net profit have grown at compounded growth rates of 15% and 17% respectively for the past eight years, through consistent project executions and sensible acquisitions. On project executions, the only blip in its track record was the S$22m cost overrun in its Middle East projects in 2Q11. However, management has since taken actions to prevent a repeat of the incident. As for its M&A strategy, we believe that CSE is a prudent and experienced buyer that guards against overpaying by setting performance targets as part of its purchase consideration.

Strong order-book. As at end-Sep 11, CSE has a record order-book of S$487m (against S$448m of revenue in FY10), of which about 19% are for its healthcare systems. The remaining 81% are for its automation/telecoms/infrastructure solutions. We believe that the group's geographical diversity help it replenish its order-book effectively. As an example, we note that while infrastructure investments from Europe is currently slowing down, CSE is seeing increased order flow from US E&P activities following the resumption of drilling activities in the Gulf of Mexico.

Initiate with BUY. We assign a valuation peg of 9x (25% discount to STI's 12x) for CSE, and obtain a fair value estimate of S$1.06 on FY12s EPS. At current price, the stock is trading at one standard deviation below its PER and PBR averages. We think that such steep discounts are unwarranted as the group has (i) a healthy order-book that will provide earnings stability over the near term horizon, (ii) strong free cash-flow that will mitigate any risks associated with its debt levels, and (iii) an experienced management team. Initiate with BUY.

CHINA SKY CHEMICAL FIBRE (LIM&TAN)

S$0.102-CSCF.SI

• Further to our note yesterday we note that SGX is not happy with China Sky’s previous responses with regards to its independent director and chairman of the audit committee Mr Lai Seng Kwoon having provided (via a private company wholly owned by him) accounting-related and consulting-related services to the company from 2008 till 2010. SGX wants an independent audit with regards to the potential conflict of interests and degree of independence as the transaction amounts disclosed by China Sky in the past 3 years had been wrongly stated.

• As well, SGX also wants an independent audit into its 2006 acquisition of land acquisition in Quanzhou city in Fujian from land owner Fujian Fuyuan Chemical Fibre to enable its expansion into upstream production. When asked by SGX, the company was reluctant to disclose the identity of the owner and difficulties with regards to the transfer of land use rights have seen the agreement turning void after 4 years. Fujian Fuyuan had recently refunded the full acquisition amount of Rmb263mln without any interest payment to the company.

• And earlier this year, the company had pre-paid Rmb190mln for new production equipment. When SGX queried about the utilization rates of its existing production equipment, the company refused to disclose it citing competition issues.

• China Sky which was listed in mid-2003 at 55 cents a share and saw its share price surge to an all time high of $2.54 in mid-07 is currently only 2.2 cents above its all time low of 8 cents reached on 23 Sept’11.

• The continued problems associated with S-Chips have continued to negatively impact the sector (even more reputable ones such as China Minzhong, with the stock trading at a depressed 3x PE and 0.8x price to book).

Eratat Lifestyle Ltd (KE)

Background: Listed on the Singapore Exchange since April 2008, Eratat Lifestyle is mainly engaged in the design, manufacture and distribution of lifestyle fashion footwear and apparel, marketed under its proprietary brand, ERATAT. Its products are sold in more than 900 speciality shops across China.

Recent development: We recently attended Eratat’s 3Q11 results briefing. Net profit was up 9.7% YoY to RMB48.3m despite a slight revenue decline of 3.8% due to fewer distributors during the period. In addition, gross margin improved by 2.3ppt to 34.5% because of positive sales contribution by higher-margin apparel and an increase in ex-factory ASP of its products.

Key ratios…

Price-to-earnings: 2.2x

Price-to-NTA: 0.35x

Dividend per share / yield: RMB0.03 / 5.0%

Net cash/(debt) per share: S$0.07

Net cash as % of market cap: 61.3%

Share price S$0.120

Issued shares (m) 474.913

Market cap (S$m) 57.0

Free float (%) 63.0%

Recent fundraising activities April 2011: Private placement of 60m new shares @ $0.202/share

Financial YE 31 December

Major shareholders Lin Jiancheng (25.3%), Ye Sanzhi (6.8%)

YTD change -50.0%

52-wk price range S$0.117-0.27

Our View

Cash conversion cycle extended. Starting last year, Eratat allowed its key distributors to set up more direct-owned speciality shops and strengthen their individual distribution network. To support its distributors’ growth expansion which typically requires a high initial investment outlay, the group offered longer credit terms. Management said it has not experienced any default so far under this model, as it is usually very selective when it comes to the appointment of its distributors.

New order wins. Separately, Eratat said that it has received confirmed orders amounting to RMB380m during the August trade fair, of which about 37% are for ERATAT Premium products (vs 8% last year). Delivery is scheduled for between January and June next year. We also note that the 2012 Season sales mix of footwear and apparel will be about 25% and 75%, respectively (2011 Season: 51% and 49%, respectively).

Enhance ERATAT brand positioning. Given the encouraging market response after the launch of its ERATAT Premium product range in 2Q11, the group plans to upgrade most of its existing retail shops (currently, about 20% tout the New Premium image). It will support the distributors’ efforts to upgrade their older shops by providing renovation subsidies through offsetting against their trade receivables.

Victim of S-chip confidence woes. The stock currently trades at a cheap valuation of less than 2x FY11 PER, based on consensus estimates.

CONSCIENCEFOOD HOLDINGS - Hunger for noodles offset beverage delays (OSKDMG)

BUY

Price S$0.189

Previous S$0.290

Target S$0.290

Consciencefood reported a 194% YoY rise in 3Q11 PATMI to Rp32.2b (+194% YoY) which was achieved on the back of a 30% rise in revenue to Rp183.4b. Results were above expectations. 9M11 PATMI of Rp94.6b accounted for 87% of our FY11F while revenue of Rp563.8bil accounted for 80% of our FY11 forecast. We increase our FY11F revenue and earnings forecast by 2% to take into account higher sales of instant noodles which would be offset by the delayed production of its beverage line. With two new avenues of sales coming on stream next year and growing instant noodle sales, we remain optimistic on the stock. Maintain BUY with unchanged TP of S$0.29, pegged at 7x FY11F earnings.

Fall in operating expenses. While 9M11 GPM dipped by 1ppt, PATMI margins have expanded by 3ppt YoY to 17% due to a fall in admin, finance and other expenses. Admin expenses fell 54% YoY as IPO expenses of Rp14.3bil were incurred in 3Q10.

Further delay in beverage line. Our last report highlighted a delay in the commencement of its beverage line from Oct2011 to 1Q12. Management has now announced it aims to commence production in 2H2012. As for its cup noodle line, efforts are now being carried out promoting it with commercial sales to begin in 1Q12. We adjust our beverage sales contribution for FY12 from Rp174bil to Rp151bil based on a capacity utilisation of 26% for the year which would generate 30m bottles at an ASP of Rp5,000.

Jakarta plant under negotiations. The Group currently caters to the Jakarta market via OEM production. Based on annual production of 144mil packs, that market is expected to generate Rp144bil in sales. Management is in negotiations to acquire that OEM plant which would help to improve margins and venture into Jakarta more aggressively.

EU YAN SANG - EU YAN SANG (OSKDMG)

BUY

Price S$0.73

Previous S$0.99

Target S$0.94

EYS reported 1QFY12 PATMI of S$4.5m, up 9% YoY on the back of a 5% rise in revenue to S$60.7m. Revenue growth was broad based and if not for the stronger SGD, revenue and PATMI would have grown by 12% and 21% respectively in local currency terms. During the quarter, the Group added four outlets bringing total number of outlets to 189, in addition to 25 clinics. It should also be noted that the Group opened its first outlet outside Guangdong province in China as it plans to venture out of the province into other parts of the country more aggressively. We continue to like the stock as it enjoys resilient sales from a growing affluence of customers in its key markets. We raise our FY12F earnings by 5% but derive a marginally lower TP of S$0.94, pegged at an unchanged 15x FY12F earnings due to a dilution in EPS from the exercise of employee stock options.

Growth across all markets. Retail sales posted a 5% YoY growth to S$48m with top selling products continuing to fare well. Wholesale TCM sales also grew 6% YoY largely due to stock replenishments by wholesalers. Its clinics posted a 10% YoY growth. Only it’s “other income” category which includes revenue from F&B and rental income dipped 3%. In terms of geographic breakdown, sales climbed in all countries led by Hong Kong which registered double digit growth of 22% in local currency terms and 10% in SGD.

Opens first store out of Guangdong province. The Group added four new stores for the quarter including its first store outside Guandong province, China. It now has five outlets in China and plans to add another three by year-end bringing total store count to eight. As at 30Sept11, the overall Group has 189 retail outlets and a chain of 25 clinics.

Valuation. We raise our FY12 earnings by 5% to S$27.5m as we expect lower operating expenses to bump up margins. We reiterate BUY on the stock pegging it at an unchanged 15x FY12F multiple, but derive a marginally lower TP of S$0.94 stemming from EPS dilution from the exercise of stock options.

ADAMPAK (LIM&TAN)

S$0.24-AMPK.SI

• The key point at yesterday’s meeting is that 4Q’11 will be a challenging quarter for the company as its core hard disk drive business which accounts for 50% of business will see a drastic 20-30% drop in volumes sequentially as a result of the flooding in Thailand and other electronics/telecoms business is also seeing uncertainties from the unstable macro environment caused by the debt problems in Europe.

• While management said that they have bought comprehensive insurance coverage from a subsidiary of Thai Farmer’s Bank for their assets in Thailand as well as business disruption, it is currently too early and preliminary to forecast how much they are able to recover. Management disclosed that their assets in Thailand had cost them about US$1mln.

• Industry sources told us that the claims would likely take a period of time to review and finalize before payments can be made, hence, we believe Adampak would likely have to take impairment losses first before registering the claims sometime later. Fortunately, their asset value in Thailand is not too big at about US$1mln relative to shareholders funds of US$42mln and 9 month to Sept’11 profit of US$5.1mln. And the company has no borrowings and net cash of US$13mln, representing 27% of its share price.

• While prospects are weak, like Armstrong, Adampak’s share price has also stopped reacting to bad news and at 1x price to book it is already below its historical average of 1.2x (low of 0.6x and high of 1.8x), hence we continue to maintain a Neutral rating on the stock.

ARMSTRONG (LIM&TAN)

S$0.23-ARMS.SI

• Armstrong resumed its share buy back program yesterday having bought 300,000 shares at 23 cents each, representing 45% of total traded volume. The cumulative buy back for the latest mandate after yesterday’s buy back is 3,661,000 shares, representing 7.3% of the total allowable buy back of 50,220,735.

• With the general market treading water yesterday, the company’s buy back likely helped the stock rise 2.2%.

• Unlike Hi-P’s case where the company’s last share buy back program (from mid’10 till Feb’11) had clearly helped the stock outperform (rising from 50 cents to $1.24), Armstrong’s previous buy back programs were a mix bag.

• From mid-05 till mid-06 when the company was busy buying back shares, its stock price had more or less flat-lined during the period and when it resumed its buy back from late-07 till early-08, its stock price had fallen from the 40 cents level to mid-20 cents level. More recently when the company resumed its buy back program again in June’11 till Aug’11 after having ceased since early-08, its share price had initially benefitted a bit by rising from the 30 cents level in June’11 to 35 cents in July’11, but it has since fallen to a recent low of 21.5 cents before rebounding to 23 cents yesterday.

• Looking at its historical share price performance, it performs more closely to its bottom-line performance than the company’s share buy back program. For example, in 2007, the stock surged from its 10-20 cents range to a high of 48 cents in mid-07 as its profit surged from $13mln in 2006 to $21mln in 2007 and when profits fell back to the $14+mln range for 2008/2009, its stock price fell back to the 10-20 cents range before again breaking out in 2010 to retest its 2007 high of 48 cents when its profit rose to a new high of $27mln in 2010.

• With 2011 full year profit likely to fall in the $8-9mln range from its record of $27mln last year reflecting the fall-out from the Japanese earthquake, flooding in Thailand, cost pressures and volatile forex rates, there is a chance the stock may fall back to its 10-20 cents range.

• Except that its current price to book of 1.1x is already below its historical average of 1.55x (low of 0.6x and high of 2.5x) and despite lots of bad news (profit warnings and negative impact from the floods in Thailand) and weak results & outlook, its stock price has stopped falling.

• We like consensus have a Neutral rating on the stock.

Lippo Malls Indo Retail Trust: Acquisitions to accelerate growth (OCBC)

Slightly below expectations. Lippo Malls Indonesia Retail Trust's (LMIRT) 3Q11 DPU of 1.06 cents was slightly below our expectation due to higherthan- \expected tax expense. However, gross revenue of S$33.3m (-1.4% YoY) and NPI of S$22.5m (+1.2% YoY) were ahead of our projections, notwithstanding a negative impact from a depreciating IDR against SGD. In IDR terms, we note that gross revenue and NPI would have grown by stronger 3.3% and 6% YoY, supported by a steady flow of shopper traffic and growing urban middle-class catchment population. For 9M11, revenue of S$99.2m and DPU of 3.32 S cents formed 78.9% and 71.6% of our fullyear revenue and distribution figures, respectively.

Fundamentals remained sound. Overall portfolio occupancy as at 30 Sep was healthy at 98%. This remained unchanged from the rate seen a quarter ago, but compared favourably to the 3Q11 industry average of 85.7% (Source - Colliers International). Debt-to-asset ratio was also at a low 10.1% (end Jun: 10.2%), providing the group ample funding capacity for future acquisitions. On 28 Sep, we note that LMIRT had secured a new term loan facility of up to S$200m with an all-in margin of 5.2% (lower than cost of debt of 6.5% as at 30 Sep) to refinance its existing S$125m loan which will mature in Mar 2012. With that, the group's debt maturity will be extended to 2014 with no refinancing requirements over the next three years.

Acquisition to fuel growth. Further to the announcement on the proposed acquisition of Pluit Village and Plaza Medan Fair and rights issue on 30 Sep, management had also received approval from unitholders at the EGM convened on 20 Oct. As a recap, LMIRT proposed a one-for-one renounceable rights issue at an issue price of S$0.31 apiece to raise ~S$337m to partially fund the purchase consideration of S$388m. We view this positively as the acquisitions were expected to be DPU yield accretive and were done at a discount of 4.1-5.7% to their average valuations. According to management, the investments are likely to boost its distributable income by 61% from S$47.9m seen in FY10, while its adjusted DPU yield would increase to 8.43% from 8.38%.

Reiterate BUY. We factor in the contributions from the two new malls and rights issue, as the acquisitions are expected to complete on 9 Dec. Using the Dividend Discount Model, our fair value is now adjusted from S$0.61 to S$0.45. Looking at an attractive potential upside of 26.3%, we maintain our BUY rating on LMIRT.

SingTel - Four key issues (DBSV)

BUY S$3.16 STI : 2,807.44 (Upgrade from HOLD)

Price Target : 12-month S$ 3.43 (Prev. S$3.32)

Reason for Report : Company Update

Potential Catalyst: award of project for standard set-top box for pay TV

DBSV vs Consensus: 2%/4% below FY12/13F consensus assuming lower Bharti contribution

• National Broadband Network will not hurt SingTel contrary to popular perception. Any potential divestment of Telkomsel to be neutral or positive

• Bharti is set to grow again although street may be overly optimistic while Optus faces competition in the near term

• Trading at 1-year forward PE of 13.0x below 13.2x historical average. Upgrade to BUY with revised TP of S$3.43 for resilient earnings and over 5% yield

Core plus Telkomsel & Bharti make up over 90%of

group earnings. Singapore contributed about 32%, Optus

26%, Telkomsel 17% and Bharti 16% of FY11 earnings.

Market is overly worried about threat from NBN. There are three key factors here: (i) Porting limit of only 2400 connections per week for NetCo implies that full migration will take at least 8 years; (ii) NBN is not reaching fully inside corporate buildings due to resistance from building owners; (iii) Most importantly, SingTel gets 75% of NetCo revenue for allowing NetCo access to its network.

Optus is facing intense competition. Both Telstra and VHA have launched aggressive iPhone 4S plans, forcing Optus to follow suit. All telcos are offering extra subsidy of A$100 on mid-tier plans. Also potential cut in mobile termination rate in 2012F may have minor adverse impact.

Issues with Telkomsel & Bharti. Possible scenario of an all-cash sale of Telkomsel could be positive while other scenarios could be neutral to slightly positive. Meanwhile, Bharti is set for growth with Africa as the key driver; however street may be overly optimistic on India.

Upgrade to BUY with SOP based TP of S$3.43. The key change is higher valuation for Telkomsel in the light of improved competitive environment in Indonesia. Weaker regional currencies versus SGD would be the key downside risk to our TP.

Wilmar International - Acquires sugar mill from Proserpine administrators (DBSV)

HOLD S$5.27 STI : 2,807.44

Price Target : 12 months S$ 5.60

Sucrogen, Wilmar's Australian sugar subsidiary announced yesterday that it had entered into an agreement with administrators of Proserpine Sugar Mill to purchase the assets of Proserpine Co-operative Sugar Milling Association.

Proserpine had entered into administration after it was unable to secure sufficient funding from COFCO/Tully (Wilmar's rival bidder for Proserpine) to repay its existing debts.

Under the terms of agreement with the administrators, Sucrogen will purchase the mill for A$120m less working capital and settlement adjustments as well as operating costs and capex incurred from 31Oct11 to complete the acquisition. Sucrogen will also provide interim finance via a second commercial loan facility of A$15m. Approval for the transaction is required by creditors of Proserpine, with the meeting to be held on or before 12Dec11.

With Proserpine making a full year loss of A$22m (financial year ended 28Feb11), we expect a small drag on Wilmar's FY12 earnings if the transaction were to be completed by 31Dec11.

As the transaction is still subject to creditors' approval, we maintain our earnings forecasts and TP of S$5.60. Hold call is also maintained.

Ezion Holdings (KE)

Event

Ezion posted strong 3Q11 numbers, with net profit up 71% YoY to US$12.9m, and a 6% improvement sequentially. This was slightly ahead of our expectation. The company also announced new liftboat contracts with Pertamina for operations in offshore northwest Java. Overall, it is making excellent headway and the low stock valuation simply does not reflect its positive prospects. Maintain BUY with a target price of $0.99.

Our View The improvement in 3Q11 came mainly from increased chartering contribution from its fourth liftboat. However, there was a one-off improvement in pricing as it was undergoing paid evaluation trials with several national oil companies in the region for almost three months, with a view to securing contracts with these customers. A write-down of its A$ exposure for about US$1m should at least be partially reversed in 4Q11.

As a direct result of the evaluations, Ezion has secured a charter for the same liftboat with Pertamina for three years at an annual rate of around US$18m. Note that the rate is a time charter, as opposed to Ezion’s usual bareboat

arrangements. Hence, the revenue generated will be higher. However, this will be offset by increased operating expenses, which also result in a lower margin. Ultimately, base profits are maintained.

Pertamina has also signed a letter of intent to charter an additional liftboat for up to five years for approximately US$94m. Ezion is embarking on the construction of its ninth liftboat and the charter is due to commence upon completion of construction in mid-2013.

Action & Recommendation

Ezion is on track to achieve our three-year earnings CAGR of 30% pa to FY13. We have not yet factored in the contributions from the ninth liftboat until the vessel is substantially completed. Even with its recent share price recovery, Ezion is still trading at very low valuations despite the impressive growth numbers. We are leaving our forecasts unchanged for now, but there is scope to raise our numbers as Ezion is negotiating more ventures for its liftboats, as well as more contracts for its logistics supply businesses in Australia. The stock remains a strong BUY with a target price of $0.99.

Fraser & Neave - Positioned for next stage of growth (KE)

Event

? Fraser & Neave (F&N) reported FY Sep11 revenue of $6.3b, which represented 10.1% YoY growth. While this was largely in line with our expectation and Street estimates, net profit was slightly disappointing at $620.6m (+6.2% YoY) due to cost pressures in the dairies division. We continue to expect the soft drinks, breweries and development property segments to spur earnings growth momentum in the future. Maintain BUY with the target price lowered to $7.22.

Our View

? Despite rising input costs, the soft drinks and breweries segments saw EBIT increased by, respectively, 38% YoY and 23% YoY in FY Sep11. We are encouraged by this robust growth and the corresponding margin improvements. From FY Sep12, two-third of the shortfall in soft drinks revenue from the expiration of the Coca-Cola agreement will be compensated for by the sale of F&N branded soft drinks in Singapore and Malaysia. In addition, the penetration of new markets (eg, Thailand, Vietnam and Indonesia) and launch of new products will underpin the F&B division’s next stage of growth.

? To gear up for growth in the soft drinks division, F&N has invested in a new PET production line (RM42m) and two new tetra pak production lines (RM50m). The completion of its state-of-the-art halal plant in Pulau Indah, Malaysia by year-end will also go a long way to aid its expansion.

? Development property EBIT slid by 3% YoY to $569m as property presale contributions in Singapore were offset by lower earnings from China. F&N still has a residential landbank of 2,327 units in Singapore and more than 10,000 units in China and Australia that can be unlocked over the next 3-5 years. Sales momentum looks set to slow down, but the group’s healthy balance sheet (31% net gearing) and risk-sharing among the partners for its projects should limit any strain on its cash flow.

Action & Recommendation

We lower our target price to $7.22, from $7.47, to reflect the higher 10% conglomerate discount (from 5%) ascribed to our SOTP estimate of $8.02. Key catalysts include the potential divestment of the non-core businesses, such as printing and publishing, and the expansion of the F&B businesses into new markets. Maintain BUY.

China Minzhong: Beats estimates but cautious outlook weighs (OSKDMG)

(BUY, S$0.93, TP S$1.38)

1QFY12 net profit of RMB93m (+78% y-o-y, -3% q-o-q) was ahead of our RMB80m projection due to MINZ’s continued pursuit of a higher value product mix that saw a) a 37% revenue increase to RMB361m on strong fresh and processed vegetable growth and b) a 8ppt GPM gain to 41%. However, we note a cautious management tone during the results briefing, with a scaling back of its planned FY12F capital expenditure to ~RMB500m from RMB1.9b in FY11 to manage its working capital needs. In general, we welcome this decision as new farmlands are capital intensive and make minimal contributions in the initial years. We revise down our FY12/FY13 farmland expansion assumption to 5,000 /20,000 mu (old: 26,000/26,000mu) – resulting in -5% and -12% lower output respectively – but adjust up our assumed GPM by 3ppt and 2ppt supported by higher margin crops. Our corresponding FY12 net profit estimate remains at RMB768m but that of FY13 is revised down by 3% to RMB1,068m. We expect headwinds from an uncertain USA/Europe demand and share overhang to remain and hence, reduce our target multiple to 5x FY12F PER (old: 6x) and derive a lower TP of S$1.38 (old: S$1.68). Maintain BUY.

37% top line growth. Fresh and processed vegetable grew 26%/94% to RMB157m/RMB133m respectively. Fresh vegetable ASP and volume improved by 37% and 42% to RMB4,100/tonne and 38,200 tonnes on a better product mix and a larger land area. Due to shift towards a higher-value portfolio, processed ASP increased 54% to RMB22,800/tonne although volume contracted by 20%.

8ppt GPM gain to 41%. Fresh and processed vegetable GPM gained 6ppt and 11ppt to 51% and 45% respectively. This is driven by strong revenue growth from the higher margin black fungus and king oyster mushroom, which were up about ten and three times to RMB43m and RMB27m respectively.

TEE International: Well-placed for growth (OCBC)

Defensive M&E engineering business with a regional footprint. TEE International (TEE) built up its M&E engineering and general construction business over the years with many notable projects, including Marina Bay Sands. The specialised M&E engineering area that it operates in is also a fairly defensive business compared to general construction (typically flourishes during periods of building boom). It is also growing its presence regionally, having already won contracts in Malaysia and Thailand, as its explores more growth opportunities outside of Singapore.

Fast growing real estate arm. The group only started generating revenue from its real estate business in FY09, but this has grown quickly since. Currently, it has about 10 Singapore developments (three of which are wholly owned) and four overseas developments in progress. TEE is aiming to continue growing its development business and has targeted contribution of about 40% of total revenue in future, same as its M&E engineering arm. We believe TEE can achieve this as it has gained significant experience through undertaking many developments over the past few years.

Healthy growth prospects for its dual engine growth model. TEE's long standing track record in the defensive M&E space and its regional footprint will help to renew its order books. Furthermore, the group has done well during the past few years in growing a complementary property development business. In a few short years, it has accumulated experience in residential development and most recently, signaled its intention to take on commercial development in Malaysia too. We view TEE's move to expand its real estate development expertise outside of Singapore as positive.

Initiate with BUY. We like TEE for 1) its track record in the defensive M&E space, 2) its regional footprint providing it with opportunities to win contracts beyond Singapore, and 3) the healthy growth prospects of both its M&E and property development businesses. We adopt a SOTP valuation methodology to value TEE - a multiple based approach applied to value its M&E/construction business (5x P/E ratio on FY12 estimates) and a RNAV approach for its development arm. We derive a fair value estimate of S$0.34, implying upside of around 41%, and therefore a BUY rating. We also like TEE for its decent dividend payout, and based on our EPS estimates, it can potentially offer 5%-7% dividend yield.

Ezion Holdings: Posts another steady quarter (OCBC)

Posts another steady quarter. Ezion Holdings (Ezion) reported a 8.1% YoY decline in revenue to US$31.9m but registered a 27.3% rise in gross profit to US$15.8m in 3Q11, such that 9M11 figures represented 73.6% and 74.3% of our full year estimates, respectively. Net profit rose 70.8% YoY (+6.0% QoQ) to US$12.9m in the quarter, slightly above our expectations, supported by a higher operating margin of 37.0% versus 20.6% in 3Q10. 9M11 net profit met 85% of our full year estimate, but this was bumped up by a one-off disposal gain in 1Q11. Gross profit margin was higher at 49.7% in 3Q11 versus 35.9% in 3Q10 as contribution from the lower-margin Marine services division was significantly less in 3Q11 (estimated ~US$3-5m). Meanwhile, finance income rose from US$17k in 3Q10 to US$811k in 3Q11 due to higher interest income from bank deposits and loan to JVs.

4th liftboat deployed to Java Sea. Ezion also announced that its 4th liftboat has been deployed for maintenance of offshore platforms in the north-west region of the Java Sea. The customer is a SE Asian based national oil company, which is likely to be Indonesia's PT Pertamina. This will be the first time a liftboat is allowed to work in Indonesia, given that such assets are relatively less sighted in this region. As the unit had to undergo certain modifications (e.g. altering the spud cans), we are estimating an approximately US$1m cost to Ezion which should impact 4Q11 results. We estimate that the vessel had a utilisation rate of 60-65% in 4Q11.

LOI secured for 9th liftboat. The same national oil company has awarded a letter of intent (LOI) to charter an additional liftboat for up to five years. The contract value is about US$94m and work is expected to commence in mid 2013. According to management, responses from potential customers in this region have been favourable from preliminary vessel trials.

Maintain BUY. According to the group, demand for its service rigs remains strong and it therefore intends to make further investments in this area to meet market demand. Meanwhile Ezion intends to continue to support LNG-related projects in Australia and its vicinity. After tweaking our earnings estimates (including increasing our forecast for finance and other income), our fair value rises from S$0.86 to S$0.97 (based on 10x FY11/FY12F EPS). Maintain BUY.

Singapore Airlines: Downgrade to HOLD - falling load factors worrisome (OCBC)

Lower passenger load factor as capacity again grew faster than traffic. Singapore Airlines (SIA) reported its Oct 2011 passenger capacity (ASK) increased by 4.6% YoY while its passenger traffic (RPK) only gained 0.7% YoY. As a result, passenger load factor (PLF) for the month fell to 76.7%, compared to 79.6% a year ago and 77.5% in 1HFY12. During the recent 2QFY12 results briefing, management said ASK in 2HFY12 should be similar to that of 1HFY12, which can be achieved if ASK does not grow more than 1.5% YoY in 2HFY12. Given that ASK grew at 4.6% in Oct 2011, SIA needs to significantly lower its ASK growth in 2HFY12 in order to achieve management's guidance.

Load factors of SIA Cargo and SilkAir also fell. SIA Cargo's Oct 2011 cargo capacity (ACTK) contracted 1.5% YoY but its cargo traffic (CTK) eased slightly more at 1.6% YoY. As a result, cargo load factor (CLF) for the month fell to 66.3%, which was slightly lower than the 66.4% a year ago but higher than the 64.2% in 1HFY12. While SilkAir's RPK in Oct 2011 gained a strong 8.0% YoY, its ASK grew even faster at 11.1% YoY. Similarly, SilkAir's PLF for the month fell to 73.8%, lower than both the 76.0% a year ago and 74.3% in 1H12.

Falling load factors and high jet fuel price threaten profit margins. Falling load factor across segments is worrisome for SIA, especially in the current aviation environment. High jet fuel costs are weighing down heavily and resulting in razor-thin margins for air carriers. The Bloomberg Singapore Jet Kerosene fob Spot Cargo Price (JETKSIFC) illustrated in Exhibit 3 is, in S$ terms, already 3.7% higher thus far in 3QFY12 than the average price in 2QFY12. For the rest of 2HFY12, SIA needs to taper its capacity growth, especially if jet fuel price does not come back down to a more manageable level.

Lower estimates, fair value and downgrade to HOLD. We lower our estimate of SIA's FY12 PATMI by 12.3% to S$301.8m after a less than encouraging start to 2HFY12 and persistently high jet fuel prices. We also use an adjusted ex-net cash P/B multiple of 1x, or 1.1 standard deviation below historical average, to derive a fair value of S$10.85 per share (previously S$12.41). Since our new fair value estimate of SIA is 2% lower than its current price, we downgrade SIA to HOLD.

Ezion Holdings - Lifting profits further (DBSV)

BUY S$0.62 STI : 2,811.58

Price Target : 12-Month S$ 0.96 (Prev S$ 0.92)

Reason for Report : Earnings/TP revisions

Potential Catalyst: Contract wins

DBSV vs Consensus: Our EPS estimates are lower than consensus on lower margin

• 3Q11 above on higher-than-expected liftboat contributions

• Liftboats gaining traction in SE Asia; regional NOC has time chartered 2 units with 2nd unit to be added by mid-2013

• FY12/13F cut 3%/12% as marine base contributions removed, partially offset by new liftboat in 2013

• Maintain BUY, TP S$0.96

3Q11 above. Ezion delivered core 3Q11 PATMI of US$12.9m (+69% y-o-y, +6% q-o-q), slightly ahead of expectations. This was mainly on higher contributions from liftboat #4, which commenced operations within the period.

Liftboats gaining traction within the region. Separately, Ezion announced that it has commenced a time charter of Liftboat #4 to a SE Asia based NOC for the maintenance of offshore platforms. Ezion has also secured a 5-year LOI for a time charter from the same customer for an additional liftboat, worth US$94m. This unit will be Ezion’s 7th unit, with delivery in mid 2013 and to cost c. US$60m. We see these developments as Ezion’s further ascent up the value chain, from pure asset owner to operator.

Contributions from marine bases removed. Given the lack of progress over the development of the marine bases, we have removed all earnings contributions and associated capex/debt from our earnings model. This would be reinstated when there is better clarity. We understand that minimal costs have been incurred on these projects to date, which have already been expensed, implying limited risk to earnings going forward.

FY11-13F adjusted. Given the strong 3Q11, our FY11F is tweaked +1%, while FY12/13F are cut by 3%/12% from removing the marine bases’ contributions. Partially offset by Liftboat #7 which should kick in from 2H2013 onwards, Ezion is still projected to post healthy FY11-13 EPS CAGR of 27%. We estimate that our FY11-13F profit before tax are 97%/75%/76% backed by secured contracts/ LOIs.

Maintain BUY, TP S$0.96. Our TP is adjusted to S$0.96 as we roll forward our valuation to FY12 (prev : blended FY11/12), pegged to 9x PE in line with its historical average. Ezion remains our top pick among the small/mid cap O&M names for its consistent earnings delivery, visible diversified earnings stream, undemanding valuations and continued progression up the value chain. Maintain BUY.

F & N - F&B powers on (DBSV)

BUY S$6.26

Price Target : S$ 7.20

At a Glance

• FY11 earnings of S$620.6m (ex exceptionals, revals) marks another record year

• F&B accounted for c.45% of PBIT on strong contribution from soft drinks and breweries

• S$2bn in unrecognized property sales to underpin profits over next couple of years

• Maintain Buy and TP of S$7.20

Comment on Results

Performance in line; final dividend of 12 Scts proposed (full year:18 Scts). FY11 attributable net profit rose by 6.2% to S$620.6m (EPS 44.1 Scts) on the back of a 10.1% increase in topline to S$6,274m. PBIT increased by a smaller 7.5% to S$1,152m, boosted by a strong showing from F&B (+14%) led by beer and soft drinks. This more than mitigated the slight dip in contribution from property and publishing & print divisions. NAV grew by 11.4% yoy to S$4.88. The group also proposed a final dividend of 12 Scts a share (FY11 DPS: 18 Scts).

F&B accounted for 45% of Group’s PBIT; key investments in breweries, to grow capacity and volumes. F&B continues to power ahead, and accounted for c.45% of the Group’s PBIT (FY10: 42%). The key performers were soft drinks (S$112.5m, +38%) and breweries (S$371.8m, +23%), which more than offset a weak performance from dairies (S$37.4m, -48%) due to higher input costs (whey powder and palm oil). Looking ahead, investments in breweries, new production lines in Vietnam and a new diary facility at Pulau Indah will lead volume growth.

S$2bn of pre-sold revenues not recognized to underpin performance in coming years. Property division’s PBIT declined due to lower contribution from Investment property, and completed development projects in China. The group launched 5 projects this year, with 2,060 (out of 2,757 units launched) snapped up and is looking to launch a further 2,088 units in 2012, a majority coming from its Punggol EC and Punggol Central mix-development site. As of Sept’11, FNN has c.S$2.0bn in unrecognized sales to be booked in the coming years.

Recommendation

Maintain Buy, TP unchanged at S$7.20. Valuation is undemanding at c.35% discount to our RNAV estimate of S$8.43. We continue to like its conglomerate structure, with its F&B and investment properties providing more defensive attributes compared to development properties. Our TP is maintained at S$7.20, based on a 15% discount to our RNAV.

INNOTEK (LIM&TAN)

S$0.35-INNOT.SI

• The key point at the result briefing yesterday was that business conditions will continue to remain challenging over the next few quarters reflecting market share loss by their key Japanese customers (Sharp, Panasonic, Toshiba, Canon and Ricoh) to their Korean competitors (namely Samsung and LG), further margin pressures from intense competitive pressures from Taiwan listed Hon Hai, continued high cost pressures in China, volatile forex rates and flooding in Thailand causing supply chain disruptions.

• As a result of the above, quarterly sales will continue to trend downwards, but management hopes to remain in the black (albeit on a very marginal basis) via cost cutting measures.

• We are less optimistic and expect them to swing into operational losses in the next quarter from break even levels in 3Q’11. 3Q’11 profit of $1.2mln was helped by dividend income from Sabana Reit of $300,000 and rental income of $900,000, hence the company was operationally break even.

• 4Q’11 will benefit from a one-off gain ($1.7mln) from the disposal of an investment in the US.

• While management said that they will continue their share buy back program due to the low 0.46x price to book, we note that they can only buy back another 1.28mln shares before they hit the regulatory 10% limit of 22,704,142.

• Innotek is currently in a net cash position of $25mln, representing 29% of its market cap. Notwithstanding this, management hinted that due to the depressed fundamentals, weak outlook and likely need to conserve cash for acquisitions, expansion and investments in new businesses, the company’s last 5 years of at least 5 cents a share in dividend payment will not likely be repeated in Feb’12 when they announce full year to Dec’11 results. (This will likely disappoint investors who have been used to receiving at least 5 cents a share in dividend over the last 5 years)

• At 0.46x price to book, valuation is right in the middle of its historical range (high of 0.7x and low of 0.2x).

• Since our Neutral call in Aug’11, the stock has basically flat-lined (supported by the company’s share buy backs but capped by its weak fundamentals) and we see no reason to change it.

YANLORD (LIM&TAN)

$1.06-YLLG.SI

• Share transactions reported yesterday by 3 well-known local personalities (Peter Lim, Kuok Khoon Hong and Wee Ee Chao) are worth noting, although somewhat confusing:

o Lim bought 15.364 mln shares on Nov 11th (price not disclosed), lifting his deemed interest to 117.4 mln shares or 6.03% (he had first crossed 5% on Nov 4th).

o Kuok crossed 5% on Nov 11th with the purchase of 1.274 mln shares at $1.01 each, lifting his deemed interest (held through various names including Terzetto Capital) to 97.58 mln shares. (Lim also has interest in Terzetto.)

o Wee crossed 5% on Nov 14th with the purchase of 1,815,000 shares at $1.03 each, lifting his deemed interest to 97.54 mln shares.

• Yanlord is a Chinese property developer, controlled by Zhong Sheng Jian, a Chinese national who has become a Singaporean.

• Like all Chinese property companies, Yanlord’s share price had suffered greatly in the past 2 years, falling from $2.84 in Aug’09 to recent low of 70.5 cents. It was listed in Jun’06 and peaked at $4.22 in Oct’07.

• We have not previously made a call on Yanlord, except when they issued Senior Notes with coupon exceeding 10% in April this year, which we had thought offered more “protection” than ordinary shares.

Tiger Airways Holdings Ltd – Deeper losses than expected (Philip)

Hold (Maintained)

Closing Price S$0.66

Target Price S$0.77 (+16.8%)

• Weak quarterly performance impacted by grounding in Australia

• Operating loss from Singapore came as a surprise

• Not expecting much from the upcoming peak travel season

• Expect deeper losses in FY12E

• Maintain Hold with revised target price of S$0.77

2QFY12 results discussion

Tiger Airways reported a very weak set of results for the quarter. Sales volume was impacted significantly, following grounding of its fleet in Australia. In our original forecasts, we had expected significantly higher average fares for the quarter due to the longer average sector lengths for the Group, as operations were dominated by its Singapore business. However, average fares declined by 22%y-y and was largely unchanged q-q. Ancillary fees also declined along with refunds to its customers in Australia after the grounding. Consequently, the Group reported an operating loss of S$41mn, as sales were not sufficient to offset the high operating expenses. The results for the quarter was also negatively impacted by S$8.4mn of one-time losses, related to the loss on disposal of aircrafts (S$4.3mn) and other exceptional items due to the grounding (S$4.0mn).

TAA still operating under restrictions

Tiger Airways Australia (TAA) is still operating under restrictions to only 22 sectors a day. With 10 aircrafts allocated to Australia, this restriction would certainly lead to significant under utilisation of its assets. Management guided that only 4 aircrafts are currently in operations, while the remaining 6 aircrafts are left idling.

Segmental performance

As expected, TAA reported losses following the grounding and stretching its operating losses for 1HFY12 to S$50mn. However, an operating loss for Tiger Airways Singapore (TAS) came as a surprise to us. As the company approach the peak travel season at the end of the year, passenger throughput is expected to increase. However, with the new routes being launched and low passenger yields, we doubt the Group would be able to turn in a meaningful profit for 2HFY12E. Consequently, we expected a net loss of S$72mn for the year.

Valuation

We value Tiger Airways using 13X FY13E EPS to arrive at our target price of S$0.77. Despite emerging value in the stock price, we believe that the outlook remains hazy and plenty of challenges lie ahead. We stay neutral on Tiger Airways.

Tiong Seng Holdings - Tighter margins hitting bottom-line (DBSV)

BUY S$0.19

Price Target : S$ 0.24 (Prev S$ 0.31)

At a Glance

• 3Q11 PATMI of S$6.8m below; 9M11 forms 58% of our FY11F

• Construction orderbook of S$1.0bn provides strong earnings visibility

• BUY, TP lowered to S$0.24 based on 45% (35% previously) discount to RNAV

Comment on Results

Results in line. Tiong Seng reported a 41% y-o-y increase in topline to S$127.3m on the back of (i) higher recognition from its sales of development projects (S$48.0m, + >100% y-o-y) in China (phase 1 City Residences, totaling 440 units, 51,915sqm and 9 additional units at Tianmen Jinwan Building); and (ii) increase in sales of goods segment (Cobiax). Strong performances from the above 2 segments offset an 11% drop in construction revenues to S$75.6m due to decrease in volume of work completed with projects in Singapore and Papua New Guinea almost completed. Gross profit, however, fell 14% to S$10.5m due to tighter margins in China (which we reckon included certain upfront project costs) and lower margin construction projects in Singapore. Due to completion of JV projects during the quarter, the group also saw higher associate income. Taking the above factors, net profit declined 8% to S$6.8m.

Unrecognized revenues in China/Singapore to flow through in subsequent quarters; strong orderbook of S$1.0bn underpins earnings visibility over 2012-2013. While 3Q performance was below forecast, we note that Tiong Seng has yet to recognize (i) an additional 80 units from phase 1 City Residences and 9 units of Tianmen Jinwan Building that was sold; and (ii) a further S$20.2m from recently commenced construction projects in Singapore and PNG that should flow through in subsequent quarters. We adjust our FY11-12F earnings by 12-24% to account for lower margins for its City Residences project in China, and term out our construction recognition estimates.

Recommendation

BUY, TP reduced to S$0.24. Looking ahead, the group continues to offer strong earnings visibility supported by a construction orderbook of S$1.0bn. Our TP is reduced to S$0.24 as we widen our discount to 45% to RNAV (from 35% previously), in line with Singapore property peers.

Midas Holdings - Worst should be over (DBSV)

BUY S$0.37 STI : 2,830.14

Price Target : 12-Month S$ 0.48 (Prev S$ 0.72)

Reason for Report : 3Q11 Results

Potential Catalyst: Contract wins

DBSV vs Consensus: We are more optimistic on outlook as orders should improve in 2012

• 3Q11 profit declined 60% y-o-y to RMB27m, despite 5% revenue growth to RMB259m

• Factoring in lower order wins and higher finance costs, we cut FY11/12F earnings by 34%/33%

• Expected pick-up in train orders from MoR in 1H12 could kick-start orders, with Midas’ valuations at rock bottom levels

• BUY with lowered TP of S$0.48 (1x P/B).

3Q earnings impacted by railway industry slowdown, as contract wins dried up. This was due to (i) gross profit growth was flattish at RMB87m on tepid revenue growth; (ii) operating expenses were higher due to capacity expansion; (iii) contribution from associate NPRT was negative on lesser trains being delivered; and (iv) finance costs were substantially higher as Midas took on more short-term borrowings to finance higher receivables and inventories.

Forecasts slashed... Factoring in lower order wins up to 2Q12 and higher finance costs, we cut our FY11 and FY12 net profit forecasts by 34% and 33% to S$40m and S$48m respectively.

... but order flows expected to resume in 2012. We believe recent developments such as the 50% tax reduction on MoR bonds and the backing of RMB20bn worth of MoR bonds by the State Council as government debt points to the likelihood of high-speed projects resuming soon, with likely equipment order flows from 1H12 onwards. This would be positive for upstream suppliers like Midas.

Stock is bombed out; BUY with S$0.48 TP. The stock is trading at <0.8x FY11 P/B and with industry prospects improving, we believe the worst is over for Midas. Our revised TP of S$0.48 is based on 1x P/B.

Sarin Technologies (KE)

Event

Sarin reported 3Q11 revenue of US$15.9m (+89% YoY, +2% QoQ) and net profit of US$4.3m (+415% YoY, -15% QoQ). The results were within our expectation with 9M11 revenue and net profit both making up 75% our full-year forecast. The company delivered another 10 of its revolutionary GalaxyTM systems during the quarter, while continuing to enhance its product offerings. A special interim dividend of 1.0 US cent per share was declared. Reiterate BUY with a target price of S$1.41.

Our View

Positive sentiments in the industry continue to drive increased sales of GalaxyTM-related and QuazerTM-related machines in 3Q11. The sequential 5.2ppt decline in net margin was attributed to different revenue mix and higher tax expense associated with the appreciation of the US dollar against the Israeli shekel. We do not see this as a major cause for concern.

GalaxyTM-related sales for 9M11 now make up about 25% of total revenue where approximately half of this is recurring in nature. Sarin delivered another 10 GalaxyTM machines in 3Q11 and has more than doubled its installed base to 47. It also continues to expand its product offerings with the launch of a new product DiaMarKTM HD last week, together with the acquisition of a new diamond imaging technology, termed D-See technology. We see this as continual innovation to stay ahead of the competition.

In our previous report, we mentioned that performance for 3Q11 should be sustained and risk is in the fourth quarter. As expected, Sarin emerged unscathed in the third quarter. Our view of higher risks in the fourth quarter due to economic uncertainty remains. Additionally, 4Q is seasonally weaker. Sarin is equally cautious and has highlighted such risks in its outlook statements. However, we believe that such uncertainties are short-term in nature and remain optimistic about its long-term prospects. Anecdotal evidence suggests that the demand for diamonds in China and India is still holding strong although there are some price pressure.

Action & Recommendation

We cut our FY11 net profit forecast by 3% to take into account a weaker 4Q but maintain our forecasts for FY12-13. We expect another 1.25 US cents final dividend in 4Q, which would translate to FY11F yield of 6.2%. Reiterate BUY with a target price of S$1.41 based on 16x FY12F PER.

ComfortDelgro (KE)

Event

ComfortDelgro reported a set of 3Q11 results that beat our expectation and market consensus. Net profit rose by 12.5% YoY to $69.1m on broad-based revenue growth of 6.5%. Notably, the group managed to keep its energy costs under control (-0.7% QoQ) due to its prudent hedging policy. We roll forward our valuation basis to 15x FY12F PER, which thus raises our target price to $1.65 from $1.58. Reiterate BUY.

Our View

ComfortDelgro’s overseas transport businesses provided the main positive surprise. Australia, in particular, benefited from the full contribution of Swan Taxis that was acquired in October last year, as well as efficiency gains from organic expansion of bus routes in New South Wales and Victoria, The strong A$ also mitigated the impact of the weak pound and renminbi. We note that the UK (19.8%), Australia (13.8%) and China (8.1%) businesses now collectively accounted for 42% of its overall revenue.

Despite a sequential improvement, the Singapore bus business continued to be weighed down by higher fuel costs. A slight operating loss of $42,000 (excluding advertising and rental) was recorded, compared to a profit of $3.0m a year ago. Meanwhile, the taxi business achieved 6% growth due to higher rental income from a larger operating fleet and more cashless transactions. We have, however, assumed slower fleet growth going forward in view of the current high Certificate of Entitlement prices.

We reckon that 4Q11 will remain relatively resilient with 40% of the group’s diesel requirements in Singapore and the UK hedged for the rest of this year (20% for FY12). The approved 1% fare hike that took effect last month should also help boost its rail and bus revenue.

Action & Recommendation

We tweak our FY11-13 earnings forecasts marginally to reflect the better-than-expected results. Given 17.5% upside potential, we maintain our BUY recommendation with a higher target price of $1.65.

Boustead Singapore Limited - Steady contract wins belie slow quarter (KE)

Event

? Boustead experienced a slow second quarter with revenue coming in at $91.0m (-30.3% YoY, +0.3% QoQ) and net profit at $9.1m (+12.7% YoY, +7.0% QoQ). Net profit of $17.6m for 1HFY Mar12 made up about 38% of our full-year forecast. We expect its strong outstanding orderbook of $335m to bolster the second half year to make up for the weak first half. An interim dividend of 2 cents per share was also declared. We maintain our BUY recommendation with the target price lowered to $1.32.

Our View

? The Real Estate Solutions division was the underperformer during 2QFY Mar12 with only $22.7m in revenue recognised, a 66% YoY decline. This was due to slower recognition of major projects this year, unlike last year when there was rapid revenue recognition on two sizeable contracts. The Geo-Spatial Technology division, however, continued to perform well with revenue growth of 27% YoY and PBT increase of 65% YoY. On the whole, Boustead’s divisions were all profitable.

? Contract momentum for Boustead has been stable in 2QFY Mar12 despite the uncertain economy. To-date, it has secured total contracts amounting to $272m, surpassing that for the whole of last year. Its orderbook currently stands at $335m. Earlier this year, we had lowered our contract win assumptions on concerns that the average contract size for the Real Estate Solutions division has shrunk. Based on current figures, however, chances are that Boustead will surprise on the upside.

? Boustead has preserved its balance sheet strength with a net cash position of $168.4m, which makes up 41% of its market capitalisation. The stock currently trades at ex-cash FY Mar12F PER of only 5.8x. The fluid economic conditions could present M&A opportunities and we think it is high time Boustead puts its huge cash hoard to good use.

Action & Recommendation

We cut our FY Mar12-14 net profit forecasts by 1-8% but continue to expect a stronger 2HFY Mar12. We have also made minor adjustments to our RNAV valuation for the Real Estate Solutions division. Our SOTP-based target price is thus lowered to $1.32 from $1.36 previously. Dividend yield remains attractive at 6.1%. Maintain BUY.

KIAN ANN ENGINEERING - Margins holding up on strong demand (OSKDMG)

BUY

Price S$0.22

Previous S$0.31

Target S$0.31

Kian Ann Engineering’s (KA) 1QFY12 earnings were in line with our expectations. Earnings jumped 39.7% YoY, reaching S$5.3m, on the back of a 17.1% YoY leap in revenue. On the back of strong demand for spare parts, we forecast gross margin to come in at 28% in FY12, above its historical average of 25%. Trading at 5.1x FY12 earnings, we believe the stock is undervalued when compared against its construction-related and heavy equipment peers at 6.9x blended CY11/CY12 earnings. Based on a target P/E of 7x FY12 earnings (5-year historical average), we value KA at a TP of S$0.31, implying a 40.9% upside.

1QFY12 earnings within expectations. KA’s 1QFY12 earnings leapt 39.7% YoY to S$5.3m, attributable to a 17.1% YoY jump in revenue. 1QFY12 revenue grew on the back of higher sales from 1) Indonesia (+15% YoY), 2) Other Asian Countries (+30.3% YoY) predominantly due to an increase in demand of parts from China and 3) Non-Asian Countries (+57.6% YoY, largely on the back of growth from Russia and Oceania), hitting S$44.2m due to strong demand from the forestry, mining and infrastructure sectors.

Strong demand holding up gross margin. Following the 2008 global financial crisis, KA has seen greater demand for parts and selling prices have been raised. Consequently, gross profit margin expanded and remains relatively stable and higher than its historical average of ~25%, coming in at 28.4% in 1QFY12 (1QFY11 and FY11: 28.4%). This marks the sixth consecutive quarter that KA has enjoyed gross margins above its historical average. We believe this is an indication of the pent-up demand for KA’s parts and understand that margins are still holding up currently.

Focusing on emerging markets. As reflected from the geographical segmental growth in KA’s sales, it is now reaping the fruits of its labour from its efforts in penetrating the emerging markets. KA would continue to focus on growing its sales in markets like Indonesia, China and Russia. We forecast FY12 and FY13 earnings to come in at S$19.1m and S$21.1m respectively, on the back of sustained gross margin of ~28% and a 10% YoY increase in sales.

F J BENJAMIN - Commendable results, challenging environment (OSKDMG)

BUY

Price S$0.30

Previous S$0.44

Target S$0.44

FJB achieved PATMI of S$3.8m (+19% YoY) in 1QFY12, on the back of a 16% growth in revenue to S$96.0m. The results were in line with our estimates. The higher revenue was largely due to improved performance across its key markets, despite the economic uncertainty unfolding in US and Europe. While consumer sentiment in Asia remains healthy, it could still soften with the growing Eurozone uncertainty, which could result in a challenging operating environment for FJB. FJB’s strong brand portfolio, Asian retail network and management’s ability at managing inventory and costs while maintaining margins would help it ride out the uncertain environment. Maintain BUY with TP of S$0.44.

Asia is still attractive for retailers. Revenue from its Hong Kong and China markets rose sharply by 35% and 67% respectively, with the introduction of new brand and more points-of-sale amidst strong consumer demand. We view this as an indication that demand for lifestyle brands is still healthy, especially in China and Hong Kong, with a growing Asian middle class that is more affluent. Hence, this provides FJB with opportunities to try and secure rights to distribute and retail fashion labels that are looking to expand in Asia.

Good management policies help improve margins. On a QoQ basis, revenue edged up 8%. Coupled with good cost management policies, operating margins improved sequentially (1QFY12: 6.5% vs 4QFY11: 6.1%).

Gearing rises as Group expands business to drive growth. FJB’s borrowings increased 32% over the past quarter, mainly due to the funding of its business growth and expansion, especially in Indonesia. As a result, net gearing was 25.3% as at end 1QFY12 (vs 5.5% at end FY11).

FUXING CHINA - Earnings dived on abrupt demand slowdown (OSKDMG)

NEUTRAL

Price S$0.080

Previous S$0.140

Target S$0.085

3Q11 ne t profit of RMB45k (3Q10: RMB24m) was way below our RMB26m projection mainly due to a lower-than-expected RMB164m revenue (our estimate: RMB215m), a steep 9ppt fall in GPM to 19% (our estimate: 24%) and high professional fees pertaining to its recent three acquisitions and proposed dual-listing in Taiwan. Management cautioned on a deteriorating operating environment for 4Q11 and FY12 as a result of recent credit tightening measures in China and uncertainty over global outlook. Due to limited visibility, we revise our FY11 and FY12 earnings estimates down by 43% and 65% to RMB50m and RMB34m respectively, and switch to historical PBR as our preferred valuation methodology (old: forward PER). Downgrade to NEUTRAL with a lower TP of S$0.085 (old: S$0.140), pegged to 0.3x PBR (old: 6.6x PER), or -1SD to its historical mean of 0.5x PBR.

16% zipper revenue contraction. Overall revenue was up 9% y-o-y to RMB164m as RMB20m revenue contribution from its three new acquisitions partially mitigated a 16% fall in zipper revenue to RMB118m. Zipper output dropped by an est.13% due to an abrupt slowdown in customer demand and a 4% dip in ASP despite higher input material costs, which caused zipper GPM to decline by 9ppt to 19%.

New acquisitions disappointed. The cumulative RMB20m revenue from its newly acquired dyeing and electroplating businesses disappointed by 50% from our assumed RMB39m, although GPM was healthy at 30%.

A tight balance sheet. We note that out of its RMB321m cash balance in 3Q11, RMB113m and RMB70m have been committed for acquisition of land and construction of building for its new headquarter in Xiamen respectively. The remaining amount will be used for its working capital needs.

Midas Holdings: Waiting for light at the end of the tunnel (OCBC)

3Q11 earnings below expectations. Midas Holdings (Midas) reported its 3Q11 results with revenue exceeding our expectations, but net profit came in below despite the significant cut in our 3Q11 earnings estimate following the profit guidance issued on 9 Nov 2011. Revenue rose 4.6% YoY but fell 17.4% QoQ to RMB259.3m, while net profit plunged 59.8% YoY and 56.6% QoQ to RMB27.4m. For 9M11, revenue rose 23.3% to RMB869.7m, but net profit dipped 11.7% to RMB150.7m, meeting 80.8% and 70.5% of our FY11 forecasts, respectively. The lower sequential revenue was attributed to a delay in delivery schedule to its major customers. Net profit fell sharply on a YoY and QoQ basis due to higher production costs, a large spike in finance costs, higher effective tax rates and a share of loss from its 32.5%-owned associate Nanjing SR Puzhen Rail Transport (NPRT) amounting to RMB3.6m (versus a share of profit in both 3Q10 and 2Q11). Midas' current order book stands at ~RMB800m, versus RMB1.05b in 2Q11, while order book for NPRT was ~RMB7.9b.

Margins under pressure. Due to the aforementioned reasons, Midas' operating margin fell 4.6ppt YoY and 3.8ppt QoQ to 22.8%, while its net margin suffered a 16.9ppt YoY and 9.5ppt QoQ decline to 10.6% this quarter.

Possible railway spending cuts, but sector remains integral. While our positive long-term view on China's railway sector remains unchanged, we believe that a budget cut on railway spending by China's government seems plausible. There are media reports highlighting that China's annual investment on railway construction could be reduced to ~RMB500b per annum for the remainder of its 12th Five-Year Plan . Nevertheless we opine that this still represents significant spending on the sector, given its importance in fulfilling China's rising transportation needs and fuelling its economic development.

Maintain SELL. Midas' share price has tumbled 8.6% since it issued its profit guidance and is down 60.9% YTD. We cut our FY11/FY12 earnings forecasts by 13.6%/16.5%. Although current valuations do not appear expensive, with the stock trading at FY12F P/NTA of 0.7x, we believe that uncertainties surrounding China's railway sector in the coming months, rising cost pressures and higher finance costs could continue to weigh in on its share price performance. We apply a valuation peg of 9x to Midas' FY12F EPS as we expect the railway sector to recover in FY12. Maintain SELL with a revised fair value estimate of S$0.31, versus S$0.33 previously. Re-rating catalysts include a re-tendering of high-speed contracts by China's Ministry of Railways (MOR) and/or significant contract wins from the international markets.

PEC Ltd: 1QFY12 PATMI fell 71% on lower gross margins (OCBC)

1QFY12 results disappoint. PEC Ltd (PEC) reported a disappointing set of 1QFY12 results. Revenue increased by 2% YoY to S$110m but gross profit and profit after minority interest (PATMI) fell by 28% and 71% YoY to S$20m and S$2.5m respectively. The sharp fall in gross margin to 18% from 25% from the year-ago period was mainly due to stiffer competition. Operating expenses remained flat at S$15.6m (1Q11: S$15.4m), while finance expenses increased to S$0.4m (1Q11: negligible) due to issuance of bank guarantees and performance bonds. On a positive note, PEC's balance sheet remained strong with S$156m in net cash and its orderbook increased to S$340m as of end-Sep (end-June: S$300m).

Stiff competition and uncertain outlook. PEC's operating environment remains challenging over the medium-term horizon as it faces rising costs and stiff pricing competition. As mentioned in our earlier reports, the global uncertainty arising from the slowdown in US economy and European sovereign debt issue would have an adverse impact on the downstream oil and gas sector. As oil and petrochemical companies push back their large infrastructure investments, local EPC companies (e.g. PEC) will have to contend with fewer project tenders and/or lower margins. Although PEC's order-book increased to S$340m at of end-Sep, we suspect the newer contracts wins may come with lower gross margins of about 20% (compared to an average 26% over FY06-FY11).

S$156m net cash. As of end-Sep, the group's balance sheet remained robust with S$156m in net cash. This should enable PEC to seek inorganic growth opportunities, i.e. through acquisitions or joint-ventures, as and when they arise. Separately, the group has also announced that it has fully utilized its IPO cash proceeds (including over-allotment option) of about S$26.2m.

Maintain BUY with lower fair value estimate of S$0.92. We are keeping our FY12 revenue estimates largely unchanged but reduced our blended gross margin assumption to 19% (previous estimate: 25%). As a result, our FY12 PATMI estimates fell by about 50% (Note that PEC's net profit is highly sensitive to gross-margin changes). We continue to value PEC's share using SOTP valuation method - including valuing its operations at 5x FY12F earnings and net cash of S$0.61 per share - to obtain a revised fair value estimate of S$0.92 (previously S$1.32). Maintain BUY. Potential catalyst may come from earnings accretive acquisitions and downside risk is limited due to the strong net cash position.

Swiber Holdings: Net profit bumped up by one-off items (OCBC)

Core net loss in 3Q11. Swiber Holdings (Swiber) reported a 12.5% YoY rise in revenue to US$137.7m and a 14% fall in gross profit to US$22.8m in 3Q11, such that 9M11 revenue and gross profit figures formed 76% and 73% of our full year estimates, respectively. Net profit increased by 94.1% to US$13.5m in the quarter, but we note that this was bumped up by exceptional items such as fair value gains on financial liabilities, foreign exchange gains and disposal gains. Stripping away one-off items, we estimate the group experienced a US$1.8m core net loss in the quarter, worse than our expectations; 9M11 core net profit met only 60% of our full year estimate.

Still guiding for 15-20% gross margin range. Gross margin of 16.6% in 3Q11 was lower than 21.7% in 3Q10, but better than the 14.7% reported in 2Q11. Moving forward, management mentioned that margins may remain under pressure over the next 12-18 months, but the group will implement plans that seek to control costs to maintain a 15-20% gross margin range. As the number of employees in the group (inclusive of onshore and offshore personnel) rose from 1,290 as at 30 Sep 2010 to 1,676 as at 30 Sep 2011, administrative expenses continued to climb as well, increasing by 25.8% YoY and 12.8% QoQ to US$13.0m in 3Q11.

Order book of US$1b and still bidding. Swiber has secured new contracts worth about US$758m YTD for work in South Asia, SE Asia and the Middle East, and bidding activity in the industry remains active. Management is optimistic about the industry outlook, given the amount of jobs that are coming up for tender in SE Asia and South Asia in the next few years. As the group mainly works with large oil majors and national oil companies, there have not been significant changes with regards to payment terms. Looking ahead, the group has an order book of about US$1b (as of Nov 2011), which is expected to contribute to its results over the next two years.

Maintain HOLD. The group has put its proposed perpetual preference shares issue (refer to 24 Oct 2011 announcement) on hold, which is not surprising given current uncertainties in the market. We keep our peg of 10x for the stock but roll forward our valuation to FY12F core earnings, and this bumps our fair value up from S$0.51 to S$0.58. However, given limited upside potential, we maintain our HOLD rating on the stock.

Olam Int'l: Downgrade to HOLD - 1QFY12 as expected (OCBC)

1QFY12 within expectations. Olam International Limited reported a pretty decent start to FY12, with revenue rising 31.6% YoY to S$3229.4m, meeting 17% of our FY12 forecast, driven by strong 17.7% increase in its sales volume to 1.86m metric tonnes. Reported net profit came in around S$34.2m, up 15.1% YoY, meeting 11% of our full-year estimate. Management noted that these results were particularly encouraging given the very difficult macroeconomic backdrop. While the results show a sequential drop of 28.6% in revenue and 68.3% in core earnings, we are not perturbed as its first quarter earnings typically make up just 5-10% of its full-year performance.

Food business shows its resilience. In terms of revenue breakdown, food category made up 80.5% of total revenue and 83.2% of volumes. With sales volume for food increasing by 19.7%, this reflected its relative resilience to recession. Meanwhile, Industrial Raw Material accounted for the remaining 19.5% of revenue and 16.8% of volumes; and as this segment was more recession sensitive, management noted that it was adversely impacted in 1Q12. In particular, Olam singled out the cotton sub-segment as being the most affected due to very high volatility in cotton prices and weakening demand due to macro-economic uncertainty. While management expects the cotton business to face another difficult quarter, it notes that the situation has largely "normalized". It added that its cotton business was in the black in 1QFY12, aided largely by its ginning business in Australia. On the other hand, its Commodity Financial Services (CFS) business registered a quarterly loss of S$2.8m (versus S$4.4m profit in 1QFY11) due to exceptional volatility in commodity prices.

Olam positive about FY12 prospects. Despite the growing macroeconomic uncertainty, Olam says it continues to be positive about its prospects for FY12. Notably, management notes that the investments (both upstream and midstream) made over the past two years of the strategic planning cycle have strengthened its business, enhanced its competitive position and improved the quality of its earnings. Management also alludes to a strong deal pipeline and has maintained its original target of achieving S$1b of pre-tax earnings by 2016.

Downgrade to HOLD. As the results were mostly in line with our forecasts, we opt to leave our estimates intact for now. At an unchanged 18x FY12F EPS peg, our fair value also remains at S$2.63. But given the limited upside potential from here, we hence downgrade our call to HOLD and would be buyers around S$2.35.

ConscienceFood Hldgs - Positioned for growth in FY12F (DBSV)

BUY S$0.178

Price Target : S$0.28 (Prev S$0.35)

At a Glance

• 3Q11 results in line with estimates

• Growth drivers remain intact

• Maintain Buy, TP lowered to S$0.28

Comment on Results

3Q11 in line. 3Q11 results were in line with our estimates. Revenue grew 30% y-o-y to Rp183.4m, 4% higher than our estimates, while earnings tripled to Rp32.2m in line with our Rp31.9m forecast. Revenue growth was driven by both volume and selling price increase. CSF raised selling prices by an average of 5% qoq in 2Q11. Sales volume increases were attributable to increased orders from existing customers in North Sumatra and Jakarta. Gross margins were 28%, also in line with our estimates.

Growth drivers remain intact. CSF commenced cup noodle production in 2Q11. While current production is still small, we expect it to ramp up meaningfully in FY12F. There is no change to commencement of beverage production date. We understand from management that it is currently procuring the manufacturing lines and testing is slated for 1Q12 followed by marketing in 2Q12. We maintain our earnings estimates with growth forecasts of 25% for FY12F and 27% for FY13F.

Recommendation

Maintain Buy, TP S$0.28. We continue to believe that the commencement of beverage will be a key catalyst for the stock going forward. The stock offers exposure to rising Indonesia consumption. Valuations are currently attractive with forward earnings multiple of 3.2x. We lowered our target PE from 7x to 4x FY12 earnings to realign with its historical average earnings multiple. Hence, our TP is lowered to S$0.28 from S$0.35. Maintain Buy.