Stock Picks

Otto Marine: Buy (DMG, 30 Nov)
Otto Marine (OM) is one of the top 10 Anchor Handling Tug Supply (AHTS) vessel builders in the world, serving a long list of global customers. Current order book stands at S$601m, against S$800m as of end 2008. There have been no new orders this year, but enquiries have picked up considerably over the past few months. In addition to its shipbuilding business, OM also operates ship repair and conversion business. Its future growth driver, however, would be the ship chartering business which utilises vessels that are either wholly owned or owned through strategic partnerships. OM is aggressively growing its highly profitable chartering business which has a gross margin of 42% vs 16% of shipbuilding business for 9M09. Through its wholly owned subsidiaries and strategic partnership firms, OM is chartering its vessels to oil majors globally. Its total charter fleet size is expected to grow from 11 in 2008 to 41 in 2010. Asia, in particular, is expected to spend US$97b between 2009-13 on offshore capex, which translates to strong demand for offshore support vessels. As Asia is expected to become one of the biggest offshore spenders globally, OM, which is based in strategic locations in Asia, is set to ride on the wave of growing demand for offshore support vessels. Based on peers’ 0.63x PEG FY10, we arrived at OM's target price of S$0.525 which represents 12.7x P/E FY10.

Noble Group: Buy (DMG, 30 Nov)
Noble exports a good amount of their key products, in particular soybean, sugar, coal and coke, and iron ore to emerging markets such as China. China imported a net 37m MT of soybean in 2008 and Noble may account for as much as 4% of China's iron ore imports. We believe Noble is well positioned to reap long term benefits from these markets. We forecast Noble Group's core earnings to grow 39.9% in FY10 as commodity prices and tonnage pick up. Average selling prices (ASP) has picked up from the low seen earlier in the year. We forecast a 32% drop in ASP for FY09 before bouncing up 11% in FY10 as global commodity prices are expected to rise with the weakening US$. ASP is expected to grow steadily throughout 2010 should there be no adverse shocks to the economy, and this should help to widen margins. Noble is also expanding their soybean crushing operations in Argentina, doubling crushing capacity to 3m MT annually by Jan 10, as well as sugar and ethanol plants in Brazil, with the Meridiano facility due to be completed in Jun 11, producing 4m MT annually. These and other facilities under development are expected to further improve tonnage volume. Margins are also expected to improve as they benefit from economies of scale. Our target price of S$3.36 is based on 16.1x FY10 P/E which is the average 2010 P/E of Noble's peers Wilmar, Olam, Bunge and Archer Daniels Midland.

Parkway Life REIT: Buy (UOB Kay Hian, 24 Nov)
Parkway Life REIT has completed the purchase of eight nursing homes in Japan for ¥5b (S$77.6m). The properties have high average occupancy rate of 90.5% and the acquisition is yield accretive and provides initial net yield of 8.3%, compared to 6.1% for Parkway Life REIT’s existing portfolio of nursing homes. Parkway Life REIT possesses strong defensive qualities due to long-term leases for healthcare assets. The acquisition further enhances its defensive qualities. We have raised our 2010 and 2011 DPU forecasts by 11.3% and 11.1% respectively to 8.9 cents and 9.0 cents after factoring the contributions from the latest acquisition in Japan. We like Parkway Life REIT for its healthcare focus. It is a hedge against inflation as rental income from hospitals in Singapore and nursing homes in Japan are linked to inflation. We have raised our target price from S$1.65 to S$1.84.

Keppel Corp: Sell (UOB Kay Hian, 24 Nov)
Keppel, through its subsidiary Keppel FELS Brasil, has secured contracts from Noble Corp (Noble) to upgrade and repair two of Noble’s Brazil-based drillships for US$304 million (S$421.6m). Work on the drillships will be done sequentially beginning with the arrival of the first drillship by early-11. The two deliveries are scheduled between 4Q11 and 1H12 respectively. Meanwhile, both parties are in advanced talks on the upgrading of a third Brazil-based drillship operated and majority-owned by Noble. Separately, Keppel FELS has received a Letter of Award (LoA) from PetroVietnam Drillng and Well Services Corp worth about US$200m (S$277.3m). Other contracts pending finalisation are a 60% share of the US$950m Petrobras P-61 contract (Keppel's share: S$790m) and a potential jack-up contract from Rowan (est: US$180m/S$250m). Including these contracts, 2009 could see total new contract wins of S$2.1b for Keppel, a shade above our projection of S$2.0b. Our sum-of-the-parts valuation has already priced in annual contract wins of S$3b. We value Keppel's offshore & marine (O&M) business at a PE of 18x long-term sustainable earnings premised on annual O&M contract wins of S$3b p.a., which translates into an annual O&M net profit of S$250m.

Ascendas REIT: Hold (OCBC Research, 24 Nov)
A-REIT, Singapore's first and largest business space and industrial REIT, has a portfolio of 90 properties with a book value of about S$4.7 billion. We like A-REIT for its attractive dividend yield, diversified tenant base, long-term leases and property development capability. With just one ongoing development project at the moment, this leaves A-REIT with significant headroom of S$280.6m for new development projects. Its balance sheet has been strengthened after two fund raising exercises this year. We expect A-REIT to deliver DPUs of 12.86 cents for FY09/10 and 12.9 cents for FY10/11, translating to DPU yields of 6.84% and 6.86%, respectively. We derive a fair value of S$1.76 and re-initiate coverage on A-REIT with a HOLD rating on valuation ground. We advise investors to accumulate A-REIT at more attractive price levels around the S$1.60 to S$1.70 range.

Hyflux: Buy (OCBC Research, 24 Nov)
Hyflux has announced its first contract in Oman to design and supply a desalination facility for the Salalah Independent Water and Power Project (IWPP). The contract is worth about S$95m. We understand that the desalination facility with an estimated design capacity of 68k m3/day is expected to be completed within 22 months from receiving the notice to proceed. While the IWPP is not expected to have any material impact on Hyflux's NTA or net profit for FY09, (we estimate the IWPP will contribute around S$47m of revenue each in FY10 and FY11), we believe that the project is likely to act as a platform to showcase Hyflux's capabilities in the country as well as the surrounding region. This in turn is likely to lead to more project wins in the near future. For now, we are leaving our estimates unchanged and maintain our BUY rating and S$3.48 fair value.

Hyflux: Buy (Kim Eng, 23 Nov)
Hyflux has unveiled new investment plans for a new innovation centre and production hub in Singapore. This is expected to cost about $120m over the next three to five years. We see this as another testament to Hyflux’s DNA of constant progress. Hyflux has always retained its commitment to research, spending between 5-8% of revenue each year on R&D. The Group already has the largest research team in Asia-Ex Japan. To support its larger project requirements and anticipated market demand, production capacity in terms of membranes and systems will be expanded. The new Hyflux Production Hub will be located at a 7.7 hectares site in Tuas, Singapore. This will integrate Hyflux's production sites and increase production capacity significantly. Since its founding 20 years ago, Hyflux has been constantly breaking new grounds, being an early pioneer of the use of membrane technology for water plant applications. The Group moved into China very early and has since broken into the lucrative Middle East North Africa Region even against strong odds. We adjust our estimates to take into account higher capex, with associated financing costs to be offset by slightly better margins. The Group continues to explore new markets and applications and we do not rule out other rabbits in its hat going forward. We also expect the Singapore government to continue being supportive of the water sector, having identified it as an international niche. Buy with target maintained at $3.52.

Genting Singapore: Buy (OCBC Research, 23 Nov)
Genting has announced the pricing for Universal Studios Singapore (USS) theme park, which will open early next year with 20 of its 24 attractions ready to thrill visitors. A 1-day adult pass will cost S$66 during the weekdays and this goes up to S$72 during the weekends; a similar one for a child (under 12) would cost S$48 and S$52, respectively. It has also a special rate for seniors – S$32 and S$36 for the 1-day pass on weekdays and weekends. In addition, visitors can also opt to pay extra for an "express pass" that offers priority access to all the attractions – this ranges from S$30 on weekdays (non-school holidays) to S$48 (school holiday weekdays) to S$60 on weekends and black-out dates. And for those visitors who want to spend more time at the theme park, they can opt for the 2-day passes (for consecutive days) priced at S$118 for adults, S$88 for child and S$58 for senior. As compared to the other theme parks around the region, we think that the basic pricing point should be pretty attractive enough to draw both local and foreigner visitors. For example, the Warner Bros Movie World in Australia and the Disney Land and Universal Studios in Japan would set an adult back S$90 per day; the USS 1-day adult ticket offers a discount of between 20.1% and 26.7%, depending on whether it is a weekday or weekend pass. Only the Disney Land in Hong Kong is cheaper but not by much – the USS 1-day pass is only 5.5% to 15.1% more expensive. GENTING has also unveiled the pricing for its three hotels at RWS where the deluxe room rates start from S$400 at Festive Hotel, S$450 at Hard Rock Hotel and S$500 at Hotel Michael; its all-suite boutique Crockfords Hotel accepts by-invitation guests only. We note that the actual pricing for both the theme park and hotels are relatively close to our initial estimates of S$64 average for the ticket cost/visitor and an average room rate of S$400 per night. As such, we do not intend to make any adjustments to our estimates yet until we see some operational numbers when RWS officially opens in 1Q10. We are also maintaining our S$1.31 fair and BUY rating on the stock.

Adampak: Buy (DMG, 20 Nov)
Adampak saw 3Q09 sales of US$14.8m (+12.6% qtr-on-qtr; flat year-on-year) while net profit came in at US$2.0m (+36.2% qoq, -10.2% yoy) as the sequential recovery in the hard disk drive (HDD) industry saw the company experience better economies of scale – this had in turn led to higher gross margins. Revenue was inline with our forecasts of US$14.1m although bottomline had exceeded our expectations of US$1.6m as Adampak turned out to be more operationally efficient than we thought. Forecasts issued by the HDD majors, Western Digital and Seagate (both of which are Adampak's customers), have been on a positive note as both still anticipate demand for PCs to be strong. Of note, Seagate is expecting overall industry demand for disk drives to be 153 – 160m units in 4QCY09, a marked improvement over its forecasts of 135 – 140m units during 3QCY09. We therefore believe that Adampak would benefit from this development.While we have opted to be conservative in tweaking our estimates for FY09, we still expect Adampak to record no less than an 18.1% increment in sales and a 37.5% gain in net profit for 4Q09 on a YoY basis – this equates to top and bottomline at US$15.0m and US$2.0m respectively. We have also raised our FY09 net profit forecast to US$6.0m from our previous estimate of US$5.8m. Maintain BUY with an unchanged target price of S$0.295 based on our dividend discount model.

China Fishery: Buy (DMG, 20 Nov)
We visited China Fishery's factory vessel – the Lafayette – at Beihai Shipyard in Qingdao, China. The external upgrading of the ship looks largely completed. However, some of its fish processing machinery is still in the works. Management has estimated that it would take another 10 days to complete the revamp of the vessel, before it sets sail to the South Pacific. Together with five upgraded trawlers an seven catcher vessels, China Fishery expects a total of 13 vessels to reach the South Pacific before the end of the year. The company has to date caught about 20,000 MT of Chilean Jack Mackerel. Fishing season for the South Pacific is from Mar to Nov. We believe that China Fishery's South Pacific operations can achieve our targeted sales volume of 220,000 MT of Chilean Jack Mackerel for FY10. There is currently no quota system in the South Pacific. However, management estimates the quota system to be implemented in 2012. The South Pacific Regional Fisheries Management Organisation (SPRFMO) will limit the total Gross Register Tonnage (GRT) of fishing vessels in the South Pacific by end 2009. China Fishery sees this as a key opportunity to capture market share of the South Pacific and targets to send its 13 vessels by this period. China Fishery's total GRT in the South Pacific would amount to some 85,000 MT, which is roughly 25% of the total GRT of fishing vessels in the South Pacific. Its future quota allocation may take into consideration its GRT contribution in the South Pacific. Our target price is maintained at S$1.55 based on 6.0x FY10 P/E.

Keppel Land: Buy (Kim Eng, 19 Nov)
We gathered from property agents that the VVIP preview for Marina Bay Suites is underway, with the indicative pricing expected to be between $2,000-2,500 psf. There are no shoebox units in this 221-unit development – the smallest 3-bedder with an area of 1,572 sq ft is likely to cost almost $4m. We are keeping our average selling price (ASP) assumption of $2,200 psf for now, and we believe that the pricing is achievable. Phase 1 of the Marina Bay Financial Centre (MBFC) appears on schedule to be completed by 2010. The latest pre-commitment level is 67% (total NLA is 1.6m sq ft), and we expect leasing activities to quicken a couple of months before completion. We think such a prime Grade A development will naturally attract quality tenants. K-REIT's rights-issue to raise $620m just concluded, leaving it with a very low gearing of 9.1%. We postulate that K-REIT may acquire KepLand's one-third stake in MBFC Ph1, which we value at $918m (assuming a capital value of $1700 psf). Assuming it is fully debt-funded, such an acquisition will bring K-REIT's leverage to 37% – still a comfortable level. KepLand could then reinvest most of the proceeds in new residential developments. KepLand's share price has outperformed in the past month and we think it is the start of a re-rating. Its overseas sales are progressing well, its local projects look set to benefit from the IRs and the MBFC is set to be the "location of choice" for tenants. Maintain our BUY recommendation with a new target price of $3.70, pegged at par to FY10 RNAV, as we raise the valuation of its fund management business to 12x.

Hong Leong Finance: Buy (UOB Kay Hian, 19 Nov)
HLF is well-positioned to resume expansion in 2010. It has reach out to retail and SME customers through participation in government's Special Risk-Sharing Initiative (SRI) and has introduced a new housing loan package targeting the HDB market. It has also embarked on a marketing blitz for car loans since Sep 09. According to management, approvals for housing loans and SME loans have increased 10-15% qoq in 3Q09 while approvals for car loans increased by a higher 20% qtr-on-qtr (qoq). Management expects new loans approved to translate to drawdowns in 4Q09. We expect positive loan growth of 9.1% in 2010. According to management, absolute NPLs were relatively unchanged at about S$217m since Dec 08. The resilient domestic economy and healthy unemployment rate of 2.9% has moderated NPL formation. HLF has minimal exposure to manufacturing and export-oriented industries (only 0.5% of total loans), where NPL formation has been more severe during current downturn. We expect HLF's NPL ratio to creep slightly higher from 2.9% Dec 08 to 3.2% at Dec 09 due primarily to contraction in total loans. HLF's lending is usually secured by collaterals. Lending on an unsecured basis represents only 1-2% of total loans. We have imputed loans growth of 9.1% for 2010 and 10.5% for 2011 in our earnings model. HLF trades at P/B of 0.90x and a discount of 9.8% to NAV/share of S$3.28. We believe this is unjustifiable given good asset quality with loans mostly secured by collaterals. Our target price is S$4.32 based on P/B of 1.23x, derived from the Gordon Growth Model (ROE: 8.8%, required return: 8% and constant growth: 4.5%).

Ying Li International Real Estate: Buy (DMG, 19 Nov)
Strong institutional interest for its S$154.5m share placement has re-affirmed our belief in Ying Li's track record of undertaking urban renewal projects and commercial property development in Chongging, China. The placement attracted a sizeable pool of reputable institutional investors, i.e. Legg Mason, JF Asset Management, AIG, Merrill Lynch, UBS Global Asset Management and others. Together with RMB 500m of term loans secured of late, concerns over funding of development expenditure (we estimate at RMB 1.3-1.4 billion) for three key projects (Da Ping Project, International Financial Centre and San Ya Wan Phase 2) should be allayed. We understand that come CY10, Chongqing's local authorities could launch one to two out of the seven available sites covering some 1 million sqm along Wu Yi Road, which is earmarked as the city's new financial centre. We expect Ying Li to bag a majority of the seven properties up for grabs within the city's new financial centre. We believe the Chongqing growth story, of which Ying Li offers the best proxy to, remains intact. Adjusting for new shares, our target price is tweaked downwards to S$1.12 (previously S$1.20), still pegged at parity to end-FY10F base case RNAV.

Yingli International Real Estate: Buy (Phillip Securities, 19 Nov)
Yingli has announced that they have successfully raised S$154.5mil through a placement of 253.2mil new ordinary shares at S$0.61 each to institutional investors. The 253.2mil placement shares represent approximately 13.3% of the existing share capital and approximately 11.7% of the enlarged issued and paid up capital of the Yingli after the placement. About 85% of the funds raised will be used to develop the new Da Ping project with the remaining as general working capital purposes. To recap, Yingli announced the acquisition of the 28,200sqm plot of land in Chongqing through a government land auction for RMB 851.6 million. Yingli intends to develop the Da Ping project into a 370,000sqm of integrated development, with high-end residential, hospitality, as well as high-grade retail component. We view that the successful placement serves as a testament of the company's appeal to the international investment community. Financially, we add in the net proceeds of S$147mil into our RNAV model and adjust for the enlarged share capital. Thereafter, we reduce the target price from $1.270 pre-placement to S$1.170 post-placement to account for the increased number of shares. We maintain our BUY rating.

Li Heng Chemical Fibre Technologies: Hold (Phillip Securities, 19 Nov)
The Group reported 3Q09 revenue decreasing by 49.3% or RMB505.5m to RMB519.3m compared with about RMB1,024.8m in the same period last year. The significant fall in revenue was due to a sharp decline in the average selling prices ("ASPs") of the Group's nylon yarn products from RMB30,900 per mt in 3Q08 to RMB30,950 per mt in 3Q09, representing a decrease in ASP of about 32.2% The decline in ASPs was affected by the global economic crises hitting China's textile and garment industry leading to pricing pressures on all segments of the value chain The Group's topline margins were also significantly impacted by the decline in ASPs resulting in gross profit margins falling by 16.6 percentage points to 14.4% in 3Q09 from 31.0% in 3Q08. Gross profit decreased by RMB243.1m or 76.4% to RMB74.9m in 3Q09 from RMB318.0 in 3Q08. Net profit declined by 84.6% from RMB258.7m in 3Q08 to RMB39.8m this quarter. Besides the reduction in sales and ASPs, the spike up in administrative expenses also led to this shortfall in net profits for this quarter due mainly to testing and trial production of their new polyamide chip production facilities, repair costs for damages on certain building structures caused by Typhoon Morakot and increase in general and administrative expenses. Sales volume also decreased from 31,824 mt in 3Q08 to 24,770 mt in 3Q09 due mainly to the Group shifting their product mix to nylon yarns in finer measurements. This results in overall production and sales volume to decline in terms of tonnage as finer measurements are lighter as they carry less weight. Despite the fact that ASPs seems to be improving Q-o-Q, we do not see any significant catalyst that might significantly improve top and bottomline figures in the near term. We maintain our HOLD call with a downward adjustment in our fair value estimate from S$0.33 to S$0.285 after reducing our forecasted revenue and expense figures.

Swing Media: Buy (DMG, 19 Nov)
Optical disc manufacturer, Swing Media reported revenue of HK$409.5m (+54.7% year-on-year) and net profit at HK$23.3m (+6.4% yoy) as bottomline failed to increase in proportion to topline due to margin pressures. This set of results was slightly below our expectations as we had not anticipated gross margins to drop 5.6 ppt to 11.9% in 1HFY10. Due to robust demand for Swing Media's core DVD-R products, the company had to outsource some of its production needs as its own plants were already running close to full utilisation – this had in turn depressed gross margins. Coupled with rising oil prices that had translated to higher raw material costs for Swing Media, both of these factors had contributed to the margin compression and such issues may also remain going forward. Nevertheless, the company's recent acquisition of a China-based specialist in the installation of solar energy systems in petrol stations may yet prove to be the wild card, although we have not included its potential contributions in our financials. Given that we expect sales to decline on a HoH basis and that margin pressures may also linger, we have adjusted our forecasts for FY10 with revenue now expected to come in at HK$695.3m (-1.4%) while net profit is anticipated to be HK$38.2m (-4.7%). FY11 top and bottomline have also been tweaked to HK$732.5m (-5.8%) and HK$41.6m (-6.7%) respectively. Going forward, despite the company's bottomline growth that is forecasted to be only in the single-digits for the next three years, Swing Media does look undervalued at 0.4x FY10 P/B – we believe that it should trade up to the historical average of 0.7x P/B. We therefore maintain our BUY call with an unchanged target price at S$0.105.

Sinotel: Buy (DMG, 19 Nov)
Sinotel's 3Q09 net profit rose 52.0% year-on-year (yoy) to RMB41.8m, as revenue increased 57.9% yoy to RMB136.2m. The results exceeded our expectations. This was largely driven by Sinotel's early completion of a number of its projects in 3Q. It also secured more contracts in Shanxi province, which accounted for about half its top line. Balance sheet is healthy, with a low net gearing of 0.01x at end 3Q09. China's telecommunications industry has seen considerable developments over the past year, especially after the issuance of 3G licenses in Jan 09. Subscribers in the mobile, Internet and broadband sectors are expected to continue growing. The three Chinese telcos would need to continue to upgrade and maintain their existing networks, to meet the demand for network coverage. According to China's Ministry of Industry and Information Technology (MIIT), the Chinese telcos have spent close to RMB96.1b on 3G during 9M09. They had been expected to spend RMB280b over three years starting from 2009. This indicates ample room for further investment on 3G networks. Apart from new 3G infrastructure, maintenance or enhancement also need to be carried out as new developments within the cities (e.g. new buildings, new railroads or subways) take place. With a good working relationship with the telcos, we think Sinotel would be able to continue to secure contracts with them for upgrading or maintenance works. Given the better-than-expected 3Q performance, we are tweaking our earnings estimates upwards by 3% to RMB137.5m for FY09. We are estimating earnings of RMB147.9m for FY10. Sinotel is currently trading at 5.6x FY10 earnings. Its HK-listed peers (with larger operations) are trading at 9.7x FY10 earnings. Pegging it at a 30% discount to HK-listed peers, or 6.8x P/E, we arrive at a target price of S$0.685.

CNA: Buy (DMG, 18 Nov)
CNA reported an impressive set of results that was within our expectations, with its water business being a significant contributor to earnings. The new business has grown significantly and accounts for 58% of PBT year-to-date. From our estimates, we believe that its share in its water associate is worth more than its entire market cap. Core business will continue to grow on the back of regionalisation.. CNA's revenue was up 28.9% year-on-year (yoy) to S$23.8m, on the back of higher contributions from Middle East and Vietnam. Profit from operations was up 66.3% yoy to S$1m due to the Singapore operations turning around and increased contributions from its Middle East subsidiary. However, the key engine for earnings growth, was unsurprisingly from its 49.9%-owned associate, Standard Water (SWL), which contributed S$2.7m this quarter (versus a loss of S$0.5m a year ago). This jump in contribution was largely due to increased EPC activities for third party BOT projects and write-back of unamortised interest cost of S$0.7m (which relates to receivables from SWL's 50%-owned associate, Crystal Water). Consequently, earnings was S$3.4m this quarter versus a loss of S$0.1m a year ago. CNA's Middle East operations would continue driving core business performance in 4Q, while its Vietnam operations would make meaningful contributions in the longer term as economies of scale are being realised. With the recovery in the global economy, we believe that its core business would continue to grow with new projects that will be rolled-out, thereby boosting its order books, which currently stand at S$80m. Given that SWL has grown rapidly over the years, if it were to list in Singapore and assuming it trades to the industry average of 12x, we estimate CNA’s stake in SWL to be worth ~S$80m. Part of these funds may possibly go towards rewarding shareholders. We have ascribed a target P/E of 8.2x FY10 earnings (55% for its water business valued at 10x and the remaining 45% for its core MEP business at 6x). This works out to a target price of S$0.52.

Kian Ann Engineering: Neutral (DMG, 18 Nov)
Kian Ann Engineering's (KA) 1QFY10 revenue was down 7.8% year-on-year (yoy) to S$36.4m due to weaker demand for replacement parts arising from the global recession. Earnings dropped a marginal 3.5% yoy to S$3.8m, assisted by cost cutting measures that are still in place. Gross margins came under pressure, with more intense price competition, easing by 3.3ppt to 24%. Looking ahead, Malaysia – one of KA's key markets and affected by the slowdown in the timbre industry – is still showing signs of an uptrend in demand for its products. In addition, mining activities in Indonesia, another key contributor of growth in the region, has continued to remain stable despite the economic downturn. We believe 2QFY10 results should be better yoy as the impact of the long holidays during Hari Raya Puasa is reflected in 1Q results, versus it being in 2Q results last year. Barring unforeseen circumstances, KA is likely to have seen the worst of the downturn, with the crisis affecting it the most severely between Nov 08 to Mar 09. Business conditions, while challenging, has seen demand pick up since then. Management is hopeful that average selling prices will be restored within two to three quarters following cuts last year. While KA is likely to see an improvement in earnings on a YoY basis, we believe that earnings growth is likely to mirror the slow pace of global economic growth going forward. Applying our DDM model, we derive a fair value of S$0.17.

SPH: Buy (UOB Kay Hian, 17 Nov)
The Straits Times' Saturday paper gets thicker in November, suggesting there is no pause in advertising spending (adspend) recovery. The Straits Times for the first two Saturdays of November totalled 240 and 246 pages respectively, above the average thickness of 230 pages in October (Sep: 214) and 224 pages in November last year. Singapore Press Holdings (SPH) maintains the ratio of editorial to advertisements at 50:50.
The share price has a close relationship with UOB Kay Hian's page-counts. In our earnings forecasts, we have assumed flat advertising revenue (AR) growth in FY10 (due to base effect) and a growth of 10% and 8% in FY11 and FY12 respectively. Adspend appears to be recovering rapidly. We expect the opening of Singapore's integrated resorts, Marina Bay Sands and Resorts World@Sentosa, in end-Dec 09/1Q10 to boost adspend further as the hospitality and retail sectors ramp up advertising to capture more consumer spending. The bigger picture of AR recovery remains intact. Share price is cum FY09’s final dividend of 18 cents and will become ex-dividend on 9 December. Our target price of S$4.40 implies a 22% upside on the ex-dividend share price of S$3.61. Annual yield is forecast at 6-7%. Maintain BUY.

Singapore Airlines: Buy (Kim Eng, 17 Nov)
SIA maintained its load factor strength in October, with passenger load factors moved up 3.6 points year-on-year (yoy) to 81.1, which is also a 0.2 point mth-on-mth improvement. Significantly, this was achieved on a 6% drop in capacity versus Oct 08, which is a sharp improvement versus the reductions in the mid-to-high teens seen in the earlier part of the year. Passenger traffic grew by 4.4% sequentially. Management also has had the confidence to not cut back capacity as much for the month – it cut passenger seat kilometres by 10.3% over October 08, and raised it by 4% sequentially. Cargo posted a stronger than expected showing, with load factor of 65.4 a 6 point improvement yoy. Capacity was reduced by 13.1% yoy which once again, was less severe than the cuts seen in the earlier part of the year. Loads fell just 4.2% yoy and were up 7.7% sequentially. We believe that this strength is part of stocking up ahead of the festive season. Overall load factors were 71.6, up 4.8 points yoy. Premium travel is also showing signs of bottoming out. During its recent 1H10 briefing, management said that it is seeing more business class travel from the financial sector, as travel rules are relaxed. The main cost component remains fuel. SIA only has 22% of its requirements for the full year hedged at around US$100 per barrel, which is lower than its usual of between 30-50%. Without higher-priced hedges and with capacity cuts, we calculate that SIA's fuel bill will be lower by 35-40% in FY10. October's statistics give us strong confidence that SIA has returned to profitability. Our FY10 forecast stands at S$195.9m, but earnings in the current year have the strong potential to rebound even more sharply than this. We are also expecting a sharp rebound in earnings for FY11 and FY12 onwards where we are forecasting net profit of S$973.2m and S$1203.1m respectively. We maintain our BUY call with a target of S$16.20, based on mid-cycle recovery Price-to-Book valuation of 1.5x.

Oceanus Group: Buy (OCBC Research, 17 Nov)
Oceanus Group's (Oceanus) 9M09 earnings missed our expectations, forming 57% of our full year estimate. 3Q09 sales improved by 9.0% year-on-year (yoy) RMB98.7m. Gains arising from fair value changes declined by 2.0%, coupled with high operating expenses incurred as part of its expansion strategy, this resulted in a 34.4% yoy decline in net profit to RMB104.1m. Management remains confident of its prospects, citing a rebound in abalone prices and robust demand. It expects earnings to improve from 4Q10. We have lowered our estimates and adjusted our numbers to reflect an enlarged share capital from full warrant conversion and the issue of 100m new shares in conjunction with its TDR listing. But our fair value estimate rises slightly to S$0.41 (from S$0.40) as we roll forward our valuations to FY10F NAV. Maintain BUY.

Swiber Holdings: Hold (OCBC Research, 17 Nov)
Swiber Holdings Ltd (Swiber) reported revenue of US$96m (-26.2% year-on-year; -13.4% qtr-on-qtr (qoq) and net profit of US$14.4m (-9.9% yoy, -14.6% qoq) in 3Q09. 9M09 revenue and net profit accounted for 71% and 72% of our full-year estimates respectively. Gross profit margin was lower at 15% compared to 21% in 2Q09. Management attributed the decline in margins to lower revenue (less work this quarter) with the need to maintain significant upkeep. But it appears that Swiber's margins will continue to be dependent on the amount of work it gets, which we note is not entirely within the group's control. Although Swiber's order book has declined to US$440m compared to US$509m in 2Q09, management expects requirements for offshore EPCIC work to improve in the coming 12 to 18 months, and we think there is the possibility of hearing announcements of new contracts as early as the end of this year. We have lowered our fair value estimate to S$0.91 but maintain our HOLD rating.

Tat Hong Holdings: Buy (OCBC Research, 17 Nov)
Tat Hong has released an encouraging set of 2Q10 results. Revenue and operating profit exceeded our expectations, but earnings fell short of estimates due to poor performance of associates and JV. Sales came in at S$121.6m (-33.8% year-on-year; +1.2% qtr-on-qtr), gross profit at S$48.3m (-28.6% yoy, +2.2% qoq), and net profit at S$6.7m (-69.9% yoy, -37.0% qoq). Excluding the impact of non-core items such as forex, earnings would have amounted to S$7.8m. We had anticipated earnings contraction in view of the economic downturn. Tat Hong is confident that the worst is over and expects earnings to recover from 3Q10 onwards. An interim dividend of $0.01 has been declared. Gross profit margin improved by 3ppt yoy and 0.4ppt qoq to 39.8% thanks to fatter margins from its General Equipment Rental unit. EBIT margin, however, slipped 3.5ppt yoy and 2.2ppt qoq as operating costs declined at a slower pace than revenue. Net profit margin was dragged down 6.5ppt yoy and 3.3ppt qoq to 5.5% on account of negative contributions from JV and associates, which turned in a S$2.2m loss vs. a S$4.6m profit a year ago. Weakness was attributed to the expiry of an Indonesia JV, which resulted in a one-off loss from disposal of equipment. We have pared our projections and now expect its JV and associates to be earnings-neutral. The recovery in 2H10 is expected to be driven by both equipment sales and rental. Thawing credit markets should boost capital investments among Tat Hong's customers, while rental rates and fleet utilisation are expected to rebound in 3Q10. In addition to organic growth, we expect the group's medium-term growth to be driven by acquisitions, particularly in China's tower crane market. This follows AIF Capital's strategic investment, which not only strengthens the group's financial flexibility, but also widens Tat Hong's growth opportunities. Tat Hong is poised to leverage on pump-priming infrastructural projects around the region. It is already engaged in Australia's Gorgon project, which is expected to engage a sizable portion of its fleet for at least four years. We maintain our Buy rating and trim our fair value estimate to S$1.12 from S$1.15 on our lower earnings estimate. Key risks include project delays and premature withdrawal of stimulus initiatives.

UOL Group: Buy (OCBC Research, 16 Nov)
UOL has reported a sterling set of 3Q09 results that beat our expectations. Revenue increased to S$323.9m and property development segment was the star performer for the quarter. PATMI turned around from losses of S$20.1m (due to revaluation losses) in 2Q09 to profit of S$105.6m in 3Q09. On a year-on-year (yoy) basis, PATMI grew by 43.6%. Since the beginning of 2H09, UOL has already started replenishing its landbank. Acquisition costs had been reasonable in our view and replenished landbank could sustain the earnings of the property development segment over the medium term. We have now raised our FY09 and FY10 PATMI forecasts by 10.5% and 8.0% to S$515.7m and S$282.8m respectively. Our fair value has also been raised to S$4.16 and this translates to an upside potential of 26.6%. Valuation remains attractive at Price/Book of 0.64x, which has already more than factored in a potential downwards revaluation of its investment properties. We maintain our BUY rating on UOL.

Epure International: Buy (DMG,16 Nov)
Epure's revenue was up 33.3% to reach RMB522.3m, on the back of higher contribution from major turnkey projects and sale of customised environmental equipment. Gross profit margin was weaker dipping from 5.3 ppt to 29.7% – this is due to the difference in the timing of recognition for the various projects. Earnings growth, however, was arrested by a significant jump in administrative expenses (+142.4% year-on-year), thus rising a marginal 5.2% yoy to RMB104.6m. The recent contract win in Hainan where eight wastewater treatment plants' operations were "bundled" and awarded to one party (the first of its kind) could be an emerging trend among other provincial governments. This could indicate similar type of contract wins to come as winning this landmark contract further strengthens Epure's market position and paves the way for it to secure more of such deals as well as more EPC and BOT projects going forward. With that, we believe that these potential order flows will help maintain, if not boost, order books. With the positive industry outlook, we are expecting continued growth in revenue from Epure's project wins. Applying a P/E of 14x to Epure's FY10 earnings, we derive a target price of S$0.75. Maintain BUY.

Kingsmen Creatives: Buy (DMG, 16 Nov)
Kingsmen Creative's 3Q09 net profit declined 9.6% year-on-year (yoy) to S$3.1m, despite revenue rising 24.2% to S$62.9m. The decline in net profit was largely due to forex loss (vs forex gain in 3Q08) and losses from associates, which had recorded a small profit in 3Q08. 4Q09 is expected to be stronger, driven by the completion of its works for Phase 1 of the Universal Studios Singapore (USS) theme park on Sentosa, and increased activity for its interior fit-outs division before the festive season. Kingsmen achieved gross margins of 23.2% in 3Q09, compared with 26.9% in 3Q08. This was attributed to the larger scale projects at USS. Revenue contribution from USS projects is good, but these projects yield lower margins. Its balance sheet remains strong, with a net cash position of S$17.9m (9.2 S¢ per share). Revenue from the Exhibition & Museums division surged 77.7% yoy to S$37.5m, driven by major events in the region during the quarter (such as HK Asian Aerospace, Seoul Airshow and sibos2009), and works completed for USS. We expect the Exhibition and Museums division to continue doing well, supported by upcoming events such as Shanghai World Expo, Phase 2 of USS theme park) in FY10. Its foray into thematic and scenic construction has allowed Kingsmen to secure more thematic and scenic construction contracts. It will be involved in several parcels of works for the Ferrari Theme Park in Abu Dhabi in FY10. Prospects look exciting. Apart from the major events that would be held in FY10 that Kingsmen expects to be involved in, it is also actively working with its clients on outlets that would be opened in 313 Somerset and the Mandarin Gallery. With the Integrated Resorts slated to open in early 2010, Kingsmen expects to be involved in the fit-out of retail outlets at the Marina Bay Sands Shoppes®. We are maintaining our FY09 earnings and target price of S$0.71, based on 9X FY09/10 earnings. Maintain BUY

SingTel: Buy (Phillip Securities, 12 Nov)
SingTel reported a 2Q10 operating revenue of S$4,103m (+5.4% year-on-year) and net profit of S$956m (+10.1% yoy). Its Singapore and Australian operations posted revenue growth of 8.2% and 7.4% in Singapore dollar and Australian dollar terms respectively. Moreover, the share of earnings from its regional associates increased by 31.5% in Singapore dollar terms. This was led by strong performance from its Indonesian associate, Telkomsel. It announced an interim dividend of S$0.062 per ordinary share for 2Q10, which was 10.7% higher than S$0.056 for 2Q09. SingTel's Indian associate, Bharti, is facing stiff competition as new players such as Tata DoCoMo, a joint venture between India's Tata Teleservices and Japan’s NTT DoCoMo, introduced per-second billing plans. The price war is likely to cause Bharti's revenue and profit to grow at a slower rate. The company expects the operating revenue for the Singapore and Australian businesses to grow at single-digit level. Furthermore, it anticipates the earnings of Bharti and Telkomsel to improve for FY2010F although the regional mobile associates are likely to announce lower dividends. At the same time, earnings will be affected by the fluctuations in the Australian dollar and the regional currencies. We maintain our buy recommendation, as we believe in the growth potential of SingTel. SingTel is expected to see an increase in market share in Pay TV after securing the rights to Barclays Premier League (BPL) matches. Moreover, its regional mobile associates are anticipated to grow in terms of acquiring more customers as the global economy picks up. However, we reduce the fair value from S$3.80 to S$3.32 as we lower the expected profit contribution from Bharti due to greater competition in the Indian market.

Golden Agri-Resources: Buy (Phillip Securities, 12 Nov)
GAR reported its 3Q09 results. 3Q09 revenue declined 19% from US$830.8 million to US$672.8 million while 3Q09 net income dropped marginally from US$73 million to US$71.9 million. GAR results were in-line with our expectation. The lower top and bottom lines recorded were due to the lower average crude palm oil prices during the quarter as compared to a year ago. The average international CPO (CIF Rotterdam) price was US$664 per ton for 9M09, approximately 39% lower than the average of US$1,089 in 9M08. GAR's crude palm oil production increased by 8.4% from 1,278,000 tons in 9M08 to 1,385,000 tons in 9M09. This was mainly due to a strong recovery of its fresh fruit bunch ("FFB") production after experiencing the impact of tree stress in the 2H08 until the 1H09. 3Q09 FFB and CPO yield showed outstanding quarter-on-quarter improvements of 15% and 17% respectively. Apart from that, management also shared that the company is on track to increase new planting area of 30,000 hectare this year. Cash and short-term investment swelled to US$446 million from US$138 million as at 31 December 2008. US$216.1 million were raised from the rights issue carried out by the company during the third quarter. GAR has earmarked approximately US$200 million for M&A activities targeted before the end of this year. We continue to like GAR given that it is one of the purest upstream plays in our coverage. We maintained our BUY call with a fair value of $0.53.

Indofood Agri-Resources: Buy (Phillip Securities, 12 Nov)
IFAR reported its 3Q09 results. Revenue came in at Rp 2,481.1 billion (-23.3% yoy) while net profit was Rp 394.6 billion (- 0.9% yoy). 3Q09 profit attributable to equity holders of the company increased marginally from Rp316.5 billion to Rp292.6 billion. 9M09 revenue decreased 27.7% to Rp6,764.8 billion from Rp 9,354.8 billion and 9M09 net income saw a 17.8% decline yoy to Rp1,673.3 billion. The lower top and bottom lines were due to lower average selling prices of CPO, rubber and edible oil products as overall drop in commodity prices from their peaks last year. We have made 2 percentage points upward adjustments to our gross profit margin assumption from 32% to 34% for our FY2009E – FY2011E forecasts in view of the lower cost of production. Profit after tax before revaluation gains for FY09E and FY10E are Rp1, 241.3 billion and Rp1, 411.5 billion respectively. Our DCF model derived target price of S$2.08 offers 19.5% upside. Our fair value estimate implies a forward P/E of 14.6x and 15.8x respectively for FY10E and FY11E. Also, this target price gives us a P/B of 1.7x and 1.5x respectively for FY10E and FY11E. We maintained our Buy recommendation.

Oceanus Group: Buy (Phillip Securities, 12 Nov)
Oceanus is a holding company for two principal businesses aquaculture production and abalone processing and operating of restaurants. The company is the largest land-based abalone producer in the world with 24,500 tanks and an abalone population of approximately 255.3 million. Oceanus sells a big bulk of the abalones in the live market on cash terms and buyers will provide transport as they collect the abalones. In this way, Oceanus will mitigate the credit risks of its buyers and business risks for the transportation of abalones and reduce operating costs. The next platform is through its fast food casual restaurants – Ah Yat Tian Xia. This is a joint venture with Ah Yat Group and the partner is responsible for the management and operations for the casual restaurants. Oceanus believes that the restaurant can be used as a sales platform to distribute the Group's abalones. To finance the expansion of the restaurants, Oceanus has submitted an application to the Taiwan Stock Exchange for the offering and listing of Taiwan Depository Receipts representing an aggregate of up to 200 million shares of the company on the TSE. The TDR Shares shall comprise 100 million new shares and 100 mil vendor shares. The 100 mil new shares can potential raise an additional S$35 mil to the company. We value Oceanus at S$0.480 based on two-stage discounted free cash flow to equity. Currently, Oceanus is experiencing high growth as the biological assets grow in size. Going forward, we expect Oceanus to experience stable growth beyond 2015 as it will consistently cage 150 mil abalones juveniles every year.

SC Global: Hold (Phillip Securities, 12 Nov)
SC Global reported 3Q09 revenue of S$172.6m (+577% year-on-year) and net profit of S$5.4m (-44% yoy). Revenue increased due to the recognition of revenue from AVJennings Ltd, which became a subsidiary in December 2008. However, net profit fell because the profit margins of AVJennings Ltd were lower. We expect SC Global's earnings to increase over the next two years as it recognizes revenue from its residential projects based on the progress of completion. Net profit is estimated to be S$31.4m in FY2009F and this is likely to rise to S$192.1m and S$194.8m in FY2010F and FY2011F respectively. SC Global highlights that the sentiment in the Singapore property market has improved. It has launched 10 units of its latest project, Seven Palms at Sentosa Cove, and sold 7 units. Nevertheless, it expects AVJennings Ltd to face challenges in the Australian market. The luxury property market has recorded poor sales and we expect the trend to continue for the rest of this year and next year. We are concerned that SC Global may have to price its luxury properties competitively to attract buyers. Therefore, we maintain our hold recommendation and fair value at S$1.52, which is 40% discount to the RNAV of S$2.53.

Sing Holdings: Hold (Phillip Securities, 12 Nov)
Sing Holdings reported 3Q09 revenue of $9.7m (+168.7% year-n-year) and net profit of $1.8m (+756.0% yoy). The revenue and profit related mainly to the recognition of proceeds from the sale of BelleRive based on construction progress. Sing Holdings is expected to recognize revenue and profit from its projects, BelleRive and The Laurels over the next three years. Based on our projections, we are anticipating profit of S$4.7m, S$8.5m and S$22.3m in FY2009F, FY2010F and FY2011F respectively. Sing Holdings highlights the return of buying interests in the property market. As a result, it will launch its project, The Laurels, in 1Q10. It is also keen to buy land for property development. We expect a slowdown in private residential property sales after the government announced measures to ban the interest absorption scheme and revive the confirmed list. Moreover, private residential property prices have increased sharply by 15.8% in 3Q09 and we anticipate buyers to be more cautious in purchasing new homes. As a result, we see limited upside for property stocks. Therefore, we maintain our hold recommendation and fair value at S$0.34, which is 30% discount to the RNAV of S$0.48.

Venture Corp: Neutral (DMG, 12 Nov)
Venture saw 3Q09 revenue of S$927.8m (-3.9% year-on-year) while net profit stood at S$38.2m (-4.7% yoy). Although sales were higher than our S$898m forecast, net earnings were below our expectations as we were anticipating S$41.2m. On a more negative note, consensus estimates had been much more optimistic at S$922.3m and S$50.7m for top and bottomline respectively. While sales from the Printing & Imaging (P&I) division had surged 54% yoy, margin erosion was experienced in this segment due to a shift in supply chain management for one of its major customers which we believe is Hewlett-Packard. We are expecting this negative trend to carry forward into 4Q09 at the very least. On the subject of Venture's CDOs, we were also surprised that there were no write-backs registered in 3Q09 despite the global credit markets having improved considerably since end-1Q09. In our opinion, a full write-back of the S$167.8m CDO by end-4Q09 now seems improbable. Nevertheless, positives for Venture remain in the form of its cash generating attributes (cash flow from operations were more than twice of net earnings at S$92.3m) as its cash conversion cycle improved to 54 days in 3Q09 from 64 days. We expect the topline growth momentum in 3Q09 to extend to 4Q09 and are now forecasting FY09 revenue to be S$3,458.2m (+4.7%), although we have reduced our net profit estimate to S$165.5m (-1.0%) due to margin pressures. FY10 forecasts for top and bottomline have also been altered to S$3,681.8m (+6.7%) and S$175.1m (-12.9%) respectively. Currently valued at 14.6x FY10F P/E, we believe that Venture should trade down to its 5-yr historical average P/E of 14.0x. Maintain NEUTRAL with target price of S$8.92 (from S$8.51 previously).

Midas: Buy (DMG, 12 Nov)
Midas has posted 3Q09 revenue at S$37.0m (+3.0% year-on-year; -2.1% qtr-on-qtr) and net profit of S$9.4m (+17.4% yoy, -0.2% qoq) which was generally inline with our expectations as we were anticipating relatively flat numbers on a sequential basis. The decrease in raw material costs had boosted margins in 3Q09 and we believe that this trend could stay for 4Q09 – we therefore now forecast 4Q09 sales and net profit to be S$36.4m (+7.4% yoy, -1.6% qoq) and S$10.2m (+21.4% yoy, +8.3% qoq) respectively. Our bullish stance on Midas remains unchanged as we continue to believe that FY10 is set to be a record year for the company. Midas' aluminium extrusion lines – which are expected to attain an annual production capacity of 50,000 tonnes by end-2010 – is set to fulfil its huge order book of some RMB1.3b. Furthermore, Midas may also be in the pipeline to secure more contract wins for additional high-speed train cars, given that the Ministry of Railway in China is still in the midst of awarding such contracts. We are tweaking our forecasts to reflect the better margins expected for 4Q09 and the potential changes to the SGD/RMB currency pair in FY10. FY09 revenue is now estimated to be S$142.6m (+5.8%) while net earnings is forecasted to be S$37.6m (+4.7%) – top and bottomline for FY10 have also been slightly altered to S$208.7m (+5.8%) and S$55.2m (+2.2%) respectively. Midas currently trades at a 17.7x blended FY09/10 P/E while its peers are priced at 22.2x blended FY09/10 P/E, assuming Midas trades up to such a valuation, we maintain our BUY recommendation and increase our target price to S$1.07 (from S$1.05 previously).

Midas Holdings: Buy (Kim Eng, 11 Nov)
Midas' 3Q09 results were largely in-line with our expectations, except for lower than expected contributions from its associate Nanjing Puzhen Rail Transport (NPRT). Revenue was down 3.9% and net profit was up 17.4% to $9.4m on a year-on-year (yoy) basis. The Group declared its third interim cash dividend of 0.25 cents, maintaining its stable dividend policy. Despite the lack of contributions from NPRT, core operations remain robust, with 9M2009 profits from operation up 13% yoy. We believe this was mainly achieved through operational efficiencies since production tonnage is still constrained by capacity. While gross margins grew from 34% to 41%, this is mainly a function of lower aluminum costs in 2009.
Having expected its metro-manufacturing associate to contribute more substantially in 2H09, its contribution of $0.9m in 3Q09 appears to be below our expectations. This is due to lower than expected delivery of metro cars because of teething problems in its operations. However we do note that lumpiness will arise due to its policy of revenue recognition upon delivery. Midas has received its net placement proceeds of $89.5m during the quarter which it will use mainly to fund its capacity expansion plans. With the addition of its 4th and 5th extrusion lines by FY10, we expect the Group to be in a good position to win further contract from the 2nd round tender of high-speed train contracts, which could come in 2009. With 9M2009 net profit accounting for 70% of our FY09 estimates, we keep our forecasts intact. We expect its robust core operations to make up for the possible short-fall of contributions from NPRT. We maintain our target price of $1.15 which is pegged to 20X FY10E.

StarHub: Sell (Kim Eng, 11 Nov)
Despite flat revenue, StarHub's 3Q09 profit rose 7%, driving 9M09 growth to almost 10%. Although 3Q09 profit would have dipped 1% if not for sequentially lower operating lease costs, EBITDA margin of 33.4% is above company guidance of 32%. However, two recent actions may be the giveaway that the company is running scared of losing both its subscribers and investors. First, StarHub will propose formally that SingTel allow it to screen future BPL matches for free. While it sounds noble, SingTel's agreement would also prevent wholesale subscriber defections and prevent an unravelling of its hubbing model. Second, effective 3Q09, the quarterly dividend will be raised to 5 cents for the rest of 2009 and 2010 as well. This hike is obviously aimed at preventing investors from bailing as well. We doubt SingTel will take up StarHub's offer as the latter's worst fears are probably exactly what SingTel wants to do – grab StarHub's users and build its own hubbing proposition, which will be critical for BPL to pay its way given the likely exorbitant price SingTel paid. However, StarHub may have more success with investors as a 20 cent dividend dangles the promise of a 10% annual yield. Having clinched BPL at a high cost, SingTel will likely use its deeper pockets to build up content that rivals StarHub. The next prize it will likely target is the World Cup in Jun 2010. Other major content prizes include HBO and the Discovery Channel, which could be coming up for renewal as well. In the short term, the stock may respond positively to expectations of a higher dividend, although we note that it is not set in stone and may change according to circumstances. Fundamentally, the outlook is still murky, with negative catalysts including (1) loss of more content to SingTel, (2) higher Pay TV churn, and (3) defections by mobile and broadband users to SingTel as well. Sell. Fair value at $1.80

StarHub: Buy (OCBC Research, 11 Nov)
Starhub reported a better-than-expected set of 3Q09 results; revenue came in at S$537.1m (+2.4% year-on-year; and 0.9% qtr-on-qtr ) vs. our forecast of S$534.0m; net profit came in at S$85.2m (+7.3% YoY and 9.4% QoQ) vs. our S$78.1m estimate. StarHub has increased its quarterly dividend from S$0.045 to S$0.05 per share. This is expected to continue into FY10. Going forward, management has kept its guidance for 4Q09 but we are more concerned about the loss of its EPL and ESPN and STAR Sports content from mid-2010 onwards. While we have adjusted our FY09 earnings forecast by 2.2% to reflect the higher 9M09 performance, we have lowered our FY10 forecasts by some 11.4% to 12.8%, our DCF-based fair value eases from S$2.88 to S$2.29. But given the combined upside potential of 23.8%, we maintain our BUY rating.

Singapore Airlines: Buy (Kim Eng, 11 Nov)
SIA posted a net loss of S$158.8m for 2Q10, versus a profit of S$323.8m for 2Q09. However, this was a sequential improvement over 1Q10's loss of S$307.1m. Nevertheless, this recovery is below our expectation of around breakeven, with the variance due to higher than expected fuel costs on more expensive hedges. Revenue for the quarter declined 29.6% year-on-year (yoy) to S$3,082.1m, but, more tellingly, was a 7.3% improvement over 1Q10, indicating a recovery from its trough. Passenger yields were weak at 9.8 for 1Q10 versus 12.8 in 1Q09 and 10.2 in 1Q10, but not unexpected, due to discounting in order to fill capacity – consequently, loads have thus improved by an impressive 13.9% sequentially. Cargo yields remained steady at 28.7, versus 27.2 in 1Q10. Overall unit costs were flat at 54.9cts/ctk, versus 54.1 in 1Q10. SIA also recorded a fuel hedging loss of S$200m, which while improved over 1Q10's S$287m loss, was higher than expected. Management has indicated that for the second half of the year, about 20% of its fuel requirements (or 3.5m barrels) has been hedged at US$100 per barrel, versus current spot rate at around US$85. Essentially, SIA has missed out on significant fuel savings from lower oil prices due to hedges it had undertaken when oil prices were much higher around a year ago. We are reducing our FY10 forecast to a profit of S$195.9m from S$451.5m previously, from higher fuel costs. This still indicates a sharp turnaround in the second half from the loss of S$465.9 recorded in the 1H10. The broader data indicates that the worst of business conditions is over. SIA said that market conditions are also allowing for some rollback of promotional pricing. We are therefore also expecting a sharp rebound in earnings for FY11 and FY12 where we are forecasting net profit of S$973.1m and S$1203.1m respectively. SIA's share price has picked up by 9% over the past month, in recognition and in anticipation of this. We maintain our BUY call with target of S$16.20, based on mid-cycle recovery Price-to-Book valuation of 1.4x.

Singapore Airlines: Sell (UOB Kay Hian, 11 Nov)
SIA's 2QFY10's results were worse than our expectation. We were expecting a marginal return to profitability on expectation of an improvement in passenger yields and lower spot fuel prices. While it appears that results were within analysts' estimates, we note that at 111x FY10F earnings, the market was certainly expecting a much better set of results. We cut our FY10 net profit forecast by 70% to S$252.0m and FY11's by 10.6% to S$976.0m after lowering yield assumptions and raising fuel cost assumptions. SIA has hedged 20% of 2HFY10 fuel requirements at US$100/bbl. We also lower our dividend payout assumption to 10 cents/share (previously 30cents). Two quarters into an economic recovery, SIA has yet to return to profitability. Meanwhile, it has omitted to pay an interim dividend and we expect yield of just 0.7%. We have valued SIA based on Gordon's Growth Model (3-year average ROE: 7.3%, sustainable growth rate: 3.2%, COE: 7.3%). Pegging at a derived P/B of 1.01x on FY11's book value, we value the stock at S$11.50 (previously S$11.90). Maintain SELL and recommend that investors switch into SIA Engineering, which offers a yield of 5.0%.

Frasers Centrepoint Trust: Buy (OCBC Research, 11 Nov)
FCT has announced that it has entered into a supplemental agreement to the put and call option agreement fixed in October 2007 with Yishun Development Pte (a wholly owned subsidiary of the sponsor). The sponsor and FCT have agreed to extend the expiry date of the call option notice period from 11 November 2009 to 11 May 2010. We understand this agreement is regarding the purchase of Northpoint 2 (NP2) from the sponsor Frasers & Neave. FCT said this extension will allow parties "more time to consider their respective options". The extension is not a surprise as, in our view, FCT is simply waiting for the opportune time to acquire part of its pipeline including NP2 (85,500 sf). The put and call option agreement with FNN indicates a price range of S$139.5m to S$170.5m for NP2. At the last results briefing, the manager did indicate it could potentially raise both debt and equity to fund any acquisition exercise. We believe any acquisitions would create scale in the portfolio and also enhance FCT's attractiveness to institutional investors (thus benefiting retail holders). Maintain BUY with S$1.30 fair value.

Valuetronics Holdings: Buy (OCBC Research, 11 Nov)
VHL's 2QFY10 results that were above our expectations. Revenue grew 0.3% year-on-year (+45.9% qtr-on-qtr) to a record HK$318.9m (since listing) as the group benefitted from customers' restocking activities and new business opportunities from its ODM segment. While net profit was down 19.7% yoy to HK$17.9m, it represented a whopping 230.7% qoq growth. As a result, 1HFY09 revenue of HK$537.5m (-2.8% YoY, 32.0% half-on-half) formed 63.7% of our FY10F sales, whereas net income of HK$23.3m (-46.2% yoy, 136.8% hoh) constituted 58.0% of our full-year earnings. For the remaining fiscal year, VHL still maintains a rather cautious view on the outlook, although it also said that there are nascent signs of thawing in adverse market conditions. Pending the teleconference with management, we reiterate our BUY rating but place our S$0.17 fair value under review.

Yanlord: Buy (UOB Kay Hian, 11 Nov)
Yanlord's 3Q09 net profit rose 935% yoy, due to last year's unusually low base, to S$91m. In the first nine months, net profit reached S$207m, up 143% yoy, well on its way to meeting our full-year forecast of S$271m. The superior yoy growth was largely due to the booking of the extremely profitable Yanlord Riverside City in Shanghai. Yanlord does not pay interim dividends. We have lowered our full-year earnings by 4% to S$271m as management might want to defer some profits to 2010 to avoid a possible decline next year. We estimate Yanlord has close to S$200m profit in the bag for future booking, so it is not short of profit. Sales made but not recognised grew 23% in 3Q09 to S$988m. We also like Yanlord for its exposure in seven cities, and that its landbank is situated in urban locations where demand is more assured and prices firmer. It also boasts one of the best corporate governance track records among mainland developers. Mainland developers listed in Hong Kong have typically rebounded 15-30% in the past two months, while Yanlord has risen only 5%. We believe such discrepancy is mainly due to the different stock markets, rather than company-specific issues. Yanlord is looking very compelling relative to peers, particularly as it is trading at a 15% discount to NAV of S$2.74, against the sector's average 1% discount. Our target price at $2.74 is set on a par with NAV.

People's Food Holdings: Sell (UOB Kay Hian, 11 Nov)
PFH posted a net profit of Rmb85.6m in 3Q09, down 59% yoy. The results were slightly above our expectations. The average selling price (ASP) was down from about Rmb12/kg in 3Q08 to Rmb10/kg in 3Q09, but rose from Rmb8.9/kg in 2Q09. Pre-tax profit for HTMP (66.4% of group pre-tax profit in 2Q09) dropped 59% yoy to Rmb80.4m in 3Q09 but rebounded 144% yoy. Performance of the Fresh Pork segment (16.8% of group pre-tax profit in 3Q09) also recovered with about 38% qoq improvement in pre-tax profit. As earnings visibility remains low, we do not expect the stock to outperform the market. We raise our 2009, 2010 and 2011 net profit forecasts by 12%, 9% and 7% respectively. Following the rebound in China's fresh pork wholesale price from the trough at the beginning of Jun 09, pork price has come off recently. We are still observing whether it will develop into a potential problem. PFH is trading at 16x 2009F PE and 12x 2010F PE. We maintain our 2010F target PE multiple for PFH at 8x. Maintain SELL.

MacarthurCook Industrial REIT: Sell (Phillip Securities, 11 Nov)
MIREIT has reported a gross revenue for 2QFY10 of $11.8 million (-4.5% year-on-year, +7.8% qtr-on-qtr)), net property income was $9.1 million (-2.7% y-o-y, -2.8% q-o-q). distributable income was $5.2 million (-26.2% y-o-y, +28.4% q-o-q). DPU for the quarter was 1.93 cents (-17.5% yoy, +28.4 qoq). MIREIT also announced a series of recapitalization measures. Gross revenue for 2QFY10 was lower year-on-year due to lower recovery of property tax and land rent. However it was higher than 1QFY10F as there was a refund of service charges to tenants in 1QFY10. Underlying rental income from the properties remains stable as can be seen from the net property income. Portfolio occupancy rate for 2QFY10 was 98.8%. Distributable income was higher in 2QFY10 compared to the previous quarter, as the Trust did not make a claim for the industrial building allowance. Correspondingly, DPU and the distributable margin were better this quarter. The REIT recorded a write-down of $37.1 million on its portfolio. Current gearing is 44.7%. Although the REIT will be in a much-improved financial state after the recap exercise, it comes at a substantial dilution to existing unitholders. We adjusted our projections to factor in the recapitalization measures and arrive at a postrecapitalization fair value of $0.22 based on a WACC of 9.8%. Our 3-year DPU forecasts for FY10F – FY12F are reduced 15% – 60%. We would advise long term investors to take up the rights units as we estimate MIREIT offers a potential FY11F DPU of 1.89 cents, which translate to a dividend yield of 11% based on the rights price of $0.159. For investors who are not keen, we maintain our Sell recommendation. Fair valued at 22 cents.

Armstrong Industrial: Buy (DMG, 11 Nov)
Armstrong has turned in a positive set of 3Q09 results with revenue at S$48.9m (+0.8% year-on-year; +17.3% qtr-on-qtr) and net profit of S$4.0m (+67.6% yoy, +28.5% qoq) – this was generally inline with our forecasts of top and bottomline at S$50.1m and S$3.8m respectively. Of note, margins had trended up in 3Q09 due to better economies of scale – we expect this trend to continue into the next quarter and are forecasting 4Q09 sales and net profit to be S$54.2m (+29.4% yoy, +10.8% qoq) and S$5m (+233.3% yoy, +25.0% qoq) respectively. Turnover from Armstrong’s Automotive and HDD businesses expanded 30.2% and 12.1% respectively in 3Q09 on a sequential basis. With the automotive industry in China remaining a bright spark (total vehicle sales in the country had jumped 72% yoy to 1.2m for the month of Oct 09) while the recovery in the HDD segment continues to gain traction as evidenced from the bullish guidance given by both Western Digital and Seagate, we believe that Armstrong is therefore well-positioned to capitalise on these two themes to drive growth. In light of these positive developments, we have adjusted our estimates for FY09 with revenue now expected to come in at S$177.5m (+6.2%) while net profit is anticipated to be S$12.8m (+14.3%). FY10 top and bottomline have also been tweaked to S$184.3m (+1.9%) and S$16.1m (+5.9%) respectively. Currently valued at 7.9x FY10F P/E, we continue to believe that Armstrong should trade up to 10x P/E, which was the average the stock was priced at during recovery periods – this in turn implies a target price of S$0.325.

HL Finance: Buy (DMG, 11 Nov)
HLF has reported 3Q09 net profit of S$32.6m, up 5.7% year-on-year (yoy) which was above our expectations, due to lower than expected provisions. Pre-provisioning operating profit, which better measures core earnings, was up 12.8% YoY to S$41.3m, due to strength in net interest income. We view this as a good set of results. We are raising our FY09 net profit forecast by 21% to factor in lower provisions. Net interest income rose 7.4% yoy to S$55.7m. HLF has been cautious in its loan book – net loans contracted 14% YTD to S$6.36b, after the 7.8% yoy contraction in FY08. We feel that HLF's cautious lending stance over the past 1-2 years will help to keep asset quality high. Given the improvement in the economy, HLF has become more aggressive, particularly in housing loans. We believe its efforts could lead to 2010 loans growth coming in at close to our forecast 13%. Note that HLF, being much smaller in asset size versus the three larger banks, can potentially record such high loan growth rate given its low base. We halve our FY09 provisions assumption to S$19m, as low 3Q09 provisions point to improving asset quality. Correspondingly, our FY09 net profit was raised by 21%. Our FY10 net profit forecast was also raised by 15% as we expect net interest income strength to remain on the back of a low SIBOR, and hence low funding costs. HLF is trading at a P/NTA of 0.8x (based on NTA of S$3.28/share). Target price of S$3.33 is pegged to 1.0x of 2010 NTA. Assuming a 49% payout ratio, 2009 dividend yield is a fairly respectable 4.7%.

CSC Holdings: Buy (DMG, 10 Nov)
CSC's 2QFY10 results were within our expectations. Revenue was down 60.3% year-on-year (yoy) to S$70.4m, attributable to a drop in construction activity from industrial building projects as well as project value of new projects shrinking (in line with the decline in construction material prices). Gross profit margin expanded from 16.3% in 2QFY09 to 20.7% in 2QFY10, a result of CSC’s efforts in stepping up cost controls measures and improving operational efficiencies. PATMI dropped 36.4% yoy, from S$12.4m to S$7.9m, in-line with the decline in revenue. At 20.7%, gross profit margin in 2QFY10 was 2.1 ppt higher than the 18.6% recorded in 1QFY10. In addition, PAT for 2QFY10 climbed 21.1% versus 1QFY10, from S$6.7m to S$8.1m. This is the second quarter showing sequential improvements, seeming to validate our view that CSC’s earnings are bottoming out. There appears to be a steady recovery taking place, as gleaned from its margins (+2.1 ppt qoq) and PAT (+21.1% qoq). We believe mega public infrastructure projects like the MRT Downtown Line II and Marina Coastal Expressway would provide a strong pick-up in business activity for CSC come 2010. Maintain BUY with fair value at S$0.29, based on 12x FY11 P/E, the level it was trading at in 2005 just before its earnings recovery.

Rickmers Maritime: Sell (OCBC Research, Nov 10)
Rickmers posted US$38.1m in 3Q revenue (+1.4% QoQ) and 0.6 US cents DPU (flat qtr-on-qtr). The latest newbuild delivery is being warehoused by the sponsor Rickmers Group as discussions with key stakeholders including lenders and the sponsor continue to be "dragged out". Meanwhile, charterer Maersk has exercised its option to re-deliver Maersk Djibouti in February 2010 and the manager warned that the vessel may not be able to find employment in the current weak market. Counterparty risk continues to be a key concern. In our opinion, RMT is in limbo until a more permanent solution can be found to resolve its debt and orderbook funding issues. RMT could conceivably go the MI-REIT route by simultaneously restructuring its debt and raising equity through a private placement and a rights issue. This is not a fail-safe alternative, though, as RMT's gearing is higher; its contracted order book is larger; and the industry it operates in is sicklier. Any white knight, including the sponsor, is not going to come cheap in our view. Maintain SELL with probability-weighted S$0.16 fair value that considers the likelihood and consequences of a distressed scenario.

Longcheer Holdings: Buy (DMG, 10 Nov)
China’s largest mobile handset solutions provider, Longcheer posted a 1QFY10 revenue of RMB897.0m (-0.9% year-on-year; +41.4% qtr-on-qtr) while net profit came in at RMB30.2m (-38.2% yoy, - 21.1% qoq). This set of results were under our expectations as we were looking for both revenue and earnings in 1QFY10 to be relatively flat yoy, but the unexpected increase in raw material costs which was in turn attributed to higher flash chip prices had affected margins. Furthermore, heightened competition within the industry had resulted in a 30% decrease in the Average selling prices (ASP) of its handset solutions business, although 1QFY10 topline still managed to depict a sequential improvement as handset shipments jumped 106% qoq to 5.38m. Although margins are forecasted to remain under pressure going forward due to higher flash chip prices while ASPs are anticipated to continue trending down attributed to intense competition, the increase in shipment volume is expected to more than make up for the slack. With management highlighting that it has been experiencing signs of recovery in demand, we are forecasting that Longcheer would be able to ship out 26.5m handsets in FY10, representing a 125% yoy increment. While Longcheer continues to gain market share, which would translate to higher volumes, we have also taken into consideration potentially lower margins in our updated forecasts. FY09 revenue and net profit estimates have thus been adjusted to RMB4,284.0m (+14.9%) and RMB189.8m (-4.5%) respectively, while FY10 top and bottomline have been altered to RMB5,175.7m (+10.0%) and RMB223.1m (+1.5%) correspondingly. Currently priced at an attractive net cash per share of S$0.30 and valued at 4.8x FY10F P/E (2.4x FY10F P/E if net of cash), we believe that Longcheer should trade up to 7.5x FY10 P/E – this represents a 30% discount to the industry average of 10.7x. We therefore maintain BUY with target price of S$0.75 (from S$0.865 previously).

Pan Hong CWT: Buy (DMG, 10 Nov)
Pan Hong Property Group's (PANH) 2QFY10 performance was within our expectations. While 1HFY10 PATMI represents only 14.3% of our FY10 estimates, we expect the handover of three projects (representing RMB 724.5m and pre-sold GFA of 119,103 sqm YTD) in 3Q – 4QFY10 to account for a significant proportion of our full year projections. Although management expects a near term correction in China’s property market, we believe PANH is well sheltered due to: (1) unbilled sales of RMB 883.6m (through 1QFY11), (2) net cash position, as well as (3) management's proven track record and prudent capital management. Unsold landbank of ~ 2.8m sqm across three growing lower tier provinces (Jiangxi: 80%, Zhejiang: 18% and Guangdong: 2%) remains PANH's key investment highlight. Beginning CY10, management will start construction of its new projects in Fuzhou, Huzhou and Yichun (potential GFA of 2.0m sqm) on a progressive basis. Sale of remaining units at two existing projects (NHK Phase 2 and Hua Cui Ting Yuan Phase 1) will also commence next year. Management continues to assess the usage for ~ 72,000 sqm of commercial assets, which we see greater value in retaining as investment properties to decrease its lumpy income stream. Maintain BUY at S$0.65 target price, at parity to base case end-FY10 RNAV.

CWT: Buy (DMG, 10 Nov)
CWT's gross profit margin was up 1.8 ppt, but earnings was down 89% year-on-year (yoy) on the back of start-up costs of its Commodity Hub and 3Q08's exceptionals. We have lowered FY09 earnings estimates by 17% to take into account the start-up costs. Our fair value of S$0.82 remains on the back of potential acquisitions overseas and expectations that Commodity Hub's occupancy rate will improve. 3Q09 revenue was relatively stable, up 2% yoy, reaching S$156.9m. Gross profit margins expanded 1.8 ppt to 12.5% in 3Q09 due to the higher margins fetched by the soft commodity logistics business. Earnings declined 89% yoy to S$6.0m, due to exceptionals in 3Q08 such as the S$55.7m gain from securitisation of property. Stripping out the exceptionals, 3Q09 earnings would have been down 22% yoy, attributable to start-up costs for Commodity Hub and restructuring costs for a subsidiary. CWT recently secured a S$75m revolving credit facility and a S$125m term loan facility, of which S$150m will be used to refinance the existing syndicated loan due for repayment in May 2010 and existing short term loans. The remaining S$50m will be deployed to fund expansion plans, which we suspect would be used for acquiring soft commodities logistics businesses overseas due to higher margins from that segment. This would be in-line with CWT's growth strategy. We have adjusted our FY09F earnings down by 17% to S$31.1m to take into account the impact of start-up costs of its Commodity Hub. We are maintaining our fair value of S$0.82, ascribing a target P/E of 11.1x to our FY10F EPS (CWT’s 3-year historical P/E average). Maintain BUY.

C&O Pharmaceutical: Buy (DMG, 10 Nov)
C&O reported 1QFY10 net profit of HK$25.8m, up 49.1% year-on-year (yoy). This was largely due to the Group’s continued strategy of focusing on its C&O-branded and exclusive products, which helped improve its gross margins (1QFY10: 62.2%; 4QFY09: 61.4%; 1QFY09: 53.8%). Its two new C&O-branded products are expected to be launched in early 2010. Whilst revenue contribution from these two products is likely to be small in the beginning, significant contribution could come from FY11/12. Revenue growth is likely to be underpinned by the government’s healthcare reform, with 7 C&O-branded products and one of its exclusive products (amoxycilin) and management's continued strategy of focusing on its C&O-branded and exclusive products. C&O's growth prospects are also supported by its strong balance sheet, with a net cash of HK$203.1m (30.6 HK¢ per share) at end 1QFY10. Cash flows are also healthy, with its operations generating HK$63.7m. We are estimating earnings of HK$117.7m (EPS: 17.7 HK¢) for FY10. 2Q and 3Q are seasonally stronger quarters for the Group, as there is more demand for its amoxycilin during the colder months. C&O is currently trading at 8x FY10 earnings. Our target price of S$0.32 is pegged at 10x FY10 P/E (a sharp discount to its China-listed peers’ average of 30x P/E).

Ezion: Buy (DBS, 10 Nov)
Ezion's vessel has been deployed to the Gorgon oil fields since early October, with another 2 to be deployed before end 2009. This implies that positive contributions from the Gorgon project would kick in from 4Q09, vs. our previous conservative assumption of contributions from 2H10, due to a lack of certainty on project timeline then. As such, we have raised our FY09 recurring net profit forecast by 13% to S$17.0m. We expect Ezion to post 3Q09 recurring net profit of around S$3.6m, given the stable size of its fleet qtr-on-qtr (qoq), and the absence of known significant operational developments. However, we believe that there could be upside surprise to our estimate should overhead costs relating to the recruitment of several senior personnel for Gorgon be lower than that provided for in our earnings model. The net 1-2% downward revision to our FY10/11 earnings forecasts result from pushing back deliveries of 3 lift boats by a month each, on average, due to certain customisations required by clients. However, this is partially offset by 1) bringing forward recognition of charter income from the Gorgon vessels, and 2) earlier contributions from 33%-owned OMSA in 1H10, vs. pure operating overheads previously. On the back of a reduced FY10 earnings projection, our TP has been adjusted downward marginally to S$0.92, still pegged to 12x FY10 PE. Maintain BUY on Ezion.

DBS: Hold (Phillip Securities, 10 Nov)
DBS reported net earnings of S$563mil (+48.5% year-on-year, +2% qtr-on-qtr 2Q09: S$552mil) due to record high interest income, stable expenses and lower provision charges. Net interest income grew to S$1140mil (+6.4% yoy, +2.5% qoq) from the expanded loan base over the year. Gross loans expanded to S$130.9bil (+1.2% yoy, +0.4% qoq), driven by housing loans (+7.3% yoy) and loans to financial institutions, investment and holding companies (+15.3% yoy). Net interest margin improves 4bps over the year to 2.03% as funding costs were reduced due the shift in deposits from fixed accounts to current and savings accounts. Non-interest income increased 33.6% to S$437mil (+33.6% yoy, -35.7% qoq, 2Q09: S$680mil) over the year from higher fee income (+14.2% yoy, +0.8% qoq) and trading gains of S$56mil as compared to a loss of S$13mil in 3Q08. The boost in fee income was mainly due to higher contributions from stockbroking and investment banking. DBS recorded higher expenses of S$635mil (+9.9% yoy, +0.6% qoq) from higher staff costs due to bonus accruals as compared to 3Q08. Cost to income jumped to 40.3%. The Group took a provision charge of S$265mil as compared to S$319mil in 3Q08 as the asset quality improves. NPLs fell 7% over the quarter to S$3.42bil with the NPL ratio lowered to 2.6% from 2.8% in 2Q09 led by repayment in Hong Kong, Rest of Greater China and South and South-east Asia. We have adjust our earnings upwards 20.4% for 2009 as we take into account stronger operating profits with lower provision charges. We also increase the valuation to 1.29x NAV as we input a higher ROE expectation from previously forecast. This is still a discount to the 5-year average P/NAV of 1.39 times. Nevertheless, we raise our target price to S$14.55 as we roll over the valuation to peg to FY10 NAV and we upgrade DBS to a Hold.

DBS: Buy (Kim Eng, 9 Oct)
DBS has posted a 3Q09 earnings of $563m (+49% year-on-year;, +2% qtr-on-qtr), that surpassed even the most bullish expectations. Positive surprises came from the better-than-expected performance of its lending business and a sharp decline in provision charges. The group sustained its quarterly dividend of 14 cents per share. Despite the dip in trading income during the quarter (from $172m to $56m), operating earnings held resilient. Its net interest income outperformed the local peers with a 3% qoq improvement, while fee income was at a record high since the crisis. Strengthening recurring earnings, coupled with cost discipline bodes well for its growth momentum. Going forward, earnings upside could be driven by the continual upsurge of its Hong Kong and overseas operations, as well as its strong loans pipeline. Its Hong Kong's earnings surged 88% yoy and 44% qoq led by lower allowances & expenses, while its regional operations grew 18% qoq. Moreover, the improved net interest margin looks sustainable as DBS still enjoy the lowest cost of funding relative to its peers, given its dominance in the low-cost savings and current deposits. We have raised our FY09 earnings estimates by 10% to reflect the positive 3Q. While the $4b rights issue suppressed its ROE, we are optimistic that the excess capital reserves should put DBS at the forefront of organic growth and acquisitions. Aside from its stable quarterly dividends, DBS is also one of the cheapest banks in the region with a promising outlook. Maintain BUY with a price target of $15.40.

Sembcorp Industries: Hold (Kim Eng, 9 Oct)
Sembcorp Industries achieved another steady quarter that were in line with our expectations, with 3Q09 net profit rising 2.2% to $148.1m versus 3Q08, while maintaining similar topline growth of 3% to $2.6b. Sembcorp Marine (SMM) continues to be the main earnings driver for the group, accounting for 75% of group EBIT. On a segmental breakdown, utilities turnover dropped by 22% versus 3Q08, mainly due to lower fuel prices. However, on a sequential basis, utilities grew by 18%, reflecting the inherent higher costs of fuel, while EBIT picked up by a steady 8%, helped by improved operating efficiency. Despite the softness in the UK, the utilities business is getting more diversified, with 39% of earnings coming from overseas. Vietnam, the Middle East and China tripled to $30.6m over the year. Fujairah currently has excess capacity and is negotiating to sell more power over its current contract. Management provided no updates on its Salalah bidding, but we believe SCI is still in prime postion to secure the project. We are tweaking our FY09 forecasts up by 1.1% to $564m, as SCI expects contributions from land sales in its Vietnam industrial park to be recorded in 4Q. Overall, earnings will mainly be driven by Marine, while Utilities are expected to grow steadily over the next 3 years. Our SOTP price target stands at $3.48, and we maintain our Hold.

MCL Land: Buy (Kim Eng, 9 Oct)
MCL Land has recorded a 9M09 net profit of US$134.5m, which exceeded our expectations by 33%, due to the better-than-expected profitability of Hillcrest Villa at Bukit Timah. Looking ahead, MCL's FY10 earnings will be underpinned by the fully pre-sold Waterfall Gardens, which should generate a net profit of about US$115m. D'Pavilion at Serangoon is also scheduled for completion in 2010, but its contribution is expected to be less significant. As at September, only 38% of the 50-unit D’Pavilion has been sold. MCL's marketing efforts for The Peak@Balmeg at Pasir Panjang appeared to have paid off, as the Group managed to sell 94 units of the 180-unit project in 3Q09, bringing the total number of units sold to 157. The Parvis at Holland Hill, a 50-50 joint venture with Ho Bee, was previewed over the weekend, reportedly at an ASP of $1480 psf. We have raised our ASP assumption for the whole project by 7% to $1500 psf. MCL's has a low net gearing of 0.17x, with a net debt of US$85m (S$119m). We noted that MCL had put in bids for the GLS sites at Serangoon Ave 3 and Dakota Crescent, but its bids were not in the top three bids in either tenders. We believe that the Group is not in a hurry to aggressively acquire new sites, as it still has seven unlaunched projects with a total GFA of about 1.7m sq ft. MCL is in a very comfortable position, with continued cashflows from projects under development and an ample landbank to be progressively launched. We think that mid-end property values are likely to increase by 5-10% per year over the next two years, which augurs well for MCL. Maintain BUY with a target price of $2.26, pegged at a 30% discount to it FY10 RNAV of $3.23.

Singapore Land: Hold (Kim Eng, 9 Oct)
SingLand posted a net profit of $56.3m in 3Q09 – a 41% year-on-year (yoy) improvement. On a sequential basis, core net profits improved slightly by 10% due to lower property tax. Associated earnings were also ahead of our expectations, presumably from better-than-expected profitability of One Amber. Year-to-date (YTD) core net profit stands at $154.9m, up 32% yoy. SingLand's rental income showed a yoy 6% improvement due to positive rental reversions, but remained relatively flat on a sequential basis. Operating margins improved slightly as a result of lower property tax. With the economy improving, the slide in average office rents has eased. We expect slight negative rental reversion to set in next year. SingLand's hospitality revenue from Pan Pacific Hotel Singapore of $21.1m was a slight improvement of 2% quarter-on-quarter, although it is still 25% lower than the same period last year. The slight improvement is likely to be due to the Formula One weekend, as well as abated fears over the H1N1 pandemic. As at end-September, SingLand has sold 124 units of The Trizon (289 units in total). We have revised our overall ASP assumption to $1300 psf, while lowering our breakeven assumption to $1197 psf, suggesting the project could turn in a net profit of about $38.6m. We remain cautious about SingLand's office and hospitality exposure; while The Trizon's better-than-expected profitability is not a big cheer. We think the counter is fairly valued and are maintaining our HOLD recommendation, with a target price of $5.68 at a 30%-discount to its RNAV.

DBS Group: Buy (OCBC Research, 9 Nov)
DBS posted 3Q09 net earnings of S$563m, up 49% year-on-year ( yoy) or +2% qtr-on-qtr (qoq) . This was above the market estimate of S$438m in a Bloomberg survey. As a recap, OCBC delivered 3Q net earnings of S$450m and UOB posted profits of S$500m last week. We believe the variance between the market estimate and DBS's actual results came mainly from significantly lower allowances for credit and other losses. This fell sharply from 3Q08's S$342m, 1Q09's $437m and 2Q09's S$466m to S$265m by 3Q09 or a decline of 23% yoy and 43% qoq. While Net Interest Income improved marginally yoy and qoq, Non-interest Income fell from S$586m in 1Q09 and S$680m in 2Q09 to a smaller S$438m in 3Q09. Management has declared a 3Q09 dividend of 14 cents per share. This will be payable on 4 Dec 2009. The stock will quote ex-divided on 18 Nov 2009. We are cautiously optimistic about prospects for the coming quarters. We like the declining allowance charges trend, which could mean that FY10 performance should be better than FY09. We are expecting allowances to drop from S$1410m in FY09 to about S$964m in FY10. However, loans growth remains fairly anaemic. For 3Q09, it was flat qoq and up only 1% yoy to S$128.3b. Overall, the environment is likely to remain challenging, but we expect more fee-based income to buoy its performance in the coming quarters. Despite the better-than-expected 3Q numbers, we are leaving our FY09 estimates fairly intact with minor revisions, dropping earnings slightly to S$2120m. For FY10, we are also leaving our estimates fairly intact with net earnings of S$2480m, up marginally from our earlier projection of S$2401m. This takes into account slightly lower impairment charges, but higher other operating expenses. Overall, we are reiterating our BUY rating with a fair value estimate of S$14.65.

City Developments: Hold (OCBC Research, 9 Nov)
Millennium & Copthorne (M&C), the 52.2%-owned hotel subsidiary of City Developments (CDL) has reported revenue of £160.4m for 3Q09, a decline of 17.7% year-on-year (yoy) on a constant currency basis but the decline had slowed down in comparison to the 22.5% yoy decline in 2Q09. On a qoq basis, M&C managed to turn in marginal revenue growth of 1.2%. Key operating statistics such as overall occupancy rate, REVPAR and gross operating profit margin showed improvements qoq. Headline profit after tax declined 7.3% yoy to £19.1m but increased by 9.1% on a qoq basis. Signs of recovery in hotel operations are continuing in 4Q09, which is traditionally a stronger quarter. M&C guided that current bookings are showing positive momentum in demand and the group's REVPAR for the month of October declined at a slower pace of 12.8% yoy. With the worst likely to be over, we believe that M&C is now preparing for its next phase of growth. In 3Q09, it expanded its pipeline by 5 hotels and by 954 rooms, with new contracts in the Middle East. Over the longer term, M&C is planning to expand its presence in the Middle East and North Africa from 30 properties to 100 by 2015. While we think that the current share price of CDL has already largely reflected the recovery in the Singapore property sector, a potential share price catalyst could come from a positive re-rating of M&C, which could benefit from a stronger recovery in the hospitality sector next year. We value CDL's stake in M&C based on its current market value and this takes up about 16% of our RNAV projection. Assuming M&C re-rates to the average price/book level, this will add another 95 cents to our RNAV projection and our RNAV per share will rise to S$10.78. While hotel operations are slowly picking up, weak outlook of the Singapore office segment is still a key concern as about 29% of CDL's RNAV is derived from its office assets in Singapore. For now, we maintain our HOLD rating on CDL with fair value of S$9.83.

StarHub: Buy (RBS, 6 Nov)
StarHub has been de-rated after it lost the broadcast rights for the English Premiere League (EPL) and ESPN content from mid-FY10. We believe this de-rating has been overdone. Based on our sensitivity analysis, the loss of EPL/ESPN content should reduce earnings by 5-6%. There is the risk that subscriber migration to SingTel's IPTV service might lower StarHub's pay TV and possibly its broadband revenue contributions, but we believe this will be softened by the removal of significant costs attached to EPL/ESPN, which we estimate are north of 20% of the group's annual pay-TV revenue. We believe it is possible that SingTel's acquisition of EPL/ESPN leads to pay TV market expansion on dual subscriptions. SingTel's non-sports offers remain inferior to those of StarHub, which has locked in its content through long-term contracts. We may see some migration of StarHub customers who signed up purely for sports, but we believe that majority of sports subscribers will remain with StarHub and opt for a second pay TV subscription with IPTV. This might lead to a lower blended average revenue per user (ARPU) for StarHub, but this should be offset by reduced content cost and lower churn. If the dual-subscription scenario proves to be true, we could see upside to our earnings estimates on more limited revenue slippage. We upgrade StarHub from Hold to Buy, as the share-price correction has uncovered value, in our view. The stock is trading at a 23-25% discount to its historical PE and EV/EBITDA averages. Dividend yields remains attractive at 9%. Our forecasts and our DCF-based target price of S$2.15 are unchanged. With consensus FY11F EPS trending down by just 5% since the loss of EPL/ESPN, we believe the three-month price correction of 16% is overdone.

Raffles Medical: Buy (UOB Kay Hian, 6 Nov)
RFMD 3Q09 results were within expectations. Net profit was up 15.4% year-on-year (yoy) to S$9.5m. 9M09 net profit of S$26m accounted for 71% of our full-year estimate but we forecast a stronger 4Q to lift earnings closer to our estimates. Quarterly turnover was a record S$55.4m for 3Q09, +8% yoy. Revenue from Healthcare Services rose 9.3% yoy while revenue from Hospital Services was up 8.1% yoy. EBIT margin for 3Q09 strengthened to 21.5%, up 1.6ppt yoy. The improvements seen in 3Q09 were a combination of improved operating efficiencies, higher patient load and operating leverage. The 8% yoy revenue growth was driven by foreign patient contribution which increased 16% yoy on the back of a 9% yoy volume increase and a 7% rise in billing due to increased revenue intensity. Local patient contribution remained largely unchanged. RFMD is assisting corporates to brace themselves for a potential second wave of H1N1 via the provision of flu-related medical supplies and services such as the anti-viral drug, Tamiflu, and flu-related medical supplies and services. Also, with the arrival of flu prevention supplies, there is increasing demand from patients for flu vaccinations. Demand for flu vaccinations is also aided by the approaching holiday season as holiday makers seek pre-trip vaccinations. The increased demand for vaccinations and greater health awareness are potentially positive for RFMD's 60-plus clinic network. On balance, the results were credible given the better top-line and EBIT margin yoy growth. The stock is currently trading at a 15.8x FY10F PE, below the 22.6x FY10F PE of its close peer, Parkway Holdings (PWAY SP). At current price, there is a 30% upside to our target price of S$1.76.

Raffles Medical: Neutral (DMG, 6 Nov)
Raffles Medical's 3Q09 revenue came in 5% below our expectations at S$55.4m. It achieved a year-on-year (yoy) revenue growth of 8% , with improved contribution from all segments. The Group recorded a 15.6% yoy increase in net profit to S$9.5m. On a qtr-on-qtr (qoq) basis, revenue grew 2.8%, while net profit rose 7.6%, as it managed to achieve better operating efficiencies. Operating profit margin in 3Q09 was 21.5% (compared with 20.4% in 2Q09 and 19.0% in 1Q09). Although the economic recession had somewhat dampened its performance in 9M09, the group still managed to record growth. Looking ahead, Raffles Medical expects to be supported by a stabilizing economy, its strong financial position and its focus on curative healthcare services. It continues to maintain a strong balance sheet, with a net cash position of S$34.8m (6.7 S¢ per share). Its cash flows from operations are also strong, with S$13.1m generated during the quarter. 2H is seasonally stronger for Raffles Medical. To combat a possible second wave of the H1N1 outbreak, Raffles Medical is continually working with its corporate clients on sales of flu-related medical supplies and services. The new H1N1 vaccine could also contribute to revenue growth at its clinics, but there is no indication on the take up rate as yet. Raffles Medical has added new specialists in the colorectal surgery and urology fields, which would support growth in 2H. Based on our DCF valuation, we arrive at a target price of S$1.43, which implies a P/E of 20x (based on blended FY09/10 earnings) (previously 14.6x P/E). This provides an upside of 5.9%. Maintain NEUTRAL.

Synear Food: Hold (UOB Kay Hian, 6 Nov)
Synear's 3Q09 net profit jumped 23% year-on-year (yoy) to Rmb34.6m on the back of a 4.8% yoy increase in sales and pre-tax profit margin declined from 8.1% in 3Q08 to 10.1% in 3Q09. The results were slightly better than our expectations. Revenue dropped 16.2% yoy to Rmb1.36b in 9M09 amid weak consumer demand with sales of savoury dumpling products, glutinous sweet dumpling products and other quick freeze food products down 17.7% yoy, 18.4% yoy and 9.5% yoy respectively. Overall gross margin declined by 0.2ppt to 26.8% in 9M09, mainly due to the selling of more low-end products. new products. For 9M09, net profit dropped 38.6% yoy to Rmb129m. Synear's management indicated that 4Q09 outlook will stabilise but does not expect a strong rebound. In view of the difficult market conditions, Synear will delay the commencement of its operations at the Guangzhou new plant until market conditions turn more favourable. In addition, the construction of new production facilities in Shenyang as well as cold storage warehouses at Shenyang City, Liaoning Province and Wuzhong City, Ningxia Province will also be deferred. In view of the stabilisation of Synear's operating performance, we raise our 2009, 2010 and 2011 earnings forecasts by 12.2%, 8.5% and 10.7% respectively. The stock is trading at 10x 2010F PE. Maintain HOLD. Reentry price at S$0.26.

Chartered Semiconductor: Room for arbitrage (DMG, 6 Nov)
Chartered Semiconductor recently announced that the privatisation deal offered by Advanced Technology Investment Company (ATIC) has been approved by the majority of its shareholders. Coupled with the blessings of Temasek Holdings, we therefore believe that the probability for this deal to fall through is very minimal. Given that yesterday's closing price of S$2.65 represents a slight discount to the offer price of S$2.68, investors can thus capitalise on this gap to arbitrage on the pricing differential. Assuming that this transaction is completed before the end of this year as targeted by management, investors who buy Chartered's shares today can thus make a gain of 1.1% within two months – annualised, this works out to be 6.6%. This 6.6% gain is still generally more attractive than the returns offered from fixed deposits and treasury bonds.

Parkway Life REIT: Buy (UOB Kay Hian, 6 Nov)
PREIT's Distributable income of S$11.6m for 3Q09 was in line with our expectations. Gross revenue grew 23.6% yoy to S$16.5m due to additional rent contributions from Japan properties and upward rent revision for Singapore Hospitals of 4.36% with effect from 23 Aug 09 (based on CPI + 1% formula in master lease). Singapore Hospitals, Mount Elizabeth Hospital, Gleneagles Hospital and East Shore Hospital contributed about 80% of revenue. For 9M09, distributable income rose to S$34.3m (+14.1% yoy) on the back of an increase in gross revenue to S$48.9m (+29.8% yoy). Parkway Life REIT's weighted average lease term to expiry stands at 13.1 years with 100% committed occupancy. The REIT is currently working to lengthen its debt maturity (weighted average of 1.9 years) to match the long lease terms. It has already secured a two-year committed S$100m multi-currency revolving credit facility to refinance the S$34m term loan due in 2H10. Parkway Life REIT has low gearing of 23.2% and with headroom for an additional debt of S$301.3m before the gearing reaches 40%. We estimate FY10 DPU at 8.0 cents, a representing distribution yield of 6.6%. Our target price for the stock is S$1.65.

Parkway Life REIT: Buy (DMG, 6 Nov)
PREIT 3Q09 net property income grew 23.3% year-on-year (yoy) driven by its Japan properties which it acquired in 4Q08 and higher rental income from its Singapore hospitals, as the higher growth rate of 4.36% (based on its CPI+1% formula) took effect in Year 3 of the lease. DPU for 3Q09 was 1.91¢, which was in line with our estimates. Our FY10 DPU forecast of 8.3 S¢ implies a yield of 6.8%. Year 3 of its lease with its Singapore hospitals (which accounts for 80% of total portfolio) has commenced and Year 3 rental is set to grow by 4.36% over that in Year 2, which would then set a higher base for Year 4 rent calculation. PREIT has a gearing of 23.2% at end 3Q09, leaving it with substantial debt headroom of S$301.3m to take on acquisitions. It also has in place financing facilities, which it has not drawn upon, to support its acquisitions and to lower its refinancing risks. Management has always maintained that it is actively looking out for yield accretive assets to acquire. At our target price of S$1.34, PREIT will trade at 6.2% FY10 yield. At its peak in 2008, PREIT traded at 5.5% yield. Given its strong balance sheet, asset acquisition would be DPU accretive. We continue to like PREIT for its defensive nature and the revenue downside protection that its lease structure offers. Note that our DDM-valuation has not taken into account any acquisition that PREIT might make. With a strong balance sheet, PREIT has enough debt headroom to take on yield accretive acquisitions.

Parkway Life REIT : Buy (Phillip Securities, 6 Nov)
Plife has reported a gross revenue for 3QFY09 of $16.5 million (+23.6% year-on-year, +2.5% qtr-on-qtr), net property income (NPI) was $15 million (+23.3% yoy, +2.7% qoq). Distributable income was $11.6 million (+12.1% yoy, +1.6 qoq). DPU for the quarter was 1.91 cents (+11.7% yoy, +1.1% qoq). The financial results came in within expectations, and we think that is a good sign. To recall, Plife completed acquisition of the Japan properties in Sep 2008, therefore there were noticeable increase in revenues from 4QFY08 onwards. From 4QFY08, quarterly revenues were relatively stable, a reflection of the stability of the underlying healthcare related assets. DPU has also been on the incline with a consistent distribution margin around 0.7 level. The annual rent increment of 4.36% of the Singapore hospitals kicks-in in August 2009 and coupled with the increase in rental from the asset enhancement carried out on a Japan property, these will provide the impetus for growth in revenue in the next quarter. On the capital management front, Plife's gearing is 23.2% with total debt of $249 million. $34 million denominated in SGD is due in 2H2010 while the rest is denominated in JPY and due in 2011. Refinancing is not a major concern as Plife has already gotten funding facilities in place through a $50 million credit facility and also a $500 million MTM program. We have a FY09F DPU forecast of 7.59 cents, which translate to a dividend yield of 6.27%. We believe Plife is on track to meet our forecast and may even surprise slightly on the upside. We maintain our fair value of $1.37and Buy recommendation.

Hyflux: Buy (OCBC Research, 5 Nov)
Hyflux's 3Q09 revenue fell 28.7% year-onyear (yoy) to S$126.5m, reflecting the weakness in the industrial and municipal sectors arising from continued weakness in China. While this was somewhat offset by the ramping up of EPC activities in Magtaa, Algeria, it was not enough to prevent a 5.9% qtr-on-qtr in revenue. On the other hand, Hyflux was able to post a 4.6% yoy rise in net profit to S$18.1m, aided by continued cost discipline; but earnings were still 29.9% lower qoq. For 9M09, revenue slipped 6.9% to S$375.1m, meeting around 57.1% of our original forecast, while net profit climbed 7.7% to S$49.1m, covering around 67.7% of our FY10 estimate. On a segmental basis, its industrial segment continues to under-perform, hit by continued weakness in China’s economic climate. Revenue fell by another 42% yoy and 26.1% qoq in 3Q to S$13m; in 2Q, revenue fell 17.4% yoy (but up 41.9% qoq) to S$17.6m. As for its municipal segment, now driven mainly by its Middle East North Africa (MENA) projects, revenue slipped 26.8% yoy and 3.1% qoq to S$113.0m; this after jumping 34.5% yoy and 54.6% qoq in 2Q to S$116.6m. For the 9M, industrial sales slipped 31.7% to S$43.0m, while municipal remained relatively firm at S$305.0m (down 1.9%). On the order book front, management revealed that it has not won any new orders in the quarter but is instead focused on realizing several key deals under negotiation – the biggest would be the two mega desalination projects in Libya which we had earlier estimated to be worth around S$1.5b. We believe that the current order book should be around S$1519m (down 7.7% over the quarter), with its O&M segment fairly stable around S$692m, while its EPC portion should be around S$827m. This is expected to be replenished by the Libya projects (likely to take another 9-12 months to conclude). In view of the weaker revenue growth, we cut our FY09 sales estimate by 15.6% and FY10 by 4.7%. But due to the better margins outlook, our earnings estimates are largely unchanged (FY09 down 1.1%; FY10 up 2.5%). As we are also pushing out our valuation from 22x blended FY09/FY10 EPS to FY10 EPS, our fair value improves from S$3.30 to S$3.48.

Rotary Engineering: Buy (OCBC Research, 5 Nov)
Rotary 3Q09 revenue came in at S$108.8m (-8.1% year-on-year; -33.7% qtr-on-qtr), gross profit at S$27.6m (-1.6% yoy, -15.3% qoq) and net profit at S$10.7m (+11% yoy, -17.6% qoq). Management attributed the qoq variation in revenue to timing differences in contract recognition, and expects revenue to be fairly stable going forward in view of its healthy pipeline of projects. Rotary's order book currently stands at S$1.36b, just a tad lower than the S$1.4b reported in 2Q09, as some contracts were completed in 3Q09. Order book visibility remains good with projects stretching till 2012. Gross profit margin expanded by 1.7ppt yoy and 5.6ppt qoq to 25.4% thanks to good cost control and productivity gains. This led to a 1.7ppt yoy and 2.0ppt qoq improvement in net profit margin to 9.9%. Despite bagging the landmark US$0.7b SATORP contract, Rotary remains active in pursuing more contracts in Saudi Arabia, where infrastructural projects for the oil and gas industry are prevalent. We understand that tendering activities have regained momentum along with the economic recovery. Rotary is well positioned to capitalise on such opportunities as its SATORP win will help it to build critical mass and establish its presence in Saudi Arabia. We expect positive news flow by mid-2010 should Rotary succeed in clinching more contracts. Rotary's 9M09 PATMI of S$28.1m has met 67% of our full year estimate. We are keeping our estimates intact as 4Q is typically a strong quarter. We continue to like Rotary for its strong order book, healthy balance sheet with net cash position, and potential for more contract wins, which could serve as near term catalysts for the stock. Valuations are undemanding at 9.9x FY10F PER vs. the STI's 17x PER. We maintain our BUY rating and S$1.37 fair value estimate. Key risks, in our view, include project delays, cost overruns and execution risk in view of the unprecedented scale of the SATORP project.

Sembcorp Marine: Buy (OCBC Research, 5 Nov)
SMM reported better-than-expected 3Q09 revenue of S$1.5b (+32.9% year-on-year;, +1.5% qtr-on-qtr) and net profit of S$144.6m (+2.6% yoy, 4.7% qoq). Rig building revenue rose 44.2% while conversion and offshore rose 49.5%. Ship repair revenue fell 16.2% due to timing in recognition of repair projects. The increase in net profit was boosted by higher operating margins from rig building projects but offset by lower contributions from associate Cosco Shipyard. The group also unveiled plans to develop a new state-of-the-art yard facility that will be situated at Tuas View Extension, funded by debt and internal funds. We are optimistic of the long-term outlook of the group, one reason being that the yard will be used mainly for ship repair which has solid long-term fundamentals. Already SMM is turning away ships coming for repair due to its busy yards. Excluding ship repairs, SMM did not secure new orders in the last quarter. We are expecting, however, that news of new orders should be heard by 1Q10 for both SMM and Keppel, partly from Petrobras' award of new tenders. Petrobras' orders are likely catalysts for other orders to come. Though SMM has remained reticent about new orders, Keppel has mentioned that besides Brazil, Mexico and the Caspian Sea present opportunities as well. The rally in oil prices (currently about US$80/bbl compared to Feb lows of US$33/bbl) should also sustain E&P spending by oil majors, assuming the absence of sudden dips. We have changed our estimates to account for higher margins related to later orders in the order book, as well as higher interest costs with regards to increased borrowings that the group will undertake to partially finance the new yard. Hence we are raising our fair value estimate to S$3.85 (based on 16x FY10F earnings) and therefore maintain our BUY rating.

SembCorp Marine: Hold (UOB Kay Hian, 5 Nov)
SMM' 3Q09 net profit rose by 3% yoy to S$144.6m. Excluding associate COSCO Shipyard Group (CSG), net profit would have increased by 22% yoy, comparable to 3Q09's turnover growth of 33% yoy. The increase in rig revenue was due to the recognition of the balance of semi-submersible rig (semi) PetroRig II upon delivery to owner, Diamond Offshore. One jack-up and one semi also achieved 20% recognition in 3Q09. For shi repair, 3Q09's lower revenue was due to timing in recognition of ship repair projects.Overall EBITDA improved further from 11.8% in 2Q09 to 12.5% in 3Q09. SMM's orderbook (excluding shiprepairs) was S$6.7b as of 4 November, lower than the orderbook of S$7.9b a quarter ago. SMM has secured S$1.1b worth of new contracts year-to-date. It requires some large contract wins to meet our estimates of S$2b and S$3b for 2009 and 2010, respectively. We raise our fair price from S$2.60 to S$3.20. Our sum-of-the-parts (SOTP) valuation of S$3.16 is premised on the following: a) we now value SMM's own shipyard business at a higher PE of 18x vs 15x previously (i.e. pre-offshore oil & gas boom valuation for large shipyards) of longer term sustainable earnings in view of continued strong oil prices, though contract flow remains low and b) we have assumed SMM's longer term sustainable contract wins level of S$3b p.a., thus translating into an annual net profit base of S$245m.

FJ Benjamin: Buy (DMG, 5 Nov)
Revenue in 1QFY10 declined 20% year-on-year (yoy) to S$67.6m, largely due to weaker sales in its luxury timepieces segment (which accounts for 35% to 40% of total revenue). Despite that, FJB managed to maintain its gross margins (1Q10: 39.9%; 1Q09: 40.7%; 4Q09:39.4%) as it has consistently been managing its inventory levels well. As a result of the weaker revenue, net profit for the quarter was S$0.5m (-58% yoy). We note that 1Q10 revenue was a 9.5% improvement over 4Q09, in line with the improved consumer sentiment in its key markets. We think it will continue to improve over the next few quarters, boosted by the opening of the IRs in early 2010 and the higher tourist arrivals. . Despite the lower revenue and the weak but stable economic environment, balance sheet remains healthy, with a net gearing of 0.2x at end 1Q10. FJB generated S$2.6m cash flow from operations during the quarter. FJB plans to consolidate some stores and open some new outlets. By the end of FY10, it should have 168 stores across the region. We maintain our view that it should not be an issue for FJB, should it need to expand further, as its operations are generating good cash flows and it has a healthy balance sheet. We are maintaining our BUY recommendation on the stock and target price of S$0.46.

Raffles Education: Hold (Kim Eng, 4 Nov)
RLS has posted a 1Q10 net profit of $14m (-55% year-on-year, +55% qtr-on-qtr), which merely accounted for 15% of our full year forecast. This set of earnings was below our expectations due to its subdued student enrolment, higher-than-expected personnel and set up costs and forex losses. The group believes that the worst is over, but organic earnings recovery takes time. Student enrolment in NES disappointed with a 10%-decline qoq due to a decrease in the number of students in China taking the ‘高考‘. While the weakness in student enrolment across China could be a hindrance to the group's ability to grow its student population, the management believes that its improving student population, which rebounded 7.5% qoq, will support its top-line growth. RLS will continue to focus on organic growth in FY10, which involves opening eight more colleges (3 in Asia-Pacific and 5 in India). The other growth drivers include the development of proprietary courseware and value creation of OUC through acquiring at least three colleges within OUC. As most new colleges will take around 2-3 years to break even, we expect material contributions to come through only from FY11 onwards. We have reduced our earnings estimates for the next 2 years by 30% as we factor in lower growth assumptions on its student enrolment and higher set up cost. Our target price is lowered accordingly to 51 cents, pegged to 20x FY10 PER (in line with its average PER since listing). In addition to the absence of dividends, the challenging operating environment in PRC could continue to dampen sentiment on the stock.

Raffles Education Corp: Hold (OCBC Research, 4 Nov)
REC's 1QFY10 revenue came in at S$51.6m, down 3.1% year-onyear (yoy), meeting 21.2% of our full-year estimate, while PATMI came in at S$14m, down 55.4%. However, if we strip away the exceptional items (including land sales of OUC and unrealized forex adjustments), we note that core earnings was down just 13.3% and it also met around 23.9% of our FY10 forecast. And on a sequential basis, revenue was actually up 15.1%, while PATMI was up 54.6%. On the operations front, we note that the student enrolment numbers still look pretty mixed. While it managed to grow its PES (Private Education) segment by 5.3%, its PNES (Hybrid) segment by 20.4%, the increases were not enough to offset the 10% slide in its NES (National Education) segment. As a result, its total enrolment fell 40% (-1319 students).Going forward, REC expects to continue to grow its business by 1) setting up more colleges in the region; 2) development of its proprietary courseware; 3) value creation of Oriental University City (OUC); and 4) strategic acquisitions. On expansion, REC targets to set up five new colleges in India and acquire three colleges in China. We understand the China acquisition would be funded using land and buildings in OUC for equity stakes in colleges offering technical and vocational education. By entering into this space, REC subsequently aims to be a supplier of trained human resources (offering job placements) as part of its medium to long term strategy. By the end of FY10, REC expects to have 34 colleges and three universities in 34 cities across 13 countries. Reviewing our assumptions and forecasts. In view of the change in analyst coverage, as well as the latest developments (including a change of Education Minister in China), we will be reviewing our assumptions and this may affect our FY10 and FY11 estimates. As such, we put our HOLD rating and S$0.60 fair value under review.

Hi-P International: Buy (DMG, 4 Nov)
Hi-P's 3Q09 results 3Q09 revenue at S$157.8m (-37.8% year-on-year, -11.1% qtr-on-qtr) and net profit of S$10.8m (-57.7% yoy, -32.4% qoq) were below ours and market expectations. We were anticipating top and bottomline to come in at S$168.5m and S$12.3m respectively, but the steeper-than-expected decline in average asking prices (ASPs) and lower volumes that had in turn led to the reduced economies of scale had caught us off guard. However, on a sequential basis, we believe that the worst for Hi-P is already over and that 4Q09 should depict a pick-up given that several new projects are expected to be initiated. Among these new initiatives, we estimate that the new project for its major customer Research In Motion has already kicked-off (rumoured to be the BlackBerry Storm 2) – revenue and net profit for Hi-P should therefore improve qoq resultantly, as selling prices tend be the highest during the start of a new product life-cycle. Over the longer-run, however, as competition in the smartphone space among the various global OEMs become more intense, we believe that their respective contract manufacturers could experience added margins pressures. Furthermore, given the worse-than-expected 3Q09 numbers, we have thus decreased our FY09 revenue and net profit estimates to S$775.0m (-3.3%) and S$66.3m (-11.8%) respectively. Top and bottomline forecasts for FY10 have also been reduced to S$905.0m (-5.8%) and S$81.9m (-9.5%) respectively. Currently trading at 7.4x FY10F P/E, we believe that Hi-P should trade up to the industry average of FY10 8.9x P/E. We thus maintain BUY with target price of S$0.835 (from S$0.87 previously). Net of cash, Hi-P also presently trades at an attractive 6.2x FY09F P/E.

Cosco Corp: Sell (Phillip Securities, 4 Nov)
Cosco has turned in 3Q09 revenue of S$752.0m (-24% year-on-year) and net profit of S$22.3m (-80% yoy). Ship repair, shipbuilding, marine engineering and dry bulk shipping operations continued to perform poorly and posted decline in revenue. Moreover, operational costs remained high during the downturn, which caused net profit to drop. We expect Cosco to announce more cancellations and reschedulings of ship deliveries and this will have a negative impact on its revenue and profit. In fact, net profit is expected to decline to S$126.8m and S$130.4m in FY2009F and FY2010F respectively. We anticipate a recovery in FY2011F and Cosco to post net profit of S$161.2m. we note that the average P/E and P/B for the industry are 10.29 and 2.71 respectively. Cosco is currently valued at 8.14 times P/E and 2.15 times P/B. We maintain our sell recommendation as Cosco continues to be affected by the slump in the shipping industry. Shipping companies are not placing new orders for ships and have been canceling and rescheduling their existing orders. Due to the negative outlook on Cosco, we cut our fair value from S$1.14 to S$1.03. This is a change from 2.2 to 2.1 times book value for FY2009F.

Yangzijiang Shipbuilding: Buy (Credit Suisse, 4 Nov)
YZJ continues to deliver in line with our expectations. Net income for 9M09 came in at 76% of our FY09 estimates. The company also secured new orders for eight multi-purpose bulk carriers valued at US$300 mn, its first new order in 2009. However, management cautioned against expectation of a broad based demand recovery on the back of these orders. With another quarter of 20%-plus gross margin, management's strategy of preserving order book and maintaining tight delivery schedules clearly seems to be working. Some margin contraction from lower-priced new orders and higher steel prices is possible. YZJ is partnering with Chongqing Iron & Steel to to expand into the ship scrapping business. YZJ is taking a 20% stake in the venture. Construction of the facilities is expected to be completed by mid 2010. YZJ expects this business to have similar profitability profile as its current ship building operations. We are not attributing any value to this proposed venture at this stage. The company's cash and securities totalled Rmb10 bn, S$0.58/share, comprising cash (Rmb5.7 bn), restricted cash (Rmb3 bn) and financial assets (Rmb1.3 bn). We raise our earnings estimates by 1-4% for 2009-11E, on the back of the new order announcements. Target price is rounded to S$1.30 ($1.29 previously) based on 2010E P/E of 10x. We maintain our Outperform rating.

Yangzijiang Shipbuilding: Buy (OCBC Research, 3 Nov)
Yangzijiang reported a 28% year-on-year (yoy) rise in revenue to RMB2.6b and a 17% increase in net profit to RMB554m in 3Q09. Revenue and gross profit were in line with expectations but net profit beat expectations with higher other income and other gains, which includes foreign exchange gains and gain on disposal of raw materials. Gross margin was lower at 20.2% compared to 23% in 3Q08 partly due to sale of higher margin vessels in 3Q08 and higher operating cost in 3Q09 as the group provided docking facilities. Despite the lower margins in the last quarter, this is close to the group's two-year average gross margin of 20.6%. Yangzijiang had delivered seven vessels in 3Q09 and another six between 1 Oct 09 and 3 Nov 09, bringing the total number of vessels delivered so far this year to 30 vessels. As most of the remaining 10 vessels this year are in the final stages of construction, the group also expects to achieve on-time deliveries for them. According to management, there has been no cancellation of order from any customer so far, though the group is in talks with customers (e.g. Cosco) on possible order delays or changes to vessel specifications. Yangzijiang expects to deliver 46 vessels in 2010. The group has also entered into an agreement with strategic partners to incorporate Jiangsu Huayuan Metal Processing with 20% equity interest. This JV's core business is scrap steel processing, and would serve as a platform for Yangzijiang to enter into the environmental friendly ship breaking business. Procedures for approval are in progress, and business activities are expected to begin in 1H10. It is encouraging that Yangzijiang has received eight new orders (including two that were built by the group before firm order as per 2Q09 results announcement). The customers are mainly small to medium-sized shipping companies. The group is also looking at steel scrapping as a future revenue driver. We have tweaked our earnings estimates and roll over our valuation using FY10F earnings. As such, we raise our fair value estimate to S$1.28 (based on 11x FY10F earnings) and maintain our BUY rating.

SIA Engineering: Buy (Kim Eng, 3 Nov)
SIE's 2Q09 net profit of $61m was 17% year-on-year (yoy) and 35% ahead of 1Q09. As a result, SIE achieved 1H09 profit of $106m (-20% yoy), ahead of our full year forecast of $193.5m. Dividend was maintained at $0.05/share. The revenue decline of 7% yoy was due mainly to weaker Airframe Maintenance and Component Overhaul work as airlines reduced capacity. However, Line Maintenance revenue continued to grow as more flights were handled, primarily for low cost carriers. Higher rectification and cabin maintenance work for SIA’s retrofit program for its 777 fleet also helped to sustained Base Maintenance utilisation. SIA's latest operating statistics encourage an optimistic view of 2H earnings strength, hence our above-consensus full year forecast for SIA. With passenger load factors back to pre-crisis levels, despite on reduced capacity, we reckon it is a matter of time before SIA starts to put mothballed planes back into service. As the planes will need to be certified prior to this, SIE's base maintenance services will be required. In addition, key macro trends such as passenger, air cargo and aircraft movements, as well as tourist arrivals in Singapore are also improving. The same trends have been observed for international passenger air traffic. While IATA is not calling this a wholesale recovery yet, Asia Pacific air traffic has shown the biggest improvement. In servicing more than 90% of all flights through Changi, we expect SIE to be a beneficiary. We upgrade the stock to BUY with a $3.35 price target (based on historical average of 16x FY10 PE in the last five years). Barring further major systemic shocks, a continued recovery in air traffic, manifesting specifically in flights arriving/departing through Changi Airport, is likely sustain 2H09 results. We upgrade our full year forecast by 17%, which is still conservative as it only reflects 3Q/4Q09 results at 2Q09's level.

SIA Engineering: Buy (UOB Kay Hian, 3 Nov)
SIE has turned in a surprisingly good set of numbers for 2QFY10. While on an annualised basis SIAEC's 1HFY10 net profit was half of consensus, we nonetheless believe the market was expecting a better 2HFY10 on the back of higher line maintenance and improvement in airline traffic. The year-on-year (yoy) decline was not a surprise given that SIA had grounded 17 aircraft in April. However, the real story is the qoq improvement at top-line, which we attribute to higher line maintenance revenue. This led to a whopping 185% qtr-on-qtr (qoq) increase in operating profit to S$35.1m. The substantial qoq improvement in net profit should lead to further upward re-rating and we believe the worst could be over. The company will be holding an analyst briefing this morning and further details including segmental breakdown will be provided. Maintain BUY and S$3.52 target price, based on 15.9x FY10 and FY11's average earnings. Our earnings forecasts are 8% ahead of consensus and we expect consensus upgrades to underpin the share price.

ST Engineering: Hold (OCBC Research, 3 Nov)
STE 3Q09 results saw its revenue of S$1,351.8m (-2.2% year-on-year, -4.1% qtr-on-qtr) came in lower than our expectations due mainly to lower-than-expected sales from its Aerospace and Land Systems segments, while PATMI of S$120.3m (-6.7% yoy, +10.7% qoq) was spot on with our earnings estimate. For 9M09, revenue tallied to S$4,079.0m (-2.0%), meeting 73.4% of FY09 forecast (consensus: 73.9%) whereas PATMI stood at S$314.2m (-14.5%), or 72.1% of our bottomline projection (consensus: 72.7%).The yoy decline in quarterly revenue was attributable to lower turnover from both its Aerospace (reduced sales from component and engine repair/overhaul businesses) and Land Systems (lower sales from automotive business in US) segments. However, the rate of decline was alleviated by stronger contribution from its Electronics (milestone completion of Integrated Resort project) and Marine (stronger shipbuilding business in US) segments. Over the quarter, STE generated healthly operating cash flow of S$196.9m, repeating the S$192.1m cash-flow in 2Q09 – a reflection of strength in its working capital management, in our view. As of September end, the group also held on to a strong order book of S$10.3b. STE has guided for a "comparable" turnover and PBT for FY09. We have eased our FY09 forecasts slightly by 1% and tweaked our assumptions to incorporate the softer 3Q09 turnover and the above guidance. Rolling our valuation to FY10, our fair value is now raised from S$2.46 to S$2.55 (still based on 16x PER valuation metric). Despite the limited upside, we are maintaining our HOLD rating on STE as the stock still offers a decent FY10F dividend yield of 5.4%.

AusGroup: Buy (OCBC Research, 3 Nov)
Ausgroup has reported a 43.3% year-on-year (yoy) and 37.5% qtr-on-qtr (qoq) drop in 1Q10 revenue to A$73.9m. The large decline was due to 1) slow tendering activity from 4Q CY08 to 2Q CY09 creating an 'order book hole'; and 2) slower than expected start-up of several Australian projects. While gross margin improved from 12.8% a year ago to 13.7%, net margin fell 210 basis points to 2.3%. Revenue was below our expectations of A$98m because of the unanticipated project delays (on the client-end). While we expect the ‘order book hole’ to also dampen 2Q10 results, AusGroup did guide for a sequential improvement in revenue next quarter. However, it also expects continued weakness in earnings due in part to a more competitive tender market. The stronger Australian dollar has also forced AusGroup to sacrifice margin on fabrication tenders to even the playing field against Asian-based competition. However the medium term outlook still positive as mining capital spending recovers. As an illustration, Rio Tinto has doubled its capex guidance for 2010 from US$2.5b to US$5b with a further potential upsize to US$6b. A large pool of LNG projects will, in our view, also drive earnings – we understand tendering has begun on Chevron's Gorgon project, and contributions could flow through in FY11. AusGroup's order book currently stands at A$347m and it has submitted A$621m worth of tenders. As such, the group guided for "a progressive improvement in revenue" over the next four quarters. It also said it expects margins to "return to more normal levels" towards the back end of the 12 month outlook period. We have adjusted our FY10 estimates to reflect 1Q10 performance. We are also taking a more circumspect view on 2Q10 revenue due to the project delays. All in, our FY10 revenue estimate drops from A$438m to A$409m. We expect more contract wins in the coming months and leave our FY11 estimates unchanged for now. Due to the significant difference in estimated performance in FY10 vis-à-vis FY11, we now peg our valuation to 12x 12 months forward PER. While 1Q10 results were disappointing, we maintain our BUY call with S$0.70 fair value on the medium-term outlook.

Allgreen Properties: Buy (UOB Kay Hian, 3 Nov)
Allgreen has reported 3Q09 PATMI of S$74m, up 137.3%, boosted by the provisions for writeback of S$35.7m. 3Q09 revenue jumped 158.6% year-on-year (yoy) to S$293.1m mainly due to higher sales recognition from the property development segment contributed by One Devonshire and Viva projects in Singapore. During 3Q09, the Group suffered an exchange translation loss of S$9.3m compared to the S$19.2m gain in 3Q08 due to weaker Rmb against S$. The results were above our expectations with 3Q09 PATMI representing 40.5% of our full-year forecast, excluding writebacks. It was mainly due to earlier-than-expected recognition of earnings forecasts from the One Devonshire and the Viva projects. We have revised the earnings accordingly. The Group's gearing ratio was lowered to 0.4x compared to 0.45x during the same period last year. Allgreen's recently launched much-awaited high-end VIVA project near the Novena MRT received good response with around 93% of the units launched sold at an average selling price (ASP) of S$1,500psf. Singaporeans were the majority of the buyers with around 30% foreign buyers, mostly Indonesians and Malaysians. The Group is well set to take advantage of the current strong residential sales momentum in Singapore with four ready-to-launch projects: The Cascadia, Holland Residences at Holland Road, Suites at Orchard located at Handy Road and RV residences located along the River Valley Road. Allgreen's retail space, Great World City and Tanglin Mall enjoyed higher occupancy levels and rental rates during nine months compared to the same period last year. Hotels and serviced apartments registered weaker performance during 9M09 due to softer demand from business travellers. We expect performance to improve going forward with the rebound in visitor arrivals boosted by the opening of the integrated resorts. We continue to see good value in Allgreen. Maintain BUY with a target price of S$1.75, pegged at a 10% premium to 2009 RNAV of S$1.61.

Indofood Agri Resources: Buy (Phillip Securities, 2 Nov)
IFAR is the largest provider of branded cooking oil in Indonesia with over 40% market share. Bimoli, IFAR's leading cooking oil brand, was introduced back in 1978. The company owns two of the top 5 selling brands in Indonesia. It is also one of the largest plantation companies in Indonesia with an aggregate land bank comprising 545,243 hectares and an oil palm planted area of 185,299 hectares as at mid-2009. IFAR added sugar cane into its agribusiness model last year. The company plans to expand the sugar plantation to approximately 18,600 hectares and build a sugar plant with daily processing capacity of 8,000 tonnes, which is due to be completed in 2010. Note that Indonesia is the largest sugar consumer market in Southeast Asia and one of the world's top 10 largest consumers of sugar.
Our Discounted Cash Flow model derived target price of S$1.97 offers 15.2% upside.
Our fair value estimate implies a forward P/E of 16.6x and 14.9x respectively for FY10E and FY11E. Also, this price target gives us a P/B of 1.7x and 1.6x respectively for FY10E and FY11E.

UOB: Buy (DBS Research, 2 Nov)
UOB's 3Q09 result beat expectations mainly due to higher Net Interest Margin (NIM). Collective impairments were only limited to loans, while non-performing loans (NPL) ratio was flat at 2.4%. Non-interest income fell due to lower investment income and despite a rise in fee and commission income. Net profit for the quarter was S$500m (+5% year-on-year, +6% qtr-on-qtr). Earnings were driven by higher net interest income with 0.6% qoq loan growth, arising mainly from housing loans (+12% yoy, +5% qoq) and higher NIM, which inched up 4 basis points (bps) qoq to 2.39% as UOB managed to reap some gapping profits from interbank activities. Non-interest income fell 28% qoq due to lower trading income and lower net gain from instruments measured at fair value, although fee and commission income from fund management, investment-related and loan-related activities increased. Provisions were lower mainly due to lower collective impairment charges for other assets and investments – 3Q09 collective provisions were only for loans. Specific provisions inched up marginally but this was due to some chunky accounts. Absolute NPLs were flat at S$2.4bn while NPL ratio was unchanged at 2.4%. We understand that new NPLs were lower qoq.. We adjusted our earnings by 5-6% for FY09-10F, but FY11F earnings is relatively unchanged (+0.2%). We lowered our NPL estimate for FY09 to 2.5% from 2.9% previously. Maintain Buy and S$18.70 target price

UOB: Buy (Kim Eng, 2 Nov)
UOB has posted a 3Q09 net profit of S$500m (+6.3% qtr-on-qtr, +5.3% year-on-year), which exceeded market consensus but in line with our expectations. Its growth in 3Q was led by higher net interest income and a sharp decline in collective impairment charges. Overall, the group delivered a strong set of results that affirms the resilience of its core franchises.
Net interest income rose by 2% qoq on the back of a 0.7% loans growth and Net Interest Margin (NIM) expansion led by higher contributions from inter-bank money market activities. While the decline in its volatile trading and investment gains (-68% qoq) eroded operating profits in 3Q, we see strengthening earnings momentum supported by loans growth, broad-based recovery in fee-based income and declining operating costs. Individual impairment charges inched up 4.5% qoq largely from Singapore and Thailand, while collective impairment charges were halved. The non-performing loans (NPL) have stablised, with no further deterioration seen in 3Q. Having a niche in the high-end of the mass housing market, the group is in sweet spot to capture the strong demand in this segment. This is evident in the out-performance in its housing loans, which surged by 12% qoq. We have kept our earnings estimates unchanged but increased our book value for FY09 by 3%. As such, our target price is raised to $19.50, pegged to its recovery PBV of 1.6x book value per share. UOB’s superior capital strength, coupled with its strong SME franchises in Singapore and Southeast Asia, makes it a stable recovery play.

UOB: Hold (OCBC Research, 2 Nov)
UOB delivered better-than-consensus 3Q09 net earnings of S$500m, up 5% year-on-year (yoy) and up 6% qtr-on-qtr (qoq). Impairment charges came off, down 49.5% qoq to S$235m, but up 49% yoy. Net interest margin (NIM) was 2.39% in 3Q09 compared to 2.35% in 2Q09 and 2.41% in 1Q09. Business activities have picked up and this should augur well for its corporate business. Associates' contribution should benefit from higher earnings at UOB-Kay Hian, largely due to renewed interest in equities, more capital raising exercises and more IPOs. As the results were largely in line with our expectations, we are keeping our FY09 net earnings intact at S$1978m, and making modest adjustments to our FY10 estimates, lowering net profit from S$2273m to S$2261m. We are maintaining our HOLD rating on the stock as well as our fair value estimates of S$17.

SMRT Corp: Buy (Kim Eng, 2 Nov)
SMRT's revenue rose 1% year-on-year while net profit rose 24% yoy to $52.8m, mainly on higher other maintenance income and lower staff and energy costs. Sequentially, results tracked the improving economy as revenue rose 6% while net profit jumped 33% (+14% yoy) to $48.3m. Interim DPS was maintained at 1.75 cents. Group revenue was resilient despite train and bus fare reductions and a smaller taxi fleet as train ridership continued to grow (+2.2% in 2Q10). Rental and engineering (13% and 38% yoy respectively) as well as higher other maintenance income drove the topline for the most part. However, operating profit benefited from the lower costs of diesel, which improved the results of the bus and taxi operations. According to the Manpower Ministry, a net total of 15,400 jobs were created in 3Q09, reversing the losses of 6,200 and 7,700 jobs in 1Q and 2Q09. Although the increase is still small compared to 2008 (3Q08: +55,700), we believe job creation is a key leading indicator of SMRT's transport-related business, and expect to see an uptick in train and bus ridership in the next few quarters if the nascent recovery is sustained. SMRT has finally provided some guidance on newly-acquired 49%-owned Shenzhen Zona and we have raised our FY10-12 forecasts by about 4%. It will start to contribute in the current quarter. In the next two years, SMRT will also gain more stations that it can repurpose to earn rental income, starting with Pioneer and Joo Koon in 2HFY10, Jurong East and Orchard in FY11 and Esplanade Station in FY12. With the current stock market rally looking uncertain at the moment, we believe late cycle plays such as SMRT will start to outperform as its business tends to lag behind an economic recovery. The stock is also currently trading at the low end of historical valuations. We therefore upgrade SMRT to BUY with a $2.10 target price, based on a cycle average PE of 17x FY11 EPS.

SMRT Corporation: Buy (OCBC Research, 2 Nov)
SMRT Corporation turned in a credible set of 2QFY10 results. Revenue came in at S$229.4m (+1.1% year-on-year, +6.3% qtr-on-qtr) in line with our expectations, while net income registered S$52.8m (+24.1% yoy, +9.5% qoq), slightly ahead of our expectations mainly due to higher other maintenance and related income. For 2HFY10, management expects its profitability to be impacted by higher contracted electricity costs, volatility in diesel prices, and higher operating costs with the ramp-up in Circle Line. However, as we believe higher operating expenses have been adequately accounted for, we keep our FY10F revenue unchanged but raise our profit forecasts by 2.4% to factor in the higher other operating income. As our dividend assumption remains intact, our DDM-based fair value also stays at S$1.92.

Straits Asia Resources: Buy (OCBC Research, 2 Nov)
SAR has turned in a good set of 3Q09 results with year-on-year (yoy) and sequential growth in revenue and profits, in line with our estimates. Revenue grew 18.5% yoy and 14.0% qtr-on-qtr (qoq) to US$200.1m, while net profit surged by 64.8% yoy and 80.1% qoq to US$38.6m. Growth was driven by higher coal prices and production volume, aided by lower effective tax rates. These led to an improvement in profit margins. SAR's shares have tumbled by 17% since we downgraded the stock on news of the Jembayan infrastructure collapse. Negatives have been priced in at current levels, and any successful attempts to make up for production shortfall will serve as near term catalysts. With an attractive 5.7% dividend yield, the stock offers value at current levels. We upgrade SAR to BUY with a fair value estimate of S$2.07 (previously $2.20).

Micro-Mechanics: Hold (OCBC Research, 2 Nov)
MMH's 1QFY10 revenue of S$9.3m showed a 32.3% qtr-on-qtr (qoq) growth, while earnings of S$1.4m reversed its losses for the past two quarters. This recovery is consistent with our expectations that continued growth in the semiconductor tooling segment is likely to drive its FY10 performance (although margins recovery was stronger than expected). For 2QFY10, we note management's positive remarks that its Custom Machining and Assembly (CMA) segment has recently received several promising orders, and that the semiconductor industry is likely to have stabilized. We are leaving our FY10 revenue forecast intact as 1Q is typically a stronger quarter. However, we now lift our full-year earnings estimate from S$2.1m to S$3.3m to account for stronger-than-expected recovery in margins. Our fair value in turn is raised slightly from S$0.35 to S$0.36 (1.5x FY10F NTA). While we are positive of MMH's business prospects and strong financial position, the stock appears to be fairly priced. As such, we maintain our HOLD rating on MMH.

China Milk: Neutral (DMG, 2 Nov)
China Milk's 2QFY10 operating profit fell by 81% year-on-year (yoy) to RMB26m, worse than we expected. Average selling prices (ASP) of bull semen fell 57% yoy, more than our expected 20% decline while sales fell 81% yoy. There were no sales of cow embryos for the period. Revenue for the raw segment declined 19% yoy to RMB32m. Raw milk ASP declined 11% yoy to RMB2,858/MT. Production had declined 10% yoy to 11,241MT due to a drop in herd size. This is due to the natural elimination or cycle of the cows. We note that the decrease in cows were from the Chinese Holsteins which the company has intention to reduce in the long term. They have sold all the milk they produced in the quarter, displaying continued demand for this segment. Although the long-term outlook for China Milk's role in improving milk yield in China is promising, we remain cautious as sales remain poor and inventory is building up. We have reduced our FY10 and FY11 net profit forecasts by 38% and 28% to RMB233.5m and RMB321.9m respectively. Downgrade from BUY to NEUTRAL with target price S$0.47. This is based on 5.1x FY11 P/E, which is a 60% discount to FTSE FY09 P/E of 13.1x.

UOB: Buy (Phillip Securities, 2 Nov)
UOB reported higher net profits of S$500 mil (+5.3% year-on-year;, +6.4% qtr-on-qtr, 2Q09: S$470 mil), boosted by higher operating profits but offset by higher impairment charges. The earnings came inline with our estimate of S$498 mil. Net interest income rose 3.6% to S$925 mil (+3.6% yoy, +1.9% qoq, 2Q09: S$908 mil) over the year as funding costs fell faster than interest earned. Net interest margin improved 18bps to 2.39% as compared to 2.21% in 3Q08. Non-interest income jumped 24.1% to S$396 mil as their financial instruments rebounded in value with the recovery of the markets. Fee and commission income was 3.7% lower as the Group recorded lower income from credit card and trade related services.
Operating expenses were largely stable at S$510 mil (+1.2% yoy, -2.0% qoq) over the year. Cost to income ratio declined to 38.6% as operating income increased. Total impairment charges jumped 48.7% over the year to S$235 mil due mainly to higher individual impairment. But this was 49.5% lower compared to 2Q09 as the economy recovers and charges normalized. Gross loans expanded 0.7% over the quarter to S$100.9bil but slipped 1.6% as compared to 3Q08 as loans to building and construction, manufacturing and financial institutional loans shrank. Asset quality stabilized and NPL was relatively unchanged at S$2.48bil with NPL ratio at 2.4%, similar to 2Q09. Total cumulative allowances improved to 104.2% of secured NPLs as compared to 100% last quarter. Total CAR ratio increased to 18.5% with Tier 1 higher at 13.5% from lower riskweighted assets and higher retained earnings. The Ministry of Trade and Industry adjusted the Singapore's 2009 GDP growth estimate upwards to -2.5% to -2.0%, reflecting modest recovery in most of the sectors. We believe these would benefit the bank as loans growth resumes and bad debts normalize. We expect UOB's operating income to expand with impairments to normalize as the Group goes into 2010. We increase our 12-month target price to $19.70 as we roll over our valuation to peg to 1.68x FY10 NAV. Thus we are upgrading UOB to a Buy.

CDL Hospitality Trust: Buy (Phillip Securities, 2 Nov)
CDL HT has reported a gross revenue for 3QFY09 of $22.9 million (-21.5% year-on-year, +13.1% qtr-on-qtr)), net property income (NPI) was $21.4 million (-21.5% yoy, +11.3% qoq). Distributable income was $18.6 million (-23.7% yoy, +7.2 qoq). DPU for the quarter was 2.04 cents (-30.4% yoy, +7.9% qoq). Although year on year numbers were jarringly alarming, however attention should be focused on quarter on quarter figures instead, and the positive top-line and bottomline improvements indicate the worst is probably over.Occupancy of the Singapore hotels showed a strong upturn in 3QFY09 at 86.1%, an improvement of around 11 percentage points from the lowest rate of 74.8% achieved in 1QFY09. Revenue per available room (REVPAR) also showed an improvement of 14.9% from 2QFY09 at $154, on the back of the higher occupancy rate. Contribution from Rendevous Hotel Auckland remains stable, secured by an annual escalation component of the base rent and also a strengthening New Zealand dollar. Orchard Hotel Shopping Arcade (OHSA) however registered a drop of 12% in revenue over 2QFY09 as occupancy dropped slightly from 90% to 88%. Overall Singapore hotels account for 86% of revenue, New Zealand contributes 10% while OHSA contributes 4%. Current gearing of CDLHT is 20.2% with total debt of $307 million. We believe that the tourism industry is already on the mend as can be seen from the anecdotal evident. We also believe that the performance for 4QFY09 will be a better period as the last quarter is the seasonally stronger period for the tourism industry. In view of the improving outlook, we revise up our full year occupancy forecast from 74% to 80%. Our REVPAR assumption is also raised from $144 to $152. These translate to a 4.5% improvement to FY09F gross revenue forecast. Our FY09 DPU forecast changes from 7.25 cents to 8.06 cents. We raise our fair value from $1.72 to $1.80 and maintain our Buy call.

NOL: Hold (Phillip Securities, 2 Nov)
NOL reported 3Q09 revenue of US$1,564m (-34% yoy) and net loss of US$139m compared with a net profit of US$35m in the same period last year. The net loss of US$139m is worse than our forecast of US$126m. Moreover, this was only a slight improvement from the loss of S$146m in 2Q09. NOL performed poorly as its container shipping business continued to suffer from declines in shipping volumes and freight rates. Although NOL focused on cost management, productivity improvement and service delivery during the downturn, the operating environment remained difficult. We have increased our loss estimates for next year as NOL highlights that it expects to report losses for 4Q09 and at least through 1H10. Net loss is forecast to remain high at US$670m and US$383m in FY2009F and FY2010F respectively. We are expecting a recovery in FY2011F when NOL is anticipated to post net profit of US$203m. Although NOL is expected to report losses for this year and next year, it is stronger financially after its rights issue in June 2009. In fact, its net debt to equity is estimated to be zero in FY2009F and 0.2 in FY2010F. Therefore, we maintain our hold recommendation on the stock. As the container shipping industry is anticipated to face difficulties for the rest of FY2009F and FY2010F, and NOL has provided a negative outlook up to 1H10, we have reduced our fair value from S$2.12 to S$1.75. This is a change from 1.2 times to 1.0 time book value for FY2009F.

CDL Hospitality Trust: Sell (Citi Research, 1 Nov)
CDL H-REIT has reported a 3Q09 DPU of 2.04cents, after taking into account the 10% retained. 9M09 DPU amounts to 5.9cents, about 88% of our FY09 estimate of 6.7cents and about 78% of consensus DPU of 7.9cents. Results were in line with consensus but ahead of ours. Revenue was down 21.4% year-n-year (yoy) while NPI was down 21.5% yoy. On a qtr-on-qtr (qoq) basis, most hotels reported a double-digit gain and are now back to 1Q09 levels. While revenue per available room (RevPar) was down 28%yoy, CDL H-REIT rental revenue from its Singapore hotels was down just 23% yoy, reflecting lower operating cost at the hotel levels. Despite the improvement in occupancy for the quarter (+10.6%pts qoq; +0.6%pts yoy), RevPar still posted a decline of 28%yoy ($154 vs $214) vs the 39.6% yoy ($134 vs $222) in 2Q09. Room rates remained depressed at $179 (3Q08: $250; 2Q09: $178). We have raised our FY09 DPU to reflect the better-than-expected performance at Novotel and the lower-than-expected interest expense. As such, we have raised our TP to S$1.20. We, however, remain cautious on the stock as it is already pricing in a 40% rise in RevPar and a 100% payout. While we believe RevPar will rise in the next two years, it is unlikely to be 40%.