投资, 创业, 工作，休闲路

New windows open as neighbours get cosy

2012-01-06T20:36:00.001+08:00

S'pore and M'sia look to work on projects together, get industries to join hands

By CHUANG PECK MING
IN PUTRAJAYA

DECADES after they went their separate ways, Singapore and Malaysia are poised to get closer to each other than ever before.

Not only will crossing the border become a breeze, but the two countries plan to develop properties together, complement Singapore's manufacturing skills with Johor's abundant labour and pave the way for electricity sales.

'There are many more areas for potential cooperation,' Malaysian Prime Minister Najib Razak told reporters after what he described as 'productive and fruitful' talks with his Singapore counterpart yesterday.

And his guest, Prime Minister Lee Hsien Loong, agreed: 'There should be more new initiatives that should be taken between both countries,' he said at a joint press conference after an hour-long meeting that saw the biggest-ever Singapore delegation turn up at the regular Malaysia-Singapore Leaders' Retreat.

Two-thirds of Singapore's Cabinet ministers were present at yesterday's pow wow.

The Singapore leader said he had proposed that Malaysia, especially Johor which is keen to build up its Iskandar development region, work with Singapore in industrial and manufacturing projects.

Singapore, skilled in manufacturing, and Johor, which is abundant in land and labour, should complement each other in industries, according to him. And the gains will spread to other industries like logistics and create more jobs.

A new work group on industrial cooperation will be set up to promote economic cooperation between Iskandar Malaysia and Singapore.

The Joint Ministerial Committee will also see if ferry and water taxi services can provide another means of linkage between Singapore and Malaysia.

Mr Najib is keen to sell electricity to Singapore, which is building a framework for importing electricity from neighbouring countries. Mr Lee welcomes the initiative.

'Singapore is very open to importing a certain proportion of our electricity,' he said. 'If the terms are right, if it provides us with an attractive offer, which we can't refuse. Of course, we will be happy to buy subject to proper clearance and safeguards.'

On the likely impact on the environment, Mr Lee said: 'That's something we will be taking seriously in mind. It will affect the immediate neighbours of the power station, which causes cross borders implication as well. (It's) something we have to pay attention (to).'

Other likely areas of cooperation which the two leaders explored are:

Digital broadcasts: Aligning the radio frequency spectrum plans for digital broadcast and broadband service in Malaysia and Singapore will allow them to meet growing demand for digital TV and mobile broadband, improve regional mobile roaming and provide competitive mobile broadband services.

Aviation and airport services: A tie-up between Senai International Airport in Johor and Changi International Airport may provide 'synergy between the two airports and spill-over to business enterprises from Malaysia and Singapore'.

Education: The countries may cooperate in higher education, technical and vocational education and teaching and learning of English. Singapore private educational institutions may also set up campuses across the Causeway.

The leaders agreed that with the thorny Malayan Railway Land issue out of the way, Malaysia and Singapore have been able to explore new areas of cooperation, especially in Iskandar Malaysia. And they were happy with the progress of the joint ventures of their respective investment companies, Khazanah Nasional and Temasek Holdings.

These include the Marina South and Ophir-Rochor developments in Singapore and the 'Urban Wellness' and 'Resort Wellness' projects in Iskandar Malaysia.

Other joint projects in connectivity, immigration, tourism and the environment have also gone well, according to the joint statement. The Rapid Transit System (RTS) linking Singapore and Johor Bahru is on schedule to be completed by 2018.

'A tender was jointly called on Nov 18, 2011 to appoint a consultant to undertake a joint engineering study to develop possible alignments and proposals for the RTS link,' the joint statement said.

Mr Najib said once the study's done, Malaysia will go along with the option that's most viable.

Both leaders don't see the projects slowing down, even with slower growth in the world economy. 'Investments are actually proceeding according to schedule,' Mr Najib said.

Mr Lee said the projects are for the long haul, not based on 'quarter-to-quarter fluctuations'.

Joint projects on track despite uncertain global economy

2012-01-06T10:36:00.002+08:00

PUTRAJAYA: Malaysia and Singapore are confident the uncertain global economic outlook will not affect joint venture projects between Khazanah Nasional Berhad and Temasek Holdings which are meant for long term development.

Prime Minister Datuk Seri Najib Tun Razak and his Singapore counterpart Lee Hsien Loong believe their respective countries’ projected economic growth would be sufficient to push the projects forward.

Najib said there were no signs that the overall development of Iskandar Malaysia was slowing down and that the investments were proceeding according to schedule.

“We believe the current economic situation in Malaysia and Singapore would continue at a level that will provide a basis for the private sector to continue to invest in Iskandar, barring something catastrophic,” he said at a joint press conference after the two leaders met at their retreat here yesterday.

Lee said investors in the Khazanah and Temasek projects were interested in the long-term outlook rather than quarter to quarter fluctuations.

He said Singapore, which recorded a growth of 4.3% last year, was expected to see between 1% and 3% growth for 2012, adding that while this was positive, it would also depend on the international scenario.

“The more difficult the external environment, the more important it is for Malaysia and Singapore to cooperate and work closely together,” Lee said.

The two Prime Ministers earlier witnessed the exchange of shareholders agreements between Khazanah and Temasek in relation to the joint investments in M+S Pte Ltd and Pulau Indah Ventures Sdn Bhd.

Owned 60-40 by Khazanah and Temasek respectively, M+S will develop land parcels in Marina South and Ophir-Rochor in Singapore while Pulau Indah, a 50-50 joint venture between Khazanah and Temasek, will develop projects in Iskandar Malaysia.

Khazanah and Temasek also reported to the Prime Ministers on progress made so far, including the appointment of architects and key consultants by M+S for the development of Marina South and Ophir-Rochor.

The two parties are also discussing with banks the financing for projects that have an estimated gross development value of S$11bil (RM27bil). The projects are expected to be completed over the next six years with construction starting in 2013.

Pulau Indah will develop the “Urban Wellness” project, a five-acre (2ha) site in Medini North and the “Resort Wellness” development on a 210-acre (84ha) site in Medini Central.

The gross development value of the projects, which include a wellness centre, serviced residence and a corporate training centre, is estimated at RM3bil.

http://thestar.com.my/news/story.asp?file=/2012/1/6/nation/10212044&sec=nation

Pengerang power plant likely to supply electricity to S’pore

2012-01-06T10:36:00.001+08:00

PETALING JAYA: There is a possibility that the sale of electricity to Singapore may come from a power plant to be built at Petroliam Nasional Bhd’s (Petronas) refinery and petrochemical integrated development (Rapid) complex in Pengerang, Johor.

While details on the sale were scarce at press time, sources told StarBizthat the electricity might come from Petronas’ planned power plant, which the state-owned oil firm’s executive vice-president for gas and power business Datuk Anuar Ahmad said last November was required for the Rapid project.

Prime Minister Datuk Seri Najib Tun Razak said following talks in Putrajaya with his Singaporean counterpart Lee Hsien Loong that Malaysian companies were prepared to sell electricity to Singapore.

The RM60bil Rapid project is expected to be commissioned by end-2016 and have multinational oil and gas companies as joint-venture partners.

Growth path: The electricity deal may be part of a strategy by Petronas to grow its gas and power business. Picture shows an aerial view of Petronas' gas processing plants (centre) in Kertih's Integrated Petrochemical Complex.

Besides the electricity sale, both leaders also announced that Malaysia and Singapore might construct an underground link as an expansion of the proposed rapid transit system between Johor Baru and Singapore.

Analysts believe the beneficiaries of an underground link project would beGamuda Bhd and MMC Corp Bhd, which were joint venture partners in the Stormwater Management and Road Tunnel or Smart project in downtown Kuala Lumpur.

Other areas of cooperation include the alignment of radio frequency spectrum plans for digital broadcast and mobile broadband services, the formation of a new work group on industrial cooperation to promote Iskandar Malaysia and Singapore.

Also in the pipeline are cooperation in aviation services between the Senai International Airport and Changi as well as education services. The electricity deal might be part of a strategy by Petronas to grow its gas and power business after acquiring a 30% stake in GMR Energy Singapore Pte Ltd in late September at an undisclosed price as well as investments in the Kimanis and Lahad Datu power plants in Sabah.

GMR is developing an 800MW combined cycle gas turbine power plant on Jurong island, Singapore while the Kimanis plant would be jointly developed by Petronas Gas Bhd in partnership with Yayasan Sabah through NRG Consortium (Sabah) Sdn Bhd.

The Lahad Datu plant would be built by a Tenaga Nasional Bhd-led consortium together with Petronas and a Sabah state entity.

http://biz.thestar.com.my/news/story.asp?file=/2012/1/6/business/10211890&sec=business

Undersea tunnel mulled

2012-01-06T10:34:00.000+08:00

PUTRAJAYA: Malaysia and Singapore are looking at the possibility of constructing an underground tunnel to connect the two countries.

Datuk Seri Najib Tun Razak, who met his Singapore counterpart Lee Hsien Loong at their retreat here, said the two governments had commissioned a study on a viable option to improve connectivity.

The Prime Minister told a joint press conference: “We have also agreed to expand the study to include the possibility of an underground road connection between the two countries.”

The two leaders came out from their meeting yesterday smiling for the cameras with ties between the two countries, long hindered by the issue ofKTM Bhd land in Singapore, now at a satisfactory level for new areas of cooperation.

Lee said Singapore was also interested in buying electricity from Malaysia if the terms are right.

“Singapore is in the process of working out a framework to manage the import of electricity. Once it is ready, we welcome Malaysian companies to bid to supply electricity to Singapore. We hope some will succeed,” he added.

Najib said the sale of electricity would be a private sector initiative.

Towards better ties: Najib and Lee sharing a light moment during a press conference at Perdana Putra in Putrajaya yesterday.

“I believe the private sector of both sides will be in a position to determine the right price level when the time comes. I don’t see major difficulties,” he added.

The underground connection suggested is apart from the Malaysian proposed ferry service between Tuas and Puteri Harbour and comes under other means of transportation that the two countries are considering.

Najib said these modes of connectivity are in addition to the five new cross-border bus services launched in September 2010 and the Rapid Transit System link between Singapore and Johor Baru, scheduled for operation by 2018.

Lee also proposed that the two countries explore industrial cooperation in Iskandar Malaysia during the meeting, and the two leaders agreed that a new working group be formed under the Joint Ministerial Committee to promote mutually beneficial twinning of economic activities.

Lee said Singapore was a manufacturing country facing constraints of space and manpower, both of which Malaysia has, including in Iskandar.

He said Iskandar could provide industrial facilities and infrastructure that would allow Singapore companies and other investors to operate partly in the republic and Iskandar.

“The benefits are not just industrial (growth) but also spinoffs in terms of logistics, employment, residents, schools and services.

“Najib said this makes a lot of sense and this is something we want to work together,” Lee added.

Lee also called on the private sector to participate and invest in Iskandar as bilateral relations were good.

Other areas of collaboration discussed included cooperation in aviation and airport services between Senai International Airport and Changi International Airport.

The leaders encouraged the respective airport corporations to explore commerciallTy viable cooperation for synergy between the two airports, spilling over to business enterprises in Malaysia and Singapore.

Both leaders also welcomed Singapore-based private academic institutions to explore investment opportunities in education, including setting up campuses in Iskandar and Pagoh.

http://thestar.com.my/news/story.asp?file=/2012/1/6/nation/10213824&sec=nation

Petronas in talks with oil majors for petrochemical tie-ups

2011-12-24T22:55:00.000+08:00

KUALA LUMPUR: Petroliam Nasional Bhd (Petronas) is in talks with several global oil majors including Shell and Exxon Mobil to develop petrochemical plants within its US$20bil refinery complex in Johor, two sources with direct knowledge of the matter said.

The national oil company was also talking to Japanese firms Itochu Corpand Mitsubishi Corp as well as to Dow Chemical Co – the largest US chemical maker – as it sought to tap surging Asian demand and diversify its earnings, the sources told Reuters.

Petronas is expected to make a decision on the partnerships by mid-2012, which signals it is quickly moving beyond the feasibility stage of the project.

“Petronas is getting a lot of interest for the joint-venture undertakings,” said one source who declined to be identified as the talks are ongoing.

“They have moved to the basic engineering and design stage and after this, the tendering process for building the complex will start,” the source added.

Petronas, Shell and Mitsubishi officials in Malaysia declined to comment. Itochu, Dow Chemical and Exxon Mobil were not immediately available to comment.

Petronas first unveiled the Refinery and Petrochemicals Integrated Development (RAPID) project in May and has said the complex would be commissioned by end-2016, which both sources said was on track.

The project is key to Petronas’ plan to join the likes of India’s Reliance Industries in grabbing a larger share in the US$395bil global market for specialty chemicals – high-value raw materials used in products from diapers to higher performance tyres and LCD televisions.

“In terms of markets for petrochemicals coming from RAPID, Petronas is aiming for Myanmar, Bangladesh and parts of the subcontinent,” said a second source. “The potential is there as these are huge markets or in the case of Myanmar, just opening up.”

The RAPID project will include a 300,000 barrel-per-day refinery that produces naphtha, gasoline, jet fuel, diesel and fuel oil.

The first source said the crude feedstock would come mostly from Petronas’ equity projects in Sudan, Chad and eventually Venezuela instead of Malaysia’s own higher quality and expensive crude, domestic production of which is slowing.

The crude feedstock from Petronas equity projects will also be channelled into the petrochemicals and polymer complex, including a three-million-tonne per year naphtha cracker and petrochemical derivatives facility focusing on synthetic rubber.

“Over one million tonnes will be for ethylene and propylene and the rest for high grade specialty chemicals,” said the first source.

“Synthetic rubber is a big thing. Nearly 90% of a tyre is made of synthetic rubber because natural rubber production is declining in Asia, so there is an opportunity for Petronas,” the source added.

The RAPID project gives Petronas’ downstream operations a better chance of staying afloat in times of economic downturns and poor margins as it allows Malaysia’s only Fortune 500 company to tap into its global feedstock sources, analysts say.

“From a Petronas perspective, there is vertical integration opportunity,” said Andrew Wong, lead analyst covering Petronas at Standard & Poor’s in Singapore.

“I think the expectation for a recovery in the petrochemical sector in 2011 did not quite happen due to the external factors and there is concern whether the project will come onstream at a good point in time of the global economic cycle,” he added. — Reuters

http://biz.thestar.com.my/news/story.asp?file=/2011/12/24/business/10156177&sec=business

GIC connection may have given Sunway a leg up

2011-12-21T19:42:00.000+08:00

Purchase of Iskandar land for RM25 psf is cheaper than recent deals in the area

By PAULINE NG
IN KUALA LUMPUR

THE Government of Singapore Investment Corporation (GIC) is believed to have played a significant role in Sunway Bhd's acquisition of 691 acres of land in Iskandar Malaysia for RM745 million (S$305.1 million) or RM25 psf, a transaction viewed as beneficial since it is cheaper than recent land deals in the area.

Analysts were mainly upbeat about the move although somewhat taken aback by Sunway's aggressive foray into the special economic zone.

'We are positively surprised by the size of the land,' CIMB said in a report yesterday, noting that the plot in question is the biggest for property development in Medini to-date.

Another broker, Hwang DBS-Vickers, noted its prime location 'at the southern-most tip' of the node. With infrastructure mostly in place, it will take only five to 10 minutes to drive to the Second Link.

This makes its RM25 psf cost even more impressive, observed Hwang analyst Chong Tjen San, especially when compared to recent land deals of RM38-RM65 psf. 'In our view, GIC's 12 per cent stake in Sunway helped consummate this landmark deal,' he said.

Seen more as a partner now, GIC became a shareholder in the wake of the Asian financial crisis of 1997-98 when Sunway founder Jeffrey Cheah sold equity to raise cash. Mr Cheah remains the biggest shareholder, holding nearly 48 per cent.

Already established in the central and northern regions of peninsular Malaysia, Sunway's entry into the Medini zone - albeit in joint venture with Malaysian sovereign wealth fund Khazanah Nasional - will strengthen its presence in the south.

Moreover, its partnership with both GIC and Khazanah could prove advantageous to its planned mixed development. To be completed over 10 years with 65 per cent residential and 35 per cent commercial components, the project has an estimated gross development value of RM12 billion.

Mr Chong believes the implied pricing of RM400 psf for the residential portion - and some 15-20 per cent higher for the commercial portion - is conservative given its prime location. If earmarked as 'an internationally recognised low-density development with a plot ratio of 1x', it would amount to only a fifth of similar developments in Singapore.

Moreover, UEM Land's recent luxury condo sales saw much higher average prices of more than RM700 psf.

However, Sunway Iskandar is not without risks. The increasing number of developments in Medini - as well as in other parts of Iskandar - is a cause for some concern.

Sunway Iskandar would be located next to a RM3 billion wellness township mixed development on 210 acres at Medini Central by E&O, in joint venture with Khazanah and Temasek Holdings.

RHB Research also observed that the high-end projects would start at about the same time - end-2012 or early 2013 - and aim for the same target market - mainly foreign buyers. Competition will also come in the form of other Malaysian builders in Medini, including UEM Land, WCT and Bina Puri.

Under the deal with Khazanah, Sunway will own an initial 38 per cent of the joint venture company and by additional equity subscriptions increase its stake to 60 per cent in 54 months.

Now you and I can also be an independent power producer

2011-12-13T20:26:00.000+08:00

Households as clean, sustainable electricity producers?

In the mid-1990s, there were only “big” boys in electricity generation such as YTL Corp, Genting Sanyen and Malakoff. They were popularly known as Independent Power producers' or IPPs and were looked upon with envy as it was alleged that they were making big bucks because of relatively high rates they received from TNB.

Fast forward 15 years. Now you and I can also be an IPP (the term “clean and sustainable electricity producer” is preferred) albeit a very much smaller one but with a difference.

Any owner of a link, semi-detached or bungalow house can now be, subject to approval, a small clean and sustainable energy producer by generating green electricity (as opposed to fossil-fuelled electricity by the big IPPs) and distribution licensee (such as TNB) is obliged to purchase it. What all this means is that if you have a solar photovoltaic (PV) generator at home, you can apply to connect this generator to the grid, and get paid for selling the electricity generated to TNB over the next 21 years.

Solar energy is clean, environmentally friendly and has zero emissions. There is no depletion of natural resources and it is one of the fastest growing energy sources in the world.

And yes the rates are very attractive for generating electricity using solar photovoltaic (PV) technology; it is about four times the normal domestic TNB electricity rates (at RM0.40 per kWh). All you have to do is simply to apply and obtain a feed-in approval from the newly-established Sustainable Energy Development Authority Malaysia (Seda Malaysia), sign a renewable energy power purchase agreement (REPPA) with TNB and install the solar PV system on your rooftop.

On the average, the bungalow is able to produce about 1,000 kWh of electricity per month (based on 10kW installed PV capacity). Given this, the owner may earn about RM1,200 per month (based on FiT rate RM1.20 per kWh if the PV system is commissioned by 2012) and recoup his investment within eight to nine years. The earnings may be even higher if the house owner meets other bonus criteria such as installing as a building-integrated PV system. The current cost of 1 kW solar PV system ranges from RM12,000 to RM14,000.

The interesting thing is that for your average household needs, you purchase the electricity from TNB at between RM0.33 to 42.6 per kWh but when you produce the clean electricity, you can sell it at between RM1.20 to RM1.70 per kWh depending on the installed capacity and the qualifying bonus criteria for solar PV.

The longer the sun shines, the more one can “export” electricity to the national grid during daylight hours (when power is urgently needed) and earn income. The downside and risk is that during cloudy days, the income can be reduced significantly when the sun is not shining. If you apply now, you can lock in these premium rates for the next 21 years!

Unlike the huge IPPs which use natural gas or coal as feedstock to generate electricity, the household does not need to pay for any raw material or fuel because sunshine is free. For as long as the sun is shining, the solar PV panels will generate electricity. Another advantage of solar power is that no extra space is required because the panels can be installed on the rooftop. (Suddenly rooftops have income potential. Many factory owners are now contemplating installing solar PV panels on their rooftop to earn extra revenue while others are approaching factory owners to rent them their roofs.)

On Dec 1 2011, Seda Malaysia invited the public including households, small and not-so-big IPPs (maximum size is 30 MW but only 5 MWp rated capacity for solar PV) to apply and book the amount of green electricity they intended to produce to sell it to the distribution licensee. There are fixed quotas for each of the four renewable energy sources namely biomass (including solid waste), biogas (including landfill), small hydro and solar PV. There was overwhelming response to solar PV especially for the non-individuals.

The good news is that bookings are still open for individuals and households intending to install solar PV systems as there is still available capacity for this category. As at Dec 7, Seda reported that the total unfulfilled quota for solar PV is 6,650 kW; 1,650 kW to be commissioned by the first half 2013, 2500 kW each for second half of 2013 and first half of 2014.

Translating these figures into households, it would mean that about 665 bungalow owners can avail themselves to the remaining capacity (assuming their average capacity is 10 kW). If all of the remaining capacity is taken up by semi-detached owners, the number will increase to 1,330 assuming their installed PV capacity is 5 kW. The figure for typical link houses, assuming an installed capacity of 3 kW, is 2,217 households.

The price guarantee for 21 years has been made possible by the Feed-in Tariff (FiT) scheme implemented by Seda Malaysia. This scheme will be financed by the newly-established Renewable Energy (RE) Fund, to which all electricity users (except for those domestic customers consuming less than 300 kWh per month) will be required to contribute an additional 1% of their electricity bill.

House-owners who do not participate in solar PV electricity generation should not begrudge the payment of the additional 1%. Instead they should view it as one of their contributions to a cleaner and healthier environment. This is their social contribution for cleaner air. The public and community must also share in undertaking this heavy responsibility with the Government.

Dr Pola Singh is a board member of the Sustainable Energy Development Authority (Seda), Malaysia. The views expressed are his own. The public can apply for the feed-in approval via efit.seda.gov.my and more information can be obtained from Seda's official portal at www.seda.gov.my

http://biz.thestar.com.my/news/story.asp?file=/2011/12/13/business/10081546&sec=business

Iskandar Malaysia beats investment target: Najib

2011-12-12T20:55:00.000+08:00

Key announcements to come after he meets PM Lee Hsien Loong next month

By MALMINDERJIT SINGH
IN NUSAJAYA, MALAYSIA

MALAYSIAN Prime Minister Najib Razak yesterday announced that the cumulative committed investment into Iskandar Malaysia has reached RM77.8 billion (S$31.9 billion), surpassing its initial five-year target, of RM47 billion by more than 60 per cent.

Mr Najib: Even though 'the prospects for the Iskandar region look brighter than ever', closer links with Singapore could maximise these opportunities for entire region

'So much has been achieved in so short a time, with Iskandar Malaysia already driving the development of a thriving modern metropolis in this southern part of Johor,' said Mr Najib. He was speaking at the fifth anniversary celebrations of Iskandar Malaysia, where he spent the day touring developments in the economic region as well as launching its Five-Year Progress Report.

Ismail Ibrahim, chief executive of Iskandar Regional Development Authority (IRDA), provided a more detailed breakdown of the investments into Iskandar Malaysia. 'Of the total committed investments for the first phase, 59 per cent were domestic investment while foreign direct investment (FDI) made up the remaining 41 per cent, making for a healthy mix of sources of funds.'

According to Mr Ismail, about RM38 billion of the total committed investments have already been actualised and the private sector has played a major role in raising all investments thus far. 'Out of the total cumulative committed investments of RM77.8 billion to date, only RM6.3 billion are funds provided by the government of Malaysia, to fund the development and enhancement of critical enabling infrastructure in Iskandar Malaysia.'

However, he added that the Malaysian government's investment in the region has helped attract more private investments, translating into a ratio of one to 11. 'For every RM1 that the government invests in Iskandar Malaysia, it helps to bring in RM11 of private investment.'

Reflecting this interest from the private sector, 12 new investment commitments were announced yesterday, including a RM100 million agreement with Singapore-based Raffles Campus to develop an international school in Iskandar Malaysia.

While noting the additional 'RM1.73 billion to the current total of RM77.8 billion' these new projects have generated, Mr Najib announced that additional 'RM1.05 billion in projected investments would be generated from the knowledge-economy over the next seven years', as a key pillar of Malaysia's Economic Transformation Programme.

Mr Najib was confident that the private sector participation, domestically and overseas, would allow 'Iskandar Malaysia to continue to thrive' even if growth in this part of the world was set to slow due to the current global economic uncertainties.

'Despite being cautious and preparing ourselves for contingencies, we expect the Malaysian economy to continue growing at a robust 5 per cent in the coming year.'

One of the key strategic imperatives provided in the Five-Year Progress Report to underpin the continued robust growth of the Iskandar Malaysia development over the next five-years and beyond is closer relations with Singapore.

The report said that there was a need to target investors from Singapore and focus on strengthening Iskandar Malaysia-Singapore partnerships in identified growth sectors that can bring mutual benefit so as to attract more capital.

Mr Najib noted this as he said that even though 'the prospects for the Iskandar region look brighter than ever', closer links with Singapore could maximise these opportunities for the entire region. 'Further improvements in links between JB (Johor Bahru) and Singapore will also help create a mutually beneficial economic unit - for in today's increasingly urbanised world, competition is between regions as much as it between countries, and regions must work hard to make themselves truly competitive on a global scale.'

Mr Najib added that due to the strategic location of Iskandar Malaysia, 'there is synergistic complementarity between Iskandar and Singapore' and therefore it makes sense for the two to collaborate in mutually beneficial projects.

He stopped short of identifying these projects and said that these will be announced in January next year when he meets Singapore Prime Minister Lee Hsien Loong for bilateral consultations as there were 'significant announcements to be made then' and he 'did not want to take the shine off them' by talking about them now.

Mr Najib did however say that the resolution of the POA (Points of Agreement) impasse between both countries last year has cleared the way for closer cooperation and that he will be looking to update on initiatives to improve connectivity between Iskandar and Singapore, as well as on an iconic project between both sides in the communique issued when both leaders meet.

NOL (LIM&TAN)

2011-12-09T23:11:00.000+08:00

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)

2011-12-09T20:46:00.000+08:00

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)

2011-12-09T20:45:00.000+08:00

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)

2011-12-09T20:44:00.001+08:00

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)

2011-12-09T20:06:00.001+08:00

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)

2011-12-09T20:03:00.000+08:00

? 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)

2011-12-09T20:01:00.000+08:00

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)

2011-12-09T19:55:00.000+08:00

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)

2011-12-09T19:54:00.000+08:00

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)

2011-12-08T21:09:00.000+08:00

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)

2011-12-08T21:01:00.000+08:00

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)

2011-12-08T20:55:00.000+08:00

? 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)

2011-12-08T20:49:00.000+08:00

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)

2011-12-07T22:40:00.000+08:00

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)

2011-12-07T22:38:00.000+08:00

• 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)

2011-12-07T22:35:00.000+08:00

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)

2011-12-07T22:32:00.000+08:00

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)

2011-12-07T22:26:00.000+08:00

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)

2011-12-07T22:24:00.000+08:00

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)

2011-12-07T22:22:00.000+08:00

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)

2011-12-07T22:21:00.000+08:00

(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)

2011-12-07T22:17:00.000+08:00

(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)

2011-12-07T21:09:00.000+08:00

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)

2011-12-06T23:18:00.000+08:00

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)

2011-12-06T23:15:00.000+08:00

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)

2011-12-06T23:14:00.000+08:00

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)

2011-12-06T23:08:00.000+08:00

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)

2011-12-06T23:06:00.000+08:00

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)

2011-12-06T23:02:00.000+08:00

(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)

2011-12-05T23:42:00.000+08:00

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)

2011-12-05T23:41:00.000+08:00

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)

2011-12-05T23:38:00.000+08:00

BUY

Price S$0.325

Previous S$0.50

Target S$0.44

FIRST RESOURCES - Raising CPO price assumption (DMG)

2011-12-05T23:36:00.000+08:00

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)

2011-12-05T23:34:00.000+08:00

(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)

2011-12-05T23:30:00.001+08:00

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)

2011-12-05T23:30:00.000+08:00

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)

2011-12-05T23:26:00.000+08:00

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)

2011-12-05T23:25:00.000+08:00

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)

2011-12-05T23:22:00.000+08:00

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)

2011-12-05T23:20:00.000+08:00

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.

CDL Hospitality Trust - Favourable risk-reward (CIMB)

2011-12-02T10:22:00.000+08:00

The local tourism scene differs from what it was during the last crisis. Backed by fairly resilient Asian consumption, we expect arrivals and REVPAR to hold up. Investors, however, appear to have priced in the worst with the REIT down 30% from its peak.

We judiciously shave REVPAR, factoring in flat rates, lower visitor growth and hotel occupancy for FY12. This lowers our DPU estimates and DDM-based target price (disc. rate: 8.6%). Maintain Outperform, nevertheless, on a favourable risk-reward trade-off.

Not expecting 2008/9

We deem the local tourism scene different from what it was during the last crisis, with more positives than before. The two integrated resorts are running in full steam and continue to offer different experiences for both leisure and business travellers. There are more attractions to come on top of the government?s continual investments to woo the tourism dollar. 2009 was hit by a double whammy of an economic slowdown and H1N1. Further, with a higher dependence on growing regional economies, we believe visitor arrivals and REVPAR can hold up even as growth in Western economies slows.

Dynamics still positive

We are expecting 3-5% growth in arrivals which should keep occupancy at 84-86%, given a moderate 6% increase expected in rooms next year. Even if arrivals are flat next year, occupancy should remain above 80%, allowing hoteliers to raise rates.

6% yields even if pegged at the worst

We project a moderate 5% decrease in REVPAR, assuming flat room rates and industry occupancy rates, though upside could come from stronger rates after the refurbishment of Orchard Hotel, CDLHT's largest asset. Recent guidance suggests that corporate rates could be pushed up given tight occupancy. The share price, however, appears to have priced in the worst with the REIT down 30% from its peak. Offering a decent 6% yield even if we were to peg its local assets at the levels of the last crisis, we see a fairly attractive entry point.

Singapore Airlines Ltd - Alliance with Virgin Australia (OCBC)

2011-12-02T10:18:00.000+08:00

Maintain HOLD

Previous Rating: HOLD

Current Price: S$10.47

Fair Value: S$10.85

Alliance with Virgin Australia approved. The Australian Competition and Consumer Commission yesterday gave the final approval to the alliance between Singapore Airlines (SIA) and Virgin Australia (VBA), Australia's number two carrier. On top of code-sharing on one another's international and domestic flights under this alliance, SIA and VBA will be able to work together closely on schedule planning so as to provide passengers with seamless flight connections. However, the tie-up will not include VBA's trans-Pacific flights to the USA. In addition, VBA CEO John Borghetti had earlier told the media VBA's alliance with SIA will not diminish VBA's collaboration with other code-sharing partners, possibly restricting the SIAVBA code-sharing from certain Australian cities.

A win-win collaboration. SIA currently flies to the four Australian destinations of Brisbane, Melbourne, Perth and Sydney. With the alliance with VBA, SIA will be able to improve its service offering by providing its passengers with better flight connectivity to more Australian cities. This should increase its passenger volume between Singapore and Australia. On the other hand, VBA sees this alliance as a way to capture a larger market share of the lucrative business travel segment from Qantas Airways (QAN), Australia's flag carrier. By leveraging on SIA's more extensive network, VBA hopes the better connectivity to destinations around the world will attract more business from the corporate travellers. In turn, this potentially increases passenger flow to SIA's flights by connecting VBA's passengers to international locations.

Possible partnership between Qantas Airways, Malaysian Airlines and AirAsia may intensify competition. QAN has been trying to establish closer ties with Malaysia Airlines (MAS) in a bid to gain a bigger foothold in Asia. QAN even sponsored MAS, as a member elect, into the oneworld airline alliance back in Jun 2011. However, the share swap between the majority shareholders of AirAsia (AIRA) and MAS in Aug 2011 has complicated the relationship between QAN and MAS. Latest media reports say QAN is now actively seeking collaboration with AIRA CEO Tony Fernandes. If a partnership between the three airlines materialises, it will provide tough competition to the SIA-VBA alliance.

Maintain fair value of S$10.85 and HOLD. While the alliance with VBA is a positive development for SIA, it is too early to quantify its impact to SIA's bottom line. We maintain our fair value estimate of S$10.85 and HOLD rating on SIA.

Lian Beng Group Ltd - Continuing to add to order book (OCBC)

2011-12-02T10:15:00.000+08:00

Maintain BUY

Previous Rating: BUY

Current Price: S$0.345

Fair Value: S$0.51

Return to familiar grounds. Lian Beng (LBG) announced earlier this week that it has won two new construction contracts, worth a total of almost S$98m. The bigger S$84.5m contract relates to construction work for Mandai Estate, for which LBG holds a 55% stake in. The smaller, but not less significant, S$13.2m contract was awarded by HDB. It is important as it marks the return of LBG to the public residential construction space, where it first made its name. Given the government's intent to supply more HDB flats, we believe this is a more fertile ground for winning construction contracts than before. Management stated that they will continue to tender for both HDB and private construction projects. With its track records in both public and private construction, we believe LBG will be able to refresh its order book.

Development segment getting bigger. LBG has enjoyed fair bit of success in its development business so far. The sales result (>90% sold after its recent launch around 4QCY11) of the Mandai Estate is an example of its acumen for development investments. In its continuing search for attractive development opportunities, the group recently deployed S$260m to acquire 128,076 sqft of commercial area (Midlink Plaza) and 118,943 sqft of residential area (Dragon Mansions), and this increases its development resources substantially.

Change of valuation method to better account for development segment. In view of these recent additions to its development arm, we believe a SOTP valuation (RNAV approach for LBG's development segment and a multiple based approach to value LBG's main construction business) will be more appropriate, as it will allow for better assessment of the value of the development business. Exhibit 1 shows the summary of our SOTP valuation. Combining both the multiple based approach and our RNAV (50% discount) estimation, we yield a fair value estimate of S$0.51.

Still yields an attractive upside. With the latest contracts win, LBG's net order book goes above S$850m. We continue to like LBG for its strong order book, track record in both public and private residential projects and undemanding valuations. We find that despite applying a discount rate to capture the likely economic slowdown ahead, LBG still appears attractively priced. The updated fair value estimate of S$0.51 (previously S$0.55, lower due to change of valuation method) still shows potential upside of about 46%. Maintain BUY.

China Fishery Group Limited (KE)

2011-12-02T10:14:00.000+08:00

Background: China Fishery Group (CFG) is a leading integrated industrial fishing company with access to some of the world’s most important fishing grounds. It typically employs supertrawlers equipped with sonar fish-finding technology and navigation systems to optimise fish yields and minimise wastage. It also has purse seine fishing vessels and fishmeal processing plants strategically deployed along the Peruvian coast.

Recent development: CFG’s recently-reported FY Sep11 results came in slightly below market expectations. Despite robust revenue growth of 27.2%, net profit declined by 11.1% YoY to US$103.7m due to several one-off charges. Gross margin also narrowed by 3.9ppt to 33.1% as a result of an increase in vessel operating expenses arising from higher costs of fuel and a larger fleet.

Key ratios…

Price-to-earnings: 6.8x

Price-to-NTA: 1.4x

Dividend per share / yield: S$0.045 / 4.9%

Net gearing: 61.2%

Net debt as % of market cap: (66.1%)

Share price S$0.910

Issued shares (m) 1,022.3

Market cap (S$m) 930.26

Free float (%) 29.4

Recent fundraising activities Jun’10 private placement to Carlyle Group – 113.5m new shares @ S$1.85/sh, 26.7m warrants @ S$1/sh (S$190m)

Financial YE 28 Sep

Major shareholders Super Investment – 69.8% Carlyle Group – 11.1%

YTD change -59.4%

52-week price range S$0.835-2.360

Our view Successful refinancing of Senior Notes. Notably, CFG’s bottomline was hurt by one-time charges, particularly from the redemption of the Senior Notes. Excluding this non-recurring expense of US$18.7m, core net profit would have been US$122.3m, implying a 5.1% YoY increase from FY Sep10. Nevertheless, the redemption, which was refinanced by a term loan in September this year, is expected to yield significant interest-cost savings for the group in the long run.

Fresh acquisitions. Early last month, CFG announced that it has acquired two Peruvian fishing companies amounting to US$26.16m. We understand that their assets include two fishing vessels and one fishmeal processing plant. The fishing quotas attached to the fishing permits are equivalent to 0.16% of the total fishing quota in the northern zone of Peru and 0.81% of the total fishing quota in the southern zone of Peru. This brings CFG’s share of the total allowable catch of Peruvian Anchovy to 6.21% in North Peru and 11.72% in South Peru.

Strong focus on growth strategy. According to management, the strategic location of the additional fishmeal processing plant in IIo, the most important port city in South Peru, will allow the group to achieve a geographical spread throughout this western South American country and enhance the use of its fishing quota in the region. In turn, this should lead to better economies of scale and higher operating efficiencies of both fishing fleet and fishmeal processing plants.

Undemanding valuation. Along with the recent market volatility, the stock’s valuation has slipped to about 6.8x FY Sep11 PER. A dividend payout of $0.045 was declared, translating to a decent yield of almost 5.0%.

Super Group - Some chinks in its armour (KE)

2011-12-02T10:10:00.000+08:00

Taking profit. Super’s share price has risen by 6% YTD against the STI which has slipped by 13% during the same period. While we are still optimistic on the group’s long-term prospects, we believe this is the right time to take some profit off the table as we discern possible speed bumps ahead.

Lacklustre 3Q11 results. Overall revenue growth of 23% YoY masked the fact that branded consumer sales was up only 4% YoY. With price hikes of 6% YTD, this implied that sales volume was worryingly flat. The weakness was attributed to lower sales in Thailand, a key market making up 30% of Super’s branded consumer sales. Even on a YTD basis, we estimate that gross profitability for branded consumer sales has declined.

Margin optimism overdone. The market may be too optimistic on margins as Super transits from pure consumer sales to duo contribution. During 2008-10 when there were no third-party ingredients sales, gross margins averaged 35%. With increasing revenue from this segment going forward, overall gross margins may not hit market expectations of 33-35% even if raw material prices were to retreat.

Pricing power a test of brand equity. The lack of volume growth in the branded consumer division is more worrying in the light of Super’s recent pricing decisions. This year, Nestle has increased prices in similar markets by about 10-12% to pass on higher costs, stretching its premium over Super to about 15%. In essence, Super is absorbing higher raw material prices to win market share. This may be a part of its longer-term strategic plans but we doubt whether Super’s brands have sufficient pricing power.

Downgrade to HOLD. We revise our estimates, taking into account the Thai floods whose impact will likely be felt in the next two quarters. Our recurring net profit excludes deferred gains of $3m a year from 2007’s property sale (ending FY13). Our target price of $1.485 is pegged at 15x FY12F.

Valuetronics (KE)

2011-12-01T09:08:00.000+08:00

Background: Valuetronics is an electronics manufacturing services (EMS) company focused on an OEM (80% of sales) and ODM (20%) business model. Its management is headquartered in Hong Kong and it has two factories in nearby Guangdong Province in China (Huizhou City and Daya Bay).

Recent development: 1HFY Mar12 revenue registered a positive growth of 26.3% YoY to HK$1,154m but corresponding net profit declined by 1.9% YoY to HK$61.6m. Management said that a slowdown in demand has started to show in its OEM/ ODM business but the effect was partly masked by strong growth from one particular OEM customer this quarter.

Key ratios…

Price-to-earnings: 3.6x

Price-to-NTA: 0.89x

Dividend per share / yield: HK$0.07 / 11.4%

Net cash/(debt) per share: HK$0.163

Net cash as % of market cap: 13%

Share price S$0.205

Issued shares (m) 358.30

Market cap (S$m) 73.45

Free float (%) 45.9

Recent fundraising activities Nil

Financial YE 31 March

Major shareholders Chairman & CEO Ricky Tse – 22.2% Director Chow Kok Kit – 20.8% Director Hung Kai Wing – 10.3%

YTD change -16.3%

52-week price range S$0.190-0.310

Our view

Net margin depressed by higher SG&A. The company incurred higher SG&A expenses due to increased salaries and bonuses. In addition, there was a full-quarter cost effect from the licensing business which commenced in 1QFY Mar12. Half-year net margin fell from 6.7% last year to 5.2% this year.

Brand licensing business did not disappoint. We have been hopeful that the brand licensing business could turn out to be a winner and its performance did not disappoint us. Revenue for this segment showed a sharp 429% YoY growth and a 133% QoQ growth in 2QFY Mar12. The licensing agreements give Valuetronics exclusive rights to use the “Whirlpool”, “Maytag” and “Amana” brands for home appliances in the North American market.

Managing the challenges. Global manufacturing activities are slowing down and weak consumer demand continues to be the biggest threat facing the company. Mass production for a number of new OEM customers is scheduled for early 2012, which may offer some reprieve from the macro slowdown. Valuation for the stock remains relatively cheap at only 3.6x FY Mar11 PER and 0.89x NTA.

OKP Holdings Limited - Near-term prospects to remain healthy (OCBC)

2011-12-01T09:05:00.000+08:00

Maintain BUY

Previous Rating: BUY

Current Price: S$0.525

Fair Value: S$0.640

Pressing ahead with work on new tenders. We recently caught up with OKP's management for an update of their outlook of 2012 and also as a check of our contract win assumptions for the next two years. From speaking with them, we understand that the group has been working on a number of tenders. Given its high tender success rate (c.94% success rate for tenders the group participated in during 2010) and track record, we believe that the group will be successful in some of its tenders, and add more contracts in the near future. OKP's current order book already offers revenue visibility till 2014. More contract wins will provide more assurance to our view that OKP's project pipeline will continue to grow.

Exposure to government spending. Majority of OKP's projects are government-related and LTA is a major customer. As it stands, the government has already shown commitment to several projects to expand the island's road network. An example is the acquisition of the Rochor site, making way for the construction of the 21km North South Expressway. Besides the projects already in the pipeline, we believe there may be more to come. Based on recent history, the government typically increased its construction spending during periods of low economic growth. Following recent downward revision of Singapore's GDP growth forecast, we believe there is an increased likelihood that the government will look to increase its spending. This will be positive for OKP's near-term prospects.

China Sonangol partnership may bear fruit soon. OKP's partnership with China Sonangol (CS) has already resulted in the group gaining a construction contract for Angullia Park. As CS moves towards completion of the acquisition of Amber Towers, we believe this may present another possible area of collaboration between them. Given OKP's strong balance sheet (net cash of c.S$94.7m as of 3QFY11) and its intent to diversify into property development (resolution passed after Sep. 2010's EGM), we see possibility of OKP participating in the Amber Towers project, alongside CS. In addition, we also believe OKP stands to win more residential construction contracts through this, given that their current working relationship.

Maintain BUY. Given OKP's order book of more than S$400m and its gainful position if Singapore government increases infrastructure spending, we continue to believe that the nearterm prospects of OKP should remain healthy. We also like OKP's above peers' margins and undemanding valuations. We re-iterate our BUY rating and maintain our fair value estimate at S$0.64, implying potential upside of c.22%.

Ascendas REIT - In an enviable position (OCBC)

2011-12-01T09:03:00.000+08:00

Maintain BUY

Previous Rating: BUY

Current Price: S$2.04

Fair Value: S$2.23

Good performance expected to continue. Ascendas REIT (A-REIT) had exceeded our expectations for its 2QFY12 results, despite our previous forecasts of a healthy growth in operating performance. Going into 2012, we maintain our prognosis that A-REIT will continue to deliver, thanks to its well-diversified portfolio, and contributions from completed development projects and acquisitions. The group currently holds 94 properties, with a good mix of long and short term leases (48:52) and strong weighted average lease to expiry of ~4.3 years. It also has a pipeline of developments and asset enhancements which are expected to complete in the first quarter of 2012 (e.g. FedEx Singapore Regional Hub, FoodAxis@Senoko). This provides A-REIT with the stability and driver for continued growth in its distributable income.

Occupancy likely to remain resilient. Occupancy rates for 2QFY12 had also held up well, with multi-tenanted building occupancy at 93.0% and overall portfolio occupancy at 96.4%. This represents an improvement in occupancy rates from 92.5% and 96.2% seen in 1QFY12 respectively. While a multitude of factors, including (1) the PMI indicating a contraction in manufacturing for four consecutive months in Oct, (2) softer pace of increase in URA rental indices in 3Q11 and (3) modest GDP growth projection of 1-3% in 2012 by MTI, point to slower growth in economic activity going forward, we believe the impact on A-REIT is likely to be limited. In fact, our check on its historical performance showed that A-REIT had never registered rates below 90.5% and 95.3% for quarterly multitenanted and portfolio occupancy, respectively, over the past five fiscal years (which encompasses the global financial crisis). Thus, we do not expect A-REIT to experience a sharp decline in occupancy in the coming quarters, barring unforeseen circumstances.

Limited credit and cash call risk. As at 30 Sep, A-REIT's aggregate leverage was at 31.5%, a healthy level in our view. Even after funding for all committed investments of ~S$255m (which will see leverage rise to 34.5%), the group still has debt headroom of ~S$555m before reaching the 40% mark. This relatively low leverage places A-REIT in a comfortable position to fund potential investment opportunities and to withstand any negative capital revaluation. According to Moody's recent report on S-REITs, A-REIT's leverage would still come within allowable parameters, and its rating would be safe from downgrade even with a 20% downward revaluation of assets (extreme scenario, in our view). Hence, we also see limited credit and cash call risk at this juncture. Maintain BUY and S$2.23 fair value.

HOTEL PROPERTIES (LIM&TAN)

2011-12-01T09:01:00.000+08:00

S$1.66-HPLS.SI

? HPL's board said they were unaware of reason(s) that could explain yesterday's 16-cent / 8.8% drop in share price on above-average 2.05 mln shares.

? This should "take care" of issues like redevelopment of HPL's properties at Orchard Road (HPL House, Forum, Hilton Hotel).

? However if it should concern the second largest shareholder: Wheelock Prop and its 20% stake, then it is not up to HPL's board to be kept informed.

? Recall Wheelock first bought over Quek Leng Chan / QuocoLand's 20% stake 5 years ago (at around $1.80 a share), which in turn was held on to for 7 years.

? Our last call was a BUY after Ong Beng Seng bought 1.3 mln shares on Aug 31st at $1.96 each. The stock rose to $2.11 on Sept 7th before resuming on its downtrend.

? At 38.5% discount to latest book NAV of $2.70, we recommend adding, while acknowledging HPL remains a game of "patience", and also that most property stocks trade at big discounts to NAV.

STX OSV: NOK1.2b new order is a positive surprise (DMG)

2011-12-01T08:59:00.000+08:00

(NEUTRAL, S$1.125, TP S$1.20)

Raise FY11 EPS and TP; maintain Neutral. New NOK1.2b contract win from the Norwegian Defence Logistics Organisation (NDLO) for the construction of a research vessel lifted YTD order win to more than NOK7.4b (our estimate) and ahead of our forecast of NOK7b. With this new win, we raise 2011 order win forecast to NOK8.5b (+20%) and upgrade our FY11F EPS by 7%. Our new TP of S$1.20 is pegged to an unchanged FY12 target P/E of 7.2x. We maintain Neutral on the stock given 7% upside to our TP.

The news: NOK1.2b order from NDLO. STX OSV announced that they have secured a NOK1.2b order win for the construction of one research vessel for NDLO. With the latest new order, we estimate 2011 total order win has reached NOK7.4b-7.7b and exceeded our conservative order win forecast of NOK7b (excluding NOK3b from Transpetro). The newbuild research vessel is scheduled to be delivered from STX OSV Langsten in Norway in 4Q14.

Analysis: Higher visibility for FY12; raise EPS. We raise our FY12F EPS by 7% to reflect the big order win from NDLO. Our revised FY12-13F EPS estimates are 9% and 16% below consensus mainly on lower margins as we expect EBITDA margins to normalise to 11% by FY13. Based on our earnings model, 74% of our FY12F revenue forecast is backed by secured contracts. We expect more orders in the next six months to make up the remaining unsecured portion but there could be downside risk if vessel buyers stay away due to uncertainty caused by the European debt crisis. Our revised new order forecasts for FY11-12F are NOK8.5b and NOK10b respectively.

Midas Holdings - Investors have taken the last train out; we stay put (CIMB)

2011-11-25T11:04:00.000+08:00

Current S$0.34

Target S$0.36

We visited the company after its dismal 3Q. We expect another 1-2 painful quarters, until railway development recommences. We also believe a cash-strapped Railway Ministry in China will be the industry’s main growth obstacle.

While we maintain our FY11 EPS, we slash FY12-13 to capture slower revenue recognition, and higher operating and financing costs. Our TP falls accordingly, still based on 8x CY13 P/E, industrial peers’ 5-year forward average. However, maintain Neutral as we believe the negatives have been priced in.

Recurring pain

Midas’s 3Q pain could be blamed on slower train deliveries and higher operating/finance costs following its recent capacity expansion. In the aftermath of two railway accidents, the Chinese government had halted railway development. This led to slower deliveries for existing contracts and growing inventories in the industry value chain. Further, a cash-strapped Ministry of Railway (MoR) started withholding payment to its major suppliers. As a result, Midas’s key clients and the industry’s largest paymasters, state-owned locomotive producers CSR and China CNR, have been delaying payments too. Midas’s collection days grew to 311 in 3Q. It had to finance its working capital with short-term financing. We do not see any quick solutions in the near term.

The real issue

Liquidity appears to be flowing back into the industry recently with the MoR repaying CSR and CNR Rmb23bn in arrears. This should alleviate Midas’s cash flow. However, the key issue is whether the MoR still has the ability to fund development projects to meet the targets spelt out in China’s 12th five-year plan. The market does not believe so, judging from the escalating yields on its recently issued corporate bonds. In response to mounting debt concerns, new Railway Minister Sheng Guangzu plans to reduce railway investments by 30%. This could impede growth in the railway development industry.

All priced in

As we believe Midas’s 0.7x P/BV valuations have priced in the negative news, we maintain our Neutral rating.

Frasers Commercial Trust: Expecting better performance in FY12 (OCBC)

2011-11-25T10:29:00.001+08:00

Results within expectations. Frasers Commercial Trust (FCOT) delivered 4QFY11 DPU of 1.52 S cents on the back of a 4.8% YoY growth in NPI to S$24.3m. This brings the full-year DPU to 5.75 S cents, which is roughly within our and consensus expectations of 5.6 S cents and 6.0 S cents, respectively. Key drivers for the quarterly NPI came from strong contributions from Central Park (+26.8%) and Caroline Chisholm Centre (+13.6%), due to improvement in occupancy and rental rates, and strengthening of AUD against SGD. Average 4QFY11 portfolio occupancy rates also tracked a substantial improvement from 90.8% in 4QFY10 to 98.0%, underpinned by healthy rates of 97.8% for Singapore and 99.8% for Australia. As at 30 Sep, we note that the weighted average lease to expiry (WALE) was at a healthy 3.6 years, thanks to long Australian portfolio duration of 6.8 years.

Expecting improving performance. Going into FY12, we maintain our view that FCOT may continue to post improvement in its operating performance, barring any fallout in the office rental market. According to management, 29.3% of the gross rental income is due for renewal, of which 16.0% is attributable to the expiry of China Square Central (CSC) master lease arrangement in Mar 2012. We understand that CSC's average passing rents of S$6 based on the underlying leases is below the recently contracted rents of S$6.30-8.00, while its underlying occupancy is at a strong 95.7%. With management's intention not to renew the lease but to take over the management of the property upon its expiry, we are likely to see further rental growth on this front. This is in addition to the weighted average increase in portfolio step-up rents of 3.9% expected in FY12.

Maintain BUY. Following FCOT's decision to embark on an early re-financing exercise to take advantage of the prevailing low interest rate environment, the group also reported on 22 Nov that it had secured a new A$105m loan facility. We note that this facility, which will be used to repay the outstanding amount of A$103.4m relating to its existing A$150m loan facility, has an interest rate based on Australian BBSY rate plus margin of 1.55% (vs. existing 2.65%). Hence, we may expect DPU uplift from interest savings. We make minor adjustments to our FY12 forecasts to factor in these recent developments. Our DDM-based fair value, however, remains unchanged at S$0.87. Retain BUY on FCOT.

ST Engineering: Recent decline provides better entry point (OCBC)

2011-11-25T10:25:00.000+08:00

Shares hurt by weak market sentiment. Since our last report on 8 Nov 2011, Singapore Technologies Engineering's (STE) share price has fallen 5.3% while the FTSE Straits Times Index (FSSTI) declined 6.0%. This was due to weak market sentiment as a result of the current global uncertainties. Despite announcing a sizable contract win worth S$441m on 18 Nov 2011, its share price has eased 2.5% compared to 1.9% drop in FSSTI. Although STE's earnings are fairly resilient, its share price declined in tandem with the sell-off in Singapore equities, albeit at a lower rate than the broader market.

Clinched S$441m new order. STE last week announced that its American subsidiary, VT Halter Marine, has won a shipbuilding contract from Hornbeck Offshore Services, Inc. This contract is worth US$353m or S$441m. The contract constitutes the construction of eight 97.2m long Offshore Supply Vessels (OSV). VT Halter Marine has started initial engineering work and actual construction of the vessels is expected to begin in 1Q12. Deliveries are scheduled for between Oct 2013 and Sep 2014. In addition, there are options for up to 24 vessels, possibly raising the total value to more than S$1.7b. At end-3Q11, STE's strong order book stood at S$11b. This latest contract win has added at least 4%, depending on the take up of options, to its order book.

EPS growth has been stable. Exhibit 1 shows the YoY earnings per share (EPS) growth of STE and its four main segments of Aerospace, Electronics, Land Systems, and Marine since 2005. While the EPS of individual segments could fall by more than 20% in a difficult year, STE group-wide EPS growth has been fairly stable through the years, including 9M11 when it recorded 7.4% of EPS growth. With the bulk of its revenue well supported by a healthy order book, STE's earnings have been remarkably resilient.

Reiterate BUY. As the global outlook is likely to remain volatile in the coming months, this will mean that the operating environment will be challenging for most corporates. In this climate, we continue to favour the defensive stocks, which will offer a better hedge against any sharp erosion in earnings. As STE's share price has corrected in recent weeks and together with an estimated dividend yield of 5.6%, we reiterate our BUY rating for the stock. We have a fair value estimate of S$3.01.

BreadTalk Group (KE)

2011-11-25T10:24:00.000+08:00

Background: BreadTalk Group was formed 11 years ago and has transformed itself from a local bakery into a multi-brand F&B player across Asia, with more than 500 outlets. Its three main business segments are bakery (own and franchised), food court and restaurant.

Recent development: BreadTalk has entered into a Heads of Agreement to subscribe for $18m junior bonds, including preference shares, with Perennial Real Estate’s subsidiary PRE 8. PRE 8 recently purchased Chijmes for $177m, which the firm could leverage on and secure prime retail space in the future. This is similar to its investment in 112 Katong, the former Katong Mall, in November 2009 when the group subscribed for $10m junior bonds. The project is nearing completion and has secured approximately 95% occupancy rate as of last month.

Our view

3Q11 results. Driven largely by outlet expansion and higher same store sales, BreadTalk’s main segment, bakery sales, grew by 20.4% YoY to $45.9m in 3Q11, while restaurants grew by 37.3% and franchise, 8.7%. Operating margins improved by 5ppt through cost management.

Double-digit growth YoY. The group has consistently achieved double-digit growth in all segments in the past five years. Previously, start-up losses and underperformances from the new restaurant brands and concepts weighed on its profits. BreadTalk has slowed down the opening of restaurants and focused on expanding through the franchise model of its bakery brands, BreadTalk and Toast Box. Since 2008, it has established more than 40 franchised outlets each year.

Thailand Din Tai Fung sees overwhelming response. The first Din Tai Fung restaurant in Bangkok opened in May this year and is already profitable. Encouraged by the response, the group plans to increase its brand offerings by operating food courts and atriums in Thailand.

Healthy cash flow. BreadTalk’s cash flow has remained healthy, buoyed by strong operating activities. The group currently is in a net cash position of $52.8m, which translates to 35% of its market capitalisation. It has also bought back 1.09m shares since June this year for $0.46-0.59 each. We estimate the stock is trading at a discount against its peers’ PER of 17.8x with an annualised PER of 15.8x. This is considered conservative as the last quarter is usually its strongest.

Key ratios…

Price-to-earnings: 13.7x

Price-to-NTA: 2.1x

Dividend per share/ yield %: S$0.01/ 1.9%

Net cash/(debt) per share: S$0.19

Net cash as % of market cap: 35.0%

Share price S$0.54

Issued shares (m) 280.8

Market cap (S$m) 149.9

Free float (%) 41.6

Recent fundraising activities Nil

Financial YE 31 Dec

Major shareholders Quek Tong Meng – 34.0%

YTD change -15.8%

52-wk price range $0.46-0.72

Telekom Malaysia (KE)

2011-11-25T10:20:00.000+08:00

Event

TM’s 3Q11 results were above expectations at the core level, led by strong broadband-related contributions. We raise our FY11-12 forecasts by 11% and 15%, respectively, as we factor in the Axiata share sale gain as well as higher Internet contributions over the next two years. In addition, we lower our beta assumption from 0.9x to 0.86x, in line with recent lower volatility for dividend stocks. Our DCF-derived valuation target for TM thus increases from RM4.60 to RM4.84. Maintain BUY.

Our View

Strong performance at core level. After removing the non-operational and unpredictable items, such as a RM122m unrealised forex loss on long-term US$-denominated bonds, a RM278m gain on the sale of Axiata shares, and a RM60m provision to write off obsolete copper PSTN network assets as TM migrates to an all-IP core network, we estimate 3Q11 core net profit rose by 44.5% YoY to RM182m, well above our expectation of a 20% increase.

Margins continued to surprise on the upside. As alluded to last quarter, TM managed to keep margins on the boil with EBITDA margin reaching 34.6% in 3Q11, driven by strong Internet revenue growth as Unifi accelerated its run rate to add 55,400 subscribers in 3Q11. At 33.7%, 9M11 EBITDA margin is well above earlier guidance of 32%, and management expressed optimism that 4Q margin should be maintained, at the least.

Fixed broadband, especially Unifi, giving TM a new lease of life. Unifi is more than delivering on its earlier potential. As at end-3Q11, TM has signed up 164k subscribers with stable ARPU of RM184 a month and the take-up is still accelerating (run rate so far in 4Q11 is 18.8k vs 3Q run rate of 18.5k). In fact, Unifi is now EBITDA positive. Also, TM has almost the whole field to itself as competitors are still sorting themselves out and rival products are not expected to hit the market until 2H12, at this stage.

Action & Recommendation

Maintain BUY on TM for its increasingly attractive growth profile and appealing dividend yield of 5.9%. TM offers a unique blend of growth and defensive characteristics for investors as superfast broadband gives it a new lease of life.

CapitaLand: China residential headwinds intact, low exposure (OSKDMG)

2011-11-25T10:15:00.000+08:00

(BUY, S$2.46, TP S$3.52)

We paid a visit to China for an update on CapitaLand’s assets in Shanghai, Suzhou and Hangzhou. While we conclude sites acquired through the OODL transaction are in good locations and present a value proposition, we believe any upside potential for CapitaLand regarding its China residential exposure is capped in the near term with policy headwinds intact. That said, we highlight CapitaLand’s only c.14% China residential exposure of which CapitaLand’s poor share price performance, if attributed to concerns over China residential exposure, is largely overdone. The bright spot lies with its commercial/retail exposure through 65% owned CMA. Maintain BUY, TPS$3.52 with stock attractively priced at c.44% discount to RNAV.

Residential headwinds intact. Post site visit with takeaways from management and project sales staff on site, we believe the government has a strong hand at regulating both prices and volume through buying restrictions, lower LTVs and project sales licences. Policy reversal is unlikely in the near term at least till 2H12.

Only c.14% China residential exposure, concerns overdone. We believe investors’ concerns on the China residential segment is likely to persist. However we highlight only c.41% of CapitaLand’s China exposure lies in the residential segment with a residential pipeline of c.24,000 units translating to CapitaLand’s c.14% effective exposure to the China residential segment. With CapitaLand’s poor share price performance underperforming Singapore residential barometer CDL, if largely attributed to investors concerns on the Chinese residential market, is largely overdone in our view.

Positive on OODL transaction post site visit. We gather on-site update on a number of sites OODL transaction eg. The Pinnacle, The Metropolis and the Raffles City Chang Ning site. We conclude sites are in good locations and present a value proposition.

WORLD PRECISION (Lim&Tan)

2011-11-25T10:13:00.000+08:00

BWPM.SI - S$0.515

• At the analyst briefing yesterday management disclosed that they are confident of meeting consensus full year profit estimate of Rmb180mln, implying 4Q’11 profit of Rmb37mln, up 42% from last year’s Rmb26mln.

• While this represents a pick up from 3Q11’s 13% growth rate, it nevertheless represents a slowdown from 1H2011’s 66% growth rate, reflecting the tightening measures in China as well as export slowdown to US and Europe.

• More importantly, management expects 1H2012 to be flattish versus 1H2011 as they are already running close to full capacity at their existing production facilities in Danyang coupled with austerity measures in China and the uncertain macro environment. Their new plant in Shengyang is only expected to start operations in 2H2012 and hopefully by then China will start to loosen their monetary policies to kick-start the economy again. This should help them re-start their growth momentum in 2H2012.

• Management is comfortable with the company’s financial position with cash of Rmb78mln and shareholders funds of Rmb922mln against short term debts of Rmb130mln and long term debts of Rmb130mln. Management disclosed that they still have Rmb300mln worth of credit facilities available to them at 6% interest rate from ICBC. This coupled with their operating cash flow of Rmb100+mln a year should be enough to fund their capex commitment of Rmb200+mln in the next 2 years.

• In line with their historical dividend payout ratio of between 30-40%, management said that they will be targeting to maintain this ratio in Feb’12 when they release their full year results which will translate to a dividend payment of between Rmb54mln and Rmb72mln. At its last close of 51.5 cents, yield is between 5% to 7%.

• At 51.5 cents, market cap is S$206mln, PE is 6x and price to book is 1x. Valuation is right in the middle of its historical trading band.

• Since our Neutral/Hold recommendation in Aug’11, the stock has been flattish and we see no reason to change it.

Spindex (KE)

2011-11-24T11:16:00.000+08:00

Background: Spindex supplies precision-turned machined parts such as shafts, sleeves and fasteners used in imaging and printing, industrial machinery, automotive and consumer products. Imaging and printing products include copiers, fax machines and printers; industrial machinery includes electric drills; automotive includes sensor assemblies, throttle mechanisms and gear shafts; while consumer products include washing machines, irons and fishing rods.

Recent results: Full year to June 2011 results were weakened by forex losses from the soft US dollar, lower write-back for inventory obsolescence and a higher effective tax rate. Net profit fell 39% to $3.7m. However, costs were tightly controlled and balance sheet remained in a net cash position.

Key ratios…

Price-to-earnings: 7.7x Price-to-NTA: 0.5x

Dividend per share / yield: 0.9 SGD cents / 3.6%

Net cash as % of market cap: 53%

Share price S$0.25

Issued shares (m) 115.4m

Market cap (S$m) 28.8

Free float (%) 69.7

Recent fundraising activities Nil

Financial YE 30 June

Major shareholders Tan Choo Pie (24.4%) Peter M. Collery (6.1%) Yeoman Capital (5.9%)

YTD change -28%

52-wk price range S$0.21-0.36

Source: Company

Our view

A mature cash cow. Spindex is a tightly-run company in a mature industry. Its low fixed-cost cost structure gives rise to steady cash flow, which has assured shareholders of a good stream of dividends in the past five years (average 30% payout). Net cash as at June 2011 currently makes up 53% of its market cap. Further, its fixed assets are highly depreciated, which explains why, despite a 39% earnings drop in FY Jun11, gross margin was maintained within the long-term 18-21% band.

New focus. While earnings growth has been lacking in the past few years, Spindex is potentially getting a new lease on life although this is not yet apparent. It has invested heavily in the China automotive sector, jacking up its capex to $5-7m in FY Jun10-11 after holding it below annual depreciation at just $1-2m in FY Jun08-09. Automotive-driven revenue growth has outpaced other industry segments but the overall impact has been masked by the decline in the traditional imaging and printing business.

Betting on China automotive buyers. Spindex sees enormous potential in the automotive industry in China and plans to aggressively expand and market to new customers within this segment. China new car sales are expected to slow next year due to the economic slowdown, tighter monetary policy and increased competition. However, due to the push to go local in car part production, we expect China to remain the world’s biggest and fastest-growing vehicle market.

Cosco Corp (KE)

2011-11-24T11:15:00.000+08:00

Event

Cosco has undergone some routine management changes, with a new president and executive director installed due to its group-wide rotation policy. We see no positive or negative implications from the new appointment. The focus remains Cosco’s muted prospects and the negative sentiment towards the stock. We are cutting our target price to $0.72 on our lowered SOTP valuation, given the weak market outlook. Reiterate SELL.

Our View

Mr Jiang Li Jun has relinquished his position as Cosco’s president and has been replaced by Mr Wu Zi Heng. Mr Wu has been with the Cosco China group since 1982, but mainly in shipping operations. While Mr Jiang was successful in steadying the business at his appointment in 2008, Cosco has not taken any significant leaps forward during his tenure. We do not expect Mr Wu to be able to make any immediate impact, especially in the current weak market environment.

Cosco will continue to execute on its sizeable US$6b orderbook. However, margins will still be depressed due to learning curve issues on the offshore sector. Bulk shipping newbuilds are still dogged by execution issues and low pricing. Our outlook for new order wins is also not positive, and even if there are new contracts, they may be secured at the expense of margins just to utilise capacity.

Our revised sum-of-the-parts valuation of Cosco indicates a lower fair value of $0.72. Key assumptions include an earnings multiple of just 10x for its core FY12F shipyard earnings, while the market value of its bulk shipping fleet is calculated by applying a 50% discount to its book value.

Action & Recommendation

Cosco’s stock price has declined by 13% since we cut our recommendation to SELL. With shipyard multiples set to head lower in the current market environment, we further reduce our target price to $0.72, based on our new SOTP valuation. Our forecasts remain unchanged, supported by the group’s current US$6b orderbook. However, the outlook for bulk carrier newbuilds appears bleak and the offshore market is dead quiet. Reiterate SELL.

Lian Beng: Another new addition for development. (OCBC)

2011-11-24T11:12:00.000+08:00

New addition to the development business. Lian Beng (LBG) recently announced that, through its 50% owned JV, Spottiswoode Development Ltd., it has acquired the site of Dragon Mansion, situated at Blk 14, Spottiswoode Park Road for S$130m. The freehold site has a plot ratio of 2.8 and can potentially be redeveloped into a 36-storey residential development with potential gross floor area (GFA) of 118,943 sqft (including 10% bonus balcony areas). At the stated purchase price, land cost, based on total potential GFA, amounts to c.S$1093 psf. Given the site's freehold status, its prime location near Tanjong Pagar, and the fact other projects at the Spottiswoode area have fetched selling prices around S$2000 psf, we feel the acquisition cost is not excessive.

Continuing search for attractive opportunities. Along with Midlink Plaza, LBG has already deployed around S$260m during the past couple of months for approx. 247,019 sqft of development area (128,076 sqft of commercial area and 118,943 sqft of residential area). Based on our dialogue with management, we found that the group is undertaking these developments partly due to the receipt of returns from OLA Residences and Kovan Residences and also because they believed these sites were priced appropriately and represented good investment opportunities. The management also stressed that while the group will keep a lookout for development opportunities, construction will remain the focus of the group. We believe these developments are positives for LBG, as both are good locations and offer LBG chances to add construction projects to their order books.

Mandai Industrial development selling well. LBG launched the 55%-owned Mandai Industrial development only as recently as the 4Q of CY11 and to date, more than 90% of the development has already been sold. We believe this partly reflects the demand of industrial space but it is also testament to LBG's acumen of investing in property developments. We believe that LBG can also execute its latest commercial and residential developments well.

Impacts will mostly be felt after FY12. Most of the financial impacts of these latest land acquisitions will only be felt after FY12. After speaking to the management, we update our assumptions for strong sales from Mandai Industrial and factor in the additions of these new development resources. This raises our earnings estimates for FY12 and FY13 by c.8% and 17% respectively. Keeping our P/E ratio peg of 5x, this raises our fair value estimate to S$0.55 from S$0.51 previously. Maintain BUY rating.

GREAT EASTERN / OCBC (Lim&Tan)

2011-11-24T11:08:00.000+08:00

GE.SI - S$12.84 / OCBC.SI - S$7.90

• OCBC’s purchase of 490,000 GE shares on Tuesday (when GE traded at $12.86-12.92) may well lead to speculation of a third attempt by OCBC to privatize its insurance subsidiary. (Note that counting on such an outcome after OCBC bought 820,000 shares in Sept’08 would have been off track.)

• OCBC made its first attempt in May 2004 offering OCBC shares for GE. The offer raised OCBC’s stake from 48.7% to 81.1%, making GE its subsidiary.(Note GE was trading at $11.30 when OCBC struck, ie stock is not a lot higher today than 7 years ago; and OCBC then at $4.875 after adjusting for stock split).

• In Jun’06, OCBC offered $16 cash per GE share, raising its stake to 87.10%.

• The question is at what price will OCBC likely try again (just for illustration, at $13, the remaining GE shares not owned would cost $790 mln), taking into account: a. the impact of the resultant goodwill on its capital ratios, which are the highest among the Big 3; b. GE’s embedded value of $7075 mln and NAV of $3828.4 at end 2010 / Sept’11 respectively, vs current market cap of $6077.42 mln.

• Bloomberg records show 4,545,030 GE shares (or only 1% / 7.5% of freefloat) being held by institutional shareholders, such as First State, Vanguard, Putnam, Allianz.

• GE peaked at $22.40 in July’07 (along with global markets before the financial crisis hit), and bottomed at $7.77 in Feb’09. Its stock performance in the last 2 years is not very different from other stocks in the financial sector. But neither has its performance, no thanks to the volatile financial markets.

• GE shares may therefore be worth picking up, especially given the general market weakness. (Note however trading in GE is rather illiquid.)

• We maintain preference for DBS in the sector.

Singapore Airlines - Not much to look forward to (DBSV)

2011-11-23T13:32:00.000+08:00

HOLD S$10.55 STI : 2,717.20

Price Target : 12-Month S$ 10.00 (Prev S$ 11.20)

Reason for Report : Comparison vs 2008/09 crisis

Potential Catalyst: Stronger than expected demand or yields

DBSV vs Consensus: We have reduced our FY12F/13F earnings, which are now roughly line with consensus

• Demand outlook muted as economic woes continue to plague the US and Europe

• FY12 and FY13 earnings cut by 15% and 19% as we lower our yield assumptions

• SIA to remain profitable but only at 5% ROE; balance sheet firm with c.S$3.30 net cash per share

• Maintain HOLD, TP lowered to S$10 (0.9x P/B).

Outlook dimmed by US and Euro zone. With the US expected to continue to register sub-par growth and the Europe region mired in uncertainty, we expect demand from these areas to remain weak. As these two regions account for over 40% of SIA’s passenger business, we project SIA’s carriage growth to be in the low single digit region for the next few quarters.

Unexciting yields on muted demand. Whilst we project the demand-supply mismatch to improve as SIA slows its capacity expansion, and hence for load factors to remain stable, yield recovery has stalled in the last two quarters as demand slackened. We expect SIA’s passenger yield to flatten out for the next 2 quarters before gradually improving in FY13. Factoring in lower yields on account of the uncertain outlook for the US and Euro zone, we cut FY12 and FY13 net profit forecasts by 15% and 19% to S$583m and S$726m respectively.

Plus point is SIA’s strong cash position. SIA’s balance sheet is firm with net cash of c. S$3.30 as at the end of Sep 2011. Whilst the possibility of a special cash payout is diminished as earnings are expected to head lower, the cash should help shore up its share price.

Maintain HOLD, TP cut to S$10.00 Our TP of S$10.00 is based on our current forecasts, which is predicated on our base case scenario of sub-par US growth (2.5% GDP growth for FY12F) and zero growth for the Euro zone. However, if the demand environment worsens significantly, SIA could trade down to -2 standard deviations or about 0.77x P/B, translating to c. S$8.50.

ARMSTRONG (Lim&Tan)

2011-11-23T13:29:00.000+08:00

S$0.245-ARMS.SI

• Armstrong continued its fifth day of share buy backs yesterday after having re-started its buy back program on 16/11/11.

• The company bought 900,000 shares at 23.83 cents, spending $214,470, the most since 16/11/11. While it represented a significant 78% of yesterday’s traded volume, its lower than the previous day’s 88% and 98% achieved on 17/11/ 11.

• Having bought 6,291,000 shares representing 12.5% of the maximum buy back allowed, the company can still buy back 43,929,735 shares. As yet end Sept’11 Armstrong’s cash holdings total close to $25mln versus debts of close to $22mln.

• Since the company re-started its latest share buy back program on 16/11/11, it had bought an average of close to 80% of the daily traded volume. The aggressive buy backs have seen the stock outperforming both its close peer Adampak as well as the market by rising 6.5% (versus Adampak’s 6.3% decline and the market’s 3.3% decline).

• While its continued aggressive buy backs could continue to support the stock, we note that at 1.23x price to book, its at quite a big premium to Adampak’s 1x and is already in line with the market’s 1.25x, and business prospects and profitability remains weak in the near term.

• Coupled with SGX buy back ruling not allowing firms to buy back shares 5% above the last 5 day’s average price (about 24 cents for Armstrong’s case), we are maintaining our Neutral recommendation.

LMA International NV (KE)

2011-11-23T13:28:00.000+08:00

Background: LMA International is a market leader in supraglottic airway management devices that are used to support the airways of patients undergoing surgical procedures. The company sells its LMATM laryngeal mask airway devices in more than 100 countries and has offices in North America, Australia, Germany, Italy, Singapore and Canada, as well as an international distribution network.

Recent development: LMA reported record 9M11 revenue of US$92.7m, representing a 16% YoY increase. Corresponding net profit rose by 71% YoY to US$13.0m if litigation settlement gains and non-cash stock compensation charges were excluded. The good performance was driven by strong market growth in the US and continued demand across other world markets.

Key ratios…

Price-to-earnings: 11.9x

Price-to-NTA: 2.2x

Dividend per share / yield: S$0.01 /3.1%

Net cash/(debt) per share: US$0.053

Net cash as % of market cap: 16.2%

Share price S$0.325

Issued shares (m) 586.612

Market cap (S$m) 190.0

Free float (%) 36

Recent fundraising activities Nil

Financial YE 31 Dec

Major shareholders Robert Gaines-Cooper (27.3); UBS (14.4); Porter Orlin LLC (14.4)

YTD change -1.52%

52-wk price range S$0.270-0.405

Our view

Kulim manufacturing facility to offset price pressures. LMA’s new manufacturing facility in Kulim, Malaysia, is expected to begin operations in 4Q11. Currently planned solely for the production of the LMA SupremeTM, it is expected to reduce production cost for this product by about 30%. This would help mitigate downward pricing pressures and allow overall gross margins to be held steady at about 59-60%.

Three-year sole source supply agreement. LMA recently signed a sole supply agreement for its airway product with Novation LLC, a leading healthcare group purchasing organisation in the US. This enables it to secure 100% of Novation’s airway product orders although it sacrificed a couple of percentage points in margins in order to seal the deal.

Previous acquisitions contributing. In the first half of this year, LMA acquired Wolfe Tory Medical for its atomisation products and Vitaid Limited for its Canadian distribution network. These two acquisitions have started contributing to sales growth in the third quarter. LMA is on the lookout for more synergistic acquisition opportunities with its net cash of US$21.3m.

Stable performance with reasonably cheap valuation. LMA has been delivering stable growth and its current valuation looks reasonably cheap. If 9M11 net profit (excluding litigation gains and stock compensation charges) were annualised, the stock would be trading at FY11F PER of only 7.6x. The company recently bought back 780,000 shares for between $0.31 and $0.34.

CitySpring Infrastructure (KE)

2011-11-23T11:47:00.000+08:00

Event

CitySpring Infrastructure last week appointed a new chief investment officer to lead its hunt for fresh investments. But this move has had no positive impact on the unit price as the company’s balance sheet is still not strong enough for M&A activities despite the recent capital injection. Having underperformed the STI by 12% since the rights issue, CitySpring’s unit price is at an all-time low – 12.7% below the rights price – and it offers a dividend yield of 9.5%. Maintain HOLD and target price of $0.35.

Our View

CitySpring bought Basslink, its first and only acquisition post-IPO, for about S$1.5b in July 2007. Approximately 75% of the acquisition price was funded by the A$ bonds while the remaining 25% was initially funded by a bridge loan then. Since then, the company called two rounds of equity fundraising to address the Basslink-related loans. The dismal acquisition track record and existing debt obligations will make the closing of future deals highly challenging.

Under the new rule 704(31) of the SGX-ST listing manual, CitySpring disclosed several conditions that would cause a default of its loan agreements with DBS Bank, interest rate hedges and other facilities. These include a cessation of Temasek Holdings’ ownership of all units in CitySpring, removal/resignation of trustee-manager and/or more than 50% change in board directors (after Temasek’s stake slips below 20%). Currently, Temasek’s unitholding in CitySpring is 37.4% and the risk of a sell-off weighs on price performance.

Action & Recommendation

CitySpring’s underlying businesses are defensive in nature and have remained stable. Management guided for a full-year DPU of 3.28 cents per share. Our target price of $0.35 is based on the discounted free cash flow-to-equity model using a higher cost of equity of 10.4% (previously 8.3%). Maintain HOLD.

Bumi Armada Berhad: 3Q results within expectations (OCBC)

2011-11-23T11:30:00.000+08:00

3Q results within expectations. Bumi Armada Berhad (BAB)'s 3Q revenue increased by 23% YoY to M$404m while PATMI fell 7.5% YoY to M$93m. Over a nine-month period, revenue and net profit were M$1.2bn and M$235m respectively. Both formed 74% of our full year estimates. The performance across each business segments was varied. BAB's key business segments (i.e. FPSO and OSV) performed very well with substantial growth in both revenue and net profit. In contrast, the Transport & Installation (T&I) business reported a small operating loss of M$8m, largely due to the dry-docking of a vessel. The group also recorded about M$16m of earnings from jointventures, mainly from its ONGC FPSO contract.

FPSO business powering ahead. On a sequential quarter basis, BAB's FPSO revenue increased by 37.5% to M$178m (2Q11: M$129m) while net profit almost doubled to M$65m (2Q11: M$34m), attributable to the recently secured M$1.46b Apache contract. In addition, it is also working on the US$620m ONGC contract. As the contract is secured through BAB's 49.9%- owned joint venture with Bombay-listed Forbes & Company, earnings on the project would be reported on its P&L using equity accounting. With strong market demand, management is looking to secure two good FPSO projects annually over the next few years.

Other segments' results mixed. Its OSV segment performed very well during the recent quarter. Buoyed by high utilization rates (around 90%) and new vessel additions, revenue increased by 14% QoQ to M$134m (2Q11: M$117m), while operating income doubled to M$40m (2Q11: M$20m). However, the T&I segment registered a M$8m operating loss (2Q11: M$25m operating profit), partly due to the dry-docking of Armada Installer to retrofit its pedestal crane. As for the newly set up Oilfield Services (OFS) segment, revenue and profit recognition remained lumpy due to lower volume of work (compared with other segments). For 3Q11, OFS revenue and net profit were M$45m and M$26m, respectively.

Maintain HOLD with M$4.00 fair value. We continue to like BAB's resilient earnings profile; its revenue are backed by an order-book of M$10.3bn (M$7.2bn of firm contracts and M$3.1b of optional extensions). Meanwhile, the stock is set to join the MSCI Malaysia Index at end-Nov 11. We increased our valuation peg to 21x (from 18x previously) and raised our fair value estimate to M$4.00. Maintain HOLD.

Lian Beng Group (KE)

2011-11-22T22:34:00.000+08:00

Event

Lian Beng’s 50:50 joint venture with Centurion Properties bought the 68-unit, freehold Dragon Mansion at Spottiswoode Park for $130m last week. The redevelopment can yield 118,943 sq ft of GFA, implying a sale price of $1,093 psf ppr and an estimated breakeven of $1,580 psf. As a comparison, projects in the primary market in the area, comprising Spottiswoode 18 and Spottiswoode Residences, are selling at a median price of $2,000 psf. Maintain BUY.

Our View

Dragon Mansion was first put up for sale in May with a reserve price of $150-156m but was unsuccessful. It returned to the market in October, gunning for $132-142m. We understand the tender drew a handful of bids but Lian Beng’s bid of $130m came out tops. Two adjacent projects, Roxy Pacific’s Spottiswoode 18 and UOL’s Spottiswoode Residences, are over 90% sold at a median price of $2,000 psf. This bodes well for the redevelopment of Dragon Mansion, which will see little competition. We have yet to factor in any earnings contribution from this project.

The sale of M-Space, Lian Beng’s industrial project at Mandai Estate, has been very positive. A check with the marketing agent SLP International indicates that the project is over 90% sold at an average price of $650 psf. When the project is completed by the middle of next year, we estimate the pre-tax development profit of $30m will give a boost to FY May13 earnings.

With the addition of Dragon Mansion, Lian Beng has an attributable unsold landbank of 84,574 sq ft. We expect the group’s earnings to continue to be largely (over 60%) driven by construction, backed by a strong orderbook of $761m excluding the expected contracts from Mandai Estate ($66m including the construction of worker’s dormitory), Midlink Plaza ($45m) and Dragon Mansion ($42m).

Action & Recommendation

We maintain our BUY recommendation on Lian Beng with a target price of $0.62, pegged at 6x FY May12F PER.

LMA: Turnaround play with attractive upside (OSKDMG)

2011-11-22T22:31:00.000+08:00

(S$0.32, Fair value $0.45-0.54)

The news: We recently hosted LMA to a series of investors’ meetings. LMA is a medical consumables company that designs, manufactures and distributes its proprietary range of supraglottic airway management devices used in anaesthetic operations. The company is a global leader in its category with 75% global market share. One quarter of the world’s operations under general anesthetic employ LMA products.

Key takeaways: (1) Investors like LMA’s dominant position in the laryngeal mask range of airway management devices and its asset-light, cash-generative business model; (2) Under current CEO William Crothers who took over in Jan 2010, LMA has engineered a turnaround in its financial fortunes and reversed the declining earnings trend, through renewed focus on its core competencies in airway products in the anaesthetic arena and stringent cost controls. The result of operational improvements is reflected in a 71% y/y growth in net profit to US$13m (excluding nonrecurring items) for 9M11. This momentum is poised to continue as the company continues to ride on the increasing adoption of its devices over the traditional ET tube which is more invasive for patients; (3) The shift from reusable devices towards single-use devices and increasing penetration in emerging markets will provide the impetus for volume growth in the double-digits range ; (4) LMA’s in-house manufacturing facility at Kulim is expected to be ready by 4Q11 and will be progressively ramped up, reaching full utilisation in mid 2012. This will reduce its manufacturing costs by as much as 30% and eliminate production bottlenecks that it encountered with third-party suppliers.

Our thoughts: The stock is currently trading at 8x FY11 P/E, a large discount to global peers’ 16-20x P/E range. With sustainable growth rate at 15%, its PEG is at an attractive 0.5x. On a 10-12x P/E that better reflects its strong franchise, we estimate fair value at a range of 45-54 cents.

Sakari Resources Ltd - Execution should be on track (DBSV)

2011-11-22T22:27:00.000+08:00

HOLD S$1.99 STI : 2,697.98

Price Target : 12-Month S$ 2.20 (Prev S$ 2.30)

Reason for Report : Field visit to mines

Potential Catalyst: Weather related demand/ supply shocks

DBSV vs Consensus: Our FY12-13F EPS estimates are lower than consensus on lower coal price and margin assumptions

• Mine visit leaves us confident about volume growth prospects, especially at Sebuku

• However, we lower Jembayan ASP assumptions for FY12 as sub-bituminous market loses steam

• Cut FY12 EPS estimate by 6%, maintain HOLD with slightly lower TP of S$2.20

Mine operations inspire confidence. We visited Sakari’s mines at Sebuku and Jembayan in East Kalimantan recently and returned more confident about the volume growth prospects. Sebuku Northern Leases will be the key volume driver and expansion plans are already ahead of schedule. At Jembayan, the growth profile is not as exciting, though, partly due to infrastructure constraints and partly as a measure to go slow amid a well-supplied sub-bituminous coal market.

Expect reserve upgrades in 2H12. Drilling programme at Sebuku Northern Leases is well in progress and we should expect an update on resource/ reserve numbers at Sebuku in 2H12. Initial estimates of resources stand at about 30-40m tons. At Jembayan, 85% of the concession area has been explored, while the current reserves number pertains to about 40% of the area, and hence incremental upgrades to reserves can be expected.

Earnings remain vulnerable to coal price changes. Coal prices have been on a seasonal decline in 4Q11, down 6% QTD to US$114 per ton. While this is expected and does not impact our benchmark coal price estimates, we ascribe a higher discount to Jembayan coal in FY12, as the subbituminous market may not be as tight as earlier expected, with imports from India on a slower growth trajectory. As a result, we cut our FY12 EPS estimate by 6.3% and lower our TP to S$2.20. Maintain HOLD, as earnings remain vulnerable to coal price changes amid macro uncertainties. However, we might turn buyers of the stock at levels below S$1.80 as we reckon SAR is unlikely to trend towards 2008-09 trough valuations again, given a better execution track record, a more robust volume growth profile and potential for improved margins from increased sales of higher quality Sebuku coal.

CapitaLand Limited - Expect a strong launch at Bedok Residences (OCBC)

2011-11-22T13:38:00.000+08:00

Maintain BUY

Previous Rating: BUY

Current Price: S$2.54

Fair Value: S$2.92

Sales to start this week - pricing above expectations. Preview sales for CapitaLand's (CAPL) Bedok Residences would begin this Wed, 23 Nov 2011, and the 583-unit condominium development is priced indicatively at S$1,200 to S$1,400 psf which is somewhat above our expectations. We understand that the launch was originally planned for a balloting system but was switched to a physical queue (first come first serve - one buyer one queue) on Sunday evening. In our view, CAPL likely wanted to get a more concrete sense of buyer response in view of macro-economic uncertainties and a competing launch at Bedok Reservoir by UOL, priced tentatively at S$1,100 psf based on market talk.

Expect a strong launch performance. We visited the show flat area yesterday afternoon, some twelve hours after the announcement of a physical queue system, and found ~500 people already in the line for preview sales. All five groups in the line that we spoke to were hired by agents to wait in the place of buyers. After enquiring with three agents, however, we found they would only hire a replacement to wait in line if we were committed to buy and submitted cheques. From these data-points, we judge that there is robust demand for the launch and expect a strong sales performance in terms of both units sold and average selling prices later this week.

Market likely to react positively. We believe the market would react positively to a strong sales performance as it is likely, at this juncture, not fully priced into the share price, which has faced recent headwinds from increasing macro worries and inflection points in Chinese property prices. Maintain BUY at an unchanged S$2.92 fair value estimate (20 % discount to RNAV).

More details of site. The Bedok Residences project is a JV between CAPL and its 65.5% subsidiary, CapitaMalls Asia, which gives CAPL an 82.75% effective stake. The site was bought for S$788.9m in Sep 2010, and has a site area of 268,047 sq ft with a lease term of 99 years (plot ratio 3.5). The development is located at the junction of New Upper Changi Road/Bedok North Drive next to the Bedok MRT station, and is designed to be an integrated project with a condominium above a one-stop shopping mall and a bus interchange. For the residential component alone, assuming construction cost at S$300 psf , we estimate the breakeven to be ~S$900 psf, returning a 31% gross profit margin at S$1,300 psf ASP.

Sakari Resources - Seeing is believing (CIMB)

2011-11-21T22:47:00.000+08:00

Current S$2.08

Target S$2.71

Previous Target S$2.99

A recent visit to SAR’s mines strengthens our conviction of its expansion-empowered growth. Sebuku is the crown jewel that should propel SAR’s next phase of growth. Steady earnings growth, generous dividends and undemanding valuations make this a stock to own.

We keep our revenue forecasts but cut FY12-13 EPS by 9-20% as our previous cost assumptions were too mild. As a result, our TP, still based on 9.6x CY13P/E, drops. Maintain Outperform, nevertheless, as its risk-reward is attractive.

Sebuku’s promise

We are convinced that Sebuku will be the group’s major earnings driver over the next three years. Northern Leases have surpassed expectations with initial shipments starting earlier than expected.

With profit margins estimated to be double those of Jembayan, the mine’s ramp-up over the next three years should boost overall profitability.

How to support longer-term growth

We believe that coal prices could soften in the near term on the back of slower Indian demand and a spike in supply from Indonesia given favourable weather conditions.

SAR will make use of this time to review its operations and long-term growth strategy. For instance, it is considering the use of larger equipment to overcome infrastructure bottlenecks at Jembayan. These initiatives, hopefully, will prepare the group for capitalising on higher coal prices when markets tighten.

Attractive valuations

We see value following the stock’s recent decline. SAR trades at 10x CY12 P/E (1.3 std deviations below mean), and offers an estimated 45% 3-year EPS CAGR and a generous 5.9% dividend yield.

STX OSV Holdings - Transpetro contract finally made effective (DBSV)

2011-11-21T22:43:00.000+08:00

BUY S$1.09 STI : 2,730.34

Price Target : 12-Month S$ 1.54

Transpetro contracts finally made effective. Over the weekend, STX OSV announced that the contract for 8 LPG carriers for Petrobras Transportes S.A. (Transpetro) has been made effective. Recall that these contracts were originally signed in July 2010, but have not been included in the orderbook. With the contract made effective, this will trigger first down payment and start of the construction and delivery schedule.

NOK3bn boost to orderbook. As a recap, total contract value is c. US$536m (NOK3bn). This will be for the construction of two different types of LPG carriers designed by Hamworthy: 1) fully pressurized LPG carriers – four units with cargo capacity of 7,000m3, two units with cargo capacity of 4,000m3; and 2) two units of semi-refrigerated LPG carriers with cargo capacity of 12,000m3.

Vessels to kick off operations at second Brazilian yard. The construction of these 8 vessels will kick off operations of STX OSV’s second Brazilian yard in Pernambuco, currently under development. Preparatory work for shipyard construction has commenced, with actual shipyard construction to begin by end 2011. While yard construction is expected to conclude in 1Q2014, shipbuilding projects are scheduled to be gradually ramped up from 2013.

91% of FY11 order wins assumption in the bag. This contract will boost the group’s FY11 YTD order wins to NOK8.6bn, forming 91% of our full year order wins assumption of NOK9.5bn. We estimate STX OSV’s orderbook now stands at NOK17.1bn, vs. NOK13.6bn as of end 3Q11, after including the Transpetro contract and the other 2 contracts secured in 4Q11 to date. Book-to-bill has been lifted to c. 1.5x from 1.2x previously.

Boost to longer term earnings visibility. As these vessels will be delivered over 2014-2016, near term impact to earnings is limited, with first revenue contribution expected only in 3Q13. However, this raises longer term earnings visibility, with an estimated 18% of FY13 revenue now backed by secured contracts from 15% previously.

Maintain BUY. No change to our numbers, as this contract was already in our forecasts. However, this removes an ongoing concern among investors over the repeated delays in the contract being made effective. Maintain BUY, TP unchanged at S$1.54.

Sheng Siong Group Ltd (KE)

2011-11-21T22:39:00.000+08:00

Background: Dubbed the IPO darling of the year, Sheng Siong is Singapore’s third-largest grocery retailer after NTUC FairPrice and Dairy Farm. Its stores are primarily located in the HDB heartlands, targeting the lower-income mass market. By year-end, the company will have 25 outlets with a total floor area of 348,000 sq ft.

Recent Development: Sheng Siong is holding steady above its IPO price of $0.33, as it delivered a set of expected 3Q11 results. Revenue slipped by 9.3% YoY to $146.3m and net profit fell by 50.9% YoY to $6.6m. The drop followed the closure of its outlet in Ten Mile Junction in November last year and another in Tanjong Katong in September this year, as well as the absence of one-off investment gains compared with 3Q10.

Our view

Better margins. Gross profit margins edged up by 1.4ppt YoY to 23.1% through better sales mix of higher-margin goods, increased direct sourcing and more bulk purchasing rebates. The company targets to grow its house brand from 300 to 1,000 products in order to capture better margins.

Store expansion on track. YTD, Sheng Siong has begun operations in Thomson Imperial Court (November), Teck Whye (May) and Elias Mall (January). Management said it has secured the lease for its Woodlands outlet, which should open by next month, providing an extra 14,239 sq ft of retail space. The company looks set to increase its retail network to 40 outlets.

Lower sales for full year but bottomline may hold. The full year is expected to deliver lower sales due to a lag in revenue contribution from the new outlets and the closure of two main outlets. However, the company has announced the sale of its property on 3000 Marsiling Road, of which a net gain of $11.34m will be recognised in 4Q11. This should have a positive impact on its net margins overall. Main risks include increased competition and difficulties in securing new rental spaces.

Valuations. The stock currently trades at 17.4x core FY10 PER, still at a discount to its closest peer, Dairy Farm. Sheng Siong is committed to distributing up to 90% of its FY11-12 net profit, which could provide a dividend yield of up to 5%.

Key ratios…

Price-to-earnings: 13.1x

Price-to-NTA: 4.0x

Net cash/(debt) per share: S$0.09

Net cash as % of market cap: 21.7%

Share price S$0.405

Issued shares (m) 1,383.3

Market cap (S$m) 560.3

Free float (%) 15%

Recent fundraising activities Aug’11 – IPO comprising 201.5m new shares @ $0.33

Financial YE 31 Dec

Major shareholders SS Holdings (35.7%) Lim Hock Eng (12.7%)

YTD change nm

52-wk price range S$0.310-0.580

Genting Hong Kong (KE)

2011-11-21T22:36:00.000+08:00

Event

Genting Hong Kong (GENHK) is trading at 37% off the high of US$0.455 on 1 August 2011, near a 52-week low and at about book value. Although it traded as low as 0.24x book value during the financial crisis in 2008, it was then a pure cruise operator struggling with losses. Today, the company’s financial position and corporate focus are vastly different. We reiterate our BUY recommendation and target price of US$0.45.

Our View

Jointly-controlled entity Norwegian Cruise Line (NCL) reported a strong set of 3Q11 results in its traditionally strongest quarter. Corresponding quarterly net profit grew by 18.5% YoY to reach US$110.2m, indicating that there was no major let-up in cruise activities despite the European debt crisis. It further affirms a successful turnaround from its loss-making years between FY06 and FY09. Travellers International, the operator of Resorts World Manila (RWM), registered a 68% YoY increase in 9M11 net profit to P4.2b (about US$97m), with EBITDA of P6.5b (about US$150m). It is on track to achieve our FY11 net profit forecast of US$134.7m.

Adjusted EBITDA for GENHK had already reached US$208m in 1H11, and NCL’s and Travellers’ 3Q11 performance would add another US$136m to this figure, bringing it nearer to our forecast of US$495m for FY11. From a company which was grappling with losses and high leverage a few years ago, GENHK’s position today is vastly different, with contributions from NCL’s turnaround and RWM which opened its doors in August 2009.

In the recent Cruise Shipping Asia conference, industry players estimated that Asian cruise passengers could reach 11m by 2030, from about 1.5m currently. Star Cruises continues to tap on this growing Asian market by expanding its offerings. SuperStar Aquarius has been deployed to ply the Sanya-Vietnam route for the next five months to attract the growing number of mainland Chinese opting for cruise travel. Competitors such as Royal Caribbean Cruises and Costa Crociere also have plans to sail their ships to China next year, but we believe Star Cruises has an added edge in that it is familiar with the Asian market.

Action & Recommendation

We reiterate our BUY recommendation on GENHK with a target price of US$0.45. The stock currently trades at a lower-than-peers FY12F adjusted EV/EBITDA of only 8.0x.

CapitaMalls Asia - Watch for capex (CIMB)

2011-11-18T23:03:00.000+08:00

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)

2011-11-18T22:59:00.000+08:00

(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)

2011-11-18T22:57:00.000+08:00

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)

2011-11-18T22:54:00.000+08:00

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)

2011-11-18T22:52:00.000+08:00

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)

2011-11-17T23:20:00.000+08:00

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)

2011-11-17T23:18:00.000+08:00

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)

2011-11-17T23:17:00.000+08:00

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)

2011-11-17T23:15:00.000+08:00

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)

2011-11-17T23:13:00.000+08:00

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)

2011-11-17T23:11:00.000+08:00

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)

2011-11-17T23:07:00.000+08:00

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)

2011-11-16T20:51:00.000+08:00

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)

2011-11-16T20:46:00.000+08:00

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)

2011-11-16T20:44:00.000+08:00

(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)

2011-11-16T20:39:00.001+08:00

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)

2011-11-16T20:39:00.000+08:00

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)

2011-11-16T20:37:00.000+08:00

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.