NOL (LIM&TAN)

S$1.12-NOLS.SI

? NOL said it is “currently not making another bid for a stake in Hapag-Lloyd (Hapag) . . . . . it will make necessary announcements when appropriate”.

? A German paper last week reported of talks between NOL and TUI, which owns 38% of Hapag. The article also noted that NOL’s previous bid had valued Hapag at 3.5 bln euros / S$6 bln at today’s exchange rate, and that a deal between TUI and an investment company in 2009 had valued Hapag at 4.45 bln euros.

? NOL’s “clarification” however does not, in our opinion, at all rule out it making another go for Hapag, not when the case for acquisition (or merger) is as valid as ever.

(Last week, Mediterranean Shipping of Switzerland, and CMA CGM of France announced an alliance, which will make them the largest in the world with 21.7% market share, vs the current leader Maersk with 15.8%.)

? Assuming NOL does go after Hapag, let’s examine likely impact.

- Because of the steep drop in its share price, NOL’s current market cap is only about S$2.9 bln.

- And with its massive order for new large vessels (as has Hapag according to media reports), the main issue would be funding.

- International banks, especially European, are not presently, in the mood to lend given the ongoing crisis.

- Convertible bond issue is not an attractive option (for sure unlikely an “acceptable” convertible premium), given NOL’s depressed share price.

- Which means a massive rights issue, and unfortunately, we have seen rather violent market reaction, eg K-Reit, which recently fell 16% on such news.

- Furthermore, with its latest NAV of US$1.14 / S$1.46, a deeply discounted pricing for the rights would be shareholders value destruction.

? NOL therefore merits at best a NEUTRAL rating given its unattractive fundaments (eg operating in a depressed sector: also last week, MISC of Malaysia said it would quit container shipping after losing US$789 mln over 3 years.).

? Technically, NOL has been stuck in the $1.00-1.17 range for the last 4 months.

United Engineers - Milking mixed developments (CIMB)

Current S$1.94

Target S$2.14

Previous Target S$2.12

Up/downside 10.4%

Balance sheet has been boosted by development properties, with mixed developments at one-north and UE BizHub East also contributing soon. In any softening of the property market, UE should be well-placed to make acquisitions.

We factor in less bearish assumptions for mixed developments, offset by lower ASPs for its Bendemeer site, resulting in +2%/-30% EPS adjustments, and a slightly higher RNAV and TP (still at 45% disc to RNAV). Maintain Outperform.

Balance sheet ideal for acquisitions

We expect stronger operating cash flows in 2012/13 with recurring income from the one-north mixed development and UE BizHub East. Cash flows should be further boosted by proceeds from completion of The Rochester residential development.

With operating cash balances more than sufficient to meet capex requirements, net gearing is estimated to drop to 0.4x (from 0.5-0.7x in 2008/09). This leaves ample room for acquisitions to 2008’s net gearing of 0.7x and management’s target of 1x, with a S$500m MTN programme as an available funding facility.

Mixed developments as resilient assets

We expect earnings from mixed developments to be rather resilient. Rents at UE Square had been less volatile in 2008/09 with occupancy staying consistently close to 100%. Given their non-prime locations, we expect affordable rental rates and similar profiles for upcoming mixed developments. The Rochester Mall has also been almost 100% leased.

Undemanding valuations

The market is pricing in an additional 9-11% drop in asset values, in our estimation. This compares with an implied 1.5% drop in RNAV if current asset values are pegged to 2009 levels. With its balance sheet stronger in this cycle than in 2009, and earnings from more cash-generative assets, we believe such valuations are unwarranted.

Don’t rule out special dividends as 2012 is UE’s 100th anniversary, with cash flows benefiting from Rochester sales proceeds. Special dividends could lift its dividend yields beyond 5%.

Raffles Medical Group: Strong track record; still a BUY (DBSV)

Expect good track record to continue. Raffles Medical Group (RMG) has delivered consistent core earnings growth over the years, even amidst turbulent times. Its strong track record makes it a good stock to own as we enter into 2012, given the global macroeconomic uncertainties. From FY06 to FY10, RMG's revenue and core earnings expanded at a healthy CAGR of 15.5% and 28.1%, respectively. We forecast its core earnings to increase at 15.0% for FY11 and a further 19.5% in FY12. This would be driven by continued patient load growth, higher revenue intensity per patient, expansion of specialist services (especially sub-specialties) and further traction gains from its Shanghai medical centre (currently still loss-making).

Defensive earnings provide stability. We see limited risks from RMG's defensive earnings, although the group is not entirely immune to a macroeconomic slowdown as some patients might practice restraint over their discretionary spending. This would come in the form of postponing elective surgeries and/or seeking cheaper alternatives in the public sector or regional competitors.

Healthy industry fundamentals. We remain sanguine on the prospects of Singapore's healthcare sector. Growth is expected to be fuelled by demographic changes and rising affluence in the region, resulting in higher medical tourism dollars. Although RMG's new Specialist Medical Centre in the Orchard area would come on stream in 1H13 and its hospital expansion (additional 102,408 sf) estimated to be ready only by FY14, this would be partially mitigated by the creation of ~15,000 sf of new medical space at its existing hospital in 1H12. This involves the relocation of its back office operations, thus allowing the group to open new specialist clinics to cater to rising demand for higher quality private healthcare services.

But competitive landscape is intensifying. The targeted opening of Parkway Novena Hospital in Jul 2012 and Singapore HealthPartners' Connexion in 2013 would undoubtedly create additional competitive pressures for RMG. But we believe that these developments could raise the reputation of Singapore's medical hub status and attract more foreign patients and other health services here.

Quality healthcare play. Current valuations for RMG do not appear demanding, in our view, with the stock trading at 19.9x FY12F PER. While this is comparable to its peers' average of 19.7x, RMG commands significantly stronger margins and ROE. Maintain BUY with an unchanged fair value estimate of S$2.61, based on 24x FY12F EPS.

Ascendas REIT: Acquisition of two Singapore assets (OCBC)

New additions expected to be yield accretive. Ascendas REIT (A-REIT) yesterday announced that it had completed the acquisition of two Singapore assets, namely Corporation Place and 3 Changi Business Park Vista, for a purchase consideration of S$99m (S$159.6 psf NLA) and S$80m (S$487.0 psf NLA), respectively. The acquisitions are likely to strengthen the group's market position in the Jurong Lake District and Changi Business Park area, and provide opportunity for greater operational efficiency, given the location and specifications of the properties. According to management, the acquisitions are also expected to be yield accretive, adding an annualized 0.10 S cents per unit to its DPU (based on 40% debt and 60% equity funding).

Details on Corporation Place. Corporation Place is a seven-storey highspec industrial building in the established Jurong industrial estate with a GFA of 76,185 sqm and NLA of 57,645 sqm, and features good building specifications and excellent footage. Current occupancy is understood to be around 80%, with quality tenants such as Rockwell Automation, Hewlett Packard and Panasonic. Given its quality specifications, configuration and good location, A-REIT is optimistic of its future leasing and renewal prospects.

Details on 3 Changi Business Park Vista. 3 Changi Business Park Vista is a six-storey building and A-REIT's sixth property within the Changi Business Park. It has a GFA of 18,388 sqm and NLA of 15,261 sqm, and is easily accessible via expressways. Currency occupancy is also strong at 95.0%, in line with its existing business park occupancy of 94.8%, as at 30 Sep. Management expects greater efficiency and economies of scale in operations, given its close proximity to its other properties.

Maintain BUY. We understand that A-REIT is expected to incur an estimated transaction cost totaling S$2.21m, including S$1.79m in acquisition fees payable. We estimate that the blended NPI yield for the acquisitions to be around 7% (above the overall FY11 NPI yield of 6.5%), and the group's aggregate leverage to rise to around 36%, up from 31.5% seen in Sep end. Factoring in contributions from the two acquisitions, our DDM-based fair value is now raised marginally to S$2.24 (S$2.23 previously). We continue to like A-REIT's proven track record, market leadership and well-diversified portfolio. Even funding all its committed investments, we believe A-REIT still has close to S$400m of debt headroom before its leverage hits the 40% mark, placing it in a comfortable position to fund future investment opportunities. Maintain BUY on A-REIT.

FJ Benjamin Holdings Ltd - Expect weaker consumer demand (DBSV)

HOLD S$0.28 STI : 2,728.31

Downgrade from Buy

Price Target : 12-Month S$ 0.33 (Prev S$ 0.48)

Reason for Report : Company update

Potential Catalyst: Store growth and better discretionary consumption

DBSV vs Consensus: FY13F below on weaker discretionary spending

• Turning cautious on mid-term outlook even though 1Q12 results in line

• FY12F/FY13F earnings cut by 11%/12%

• Downgrade to Hold, TP lowered to S$0.33

Turning cautious on mid-term discretionary spending. Consumer sentiment is expected to weaken, hence we are turning cautious on FJB’s mid-term outlook. As a regional mid-to-high end fashion and apparel distributor and retailer, we believe FJB will be sensitive to changes in consumer demand. The 2012 outlook for GDP growth globally is now largely lower than when we first initiated coverage of FJB in August this year.

1Q12 results in line but outlook is weaker. 1Q12 results met our expectations, supported by contributions from HK timepieces. We will be keeping tabs on FJB’s performance over the seasonally stronger 2Q12 (Christmas shopping and year-end holiday season) as well as retail sales generally, as an indicator to 2H12’s performance. We believe consumer sentiment will weaken on expectations of slower economic growth, and we expect discretionary spending to be affected. Management is targeting for 190 stores by FY12F vs 165 currently. However, we believe this to be aggressive.

FY12F/FY13F earnings lowered by 11%/12%. Given the poorer regional economic outlook, we are reducing our earnings expectations for FY12F/FY13F by 11%/12%.

Downgrade to Hold, TP reduced from S$0.48 to S$0.33. The stock currently trades at 11x FY12F PE. Given the lowered earnings estimates, TP lowered from S$0.48 to S$0.33 based on 12x FY12F earnings, in line with peer average. Downgrade to Hold.

PROPERTY / SHARE TRANSACTIONS (LIM&TAN)

? Only 3 property companies bought back their own shares yesterday when property stocks came under selling pressure:

- SC Global bought back 100,000 shares at $1.0959 each. It last bought 100,000 shares on Oct 6th at 98 cents each. The curious thing is SC Global’s sales have been crawling at a snail’s pace even before the latest measures to deter foreign buying (only 2 units at the Marq were sold between May - Nov, albeit at record prices).

- OUE, which has hardly any exposure to residential segment, bought 900,000 shares at $2.0918. It bought a total of 3.14 mln shares between Nov 30 and Dec 6, when the stock fell below $2.10, paying $2.03 average.

- HO BEE bought 452,000 shares at $1.13 each (low of $1.09). Ho Bee has since May 24th bought back 29.6 mln shares, at prices ranging from $1.09 - 1.43, representing 40% of the current mandate to buy up to 73.31 mln shares.

? Chris Lim, non-family director at HOTEL PROP bought 112,000 shares at $1.787 a share, which is almost 10 cents or 5.2% below what he paid for 138,000 shares the day before.

? ST ’s headline today carried analysts’ warning that home prices may fall 30%, implying that the authorities here would knowingly implement measures that would end up more than wiping out home buyers’ equity! (The current LTV limit is 80%.) History has shown that property prices would suffer severe decline when the overall macro picture really turns, and usually because of external factors, eg the 1997/98 Asian crisis; 9/11; 2004/5 SARS; 2008 Financial Crisis.

Ascendas REIT - Small but accretive (DBSV)

HOLD S$1.92 STI : 2,728.31

Price Target : 12-Month S$ 2.14

Reason for Report : Acquisition

Potential Catalyst: Acquisitions/ strong operational earnings

DBSV vs Consensus: In line, we have not factored in acqusitions in our numbers

• Acquires 2 industrial properties for S$179m

• Deepens presence within Jurong Lake District and Changi Business Park

• Maintain HOLD and S$2.14 TP

Acquires 2 industrial properties for S$179m. A-REIT announced the acquisition of 2 buildings in Singapore - 2 Corporation Place (S$99m,S$189psf GFA) and 3 Changi Business Park Vista (S$80m, S$482 psf GFA) - for a total consideration of S$179m. Located within Jurong Lake District and Changi Business Park respectively, the acquisitions will further deepen their already established presence within the 2 industrial hubs. The properties are multi-tenanted buildings housing quality tenants i.e MNCs involved in a variety of valued added sectors like IT, Electronics and engineering.

Initial yields estimated at 7.0%; accretive to earnings with potential upside. Initial yields for the properties are estimated to be in the range of c7.0%, higher when compared to its implied trading yield of close to c6.25%.The properties will be funded by debt - gearing as of Sept’11 is 31.5% and is expected to head to c37.5% after accounting for all its capex requirements by end 2013. We have revised our estimates slightly up by 0.7% in FY13 as we incorporate the acquisition in our numbers. In addition, we see potential upside at 2 Corporation Place, which is only 80% occupied currently; the manager remains confident of improving that given the property’s good accessibility.

Positive long-term prospects in Jurong/Changi Business Park regions; maintain HOLD and S$2.14 TP. While we remain cautious on the outlook of Business Parks/Hi-tech space performance in the immediate term (refer to Industrial REIT sector report dated 8th Dec’11), we acknowledge the longer term benefits of having an increasing exposure in these 2 established hubs. This allows A-REIT to offer new/existing tenants a variety of space choices in these locations. Maintain HOLD. S-REIT offers a FY12-13F yield of 6.7-7.0%.

Techcomp (Holdings) Limited (KE)

Background: Techcomp is a manufacturer and distributor of advanced scientific instruments. Its proprietary brand of analytical instruments is mainly used in laboratories for diverse industries, ranging from materials analysis and testing to biotechnology, pharmaceuticals, medicine, food and beverage, and forensics. It has manufacturing facilities in Shanghai and Europe, and distribution networks throughout Southeast Asia, South Asia, Australia, the Middle East and Europe.

Recent developments: Techcomp has received approval in principle for its proposed dual listing on the Stock Exchange of Hong Kong (SEHK). Subject to final approval, the stock is expected to commence trading on SEHK on 21 December 2011 and its stock code would be 1298.HK. The rationale for the listing is to gain access to a larger pool of capital market investors.

Key ratios…

Price-to-earnings: 6.9x

Price-to-NTA: 1.5x

Dividend per share / yield: S$0.01 / 2.5%

Net gearing: 26.8%

Net debt as % of market cap: (21.2%)

Share price S$0.400

Issued shares (m) 232.50

Market cap (S$m) 93.0

Free float (%) 40.7

Recent fundraising activities Nil

Financial YE

31 Dec Major shareholders

Founder Lo Yat Keung – 48.4% Kabouter Management – 10.0%

YTD change -4.76%

52-week price range S$0.300-0.510

Our view

Demand expected to be stable. Government and academic institutions are key spenders on life sciences and analytical instruments. Their budget is usually more long-term in nature, and consequently, ensures stable demand for Techcomp’s products. The increase in such demand is expected to offset some private-sector decline. The company has also identified Asia as a key region of growth, particularly in China and India, while European demand would remain steady as customers there are driven to buy lower-priced products. Overall, management expects to see continual growth in its topline next year.

One-off expense would drag down net margin. Techcomp’s net profit this year would be affected by a one-off expense related to its dual listing. In addition, administrative expenses were comparatively higher following increased business activities and the acquisition of Precisa in 1Q10. Its second-half is seasonally stronger, but with net profit of only US$0.5m in 1H11, it would need a very strong 2H11 just to match its FY10 performance.

Can dual listing lift valuation? In general, the valuation on the SEHK is higher than that on the SGX. Techcomp hopes to achieve a higher valuation for its shareholders through such a listing. Its peers are trading at trailing PERs of 13-27x on various exchanges, while it currently trades at FY10 PER of 6.9x. Given that this is a listing by way of introduction, no new shares would be issued and liquidity could be a concern. Therefore, it remains to be seen how Techcomp would perform when it starts to trade on 21 December 2011.

ComfortDelgro (KE)

Room for earnings upgrade. Following ComfortDelgro’s revision of its taxi fare structure early this week, we caught up with management yesterday. While the fare changes should go some way towards helping taxi drivers cope with the rising costs, particularly diesel prices, we see no immediate impact on the group’s profitability. Management said the group currently has no plan to raise its cab rental charges, but we believe there is leeway to do so in the future as the fees were last adjusted in 2000. We also see the ever-increasing prices of certificates of entitlement as another cost-push factor.

Taking the lead. The fare changes will take effect from Monday. ComfortDelgro said the revision, which included both increases and reductions in fares and surcharges, was made to better match the changing pattern in the demand for services (the last adjustment was in December 2007). The group is the largest taxi operator in Singapore with about 15,700 taxis out of a total fleet of 26,970, according to Land Transport Authority figures as of end-October. Hence, we expect other smaller operators to follow suit and announce fare revisions in due time.

Commuters expected to pay more. Besides extending the peak periods to include weekends and public holidays, ComfortDelgro has increased flag down fares by $0.20 and distance fares by $0.02. Peak period surcharge, on the other hand, will be lowered to 25% of the metered fare from 35% currently. Call booking charges, too, will be reduced to encourage commuters to call for a cab. At present, the group handles 2.4m bookings a month, up about 47% since SMS and smartphone taxi booking services were introduced three years ago.

Preferred land transport pick. ComfortDelgro remains our top pick in the land transport sector for its relatively more resilient earnings profile and compelling valuation vis-à-vis its peer, SMRT Corp. We keep our FY11-13 EPS forecasts largely unchanged for now. Our target price of $1.70 is still pegged at 15x FY12F PER. Reiterate Buy.

Olam International - Well-anchored (CIMB)

Current S$2.37

Target S$3.17

Previous Target S$3.17

Up/downside 33.8%

Olam stands out among peers for its recession-proof portfolio and earnings track record. It proved its mettle in 3QCY11 when peers had fallen prey to economic turbulence.

Olam remains our top pick in the commodities sector. Fears over its cotton exposure have been overdone, in our view. Valuations are attractive at 1 std deviation below its historical 6-year mean. We maintain our forecasts, Outperform and TP (15x CY13 P/E).

Anchored by defensive portfolio

We expect Olam to outperform its peers as investors come to appreciate its earnings resilience amid macroeconomic uncertainties. While industry players have been caught by gyrating commodity prices and slowing demand, Olam has continued to lift its earnings, volume and margins. A defensive portfolio, comprising mainly demand-inelastic edibles, is a desirable trait, especially in uncertain times.

Cotton fears overdone

We believe recent fears of potential cotton impairments have been overplayed. The worst should be over as cotton markets are back in contango.

Olam was not spared from industry-wide defaults, but these had been accounted for in 4QFY11 and 1QFY12. Its cotton division remained profitable throughout and we do not expect a resurgence of the same problems.

Financial flexibility

We believe Olam is in a position to capitalise on M&A opportunities amid industry consolidation, thanks to its strong balance sheet and access to Asian sources of funding.

We see value emerging at 1 std deviation below its historical 6-year mean. Our TP remains based on 15x CY13 P/E, its mean during the 2009 downturn.

Riverstone Holdings (KE)

Background: Riverstone is an established cleanroom and healthcare glove manufacturer with production facilities in China, Malaysia and Thailand. It also produces other cleanroom consumables such as finger cots and face masks.

Recent development: In 3Q11, Riverstone recorded a 29.8% YoY rise in revenue to RM71.0m, attributed to higher production volume from additional production lines. However, gross margins contracted by 9.8ppt YoY, reflecting escalating raw material costs and the depreciating US$.

Key ratios…

Forward price-to-earnings: 8.1x

Price-to-NTA: 1.4x

Dividend per share / yield: (interim) RM0.022 / 2.2%

Net cash/(debt) per share: RM0.10/$0.25

Net cash as % of market cap: 25.5%

Share price S$0.400

Issued shares (m) 317.9

Market cap (S$m) 127.146

Free float (%) 33.6

Recent fundraising activities Aug ’10: 1-for-5 rights issue of 61.9m warrants (issue price S$0.02, ex price S$0.31; 53m outstanding warrants remaining)

Financial YE 31 December

Major shareholders CEO Wong Teek Son (50.6%) ED & COO Lee Kai Keong (13.0%) ED & Grp Bus. Dev. Mgr Wong Trech Choon (4.0%)

YTD change -15.6%

52-week price range S$0.33-0.52

Our view

Reversal of raw material prices and US$. Raw material prices have experienced record-highs in the first half of the year. Since then, prices for nitrile fell by 46% from their peak and latex slipped by 38%. This coupled with a rally in the US$ against the ringgit will be fully reflected in 1Q12.

Quick on its feet. A few of Riverstone’s customers in Thailand, such as HDD maker Western Digital, were affected by the Thai floods and had temporarily suspended orders. The firm was quick to divert its orders to new customers and avoid any excess inventories. Its Thai plant still operates at almost full capacity, accounting for 15.1% of its FY10 revenue.

Steady expansion. Riverstone is expected to record higher production volume from the completion of an additional single line this month. Another single line will be added in 1Q12 to maintain its expansion momentum, bringing its total annual capacity to 2.5b gloves. The company plans to add more lines to its existing factories in the coming year.

Dividends maintained. The company is expected to continue to pay out at least 45% of its profits. According to Bloomberg consensus, the stock is trading at forward PER of 8.1x, largely in line with its competitors’ 9.3x.

SINGAPORE PROPERTY (LIM&TAN)

? The latest measure - additional buyers’ stamp duty (ABSD), is hardly a “complete” surprise:

- Primary sales have been strong, no doubt due to depressed borrowing costs, and which has attracted attention of the authorities, especially the Finance Minister (this bears watching ).

- Property prices have continued to rise, albeit more moderately in recent times, despite concerns of likely impact of the eurocrisis, and slowdown in the US.

- Signs of increased speculative activity, evidenced in recent overnight queue at launch of Bedok Residences going for $1300 psf (!).

- Significantly increased participation by foreigners and PRs.

? The way ABSD will work is as follows:

- Foreigners and corporate entities have to pay an additional 10%;

- PRs will pay the additional 10% when they buy second and subsequent homes;

- Singaporeans will pay additional 3% when buying their third property or more.

? The growing presence or participation of foreigners in the private residential market can be seen thus:

- 19% of all private properties sold in H1 ’11 vs 7% in H1 ’09;

- In the prime-and-mid-prime districts, nearly 25% of caveats lodged in Q3 ’11 vs 16% in 2010 and 13% in 2009;

- In the suburban mass market segment, from 5% in 2009 to 7% in 2010 and 15% in Q3 ’11.

? Property stocks will no doubt take a hit, and likely centered on the purer local residential plays - City Dev, SC Global, Wing Tai, Oxley.

? Stocks like CapitaLand, Keppel Land may be less adversely affected given their increased focus outside Singapore; Ho Bee, having sold off most of its residential properties and now focusing on One North.

Singapore Developers: Government’s resolve is finally tested: the ABSD (NEUTRAL)

New Additional Buyer’s Stamp Duty (ABSD). As we noted previously, the continued strength in private housing prices did test the resolve of the government in dishing out more policy measures. Apart from announcing more details of the 1H2012 GLS programme, we believe the government surprised the market by implementing more demand side measures on top of the gradual supply side policies in moderating private residential prices. From 8 Dec 2011, the government is imposing an Additional Buyer’s Stamp Duty (ABSD) on certain categories of residential purchases which will apply to the exercise of all options to purchase (See Figure 1) on top of the existing Buyer’s Stamp Duty. We continue to expect a prolonged period of gradual weakness in physical prices with supply side policies in play moving forward accentuated by the latest set of cooling measures, during which a lack investors’ interest is likely to persist for this sector. Maintain NEUTRAL on developers, sell CDL.

Broad based residential buying shows no let up; more demand side measures. Despite a slowdown in growth momentum, overall residential prices still rose +1.3%QoQ edging past the previous peak in 2Q08 by 15.9% with the mass market segment as the main driver as well as residential vacancy at all time lows. 3Q11 saw price increase of +2.1%QoQ and 3,082 units sold in the OCR in 3Q11, and 7,692 units in 9M11 surpassing the total of 7,296 units in 12M10. While foreign purchases of 1,222 units declined -15.5% QoQ in 3Q11, foreign buying from mainland Chinese buyers remain sustained. While supply side policies are likely gradual, we believe the recent continued strength in the private residential market led to the ABSD in a bid to further stem speculative buying and moderate prices. We expect this new policy to impact sentiment as well as prices and transaction volume, particularly the high-end segment.

1H12 GLS programme: more of the same. Following release of sites yielding c.14,195 units for the 2H11 GLS programme, the 1H12 GLS programme will again see c.14,100 units including 3,500 ECs to provide further housing supply in response to the strong residential take up within our expectations.

Higher discounts on developers, Sell CDL. We believe policy overhang will persist for developers, and with the latest set of cooling measures we raise our discount on RNAV pegged to 30% for the large-cap developers (see Figure 7) as well as higher discounts to the mid-cap developers. As such, we are downgrading Singapore residential barometer CDL to SELL, highlighting its significant highend residential exposure and view its relative outperformance unsustainable, as well as downgrading to Wing Tai to NEUTRAL with its focus on high-end residential exposure but potential downside priced in. Within the sector, our preferred pick is CapitaLand in which we continue to see value in its multi-geographical, multi-segment exposure and a well established asset recycling platform. Stock is trading 41% steep discount to RNAV and 0.79 P/B (against 5-yr median P/B of 1.34). Recent share buyback by the company vindicates value embedded in share price, which also may see re-rating from active capital deployment into attractive acquisitions moving forward. Keppel Land’s longer term asset allocation is still evolving which creates uncertainty for the stock, however we believe at current levels the negatives are likely priced in.

Hoe Leong: Digging for new grounds (OCBC)

Regional supplier of components. Hoe Leong Corporation Ltd (HOE) is one of the biggest suppliers of heavy equipment components in the region. The group carries about 20,000 types of equipment parts for equipment such as bulldozers and excavators. The end users of these equipments and parts typically operate in mining, forestry and construction. While HOE aims to expand its operations globally, Asia remains its key market with more than 80% of revenue from Asia.

Eyeing Australia and other markets. The group's components business is most exposed to the Indonesian and Malaysian markets. Demand from both countries was healthy in the past year, despite economic turmoil in US and Europe; and are expected to remain so in the next two years, buoying its near term prospects. HOE has also been building up its manufacturing segment, through the expansion of its manufacturing capacity and the marketing of in-house brands, and will be eyeing growth by expanding into regions such as Australia.

Vessels chartering: calm waters in the near term. In recent years, the group has also added a new business segment - vessels chartering. This unit has expanded rapidly, growing its fleet to 18 vessels in just under four years. While its young fleet of vessels have charter contracts till at least end of CY12, we believe the outlook beyond will not be as rosy. There is an abundant supply of offshore support vessels operating within the Asian region and unless oil & gas production and demand for these vessels pick up significantly, charter contracts will be hard to come by.

Initiate with HOLD. HOE's share price has taken a heavy tumble during 2011 - down around 36% YTD. At current level, HOE is only trading at 2.1x P/E on forward FY11 earnings. This is below HOE's own historical average P/E and the average P/E of its closest competitors. Despite the concerns we have on the vessels chartering business beyond the next couple of years, current valuations appear undemanding. Applying a 3.5x P/E to its FY12, we derive a fair value estimate of S$0.20 or potential upside of about 9% However, given the company's small market capitalisation and illiquidity, we initiate with only a HOLD rating.

Shipping & Shipyards - Show me the money! (DBSV)

• Sources of ship finance shrinking as European banks grapple with debt crisis; shipyards likely to face risks of customer defaults/deferments; new order flows drying up

• Outlook for shipping earnings remains muted as supply overhang is yet to clear

• FULLY VALUED on Cosco Corp and NOL; BUY Yangzijiang for better execution and lower customer default risk

No silver lining yet for the shipping sector. Supplydemand mismatch for all major shipping sectors over the next couple of years will continue to cap vessel earnings and asset values. While container shipping is likely to be the first to recover, new ordering activity is still likely to be subdued given the existing supply overhang. However, we are not calling for a bottom yet, and maintain our FULLY VALUED call on NOL, especially given its stretched balance sheet.

Shipping lenders likely to tighten purse strings. The European banks, traditional lenders to the shipping industry, are grappling with the fallout from the sovereign debt crisis in Europe as well as stricter capital regulations, and appetite for shipping finance is likely to shrink in future. Asian banks are only minor players, and with capital market activity likely to be muted in the near term, asset sales and private equity are the only other options for owners to raise money for capital commitments. We have already seen some high profile bankruptcies like General Maritime in the tanker sector, and with other owners talking of restructuring their balance sheets, the prospects of cancellations and deferments loom for shipyards, as there may be considerable funding gaps for the US$364bn worth of ships currently on order. Going forward, we are also concerned about the ability of owners to find financing for newbuilds, likely limiting new order flows.

Shipyards feel the heat, selective BUY on Yangzijiang. While output in 2011-12 looks stable, book-to-bill ratios at the yards are hovering around 2x and growth beyond 2012 could be affected. In view of the sector headwinds ahead – drying order flow, potential for margin contraction, and heightened default and deferment risk – we advise investors to underweight the shipbuilding sector. Selectively, we have a BUY on Yangzijiang on the back of its undemanding valuations, as well as healthy balance sheet and strong management, which should help it navigate tough times and emerge stronger. We have a HOLD on JES and a FULLY VALUED rating on Cosco, given its disappointing execution track record and a weaker customer profile (higher vulnerability to customer defaults).

STARHUB (LIM&TAN)

S$2.83-SHUB.SI

? StarHub made its first share buy-back under the mandate to buy up to 171.587 mln shares: it bought 343,000 shares yesterday at $2.83 each.

? Under the previous mandate, StarHub bought a total of 2 mln shares.

? We believe StarHub’s program is simply one way to enhance shareholders value, other than paying good dividends.

? Quarterly dividend rate has been steady for a while at 5 cents a share, translating to 7.1% yield.

? We find this attractive enough, given the rich free cash flow the telco generates ($420 mln in year-to-date vs $308 mln a year ago), already sufficient to cover annual dividend payout of $343 mln.

? Besides, capex is obviously closely monitored, being capped at 12% of operating revenue. It was 8% in the ytd.

? This suggests room for an increase.

? We therefore maintain BUY.

City Development - CDL, Hong Leong Group and Hong Realty clinch Alexandra Rd residential site (DBSV)

HOLD S$10.01 STI : 2,749.24

Price Target : 12-month S$ 11.24

Top bid of S$396m for Alexandra Rd site. City Developments (CDL), Hong Leong Group and Hong Realty beat six other bidders with a top bid of S$396m or S$754 psf ppr for a plum site located along Alexandra Rd. The 107,129 sf site has a total GFA of 524,934 sf and can potentially house c.545 units. The winning bid is 9% higher than the second (Tanglin Land, S$692 psf ppr) and 25% higher than the lowest bid (IOI Properties, S$606 psf ppr). Other participants included Keppel Land (S$647 psf ppr) and a consortium involving F&N (S$646 psf ppr). The keen interest seen is largely due to its city fringe location and proximity to Redhill MRT station.

Bid is fair, estimated selling price of the end product in line with recent transactions. We expect breakeven cost to be around S$1150-1250 psf and the project should generate a 15% profit margin if sold at S$1400 - $1500 psf. Recent transacted prices for the adjacent Ascentia Sky project developed by Wing Tai range between S$1380 and S$1573 psf. We estimate this project could potentially add 2-3 Scents to CDL's RNAV.

Maintain Hold and S$11.24 TP for CDL.

Q&M Dental (KE)

Background: Q&M Dental is Singapore’s largest private dental healthcare group, with two dental centres and 45 dental outlets in Singapore, two outlets in Malaysia and nine in China. It also has a team of more than 140 dentists and oral health therapists. The company was founded in 1996 and listed on the SGX Mainboard in November 2009.

Recent development: Q&M recently signed an MOU to acquire a 60% stake in Alpha Dental, which owns a dental clinic in Shanghai. This is the fifth proposed JV it has entered into this year in China, including one with a major dental hospital group in Shanxi Province. The move forms part of its plan to establish its dental business in China. It is also on its way to set up the first Q&M dental clinic in Shanghai.

Key ratios…

Price-to-earnings: 51.4x

Price-to-NTA: 8.1x

Dividend per share / yield: S$0.01 /1.6%

Net cash/(debt) per share: S$0.04

Net cash as % of market cap: 5.3%

Share price S$0.755

Issued shares (m) 275.2

Market cap (S$m) 207.8

Free float (%) 27.2

Recent fundraising activities Nil

Financial YE 31 Dec

Major shareholders 18 principal shareholders (dentists) – 71.2%

YTD change +51%

52-week price range S$0.485-0.905

Our view

Higher operating costs dragged down net profit growth. 9M11 revenue posted a 23% YoY growth due to contributions from new outlets and increased revenue from existing clinics. Corresponding net profit grew by a lower 12% YoY, dragged down by a higher headcount, depreciation costs and rental expenses attributed to the new outlets.

Clear expansion plans. Q&M has outlined a set of clear expansion targets. It aims to establish a strong presence in China through JVs and organic growth with a target of 50 outlets and 20 labs by 2015. The final goal is to list its China business within five years. It also seeks to set up 60 outlets in Singapore and 15 in Malaysia by 2015. The market apparently has taken this into account given the high valuation the stock is trading at. The risk now is whether the group can deliver on these promises.

Valuation looks expensive. Based on the profit undertakings by its existing and proposed JVs in China, Q&M’s share of annual net profit from these JVs would be RMB19.3m (about S$3.9m). If we were to annualise its 9M11 net profit and add these potential contributions, full-year net profit would be about S$8.1m. Based on this figure, its valuation would be at 25.8x PER, still relatively expensive in our view, but we have not taken into account contributions from organic growth and more future acquisitions.

CapitaLand - Not to be tarred with the same brush (KE)

More than just a China developer. We recently visited a number of CapitaLand’s projects in and around Shanghai. A key takeaway is that the group remains disciplined in its China operations, focusing on well-located properties. Its China business is in net cash position and is not just focused on residential development. We maintain our belief that CapitaLand’s China business will prove profitable and that China should remain a key market for the group. Maintain Buy.

Revisiting the OODL sites. CapitaLand acquired the OODL portfolio for US$2b early last year. To-date, it has already launched and sold a substantial number of units from the first phases at The Metropolis and The Pinnacle. All eyes will now be on the crown jewel, The Paragon, which is launch-ready. We expect an ASP of around RMB120,000 psm, with demand likely to be robust given its strong product positioning.

Location, location, location. Even as the Chinese residential market comes to a slow grind, CapitaLand remains committed to deepening its presence in key cities such as Shanghai and Beijing. We believe that prices of well-located projects, such as those near city centers, will hold up and be less susceptible to drastic corrections.

It’s not all about residential property. The current policies are aimed at cooling home prices and have little impact on commercial properties. Residential development only accounts for 14% of CapitaLand’s assets, or 41% of its China assets. The majority of the assets in China are made up of commercial properties, such as retail malls and the seven Raffles City developments.

Focus on asset quality. CapitaLand’s current share price implies an overly punitive 70% impairment to the asset values held under CapitaLand China Holdings. In our view, investors should instead focus on the quality of its investments in China. We maintain our Buy recommendation but lower our target price to $3.21, pegged at a steeper discount of 20% to RNAV, given that the policy overhang may remain at least until 2H12, in our view.

Thailand Dry Bulk Shipping: 2012: No visible opportunity in Thai names (NEUTRAL-WEIGHT) (DMG)

Initiate with Neutral-weight. We initiate on the dry bulk shipping sector in Thailand with a Neutralweight rating. In our view: (1) strong supply will continue to cap any sustained pickup charter rates and risk is biased to the downside; (2) we expect BDI to trade range-bound from 1,500 to 2,000 points despite positive development from record scrapping and China’s plan to slowdown shipyard output. (3) We initiate coverage on Precious Shipping Limited (PSL) with a NEUTRAL rating (TP: THB16.80) and Thoresen Thai Agencies (TTA) with a SELL rating (TP: THB13.90). Thai-based shipping companies are not highly leveraged but we think TTA’s shipping unit could continue to struggle due to high operating costs and continued restructuring. PSL’s share price is fairly valued, in our view.

BDI had a good run-up from Aug-Oct 2011 but losing steam. A bright spot seemed to emerge in the dry bulk space as the index rallied 73% from its Aug 2011 low of 1,253 points to a high of 2,173 points in Oct 2011, driven by Japan’s demand spike, strong bulk volumes from China, higher scrapping and credit concerns on selected charter contracts. However, since hitting its peak of 2,173 points, the index has fallen 14%. In our view, a sustained pickup in the BDI is difficult given huge supply growth and concerns over demand growth. Elevated BDI levels can be negative in the long run as owners will put off plans to take away excess capacity and which may prolong the process to reach demand-supply equilibrium.

Downside risk to charter rates as oversupply persists. Recent spike in the Baltic Dry Index (BDI) should not be taken as a clear indicator of improving conditions in the sector. Dry bulk capacity grew +9.7% in 9M11 to 609m DWT with another 117m DWT (+19%) and 48m DWT (+8%) to be delivered in 2012 and 2013. Close to 20m DWT of dry bulk carriers were scrapped in 9M11 but this is still insufficient to take away the supply growth.

Key upside risks are: (1) Strong rebound in the global economy; (2) higher-than-expected slippages; and (3) accelerated scrapping of older ships.

Singapore Telecommunications: Regional Mobile Investor Day (RMID) 2011 (DMG)

(NEUTRAL, S$3.12, TP S$3.13)

At SingTel’s 2011 RMID, discussions centered on the robust data potential as voice revenue slows. We see the strongest data themes at SingTel Spore and Optus (under their respective NGNs) but offering the highest growth potential at Bharti and Telkomsel, going by their industry-centric developments. Disappointingly, there was no update on Telkomsel’s stake and a lack of insight on capital management. The takeaways from the event do not alter our view and forecast on the stock. Maintain NEUTRAL rating and SOP FV of SGD3.13.

Data and more. At SingTel’s 2011 RMID, the senior managements of 6 subsidiaries and associates – Singtel Singapore, Optus, AIS, Telkomsel, Bharti and Globe - addressed analysts in parallel breakout sessions. The event’s overriding themes were on data, specifically: (i) the trend towards new converged services on the NBN in Singapore and Optus (ii) the use of 3G networks to drive data uptake in the under-penetrated markets of Indonesia and India (Telkomsel/Bharti); and (iii) emerging data play with new network investments in nascent 3G markets (Thailand/Philippines). Group-wide trials on LTE have been successful, with Optus rolling out its LTE network in 2Q12.

Harnessing the digital lifestyle. SingTel showcased its NGN services/applications across multiple platforms and cloud services on the sidelines of the event, which made a good impression on us. We believe that concerns of its competitors taking a chunk of its lucrative enterprise customers under the NGN are overdone as the group appears to have preempted competition well via the up-selling of services and more competitive pricing to migrate customers.

Competition moving in the right direction in India/Indonesia. The rising tariff/price points and inflationary risks underscore our view of declining competitive intensity in the mobile sector in India. Bharti expects regulatory risks to dissipate, with a more liberal stance adopted from the change in the country’s regulatory framework. Telkomsel’s comments on steady competition alongside good operational improvements (new sales distribution structure in place and stronger billing platform) sets the stage for a stronger 2012, in our view although there are still concerns over the group’s high capex (IDR15trn guided for FY12). Globe’s USD790m 5-year network modernization will result in mid-term earnings pressure but should give rise to significant opex and capex savings in the longer term.

Keeping mum on Telkomsel and capital management. Disappointingly, there were no updates on the company’s stake in Telkomsel. SingTel said it will continue to maintain financial headroom for a potential increase in its stakes in other associates, in-market consolidation and acquisition of vertical assets.

ComfortDelgro: Average taxi fares could increase by 10% (DMG)

(BUY, S$1.42, TP S$1.75)

CD’s FY13 PATMI could increase by 4% if taxi rental fees are raised. ComfortDelGro (CD) is revising its taxi fare structure effective 12 Dec 11 and this will include raising basic fares, extending the duration of “peak hours” and lowering peak hour surcharges. Though the actual impact is difficult to quantify, we estimate taxi commuters’ fares to increase by 10%. Assuming CD increases its rental rates by 2% (20% of the increased earnings from the fare revision) in 2QFY12, CD’s FY13 PATMI will be 4% higher than our base case. However, CD has not commented on increasing its taxi rental rates to drivers and so we are leaving our estimates unchanged. As the leading taxi operator with 60% market share, we believe CD’s competitors will follow suit and revise their taxi fare structure as well. Maintain BUY and TP of S$1.75.

Taxi commuters can expect to pay 10% more on average. Changes to the taxi fare structure include (1) a 22% increase in Limousine flag down fares (7% for the other models), (2) lower peak hour surcharges but with an extension in weekday peak hours from 5.5hr/day to 9.5hr/day and now including weekends and public holidays, (3) evening City Area surcharge extended to Sundays and Public Holidays while removing the S$1.00 Public Holiday surcharge, and (4) call booking (excluding advance booking) charges will also be reduced. In light of these, we estimate overall fares for taxi commuters to increase by 10%.

Potential for CD to raise its rental fees to drivers. Based on our assumption that a taxi driver can earn about S$10 more a day following the fare revision, and assuming CD increases its rental fees by 20% of the drivers’ increased profits, CD would be able to increase its average rental rates by about 2%, which will translate to a 4% increase in its FY13 PATMI. Though CD has not commented on increasing its taxi rental rates, we see the possibility of this happening once commuters become more accustomed to the new fare structure.

Maintain BUY, CD remains our pick. At FY12 P/E of 12x, CD remains more attractive than SMRT’s 17x FY13 P/E (FYE Mar). We also expect CD to benefit more from a fare hike given its 15k taxi fleet size versus SMRT’s 3k.opinion.

Parkson eyes new markets in South-east Asia (DMG)

The news: Parkson Holdings Bhd, a Kuala Lumpur based department store operator that makes most of its revenue from China plans to enter new markets in South east Asia to tap the region’s growing affluence. The retailer that has 102 outlets in China, Malaysia, Vietnam and Indonesia sees Myanmar, Thailand and the Philippines as potential markets, says Alfred Cheng, managing director of the units listed in Hong Kong and Singapore. Parkson plans to open 24 more stores in Asia by the end of next year, followed by its first in Cambodia in the first half of 2013.

Our thoughts: It appears that management is taking on a more ambitious expansion path. Last we spoke to them a month ago, they mentioned a more conservative 7-8 store expansion for 2012 and 2013. Parkson Retail Asia (PRA) which is the listed entity in Singapore comprises of 50 stores (including one supermarket) in Malaysia, Vietnam and Indonesia occupying a total retail space of 497,108sqm. With a market capitalization of S$806m, it is currently trading at 20x FY11 earnings. Its peers Sheng Siong is trading at 13x while Dairy Farm at 27x. We currently do not have a rating on the stock.

CSE Global - The harder they fall, the stronger they bounce (CIMB)

Small-mid-cap stocks can suffer from high volatility from limited trading liquidity. CSE tumbled 12% within a day as French-based institutional investor, Amundi, pared down its stake. We believe the market could have oversold CSE.

We upgrade CSE to Outperform

(from Underperform) on the back of its recent underperformance. We maintain our earnings estimates and TP, still at 6x CY13 P/E, its average during the last crisis.

What Happened

CSE has underperformed the FSSTI by 30% over the past three months. It is trading at 1.4x CY12 P/BV, its trough during the GFC. Its de-rating began with its 2Q11 loss shocker from execution problems at two Middle East projects. More recently, its underperformance was precipitated by French-based institutional investor Amundi’s decision to pare down its stake.

What We Think

We believe the market could have oversold CSE. In view of lower operating and financial risks today, we believe trough valuations are unwarranted. Unlike 2008-09, companies do not have to contend with sharp forex and oil-price gyrations. Moreover, operations are healthier as its new businesses have been integrated. CSE’s order book offers a bigger buffer this time around and its financials are stronger. Put together, we project a 73% yoy rebound in FY12 EPS.

What You Should Do

Now is the time for long funds to pick up the stock. Our price range derived from various valuation methodologies indicates a favourable risk-reward trade-off. A general recovery in the business cycle, stronger-than-expected results and a stronger order intake could lead to a re-rating, in our view.

Swiber Holdings: Positive industry outlook but monitoring cost control (OCBC)

Looking ahead at 2012. 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 has not been any significant change 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 performance over the next two years.

Another shot at ONGC's WO-16 project. According to Upstream1 , India's ONGC has initiated a quick re-tendering exercise for its WO-16 wellhead platforms project, and plans to award the contract by 30 Dec this year, for a project completion by May 2013. Likely contenders for this job would include McDermott, Abu Dhabi's NPCC, and a consortium involving Swiber and India's Pipavav Shipyard. During an earlier stage of the first tendering process, McDermott revealed its price quote of US$164m and was the lowest bidder; Swiber and Pipavav came in fourth at US$234.9m2 .

Offshore EPCI market forecasted to be buoyant... Despite current market uncertainties, the overall level of activity in the offshore industry remains buoyant. According to industry expert Douglas Westwood in an Oct paper3 , exploration and production (E&P) spending budgets are subject to adjustments but are currently biased on the upside. However, should global economic events take a turn for the worse, a widespread recession and an associated fall in oil demand and oil prices would pose significant challenges to the offshore industry. In the longer term, we believe the offshore sector has strong fundamentals as countries have an interest in fulfilling as much domestic demand as possible, so as to boost energy security.

... but competition is intense too. Though the overall industry outlook is favourable, competition is also intense, which may weigh on margins for new projects; meanwhile Swiber is guiding for a 15-20% gross margin range going forward. The group has disappointed the market with its core earnings this year and we are not ready to up our margin assumptions without a consistent showing of cost control. Given limited upside potential, we maintain our HOLD with S$0.58 fair value estimate.

Starhill Global REIT - Timeless appeal (DBSV)

BUY S$0.58 STI : 2,766.23

Price Target : 12-Month S$ 0.76

Reason for Report : Company Update (site visit)

Potential Catalyst: AEI and acquisitions

DBSV vs Consensus: Slightly higher due to stronger rental reversion

• Malls in prime KL locations, with distinct tenant mix

• Opportunity to increase Lot 10 revenue through AEI

• Maintain BUY and S$0.76 TP

Strong foothold in KL shopping scene. SGREIT’s two retail malls - Starhill Gallery and Lot 10 - have a strong foothold in KL’s prominent Bukit Bintang shopping district. After completing Starhill Gallery’s AEI, its modern iconic facade will cement its crème de la crème position. It has signed on exciting new retailers to refresh and enhance its tenancy mix. Currently, both malls and the new space created at Starhill Gallery are master-tenanted to Katagreen Development, a subsidiary of YTL Corp. until 2016, with option to renew for another three years. Occupancy rates at both malls are >95%.

Lot 10 might be next for AEI, we see only upside. Lot 10 now houses several beauty/spa tenants on the 3rd and 4th floors. But the master tenant could bring in more fashion retailers, including new-to-market brands, which are usually higher yielding tenants. We also see opportunities for the REIT to expand the mall's NLA by converting carpark space and building new annex blocks.

Making KL a shopping destination. The government's efforts to rejuvenate Bukit Bintang will have positive impact on the malls. Construction of a new MRT station located adjacent to Lot 10 will start next year, and is expected to be ready in 4-5 years. Plans for covered walkways to link KLCC to Bukit Bintang district will also create >10m sf of retail space to attract more tourists. Completion of this public infrastructure could boost the malls’ accessibility.

Wisma Atria will see similar transformation. AEI works at Wisma Atria will be completed in 3Q12, and underpin FY12 earnings growth. SGREIT is now trading at attractive 0.6x P/BV, and offers 7.4%-7.7% DPU yields for FY11/12.

Mewah International (KE)

Background: Mewah International processes and distributes edible oils and fats that are primarily palm-based products. Its manufacturing is done at three refineries in Malaysia, where it has another two packing plants. Its third packing plant is in Singapore. The company sells in both the bulk segment and under its own brand of consumer packs, with distribution in Singapore, Malaysia and 100 countries.

Recent development: Last month, Mewah reported weak 3Q11 numbers with a 69% decline in net profit to just US$6.5m. This was a continuation of difficult business conditions it has experienced since 2Q11 and subsequently led to its share price sliding by 60% since July 2011. Over the past month, however, its share price has stabilised at around the current level.

Key ratios…

Price-to-earnings: 10.2x

Price-to-NTA: 1.1x

Dividend per share / yield: Nil

Net gearing: 47%

Net debt as % of market cap: 44%

NTA per share: US$0.35

Share price S$0.48

Issued shares (m) 1,507.1

Market cap (S$m) 723.4

Free float (%) 15

Recent fundraising activities IPO – $276.9m

Financial YE Dec 31

Major shareholders Cheo family – 83%

YTD change -54.3%

52-week price range S$0.365-1.23

Our view

Hit by pricing pressures. The decline in sales volume over the past two quarters, coupled with a drop in average selling prices, has led to a 16% sequential slide in revenue in 3Q11. Profitability has stayed low as margins were affected by declining CPO prices, which have caused customers to delay purchases and renegotiate for lower prices. We expect average CPO prices to slip by a further 20% next year. Going forward, Mewah may be subjected to further margin compression.

Still growing the business. Mewah currently still has expansion projects ongoing in Malaysia and China with a total capex of nearly US$300m. This includes US$50m for the construction of a dairy plant in Malaysia, which has synergies with its palm oil business. This is part of Mewah’s diversification plan, as well as to leverage on its distribution capabilities, particularly in West Africa, for dairy.

No compelling reasons to own. A year after Mewah’s IPO which was priced at $1.10 per share, the stock is trading at less than half of that in the wake of its recent earnings disappointments. Nevertheless, it does not trade at a particular discount to its SGX-listed peers in the palm oil sector. Its positioning in the midstream portion also subjects its margins to pricing pressure both upstream and downstream. The market currently has no “Buys”, three “Holds” and six “Sells” on the stock, which indicates that sentiment remains negative.

Neptune Orient Lines - Amid sombre seas (KE)

Reinitiate coverage with Hold. We resume coverage on Neptune Orient Lines (NOL) with a Hold rating and target price of $1.10, based on 0.8x FY12F P/BV. Softening demand and a glut of new vessels on order look set to challenge the shipping industry well into 1H12. Though current stock valuation is inexpensive, we think investors should ideally wait for more positive signs of moderating freight rate decline before taking the plunge.

A double whammy. NOL recorded a sharper-than-expected net loss of US$91m for 3Q11, which generally disappointed the market. Falling freight rates due to excess capacity on key routes and higher bunker fuel prices have combined to hurt container shipping lines. The group’s quarterly losses could further widen in the off-peak season in 4Q11.

Possible prolonged downturn. The prospects for an early recovery in the industry could be derailed if the global economic turmoil spreads and consumer demand in Europe and the US deteriorates. In the event of a prolonged downturn, we believe the Asian container shipping sector will simply be a story of market share gains to insulate against the difficult macro-environment. Against this backdrop, it is likely that NOL will report its second consecutive annual loss in FY12.

Equity-raising an overhang. NOL still has more than US$2.0b of vessel instalment payments until end-2013, which will be financed through a combination of bonds and committed ship financing. Based on our estimates, net gearing would creep up to almost 0.9x in FY12F, suggesting that raising of fresh funds cannot be ruled out, especially if credit markets should tighten or new acquisitions made.

Poor outlook priced in. The stock has underperformed the Straits Times Index YTD, falling by 49% against a 13.3% decline in the index. We believe the weak outlook for the shipping industry with little expectation of earnings recovery in the near term is largely reflected in the share price.

Asiatravel.com: Profitability likely to improve despite challenges (DMG)

(BUY, S$0.325, TP S$0.44)

Asiatravel.com recorded a net loss of S$0.7m in 4QFY11, as revenue slid 3.8% YoY to S$24.6m, largely due to one-off expenses relating to the cessation of subsidiary’s business. The results were in-line with our estimates. In the absence of one-off expenses, profitability in FY12 is likely to improve, even with flat revenue growth. On top of that, there is also the full-year consolidation of FNE’s results (Asiatravel recenty increased its stake from 19.9% to 50%) for FY12. Asiatravel is an attractive partner for travel operators looking to expand into Asia, in our view, as it has a comprehensive online travel reservation platform and a wide customer base. We are estimating profit of S$0.9m for FY12. As we roll forward our valuation, our DCF-based TP is S$0.44. Maintain BUY.

Expect flat growth in volume of room nights sold. The global economic slowdown and the recent Thailand floods could negatively affect Asiatravel’s volume of room nights sold. Long-haul tourists usually select Thailand and one other Asian city as their holiday destinations. As a result of the floods, they may postpone their holiday in Asia entirely. While Singapore is on track to record 11m – 12m visitor arrivals in 2011, 2012 growth in visitor arrivals may be flat. The bright spark is that Hong Kong’s tourism industry is not experiencing a slowdown at the moment, as Chinese tourists take shorter-haul holidays and flock to nearby Hong Kong. The Hong Kong market contributes ~10% to Group revenue.

Overall ARRs may be flat too. In view of an impending dip in visitors, hotels in general have started rolling out promotional rates to draw guests. During previous economic slowdown, ARRs in Singapore dipped on average ~15% YoY, and occupancy rates were down by ~5% YoY. While Singapore now has major events and attractions (F1 GrandPrix and the IRs) to support demand for hotel rooms, ARR growth is likely to be flat in FY12.

One foot in the outbound China travel market. Asiatravel now owns 50% of FNE, a one-stop travel centre servicing the China Outbound Travel market. This allows it to expand its China network and drive more customers to its website.

Neptune Orient Lines - Hapag-Lloyd revisited? (CIMB)

Current S$1.09

Target S$0.87

Previous Target S$0.87

Up/downside -20.2%

Media reports suggest that NOL is relooking at bidding for Hapag-Lloyd. We think that non-European carriers could struggle to swallow Hapag-Lloyd, and NOL will likely have to execute a rights issue to finance the purchase. An OOIL tie-up would be a far better alternative.

As such, we would be very cautious on NOL if the reports are correct, even if acquisition valuations are low. We maintain our UNDERPERFORM on NOL as spot freight rates continue to fall and the likelihood of successful freight rate restoration at the start of 2012 are very small.

What Happened

German newspaper Die Welt apparently reported that NOL has been meeting with Hapag-Lloyd shareholder TUI to discuss possibly buying the latter’s 38% stake in the German carrier. TUI has been keen to sell its stake to a trade buyer, after weak market conditions have effectively ruled out an IPO. However, talks with Omani and Chinese investors have failed. The other option is for TUI to put its stake to the Albert Ballin KG consortium from 1 Jan 2012.

What We Think

According to Alphaliner, TUI’s 38% stake is purportedly priced at €1.2bn (US$1.6bn), against only NOL’s US$681m in cash as at 30 Sep. A cash purchase by NOL may require NOL to execute a rights issue, as net gearing is expected to increase to 186% by virtue of its large capex programme alone. In addition, the Albert Ballin KG is obliged to sell to the buyer enough shares in Hapag-Lloyd so that the buyer will have majority ownership. This means that the total cost of the Hapag-Lloyd purchase could exceed €1.2bn.

Alternatively, TUI may swap its shares in Hapag-Lloyd for shares in the merged Hapag-NOL, but this may not be what TUI had in mind as it is seeking a complete exit from container shipping.

Any buyer of Hapag-Lloyd will have to contend with nationalistic sentiments in Germany, trade unions, pension liabilities, and the difficulties of restructuring two entities in different cultures.

What You Should Do

If true, a purchase of Hapag-Lloyd would be dilutive for NOL shareholders. We think that NOL will be far better off in an acquisition or merger arrangement with OOIL. NOL shares are currently suspended.

Hiap Hoe - Playing all its cards right (DMG)

BUY

Price S$0.42

Previous n/a

Target S$0.61

Niche developer with an illustrious history. Hiap Hoe started out as a construction firm in the 1950s and has accumulated over 40 years of experience in the construction industry. The company diversified into property development in the early 1990s and has since evolved into a niche integrated property developer engaged in mid-tier and luxury residential properties. Today, the group is focused primarily on its own residential developments, and is able to leverage on its in-house building expertise to manage costs efficiently. Past projects include Oxford Suites, Cuscaden Royale, City Edge, Papillon, The Vines and The Moonstones, all of which have been sold out.

Sitting on a low-cost prime landbank. Hiap Hoe timed its land purchases well in the current cycle, embarking on a buying spree in the early stages of the property upcycle in 2005-2007 and accumulated a residential landbank just under 0.5m sf GFA in the prime districts of Balmoral Road, Cavenagh Road and St. Thomas Walk. It has since launched and substantially sold several projects, including Waterscape at Cavenagh (75% sold), Skyline 360° (54% sold) and Signature at Lewis (88% sold). It is currently waiting for an opportune time to launch its remaining unsold project, Treasures on Balmoral. Waterscapes and Skyline 360° together should generate over $300m in pretax profits when fully sold given the low land cost of $600-700 psf. We estimate a development surplus of S$235m, or $0.50/share from Hiap Hoe’s existing landbank, of which $122m or $0.26/share represents locked-in profits from pre-sold units.

Zhongshan development site provides future source of recurrent income. Beyond property development, Hiap Hoe is developing a hotel-cum-commercial site at Zhongshan Park along Balestier Road with its JV partner Superbowl. The 421,000 sqft GFA site was clinched at a bargain price of $172 psf ppr in mid-2008, and is being developed into a 405-room Days Inn hotel (3-star) and a 390-room Ramada hotel (4-star) together with some 120,000 NLA of office and retail space. We estimate Hiap Hoe’s share of the development surplus at $104m ($0.22/share).

ASIATRAVEL.COM - Profitability likely to improve despite challenges (DMG)

BUY

Price S$0.325

Previous S$0.50

Target S$0.44

Asiatravel.com recorded a net loss of S$0.7m in 4QFY11, as revenue slid 3.8% YoY to S$24.6m, largely due to one-off expenses relating to the cessation of subsidiary’s business. The results were in-line with our estimates. In the absence of one-off expenses, profitability in FY12 is likely to improve, even with flat revenue growth. On top of that, there is also the full-year consolidation of FNE’s results (Asiatravel recenty increased its stake from 19.9% to 50%) for FY12. Asiatravel is an attractive partner for travel operators looking to expand into Asia, in our view, as it has a comprehensive online travel reservation platform and a wide customer base. We are estimating profit of S$0.9m for FY12. As we roll forward our valuation, our DCF-based TP is S$0.44. Maintain BUY.

Expect flat growth in volume of room nights sold. The global economic slowdown and the recent Thailand floods could negatively affect Asiatravel’s volume of room nights sold. Long-haul tourists usually select Thailand and one other Asian city as their holiday destinations. As a result of the floods, they may postpone their holiday in Asia entirely. While Singapore is on track to record 11m – 12m visitor arrivals in 2011, 2012 growth in visitor arrivals may be flat. The bright spark is that Hong Kong’s tourism industry is not experiencing a slowdown at the moment, as Chinese tourists take shorter-haul holidays and flock to nearby Hong Kong. The Hong Kong market contributes ~10% to Group revenue.

Overall ARRs may be flat too. In view of an impending dip in visitors, hotels in general have started rolling out promotional rates to draw guests. During previous economic slowdown, ARRs in Singapore dipped on average ~15% YoY, and occupancy rates were down by ~5% YoY. While Singapore now has major events and attractions (F1 GrandPrix and the IRs) to support demand for hotel rooms, ARR growth is likely to be flat in FY12.

One foot in the outbound China travel market. Asiatravel now owns 50% of FNE, a one-stop travel centre servicing the China Outbound Travel market. This allows it to expand its China network and drive more customers to its website.

FIRST RESOURCES - Raising CPO price assumption (DMG)

BUY

Price S$1.495

Previous S$1.68

Target S$2.05

Our fair value for First Resources (FR) is raised to S$2.05 from RM1.68 previously, following our upgrade of CY12 average CPO price assumption to RM3,000 from RM2,700 previously. FR remains as our top sector pick, having a good blend of long term growth prospects, strong current production growth, undemanding valuation and balance sheet strength. FR, having a refinery in operation now, is benefiting from the reduction of Indonesia’s export duty for refined palm oil. Maintain BUY.

Strong production YTD. FR’s 3Q11 nucleus FFB production came in at 510,169 tonnes (+17.1% YoY). This brings FR’s cumulative nucleus production to 1.2m tonnes, up 21.6% YoY. We expect 4Q production to soften sequentially due to seasonal onset of production downcycle. We do not expect 2012 production to repeat this year’s pace and will normalise, but nonetheless a strong 9.8% growth.

Boost from downstream. FR’s refinery was only running at 35.4% utilisation for 9M11, which means it has spare capacity to exploit the benefit of lower export tax for refined products commencing Sept 11 in Indonesia. We have estimated earnings from its refining unit to come in at US$4.6m for FY11 and US$6.8m in FY12, based on a utilisation rate of 55.2% and 80% respectively.

Upping CPO price assumption to RM3,000/tonne. We raise our FY11 and FY12 FFB production estimates by 3.8% and 3.4% respectively and raised our cost of sales and expenses. In addition, we raised our FY12 CPO price assumption from RM2,700/tonne to RM3,000. We have also incorporated refinery earnings as mentioned above. Consequently, our FY11 earnings forecast is upped by 7.3% and FY12 forecast is lifted 16.3% to US$147.4m and US$173.6m respectively. Maintain BUY with a higher TP of S$2.05.

Noble: Negatives are priced in, upgrade to NEUTRAL (DMG)

(NEUTRAL, S$1.20, TP S$1.20)

Following recent plunge in share price, valuations appear fair. Post results, Noble’s share price fell 25%. We believe its negatives (poor results, CEO resignation) have been priced in. Its lossmaking quarter is likely a one-off in our opinion, and currently, acting CEO Richard Elman (Noble’s founder and Chairman) is more than capable to steer Noble’s ship. Trading at 11x FY12 P/E, it is currently below its five year historical average of 14x, but is in-line with peers. We upgrade Noble to NEUTRAL with unchanged TP of S$1.20.

Loss making quarter likely a one-off. 3Q11 losses were due to (1) counterparty defaults from its cotton division, (2) poor sugar crop production resulting in low utilisation of mills that pressured margins, and (3) fall in carbon credit prices that caused unrealised mark to market losses. We do not expect subsequent quarters to be as badly affected. Cotton prices have been relatively stable the past four months. Sugar volume and utilisation is also expected to increase, while Noble’s exposure to carbon credits should be much smaller.

Proof of earnings quality and management succession are catalysts. Though we are of the view that the worst is over for Noble, we do not expect share price to perform in the near term. We believe that following Noble’s shocking results, investors will be looking out for evidence of recovery (in the form of good quarterly results) as well as more concrete plans on management succession before it deserves a re-rating.

Currently trading at 11x FY12 P/E, fairly valued. At 11x FY12 P/E, Noble is trading below its five year historical average of 14x, but in-line with its peer average of 10.7x. We do not expect a re-rating in the near term. Any potential share price re-rating is subject to performance in the upcoming results and more clarity on management succession.

Biosensors Int’l Group - Earnings momentum set to continue (OCBC)

Maintain BUY

Previous Rating: BUY

Current Price: S$1.405

Fair Value: S$1.95

Strong product portfolio backed by positive clinical evidence. We expect Biosensors International Group's (BIG) earnings momentum to gain further traction as we move into 2012, underpinned by its strong product portfolio and continued market share gains. BIG presented several positive clinical trial results at the recent Transcatheter Cardiovascular Therapeutics (TCT) 2011 symposium, which is one of the most significant cardiovascular conferences in the world. The safety and efficacy highlighted for BIG's flagship BioMatrix Flex™ drug-eluting stent (DES), next-generation BioFreedom™ polymer-free DES and newly-launched Axxess™ bifurcation stent would allow the group to gain further market acceptance and consolidate physician's loyalty to its products. Johnson & Johnson's recent decision to withdraw from the DES market would also aid BIG in its market share penetration, in our opinion.

Expect robust contribution from China and Japan. BIG penetrates China and Japan via its wholly-owned subsidiary JW Medical Systems (JWMS) and its licensed DES technology to Terumo Corp, respectively. JWMS would be consolidated into BIG's financials from 3QFY12 onwards (versus equity method accounting previously), which we view positively given its strong positioning as one of the top three local DES players in China. Although the tendering process by the China government to make healthcare costs more affordable would result in pricing pressures, we opine that this would be more than compensated by higher volume growth. Royalty fees from Terumo's Nobori DES in Japan only began its contribution to BIG from 1QFY12 and we expect this to gain traction moving forward, considering its initial performance. A larger contribution from its licensing revenues would also help to support its margins by mitigating the effects of ASP declines typical in the DES market.

Maintain BUY. While we are optimistic on BIG's prospects, we believe that austerity measures undertaken by some of Europe's governments which include curbs on government healthcare spending might have some negative impact on the group. For example, it was reported that France would implement lower reimbursement rates and carry out price cuts on medical devices. Separately, Shandong Weigao has now become the largest shareholder of BIG with an ownership stake of 21.6% (previously 16.2%) following the conversion of its US$120m convertible notes. We believe this signifies Shandong Weigao's positive view on BIG's growth prospects. This would also strengthen BIG's balance sheet and place the group in a stronger net cash position. We lower our interest expense assumptions and correspondingly raise our core earnings forecast for FY12 and FY13 by 1.6% and 2.4%, respectively. Consequentially, our FCFE-derived fair value estimate increases from S$1.87 to S$1.95. Maintain BUY.

HI-P (LIM&TAN)

S$0.605-HIPS.SI

? The company is likely to buy back its own shares should there be selling pressure resulting from news (more a clarification of claims made by China Labor watch ) about strike action by workers at its plant in Pudong, Shanghai.

? We fear this may not have the same effect as when Hi-P made two purchases earlier last month (129,000 shares on Nov 3rd at 60 cents and 306,000 shares on Nov 10th at 66 cents). Hi-P hit a high of 73 cents on Nov 14th.

? Hi-P has disputed numbers provided by CLW : a. it said only about 200 workers or 5% of the affected workforce took part in the strike on Nov 30th, vs latter’s claim of 1000; b. it said it did not lay off thousands of workers who took part in industrial actions for 10 days in July, as alleged by CLW.

? Investors in Singapore are not aware, until Friday’s statement by Hi-P, of the latest and what was alleged to have happened in July.

? Hi-P has 15 manufacturing plants, of which 5 are in China, with the rest spread across Thailand, Mexico, Poland and Singapore.

? The past few months have been somewhat tumultous for Hi-P: profit warning on July 1st and again on Oct 21st .

? Which likely would in turn help explain why the company stopped its high-profile and closely monitored buy-back program after the last on Feb .

? We would revert to HOLD as a result of the above.

Hi-P International - Hi-P denies massive layoffs in Shanghai, grossly exaggerated by the press (DBSV)

FULLY VALUED S$0.61 STI : 2,773.36

Price Target : 12-month S$ 0.43

Hi-P clarified over SGX that news reports have grossly exaggerated the strike stemming from the company's relocation of production facilities from Jinqiao to Nanhui, both within Pudong in Shanghai and only 30-40 mins apart by car.

Management corrected that the strike involved 200 out of the 4000 workers at the Jinqiao site, and not a 1000 as reported by the press. Hi-P also stressed that no staff has been laid off at all. Instead, the company has offered relocation packages (already endorsed by the authorities and Union) to the affected staff, which includes 2 months of salary as incentive to help staff cope and more pick up points have been added to facilitate the transfer. Unfortunately, a minority group of workers remained dissatisfied.

As of now, Hi-P is collaborating with officers from the authorities and the workers' union to work out an amicable solution. Hi-P expects the transfer to be completed by end 1Q12. During this period, management expects consolidation expenses (for next two quarters) but do not foresee operational disruptions. We, however, believe teething problems at the new site could result in slower than expected ramp up resulting in duplication of expenses due to the relocation.

Hence, we believe earnings risk is still on the downside. No change to our Fully Valued call and S$0.43 TP.

Olam International - Expanding into rice and wheat in Nigeria (DBSV)

HOLD S$2.40 STI : 2,773.36

Price Target : 12-Month S$ 2.35

Olam announced on 1 and 2 Dec11 that it intends to expand its rice and wheat businesses in Nigeria, funded by a combination of internal funds and borrowings.

Rice

Olam will invest US$49.2m to set up a 6,000 ha greenfield, fully integrated, mechanised and irrigated paddy farming and rice milling facility in Nasarawa State, a major rice growing region in Nigeria. The paddy fields will be planted in phases between FY2013 and FY2016. Peak production is expected to be 60,000 MT, which will translate into 36,000 MT of milled rice. These will be sold through Olam's network of distributors and dealers across Nigeria.

Olam sees this as an attractive investment (forecast project IRR is 28%) due to the following:

1. large Nigerian market – consumes 5.5m MT of rice p.a. (with 1.9m MT imported);

2. imported rice attracts high duties and costs; and

3. favourable government policies to support local production and enhance food security.

Wheat

Olam's Nigerian subsidiary, Crown Flour Mills (CFM) is investing US$50m to:

1. build another semolina mill and flour mill in Lagos, each with 250 TPD (tons per day) capacity;

2. construct a 250 TPD flour mill in Warri to raise total installed capacity from 1,630 TPD to 2,380 TPD; and

3. increase silo storage facilities by 18,000 MT in Lagos and Warri.

The construction and commissioning of the new mills and storage facilities is expected to take 17 months. The project is estimated to deliver 20% IRR. The expansion at CFM will enable Olam to grab a larger share of the growing Nigerian flour market, and give the flexibility to produce all types of flour for bread, noodle, pasta, and semolina.

These are positive developments for Olam, given the attractive returns. But since they are relatively small investments, we will only update our numbers after the release of 2QFY12 result early next year. Maintain Hold rating and S$2.35 TP.

Hong Fok Corporation (KE)

Background: Hong Fok started as the developer and owner of the Singapore Hyatt Hotel, which it disposed of in 1976 when it turned towards property development. Over the years, its track record includes the Hyatt Hotel, La Ventura and Grangeford. Its current investment portfolio includes International Building at Orchard Road and The Concourse at Beach Road.

Recent development: Hong Fok delivered a much-improved 3Q11 performance due to the commencement of the recognition of sales from Concourse Skyline. Revenue and net profit for the quarter were, respectively, $79.4m and $14.0m, compared to $12.0m and $2.2m a year ago.

Key ratios…

Price-to-earnings: 2.7x

Price-to-NTA: 0.30x

Dividend per share / yield: Nil

Net gearing: 59%

Net debt as % of market cap: 199%

NTA per share: $1.37

Share price S$0.41

Issued shares (m) 659.6

Market cap (S$m) 270.4

Free float (%) 35.1

Recent fundraising activities Nil

Financial YE 31 December

Major shareholders Hong Fok Land – 20.4% Sim Eng Cheong – 11.6% P. C. Cheong – 11.0% K. P. Cheong – 11.0%

YTD change -34.4%

52-week price range S$0.38-0.64

Our view

Concourse Skyline. In early 2008, Hong Fok announced its plans for a partial redevelopment of The Concourse along Beach Road. Comprising two towers of two blocks each, the new project, called Concourse Skyline, has 360 residential units with a small retail component and an overhead bridge linking directly to the Nicoll Highway MRT Station. The project was launched for sale in September 2008 and has to-date sold 64% at an average price of $1,550 psf although recent sales are in the region of $2,000 psf. We estimate this is $380m in revenue ($72m in pre-tax earnings) from units sold to be progressively recognised until 2013 when the project completes.

International Building. This is Hong Fok’s freehold prime asset at Orchard Road. Including the surface car park at the rear and an adjoining state land bought in 2007, the combined site is about 54,400 sq ft. Hong Fok has a few redevelopment options on hand. It could do a full redevelopment of the enlarged site to yield a potential 335,000 sq ft of GFA, or have a new building built on the vacant state land or surface car park, or both. Based on its existing use, the latest valuation was less than $1,600 psf. In April, the car park was put up for tender to redevelop the site into a new 23-storey office tower. We understand that there were no takers.

Midas Holdings - Our fears confirmed (KE)

A standstill in Chinese rail industry. Our analysis of Midas’s recent results and discussions with management suggest that the Chinese rail industry may be at a virtual standstill following the dismissal of the former head of the Ministry of Railways (MOR) and recent accident investigations.

3Q11 a prelude for next few quarters. As expected, Midas posted a poor set of 3Q11 results following a profit warning. While the market focused on its orderbook, we had warned that the latter is often a fluid process in China, especially when customers are powerful state-owned enterprises. Net profit was down both QoQ and YoY by more than 50% despite capacity expansion. Another worrying aspect is that working capital ballooned to Rmb119m this quarter alone.

Too much uncertainty for now. What essentially happened in 3Q11 was that Midas’s main customer CNR took slower delivery as it, in turn, delivered less trains to MOR due to the various recalls and investigations. Similarly, this was also the cause behind 32.5% metro-manufacturing associate NPRT turning in a loss this quarter.

Don’t read too much into recent MOR measures. With no new orders in sight following the dismissal of the former MOR head, the slowdown in upstream delivery will invariably affect suppliers like Midas, at least over the next three quarters. Much has been made out of recent measures to help MOR raise funds, but this may not necessarily be for new orders.

Downgrade to Sell. We expect things will get worse before it gets better and downgrade our stock recommendation to Sell. We cut our FY11-12 estimates by about 30% to account for slower execution on orderbook (estimated Rmb840m). Our target price of $0.30 is pegged at 8x FY12F, where we expect support from our more draconian SOTP-based worst-case value.