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Hour Glass: Hold (UOB Kay Hian, 31 Aug)
Swiss watch exports to THG's key markets strengthened virtually across the board on a month-on-month (m-o-m) basis in July. Swiss watch exports to Hong Kong, Singapore, Thailand, Australia, and Malaysia showed increases of between 7% and 25% over the previous month. The only country in which THG has an operational presence and showed decline was Japan (-13% mom). On a year-on-year basis, however, Swiss exports to Hong Kong, Japan, Singapore, and Thailand continued to contract, taking in between 13% to 45% less Swiss watch imports than in the year-ago period. This was in line with the global trend, as watch exports fell 26.3% in Jan-Jul 09 to CHF7.3b. While the data released by the Federation of the Swiss Watch Industry (FSWI) is in no way meant to be a reflection of THG's immediate prospects, it does corroborate with key economic indicators that suggest the downturn is turning out to be less severe and prolonged than previously imagined. On the whole, we view the return of Swiss watch exports to growth territory for THG's key markets positively. (Southeast Asia and Australia contributed to 84% of FY09 revenue). While we do not foresee a return to the heady days of 2007 and 2008 in the immediate term, we believe operations are being lifted out of crisis mode. Retailers have been focusing on destocking to keep inventories up-todate and cash flows positive so as to fortify coffers. The latest numbers seem to suggest that retailers may be bringing inventory back to more normalised levels, on the back of encouraging indicators, and in anticipation of the opening of two integrated resorts in 2010. In the case of THG, inventory levels have been at their highest levels in the past five years due to stocking for three new store openings in May-Jul 09. We expect inventory days to start to decline in the coming quarters, as all three stores that have turned operational by Jul 09 start to contribute. We are keeping to our view that the anticipated recovery for the luxury watch retail segment in 2HFY10 will be moderate, and be more reflective of a slow return to normal operating conditions than of growth. We maintain our HOLD call on THG with a fair value of S$0.70, based on 0.8x P/B.

Avi-Tech Electronics: Buy (OCBC Research, 31 Aug)
Avi-Tech Electronics has turned in a set of better-than-expected 4QFY09 results. Revenue fell 50.1% year-on-year (+22.5% qtr-on-qtr) to S$6.6m amid the difficult business environment, but was still ahead of our expectation of S$5.7m. Similarly, while net profit declined 29.6% yoy (+100.7% qoq) to S$1.1m, it exceeded our forecast of S$0.6m, due to a more favorable sales mix and stronger-than-expected operating income. As a result, FY09 revenue of S$31.3m (-57.8%) was 2.9% above our sales estimate of S$30.5m, while net profit of S$5.4m (-54.4%) was 10.5% higher than our earnings projection of S$4.9m. The group expectedly ended the fiscal year by declaring a final cash dividend of 0.5 S cent/share, hence bringing the total FY09 dividend to 1 S cent/share (or 5.0% yield).While there are tentative signs of improvement in business activity, management cautions that the global recovery is likely to be subdued, and that the current economic climate is expected to continue to pose challenges to the group in the near term. However, the group also highlighted that it is confident of riding out the current economic downturn, given its healthy balance sheet and strong cash position (S$0.13 net cash/share). In addition, it noted that its strategies to grow its businesses within the medical and life sciences industries and to broaden its service offerings had begun to take-off, having fulfilled its first orders for the respective equipment. In order to further pursue these new business opportunities, Avi-Tech had also established a wholly-owned subsidiary in the US. On this front, we understand that the group had since received an increased number of orders for Burn-In boards in the region. We view this stronger-than-expected performance positively as it suggests that the worst may probably be over, and that the company is currently on track for recovery. For FY10, we also expect its healthy margins to sustain amid stronger percentage contribution from its higher-value Burn-In board manufacturing and services segments. As the group progresses into the new fiscal year, we now introduce our FY11 forecasts. Applying a 1x FY10F NTA (0.65x FY10F NTA previously), our fair value is raised from S$0.11 to S$0.19. However, as the stock appears to be fairly priced at the current share price, we maintain our Hold rating on Avi-Tech.

ASL Marine: Buy (DMG, 31 Aug)
Management is receiving healthy enquiries for newbuilding of high capacity tugs and offshore construction vessels. We understand that these offshore vessels are in demand, given the increased offshore drilling activities in Australia (Western Australia's Gorgon Gas project) and Indonesia (Timor Sea, Sumatra). Hence, we believe this will be positive for ASL. However, management acknowledges that due to fewer orders and tighter competition, the margins of new orders may be compromised, going forward. ASL's Batam yard is currently adding two drydocks and a graving dock as well as lengthening its finger pier. When the upgrading work is completed in Mar 10, ASL's yard capacity would increase by 70% dwt and be able to accommodate the repair and conversion works of larger vessels. Management is optimistic on the long-term outlook, underpinned by an increasing global fleet and regulatory requirements. ASL has a current fleet of 189 vessels with an average age of six years for its shipchartering business. ASL is currently building 11 vessels internally and a vessel externally to add to its chartering fleet, which will increase to a fleet of 201 vessels by FY10. While we do not anticipate sudden pick-up in newbuild orders for this year, we believe this has been priced in. With the expansion of Batam yard to be fully completed by Mar 10, we believe ASL will be one of the key beneficiaries for repair work of an enlarged fleet globally. Ascribing P/E of 6x to FY11 EPS, we derive our target price of S$1.41. Maintain BUY.

Koda Ltd: Buy (OCBC Research, 28 Aug)
Koda has posted a disappointing set of FY09 results with a US$0.3m net loss in FY09 vs. our projection for a US$0.3m profit and a US$4.2m profit a year ago. Revenue fell 31.2% to US$37.8m as sales declined across all key geographical segments. The UK posted the biggest slide with sales falling 50%, while the remaining regions recorded revenue contractions in the range of 24% to 37%. On the bright side, sequential performance improved as 4Q09 sales grew 24.0% to US$8m while net losses narrowed to US$0.08m from US$1m in 3Q09. A dividend of 0.5 S cent has been declared, translating to a yield of 2.4%. Koda has however finally emerged from the worst of the economic downturn. Earnings have gained visibility with the group's outstanding orderbook now coming in at US$12.2m, to be recognized over the next three to four months. Pre-Christmas re-stocking, coupled with the US housing market's recovery, is expected to keep the group running close to full capacity till 2Q10. This development marks a tremendous improvement from last quarter, when the outlook was still hazy and profitability remained uncertain.Koda's valuations have taken a severe beating since the onset of the sub prime crisis. At current levels, it is trading at just 0.7x NTA. As we rule out the possibility of further book value erosion FY10, we are removing our 50% valuation discount, lifting our fair value estimate to S$0.285 (previously S$0.145). We upgrade our rating to Buy on the group's improved outlook and undemanding valuations, coupled with its strong balance sheet with net cash position.

Eu Yan Sang International: Hold (OCBC Research, 28 Aug)
EYS' FY09 results were spot on with our estimates. Revenue grew 7% to S$222.5m while net profit grew 164% to S$13.1m. Excluding non-core items such as fair value losses / gains on investment properties in FY09 and FY08 respectively as well as losses from discontinued operations in FY08, recurring net profit would have surpassed our estimates with a 14.5% gain to S$14.1m. The group has proposed total dividends of 2.2 cents translating to a relatively attractive 5.2% yield. EYS has posted creditable margin improvements despite a challenging year, demonstrating effective cost management. Gross profit margin improved by 1.0ppt to 51.1% while core net profit margin expanded by 0.4ppt to 6.3%. Revenue grew across all key markets with Malaysia once again leading the pack with a 19% acceleration in sales, with Singapore (+4%) and Hong Kong (+1%) following respectively. Having opened 10 new retail outlets in FY09, EYS is guiding for slower store expansion in FY10 due to the murky outlook on consumer spending and expensive rental rates. Instead, its strategy for FY10 is to grow organically by lifting same store sales. The group plans to achieve this by introducing new products and by improving its operational cost efficiency. Nevertheless, we think that it may embark on more aggressive expansion plans should retail rental rates ease in the coming quarters. EYS has emerged from the recession in good shape. Efficient inventory management boosted the group's operating cashflow to S$30.8m from S$7.3m a year ago. Cash conversion cycle shortened to 103 days from 109 days, and net gearing posted a marked improvement to just 2.5% as compared to 21.9% a year ago. While we do not foresee major price drivers for the stock, we are keeping our Hold rating intact in view of its consistent dividends. Our fair value estimate has been raised to S$0.40 (previously S$0.37) as we rollover our valuations to FY10.

LMIR Trust: Buy (OCBC Research, 28 Aug)
We visited seven of LMIR Trust’s retail malls in Greater Jakarta and Bandung earlier this week and found a healthy, vibrant portfolio carrying on despite a weak retail sector. Both LMIR and retailers are gearing up for a seasonal up-tick in spending during the Ramadan fasting month. Spending typically spikes two weeks before Idul Fitri, when Indonesian companies pay out a mandatory employee bonus of one-month salary. The manager also seemed optimistic about the Christmas spending season. Our 2H09 DPU estimate is 2.75 S cents, up 3.4% half-on-half. Operational control has also tightened with LMIR dealing directly with casual tenants or demanding up-front payments from wholesalers. Some retailers including three anchor tenants that we know of have vacated or downsized space at the malls. The market remains soft with retailers hesitant to invest in new stores. LMIR's portfolio occupancy is above-market and in our opinion, the manager has done a credible job in re-populating the space. Still, the turnover process (offer, lease negotiation, fit-out) takes time, affecting occupancy and revenue during the transition. We noticed that the manager is using temporary leasing to support the rent gap between tenants now that A&P demand has picked up. In fact, we found retailers such as BreadTalk; Times bookstore; and Matahari eager to capitalize on the season by utilizing casual leasing while their units get fitted out. We understand the malls that were part of the acquisition pipeline at IPO have completed works but occupancy levels have yet to stabilize. The manager had earlier guided that the timing or size of any acquisition would depend on availability of funding. In our view, any acquisition scenario is more realistic on a six to 12 months time horizon. If the manager employs SGD-denominated debt, we believe the likelihood of a concurrent equity issue increases due to cautious lender sentiment. Maintain Buy with our fair value estimate up to S$0.51 (prev: S$0.50).

Karin Technology: Buy (OCBC Research, 28 Aug)
Karin Technology has reported a set of weaker-than-expected 2HFY09 results due to the global economic crisis, which led to a broad-based decline in business segments. On a segmental basis, IC Application Design (ICAD) segment fared the worst (-19.6% in revenue), followed by Components Distribution segment (-17.3%) and IT Infrastructure segment (-16.6%). For FY10, Karin expects the ICAD segment to be the main growth driver, having won several sizeable orders from Chinese manufacturers in the netbook space. Pertaining to the economic outlook, management is also largely cautiously optimistic about its performance in FY10. We have eased our FY10 forecasts by 15.4-21.8% in view of the softer results. Despite this, we continue to like Karin's strong management and its efficient cost and credit control measures. Rolling our valuations to the next fiscal year and applying a higher valuation metric of 8x FY10F EPS (5x previously), our fair value is now boosted from S$0.18 to S$0.28. We maintain our BUY rating on Karin.

Olam International: Buy (OCBC Research, 28 Aug)
Olam's FY09 results came in within expectations. Sales grew 5.9% to S$8.6b and core net profit gained 20.9% to US$182.2m. Reported net profit of S$252.0m included one-off gains from the group's convertible bond buy-back and a S$10.8m impairment loss. The group's 4Q09 revenue registered a 2.4% YoY improvement to S$2.4b. Core net profit, however, slipped 11.3% YoY to S$57.5m on lower margins. A dividend of 3.5 S cents has been declared, representing a yield of 1.4%. Olam turned in a 16.1% growth in volume in FY09 as all segments recorded higher tonnage. Volume growth more than offset the general decline in commodities prices, enabling the group to post an increase in sales. Contributions from acquisitions were the key drivers behind this improvement as volumes from new businesses more than doubled. Volumes from existing businesses turned in slight improvements. Market share gains were evident as Olam enlarged its customer base by 63.4% during the year. The key highlight of Olam's FY09 results was the revamp of its corporate strategy. On top of its current supply chain management activities, the group plans to expand into upstream and downstream integration over the next six years in a bid to extract more profits from the value chain. Some of the initiatives proposed include the packaged foods business, Commodity Financial Services (CFS), and fertilizer manufacturing. As part of its revamp, Olam will conduct a review and weed out underperforming business units. We are positive on the overhaul as the renewed business model is expected to smoothen out earnings volatility, boost profit margins and reduce capital intensity. Our key concerns revolve around execution risk and a potentially higher risk profile from the group's larger asset base. We are keeping our FY10 estimates largely intact as the new initiatives are only expected to impact earnings in the further future. Olam's continual efforts to groom its business instill greater confidence in its medium term growth prospects. We upgrade our rating to Buy and raise our fair value estimate to S$3.08 based on 26x FY10 PER (previously S$2.37 based on 20x), in line with its historical average valuations.

Olam: Neutral (DMG, 28 Aug)
Olam has reported a FY09 net profit of S$252m, up 50% year-on-year (yoy) in line with our expectations of S$262m. Excluding one-time items (primarily gains from buy-back of convertible bonds), net profit would have risen 21% to S$182m. Factoring in the resilience of the food commodity business, we are forecasting FY10 net profit to rise 22% from core FY09 numbers, which is close to Olam's FY10 P/E of 22.9x. Olam recorded an overall volume growth of 16.1% and net contribution growth of 15.9%, with growth from all four segments including the Industrial Raw Materials segment. Net debt to equity is 2.41x as of 30 Jun 09. If we factor in the 273.5m new shares issued at S$1.60 to raise S$437.5m (completed mid-Jul 09), net gearing would fall to 1.72x. Adjusting for hedges and liquid inventories, net gearing is a lower 0.45x as of 30 Jun 09, and will fall to 0.31x if we factor in the additional capital from Temasek. Olam has declared a dividend of 3.5S¢/share, higher than FY08's 2.5S¢. Management is cautious on the outlook for 1QFY10, particularly for industrial raw materials, which has been impacted by the global economic recession. However, we are positive on management long term plan to expand into the commodity financial services business, which is expected to widen margins. Our fair value is raised to S$2.48, from S$1.90 previously mainly due to our raising of its terminal growth rate to 4.4% (from 4.0% previously), as we believe its new business will add value. Upgrade to Neutral.

Olam International: Buy (Kim Eng, 28 Aug)
Despite the challenging market conditions, Olam has posted a strong set of FY09 results which were within our expectations. Revenue grew 5.9%, and excluding one-off non-recurring items, net profit grew 20.9% to $182.2m. The growth during the year was led by an overall volume increase of 16.1%, with net contribution per tonne remaining still at $105/ tonne. This should not be a surprise, given the difficulties in extracting margins during a period of falling commodity prices. Out of its four segments, the three food ingredient segments saw credible growth, a testament to the more resilient demand nature of this commodity class. The new businesses acquired through M&A since 2007 has shown encouraging results so far, contributing $141.4m or 23.5% to total net contribution. These assets are mainly in their 1-2 year of integration. With management guiding for steady state contributions from 3rd year onwards, we expect returns to further improve. In its next phase, Olam will become a more integrated agribusiness, with more of its profit coming from upstream and midstream participation. This will especially be in products/ markets where it can build a leadership position. Management target margin of more than 3% also affirms our earlier investment thesis that the market may have underestimated margin expansion potential. We adjust our FY10 and FY11 net earnings downwards by 2% and 3% respectively and introduce FY12 forecasts. Our target price of $2.98 continues to be pegged to 25X FY10F. We expect Olam’s growth profile to remain intact, with a CAGR growth of 27% over the next 3 years.

Starhill Global REIT: Buy (UOB Kay Hian, 27 Aug)
SGREIT owns a 74.2% strata title interest in Wisma Atria and a 27.2% strata title interest in Ngee Ann City. Wisma Atria and Ngee Ann City are retail landmarks next to the Orchard MRT station, within the Orchard Road shopping district. Overseas, SGREIT owns Renhe Spring Zongbei Property in Chengdu, China and seven retail properties in Tokyo, Japan. Shopper traffic at Wisma Atria increased 48% year-on-year (yoy) in Jun 09 after the basement linkway connecting Wisma Atria to Orchard MRT station was reopened on 3 Jun 09 (after a closure of more than two years). Shopper traffic at the basement was the heaviest and had more than doubled from last year. We understand that many basement tenants have experienced a 10-50% increase in sales since Jun 08. ION Orchard did not affect business at Wisma Atria, confounding most sceptics. Shopper traffic to Wisma Atria actually increased by another 30% after the opening of ION Orchard on 21 Jul 09. Wheelock Place, ION Orchard, Wisma Atria and Ngee Ann City are linked to Orchard MRT station via an underground passageway. The opening of ION Orchard has attracted more shoppers to malls in the vicinity. Retail space at new malls ION Orchard, Orchard Central, 313@Somerset and Marina Bay Shoppes @ Marina Bay Sands are well taken up, supported by buoyant consumer confidence and domestic consumption. The risk of pressure on retail rents due to impending new supply has been reduced. We have raised our FY10 DPU forecast by 5.7% to $0.37 to factor in higher contributions from Renhe Spring Dongbei Property and more resilient occupancy at Wisma Atria. We have raised our target price for SGREIT from S$0.57 to S$0.64 based on the Dividend Discount Model (required rate of return: 7.7%, terminal growth: 2.5%).

Li Heng Chemical Fibre: Hold (Kim Eng, 27 Aug)
LHCF's new nylon chip plant has been completed and is currently undergoing trials. Full production is expected by end 2009. The expansion of the nylon yarn production is on track, with completion being targeted in 1H10. Successful integration of its nylon chip plant with the yarn production will result in gross margin expansion of about 3 ppt. The management is mulling the construction of a larger, 100,000 ton p.a. nylon chip plant on vacant land at its existing plant (internally-funded) after gaining expertise in running the first plant. This could lead to cumulative margin expansion of 8-10 ppt. Based on the latest data on average selling prices (ASP), we are expecting a 30% qtr-on-qtr (qoq) increase in revenue in 3Q. LHCF has so far been able to pass on the higher raw material costs to its customers by in the form of higher ASPs. The management believes that the stabilization of ASP in a seasonally weak 4Q would be a good indicator of a sustained recovery in the industry. The management expects sales volume to be firm, though volume may decline slightly in 4Q. Our FY09F and FY10F revenue forecasts have been raised by 13.4% and 35.3% respectively on the back of a more positive ASP guidance. Net profit is estimated to grow 118.5% in FY10F and 4.0% in FY11F due to expiry of the tax concession period. We have raised our target price to $0.38, pegged at 8x PER, a 50% discount to the regional sector average PER. However, at a forward PER of 7.8x, we believe the market is already pricing in a better operating performance in FY10F. We maintain our Hold recommendation and peg our re-entry price to 6x forward PER (below $0.28).

Goodpack: Buy (OCBC, 27 Aug)
Goodpack’s 4QFY09 results saw its revenue down 18% year-on-year (-1.5% qtr-on-qtr) to US$23.7m, while net profit dipped by a larger 45.4% yoy (-35.8% qoq) to US$4.1m, due to a spike in operating and raw materials costs and higher income tax expense. For FY09, however, the group still managed to eke out a 2.9% growth in revenue to US$102.4m and post a smaller 12.4% drop in net income to US$25.9m. We understand from management that the appreciation of USD against other currencies also created a negative impact on the group’s FY09 profitability. Had the forex rate remained constant at FY08 level, management noted that revenue and net income would have risen 9.2% to US$108.8m and 1.3% to US$30.5m respectively. Nonetheless, FY09 revenue was ahead our sales estimate of US$100.9m (consensus: US$103.3m), whereas net income slightly softer than our earnings projection of US$27m (consensus: US$29.5m). Goodpack declared a final cash dividend of 2 cents/share and special dividend of 1 cent/share, in line with our expectation (total yield of 3.1%). Over the fiscal year, Goodpack had also gained market share in both its synthetic rubber (up ~3ppt) and juices segments (up ~5ppt), which more than offset the decline in sales from its natural rubber segment. As such, synthetic rubber, natural rubber and juices segment now form 43%, 34% and 23% of FY09 revenue, respectively (36%, 43% and 21% in FY08). Going forward, Goodpack plans to diversify into new product verticals, such as LCD panels, steel cords, agricultural produce, chemicals and particularly, ink and auto parts. In fact, management revealed that the group had already won small contracts within some of these segments. As such, we may see a positive earnings surprise in FY10 should these initiatives kick off well. We remain confident of Goodpack's growth prospects and market leadership to ride out of current market downturn. Despite the soft quarter, the group is seeing a strong recovery in orders within its existing business segments in July-August period. We are leaving our FY10 forecasts intact for now, pending any material contribution from the new business opportunities. However, as we roll our valuations into the new fiscal year, our DCF-based fair value is raised slightly from S$1.14 to S$1.20.

Tiong Woon: Buy (DMG, 27 Aug)
TWC has posted another year of record earnings. FY09 revenue was up 28% year-on-year (yoy) to S$202.3m, on the back of strong contribution from its Heavy Lift and Haulage (HLH) segment (+32% YoY). Gross margins also improved from 35.4% in FY08 to 37.3% in FY09, due to higher margins from its HLH projects. Consequently, earnings rose 51% yoy to hit a new high of S$42.3m. A final dividend of 4¢ per share, payable in Nov 09 was declared. This translates into a dividend payout ratio of 3.2%.Management has expressed cautious optimism in the outlook for power generation, oil and gas and petrochemical sectors in the near term, in key markets like China, Indonesia, Vietnam, India and the Middle East. We are revising our FY10 earnings estimates for TWC, as well as introducing our FY11 earnings forecasts. FY10 earnings is now estimated to come in at S$53.2m (up from a conservative S$28m previously – the new forecast includes the one-off S$10.5m gain on property sale by its subsidiary announced recently). FY11 earnings are estimated to hit S$55.3m. Based on 6x FY10F earnings (up from 5x previously with improved investors' sentiment), with TWC's construction peers trading at 8.2x current earnings, our new fair value is S$0.95 (versus S$0.415 previously). We are upgrading our call to a Buy on its strong performance amid a more optimistic outlook.

Epure International: Buy (Phillip Securities, 27 Aug)
Epure's revenue has increased by 26.7% or RMB63.9m to RMB303.4m in 2Q2009 from RMB239.5m in the same period last year. The increase in revenue was mainly attributed to (1) contribution in equipment sales by Hi-Standard of approximately RMB29.6m and (2) higher revenue from major turnkey projects. Gross profits were reported to increase by 19.3% from RMB77.1m in 2Q2008 to RMB92.0m in 2Q2009. Gross margins took a slight dip of 1.9ppts from approximately 32.2% for 2Q2008 to 30.3% for 2Q2009. The slight dip in gross margins was mainly due to the nature of turnkey projects, where revenue is recognized on the percentage of completion basis. The yearly margins are therefore more reflective rather than the quarterly fluctuations, where its yearly margins are generally above 30%. The net profit for the Group came up to RMB66.7m in 2Q2009 compared to RMB52.1m in the same period last year, an increase of RMB14.6m or 27.9%. The Group's engineering, procurement and construction ("EPC") segment saw a significant breakthrough when in August 2009 it ventured into its first overseas deal in Saudi Arabia. The contract, to be signed with government-linked Marafiq, is worth approximately RMB562m and opens doors for the Group in terms of water and wastewater treatment services, particularly in the Middle East. As we have obtained a clearer picture on the project completion dates, we have now factored in the BOT income stream for three of their BOT projects in our FY2010 revenue forecast, namely the two Xi'an BOTs and the BOT at Guangxi. This has bumped up our FY2010 earnings forecast significantly to about RMB1.6b. We have thus revised our fair value upwards to S$0.71 (previously S$0.55). We are still bullish on the China water demand play and now with the Middle East in the picture, the Group is likely to open more doors in that region.

ST Engineering: Buy (DMG, 27 Aug)
Management has achieved commendable results in this cyclical down period. It has recently secured new customers (Jeju Air and Shanghai Airlines) and developed GEnx On-Wing Support services. It is also on track to commence operations at its engine facility in Xiamen, China, which could potentially handle up to thrice the existing capacity when fully operational. In addition, STE’s B-757 PTF conversions are expected to turn profitable from this quarter onwards after experiencing a steep learning curve. With its new hangers at Pudong, China, facility to commence operations early next year, STE is hopeful to expand its customer base for the AMM business segment. Management disclosed S$2.8b of new orders secured vs. S$260m publicly disclosed contracts in 1H09, due to customer/contract confidentiality issues. This suggests that even during challenging times, Singapore Armed Forces and foreign governments have provided STE with a good baseload of defence/government work. This is notwithstanding that defence/commercial revenue mix has shifted through the years such that commercial sales now constitute a larger portion of total revenue. When the up-cycle returns, we believe STE is able to expand its commercial revenue stream. Management also see opportunities for M&A to tap into new markets and/or technology access. M&As would be funded through a mix of cash, bank borrowings and even from its recent US$500m MTN issuance. We revise down our FY09/10 net earnings by 4.9%/4.7% as we account for higher interest costs. We do not foresee any change in the dividend payout ratio of 100%. This translates to attractive dividend yields of 5.6%/6.3% for FY09/10. Assuming a 100% dividend payout ratio, we derive our target price of S$2.91 (from S$2.83 previously) based on DDM valuation. Maintain BUY.

BBR Holdings: Neutral (DMG, 26 Aug)
BBR's reported revenue came in at S$53.8m, down 41.3% year-on-year (yoy) from S$91.7m in 2Q08. This was mainly attributable to substantial completion of a few key construction projects in 2Q09. PATMI, however, declined a milder 12.1% yoy, from S$2m to S$1.8m in 2Q09. This was largely due to contribution from its associates (comprising of its Nassim Hill project). Looking ahead, we believe this project would continue to contribute positively to bottom line for the current two years. BBR has healthy order books of close to S$400m, which includes the S$104.2m project secured from HDB, a first by BBR, which was announced on 17 Aug 2009. The contract runs till Jan 2012. We have increased our estimates of project wins to S$250m in FY09 and FY10 (up from a conservative S$50m previously), on the back of recent project wins. In addition, we have also increased contribution from its Nassim Hill project to S$10.3m in FY09 and S$11.3m in FY10. We forecast FY10 earnings to come in at S$13.6m, up 34.9% YoY. We derive a new fair value of S$0.07 (previously S$0.02) for BBR based on 7.8x FY10 EPS, which is the industry average. We have switched to using P/E instead of P/B as a valuation metric as the expected earnings driver from BBR's property projects have resurfaced in view of the current positive sentiment in the property market, particularly the private residential segment. We upgrade our call from Sell to Neutral.

Wing Tai: Buy (Kim Eng, 26 Aug)
Wing Tai has posted an FY09 net profit of $21.0m – a 91% decline year-on-year (yoy). Excluding fair value losses on investment properties totaling $110m and an allowance for foreseeable losses on development properties in Malaysia and Indonesia amounting to $4.1m, core profits of about $112.3m met our expectations. Total dividends of 4 cents were declared. As expected, property development accounts for 79% of Wing Tai’s core EBIT, mainly from the profit recognition from Helios Residences, Belle Vue Residences and The Riverine by the Park. The Riverine by the Park and Casa Merah will be completed in FY10, and Wing Tai expects to collect further sales proceeds of $185m. Based on the latest valuations, Wing Tai suffered nearly a 20%-decline on the fair value of its investment properties. The valuers are believed to have used cap rates of 5-6%. However, the investment properties still enjoy healthy occupancy rates (90% for commercial properties, 85% for serviced apartments in Singapore). Recently signed rents of just under $10 psf are also close to the average passing rent. The management remains cautious about the high-end market, believing that a clear and sustained economic recovery is required to support demand. Wing Tai is likely to focus on selling the remaining units of Ascentia Sky and Belle Vue Residences. Also, we'd like to remind investors that proceeds from subsequent units of the Helios Residences (when sold) are practically profits. We have increased our average selling price (ASP) assumption for the remaining units of Helios Residences to $2400 psf, as well as raised our valuation of Wing Tai's retail business to a 12x-multiple. Reiterating our BUY recommendation with a target price of $2.11, pegged at a 10%-discount to its FY10 RNAV of $2.34

Hyflux: Buy (OCBC Research, 26 Aug)
Hyflux recently signed a MOU (Memorandum of Understanding) with JBIC (Japan Bank for International Cooperation). According to Hyflux, the global collaboration will see JBIC examining the possibility of providing financing to projects that Hyflux has identified. We think that the MOU is timely as access to credit continues to be quite restrictive as the credit markets are still thawing and have not completely unfrozen. With the MOU, we believe that Hyflux will gain a significant amount of confidence and flexibility in bidding for mega projects. In line with the recovery in the global economy as well as business activities in China, we are bumping up our FY10 revenue and earnings estimates by 2.0% and 2.4%, respectively. We have also upgraded our valuations from 20x blended FY09/FY10 to 22x (which is still fairly undemanding compared to its historical average of 40x), thus raising our fair value from S$2.96 to S$3.30. Maintain BUY.

Li Heng Chemical Fibre: Hold (OCBC Research, 26 Aug)
We recently visited Li Heng Chemical Fibre (LHCF) in Changle City, China, to have a look at the progress of its Phase III expansion which it is progressing cautiously with a targeted completion in 1H10. But its PA (polyamide) chip plant has been completed – LHCF is in the process of testing the plant and expects full production to commence by end 2009. On the operations front, management shared that the order flow has improved going into the seasonally stronger 3Q; LHCF also believes that these orders are "real" sales i.e. actual demand as the downturn has caused customers to be wary against stocking up excess inventory. Average selling prices (ASP) have also been improving (up as much as 25% qtr-on-qtr); we have bumped up our estimates for FY09 revenue by 7.5% and earnings by 3.1%; FY10 revenue +5.4% but earnings -5.3% due to higher tax assumptions. Correspondingly, our DCF-based fair value rises from S$0.26 to S$0.33. But given the limited upside from here as well as the still uncertainty recovery, we maintain our HOLD rating; we would be buyers below S$0.25.

Avi-Tech Electronics: Hold (OCBC Research, 26 Aug)
Avi-Tech Electronics has turned in a set of better-than-expected 4QFY09 results. Revenue fell 50.1% yearon-year (+22.5% qtr-on-qtr) to S$6.6m amid the difficult business environment, but was still ahead of our expectation of S$5.7m. Similarly, while net profit declined 29.6% yoy (+100.7% qoq) to S$1.1m, it exceeded our forecast of S$0.6m, due to a more favorable sales mix and stronger-than-expected operating income. As such, FY09 revenue of S$31.3m (-57.8%) was 2.9% above our sales estimate of S$30.5m, whereas net profit of S$5.4m (-54.4%) was 10.5% higher than our earnings projection of S$4.9m. The group declared a final cash dividend of 0.5 cent/share in 4QFY09 as expected, thus bringing the total FY09 dividend to 1 cent/share (5.4% yield). Moving forward, Avi-Tech expects the current economic climate to pose challenges to the group, but is confident of riding out the downturn. For now, we place our HOLD rating and S$0.11 fair value under review.

FJ Benjamin: Hold (Kim Eng, 26 Aug)
FJB ended 4Q in red and recorded a net loss of $2.7m for the full year. Excluding an exceptional charge of $3.1m and a $3m non-cash forex loss, FY09 core net profit was $4m, down 72% year-on-year (yoy). Turnover declined in key markets like Southeast Asia and China, while sales were particularly weak for timepieces. The group recommended a dividend of 0.5cents/share. Despite its vulnerable top-line, the group managed to sustain its gross margins at near 40% through efficient inventory management. Healthy inventory turnover continues to churn positive operating cash flow. Cost discipline has reduced most operating expenses except for rentals, which remains a bugbear due to its aggressive store expansion in FY08. Despite weak earnings, fundamentals of the company remain sound underpinned by improving balance sheet strength. Positive operating cash flows have further eased net gearing from 0.21x to 0.15x This puts the group in good position to respond quickly to an upturn in consumer discretionary spending. To prepare for the next phase of growth, the group stays focus to secure the best locations. In Singapore, it has opened two retail stores in Orchard ION and Orchard Central. New stores will also be open at the upcoming Marina Bay Sand Shoppes. Meanwhile, a RAOUL showroom is slated to be open in New York by the end of September. We have cut our earnings estimates for FY10 by 19% to reflect a slow recovery and hefty rentals of its new prime shopping malls. While consumer sentiment has improved and the worst is likely over for FJB, consumer discretionary spending will be slow to pick up amid the weak and uncertain macro environment. Maintain HOLD, with a target price of $0.23 pegged to the current book value (0.85x PBV previously).

Li Heng Chemical Fibre Technologies: Buy (UOB Kay Hian, 25 Aug)
Li Heng's completed polyamide (PA) chip plant, with a daily capacity of 200 tonnes, or an annual capacity of around 75,000 tonnes, will commence trial production on 28 Aug 09 and expects to harvest its ownmade nylon chips on 10 Sep 09. The company is looking to start formal production by end-Sep 09. We assume in our earnings model that the plant will make contributions from early 4Q09. Upon commencement of full production, the PA plant will be able to supply around 50% of the raw material needed for the manufacture of Li Heng's yarn products. The company has guided a 5% improvement in gross margins for those yarn products that use their own chips as raw material for the moment. Hence, overall, we expect about a 3% margin expansion as a result of the PA plant's contribution in the near term. Average selling prices (ASP) of major nylon yarn products have risen by about 40% against their April lows of Rmb16,000/tonne. The management of Li Heng has also estimated that the ASP per tonne for Jul, Aug, and Sep 09 will be over Rmb19,000, Rmb22,000, and Rmb23,000 respectively. The overall ASP for 3Q09 is therefore likely to be over Rmb21,000/tonne, up 30% from the 2Q09 ASP. Output volumes are expected to remain stable as the company has always been running at full capacity. Hence, the 3Q09 top-line is likely to see a 30% qtr-on-qtr (qoq) improvement. Accompanied by the rise in selling prices, Li Heng's gross margins for 3Q09 are also likely to expand to 15%. The management expects Li Heng's ASP in 4Q09 to further strengthen to Rmb22,000-23,000/tonne on the back of the recovery in demand for textile products as well as the rising raw material prices. We have raised our forecast for the company's gross margins by an average of 3.5% for 2009-11 and maintain our BUY recommendation with the target price raised to S$0.35 based on its Hong Kong-listed peers' average of 6.5x FY10 PE.

Raffles Education: Buy (Kim Eng, 25 Aug)
Raffles has recorded a 48% year-on-year (yoy) decline in net profit to $51.1m that was below our expectations. Stripping out exceptional items, FY09 core earnings (-4.5% yoy) disappointed mainly due to weaker-than-expected student enrolment and higher taxes. Higher taxes were incurred due to the disposal of land within OUC and higher withholding taxes overseas. Student enrolment was flat at 32,828, with higher student enrolment from Asia Pacific offset by declining numbers in China due to the economic slowdown. However, the group believes that the worst is over and is targeting an organic student enrolment growth of 10-15% in FY10. To capture rising demand for Vocational & Technical education, It intends to set up 8 new colleges in FY10 in fast-growing countries like India and Vietnam. Positive catalysts could come from Oriental University City (OUC), through M&A and joint venture opportunities. Net gearing was effectively halved to 68%, thanks to the on-going efforts in debt repayment and positive operating cashflows. With a cash-generative business and the payment of OUC deferred, the group aims to pare down its gearing by FY10. If executed well, besides having the largest education network in Asia Pacific, Raffles will be financially sound to ride the next wave of growth and to resume paying out dividends. While we have reduced our FY10 earnings estimates by 15% to take into account higher tax rates and higher personnel expenses, we remain positive on Raffles long-term growth prospects. Its extensive and growing education network presents great value as it matures beyond a critical mass. Maintain BUY with a revised target price of 69 cents (reduced from $0.77) pegged to 18.5x FY10 PER, in line with global peers.

Raffles Education: Hold (OCBC Research, 25 Aug)
RLS has posted FY09 revenue of S$202m (+6.3% year-on-year) and bottomline of S$51.1m (-48% yoy). The poorer showing was primarily due to weaker growth in student enrolment coupled with the full S$33m impairment of Oriental Century and higher bad debt provision. Higher taxes were recorded due to tax incurred from its disposal of land as well as withholding taxes as it mobilised cashflows from overseas subsidiaries. RLS did not declare any final dividends in a bid to conserve cash. With the market concerned about its ability to pay its short term loans and meet its Oriental University City (OUC) deferred payment obligations, RLS recently embarked to raise capital of S$131.3m via two tranches of fresh equity offerings. RLS has also restructured its outstanding RMB1.2b debt with OUC with 75% repayable only after Dec 2012 with an intended public listing. Post listing, the provincial government will likely own a significant part of OUC. We think that it would still keep a stake seeing that it can be a cash producing asset that has been turned around by Raffles. As education is largely driven by regulators, the government’s stake in the listed entity will be seen as an advantage for Raffles. Although it has addressed debt concerns, RLS will not experience the growth of prior years. Management has guided for revenue to grow 15-20% and hopes to achieve net profit margin of 40-45% by FY12F. Student enrolment growth will also be stifled by a weakening Chinese market for private education as students put off longer and more expensive courses for shorter ones. Nevertheless, RLS will be setting up eight new colleges this year with breakeven timelines of 2-3 years each, depending on its locality. We have adjusted our estimates to cater for a smaller topline coupled with higher operating costs and taxes. This offsets the absence of negative exceptional items for FY10F. With its funding issues addressed, we have bumped up our peg to 18x FY10F (prev 12x). Our fair value is tweaked to S$0.60 (prev. S$0.57). With the limited upside, we downgrade the stock to a Hold.

Raffles Education Corp: Hold (Citi Research, 24 Aug)
REC's 4Q results were significantly below expectation with revenue down by 28% year-on-year (yoy) and 10% qtr-on-qtr (qoq) to S$44.8m -), significantly missing the Street’s consensus of between S$56.4m to $70.9m. Reported net profit declined to S$9.1m (-81% yoy), in part due to a S$13.5m increase in tax expenses, related to disposal of OUC land and withholding taxes. No dividend was declared. Raffles-branded schools under the private enrollment system (PES) underperformed the other segments, which was attributed to price sensitivity under a weakening economy. By geography, China underperformed other regions, due to additional adverse regulatory changes according to the company. REC provided key financial goals, including revenue growth of 15-20% per anum, driven by 10-15% PES enrollment growth and 3-5% fee increase, and NPAT margin of 40-45%. REC continues to take efforts to reduce debt; total debt at end FY09 was S$157m, down from S$202m in 3QFY09, in part funded by placement proceeds. REC continues to target zero debt by June 2010. Cash & equivalents were S$115m at end FY09. Maintain hold with target of $0.60

Great Eastern Holdings: Buy (Citi Research, 23 Aug)
GEH's 2Q09 profit of S$98m was in line with expectations on increased premiums income of S$1.25b (+6% qtr-on-qtr) Recovery of equity, and stabilization of debt markets should lift GEH's performance, and we now view 1Q09 was the cycle trough for premium sales and new business value. We treat the 3Q09E S$250m provision for "GreatLink Choice" redemption as a one-off, just like the S$213m Malaysia RBC gain in 1Q09. A possible 30% sale of GE Life Malaysia (GELM) may cost S$43m in FY08 profit (15% of group) but generate over S$0.5bn in proceeds. With a FY2008 EV of S$1.64bn and FY2008 net profit of S$144.7m, 30% of GE Life Malaysia may generate over S$0.49bn (S$1.04 per GEH share) in sale proceeds, but at the loss of about S$43m in income contribution based on FY2008 profits (15% of GEH FY2008). In July 2009.

China Hongxing Sports: Hold (Deutsche Bank, 23 Aug)
CHS'August orderbook had declined by 26% year-on-year (yoy) to RMB887.5mm which was slightly below our expectations. Compared to its last two trade fairs (Feb09: minus 20% and May09: minus 15%), the decline was more pronounced due to the high base effect from the Beijing Olympics last year. We are beginning to see signs of stabilization and order book is improving. Compared to the autumn/winter trade fair held in Feb09, orders would have increased by 11%. We also saw an improvement in sales mix towards higher margin apparel and accessories, making up 48.8% of the order book with footwear accounting for rest. Outlook mixed. The company continues to lag behind its peers in terms of operating performance and profitability. This could be attributed to the higher inventory levels at its distributors, slower store expansion and products discounts/ rebates provided to distributors to help weather the downturn in the 1H09. We expect short-term weakness in the share price due to the disappointing Aug09 order book. We would watch for key catalysts to turn more positive on the stock such as: 1) improvement in operating environment such as higher SSS and lower inventory levels at its distributors, 2) carrying out share buybacks in the 3Q, and 3) potential M&A opportunities to expand its product range. Maintain Hold, with target at S$0.22.

Olam International: Neutral (Nomura Research, 21 Aug)
We have increased Olam’s FY10F forecast earnings by 6% and by 2.5% for FY11F, driven mostly by lower assumptions for debt and financing costs as compared to our earlier estimates. Delivering returns on investments and M&A's will be critical in determining the company's future business momentum. Olam has invested about US$750mn in various mergers and acquisitions over the past two years. We believe it has seen mixed results in integrating and improving the profitability of new ventures. Recent equity dilution worth S$437mn to Temasek helps Olam's balance sheet. Olam's net gearing should fall from about 4x in FY08 to 2.1x in FY10 post dilution. The near-term impact from the stake sale looks positive, as our calculations indicate FY10F earnings would have been 5% lower sans equity raising. We believe Olam's current valuations fully price in near to medium term earnings prospects. Our PT of S$2.63 implies just 6% potential upside from the current levels. Following a transfer of analyst coverage, we downgrade Olam to NEUTRAL from Buy and recommend switching to Noble Group, one of our top picks in the commodity portfolio.

Asia Travel : Buy (Kim Eng, 21 Aug) / Target price: $0.63(increased from $0.60)
AST's online travel sales model continued to show resilience as the group managed to sustain its profitability and margins in 3Q09. While the travel sector was dampened by the HINI flu pandemic and political riots in Bangkok amid the global recession, AST sustained its 3Q net profit of $1m year-on-year, against double-digit declines of key tourism statistics.
AST managed to counter the sharp decline in room rates with a 4% room nights growth and 112% increase in air ticket sales. The successful introduction of air tickets in FY09 was timely to offset against lackluster fees from online hotel bookings. Being the first in Asia to launch flights with multiple stopovers on instant confirmation, we are upbeat that the fast growth momentum of its flight tickets sales can prevail. With a global reach, room nights are expected to resume to a 30-40% growth rate as the tourism industry picks up. Having accumulated low-cost inventories from its hotel partners during this quiet period, a potential recovery in room rates paves way for margin expansion. Additional revenue sources from flight tickets and travel video productions will further extrapolate AST's growth momentum in the next up-cycle. Earnings catalysts will come from the Integrated Resorts in Singapore. Having an extensive branch network across 8 countries, and already offering inbound tour packages into Singapore, the group is well-positioned to capitalise on opportunities with the IRs. We have reduced our FY09 earnings estimates by 20% to reflect the sharp decline in average room rates. Rolling over to FY10 earnings, we derived a higher SOTP target price of 63 cents. Trading at more than 50% discount to its peers, AST's scalable one-stop online booking

Anwell Technologies: Neutral (DMG, 21 Aug)
Anwell saw 2Q09 revenue of HK$191.3m (-32.2% year-on-year, -10.3% qtr-on-qtr) while it sank into the red with losses at HK$44.9m. This was in line with our forecasts as the company's optical disc equipment segment – which is traditionally lumpier as compared to Anwell's disc manufacturing arm – proved to be a drag due to a deferment of orders to 2H09 while high depreciation and admin expenses from the company's Solar business continued to affect overall bottomline. We continue to reiterate that a return to core profitability will only be seen when Anwell's solar business takes off although we do not expect any contributions until 4Q09. We therefore believe that share price would receive a positive push accordingly, as it would mean that Anwell has elevated itself to become one of Asia's lowest cost solar cell manufacturers while competing against the likes of the bigger boys such as thin-film solar player First Solar. Note that, however, execution risks remain as Anwell is still a new player in the solar industry. Management guided for a better 2H09 over 1H09 for its optical media segment, of which we have already factored in our last report and therefore will not be making any changes to our earnings estimates – recommendation thus stays at Neutral. Target price, however, is increased to S$0.38 (from S$0.215 previously) as we believe that Anwell should trade up to 0.37x P/B (average for the past 15 months, commencing from when the new solar foray was announced) from its current 0.33x FY09 P/B.

Hyflux: Buy (Kim Eng, 20 Aug)
Hyflux and JBIC has signed a Memorandum of Understanding (MOU) for global collaboration on water projects. The two parties will look to identify areas in the future where JBIC will provide financing for Hyflux's water projects which involves the participation of Japanese equipment suppliers or investors. JBIC is keen to have Japanese firms gain international exposure to the growing water industry, where it already has advanced technologies in water treatment. Hyflux, which has already been purchasing equipment from Japanese suppliers, only stands to gain from having a strong financier for its water projects. JBIC is a policy-based financing institution which has a current capital of JPY985.5 billion. Its mission is to contribute to the international economy and promote Japanese industries. Under its recent initiative to support environmental sectors, it is committed to provide finance support of 5 billion USD for the next two years. Hyflux will potentially be able to replicate globally the financial models for its Algerian projects, whereby JBIC will provide the project financing and equity for its water projects while Hyflux executes and profits from the EPC and O&M portions. Such a model suits Hyflux since it reduces its equity contribution, and removes its balance sheet constraints when taking on new projects. We await further development on this front. Should this be materialised further, contracts win momentum could accelerate again in China where Hyflux has been hesitant to pick up new projects due to balance sheet constraints. We maintain our SOTP target price of $2.88.

ASL Marine: Buy (Kim Eng, 20 Aug)
ASL Marine has posted a robust set of FY09 results – excluding a doubtful debt provision and impairment loss totalling S$7.6m, the numbers were bang in line. FY09 net earnings were S$71, up 17.9% over FY08. Without disposal gains, however, earnings were flat at around S$41m. ASL proposed a final dividend of 3cts per share, unchanged from FY08. Revenue for the group grew by 8.7% to S$435.4m, boosted mainly by its shipbuilding segment, which grew 10.5%. Shiprepair remained steady, while shipchartering grew by 9.4%. Overall margins have also been sustained, which is especially pertinent for shiprepair, which is facing difficult operating conditions in the current weak market environment. ASL has managed to sustain its shiprepair revenues especially in the final quarter. However, while the number of ships repaired has increased, the average contract size has declined. Going forward, we believe that erosion in revenues and margins is inevitable. ASL has also not secured any new shipbuilding orders since October 2008, but is currently working on its existing orderbook of S$523m. Management's reading of the market is that it does not expect to receive new orders until the credit situation improves. Under these conditions, we are conservatively not expecting any new shipbuilding orders and therefore factoring in a 60% decline in the segment's revenue from FY12. Ship chartering revenues will be propped up by the addition of 12 vessels, and better rates on timecharters, but these can be volatile. We are leaving our FY10 core net profit forecast unchanged at S$45m, for a year-on-year (yoy) pick-up of 10%. ASL is still trading at compelling valuations of 6.8x FY10 earnings. We maintain our BUY recommendation, to our target price of $1.62, in line with peer average of 10x PER.

ASL Marine: Buy (OCBC Research, 20 Aug)
ASL has turned in a good set of results amid a slowing industry. Although results were lower sequentially on the back of lower revenue growth and impairment loss on vessels of S$3.2m, revenue rose 8.7% YoY to S$435.4m and net profit rose 17.9% to S$71.1m for FY09. Shiprepair and shipchartering revenue were in line with our expectations for 4Q09, but shipbuilding revenue was lower than expected due to lower revenue recognition as certain work-in-progress had yet to reach the 10% recognition threshold during the period. Revenue and net profit met 96% and 94% of our full-year estimates respectively. New order flows were minimal and this is evident from the group's lower order book of about S$523m compared to S$582m in 3QFY09. However, this order book figure does not include eleven vessels (worth S$58m) that ASL is building internally to expand its ship chartering fleet. It is encouraging that demand for shiprepair and chartering are still holding up, which is good news for the relatively diversified group (shipbuilding, repair and chartering accounted for 33.8%, 27.5% and 38.7% of FY09 gross profit respectively). We are cautiously optimistic on the shiprepair and chartering sectors, and believe that the medium to longer term outlook is bright. Management revealed that value per contract for the ship repair segment fell this quarter but the group repaired more vessels, hence the healthy results for this segment. The group is also expanding Batam facilities to cater to more ship repair activities and this will be completed in 3QFY10. Ship chartering, though affected by lower charter rates, still has a positive outlook due to demand from domestic infrastructure, construction and land reclamation projects and offshore oil and gas activities, amongst others. As guided by management, we are expecting lower but still healthy earnings for FY10, barring unforeseen circumstances. The stock has risen about 30% since our last report, and though the spread between ASL and its comparable peers has narrowed, it is still trading at about 5x FY10F earnings compared to its peers’ average of 11x. Based on 7x FY10F core earnings (prev. 6x), we are raising our fair value estimate to S$1.18 (prev. S$1.03) for ASL Marine.

ASL Marine: Buy (DMG, 19 Aug)
ASL's 4QFY09 revenue of S$102.2m was in line with our expectations. Adjusting for an impairment charge of S$3.2m as a prudency move towards bad debts from shiprepair activities, ASL achieved an operating profit of S$16.6m. The only dampener was its dividend payout ratio of 16% vs. management's guidance of 20%. While revenue was within expectations, the revenue mix slightly differed from our forecasts. Shipbuilding revenue of S$60m was lower than expected, but this was offset by higher-than-expected shiprepair revenue (S$21m) and chartering revenue (S$22m). Gross profit margins were well within management's guidance, though we were slightly surprised that shiprepair margin of 33% was an improvement of 5.8bp year-on-year (yoy) due to better cost containment and operation efficiency. As at 30 Jun 09, ASL has an outstanding orderbook of S$523m for 33 vessels. Management estimates that approximately 56% of the orderbook would be recognised in FY10, with the remainder in FY11. It appears upbeat in securing new orders for higher capacity tugs and offshore construction vessels. As for shiprepair, management is optimistic on the long-term outlook, underpinned by an increasing global fleet and regulatory requirements. With the completion of two new docks in 1QFY10 and expansion of graving drydock in 3QFY10, management is confident that the Batam yard will be able to accommodate the repair and conversion works of larger vessels.. We have increased our FY10 forecast net profit by 15%. Ascribing P/E of 6x to FY11 EPS, our target price has been raised to S$1.41 (from S$1.07previously).

Olam International: Buy (Kim Eng, 19 Aug)
We believe Olam continues to be a good proxy for the agricultural theme, as the growth of long-term global demand outstrips supply. With a good farm-to-factory business model, sourcing and marketing presence in more than 60 countries, these trends will lead to volume growth and margin expansion opportunities. Since 2007, Olam has pursued an integration strategy that involves selectively owning assets such as midstream processing capacity in the supply chain. This allows the Group to become less of a price-taker. While its traditional trading business nets a steady 2% margin, the market could have underestimated a potential expansion to 2.8% by FY11. With a lowered gearing ratio of 1.8X following Temasek's $437.5m equity injection in June, Olam now has sufficient credit headroom to pursue an estimated current pipeline of more than 10 M&A deals. In the post credit-crisis environment, we see more opportunities for acquiring good distressed assets at attractive prices, such the recent SK Food deal. We believe Olam's growth profile for a company of its size continues to present a unique proposition. We estimate Olam's EPS (normalised) to grow at a CAGR of 27% from FY10-FY11, significantly above its peers. With this growth profile, we have pegged our target price of $3.05 to a premium 25X FY10F, which is still below its historical average of 31X PE.

Wing Tai: Buy (Kim Eng, 19 Aug)
Wing Tai is announcing its FY09 results on 25 Aug. We are expecting a net profit of $113.3m (excluding potential fair value losses), with contributions coming mainly from Helios Residences, the Riverine by the Park and Belle Vue Residences. We do not expect any writedowns for its residential developments, but Wing Tai may book in some fair value loss on its investment properties. To-date, Wing Tai has sold 82 of the 176-unit Belle Vue Residences. The bulk of it was sold in Q4, at an average of about $1,800 psf as we expected. The project is already under construction, so Wing Tai will be able to recognize profits from it almost immediately. Based on the URA's statistics, 31% of the 373-unit Ascentia Sky has been sold as of July, achieving an average selling price (ASP) of about $1,250 psf – about 13.6% higher than the $1,100 psf we were expecting. Having seen the showsuite, we were quite impressed with the product offering and have raised our ASP assumption to $1,200 psf for the whole development. Contribution from Ascentia Sky is expected to kick-in only from FY10. In line with its peers, we expect Wing Tai to suffer some fair value loss on its investment properties, probably in the magnitude of a 10%-decline, or about $55m. However, such losses will not affect the underlying cash earnings, which comes predominantly from the residential development business. The current shareprice implies a Gross Development Value of $1,444 psf for its land bank. We think this still significantly undervalues the landbank, which comprises mainly high-end developments such as the remaining 50% of Helios Residences and the two Ardmore Park sites. Maintain BUY with a target price of $2.05, pegged at a smaller 10%-discount to its FY10 RNAV of $2.28.

First Resources: Sell (UOB Kay Hian, 19 Aug)
FR plans to expand its upstream business through expanding its plantation business with long-term target of about 200,000 ha. Currently, FR owns about 170,000 ha of landbank and planted area of 100,300 ha. It will only expand its downstream business once its crude palm oil (CPO) production hits 1m tonnes. In 2008, it produced about 323,000 tonnes of CPO. On the back of the usual seasonality patterns in 1H09, FR expects 2H09 CPO production to exceed 1H09 by about 18%. It targets a 10% year-on-year (yoy) increase in CPO production in 2009 and another 10% yoy growth in 2010. FR has a selling policy to maintain forward selling by not more than 40% of total CPO production. In 2H09, FR expects most of its CPO production to be sold on "spot-basis". It sells only about 15% of its production based on forward contract. Its long-term contract with Wilmar is expected to expire by the end of 2009. We raise our net profit forecasts for 2009 and 2010 by 4% and 3% to Rp619b and Rp886b respectively after fine tuning our models given a stronger rupiah vs the US dollar. As we rollover our PE valuation into 2010F, we raise our fair price from S$0.39 to S$0.90, pegged at 10x 2010F PE. However, as the share price of FR has exceeded our fair price and we remain cautious on its earnings volatility, we downgrade the stock to SELL. We prefer Indofood Agri Resources (BUY/Target: S$2.00) on better earnings visibility and undemanding valuation of 11.4x 2010F PE.

First Resources: Buy (DMG, 19 Aug)
In spite of the harsh conditions in early 2009, when there was drier than usual weather and tree stress was apparent, FR still managed to be one of the top few in the industry in terms of FFB production growth (+10.1% year-on-year for 2Q09 and +8.2% yoy for 1H09). This compares to -36% to 7% for its peers. This outperformance can be attributed to the maturity profile of its trees, which have an average age of eight years. This falls within the peak production age, providing a platform for further production growth with minimal capex going forward. We note that FR's cash cost of production came in at less than US$185/tonne in 2Q09, below management's target of US$200/tonne. This was attributable to higher CPO yield per ha, as well as relatively lower harvesting costs. China consumed 13% of global palm oil supply in 2008. With consumption per capita relatively low at 22.4kg (~50% of developed countries level), there is plenty of room for demand growth as income per capita increases. We have raised our forecast revenue by 16.6% in FY09 and 20.9% in FY10. The gross margins have also been bumped up to 56% for FY10, from 49% previously. Hence, our earnings estimates were lifted by 160.2% to IDR834.8b in FY09 and 51.3% to IDR930.5b in FY10. We believe that strong organic growth will continue with its average age of trees falling within peak production age. In addition, its low cost of production of less than S$200/tonne will help keep its bottom line in shape. Maintain Buy with a target price of S$1.19.

China Fishery: Buy (DMG, 19 Aug)
China Fishery's 2Q09 net profit rose 6.6% year-on-year to US$25.1m despite fall in revenue. This is in line with our expectations. However, growth in net profit was due to cost savings. Revenue on the other hand fell 21.7% yoy to US$107.4m due to a 30.6% (US$32.5m) yoy fall in 2Q09 trawling operations revenue as a result of conserving fishing quota to 4Q09. The company hopes to benefit from higher fish and fish roe prices towards the end of the year as the economy picks up. Operating cost decreased 30.9% YoY to US$66.1m in 2Q09, due to the introduction of the ITQ system in Peru since Apr 09, allowing China Fishery to operate more efficiently. Lower fuel costs also contributed to the decline. Selling expenses declined 29.0% yoy in line with lower sales volume, hence net margins increased to 23.4% in 2Q09 compared to 17.1% in 2Q08. We have increased FY09 North Pacific trawling ASP from US$1,750/MT previously to US$1,850/MT due to better than expected average selling prices (ASP) in 1H09 (US$1,884/MT), which will be partially off-set by a US$9m increase in selling expenses forecast for FY09, as 1H09 selling expenses of US$14.7m turned out higher than expected. Our FY10 net profit has been lowered to US$162.4m from US$169.2m, due to increased FY10 selling expenses. We raise our target price to S$1.38 from a previous S$1.20 based on 5.1x FY10 P/E, which is derived from peer Pacific Andes' FY11 P/E of 5.1x. We note that since 2007, China Fishery has been consistently trading at a premium to Pacific Andes, with a P/E average of 11.7x versus Pacific Andes’ P/E average of 7.1x. However, our valuation is more conservative as we consider the Group's inexperience in South Pacific fishing, as well as possible disruptions to their fishmeal operations due to a severe El Nino.

Adampak: Buy (DMG, 19 Aug)
Adampak saw 2Q09 revenue of US$13.2m (+36.6% qtr-on-qtr, -5.8% year-on-year) while net profit came in at US$1.4m (+132% qoq, -0.3% yoy) as inventory restocking within the hard disk drive (HDD) industry boosted the company's sales volume that in turn led to better economies of scale. This was generally inline with our forecasts as we had previously written that we expected top and bottomline to come in at no less than US$13m and US$1.3m respectively. Management has highlighted that the recovery it is currently experiencing is not merely attributed to restocking activities for the older models, but also due to demand for new products that were launched by several of its major customers. Given the improving outlook, we believe that Adampak is slated for a stronger 2H as compared to 1H09. Given that this set of 2Q09 numbers had produced little surprises, we would be maintaining our top and bottomline estimates although the interim dividend of 0.75 S¢ was higher than our expectations. We therefore would be assuming a higher dividend payout ratio of 49% (translating to FY09 dividend of S$0.015) from our previous estimate of 40% in our dividend discount model although our conservative terminal growth rate of 1% stays. Recommendation remains at Buy while target price is now raised to S$0.27 (from S$0.235 previously).

AusGroup: Buy (OCBC Research, 19 Aug)
Ausgroup's 4Q revenue rose 19.2% year-on-year (yoy) and 18.7% qtr-on-qtr (qoq) to A$118m, while profit after tax jumped 21.6% yoy and 67.5% qoq to A$6.9m. 4Q09 earnings beat our conservative expectations significantly and also beat management guidance given at 3Q results. Management expects an adverse effect on 1H10 revenue and earnings due to anemic tendering over 4Q CY2008 to 2Q CY2009. Tendering and project planning is now back in full-swing, at least for the blue-chip customers AusGroup targets. Earnings visibility has improved, increasing our confidence in our FY10F and FY11F estimates. Key earnings drivers include BHP Billiton's RGP5 project; Woodside's Pluto LNG project; and the Chevron-led Gorgon LNG project. The better medium-term outlook is not fully priced in, in our view. We peg our valuation to 14x FY10F earnings (prev: 11x FY10F) or 10x FY11F earnings. Our revised fair value estimate is S$0.70 (prev: S$0.51). Upgrade to BUY.

SC Global Developments: Hold (Phillip Securities, 19 Aug)
SC Global reported 2Q FY2009 revenue of S$226.4m (+599% year-on-year) and net profit of S$7.8m (-32% yoy). As SC Global's stake in AVJennings increased to 50.03% in December 2008, the revenue of AVJennings has been consolidated as a subsidiary. This caused a significant increase in SC Global's revenue. However, as AVJennings Ltd's property business are mainly high volumes with lower margins, the net profit of SC Global was lower. Like other property stocks, SC Global's share price has risen sharply in the recent rally. We are maintaining our hold recommendation as we feel that there is limited upside from its current share price. Nevertheless, as the sales momentum in the Singapore property market is expected to be strong, we are raising the fair value from S$1.10 to S$1.52. This is a change from 50% to 40% discount to the RNAV. The RNAV has also been raised from S$2.21 to S$2.53 due to the higher than expected increase in property prices.

Sing Holdings: Hold (Phillip Securities, 19 Aug)
Sing Holdings has reported 2Q FY2009 revenue of $36.2m (+1,771.6% year-on-year) and net profit of $1.1m (-55.4% yoy). Revenue increased because of recognition of sales proceeds from Meyer Residence and the contruction progress of BelleRive. Although revenue was higher, net profit declined because of higher costs of sales of S$33.2m as well as sales and marketing costs of S$2.4m for the residential units that have been sold. Based on the progression of construction of the residential projects, Sing Holdings is expected to report an increase in profit from FY2009F. In fact, profit is anticipated to increase from S$3.4m to S$4.3m and S$6.6m in FY2010F and FY2011F respectively. Sing Holdings has benefited from the improvement in the property market. Its BelleRive project is more than 90% sold. It will also be launching its remaining project, The Laurels, at end 2009 or early 2010. We expect sales to continue to be encouraging. The share price of Sing Holdings has risen sharply since our buy recommendation on 1 July 2009. We feel that upside is limited from current levels and have downgraded the stock from buy to hold. However, we expect its property sales to remain strong and raise the fair value from S$0.25 to S$0.30. This is a change from a discount of 40% to 30% to the RNAV of S$0.42.

Genting Singapore: Buy (Deutsche Bank, 18 Aug)
Genting Singapore's Resorts World Sentosa (RWS) is on track for a soft opening by January 2010. We believe RWS is positioned to capture a 40-50% share of the US$3.0bn casino market, making Singapore's market one-fifth the size of Macau's and two times larger than Malaysia's. Singapore's excellent air connectivity and attractive gaming tax rate should appeal to VIP high rollers. Domestic population also has a high propensity to gamble, spending an estimated S$9.5bn/year. This should be further complemented by its growing tourist arrivals. The opening of the two IRs in 2010 should further cement Singapore's aspiration to become the premier tourist destination in Asia. We expect RWS, home to the first Universal Studios theme park in Southeast Asia, to welcome 11m visitors in 2010 and generate S$0.76bn and S$1.1bn of EBITDA in FY10-11E. Deutsche Bank's EBITDA estimates are 21% and 50% above the street. Our target price of S$1.26 values RWS at 14x 2012E time-weighted EV/EBITDA (see pp. 3, 6-7). We do not believe this is excessive considering the pre-opening premium of the Macau plays, tourism scarcity value in Singapore, stable regulatory regime/contained competition and its own historical 2010 EV/EBITDA band of 10-20x.

Singapore Airlines: Buy (Kim Eng, 18 Aug)
Singapore Airlines posted tangible improvements to its July load factors. Its passenger load factor, at 79.7, was just 1.3 points off July 2008's figure, and was a continuing trend of improvement from June 2009's 75.7. The pick-up came from two fronts; firstly, from SIA's ongoing efforts to reduce capacity, where passenger seat-kms was cut by 11.8%, and from a month-on-month improvement in passenger loads by a significant 12%. On the cargo side, there was also cause for optimism, with cargo load factors up by 3.3 points year-on-year to 63.6. However, this improvement came primarily from a sharp 18.9% reduction in capacity, while loads declined by a comparatively lower 14.6%. On a sequential basis, cargo loads did improve by 10.5%. We warn that the resulting overall improved load factor numbers by 1.1% points to 69.7, while positive, does not give an indication of yields. Premium travel is still in the doldrums, and the improved loads may be a function of SIA's ticket discounting in order to fill seats. However, the willingness of passengers to get on planes in view of improved economic conditions is encouraging. We also anticipate costs to come down further as SIA adjusts capacity to match loads. Our FY10 forecast stands at S$451.5m, for a decline of 61%. However, we reiterate that FY10's weak earnings are already expected and priced in by the market. We expect a strong rebound from FY11 onwards, and hence maintain our BUY call with target of S$14.70 based on 1.2x PBR.

Ezra Holdings: Buy (OCBC Research, 18 Aug)
We looked at Ezra Holdings' (Ezra) peers, Acergy and Subsea 7, to gain some insights on the current state of the Subsea industry. Acergy and Subsea 7 have both indicated that near-term earnings visibility and Subsea work from National Oil Companies and Oil Majors continue to be hazy but mid- to long-term prospects are better. We also felt that a key message of gross margin expansion for its Energy Division (currently 13%, target ~30%) was not entirely picked up by the investing community. We have shuffled its new assets to the Energy Division and relooked our charter rate assumptions. Ezra remains one of our favourites for the sector with its relatively defensive earnings. Coupled with the low base earnings accretion effect from its fledgling Subsea business, valuations will inevitably be driven upwards if executed well. We have tweaked our SOTP to S$1.75 (previous: S$1.46) based on a reasonable 10x FY10F PER (prev: 8x) for its core business and stronger market value of Ezion. Maintain BUY.

Straits Asia Resources: Buy (OCBC Research, 18 Aug)
Straits Asia Resources Ltd (SAR) has obtained the long-awaited permit from Indonesia's government to extend their mining boundary in Sebuku. The re-zoning approval comes as good news, and will boost the group's future production volume while lowering unit production costs. Production in the newly re-zoned area is expected to commence in 9 months, and will double Sebuku's targeted output from 2mt in FY09 to 4mt in FY10. The resolution of the forestry boundary issue could remove overhang on the stock. We are leaving our estimates intact as our projections have assumed the successful resolution of the boundary issue. Maintain BUY with S$2.38 fair value estimate.

Ho Bee: Hold (Phillip Securities, 18 Aug)
Ho Bee reported 2Q FY2009 revenue of S$740.8m (+534.2% year-on-year) and net profit of S$157.3m (+325.6% yoy). It announced an interim dividend of S$0.02 per ordinary share, which was an increase from S$0.01 for the same period last year. Revenue rose sharply as a result of the progressive recognition of projects that have been substantially sold, namely The Coast and Paradise Island in Sentosa Cove. Net profit increased because of higher revenue partially offset by a write-down of S$109.8m in fair value changes of properties. We expect Ho Bee to report record profit of S$380.3m in FY2009F as it recognizes revenue from most of its projects in Sentose Cove. Following that, it is likely to remain profitable as it recognises profits from the remaining projects. We anticipate profit of S$90.0m and S$33.3m for FY2010F and FY2011F respectively. Ho Bee mentions that it expects to be profitable for the next two quarters this year. Moreover, it has re-launched The Orange Grove and Dakato Residences, and achieved sales of more than 20% each. We expect the strong sales momentum to continue for its residential projects. We maintain our hold recommendation for Ho Bee as the share price has run up sharply in the recent rally and we believe that upside may be limited. Due to the improvement in sentiment in the property market, we raise the fair value from S$0.85 to S$1.17. This is based on a reduction in the discount from 50% to 40% of the RNAV. The RNAV has also been revised from S$1.71 to S$1.95 to reflect the higher than expected selling prices of the residential projects.

Ascendas India Trust: Overweight (JP Morgan, 17 Aug)
AIT's weighted average portfolio occupancy at 97% continues to remain materially higher than market occupancy rates of 70%-86%. Further, the trust has only 10% leases expiring in FY10 giving high visibility on DPU estimates for the next one year. Additionally, the management has stated in its recent 1Q FY10 results presentation that they will look to fund acquisitions via debt given its low gearing ratio (9% Debt / Total Assets). With its low gearing and access to some S$120million of credit lines the trust has considerable financial flexibility to finance development capex or to make accretive acquisitions, whether from third parties or from sponsor Ascendas, which has some business space at an IT Park in Chennai called Cybervale that it could offer to AIT. In our view, AIT remains one of the best proxies for gaining office property exposure in India given a strong management, resilient cash flows and high quality office assets. We maintain our Overweight rating and price target of S$0.95. Key risks to target include: Material increase in vacancy in AIT's portfolio given continued deterioration of office leasing environment and sharper than anticipated depreciation of the Rupee against the Sing dollar.

Suntec REIT: Underweight (JP Morgan, 17 Aug)
Occupancy rate and reversion rents for Suntec office City are now down to 92.5% and S$8.24 psf. Given passing rents lag the spot rental market by about 18 months, we expect rental reversion for the trust to remain negative for the next two years. The trust is currently geared at 34% with all-in borrowing cost at 2.8% and interest cover at 5x. While these statistics may look comfortable at a glance, the capital structure for Suntec appears unstable in our view. The interest rate risk for the trust is also much higher than its peers given that only 50% of interest expense is fixed or hedged. We retain our view that some permanent capital would be required to strengthen the trust’s balance sheet which would create an overhang on the stock's performance. Although we believe the office market is unlikely to recover until 2011/2012, CCT would be our preferred stock for those who would like to hedge the upside risk of an earlier recovery in Singapore office market given that CCT has a more diversified portfolio, a stable capital structure and relatively lower earnings risk. We reiterate our Underweight rating on Suntec, with a price target of S$0.85/unit (S$0.80/unit previously) as we revise up our LT growth rate assumption to 1.0%. Key risks to our rating and price target include a strong and quicker than expected recovery of rental market which would trigger substantial earnings upgrades and the market's preference towards high-beta S-REITs.

Ho Bee: Buy (UOB Kay Hian, 17 Aug)
Ho Bee reported 2Q09 PATMI of S$157.3m (+325% year-on-year), bringing 1H09 net profit to S$194.6m, up 208.6% yoy. The results include S$109.8m in land write-downs and revaluation losses. The results are way above our and consensus’ expectations due to earlier-than-expected completion and profit recognition mainly from The Coast and Paradise Island projects that obtained TOP in Apr-May 09. Revenue from the property investment segment improved in 2Q09 to S$4.6m (+12% yoy) due to an increase in rental income from the Group's industrial and retail spaces. Hotel revenues continued to decline in 2Q09 to S$1.1m (-50%yoy) due to the drop in tourist arrivals. The Group announced an interim dividend declaration of 2 cents per ordinary share. Ho Bee's gearing dropped from 1.26x to 0.51x due to the repayment of borrowings from the strong collections of proceeds from The Coast and Paradise Island. Ho Bee is a key beneficiary of the return of homebuyer interest in the mid-tier to high-end segments as it derives nearly 87% of its value from these segments. The Group also sold more than 20% additional units each at The Orange Grove and Dakota Residences projects at S$2,200psf and S$870 psf respectively. Riding on the improved sentiment, it is likely to launch Trilight and Parvis in 4Q09. Ho Bee is the biggest Sentosa developer with a landbank of 2.5m sf of GFA and has been reaping rich rewards as the pioneer developer there. The opening of Resorts World@Sentosa in 1Q10 could act as a catalyst in boosting price levels at the land-scarce Sentosa Cove enclave, which bodes well for Ho Bee. It has yet to relaunch the Turqoise@Sentosa Cove project and launch the Seascape and Pinnacle Collection projects. We maintain our BUY recommendation with a target price of S$1.65 pegged at parity to 2009 NAV.

China XLX Fertiliser: Buy (UOB Kay Hian, 17 Aug)
China XLX turnover was up 7% year-on-year (yoy) to Rmb545m, mainly due to the launch of the new urea plant in mid-Apr 09. Gross margin and EBIT margin slid 13ppt yoy to 10.8% and 6.7% respectively, due to declines in the prices of urea, methanol and compound fertilisers, as well as one-off start-up costs for the new plant. Net profit plummeted 75% and 60% yoy respectively to Rmb23m in 2Q09 and Rmb82m in 1H09 (vs our full-year forecast of Rmb226m). We believe the worst to be over in 2Q09, and earnings could recover in 2H09, due to the smooth launch of the new plant, as well as the stabilisation of urea prices and methanol prices. In 2Q09, the company registered substantial one-off start-up costs for the launch of Phase III in mid-April. The start-up costs will not be repeated in 2H09. With the production ramp-up at the new plant, the company’s urea capacity has increased from 0.72m tonnes to 1.25m tonnes. The company expects the new plant’s utilisation rate to increase throughout the year and reach full capacity next year. Unit cost is lower than that of the two old plants, which helps to drag down overall cost. Urea prices in China have stabilised at Rmb1,600-1,700/tonne due to a rebound in international urea prices and the reduction of urea export tariff, which opens the profit window for Chinese urea exports. The loss from the methanol segment will narrow as XLX is streamlining facilities to produce less methanol and more urea, as well as reduce the cost of production. Fluctuations in urea, methanol and anthracite coal prices would affect XLX's profit. We estimate that a 1% drop in urea and methanol prices would lead to a 5.0% and 0.4% drop in the Group's bottom line. A 1% hike in anthracite coal price would lead to a 2.2% drop in net profit. XLX is trading at 6.9x 2010F PE, much lower than the over 10.0x for domestic and global peers. Despite the industry headwinds in the near term, we remain upbeat on XLX, given its strong position amid industry consolidation in the medium to long term. Maintain BUY with a target price of S$0.57 based on 8x 2010F PE.

Indofood Agri Resources : Buy (UOB Kay Hian, 17 Aug)
IFAR has posted a strong 2Q09 core net profit which increased 78% qtr-on-qtr) oq to Rupiah 427b. This was mainly attributable to higher crude palm oil (CPO) average selling prices (ASP) (+24% qoq) offset by lower CPO sales volume (-3% qoq), as well as forex gains of Rp240.2b in 2Q09 vs a loss of Rp94.8b in 1Q09. The results are above our expectation as 1H09 core net profit represents 63% of our previous forecast. EBITDA increased 31% qoq in 2Q09 on stronger revenue while cost held steady. Therefore, EBITDA margin improved to 37% in 2Q09 from 33% in 1Q09. As about 40% of plantation area is in the prime age and can produce high yield, and another 29% is expected to become mature area of about 54,789ha, we expect fresh fruit bunch (FFB) production to increase at a three-year CAGR of 9% in 2008-11. We expect IFAR to post robust revenue growth in 2H09 on the back of sturdy CPO prices and higher production volume. Moreover, we believe margins in the plantation division are sustainable thanks to lower fertiliser purchase prices. Fertiliser prices ytd have fallen 30% compared with that in 2008. We raise our net profit for 2009 by 15% to Rp1,210b and for 2010 by 21% to Rp1,592b on the back of higher margin assumption. We also fine-tune our models given a stronger rupiah against the US dollar. As we have lifted our earning forecasts, we therefore raise our target price from S$1.45 to S$2.00, based on 12x 2010F PE for mid-cap and integrated plantation players.

Indofood Agri Resources: Buy (Kim Eng, 17 Aug)
IFAR reported 2Q09 results that were slightly ahead of our expectations. On a year-on-year (yoy) basis, net profit fell 4.4% to Rp. 682.4b; stripping out its biological revaluation of Rp. 593.2bn, we estimate net earnings declined by 27%. On a sequential basis, however, core net profit rose 23%. Revenue declined by 30% to Rp. 2.3b, but was up 15% sequentially, in line with CPO price trends. IFAR also recorded a Rp. 240bn forex gain on the back of the strength in the Rupiah, which mainly pertained to its US dollar denominated loans. For its core business, gross margins did see a decline to 33.5% versus 1Q09's 41.2%. IFAR also saw sequential strength on CPO prices, which rose 24%. IFAR was also able to raise average selling prices by between 5-10% over 1Q. Going forward, IFAR has raised its average selling prices (ASP) by a further 5% in July, and this is expected to hold steady for the next 2 months. More importantly, we expect sales volumes to increase through the second half of the year, in line with seasonal factors, as cooking oil consumption is expected to increaser through the festival seasons. IFAR's cost of production is also expected to decline on lower fertiliser and fuel costs. On a longer-term outlook, the fundamental demand for palm products remains strong, both in Indonesia and globally. IFAR's leading position in the Indonesian branded cooking oil market makes it a prime beneficiary of this. We are adjusting our FY09 core net profit forecast upward by 7% to Rp. 1,144.5b, or an EPS of S$0.115. This is still 6% ahead of consensus estimate. We are raising our target price to S$2.10 from S$1.35, based on a re-rating of palm related stocks to around 18x on the back of higher CPO prices. We also maintain our Buy recommendation.

CitySpring Infrastructure Trust: Buy (Kim Eng, 17 Aug)
CitySpring announced a fully underwritten, renounceable 1-for-1 rights issue at S$0.48 per rights unit, priced at a 38.5% discount to Thursday’s closing price of S$0.78. Temasek is committed to sub-underwrite up to 32.0% of the rights units, including its pro-rata entitlements of 27.8% of the rights units. Net proceeds of S$227.5m will be used to repay early part of the S$370m-DBS term loan at the trust-level. With that, the Basslink acquisition is no longer 100% debt-financed. An in-principle approval for a-S$370m revolving credit facility (RCF) from DBS has been received. The RCF is intended to replace the TLF, with only S$142.5m drawn. While the terms are still being negotiated, the manager does not expect the costs to be more onerous than under the term loan. The manager estimates net savings of S$4.7m p.a., taking into account interest savings, base management fee, and commitment fee for the RCF (but before any upfront fee). Assuming the rights issue had been completed on 1 Apr 09, the pro forma 1Q10 DPU would have been 1 cts per unit compared to the current 1.75 cts. With a reduced debt-level and a committed RCF, CitySpring will enjoy greater funding flexibility. The manager said that the RCF could be utilized to fund acquisitions, investments in its Basslink telecoms network, or partially fund the S$200m gas network conversion initiative at City Gas, which could begin in 2H10 and take 5 years to complete (announced at IPO). Assuming that the distribution guidance is unchanged, we estimate post-rights DPU p.a. at 4.0 cts, offering a yield of 6.3% based on the TERP of $0.63. Our ex-rights target price would be $0.70, implying a total return of 17.3%. The frequency of DPU payment remains (quarterly). We maintain our Buy recommendation with a target price of $0.86.

Hotel Properties Limited: Hold (Kim Eng, 17 Aug)
HPL has reported a worse-than-expected 2Q09 net profit, which slumped by 72% year-on-year (yoy) to $4.4m, despite its revenue declining by a relatively smaller 27%. Not only was the hospitality business affected by the global financial crisis, HPL has to share losses suffered by its associate, mainly due to interest expenses for the Farrer Court site. The effective tax rate was also higher-than-expected. Due to the global financial crisis, political instability in Thailand and the H1N1 pandemic, HPL's hospitality business suffered. HPL also owns several luxury resorts, such as the Four Seasons Jimbaran Bay in Bali and the resorts in the Maldives. We believe that they are less resilient in the downturn vis-à-vis hotels, which could still attract corporate clients. Based on the STB's statistics, visitor arrivals in Jun declined by 8.9% yoy to 750,000. Competition remains keen amongst hoteliers, with the average RevPar for upscale hotels declining by 31% yoy. HPL's three hotels in Singapore are the Four Seasons Hotel, the Hilton Hotel and the Concorde Hotel. Outlook for these hotels, which contribute to about 30% of HPL's topline, could be challenging in the short-term. Via its stakes in Farrer Court and Gillman Heights, as well as its wholly-owned Beverly Mai, HPL's future earnings are likely to be boosted by development profits from these projects. The 1000-unit Gillman Heights project could be launched in 2H09, with CapitaLand leading the project. If launched this year, profits are likely to be recognized only next year. Besides the potential earnings kicker from the residential projects, we are still cautious on the hospitality sector, which is HPL's core business. We have reduced our FY09-10 forecasts by 28% and 1.6%, respectively. Maintain HOLD at a target price of $2.25, pegged at a 20%-discount to its RNAV of $2.82.

China Zaino: Buy (Kim Eng, 17 Aug)
China Zaino's 2Q09 net profit of RMB 69.6m (-35% year-on-year, -32% qtr-on-qtr) was within our expectations. The group's strategy to maintain market share in current challenging market conditions, and higher tax rates led to weaker profitability. No interim dividends were declared. Revenue from luggage products grew at a slower pace in 2Q, due to the switch towards low-pricing product mix to secure its market share. Backpacks, on the other hand, saw declining sales volumes but average selling prices (ASP) rose due to high-quality new models. Looking forward, the group reckons that its luggage products will remain the key growth driver, targeting a sales volume of 4.5m units, an increase of near 30% from a year ago. The group believes that the ASPs for its luggage products and margins could have bottomed in 2Q09. While hefty A&P expenses and lack of store expansions will limit earnings growth for the 2H09, the group is upbeat on a recovery in 2010. They are in the midst of planning the next phase of expansion by year-end, targeting to add 500 POS a year over the next 2 years. Inventory days stood at a healthy level of 10 days, while net cash grew to RMB 878.7m or 19.3 cts/per share. The group plans to set aside about RMB 170m for advertising and billboards in FY09 and RMB255m for its new production facility that will be ready by 1Q10. They will also be setting aside capital for network expansion. Interim dividends were held back to buffer against the uncertainties. We kept our earnings estimates unchanged. Our target price is increased to 50 cents (from 35 cents pvsly), rolled forward to 6x FY10 PER, based on the average PER of S-chips. At a mere 3x forward PER (82% discount to HK branded sports maker), China Zaino is clearly undervalued given its extensive store network of 3250 POS and market dominance on backpacks in the PRC.

Kingsmen Creatives: Buy (Kim Eng, 17 Aug)
Kingsmen has reported a 2Q09 net profit of $3.5m (+8.3% year-on-year , +50.9% qtr-on-qtr), that is in line with our expectations. Overall, gross profit margin declined due to the larger scale projects undertaken at Universal Studio Singapore. Sequentially, earnings momentum accelerated along with rising margins. The group proposed an interim dividend of 1.5 cents. Demand visibility remains strong underpinned by the IRs, the Orchard road revamp, the Singapore Formula 1 and repeat orders from well- known global brands. Its order book grew, up 25% to $208m during the quarter, of which $188m will be recognized in FY09. With a strong order book, the group is upbeat to deliver a stronger 2H09. By end 2009, the group would have completed some $76m worth of contracts relating to the Universal Studios Singapore (USS). Phase 2 will commence in 2010. The non-mechanical works on the IR, which Kingsmen and other contractors can provide, can potentially exceed $300m. Besides, the MICE activities within the IRs will offer continuity to the group's growth momentum in the long haul. The group's experience and track record in high-profile projects such as the F1s and the USS will be increasingly sought after in the global arena. This opens doors to boundless opportunities in the areas of F1s and themes parks worldwide. Growth is equally interesting on its interiors front. The group has been securing repeat orders from well-known global brands, most notably Polo Ralph Lauren, to provide fixtures for their shops in Europe. Our earnings estimates and SOTP target price remain largely intact. Besides boundless growth potential, the company offers steady dividends. Positive catalysts will come from project wins relating to the IRs, the upcoming 6-month long Shanghai World Expo in 2010, and the Youth Olympics. Reiterate BUY with target price at $0.85.

Midas Holdings: Buy (Kim Eng, 17 Aug)
Midas posted revenue of $37.8m and net profit attributable of $9.4m for 2Q09. Net profit attributable grew by 10% on a yoy basis and 11% on a qoq basis. This strong quarter means that 1H09 net profit of $17.9m already forms 48% of our FY09 forecasts. The Group also maintained its quarterly cash dividend of 0.25cents per share. The net profit in 1H09 was achieved without any contribution from its 31.5%-owned metro manufacturing associate Nanjing Puzhen Rail Transport (NPRT). This is due to the delivery schedule of its S$1b orderbook where FY09 delivery will come in the 2nd half of the year. We estimate Midas’s profit share to be approximately $6.4m in FY09. Downstream fabrication will begin operations as scheduled in the 2H09. However we do not expect this to be meaningful to overall profit for FY09. Management has already scheduled an orderbook of about $20m for this new business and we expect contracts momentum to increase when Midas starts to show results for its clients. The share placement proceeds of $90.6m in July will be mainly used to fund these. With an estimated installation time of 6 months each, we expect the 4th and 5th line to start operations in 4Q10 and 1Q11 respectively. With its capacity constraint alleviated, we expect Midas to compete strongly for the next round of orders which could come in 4Q09. We have upgraded our FY09 earnings estimate by 6%. We are unconcerned about the decrease in revenue as that only reflects the lower aluminum prices and is inconsequential to Midas's profitability. Our target price of $0.985, which is pegged to 18X FY10 earnings remains unchanged.

Midas Holdings: Buy (OCBC Reseach, 17 Aug)
Midas Holdings (Midas) posted 2Q09 revenue of S$37.8m (-2% YoY, +20% QoQ) and bottomline of S$9.4m (+10% YoY, +11% QoQ). Maximum utilisation and current favourable cost-plus contracts aided its performance. Midas will be building three downstream fabrication lines for a total of about S$45m that will be able to process 1000 train cars/year. The three lines are part of Midas' strategy to cement its dominance and sustain margins in the domestic railway industry as it transforms into one-stop shop for aluminium train profiles and components. The company's RMB1.4b order book will likely be filled more when the PRC government awards its 2nd phase of train contracts for 4000+ train cars. Today, Midas' firm order book and more anticipated contract wins in Sep-Nov 09 for both NPRT and itself will serve to under-gird valuations. We have pegged Midas at 20x (prev. 18x) FY10F PER and our fair value is S$1.05 (prev. S$0.93). Maintain BUY.

Golden Agri-Resources:Sell (UOB Kay Hian, 17 Aug)
Net profit of (GGR) soared by 543% qtr-on-qtr (qoq) to US$55m in 2Q09 on the back of higher palm products production (+30% qoq) and higher crude palm oil (CPO) prices. However, 1H09 net profit still declined 78% year-on-year (yoy) due to lower average selling prices (ASP), higher fertiliser costs and lower production. Results were below our expectation as 1H09 net profit represents only 25% of our full-year forecast. CPO production rose 31% qoq in 2Q09 but still fell 2% yoy in 1H09 as the company experienced poor 1Q09 production on the back of biological tree stress, and less favourable weather conditions. Gross margin improved to 23% in 2Q09 on stronger CPO prices. But 1H09 gross margin declined to 20% due to forward buying on higher fertiliser cost as well as lower selling prices. GGR is targeting new planting area of 30,000 ha for 2009. During 1H09, the company added 9,800 ha of new planting area. We expect higher earnings in 2H09 than in 1H09 on the back of sturdy CPO prices in 2H09 as well as improved margins mainly from lower fertiliser cost in 2H09. Overall however, we are lowering 2009 net profit forecast by 11% to factor in the lower margin assumption. We maintain net profit forecasts for 2010 and 2011. As share price has exceeded our fair price, we downgrade GGR from BUY to SELL with a fair price of S$0.48, based on 12x 2010F PE for mid-cap and integrated plantations players. We recommend investors to take profit on GGR and start to accumulate at S$0.40.

Golden Agri-Resources: Buy (OCBC Reseach, 17 Aug)
Golden Agri Resources' (GAR) 2Q09 results saw revenue down 30.7% year-on-year (yoy) but rebounded 37.2% qtr-on-qtr QoQ to US$565.6m; net profit tumbled 64.7% yoy but was up nearly 543% qoq to US$55.1m. Operationally, it appears that the worst of the previous tree stress (due to the drought in 2006) has passed; management is hopeful of seeing better production numbers in 2H09. And while there may be a possible El Nino effect this year, management believes that the impact will probably be felt some 12 months later. We have also raised our CPO assumptions for this year from US$600/ton to US$620/ton, and this in turn bumps up our FY09 revenue forecast by 6.8%; but only raised our net profit estimate by 4.2% as GAR will still need to work through the excess fertilizer that it had bought at a much higher price late last year. Using a higher 12x blended FY09/FY10 EPS valuation (vs. 10x previously), our fair value will rise from S$0.35 to S$0.45. Given the limited upside, we maintain our HOLD rating.

Tat Hong Holdings Ltd: Hold Buy (OCBC Reseach, 17 Aug)
Tat Hong Holdings Ltd's (Tat Hong) 1Q10 results came in below expectations with revenue declining 37.2% year-on-year (yoy) to S$120.1m and net profit tumbling 63.9% to S$10.6m. Revenue weakened across almost all segments and profit margins came under pressure. Equipment sales posted the steepest plunge in sales (-60% yoy) as the economic crisis curbed capital expenditure. On the other hand, crane rental proved its resilience with a meagre 2% fall in revenue. We expect resilient rental income to support the group's earnings in FY10. While the outlook for organic growth remains challenging, Tat Hong is poised to grow inorganically following the emergence of a strategic investor. Coupled with a relatively decent 3.6% dividend yield, we maintain our HOLD rating on the stock. Our fair value estimate has been trimmed to S$1.13 (previously S$1.15) on a lower FY10 earnings estimate.

Pacific Andes Holdings: Buy (OCBC Reseach, 17 Aug)
Pacific Andes Holdings' (PAH) posted 1QFY10 net earnings of HK$160.9m, up 32% YoY but down 32% QoQ. This was due to delay in use of catch quota to the last quarter of 2009. Management mentioned that this delay should be beneficial when prices pick up later n the year. As the 1Q results were fairly in line with our expectations, we are maintaining our forecasts for FY10 and FY11 for now. We expect the vessel optimal exercise to continue and should yield better results later in the year. Current risks to our earnings include the possible impact from the El Nino effect, which could impact its fishmeal operation in Peru. At the same undemanding valuation peg of 6x blended earnings, our fair value estimate remains at 31 S cents. The stock has done well since our last report in Jul 2009, up 29%, but we are retaining our BUY rating as its valuations are not expensive.

Foreland Fabrictech: Buy (OCBC Reseach, 17 Aug)
Foreland Fabrictech posted a lackluster 2Q09 results as guided; revenue tumbled 25.9% YoY to RMB81.7m, while net profit tumbled 48.6% to RMB12.7m. But we see good sequential improvement ? with revenue up by a good 49.3% and net profit up by a larger 54.4% – following the extremely difficult 1Q09 quarter. For the first half, revenue slipped 35.0% to RMB136.4m, meeting about 37.2% of our full year estimate, while net profit tumbled 57.6% to RMB21.0m, or around 32.9% of FY09 forecast. And with the global economic recovery picking up steam, we believe that Foreland's 2H performance will continue to be seasonally stronger, hence we are leaving our FY09 estimates unchanged. Foreland remains in a strong financial position with a net cash of RMB216.1m, and has further reduced its cash conversion cycle to around 25 days from 55 days in 1Q09, mainly due to better AR collection. We have also raised our valuation from 3x FY09 EPS to 4x blended FY09/FY10 EPS, resulting a higher fair value of S$0.135 (previous: S$0.10). Upgrade to BUY.

Hotel Grand Central: Hold (OCBC Reseach, 17 Aug)
Hotel Grand Central's (HGC) bottlomline performance was boosted by forex gains, which amounted to S$7.57m in 2Q or 1H09 of S$10.52m, and is half of the reported pretax profit of S$23.0m in 1H09. Stripping out these gains, operating profits fell 49% YoY and 18% QoQ to S$4.5m. Revenue in 2Q09 fell 25% year-on-year (yoy), but was flat qtr-on-qtr (qoq). While economic outlook looks better compared to a quarter ago, we expect the operating environment for the hotel sector to remain challenging as consumers are likely to remain fairly cautious about spending. At the operating level, we expect operating profits to decline 38% yoy to S$19.5m in FY09. This month, the group also announced the purchase of the Holiday Inn at Adelaide for A$34.9m. This comprised of a 181-room hotel located within the Central Business District in Adelaide. Management expects this acquisition to add abut 0.27 cents to its EPS. We are maintaining our HOLD rating and fair value estimate of 58 cents.

KS Energy Services: Hold (OCBC Reseach, 17 Aug)
KS Energy reported a 35.9% year-on-year (yoy) fall in revenue to S$128m and a 37.3% drop in net profit to S$12.8m in 2Q09. Revenue from the drilling services business rose partly because two land rigs (Discoverer 2 and 4) commenced operations and the KS Titan-2 delivered its maiden revenue. Contributions from the distribution business fell with slower demand in the oil and gas industry and lower steel prices. 1H09 net profit accounted for 50% of our full-year estimate, though we note an additional S$4m insurance claim for KS Titan-1's loss was obtained. As mentioned in our earlier report, KS Energy's fixed charter rates and existing contracts will serve it well during this downturn, but its distribution business may continue to be affected. Till we see a recovery in the demand of the group's products in the distribution business or the emergence of additional growth drivers, we maintain our HOLDrating and S$1.36 fair value estimate on the stock.

Rickmers Martime: Hold Buy (UOB Kay Hian, 17 Aug)
RMT has posted a net profit of US$5.2m for 2Q09 (-43% year-on-year; -53% qtr-on-qtr). The fall in earnings was mainly due to the provision of US$7.5m for asset impairment charged for a vessel (Maersk Djibouti) as the charterer, Maersk Line, may exercise an early termination option. The impairment also takes into account the likelihood of a fall in charter rates in 2010. Excluding the provision for impairment, 2Q09 earnings would be US$12.7m (+38% yoy; +15% qoq). According to management, this is the only vessel in RMT’s fleet that has an early termination option. The trust's income available for distribution amounts to US$19.6m (+42% yoy). RMT is paying DPU of 0.6 US cents, or 13% of distributable cash flow (1Q09: 46%). A reduction in its payout ratio is mainly to conserve cash for financial flexibility amid uncertainties in the container shipping market. In view of the change in distribution policy from 46% to 13%, we reduce DPU forecasts for 2009-11 by 50-65%. We do not rule out a breach in RMT's loan-to-value (LTV) covenants of 90% in view of the collapse in ship values. That said, the trust is in discussions with bankers on the possible waiver of the LTV covenants. The other risk is the risk of default by charterers. While our fair price of S$0.76 is 30% above its current share price, we maintain our HOLD recommendation in view of RMT's unfunded US$712m capex due in 2010. Our fair price is based on 2010 P/B of 0.4x, similar to US peer Danaos’ P/B of 0.4x as RMT would have a similarly very high gearing of 4x, assuming debt financing for US$712m capex.

Rickmers Maritime: Sell (OCBC Reseach, 17 Aug)
RMT's 2Q09 results were in line with expectations, barring a US$7.5m provision for impairment on a vessel at risk for redelivery next year. The auditor issued an emphasis of matter, citing material uncertainty that "may cast doubt on the [trust's] ability to continue as a going concern". 2Q DPU is 0.6 US cents per unit, down 73% year-on-year (yoy) and 72% qtr-on-qtr (qoq). Increasing cash retention may serve as an important good-faith gesture to RMT's lenders. Discussions with lenders on loan-to-value covenant waivers are still ongoing. RMT is also negotiating refinancing for a US$130m facility maturing in April. It is also in discussions with all stakeholders regarding the as-yet unfunded Maersk vessels due in 2010 that will cost it US$711.6m. We do not expect a big upward revision in DPU until at least some of these issues are resolved. In our opinion, the current unit price does not adequately reflect the risks associated with investing in RMT. Maintain SELL with S$0.39 fair value.

Z-OBEE Holdings: Hold (OCBC Reseach, 17 Aug)
Z-OBEE Holdings reported its 1QFY10 results, with revenue dipping 54.8% year-on-year (yoy) to US$16.8m and net profit falling by a larger 67.8% yoy to US$0.6m. On a sequential basis, we note that the results showed an improvement in business conditions, albeit below our expectations. Looking ahead, Z-OBEE has generally become more upbeat on the China mobile handset market, citing positive news that the industry is showing signs of recovery and that it is expected to register mild growth in 2H09. We see potential in the group to capture more sales and enhance its financial position in the upcoming peak season. In anticipation of such a recovery and a re-rating in mobile handset sector, we bump up our fair value from S$0.05 to S$0.07, based on 7x FY10F EPS (4x previously). We maintain our HOLD rating on Z-OBEE.

Genting Singapore: Hold (UOB Kay Hian, 17 Aug)
While we believe Resorts World@Singapore (RWS) could trounce consensus forecasts in its maiden year as a casino operator in Singapore in 2010. We expect GENS to trade in the S$0.90-0.95 range, with the top end having already factored in continuity of the Singapore casino licence and scarcity premium for comparable Asian gaming-consumer plays. As our fair price has limited upside potential, we recommend HOLD with an entry price of S$0.80. We project GENS' earnings to surge 210.0% and 50.3% to S$295.2m and S$443.8m in 2010-11 as RWS' casino operations go into full swing by 1Q10, ahead of rival Singapore casino operator Marina Bay Sands. GEN could beat consensus forecasts of S$105.3m given its first-mover advantage, and with the partial deferment of expansion of the less profitable non-gaming operations. Leveraging on Asia's sizeable VIP and Singapore's domestic gaming markets. RWS should be able to capture 5% of Asia's VIP market (estimated at US$9b-10b per annum) and 12.5% of Singapore's gaming market (estimated at S$9b-10b p.a.). This excludes the full grind market potential which RWS could tap from neighbouring countries such as Malaysia, Indonesia, and possibly even China. This is based on the premise of RWS' strong global network, favourable tax structure and strategic location in Asia. The S$5.6b RWS project promises a good payback period of 8-9 years, riding on Singapore's favourable gaming tax structure which gives RWS an advantage over its competitors in Australia and Macau in the high roller segment. Meanwhile, the non-gaming division (principally Universal Studios) should eventually attain decent returns, judging from Universal Studios Japan's achievements in recent years. UK business' run of bad luck should turn by 2011. GENS' UK business is projected to recover only in 2011 due to the UK's prolonged economic slowdown and adverse regulatory environment. Still, earnings could post a positive surprise as 2008's streamlining and restructuring exercises could save up to £10m annually, but the upside is not significant to group earnings.

Wilmar International: Buy (Kim Eng, 17 Aug)
Wilmar posted 2Q09 results that were ahead of expectations, mainly from stronger commodity prices. Net profit came in at US$407.2m, up 22.7% from 2Q08, and up 7.1% sequentially. Wilmar has also continued its momentum from 1Q09, despite earlier indications that last year's record earnings could not be matched. We now believe that the group is capable of surpassing this benchmark, and have raised our forecasts accordingly. Wilmar also declared an intereim dividend of S$0.03 per share. Despite 2Q09 headline revenues declining by 27% year-on-year (yoy), sequential revenues have actually increased by 15% to US$5.7bn, on the back of a recovery in commodity prices. More encouragingly, however, sales volumes have increased across the board, with the minor exception of consumer products. Despite this, the consumer division managed to hold on to its uncharacteristically high margins at 7.2%, versus 8.4% in 1Q09 and 1.6% in FY08. Merchandising & Processing saw some sequential erosion of margins, due to higher commodity input prices, but is still handily ahead of last year's average. Its upstream Palm Plantation and Milling business naturally showed an increase in margins, from higher CPO prices. We are raising our FY09 forecast by 21% to US$1,631m, and by 15% in FY10 and FY11. This implies a 3-year earnings CAGR of 10% versus our previous expectation of around 5%. Aside from the recovery in CPO prices, Wilmar will also be a beneficiary of an economic recovery in China and India, and has an established distribution network that it can use to grow its existing and new businesses. With the earnings upgrade, we are raising our target price of Wilmar to S$7.50, from S$5.70 previously, and assigning a premium valuation of 20x FY09 earnings. Its application to list its China businesses in Hong Kong was recently approved, and we believe that Wilmar will be able to secure above-average valuations. We expect the listing to take place within the next two months, and strong investor interest in the stock is likely to continue, leading up to this.

Wilmar: Buy (OCBC Reseach, 17 Aug)
Wilmar reported its 2Q09 results last Friday; revenue was down 27.0% YoY at US$5,712.3m, but net profit rose 22.7% to US$407.2m. On a sequential basis, revenue rose 15.2%, which was 9.9% ahead of our estimate, while earnings rose 7.2%, about 0.5% below our forecast. For the half year, revenue fell 28.7% to US$10,670.4m, meeting 42.0% of our FY09 estimate, while net profit gained 16.6% to US$787.1m, or nearly 60.8% of our full-year number. Management remains upbeat about its 2H09 prospects. We are raising our FY09 and FY10 earnings estimates by 18.9% and 14.4%, respectively, to reflect its better profitability. This in turn improves our fair value from S$5.78 to S$7.28, still based on 20x blended FY09/FY10 PER. Maintain BUY.

Wilmar International: Overweight (JP Morgan, 14 Aug)
Wilmar's 2Q09 net profit of US$407MM (+23% year-on-year) was 4% ahead of expectations bringing 1H09 net profit to US$787MM (50% of our FY09 estimates). Margin strength remained the key driver despite easing from the exceptional levels in the previous quarter. Notably, PBT margin palm & laurics improved 35% yoy to US$40.7/MT on timely purchases of raw materials and sales of products. Consumer products PBT margin improved 4 times to US$87.8/mt as it was impacted by price intervention measures in China last year. Apart from oilseeds & grains whose 1H09 17% volume growth is tracking our assumption of 15% for the full year, other segments are still trailing: palm & laurics -8% yoy against our flat growth assumption, and consumer products -8% against our 15% growth assumption. However, management is optimistic that we should see a fair amount of volume growth for the full year. Specifically, the gradual switch from loose to packed cooking oil by consumers in China and India should provide the volume growth driver moving forward. We increase the P/E applied to the China business IPO from 18x to 25x given the more favorable market conditions and the higher P/E valuation its peers are trading at. We have also raised our FY09/FY10/FY11 net profit estimates by 5.6%/6.5%/6.4% as we increase our margin estimates for each segment while also adjusting our volume growth assumption slightly for palm & laurics and consumer products to more achievable levels. We remain comfortable with our CPO price forecast of M$2,450/t for FY09 (YTD average M$2,240/t). We have raised our sum –of the parts (SOTP) price target to S$6.80.

Wilmar International: Sell (Citi Research, 14 Aug)
We are downgrading Wilmar to Sell from Buy. The stock has surged 92% over the last four months. Although we like Wilmar for its global integrated agri-business model and strong management team, valuation for the stock no longer looks attractive (even with the upgrade in earnings estimates). We value Wilmar based on sum-of-theparts (SOTP). We recommend investors switch to Sime Darby, First Resources and IJM Plantations which are trading between 13x-18x P/E and 2.0x P/B versus Wilmar's 18x P/E and 2.5x P/B for CY10E. Given strong 2Q results for palm & laurics and consumer products, we are adjusting our PBT/tonne estimate. For palm & laurics, we have raised our assumption from US$30/t to US$40/t (2Q09 = US$41). While for consumer products, we have revised upwards our assumption from US$55/t to US$88/t (2Q09 = US$88). Net impact from our revision in PBT/tonne and volume assumptions for the merchandising & processing and consumer products division resulted in a 13%-16% increase in FY09E-FY11E net profit estimates. In line with the higher earnings estimate and pegging a higher P/E multiple for consumer products segment (based on current sector average) our target price has also been raised by 15% to S$6.10 (from S$5.30).

Wilmar International: Hold (Daiwa Research, 14 Aug)
Wilmar's 2Q FY09 results has seen its net profit increased by 22.7% year-on-year (yoy) (+7.2% qtr-on-qtr) on 27.0% yoy lower revenue (+15.2% qoq) The results were better than we and the market expected. Key surprises came from stringent cost controls and better-than-expected average selling prices for the Palm & Laurics division. Wilmar again has surprised us with its ability to consistently have better selling prices, margins, volumes, and hedge coverage timing than its peers. We have raised our FY09-11 net profit forecasts by 21.6%, 16.2% and 17.9%, respectively, primarily due to better cost-control assumptions. However, our earnings forecasts do not yet reflect an assumed partial-float of Wilmar's China business. Our six-month quantitative-model-derived target price is S$5.32. We maintain our hold recommendation on Wilmar, which remains our top pick in the palm oil sector, where we have a negative rating. While we have a favourable view of Wilmar's refining business, we are cautious about its plantation business due to our anti-consensus view that palm oil prices will decline to around US$525/tonne by 31 December 2009 from current levels of around US$700/tonne. We think the key catalyst will be a sizeable half-on-half (hoh) increase in the global palm oil supply in 2H09 due to peak seasonality and a recovery of fruit yields from a period of 'tree stress'.

SingTel: Buy (Phillip Securities, 17 Aug)
Singtel has reported better than expected results for 1Q FY2010. Operating revenue was S$3,848m (+1.9% yoy) and net profit was S$945m (+7.7% yoy). In fact, its Singapore and Australian operations reported double-digit growth in revenue. Nevertheless, group revenue rose only by 1.9% in Singapore dollars due to the depreciation of the Australian dollar. Moreover, the regional mobile associates, led by Bharti and Telkomsel, posted strong gains in total pre-tax profits of S$647m (+13.4% yoy) even though the Singapore dollar appreciated against most regional currencies. We rate SingTel as a Buy and maintain the target price at S$3.80 because of its good financial performance. Furthermore, SingTel has highlighted that the worst is over and it is monitoring the recovery of its operations. In fact, we continue to like SingTel as it has established operations in Singapore and Australia as well as strong profit contributions from its regional mobile associates.

Noble Group: Buy (OCBC Research, 14 Aug)
Noble's 2Q09 performance was in line with expectations as revenue eased 31.2% year-on-year (yoy) to US$7.2b along with lower commodities prices, while net profit doubled to US$248.8m thanks to a one-off gain, excluding which, net profit would have contracted by 22.6% to US$94.8m. Sequentially, revenue improved 18.0% and net income grew 5.1%.Noble demonstrated its market share growth with a 19.4% yoy increase in tonnage. Management is confident that the improving operating landscape will buoy the group's 2H09 performance. Noble is poised to be a key beneficiary of the economic recovery. Valuations remain undemanding at 12.2x FY09 PER. We maintain our BUY rating on the stock. Our fair value estimate remains at S$2.26.

SingTel: Buy (OCBC Research, 14 Aug)
Singtel 1HFY10 results came in ahead of our expectations. Revenue grew 1.9% year-on-year (yoy) and 7.9% qtr-on-qtr (qoq) to S$3847.7m, meeting 26.1% of our FY10 forecast, while net profit came in at S$945.4m, up 7.7% yoy and 4.6% qoq, meeting nearly 27.3% of our full-year estimate. Both Singapore (+10% yoy) and Australia (+12% yoy) recorded strong revenue growth and higher EBITDA, although it did suffer a slight impact from currency weakness; excluding forex impact, SingTel noted that its revenue would have risen 12% YoY and earnings 16%. Meanwhile, SingTel has also affirmed its previous guidance for FY10: 1) Singapore's operating revenue to grow at single-digit level; EBITDA margin to remain stable around 36-38%; capex below S$800m; free cashflow to decline slightly. 2) Australia's operating revenue and EBITDA to grow at low single-digit levels; capex around A$1.1b; free cashflow to be stable. 3) Bharti and Telkomsel earnings to grow in local currency terms; ordinary dividends from regional associates to be lower. Nevertheless, we continue to expect SingTel to pay out between 45% and 60% of its recurring earnings as dividend this year. While we are keeping our FY10 estimates unchanged, our SOTP fair value rises from S$3.49 to S$3.51 to reflect the higher equity value of its regional associates. Maintain BUY.

Parkway Holdings: Buy (OCBC Research, 14 Aug)
Parkway has reported its 2Q09 results with topline of S$258.6m (+10% year-on-year, +8.7% qtr-on-qtr) and PATMI of S$40.3m (+47.6% yoy, +89% qoq). Excluding exceptional items, 2Q09 bottomline would have been S$30m (+7% yoy, +28% qoq). The results were better than expected as its Singapore operations were not as bad as expected and its International Hospital and Healthcare segments delivered strong double-digit growth. The taint in the results was the writeback of only S$17.2m (final settlement) out of S$34m bad debt provision. The Novena Hospital will now only be operational in 1H12 (prev. 2H11) and medical suite sales can only be initiated in 1Q10 after acquiring its building permit. Therefore, we have pushed the sale of medical suites back to 2010. We have raised our estimates with its brightened outlook and re-peg Parkway to 20x (prev. 15x) FY10F as risk appetite returns. Our fair value is now S$2.22 (prev. S$1.28) and we upgrade to BUY. Parkway did not declare any dividends in a bid to conserve cash. We have cut our dividend forecast to 1.25 S cents for both FY09 and FY10. H1N1 proliferation will pose significant risk to our estimates as people travel less and avoid elective procedures in hospitals.

Parkway Holdings: Neutral (DMG, 14 Aug)
Parkway has posed 2Q09 revenue of S$258.6m (+10% year-on-year), while operating profit came in at S$39.4m (+14% yoy) for the quarter, which was in line with our estimates. Net profit rose 42% yoy to S$40.3m, boosted by the S$17.2m reversal of allowance on impairment of receivables, which Parkway had booked in 4Q08. Parkway has added capacity at its hospitals in Malaysia and India, to meet the robust demand for private healthcare services in these areas. Its International Healthcare operations are also seeing continued strong demand for medical services. Parkway had increased its range of services at Shanghai, and is planning to open more dental clinics there. We are raising our revenue estimates for FY09 and FY10 by 3% each. Our earnings estimate is raised by 21% in FY09 (4.5% ex exceptionals) and 4% in FY10. Our SOTP valuation gives us a target price of S$1.81. Upgrade to Neutral.

City Developments Ltd: Hold (OCBC Research, 14 Aug)
CDL's 2Q09 results came in above our expectations due to better performance from its property development segment. For the year to date, it has sold 1,031 residential units that amount to S$1.34b. Sales momentum was particularly strong in the last 2 months. CDL is expected to launch the former Hong Leong Garden site, a 396-unit mass market project in West Coast area next month. We have now raised our average selling price (ASP) assumption for this project from S$700 psf to S$850 psf. Other planned launches for 2H09 include the former Albany and Thomson Mansion sites and the Quayside Isle Collection. Our RNAV estimate for CDL has now been raised to S$9.26 per share, reflecting the lower cost of capital, increase in market value of Millennium and Copthorne and increase in our estimated surplus from the South Beach project. Our fair value estimate has also been raised to S$9.26 and we are upgrading CDL to HOLD.

City Developments: Buy (DMG, 14 Aug)
CityDev's 2Q09 results were within our expectations, as the surge in contribution from Property Development offset declining contributions from Hotel Operations. CityDev posted a 0.8% year-on-year rise (+26.4% qtr-on-qtr) in 2Q09 revenue to S$787.1m, chiefly due to a 56.7% YoY (+73.3% qoq) surge in Property Development's topline, boosted by maiden contributions from The Arte. Due to lower margins for recently-launched projects, 2Q09 PBT here fell 19.3% yoy (+73.7% qoq) to S$119.2m. Coupled with a 60.1% yoy drop in PBT contribution from Hotel Operations, CityDev's 2Q09 PATMI was down 15.3% yoy (+68.3% qoq) to S$140.0m. Progressive recognition of 1,031 units sold year-to-date and healthy take-up for three upcoming launches should continue to drive earnings. Management believes that the present residential sales momentum is sustainable amid a promising economic outlook. It is scouting for new sites, though it is not in a hurry given danger of overpaying and ample landbank left. Appetite for luxury projects could return upon IRs' opening and more improved macroeconomic signs. We have accelerated its residential sales schedule, resulting in 1.2 – 15.7% rise in FY09F and FY10F EPS. We continue to like CityDev for its astute management and direct proxy of the rebounding residential market. Our RNAV-backed fair value of S$12.00 accounts for market prices of listed subsidiaries. Reiterate BUY.

Swiber Holdings: Neytral (DMG, 14 Aug)
Adjusting for one-off gain of US$4.5m, Swiber turned in better-than-expected operating profit of US$18m on the back of revenue of US$111m and profit margin of 16%. Another positive was Swiber's net gearing of 0.75x following the equity fund raising in Jun 09. The 11% year-on-year (yoy) decline in 2Q09 revenue to US$110.8m was mainly due to the completion of the projects in Malaysia and execution of fewer projects (4 vs. 6 in 2Q08). Stripping away the non-recurring gain on disposal of assets of US$4.5m, core operating profit of US$17.5m was down 34% qtr-on-qtr (qoq) but ahead of our expectations of US$14m. After several disappointing quarters, an increase in operating profit margin to 15.8% in 2Q09 is encouraging, though this is some way off pre-credit crisis' margins of 20%. While Swiber secured US$93m in 2Q09, its orderbook showed a declining trend, from US$515m in 1Q09 to US$509m in 2Q09. Without a reversal in the shrinking orderbook, revenue growth momentum is unlikely to sustain. Our earnings model shows that FY11 revenue would fall drastically. We have raised our FY09/10 net profit estimates by 37% to 32% after adjusting up the net profit margins by 2.9ppt to 2.3ppt respectively. Keeping our valuation parameter at 9x on FY10 core EPS, our target price is revised up to S$1.09 (from S$0.85 previously) accordingly. A rerating without sustained order momentum and proven execution track record is difficult. Maintain NEUTRAL.

ComfortDelGro: Buy (DMG, 13 Aug)
ComfortDelGro registered 2Q09 PATMI of SS57.3m, up 0.9% year-on-year (yoy) (+9.1% qtr-on-qtr). 1H09 PATMI of S$109.8m was 49.3% of our full year forecast of S$222.8m (consensus S$219.4m). Revenue fell by 4% yoy to S$758.3m due to the negative translation effect of the weaker £ and A$. Excluding the translation effect, revenue would have risen by 0.3% to S$792.5m. Operating profit surged 81.7% to S$94.5m due largely to a sharp fall in operating expenses led chiefly by a drop in fuel and electricity costs. Revenue from the group’s bus operations fell by 3.9% as growth from operations in Australia and China was offset by declines in Singapore and the UK. The temporary fare reduction, increase in transfer rebate and decline in bus ridership (-2.1%) led to a 7.3% decline in Singapore bus revenue. This was, however, offset by lower fuel prices, which led to the surge in EBIT from S$3.1m in 2Q08 to S$10.7m. In 1H09, ComfortDelGro daily Singapore rail ridership rose 6.6% YoY to 0.36m, slower than 2008's growth of 15.4%. We are, however, upbeat that ridership figures could be stronger next year on the back of stronger economic and tourism growth. We expect NEL to see stronger ridership when RWS opens its doors in 1Q10. Since March, ComfortDelGro's stock price rose 22% vis-à-vis the STI's 76%. We believe the underperformance is unjustifiable given its stable earnings growth. An interim dividend of 2.63¢ was declared, representing a payout ratio of 50%. ComfortDelGro currently trades at 14.6x FY10 P/E multiple which is at the mid range of its 13-17x trading band. At our target price of S$1.78, ComfortDelGro will trade at an FY10 P/E multiple of 16.5x. We, however, prefer SMRT as it remains a key beneficiary to Singapore's land transport structural growth story. Maintain BUY with a target price of S$1.78.

UOL: Buy (OCBC Research, 13 Aug)
UOL Group reported losses for 2Q09 due to fair value losses from its investment properties but operating performance remained within expectations. Revenue increased to S$213.7m and this came from revenue recognition of its development projects. Fair value losses of S$77m were recognized in 2Q09. As a result, PATMI plunged into the red in 2Q09 with a loss of S$20.1m. Excluding fair value losses, underlying PATMI would have increased to S$90m. Despite the losses, UOL's NTA per share rose by 2.3% QoQ to S$4.88. Our RNAV estimate of UOL has now been raised to S$4.44 per share (previously S$4.11). We have now lowered the discount rate on our valuation of UOL's development profit and investment properties to 20%. As such, our fair value of UOL now stands at S$4.07 (previously S$3.56). With an upside potential of 18.9%, we are now upgrading UOL from HOLD to BUY.

China Hongxing Sports: Buy (Kim Eng, 13 Aug)
CHHS's 2Q09 net profit of RMB 47m (-60% year-onoy, -16% qoq) was below expectations. 1H09 net profit only accounted for 29% of our forecast. Earnings disappointment was due to broad-based decline in ASPs and gross margins as a result of product discounts amid weak demand. The group proposed an interim dividend of 1 fen/share. At group level, same-store-sales continued to slide in 2Q09. Although the management indicated slight recovery from July, there are no signs of stability as yet. Gross margin hit record low of 35.4% led by falling ASPs and gross profits across all product segments. Its high-margin apparel products were the weakest segment in 2Q due to lower average selling prices (ASPs). While earnings suffered, the group's efforts in managing its inventories and cash flows led to strengthening financial position and improvement in cash conversion days. Net cash rose to RMB 2.7bn or 19.8 cts/share. The group plans to utilise its cash for share buybacks in 3Q09, while keeping to an annual dividend payout of 20-30%. It will also invest in their store network to foster expansion and keep an eye on M&A opportunities. The management reckons its gross margins have bottomed along with easing inventory levels from the peak of 5 months in Feb to 3.5 months at the distributors end. Product discounts are expected to stop by Oct if demand continues to improve. Over the long term, gross margins could revert back to 43%. Further, concerns on the advances to its distributors are alleviating with the bulk of outstanding (~60%) collected. We have cut our FY09 and FY10 earnings estimates by 24% and 19% respectively on the weak results. We now pegged the stock to 8x FY10 PER at 50% discount to its HK peers. The group’s aggressive store expansion and active A&P bodes well for its earnings momentum as the economy recovers. Key risks are competition and inefficient utilisation of its cash pile. Upgrade to BUY with target price at $0.23 (upgraded from $0.16)

China Hongxing Sports: Sell (UOB Kay Hian, 13 Aug)
Sales contraction and margin erosion slashed profit by 60% year-on-year (yoy), a result of a slowdown in retail sales and de-stocking by distributors. Turnover plunged 27% yoy. To help distributors clear inventories and to compensate for the heavy retail discounting (25% vs 15-20% last year), the Group offered a bigger wholesale discount to distributors (65% off retail price vs 60% last year), which slashed its product ASPs. In addition, sales volume for footwear and accessories plunged as distributors cut orders to destock inventories. Same-store sales (SSS) growth dived from over 20% last year to 3-4% in 1H09 due to the economic slowdown. Store additions also slowed with points-of-sales (POS) increasing only 21 to 3,845 in 1H09. Gross margin was only 35.6% for 2Q09 vs 41.9% a year ago and 40.2% in 1Q09 due to lower product average selling prices (ASPs). With much worse-thanexpected 1H09 results, we slash our 2009-11 net profit estimates by 27-28%.This implies a 53% yoy earnings decline for 2009 and 6-7% yoy growth in 2010-11. While we anticipate Hongxing to resume profit growth since 2010, the Group is subject to huge earnings risk due to the still high inventory level and intensifying competition in the low-end sportswear segment. With more low-end sportswear companies getting listed recently, store openings are accelerating and competition intensifying. Together with the still high industry-wide inventory level, the Group may need to provide large wholesale discounts to distributors or raise advertising and promotional expenses. Instead of raising dividend payout, the Group intends to invest more on distribution network, such as paying the lease prepayment for distributors, buy stakes in distributors and launch M"As. Based on our new earnings forecasts, the stock is trading at 10.5x 2009F PE vs 5-6x for S-shares consumer stocks. Given the high earnings risk, we maintain SELL with a fair price of S$0.10 based on 5.5x 2010F PE.

Lizhong Wheel: Buy (UOB Kay Hian, 13 Aug)
Lizhong reported a net profit of Rmb5.0m for 2Q09, down 82.6% year-on-year (yoy) on the back of a 14% yoy decrease in revenue. On a qoq basis, after turning profitable in 1Q09 from a net loss in 4Q08, the Group made a strong recovery, reporting a ten-fold jump in its 1Q09 net profit. Impact: The production utilisation rate was around 70% in 1H09. Since 1Q09 was a weak quarter in terms of selling price and sales volume, we expect the utilisation rate to reach over 75% in 2H09. 2H09 gross margin would also remain stable given the slightly higher utilisation. For 2010, we expect a 15% yoy increase in the top-line growth mainly contributed by the Tianjin plant, which is operating at low utilisation level currently. Maintain BUY with a target price of S$0.49, based on FSTC's 10x 2010 PE.

Wheelock Properties: Buy (UOB Kay Hian, 13 Aug)
Wheelock Properties has reported 1Q09 net income of S$28.9m (+89.1% yoy) bringing the 1H09 net profit to S$38.7m, up 20.5% yoy. Excluding the impairment losses and fair value gains, the resultant net profit of S$62m for 1H09 was in line with our expectations. During the quarter, Wheelock recognised revenue from Scotts Square and Ardmore 2. The Sea View and The Cosmopolitan were completed in 2Q08 and 3Q08 respectively. Wheelock will continue to recognise profits from its development properties Ardmore II and Scotts Square where the progress billings are ongoing. Scotts Square is 70% sold with an average selling price (ASP) of S$3,994psf. Orchard View, a luxury 36-storey development in Angullia Park, comprising of 30 four-bedroom apartments, is scheduled to be launched in 2010. Against the backdrop of an improving physical housing market, it may be able to command a premium over other new projects, given a closer Temporary Occupation Permit (TOP) date when launched. On the investment property front, both the office and retail portions of Wheelock Place are nearly 100% occupied at an average rental of $12.01psf/month. Its retail podium is a beneficiary of the increased traffic flow due to the opening of the pedestrian tunnel connecting Basement 2 of ION Orchard to Basement 2 of Wheelock Place. Total rental income this year is expected to be better than last year's. Wheelock is well-positioned to take advantage of opportunities due to its net cash position. We maintain our target price of S$2.65, pegged at a 10% premium to 2009 RNAV of S$2.41.

Allgreen Properties: Buy (UOB Kay Hian, 13 Aug)
Allgreen reported a net profit of S$27.9m in 2Q09, up 29% year-on-year (yoy), in line with our expectations and representing 29% of our full-year forecast. 2Q09 revenue jumped 14% yoy to S$84.6m, mainly due to higher revenue recognition from development properties as a result of increased progress in sales recognition as compared with the corresponding period in 2008. The "other" operating income turned negative due to the weakening of the exchange rates in 2Q09 compared to 1Q09. The loss from associates was also higher in 2Q09 compared to 2Q08 due to the start of recognition of some associates as preliminary expenses, pursuant to the issuance of the business licence for these associates. Allgreen Properties launched its much-anticipated high-end VIVA project near Novena MRT last weekend. It received very good response with around 85% of the units launched sold at and an ASP of S$1,500psf. The majority of buyers were Singaporeans with around 30% being foreign buyers, mostly Indonesians and Malaysians. The show flats are also ready for its projects at River Valley, Handy Road, Hup Cheong Mansions and St Michael. These projects are expected to be released soon. Allgreen's retail space is fully occupied with Tanglin Mall fetching S$8.60psf/month. The occupancy rates for its office space and serviced apartments are 92% and 80% respectively, with average office rental of S$6.70psf and serviced apartments fetching about S$9,000/month. Hotel occupancy rate fell to 60% but management believes the slowdown is temporary, expecting situations to improve later this year. 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.

Li Heng Chemical Fibre: Hold (Kim Eng, 13 Aug)
LHCF posted a 2Q09 revenue decline of 61.2% year-on-year (yoy) to RMB453.3m and net profit decline of 88.8% yoy to RMB38.0m. Sequentially, 2Q09 revenue and core earnings were also lower as a result of pricing pressures. Adjusting for the forex gains and its effects on income tax, 2Q09 net profit was RMB23m compared to RMB34m in 1Q09. LHCF has coped well in this slowdown as the sales volume in 1H09 was just 3% lower than in 1H08. The overall ASP stabilized at RMB16,440/ton during 1H09, and has since rebounded to RMB21,000/ton due to higher raw material prices. The improving profitability of its customers has allowed the increased raw material costs to be passed on. LHCF added five new Fujian-based customers in 2Q09, increasing its customer base to 195 and re-affirming its position as the market leader. The business outlook is likely to strengthen in the next six months based on stronger average selling prices (ASP) and stable sales volume. The management expects gross margins to improve 5-ppt to around 15%. Working capital was well-managed. Long-term customers who have been given an extension in credit terms have so far been able to pay up. Net cash by end-FY09 is expected at RMB1.0b, with no major capex in FY10F. We have raised our FY09 and FY10 revenue forecasts by 4% and 14% given the improved earnings visibility. The additional 90,000mt of yarn production lines are expected to be installed by 1H10. We are upgrading LHCF to a Hold with a target price of $0.24, pegged at 8x PER, a 50% discount to the regional sector average PER. LHCF has committed to paying out 20% of net profit as dividends for FY09F.

CitySpring Infrastructure Trust: Hold Buy (Kim Eng, 13 Aug)
CitySpring will pay DPU 1.75 cts for 1Q10, in line with the target distribution guidance. The units will trade ex-distribution on 24th Aug. Total cash earnings for 1Q10 was S$13.9m compared to S$17.7m in 1Q09 mainly due to the tariff adjustment at CityGas to reflect actual fuel cost. The performances of CitySpring’s all three businesses of CitySpring have performed to expectations in 2Q09. The demand for CityGas's town gas and natural gas remained stable despite the recession. Cash earnings at CityGas declined 10% to S$7.2m in 2Q09 as a result of the tariff adjustment. Basslink delivered a strong operating performance in 2Q09. Cash earnings of S$5.5m no longer include the telecoms revenue from the State of Tasmania. The management is highly confident about signing more telecoms customers and offering greater transmission capacity with its fibre optic cable due to the launch of the National Broadband Network initiative by the Australian government. Group NAV increased to $0.43 from $0.28 in Mar-09 as the fair value of derivative financial instruments increased significantly over that as at 31st Mar 09 and the AUD strengthened against the SGD by abut 11% since the previous quarter. Group NAV, excluding hedging and translation reserves, increased to $0.61. CitySpring is approaching our target price of $0.86, with a price upside of just 12%. With the management walking away from expensive acquisition targets, new investments in the next 12 months seem unlikely. We downgrade the stock to a Hold and maintain our target price at $0.86. Forward yield of 9.1% remains attractive.

CitySpring Infrastructure Trust: Buy (OCBC Research, 13 Aug)
CitySpring has posted S$82.8m in 1Q revenue, down 16.6% year-on-year (yoy) and down 15% qtr-on-qtr (qoq). Cash earnings also fell 22% yoy and 36% qoq to S$13.9m. Results were in line with expectations, barring a larger than expected tax credit for the quarter. CitySpring will distribute 1.75 cents per unit to unitholders for 1Q10, flat qoq and yoy. The trust maintains its guidance of a FY10 payout of 7 cents or a yield of 9.1% on the current price. The top-line shortfall was primarily due to lower tariffs charged by City Gas. The larger decline in cash earnings reflects the short-term volatility in the City Gas business as there is a time lag in adjusting tariffs, which are reviewed every three months, to reflect actual fuel costs. Over time, City Gas should be net neutral to fluctuations in fuel costs. We expect Basslink's telecoms network, which has been carrying customer traffic since 3 Jul, to contribute positively to 2Q10 earnings. We understand asset valuations are still not compelling but the manager does see opportunity for some downward pressure as asset owners potentially run into refinancing difficulties. We have always believed that the S$370m loan at the trust level has been the biggest roadblock to CitySpring's future growth. Our concern was overhang from a significantly dilutive equity issue. The trust's unit price has increased 63% year-to-date. We estimate that a cash call at this price level would be DPU neutral. As such, we believe a growth or acquisition scenario finally looks more realistic on a 12 to 18 months time horizon. We have adjusted our cost of capital assumptions for CitySpring, and revise our fair value estimate to S$0.84 (versus S$0.57 previously). Upgrade to Buy (total return 18.2%).

Soilbuild Group: Buy (OCBC Research, 13 Aug)
Soilbuild's 2Q09 results have exceeded our expectations. Revenue increased by 10.1% year-on-year (yoy) and 49.7% qtr-on-qtr (qoq) to S$96.9m, driven by additional revenue recognition from Leonie Parc View, Montebleu, The Centrio, Tuas Lot and maiden contribution from Heritage 9. Recurrent rental income rose 38% YoY with the leasing of newly-completed business space. While PATMI fell by 14.7% yoy to S$19.7m due to higher cost provisions for ongoing projects, it increased marginally by 3% qoq. As at 31st July, Soilbuild had achieved sales of S$207m from residential and business space projects. This brings the total sales value to S$638m, of which more than 50% of the amount (S$319m) has yet to be recognized. With the launch of Meier Suites, Soilbuild does not have any landbank left and we take a positive view on this as we think current environment is a good opportunity for developers to lock in revenue visibility and for Soilbuild, it can also realign its focus towards its large-scale business space projects. At the end of July, Soilbuild successfully repurchased S$42.5m in principal amount of the convertible bonds after the bondholders exercised their put options. Following the repurchase, there will be no outstanding bonds remaining.The removal of this overhanging concern could provide a positive catalyst to Soilbuild's share price going forward. Construction schedule for Leonie Parc View was ahead of our expectations and we are now raising our FY09 revenue and PATMI forecasts to S$376m and S$86m respectively. Our RNAV estimate has now been raised to S$1.70 per share (previously S$1.55) to reflect our new selling price assumptions for Heritage 9 (S$1,300 psf) and Meier Suites (S$1,300 psf). With the strong sales of its new projects and repurchase of the bonds, outlook has improved significantly. As such, we are now lowering our RNAV discount from the previous 50% to 20%. Our fair value has now been raised to S$1.36 (previously S$0.77). With an upside potential of 47.7%, we are now upgrading Soilbuild from Hold to Buy.

Valuetronics Holdings Limited: Buy (OCBC Research, 13 Aug)
VHL's 1QFY10 revenue fell 7.0% year-on-year (+37.3% qtr-on-qtr) to HK$218.6m due mainly to a decrease in sales within the OEM segment. Net income, on the other hand, fell 74.3% yoy to HK$5.4m (but better than the 4Q09 loss of HK$2.7m) due to slightly larger-than-expected operating costs and a significant allowance for doubtful debts of HK$9.5m. This allowance relates to a customer who has been experiencing working capital distress since the economic turmoil hit in 2008 and represents full provision for the customer. We also understand that VHL had previously provided a similar HK$8.7m provision for this customer in FY09. Excluding this one-off charge, however, we note that earnings would be well within our expectation. Looking ahead, VHL expects FY10 to remain challenging and the sentiment among its customers to remain largely cautious, given the current economic climate. For 2QFY10, the group also expects to contend with issues such as demand pattern uncertainty, price pressures from customers, deteriorating credit conditions and currency exchange rate fluctuations. On the demand front, it will also continue its existing business development strategies to capture new business opportunities and further expand into the US and European market. We have revised our FY10 forecasts to incorporate the better-than-expected turnover and doubtful debt provisions. Accordingly, our sales estimate is now raised by 6.3% to HK$843.8m, while our earnings projection is decreased by 20.6% to HK$40.1m. Despite the softer earnings, we think that VHL's fundamentals have by far remained healthy, and that it is well positioned to take on more orders when the global economy recovers. Applying an 8x (6x previously) FY10F EPS in anticipation of a seasonally stronger 2QFY10, our fair value is again maintained at S$0.17. Looking at an upside potential of 36%, we maintain our Buy rating on VHL.

Food Empire Holdings: Hold (OCBC Research, 13 Aug)
FEH's 2Q09 results came in below expectations. Revenue fell 56.3% year-on-year (yoy) to US$26.9m while net profit plunged 99.1% to US$41,000. Sequentially, revenue slipped by 6.3%, but bottom line improved from a US$2.2m loss in 1Q09, reaffirming our view that the worst is over. Nevertheless, its 2Q09 earnings were insufficient to offset 1Q09 losses, leaving the group with 1H09 net losses of US$2.2m. No dividends were declared. Weaker sales were recorded across all its key segments in 2Q09. Russia reported a 64.1% yoy slide in revenue to US$12.5m, while Eastern Europe & Central Asia turned in a 55.2% contraction in sales to US$10m. FEH blamed its poor showing on the challenging business environment as well as the depreciation of local currencies in the group's key markets against the US dollar. On a brighter note, the operating environment showed signs of stabilisation in 2Q09. Going forward, a revival of consumer demand, inventory restocking among its distributors, as well as forex stabilisation could bolster the group's performance. FEH's efforts to reduce inventories and receivables led to an improvement in operating cash inflow to US$31.9m from US$4.8m a year ago, with the group remaining in a net cash position. Its strong financial position also equips it with the financial muscle for acquisitions of distressed assets should opportunities arise. We have lowered our FY09 and FY10 earnings estimates by 43% and 39% respectively following FEH's poor 1H09 performance. We expect the group to remain profitable for the full year as the worst appears to be over and global economies are showing signs of recovery. While we forecast a 10% dividend payout ratio, any payouts remain uncertain given management's cash conservation priorities. We roll over our valuations to blended FY09/10 NTA, deriving an unchanged fair value estimate of S$0.305. Given that FEH trades close to its NTA and is expected to benefit from an improving outlook, we maintain our Hold rating on the stock.

SSH Corporation: Hold (OCBC Research, 13 Aug)
SSH has reported a 13% fall in FY09 revenue to S$217.6m and a 44% drop in net profit to S$15.5m as the group felt the impact of softer steel prices, lower demand and provision of inventories write down. Results were below expectations due to the inventory provision as well as lower revenue in the last quarter, which made up 20% of our full year estimate. Excluding the writedown of S$9.7m, gross profit margin would be about 26%, similar to that of FY08's. Although other income rose 98% year-on-year (yoy) to S$6.4m due to increase in rental income, other operating expenses increased by 225% to S$3.9m due to an exchange loss of S$1.2m in FY09. We also note that gross gearing decreased from 0.48x as at 30 Jun 08 to 0.29x as at 30 Jun 09 as bank borrowings fell with lower working capital requirements. As steel prices bottomed out in May this year and have recovered since, it is less likely that the group should require further provision for inventory writedowns. Although SSH mainly caters to customers in Singapore, Indonesia and nearby countries, there is the possibility that the group may expand its reach in the Chinese market since it can leverage on the network of KS Energy and Aqua-Terra Supply. Management expects that FY10 will remain "challenging and competitive" but pointed out that if the rise in oil prices is sustained, it may induce more oil exploration which increases the demand for SSH's products and services. We maintain our fair value estimate of S$0.16 as outlook remains murky with relatively low earnings visibility. As such, our Hold rating remains

SingTel: Buy (DMG, 13 Aug)
SingTel released 1QFY10 results that were largely within our expectations. Earnings grew 10% on the back of a 2% rise in sales. Revenue grew 1.9% to S$3.85b due to the weaker A$ while earnings rose 10.3% to S$945m. If forex remained constant from a year ago, Group revenue will have been up 12%. Regional associates, particularly Bharti and Telkomsel, made good strides. Earnings from regional associates increased 12% to S$624m on the back of higher contributions from Bharti (+15.8% in pre-tax earnings) and Telkomsel (+10.7%), despite weaker regional currencies. In local currency terms, the associates will have improved by a more impressive 19%. The Group mobile customer base jumped 33% to 262m, with Bharti's 48% growth (102.4m subs) leading the drive. Net gearing was lowered to 22.2% in 1QFY10, from 24.2% in the previous quarter. Free cash flows, which grew 3.5% to S$572m, continue to be healthy. Capex remained in check, at 11% of operating revenue. Looking ahead, Bharti – which accounts for over 30% of SOTP and 39% of Group mobile subscribers – will be a key determinant of SingTel's fortunes, given that we expect its core Singapore and Australia ops to be stable. Its share price has shot up by as much as 28% since our upgrade in May 09, before paring some of the gains in the past week. We have raised our SOTP-backed target price to S$3.40, from S$3.17 previously, to account for bigger contributions from its associates. Maintain BUY.

Midas Holdings: Buy (DMG, 13 Aug)
Midas Holdings announced that it has purchased two additional aluminium alloy (AA) extrusion lines with an annual production capacity of 20,000 tonnes. Coupled with the current two existing AA lines and taking into account the 3rd AA line that is expected to commence production in 2Q10, this move would see Midas command an annual production capacity of 50,000 tonnes by end-2010. With the expected strong pipeline of new projects in the PRC, Midas' higher production capabilities would enable it to leverage on the transportation boom in China. Also, the funds required for the purchase of these two AA lines would be financed by Midas' recent S$89.4m share placement and not through bank borrowings, thereby avoiding the need for the company to gear up. The fourth and fifth lines would be commissioned in Feb-10 and Aug-10 respectively. We will be reviewing our target price ($0.97) and BUY recommendation pending discussions with management.

Sembcorp Marine: Buy (DMG, 13 Aug)
Just to recap – SMM's 2Q09 revenue rose 8% year-on-year (yoy), 10% qtr-on-qtr (qoq) to S$1.5b, while operating profit was S$167m, an improvement of 50% yoy, 24% qoq. SMM's outperformance for the fourth consecutive quarter was due to its strong operating margin of 11.1%, +210bp yoy. We have raised our FY09F-10F operating margins by 20 basis pts. We continue to like Sembcorp Marine (SMM) and believe that its order momentum in 2H09 may surprise on the upside. While the market seems excited about the plentiful orders from Petrobras, we believe investors have yet to factor in other potential non-Petrobras contracts in the offing. Our industry checks indicated that SMM is currently bidding for jack-up newbuilds from Saudi Arabia, Vietnam and even China. Other piecemeal contracts include FPSO conversions (potentially in Indonesia and Vietnam). We have tweaked our earnings model and raise our operating margin assumptions following 2Q09 results. Our new earnings estimates show that, unlike what the Street thinks, FY09 may not be the peak earnings year. We raise our target price to S$3.74 (from S$3.04 previously) as we remove the discount factor in our sum-of-the-parts valuation methodology, given less occurrence of customers defaulting in an improved credit environment. Maintain BUY.

HL Finance: Buy (DMG, 13 Aug)
HLF has reported a 2Q09 net profit of S$27.8m, down 10% year-on-year (yoy). The decline was primarily due to 2Q09's S$9.2m top-up provisions for loans and settlements with wealth management customers for structured products, versus 2Q08’s S$1.9m recovery. Net interest income rose 10% yoy to S$55.8m. HLF has been cautious in its loan book – net loans contracted 9.6% year-to-date to S$6.7b, after the 7.8% yoy contraction in FY08. Our assessment is that this cautiousness will enable HLF to minimise its asset quality deterioration in the quarters ahead. We have revised our 2009 loan contraction forecast from the previous 5.4% to 8.1%. We expect loan loss provisioning to rise in the quarters ahead. Having said that, HLF's conservative stance – evident from its loan contraction – should help to minimize the rise in non-performing loan (NPL) ratio. We are assuming FY09 provisions of S$38m (versus 1H09's S$14m). This is higher than the estimated S$10m for FY08 – though overall provisions was S$55m, a significant S$45m was due to the Lehman Minibond Notes, which is one-time. We raise our FY09 net profit forecast by 8.4% to S$96.3m, primarily due to the strength of net interest income. HLF is trading at a P/NTA of 0.9x (based on NTA of S$3.22/share). We raise our target price to S$3.33 (from S$3.20), which is pegged to 1.0x of 2010 NTA. HLF declared an interim dividend of 2S¢/share (versus 5S¢ for 1H08). Assuming a 49% payout ratio, 2009 dividend yield is a fairly respectable 3.8%.

Biosensors International Group: Buy (Daiwa Research, 12 Aug)
Biosensors, based in Singapore, is engaged in the development, manufacturing and commercialisation of medical devices used in interventional cardiology and critical-care procedures. The company is an emerging player in the global drug-eluting stents (DES) market with its flagship product, BioMatrix. It was established in 1990 as a contract manufacturer of critical-care products, and ventured into interventional cardiology products in 1999 with the launch of the Sstent bare-metal stent. The company introduced its first DES, Axxion, in 2005, followed by BioMatrixin 2008. In our view, Biosensors has the potential to become a global leader in the DES market with its flagship product, BioMatrix. Studies have shown that BioMatrix is comparable, if not superior, to existing products in the market. BioMatrix was awarded the CE Mark in January 2008, which gave it access to the huge market of the European Union and countries that recognise the CE Mark. We expect the company to turn profitable in the current financial year, backed mainly by increases in sales of BioMatrix in Europe and Asia, and the continued strong performance of its joint venture in China. We forecast Biosensors to record a net profit of US$19.7m for FY10, rising to US$51.9m for FY12. Our six-month target price of S$0.75 for Biosensors is based on a forward peeraverage PER of about 11x on our FY12 EPS forecast. We expect positive news flow from the company's ongoing clinical trials, product development, and improving profitability to lift the share price over the next six to 12 months.

Li Heng Chemical Fibre Technologies: Buy (UOB Kay Hian, 12 Aug)
Li Heng has reported a 2Q09 net profit of Rmb38m, down 88.9% year-on-year (yoy). On a qtr-on-qtr (qoq) basis, however, 2Q09 net profit almost quadrupled from 1Q09's Rmb10.2m, which was in line with our expectation. A forex gain of Rmb13m in 2Q09 as opposed to the Rmb21m forex loss in 1Q09 was the main reason for the prominent qoq improvement. Otherwise, the company actually saw a slight qoq decline at the gross profit level in 2Q09 because the poor performance in April, which was the weakest month in terms of selling prices and margins, had dragged down the overall outcome in 2Q09. Revenue declined 61.2% yoy to Rmb453.3m due to a 50.9% yoy decline in average selling prices (ASP) and a 21.0% yoy decline in sales volume. Li Heng ran at full capacity in 1H09, but since it produced different types of yarn, the maximum amount it could produce was less than its originally designed capacity. Gross margin for 2Q09 deteriorated further to 10.6% from 12.9% for 1Q09. This was also due to the negative effect of a weak April. Gross margin was below 8% in April, gradually expanding as the market recovered since May, and approached 15% in June. The chemical fibre industry continued to see a recovery in 3Q09. According to Li Heng, there has been quite a significant improvement in July and August, with selling prices rising about 10% in 1H09. Thus, we expect gross margin for 3Q09 to climb to over 15% given such a huge increase in selling prices. The fluctuation in the exchange rate of S$/Rmb appeared to have largely stabilised in the last two months as compared to that in the previous quarters Looking ahead, with the ongoing favourable trend in the market, we expect Li Heng to record an over 10% qoq increase in 3Q09 revenue, a 40-50% qoq jump in gross profit, and over 30% qoq increase in net profit. Li Heng remains our top pick in the chemical fibre sector as we like its ability to maintain production at full capacity and to generate profits when others are incurring losses, which generally validate the company’s leadership position. As the industry recovers, we expect Li Heng to benefit more as a market leader in terms of charging more decent prices and reporting better margins.Maintain BUY on Li Heng with a target price of S$0.29, based on 5x 2010 PE.

Armstrong Industrial: Buy (DMG, 12 Aug)
On a qtr-on-qtr (qoq) basis, Armstrong saw 2Q09 revenue and net profit improve 27.2% and 348% to S$41.7m and S$3.1m respectively although top and bottomline had declined 8.1% and 38.3% respectively on a year-on-year (yoy) comparison. Due to higher-than-expected restocking activities across all of Armstrong's business segments from 1Q09, the eventual 2Q09 results were above our forecasts – we had previously gunned for sales of S$36.5m and net earnings of S$2.4m. While its operating cash flows were affected due to higher trade debtors as its customers rushed in for orders during Apr 09, Armstrong’s cash position nevertheless remains positive at a net cash per share of S$0.041. We believe that the company would be cash generative in 2H09. Management has reiterated that it is seeing the current recovery carry over into 2H09. While this is partially still due to restocking activities, Armstrong highlighted that the demand for its new products have been positive with its Automotive business in China and the Data Storage segment (due to higher forecasts by both Seagate and Western Digital) expected to spearhead higher jalf-on-half growth into 2H09. Given the better-than-expected 2Q09 numbers, we have raised our FY09 turnover and net profit forecasts by 7.4% and 7.8% respectively. Our BUY recommendation remains while target price is now revised to S$0.295 (from S$0.29 previously) based on 10x FY10 P/E, which is the average the stock traded at during recovery periods.

Armstrong Industrial: Buy (Kim Eng, 12 Aug)
Armstrong reported net profit of $3m in 2Q09 (+347% qtr-on-qtr; -38% year-on-year) as earnings staged a strong rebound from the very depressed level of 1Q09, led by a reflation in hard disk drive shipment volumes during the quarter while its automotive business in China continued to benefit from the PRC government's industry stimulus measures. No interim dividend was announced. The results are within market expectations. Revenue grew 27% qoq to $42m. All segments reported positive qoq growth but only HDD reported positive yoy growth (+16%) as Seagate and WD shipments rebounded smartly in 2Q09. The other segments fell 11-23% yoy. The 11% decline in automotive sales was the smallest as it benefited from strong domestic demand in China, although this was not enough to offset weak Auto sales in Thailand and Singapore. The 2Q09 results also included an abnormally large forex loss of $3.4m (normally less than $0.5m in past quarters), which was mitigated by a $3m writeback of past mark-to-market provisions. This loss is related to the unwinding of the US$ cashflow hedging contract entered into last year and does not mean it made less than the reported profit. 3Q09 will still show a forex loss, albeit smaller, as the contract is fully un wound. While sales in other segments still fell yoy in 2Q09, we understand monthly sales are closing the gap and yoy growth should return in 2H09. Other than continued strength in HDD, Automotive should get a fillip from pent-up demand in China where vehicle buyers now have to wait several months for delivery. We have raised FY09 forecast by 23% on a stronger Auto assumption. FY10-11 forecasts have upside potential as a new high-value car seat part for VW has been approved for production but we have not yet factored this into our forecasts. At 12x FY09 earnings, valuations have risen with the market but appetite for good quality manufacturing stocks has also risen. Look to any pullback to build a long position.

Orchard Parade Holdings: Hold (Kim Eng, 12 Aug)
Orchard Parade (OPH) registered a 2Q09 net loss of $9.6m, dragged down mainly by its share of its associated company, Yeo Hiap Seng's loss. Excluding this, OPH would have made a net profit of $3.7m, largely in-line with expectations. The Group's hotel revenue slumped by 42% yoy as a result of lower average room and occupancy rates. Operating margins are also lower for the same reasons. OPH’s losses this quarter are largely a consequence of YHS making an impairment loss on its quoted share investments (to the tune of $33.7m at YHS level). At the operational level, YHS has shown signs of margin-improvement, due to cost management particularly for the F&B division. OPH has stepped up its marketing efforts for the 336-unit Floridian, and as a result, a further 34 units were sold in June at a median price of $1,261 psf. This brings the number of units sold to-date to 79. The progress of sales at Jardin is less encouraging, with only one unit sold in June at $1501 psf. OPH’s hospitality business is likely to remain lacklustre as long as the tourism industry remains soft in Singapore. YHS continues to be a drag on OPH’s group earnings. Maintain HOLD, at a target price of $0.93 pegged to a 30%-discount to its RNAV of $1.32.

Singapore Land: Hold (Kim Eng, 12 Aug)
Due to a net fair value loss on investment properties to the tune of $395.7m, SingLand posted a net loss of $344.7m in 2Q09. However, core operating net profit was in-line with expectations, growing 16% year-on-year (yoy) as a result of positive rental reversion and cost management. No interim dividend was declared. SingLand suffered a total fair value loss of $492.1m on its investment properties versus six months ago (11%-decline). Such fair value loss is rather academic, as SingLand's business model seldom involves trading of the investment properties. SingLand's businesses are cashflow generative, and on a sequential basis, SingLand's gross revenue from its investment properties remained flat. The revenue from Pan Pacific Hotel Singapore slumped by 33% yoy due to lower room rates and occupancy rates, as well as lower F&B revenue. Similarly, associated earnings from Marina Mandarin and Mandarin Oriental hotels are also lower. It is also in-line with the overall weak tourism sector, as well as the H1N1 pandemic concerns. We have lowered our estimated breakeven cost for the Trizon to $1,280 psf, due to lower expected construction costs. However, despite the resurgence of strength in the private property market, we believe that a realistic average selling price (ASP) for the project would be around $1,200 psf, implying that SingLand may still make loss of about $30m from the project. Both the office and hospitality sectors are likely to remain muted in the near-term, before recovering. At the current price, valuations are not compelling. We are maintaining our HOLD recommendation, with a target price of $5.57 at a 30%-discount to its RNAV.

KSH Holdings: Neutral (DMG, 12 Aug)
KSH's 1QFY10's revenue was down 29.6% year-on-year (yoy) on the back of completion of four projects which more than offset the increase in revenue from on-going projects. These include Tampines 1, Forte, Platinum 28 and The Coast at Sentosa Cove. However, construction's gross margin improved from 7.6% in 1QFY09 to 12.2% in 1QFY10, attributable to cost control management. Consequently, PATMI was up 16.4% YoY from S$2.4m to S$2.7m. KSH's order books stand at S$439m as at Jun 09, of which a significant proportion would be carried out in FY10. According to Building and Construction Authority's (BCA) forecasts, public sector's construction demand is expected to make up at least 60% of total forecasted construction demand of S$18-24 billion. While the public sector is driving construction demand currently, things may be looking up for private sector construction demand. URA Statistics indicate that developers sold 1,825 units of new homes in Jun, up from 1,673 units in May, with a monthly take-up rate surpassing the high of 1,731 units recorded in Aug 07. We understand from management that they have been busy recently tendering for projects (~S$750m in 1QFY10), with approximately 70% of the tender projects coming from the private sector. This is in line with the current pick up in private sector sentiment that has been reported in the media recently. While we have kept our earnings unchanged, we have now conservatively assumed full conversion of the warrants in FY10 (versus 33% previously) as only 38% of the warrants issued in April are outstanding. KSH's construction peers are trading at 8.3x current year P/E. Ascribing a P/E multiple of 8x FY10 earnings, we arrive at a target price of S$0.33 (S$0.29 previously). Maintain NEUTRAL.

F&N: Hold (Kim Eng, 11 Aug)
F&N's 3Q09 revenue grew 12% year-on-year (yoy) while core earnings and exceptional items) grew 2% to $118m.. For the nine months, revenue was flattish (+1%) while core earnings fell 10% to $276m. No dividend was declared in 3Q following an interim dividend cut to $0.03/share.Group topline growth was driven mainly by progressive Singapore – One Jervois, One St Michael, Clementi Woods, St Thomas, Soleil@Sinaran, Martin Place Residences and Waterfront Waves – and Songjiang Four Seasons in China. However, it appears that earnings quality was not high. Although property development revenue jumped 44% yoy, PBIT grew only 6%. In contrast, the F&B businesses performed strongly with both topline and margin improvement. Segment revenue grew 3% yoy but PBIT jumped 27% to account for 42% of group profits, as margin improved 2.5%-points. Soft drink sales grew 15% followed by breweries at 4%. While dairy sales fell 4% (due mainly to lower exports), it chalked up the best margin improvement overall on lower input and packaging costs. While F&N is almost out of landbank, recent sales success should help it tide over the next 12 months. Moving forward, it will need to start landbanking in Singapore soon. On the F&B side, the extension of the bottling agreement with Coke will gain F&N extra time to build up its own branded soft drinks volume. The removal of geographical and category selling restrictions could be exciting in the long term but F&N does not have the home ground advantage in other Southeast Asian countries and Coke will also be able to compete with F&N. At the current share price, F&N is trading close to our RNAV of $4.17 (previously $4.14). We have raised our forecasts to account for the bottling agreement extension as well as higher F&B margins but impact on RNAV is minimal. We reckon the stock has priced in recent positive developments and maintain our Hold call.

Ascendas REIT: Neutral (DMG, 11 Aug)
A-REIT has announced a private placement for 185m new units at an issue price between S$1.63 and S$1.70 per unit to raise at least S$301.6m. It plans to utilize S$175.4m of the gross proceeds to fund the development of the hi-tech built-to-suit facility for SingTel. In May 09, A-REIT secured from SingTel the purchase of a site at Kim Chuan Road for the development of a 9-storey Built-To-Suit (BTS) hi-tech industrial building. SingTel will lease the entire property for an initial tenure of 20 years with annual rental escalation and an option to renew for another 10 years. The project is slated for completion in 1QCY10. Total development cost is estimated at S$175.4m, implying S$496/sqft for the 353,727 sqft GFA site. Apart from SingTel BTS, A-REIT has two other development – the S$107m Plot 8 Changi Business Park and the S$25.6m Airport Logistics Park. The remaining S$120.6m proceeds from the placement will be used to partly fund these developments. Pending the deployment of the net proceeds (totaling S$296m) to repay debt facilities, A-REIT's gearing is expected to decline from S$1.64b to S$1.35b, resulting in the decline in leverage to 29.3% from 35.7%. We estimate annual interest expense savings of S$11m on the back of a 10.9% increase in new units. The overall ramification from the placement works out to be mildly DPU dilutive of 0.3% to 5.6% between FY10-13. With a gearing of below 30%, we believe there is little need for management to further recapitalize its balance sheet, easing concerns that our forecast dividend yield would be diluted. Our price target of S$1.72 remains, but stock downgraded to NEUTRAL (from BUY) given recent price rise.

Venture Corporation: Hold (Kim Eng, 11 Aug)
Venture's eported earnings rebounded strongly qtr-on-qtr (qoq) to $60.9m in 2Q09 from depressed 1Q levels, although it did benefit from a $25m fair value gain from financial derivatives. Adjusted for this and a $4m forex loss, core earnings was $40.3m, up 29% qoq but still down 43% year-on-year (yoy). Lower tax rates in Singapore and Malaysia also added a $1.5m boost to the bottomline. No interim dividend was declared. While its customers have been replenishing their exhausted channel inventory during the quarter, leading to the strong rebound, margins stayed weak — up slightly from 4.3% in 1Q09 to 4.8% but still down sharply from 7.3% in 2Q08 – due to a poor sales mix. Despite a 37% qoq jump in Printing & Imaging revenue, higher margin businesses such as Test & Measurement and Retail Store Solutions remained weak. Despite the weak margins however, Venture maintained an AAA-rated balance sheet. In 2Q09, it added more than $180m in cash vs 2Q08 as both inventory and receivables fell from a year ago. We expect its annual dividend of $0.50 a share to be sustained. Talk of HP revamping its printer supply chain in favour of Hon Hai earlier this year has gained credibility with the recent news that the two companies will build a US$3b plant in Chongqing to make laptops. We estimate that HP's OEM business accounts for some 30% of Venture's Printing & Imaging revenue, which of late has accounted for above 40% of total revenue. If true, this could lop about 10% off FY10 revenue. We downgrade Venture to Hold as its FY09-10 valuations are no longer cheap compared to its global EMS peers. Our price target of $8.84 is pegged to 14x current year forecast.

Venture Corp: Hold (OCBC Research, 11 Aug)
Venture's 2Q09 results saw its revenue about 8.5% above our forecast at S$846.0m, core net profit was 6.4% shy at S$40.3m, mainly due to an unfavorable product mix (bigger ontribution from its lower-margin Printing & Imaging business). Going forward, management said that most of its customers were still unwilling to commit to the pace and trajectory of recovery but noted the business environment has improved. Venture also expects its product mix to improve towards better margin products from 2H09 (will be an inflexion point) onwards as management continues to pursue its goal in being a technology-oriented company as opposed to a pure electronic manufacturing services provider. We have raised our FY09 revenue by 0.7% and cut our earnings by 13.2% to account for the margin squeeze; but raised FY10 revenue and earnings by 8.5% and 12.0% respectively. Our fair value remains at S$9.26 (based on 12.5x blended FY09/FY10 EPS).

Nera Telecommunications: Buy (DMG, 11 Aug)
We upgraded our recommendation on Nera Telecommunications, which is engaged in the provision of transmission network products and systems integration, last week at S$0.30. Project delays that were previously experienced by the company should now be fulfilled in the current year as the global economy has most likely bottomed out in 1Q09. The expansion of the various networking infrastructures within the respective countries riding on the growth of broadband, Internet and other related services is also expected to provide a boost to NeraTel. With a net cash per share of S$0.086 while dividends of S$0.03 are also sustainable given its lower capex requirements and cash flow generating attributes, we have a TP of S$0.39 assuming it trades to the industry average of 9.9x FY09 P/E. Its peers include Datacraft, CSE Global, and Silverlake Axis.

Genting Singapore: Hold (OCBC Research, 11 Aug)
Genting has posted a less muted set of 2Q09 results. While revenue fell 3.1% year-on-year (yoy) to S$120.1m, it was up 14% qtr-on-qtr (qoq), thanks to increase in business volume at its UK casino operations. However, net loss widened from S$1.8m in 2Q08 to S$50.7m – it was also up 59.0% qoq, mainly due to its share of associates loss of S$20.7m; this arising from a reduction in values of a property owned by a jointly controlled entity in London, as well as higher pre-operating expenses for RWS. However if we strip out this item and also its fair value adjustments, its core loss would have widened 101% yoy but shrunk 13.5% qoq to S$20.7m. For the first half, revenue fell 21.7% to S$225.5m, meeting about 38.4% of our FY09 estimate, while it swung from a net profit of S$4.2m in 1H08 to a net loss of S$82.5m; excluding fair value adjustments and associate loss, core loss came up to S$44.6m, meeting 44.8% of our FY09 forecast. Although its UK operations have picked up somewhat qoq, aided by improvement in business volume, as well as significant cost control on its end, management noted that the outlook for its UK operations remain uncertain. Besides the still uncertain economic environment, there are also several new measures by the UK government to raise gaming taxes; Genting expects the higher taxes to have an impact of less than £0.5m in 2009 but will continue to mitigate the impact of revenue reduction via vigilant cost reduction measures. As for Singapore, RWS is still targeting for a soft launch in 1Q10, but some talks have emerged that its casino may open before the end of 2009. RWS has increased its investment from S$6b to S$6.59b, but it expects the additional investment to be funded by operating cash flows once the IR opens. We understand some attractions will only be opened by end 2011. In view of the improving economic outlook for Singapore and Asia, we have raised our FY10 revenue forecast by 10.1% and reduced our loss estimate by 48.9%; this will in turn improve our fair value from S$0.76 to S$0.85.

Genting Singapore: Overweight (JP Morgan, 11 Aug)
We believe Genting Singapore (GS) is in a dominant position as it is one of the only two companies with the right to develop and operate an integrated resort (IR) in Singapore, and will maintain this duopoly at least for the next 10 years. We believe IRs help the objectives of the Singapore government, which aims to double visitor arrivals by 2015 with a wide catchment area of 700 million people living within a 5-hour flight. Based on the Macau and Las Vegas experience, new casino openings should grow the casino industry pie. Shares of casino operators such as LVS, Galaxy, and Wynn rose 14-85% before and after their casino openings. We believe Genting Singapore's share price could see a similar trend. RWS can leverage Genting Group's established customer network and management expertise while RWS's Universal Studios is also the only branded theme park in Southeast Asia. For FY12, we estimate RWS to have casino revenue of US$1.7B (when the IR is fully completed). Assuming a market share of 40%, this translates into a Singapore casino market size of US$4.3b, which is 4 times the size of Malaysia's and a quarter of the size of Macau's. We also assume 7.5 million visitors to Universal Studios in FY12 (compared to 8-9m visitors to Universal Studios, Osaka). Our price target of S$1.20 is based on our SOTP valuation, in which we value its Singapore business at 14x FY12E EV/EBITDA. This is a concept stock which we think could trade over S$2.00 using bullish assumptions. Key risks to our PT include intense competition between RWS and Sands, a slower-than-expected recovery in the global economy, and unexpected health scares such as swine flu.

Olam Int'l: Overweight (JP Morgan, 11 Aug)
Transitioning from an assetlight to asset-medium model, we see Olam continuing to sustain its historical 20-25% annual earnings growth with a FY10E-13E EPS CAGR of 28% over the next three-year cycle, primarily driven by 15-18% overall volume growth with food staples and edible nuts segment (including related associates) leading the top-line growth. We assume coverage and raise our FY09/FY10/FY11 earnings estimates by 2.6%/4.9%/7.4%. We estimate the five associates (Nauvu, PureCircle, Open Country Dairy and targeted joint venture with Mondandola Group investments) are potentially valued at S$0.82/share as against the S$0.62/share incorporated in our valuations, implying 15.9x on their FY13E earnings. Moreover, besides a potential 30-40% RoE profile for these assets, we believe three of the five assets should have a positive impact on traded volumes, which could raise 'related acquisition RoEs' by an additional 10-20%. We estimate every additional 10% rise in RoE could add an additional S$0.10/share to our valuation. With the entire US$300 million raised earlier in June from the stake sale to Temasek likely to be used for potential acquisitions, we believe Olam could look to substantially add to the bottom-line with a target to push existing margins from the current 2% levels to close to 3-4% by FY13E-15E. We are raising our SOTP price target to S$3.70 from S$2.60, incorporating: (a) core DCF valuation of S$2.80/share on existing business; (b) associate valuation of S$0.62/share; and (c) option value of S$0.28/share for potential acquisitions.

DBS: Buy (Kim Eng, 11 Aug)
DBS posted a 2Q09 net profit of $552m (+21%qtr-on-qtr; -15% year-on-year), above market expectations. The earnings out-performance was mainly due to cost discipline, better net interest margins, as well as strong trading and investment gains. A dividend of 14 cents/share was declared, unchanged from the previous quarter. While loans growth declined 2% in pace with the industry, the group is seeing a strong loans pipeline. Net interest margin benefited from improved credit spreads and is expected to be sustainable at the current interest rate environment. Non performing loans (NPL) spiked up by 25% primarily due to lumpy accounts from shipping and the Middle East. Unlike its peers, specific allowances were still rising, up 21% qoq to $273m. However, based on stringent assessment, the management is comfortable with their coverage ratios, at 81% on NPAs and 119% on unsecured NPAs. With rising business confidence, they observed improving NPL trend in core markets. DBS' Hong Kong earnings have reversed up from a loss of $35m in 1H08 to a profit of $193m due to margin improvement, cost reduction and lower allowances. With buoyant activities in financial markets regionally and easing provision charges, we expect good earnings potential from Hong Kong and its other fast growing markets in China and Indonesia. We have raised our earnings estimates by 2% on the good results. Our target price is increased to $15.30, rolled forward to 1.3x FY10 PBV. Valuation is still attractive along with an improved economic outlook. Near-term catalysts could arise from the utilisation of its $4b rights issue proceeds for strategic investment for future growth. Maintain BUY.

DBS: Buy (UOB Kay Hian, 11 Aug)
DBS reported a net profit of S$552m for 2Q09 (+27.5% qoq), above our forecast of S$355m. Fees & commissions and trading income were better than our expectations. Staff cost and other expenses were well under control. Cost/income ratio improved from 38.4% in 1Q09 to 35.2% in 2Q09, as a result of management's focus on improving productivity. DBS has built a strong pipeline in residential mortgages and corporate loans. It has aggressively expanded in housing loans in Singapore, participating mainly in the owner-occupied and upgraders' market. It offered 90% financing in the early part of 2Q09 but has since "clamp down". Disbursement for housing loans will be more pronounced in 2H09. DBS has declared a dividend of 14 cents/share, unchanged compared to the last quarter. We have raised our assumptions for loan growth to 5.7% for 2009 (previously 7.8%) and 11.7% for 2010 (previously 8.2%) to factor in increased demand from property developers and housing loans. We have revised our assumptions based on trends in NPL ratios over the last three quarters. We assumed its non-performing loan (NPL) ratio will hit 4% by end-10. Our earnings model has imputed allowance for credit losses of 120bp in 2H09 (previously 120bp) and 60bp in 2010 (previously 80bp). We have raised our 2009 and 2010 net profit forecasts by 14.0% and 11.5% respectively. DBS is a high-beta play on the eventual economic recovery. Our target price of S$14.78 is based on P/B ratio of 1.35x, which is derived from the Gordon Growth Model (ROE: 10%, payout ratio: 52%, required return: 8% and constant growth: 4%).

DBS: Sell (Phillip Securities, 11 Aug)
DBS reported net earnings of S$552m (-17.4% year-on-year, +21.1% qtr-on-qtr,1Q09: S$456m) due to higher revenues in both interest income and non-interest income segments. Allowances were 12.6% higher over the quarter signifying the tough operating environment in the industry. Net interest income grew to S$1112m (+5.1% yoy, +3.4% qoq) from the expanded loan base over the year. Net interest margins fell 3bps over the year to 2.01% as improved credit spreads and reduced funding costs were negated by lower returns on interbank assets. Non-interest income increased 25.7% to S$680m (+25.7% yoy, +16.0% qoq, 1Q09: S$586m) over the year from higher fee income (+4.7% yoy, +12.9% qoq), trading activities (+110.8% yoy, +14.7% qoq) and net income on financial investments (+181.6% yoy, +30.2% qoq). Expenses were lower at S$631m (-8.2% yoy, -1.1% qoq) due to lower staff costs from the reduction in headcount. Cost to income was lower at 35.2%. Gross loans expanded to S$130.4b (+8.4% yoy, -1.8% qoq), driven by loans expansion in building and construction (+14.6% yoy) and financial institutions, investment and holding companies (+36.9% yoy). However, as compared to last quarter, gross loans contracted 1.8% due to currency translation effects with all sectors reporting a decline except financial institutions and private individuals. Manufacturing industry reported the steepest decline of 8% over the quarter. The Group took another S$466m allowance for loans and other assets comprising of S$ 183m for general allowances, S$272m for specific allowances. Non-performing loans (NPL) jumped over the quarter to S$3.7b while the NPL ratio spiked to 2.8% from 2% in 1Q09 due to exposures to shipping and Middle East corporates and institutions. We adjust our NPL ratio assumptions upwards from 2.0% to 3.2% for 2009 as asset quality deteriorated faster than expected. We also forecast impairment charges to remain high in the second half of this year as coverage ratio to beef up to 80% from the current 68% of NPLs. This will certainly add pressure to earnings for 2H09. Despite maintaining dividends of 14 cents, similar to the 1Q09, we do not think that it will be sustainable. Payout ratio of 66% in the first 1H09 is considered high in the industry. It is a matter of lower dividend payout or reduced growth assumption.Accordingly, our target price has been adjusted to S$10.80. This is pegged to 1.05x FY09 NAV. But we do note that this valuation is a steep discount to the 5-year average P/B ratio of 1.4X NAV. We downgrade the rating to SELL.

DBS: Buy (OCBC Research, 11 Aug)
DBS has reported 2Q09 net earnings of S$552m, down 15% year-on-year (yoy) but +27% qtr-on-qtr (qoq) . This was above the median estimate in a Bloomberg survey of S$425m. The improvement came from better Stockbroking, Investment, Wealth Management and Fund Management operations. Cost-to-income ratio also improved from 42.5% in 2Q08 to 38.4% in 1Q09 to a significantly lower 35.2% by 2Q09. As expected, impairment charges remained high, where it surged from $90m in 2Q08 to $437m in 1Q09 and $466m by 2Q09. Net Interest Margin (NIM) improved from 1.99% in 1Q09 to 2.01% in 2Q09. The group has declared a dividend of 14 cents for this quarter. With improving economic outlook, we are increasing FY09 earnings from S$1572m to S$2128m. To reflect better valuation in the market, we are raising our valuation peg from 1.2x to 1.4x book and this in turn raises our fair value estimate from S$12.40 to S$14.65. Maintain BUY.

DBS: Sell (DMG, 11 Aug)
DBS reported 2Q09 net profit of S$552m, down 15% YoY but up 27% QoQ. This was better than our expectations due to (1) allowances of S$466m coming in below our forecast of S$550m; and (2) financial investment income of S$138m, tripling 2Q08’s S$49m and above our expectations. We raise our 2009 net profit forecast by 22% to S$1.79b, as we increase our non-interest income and lower our operating expenses. Fee and commission income of S$358m was up a marginal 5% YoY and a more substantial 13% QoQ. The QoQ rise is attributed to increased revenues from capital market activities – stockbroking, investment banking and wealth management. The net gain on investment securities of S$138m was largely due to the sale of equity holdings, which we see as unsustainable.Non-performing loan (NPL) ratio rose to 2.8%, from Mar 09's 2.0%. The bulk of the increase was due to exposures to shipping and Middle East corporates and institutions. DBS now has the highest NPL ratio, when compared against OCBC’s 2.1% and UOB’s 2.4%. Allowances of S$466m was sharply higher than 2Q08's S$90m, but close to 1Q09's S$437m. However, given the low loan loss coverage of 80.5%, we have raised our 2009 provisioning estimates by 6% to S$1.7b. An interim one-tier tax-exempt dividend of 14S¢/share has been declared. We upgrade DBS target price to S$11.80 (from S$10.80 previously). Whilst DBS traded at an average 1.37x P/B over the past seven years, we do not see that level as being justified in the current situation. We believe DBS asset quality deterioration at a faster pace than peers will exert share price downside. For investors who want to be exposed to Singapore banks, UOB (NEUTRAL) is our best pick.

MacarthurCook Industrial REIT: Sell (Phillip Securities, 11 Aug)
MIREIT has reported a gross revenue for 1QFY10 of $11 million (-11.8% year-on-year, -16.1% qtr-on-qtr), net property income was $9.3 million(+3.2% yoy, flat qoq). Distributable income was $4 million(-39.2% yoy, -19.5% qoq). DPU for the quarter was 1.51 cents (35.7% yoy, -19.2 qoq). Gross revenue was lower in 1Q10 mainly because of a refund of service charges to tenants. Underlying rental revenue from tenants remains stable with portfolio occupancy rate of 98.64%. Net property income stays fairly constant, but distributable income has fallen since 4Q09 because of a claim for industrial building allowance and also higher interest cost in 1Q10. In FY09, MIREIT had maintained a quarterly payout of 2.35 cents for the first three quarters while any retained income was distributed in 4Q09. For 1Q10, it is paying out 100% of the distributable income. However distributable margin has fallen from 0.5 in 1Q09 to 0.36 in 1Q10 due to the reasons mentioned above. The REIT manager wrote down the asset value of its Japan property by 9.5% and subsequently portfolio value decreased from $530.3 million at 31st March 2009 to $526.4 million at 30 June 2009. The current gearing is 41.8% with total debt of $225 million that is due in Dec 2009. We keep our revenue forecasts as we believe the portfolio is able to maintain its occupancy. However we factor in the decreased in distributable income arising from the claim for industrial building allowance which results in a downward revision of our FY10F DPU forecast by 30% to 5.82 cents. We raised the weighted average cost of capital (WACC) in our DCF model from 9.8% to 10.6%. Our fair value is thus lowered from $0.39 to $0.26. The impending refinancing need still poses a big certainty to us. We downgrade our recommendation from Hold to Sell.

Venture Corp: Neutral (DMG, 11 Aug)
Venture saw 2Q09 revenue come in at S$846.0m (-13.0% year-on-year) while net profit was S$60.9m (-7.1% yoy), representing a 16.6% and 120% qtr-on-qtr (qoq) increase respectively. This was better than our forecasts for turnover and net earnings of S$790.8m and S$42.5m and also exceeded market consensus of S$808.8m and S$44.9m respectively. Note that, however, Venture's 2Q09 bottomline had included a S$25.0m write-back from its CDOs which are currently valued at S$20.7m (representing 12.3% of its host value). Despite most technology firms experiencing a sequential improvement in earnings for 2Q09 as industry-wide restocking activities come to play, Venture had actually recorded lower sequential earnings despite the 16.6% sales growth should one were to exclude the impact from its CDOs – core profit had stood at S$40.3m in 1Q09 as compared to S$35.9m in 2Q09. While we are positive on the technology sector as a whole, we note that Venture’s valuations may have run ahead of its fundamentals – since the start of the year, the ST Index and the FTSE ST Technology Index have only appreciated by 45% and 80% respectively while Venture's share price had rocketed by 96%. Additionally, with Venture's 5-yr historical average P/E at 14.0x and assuming that it trades down to such a valuation from its current 14.1x FY09 P/E, we downgrade our recommendation to NEUTRAL but increase our target price to S$8.51.

Hyflux: Buy (OCBC Research, 7 Aug)
Hyflux's 2Q09 revenue has jumped 24.4% year-on-year to S$134.5m, while net profit climbed 14.7% to S$25.9m. The better performance was due to the progressive completion of higher-valued projects, especially from the Middle East & North Africa (MENA) region, with continued active project execution driving improved gross profit margins. Going forward, management notes that municipal sector's fundamentals remained strong and expects the MENA and China markets to remain key contributors to its revenue. Its current order book stands at S$1646m as at end-Jun, up further from the S$1480m at end-Dec. Due to the better-than-expected recovery in gross margins, we have bumped up our FY09 net profit estimates by 17.9% (FY10 by 17.5%), while keeping our revenue estimates unchanged. This in turn raises our fair value from S$2.52 to S$2.96, still based on 20x blended FY09/FY10 EPS.

NOL: Hold (OCBC Research, 7 Aug)
NOL has posted a 37.9% year-on-year (yoy) decline in 2Q09 revenue to US$1.4b, while net income swung into the red with a US$146.2m loss as compared to a US$75.8m profit a year ago. On a sequential basis, revenue contracted by 10.0%, while net losses narrowed from US$244.6m in 1Q09. NOL's weak performance does not come as a surprise given that freight rates and volumes have fallen by 20% and 24% YTD, respectively. While management reiterated its guidance for a full year loss in FY09, the worst appears to be over with the operating environment showing signs of stability in the later stages of 1H09. A seasonally strong 3Q09 could lift the group's full year performance. While it remains premature to call for a recovery in the containerships industry, NOL is well positioned to weather the downturn given its strong financial position. We maintain our HOLD rating and raise our fair value estimate to S$1.68

NOL: Buy (Phillip Securities, 7 July)
NOL reported 2Q FY2009 revenue of US$1,388m (-38% yoy) and net loss of US$146m, which was a reversal from a net profit of US$76m in 2Q FY2008. However, this was an improvement from 1Q FY2009 when it reported a net loss of S$244m. Although costs fell due to better cost management and lower costs from suppliers, it was insufficient to compensate for the decrease in revenue due to lower volumes and freight rates. We continue to believe that NOL is likely to face problems of excess capacity and low freight rates in FY2009F. In fact, we are expecting NOL to report a net loss of US$633m in FY2009F. A small recovery is likely to take place in FY2010F as NOL is anticipated to report a lower net loss of US$131m. Growth is likely to occur in FY2011F, with NOL expected to report net profit of US$208m. The successful completion of the rights issue has made NOL financially stronger. It reduces its net debt to equity ratio from 0.8 to 0.0 for FY2009F. As NOL has the financial resources to ride through the difficulties in the shipping industry, we maintain our buy recommendation and fair value at S$2.12, which is 1.2 times book value for FY2009F. It is also expected to benefit from the improvement in shipping volumes and rates as the global economy recovers in 2010.

Parkway Life REIT: Buy (Phillip Securities, 7 July)
Plife REIT haa posted gross revenue for 2QFY09 of $16.1 million (+28.9% year-on-year; -1.5% qtr-on-qtr)), net property income was $15.0 million (+27.9% yoy, -1.3% qoq). Distributable income was $11.4 million (+13.7% yoy, flat qoq). DPU for the quarter was 1.89 cents (+13.8% yoy, flat qoq). The growth in revenue comes mainly from the contribution of Japanese properties that were acquired in 3Q08 and also the annual revision of rental from the Singapore hospitals that took effect from August 2008. It can be seen that from 4Q08 onwards, revenue and DPU were fairly stable. The REIT manager further announced that the Singapore hospitals rental is set to increase by 4.36% beginning 23 August 2009. Revenue is also expected to get a boost from the increase in rental of the P-Life Matsudo property following completion of an asset enhancement initiative (AEI) to maximize plot ratio. Plife REIT has no short term refinancing concern with a gearing of 22.7%. Total debt is $242 million with $34 million coming due in 2nd half 2010 and the rest in 2011. It has in place a $500 million multicurrency MTM programme as well as a newly secured $50 million Islamic revolving credit facility. Being exposed to the relatively stable healthcare sector, Plife REIT has shown resiliency in the recession. The inflation linked revenue model ensures revenue is downside protected. We revised up our revenue forecast to factor in the growth from the annual revision of the Singapore hospitals and from the Matsudo property. Our FY09F DPU remains unchanged at 7.59 cents while FY10F DPU rises from 7.56 cents to 7.71 cents. Fair value revised upward from $1.19 to $1.21.

Parkway Life REIT: Buy (DMG, 7 Aug)
PREIT recorded a 27.9% year-on-year (yoy) growth in 2Q09 net property income to S$15.0m, driven by higher contributions from its Singapore and Japan properties. 2Q09 DPU grew 13.5% YoY to 1.89 S¢. The results were in line with expectations. Going forward, rental from its Singapore properties is expected to rise, as the CPI growth rate that would be used in its rental formula for the third year of lease is 3.36%. On top of that, its maiden asset enhancement initiative (AEI) at one of its Japan properties has enabled it to raise the gross rental from that property by 19.4%. Despite the global economic downturn, its unique lease structure allowed PREIT to continue growing whilst providing downside revenue protection. Gearing remains low, at 22.7% at end 2Q09. On top of that, it was offered a S$50.0m 3-year Islamic revolving credit financing facility, by The Islamic Bank of Asia. This would not only allow PREIT to reach out to investors in the Middle East, the facility can also be used to refinance its S$34m loan that is due in 2H10, thereby lowering its refinancing risks. With this facility and its low gearing, PREIT's healthy financial position would allow it to acquire assets to enhance its portfolio. Management reiterated that Singapore will remain its core focus, but it will also look out for acquisitions opportunities in countries like Japan, China and Australia. We remain positive on PREIT, for its defensive nature and the revenue downside protection that its lease structure offers and have raised our DPU estimates for FY09 and FY10, given the higher growth rates. Hence, our target price has been revised to S$1.22 (S$1.01 previously).

StarHub: Hold (Phillip Securities, 7 July)
Starhub has reported a 2Q FY2009 operating revenue of S$532.4m (+0.2% year-on-year) and net profit of S$77.8m (+21.1% yoy). Despite the slight increase in revenue, net profit rose by a larger percentage because of lower operating costs and interest expenses. It also declared an interim dividend of S$0.045 per ordinary share, which was unchanged from 2Q FY2008. Despite the economic downturn as well as competition from SingTel and M1, StarHub reported an increase in the number of customers. As at 30 June 2009, the number of customers for its mobile, Pay TV and broadband businesses were 1,849,000, 530,000 and 389,000 respectively. Two business units reported improvements: mobile revenue was S$271.9m (+1.0% yoy) and fixed network service revenue was S$80m (+7.3% yoy). Post-paid mobile revenue fell by 1.9% to S$207.6m because customers made fewer domestic and international calls. However, pre-paid mobile revenue rose by 11.5% to S$64.3m due to higher usage from a larger number of customers. Meanwhile, fixed network service revenue increased due to greater take-up of domestic and international leased lines. Three business units reported worse performances: Pay TV revenue was S$100.5m (-1.5% yoy), broadband revenue was S$60.3m (-3.2% yoy), and sale of equipment revenue was S$19.8m (-14.9% yoy). Pay TV was affected by lower advertising revenue. Moreover, consumers were more cautious in their purchases of handsets during the economic slowdown. StarHub expects the service revenue for 2009 to be maintained at 2008 level. Furthermore, it intends to pay a minimum cash dividend per quarter of S$0.045 per ordinary share, bringing the total to S$0.18 for the full year. Our valuation using the discounted cash flow (DCF) model gives a fair value of S$2.14. The dividend yield of StarHub continues to be attractive at 7.9%.

StarHub: Buy (OCBC Research, 7 Aug)
Starhub's 2Q09 results revenue rose 0.2% year-on-year (yoy) and 0.3% qtr-on-qtr (qoq) to S$532.4m, or about 0.8% ahead of our forecast, net profit jumped 21.1% yoy (but fell 5.7% qoq) to S$77.9m, or just 0.8% shy of our estimate. A dividend of S$0.045/share was declared as promised. For 1H09, revenue fell 0.3% yoy to S$1063.0m, meeting 49.5% of our full-year estimate, while net profit climbed 11% to S$160.3m, fulfilling 50.8% of our FY09 number. Going forward, it has maintained its stable guidance for the rest of 2009. It expects service revenue to maintain at 2008 level; EBITDA margin on service revenue to remain around 32%; cash capex not to exceed 11% of revenue; and its S$0.045/quarter cash dividend, or S$0.18 total for FY09. We continue to like StarHub for its defensive earnings potential and attractive dividend yield of 8%. Beyond 2009, we see the possibility of StarHub entering into the enterprise broadband market in a bigger way with the NBN (national broadband network) vs. its limited penetration currently. Maintain BUY with S$2.88 fair value.

SembCorp Industries: Buy (Citi Research, 7 Aug)
SCI's 2Q09 results of $142m profit (+6% qtr-on-qtr, +3% year-on-year) beat our estimates. Oil & Marine remained the key profit driver, accounting for 60% of profits (vs. 57% in 2Q08) while Utilities profit reached $48m, in-line with our forecast. Industrial parks (S$7m profit) was unchanged yoy. Revenue reached S$833mn, down 25% yoy largely due to lower HSFO prices while PATMI increased 11% yoy to S$48mn. Both China and the Middle East performed well while Vietnam Phu My 3 power delivered sterling strong profit growth on the back of a 15% tariff increase, and contributed "double-digit" profit. Overseas operations now contribute about 45% of sales. Singapore PATMI declined 31% yoy to S$29m due to absence of fuel sales (S$15m) and tax write-back (S$3.8m) enjoyed in 2Q08. Proposed closures by Dow Chemical, Croda and Invista at Teeside would affect ~30% of UK revenue by 2010. The strategy now is to reconfigure the assets, cost structure and secure new income streams. SCI has had measured success so far, with three new customers expected to come onboard and help to partially offset the weakness. Growth prospects in the UK remain muted in 2010, but this is already captured in our assumptions and more than priced in, given the about 40% Utilities discount to peers. We have trimmed Utilities EPS by 5-8% but raise our group EPS estimates by 12-21% for FY09-11E, factoring in stronger SembMarine contribution. We have raised our target price for SCI from S$3.40 to S$3.95.

SembCorp Industries: Buy (UBS Investment Research, 7 Aug)
SCI's Q209 earnings were broadly in line with expectations and there is a sense that operating conditions have started to improve to pre-crisis levels for SCI’s utilities business in Singapore, China, Vietnam and the Middle East. However, we are concerned about customer withdrawals at SCI's UK business, which accounts for about 22% of H109 utilities earnings (15% of group), as the issues are structural – we expect permanent impairment to parts of the current business model. Three major customers which account for 30% of SCI's UK revenue, Dow Chemicals, Croda and Invista, will be pulling out of the UK site by 1Q2010. The fate of a 4thh customer, Artenius, is unclear due to its parent's credit issues. We are concerned that further departures might follow. We estimate profits from UK will fall from £27m in 2008 to £19m in 2009, and could fall further to £8.5m in 2010. Using simple DCF, we think this impacts SCI's valuation by about S$0.28/SCI share. SCI's ex-SembMarine valuation is not aggressive but we think the dent in earnings confidence would weigh on the stock. Although we cut group 2010E net profit estimates by only 5% for the loss of earnings, this does not yet include staff restructuring costs nor impairment charges on assets. Sum of parts based price target maintained at S$4.04 remains unchanged despite UK impact as the market values of SCI's stakes in SMM and Gallant Venture have risen.

SembCorp Industries: Buy (Deutsche Bank, 6 Aug)
SCI's 1H09 net income was up 5.5% to S$276m, largely contributed by the Marine business, which grew 18% yoy to S$159m. Utilities net income was down 5% yoy to S$99m partly due to the UK operations, following the expiry of the favourable supply contracts. Valuations remain attractive; SCI highlighted that three customers (30% of UK utilities revenues) are planning to shut down by early 2010. Management is currently reconfiguring assets to secure other income streams (replacing steam demand with more power and maximizing green credits). While the new SABIC, Ensus and Yara plants are expected to come on stream in 2H09/1H10, we believe they can only partially offset the closures. Utilities as a division, however, is seeing strong growth in Vietnam (tariffs up by 15%), China and the Middle East, which collectively saw 1H09 net earnings increase 145% yoy to S$20m. Centralised Utilities in Singapore has also seen solid demand for steam with 90% of the customers operating at full load. While 1H09 PATMI for the Singapore operations was down 13% yoy to S$60.7m, this was largely due to 1H08 benefiting from the sale of strategic fuel and higher gas transportation costs following the transfer of pipeline back to the government. SCI provides a combination of stability (through its utilities business) and growth (from its Marine division), and is backed by strong fundamentals. Our SOTP yields a target price of S$4.20. Downside risks include the execution of its projects, unforeseen market risks in the countries in which it has invested, and sustained credit problems or contract execution failures for SMM.

SembCorp Industries: Underperform (Daiwa Research, 6 Aug)
SCI's latest quarterly results were broadly in line with our expectations, but above the Bloomberg-consensus estimates. We think the key surprise came from the rigbuilding subsidiary, SembCorp Marine which announced above Bloomberg-consensus. We have revised up our FY10 net-profit forecast by 8.8%, due primarily to upward revisions to our forecasts for the utility segment and a higher net-profit margin for the company's nvironmental division. We have raised our six-month sum-of-the-parts derived target price to S$2.69 from S$2.08, due primarily to our raising our six-month target price for SembMarine on 5 August 2009. However, the 20.4% downside to our target price reflects our pessimism about the rig-building sector. We maintain our Underperform rating for SCI. The share price has risen by 64.8% since 9 March 2009, but but underperformed the FSSTI by 7.7%. While the outlook for other industries may be improving, we expect the outlook for the rigbuilding industry to be progressively worse up until 2011 (despite crude oil being at about US$72/bbl). We think the market's expectations for SembMarine (and therefore for SCI) are likely to be lowered next year.

CWT: Buy (DMG, 6 Aug)
CWT came up with a set of impressive figures which matched up with our expectations. 2Q09 revenue was relatively stable, up 3% year-on-year (yoy), reaching S$147m. Gross profit margins rose 4.6 ppt to 15.3% in 2Q09. This was a result of the higher margins fetched by the commodity logistics business. Contribution from that segment was boosted by the acquisition of soft commodity logistics businesses in Europe in late 2008 as well as the commissioning of Phase 1 of Commodity Hub with 1.07m sqf of warehouse capacity. Consequently, earnings rose 26.6% yoy to S$8.7m, thanks to increased contribution from the warehousing segment and the soft commodity logistics business in Europe. Management's longer term view is to leverage on growing commodity trade between Asia, Europe/CIS and Africa. As such, CWT would continue to focus on growing its presence in those regions, as well as continue to expand its scope of soft commodity business, with coffee and tobacco as the next in line. In view of improved market sentiment and validation of our confidence in the company’s earnings, we have ascribed a target P/E of 11.1x (previously 9x) to our FY10F EPS, using CWT's 3-year historical P/E average. This works out to a new fair value of S$0.82 (previously S$0.66), representing an upside of 28%. Maintain BUY.

Rotary Engineering: Buy (OCBC Research, 6 Aug)
Rotary has reported 2Q09 revenue of S$164.2m (+22% year-on-year; +24.5% qtr-on-qtr) and bottomline of S$13m (+11% yoy, +200% qoq). The 2Q results were in line with our expectations with a final wind-down of its previous tranche of projects. We do not expect Rotary to require significant debt financing as its projects are cash flow positive. While M&As are an option with a net cash horde of S$110m, we think that Rotary will explore JVs/alliances first to evaluate the partner and market it intends to penetrate into. Our view is that soon-to-be listed competitor, PEC Group would not currently pose a threat to Rotary's market in the Middle East. With the anticipated surge in earnings, we have doubled our dividend forecasts upwards for FY10F to 4 S cents (prev. 2 S cents). With better clarity on SATORP and other regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 12x FY10F EPS (prev. 8x). Iterate BUY for Rotary with a fair value of S$1.26 (prev. S$0.81).

Singapore Exchange: Sell (DMG, 6 Aug)
SGX has reported FY09 net profit of S$305.7m, down 36% year-on-year, which is in line with our forecast S$296m. The decline was mainly due to the 23% fall in operating revenue to S$595m. Securities market revenue plunged 34% to S$299m. Securities market trading value (excluding derivative warrants) fell 42% to S$309m, with average daily turnover (ADT) falling a similar percentage to S$1.23b. Net derivatives clearing revenue was flat versus FY08 at S$156m. Whilst futures clearing revenue was up 8% to S$147m, structured warrants clearing revenue plunged 55% to S$9m. Futures trading volume rose 8% to 58.3m contracts, whilst structured warrants trading volume collapsed 60% to 46b units. Given the strong S$1.58b ADT for Jul 09, we raised our FY10 ADT assumption from S$1.36b to S$1.47b. Correspondingly, we raise our FY10 net profit forecast by 3% to S$341.1m. SGX is committed to an annual base dividend of 14S¢ from FY09 onwards. We are forecasting FY10 dividend of 28.9S¢/share, based on a 90% payout ratio (FY09 payout ratio was 90%). Applying a 22x P/E multiple (similar to the 22x average over the past 4 years), we derive a target price of S$7.00 (versus previous S$6.20). Based on the current SGX share price of S$8.59, the market is imputing a FY10 ADT of S$2.0b, which we believe is unlikely.

Singapore Exchange: Hold (OCBC Research, 6 Aug)
SGX has posted a slightly better-than-expected FY09 earnings of S$306m. Management has declared a final dividend of 15.5 cents (quarterly base of 3.5 cents and a variable dividend of 12 cents), giving full year dividend of 26 cents (FY08: 38 cents), or a payout ratio of 90%. While the environment is still volatile, economic indicators are pointing to better prospects ahead. As such, we have raised our FY10 earnings by 6% to S$333m. We are also projecting a 14.5% growth to S$381m in FY11. We do not expect the transition to the new CEO at the end of this year to bring about dramatic changes at SGX. We expect SGX's key drivers and objectives to remain on developing new products and growing its existing businesses. Taking into account better valuations for its regional peers, we have raised our peg from 20x to 25x, giving a fair value estimate of S$8.35 (previous: S$5.60). Maintain HOLD.

UOB: Hold (Phillip Securities, 6 Aug)
UOB has reported a 21.8% decrease in core net earnings to S$470 mil (-21.8% year-on-year; +15.0% qtr-on-qtr, 1Q09: S$409 mil) due to higher impairment charges but largely buffered by a steep decline in taxes. Effective tax rate for the quarter was 4.58% versus 20.1% in 2Q08. The Bank also declared an interim dividend of 20 cents per share. The Ministry of Trade and Industry expects the Singapore’s GDP to contract by 4.0% to 6.0% in 2009, up from the previous estimate of –6.0% to –9.0%. Unemployment rate was also capped at 3.3% in June 2009 as Government introduced many initiatives for the employers to keep and retrain the workers. The two integrated resorts that are slated to open in 2010 will also provide employment opportunities and keep unemployment rate in check. With the property market heating up again and YTD consumer loans in Singapore growing at 3.81%, we are also revising our Singapore system loans growth in 2009 from -4% to 1% As the economy improves in this Island state, we are lowering the market risk premium in our valuation to 6% from 6.5% we used during the financial crisis. Accordingly we adjust our target price to $17.00, peg to 1.61x FY09 NAV. However, this matrix valuation is a discount to the 5-year average P/B valuation of 1.64x NAV. Maintain HOLD rating.

UOB: Hold (OCBC Research, 6 Aug)
UOB has posted a better-than-expected 2Q09 earnings of S$470m. Impairment charges rose from S$180m in 2Q08 to S$378m in 1Q09 and S$465m in 2Q09. An interim dividend of 20 cents will be paid on 2 Sep 2009. While most ratios were healthy, non-performing loans (NPL) rose from S$1547m in 2Q08 to S$2476m in 2Q09. With uncertainty still a factor in the market, this ratio is likely to edge up slightly in the current quarter. On the impairment side, 2Q09 could be the peak and the number should start to taper off in the coming quarters. With the more buoyant outlook, we have raised our FY09 and FY10 earnings by 15.4% and 10.6%, respectively. Taking into account the recent re-rating in the market, we are raising our peg from 1.5x to 1.7x book, brining our fair value estimates from S$14.70 to S$17. Maintain HOLD.

UOB: Neutral (DMG, 6 Aug)
UOB has reported a 2Q09 net profit of S$470m, down 22% year-on-year; up 15% qtr-on-qtr) 1H09 net profit of S$880m represents 51% of our previous FY09 forecast. Whilst non-interest income surged 27% qoq , the positive effect was offset by allowances increasing 23% QoQ. An interim dividend of 20S¢/share has been declared. We raised our 2009 net profit forecast by 3% to factor in the stronger 2Q09 investment income, and lower taxes. We move our valuation forward to 2010 book and applied a 1.5x book, which is close to the 7-yr historical average of 1.6x. Liquidity in the market could drive UOB share price higher in the short term, but in the current environment of still-deteriorating asset quality (evident from rising NPL ratio), we would not ascribe a higher P/B to UOB from a fundamental perspective. We have a target price of S$16.00 (previous S$14.20). UOB is our preferred banking stock for investors who want to be invested in Singapore banks.

Adampak Limited: Buy (DMG, 5 Aug)
The two hard disk drive (HDD) majors Western Digital and Seagate have both reported 4QFY09 numbers that exceeded market consensus. More importantly, both have also issued positive guidances on the back of an increase in global demand for HDDs in 3Q09 as compared to the previous quarter. Coupled with a potential turnaround for Motorola (also a customer of Adampak) which is forecasting for a better 2H09 after recording an unexpected profit in 2Q09, we expect Adampak's topline to depict an improvement in 2Q09 while margins should also be lifted due to better economies of scale, thereby leading to higher profitability. We estimate Adampak to record sales and net profit of no less than US$13m (+34% QoQ) and US$1.3m (+117% qtr-on-qtr) in 2Q09 on the back of inventory restocking within the technology sector. We believe that 1Q09 has represented the bottom for Adampak and that better times should be forthcoming for the contract manufacturer – full year forecasts have therefore been raised accordingly. Based on our single-stage dividend discount model on assumptions of a dividend payout ratio of 40% and a conservative terminal growth rate of 1%, we upgrade our recommendation to BUY and increase our target price to S$0.235 (from S$0.15 previously).

Sembcorp Marine: Hold (Kim Eng, 5 Aug)
Sembcorp Marine has posted results that were slightly ahead of expectations, due to better strength in margins from improved execution. Net profit rose 7.6% year-onyear (yoy) to S$138m on the back of an 8% pick-up in turnover to S$1.5b. Gross margins improved to 12.9% versus 10.7% in 1Q09. SMM also declared an interim dividend of 5 cts per share (payable 1st Sept), equal to 1H08. Rig-building continued to be the main driver of earnings, accounting for 69% of revenue, and was up 19.6% yoy to S$1b, while revenue from shiprepair fell 11% to S$173m. SMM's orderbook stands at S$7.9b, with additions of S$1.1bn this year. It is gearing itself up to bid for jobs from Petrobras, which is slated to spend over US$100b for upstream projects. However, so is everyone else – the resulting competition is likely to put pressure on margins on contracts from Petrobras. We are tweaking our FY09 earnings forecast up by 2.3% to S$508.5m to factor in improved margins. We also raise SMM’s price target to $2.91 from $2.73 previously, on the higher forecast and market value of Cosco shares in our sum-of-the-parts valuation. While we do expect the rig market to pick up, we are unlikely to see the same strength as the last boom cycle between 2005 and 2008.

Armstrong: Hold (Kim Eng, 5 Aug)
Seagate Technologies announced last night that it will lay off 2,000 workers in Singapore as it is moving its HDD manufacturing operations out of Singapore to other locations such as Thailand, China and Malaysia, as part of its move to reduce costs by having fewer manufacturing locations. Seagate accounts for 12-13% of Armstrong's group sales, 37% of its rubber sales and 56% of total hard disk drive sales. However, we do not foresee any negative impact on Armstrong from this development. The company already supplies to Seagate across all of its Asian manufacturing sites through its Ang Mo Kio purchasing hub, which will be retained along with its administrative headquarters, media operation as well as product development. Currently, Armstrong supplies 56% of Seagate China's rubber and foam part requirements, followed by Thailand 21%, Malaysia 16% and Singapore only 7%. The last is likely to be reallocated to the rest of Seagate's sites. However, the automotive side of its business is doing well, especially in China, which is expected to have posted double digit gains in revenue during 2Q09, as the impact on Peugeot from political tensions between China and France has been less severe than expected. Going into 2010, Armstrong is also gaining traction on new products, specifically a car seat related part which is worth 10x in value than its highest value part to-date. Going forward, we foresee upside to earnings if the current strength continues. Maintain Hold on Armstrong although this development may dampen sentiment toward the stock in the short term.

ST Engineering: Hold (Kim Eng, 5 Aug)
STE's 2Q09 results were in line with expectations, with net profit at S$108.7m improving 28% versus a weak 1Q09. Turnover was up 7% sequentially to S$1.4b, boosted by Aerospace and Land Systems. STE also declared an interim dividend of 3 cts per share, equal to 1H08. Following some margin pressure in 1Q, all divisions showed an improvement in margins from a more favourable sales mix with the exception of Land Systems. PBT margins for the group improved to 10% versus 8% in 1Q09. Most significantly, Aerospace EBIT margins rebounded to 12% from 9%. STE has maintained its orderbook at S$10.74b from S$10.6b at end-FY08, indicating robustness in demand. It will deliver about S$2.06b of this in the next 2 quarters. This puts it on track to deliver our full year turnover estimate of S$5.4b, with a strong likelihood of exceeding this. Earnings also have the potential to outperform if the group is able to sustain the margins that were achieved in 2Q09. While our net profit forecast at S$436.1m indicates a year-on-year (yoy) decline of 8%, we expect a recovery in earnings for FY10 by 14%, as global economies are showing signs of recovering. STE still expects to pay out 100% of earnings as dividends, we have also maintained our FY09 projected dividends at 14.5 cts per share. FY09 dividend yield is at 5.5%. We are maintaining our recommendation at Hold, in view of the limited upside to our target price of S$2.70.

ST Engineering: Buy (DMG, 5 Aug)
STE has reported a set of results that were largely in-line with our expectations. 2Q09 revenue increase 8.3% year-on-year (yoy) to S$1.4b while net profit dropped 9.4% yoy to S$108.7m although top and bottomlines had depicted a 6.9% and 27.6% increase qtr-on-qtr (qoq) On a yoy basis, the lower 2Q09 Group earnings were attributed to both the Aerospace and Land Systems segments. STE recorded very robust free cash flows of S$144.4m in 2Q09 due to effective management of its working capital, clearly outperforming the numbers in 2Q08 when it had experienced negative free cash flows. We therefore believe that STE can continue with its usual practice of close to a 100% dividend payout ratio. As at Jun 09, order book stood at S$10.7b, of which S$2.1b is expected to be recognised in 2H09 – representing 90% of FY08’s revenue. We expect the conglomerate to continue winning military contracts with foreign governments given its increasingly impressive track record. We expect the second half earnings to be 39% better than the first half, with one of the main drivers being the Aerospace segment. CEO Tan Pheng Hock reiterated that 2H09 is going to look prettier than 1H09, largely on the back of strong order deliveries. Our target price is maintained at S$2.83. With the market likely to consolidate in the near term, blue-chip stalwarts with generous payouts should outperform. Maintain BUY.

CSC Holdings: Buy (DMG, 5 Aug)
CSC’s reported 1QFY10 results that were within our expectations. Following a tepid 1Q09, there are now signs of recovery, as gleaned from its margins (+4.3 ppt qtr-on-qtr) and orders. 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.
According to Building and Construction Authority (BCA), the public sector's construction activity is forecast to take up more than 60% of total construction demand (estimated at S$18-24b) in 2009. This would continue to provide sustainability in business activity levels for CSC. In addition, with the improvement in sentiments within the property market in the recent months, developers could be re-looking at developing projects that were put on hold previously. CSC's order book currently stands at S$120m, up from S$110m in May 09. We estimate the government projects alone to boost orders by over S$200m in the next 12 months. 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.

Straits Asia Resources: Buy (OCBC Research, 5 Aug)
SAR has reported a good set of 2Q09 results, which were unfortunately tainted by non-cash charges. Revenue exceeded our expectations at US$175.6m (+8.6% year-on-year; +25.7% qtr-on-qtr), while higher average selling prices (ASP) and lower fuel costs led to a 6.4ppt expansion in gross profit margin, bringing gross profit to US$81.0m (+25.9% yoy, +22.4% qoq). Earnings, however, were dampened by a US$14.3m non-cash charge arising from warrant expenses, bringing the group’s net profit to US$21.4m (-43.3% yoy, -39.6% qoq). We expect 2H09 results to be stronger on the back of higher production capacity and more favourable weather conditions. SAR's outlook remains positive with recovering demand for energy. An interim dividend of 1.14 US cents has been declared. We maintain our BUY rating on the stock and raise our fair value estimate to S$2.38 (from S$2.07). Key risks to our assumptions include a deterioration of energy markets and refinancing risk.

Sembcorp Marine: Buy (OCBC Research, 5 Aug)
SMM has reported a 2Q09 topline of S$1.5b (+8% year-on-year, +10% qtr-on-qtr) and operating profit of S$166.7m (+50% yoy, +24% qoq). The slower topline growth was mitigated by sustained expansion of gross and operating margins from better operational efficiency and execution of repeat rig orders. Excluding non-operating items, this quarter scores as a record with a PATMI of S$145.2m. We think SMM has demonstrated stronger predatory instincts in winning contracts and have bumped up our estimates for order wins to S$2b (prev. S$1.4b) and S$3.5b (prev. S$2.5b) for FY09 and FY10, respectively. We are also encouraged that SMM sustained growth despite depleting its orderbook less aggressively than KepCorp. Along with our better margin assumptions, we have raised our peg to 17x FY09/10 EPS. We are making a tactical stock pick for SMM as it has historically garnered more accentuated valuation parameters than KepCorp. We are upgrading SMM to BUY with S$3.67 (prev. S$2.65) fair value estimate. Positive developments from the US$198.8m claims against Societe General should also act to catalyse the share price. SMM declared an interim dividend of 5 cents.

OCBC: Buy (UOB Kay Hian, 4 Aug)
Oversea-Chinese Banking Corp (OCBC) reported a net profit of S$466m for 2Q09, above our forecast of S$398m due mainly to lower provisions for nonperforming loans (NPL) and higher non-interest income. OCBC is the prime beneficiary of buoyant sales for private residential properties. Approvals for housing loans doubled qoq in 2Q09. OCBC has so far approved S$600m of SME loans under the Special Risk-Sharing Initiative (SRI) administered by Spring Singapore. OCBC is well capitalised with tier-1 capital adequacy ratio (CAR) at 15.4%. Core equity tier-1 is robust at 11.3% after stripping out preference shares. OCBC recognised gains of S$580m on available-for-sale financial assets, mainly for its investments in Bank of Ningbo and Fraser & Neave. Thus, NAV/share increased from S$4.75 as at Mar 09 to S$4.94 as at Jun 09. OCBC declared interim tax-exempt dividend of 14 cents/share, representing a payout of 44% on core net profit for 1H09. We have raised our assumptions for loans growth to 1.6% for 2009 (previous: 2.6%) and 11.7% for 2010 (previous: 8.2%) to factor in increased demand from property developers and housing loans. We have revised our assumptions based on trends in NPL ratios over the last three quarters. We have assumed NPL ratio will hit 3.8% by end-10 (previous: 4.2%). Our earnings model has imputed allowance for credit losses of 80bp in 2H09 (previous: 95bp) and 60bp in 2010 (previous: 70bp). We have raised our 2009 and 2010 net profit forecast by 0.9% and 4.1% respectively. BUY with target price of S$9.15 based on a P/B of 1.72x derived from the Gordon Growth Model (ROE: 12%, payout ratio: 48%, required return: 8% and constant growth: 4.5%).

Tat Hong Holdings: Hold (OCBC Research, 4 Aug)
AIF Capital has emerged as a strategic investor in Tat Hong, which will raise net proceeds of S$63.5m by issuing 65m convertible redeemable preference shares (CRPS) at an issue price of S$1.00 each. The CRPS potentially enlarges Tat Hong's issued share capital by 12.8%. 80% of net proceeds raised will be used to fund the group's expansion plans in Australia and China, while the remainder will be used for working capital purposes. We believe that AIF Capital's strategic investment not only strengthens Tat Hong's financial position and better equips it for future M&A activities, it also boosts the group's long-term growth prospects by introducing new growth opportunities. We are keeping our estimates intact pending the group's 1Q10 results on 14 Aug 2009. Our fair value estimate, however, has been raised to S$1.15 from S$0.99 to reflect the increase in NTA. Maintain HOLD

City Developments: Sell (OCBC Research, 4 Aug)
Recent mass market launches continued to perform above our expectations and this is positive for City Developments (CDL) which has a significant landbank exposure (~53% of attributable GFA) to the mass market. However, we caution against pricing in the exuberance that mass market projects are seeing right now. Nevertheless, we have raised average selling prices (ASPs) for some of the projects to levels that we believe, are sustainable over the long term. The hotel segment is likely to turn in weak results for 2Q09 but the pace of decline in international tourist arrivals is expected to soften for the remainder of the year. Our RNAV estimate for CDL has now been raised to S$8.20 and we have also removed the 30% discount previously pegged to our valuation. We maintain our SELL rating on CDL and advise investors to accumulate at levels closer to our RNAV target.

Singapore Airlines: Sell (UOB Kay Hian, 4 Aug)
SIA has reported two consecutive quarters of operating losses and management has even highlighted the possibility of a full-year loss. Even so, stock price remains firm, suggesting an unwillingness to sell the stock given the SATS share dividend. Still, we see no immediate catalyst for an upgrade given our take that capacity will rise further. We cut our FY10 and FY11 net profit numbers by 33% and 11% respectively following cuts in our yield assumptions. Passenger yield for FY10 is cut from 11.4 cents to 11.0 cents. We continue to maintain SELL and our ex-all fair price of S$9.80, implying a 16% discount to book value and an EV/2-year average EBITDA of 4.7x.

Sinotel: Buy (Phillip Securities, 4 Aug)
Sinotel has posted a 36.1% growth in revenue from RMB 104.4 million in 2QFY2008 to RMB 142.1 million in 2QFY2009. Its half-year revenue has increased by 30.9% from RMB 182.3 million in 1HFY2008 to RMB 238.7 million in 1HFY2009. The Group's net profits for 2QFY2009 and 1HFY2009 increased by RMB 5.4 million or 15% and RMB 9.8 million or 16.1% compared to the corresponding periods in 2008. Net profit margins fell from 34.6% in 2QFY2008 to 29.25% in 2QFY2009. Despite the economic slowdown, China's telecom industry has proven its resilience through progressive growth due mainly to the introduction of 3G this year. We believe that a few factors will seek to ensure the industry will continue to perform well: The number of cities targeted to have 3G networks for this year alone (more than 200 key cities) and massive upgrading projects running concurrently across the country to handle increased subscriber base. These all require significant capital expenditures by the (3) three telecommunication operators, benefiting equipment/solutions providers like Sinotel. We maintain our BUY rating with a revised fair value estimate of $0.33, from a peg of 3.5x to FY2009's earnings. We have also increased our revenue forecasts for FY2009 and FY2010 slightly, taking into consideration the recent contract wins. Our previous price target of S$0.27, pegged to a 3.0x FY2009 PE, has been achieved and we believe, with the bullish sentiments for China's telecommunication industry for the next few years, Sinotel, as one of the major beneficiaries, should see further contributions to its revenues as seen in the number of projects clinched in the last few months. Sinotel is currently trading at a significantly lower PE value with the average trailing PE for its peers at 16.61x and forward PE of 11.39x. Average peer price to book value is at 1.39x whilst Sinotel sits at 0.93x.

OCBC: Hold (Phillip Securities, 4 Aug)
OCBC has reported a set of resilient results that exceeded expectations. Core net profit rose to S$466mil (+15% year-on-year, +26.0% qtr-on-qtr, 1Q09: S$370mil) due to higher revenues and lower expenses. Despite the lower interest rate environment, OCBC’s loan deposit spread widened to 2.81% and net interest income rose to S$710mil (+4.7% yoy, -4.1% qoq, 1Q09: S$740mil). However, net interest margin was 5 bps lower to 2.29% than a year ago due to lower gapping income. Non-interest income rebounded 37% over the year to S$494mil as profit from life assurance increased strongly to S$125mil from S$33mil last year. Net trading income also improved to S$61mil from S$23mil. Asset quality deteriorates as non-performing loans (NPL) jumped 49% over the year to S$1.63bil while the NPL ratio increased to 2.1% from 1.4% last year. Industries that contributed significantly to the increase in NPLs were the manufacturing industries (+142% yoy, +12.2% qoq) and the transport, storage and communication industries (+300% yoy, +375% qoq). In view of the improvement in the economy outlook, we are increasing our target price to $8.10, pegged to 1.6x FY09 NAV as we input a lower risk premium in our valuation matrix. However, the sharp run up in the stock price in the past 4 months has also pushed the P/B valuation up from a steep discount to currently approaching the 5-year average P/B line. Thus we do not recommend investors to continue sowing into OCBC and should probably switch out to a cheaper substitute. We upgrade the rating to a Hold.

OCBC: Neutral (DMG, 4 Aug)
OCBC has reported 2Q09 net profit of S$466m, up 10% year-on-year (yoy) versus core 2Q08 net profit. This is better than our expectations. Whilst net interest income was in line, allowances of S$104m (versus 1Q09's S$197m) was lower than our S$230m expectations. We are raising our 2009 net profit forecast by 16% to S$1.65b. This takes into account (1) a 2% rise in operating income, and (2) lower provisions, partly offset by one-time effect from redemption offer to GreatLink Choice policyholders. Excluding divestment gains, non-interest income grew 37% yoy to S$494m on higher insurance income and trading gains. Profit from life assurance rose from 2Q08’s S$33m to S$125m with improved performance in the non-participating funds as equity prices rebounded and credit spreads tightened. Net trading income rose from 2Q08's S$23m to S$61m, led by foreign exchange activities. We are lowering our Dec 09 non-performing loan (NPL) ratio forecast to 3.4%, from 3.7%. This takes into consideration the general improvement in market sentiment with respect to investments. An interim one-tier tax-exempt dividend of 14 ¢/share has been declared, unchanged from 1H08. We raise our target price to S$7.30, pegged to 1.4x 2010 book, from S$6.20 (based on 1.3x 2009 book). This is a discount to the 1.5x 7-yr P/B average. Although liquidity could drive OCBC share price higher, we believe uncertainties on the pace of global economic recovery would cap upside.

Cosco Corporation: Sell (DMG, 4 Aug)
While Cosco Corp reported 2Q09 revenue of S$719m that was in-line with our forecasts, core operating profit (excluding reversal of impairment of trade receivables) of S$34m was below our estimates. This was due to a decline in gross profit margin from newbuilding as well as lower revenue contribution from the sale of scrap materials. Net profit was affected by higher interest payments. No interim dividend was declared. Cosco is currently trading at 19.6x FY09 P/E and 2.5x FY09 P/B which looks expensive to us, especially when Cosco's results once again suggested poor yard execution and deliverables. In the near term, the lack of new order flow, further potential order cancellations and more delays in ship deliveries could weigh down on this stock. We have cut our earnings estimates as we take into account lower gross profit margins for FY09 and FY10. Hence, our target price is reduced to S$0.95 (from S$1.14 previously). Downgrade to SELL from NEUTRAL.

SMRT: Hold (Kim Eng, 3 Aug)
SMRT has reported flat 1Q10 revenue compared to a year ago but net profit jumped 20% year-on-tear (yoy) vs our expectation of a slight decline, due mainly to a one-time, non-operating gain of $7.5m from a special train project and $4.4m in Jobs Credit Scheme benefits. Adjusted for these items, net profit fell 8% yoy to $36m. No dividend was announced for the quarter. Train revenue was flat despite 5% higher ridership while Bus revenue fell 4% yoy due mainly to fare cuts from 1 Apr 2009. Taxi revenue fell almost 7% yoy due to a 12% reduction in fleet size. However, EBITDA margin improved to 40% due mainly to lower fuel and electricity costs. Train profit was boosted by the non-operating gain, while Bus operations turned around to profitability on lower diesel costs. Despite the recessionary environment, rental income continued to grow (+21% yoy, +11% qtr-on-qtr), above management's previous guidance of a flat performance for 2010. SMRT was able to keep rental rates steady as its high-traffic train stations continued to be preferred tenant locations, while improving lettable area – two additional stations were upgraded in 1Q10, with another five to be upgraded in 2Q10. We continued to expect loss of revenue from fare cuts and transfer rebates as well as higher costs due to Circle Line. Cost pressures point toward a cap on growth in the short term. With a double-digit PE, we can only justify a Hold recommendation at this time. However, dividend yield is relatively decent at 5%. Additional overseas M&A could also be a catalyst; SMRT has in fact recently hired a senior business development VP for Europe and China.

SMRT: Buy (DMG, 3 Aug)
SMRT has registered a 1QFY10net profit of SGD48.2m, up 19.6% year-on-year (+24.7% qtr-on-qtr), or 28.7% of our full year forecast of S$168.1m. The variance was due to the lower-than-expected increase in staff costs, which rose 3.3% compared to our forecast of 10.4% as well as unexpected income gains from maintenance projects which amounted to S$7.5m. Operating profit rose 19.9% boosted by MRT (+8%), bus (+136%) and retail rental (+13%). The recent market surge has brought the STI to 3% below our 2,750 target, leaving little upside returns. We view SMRT as an ideal switch play for investors with a defensive mandate. SMRT has a low beta of 0.45x and strong earnings resilience underpinned by positive growth prospects. Since March, SMRT's stock price has risen by a mere 8% vis-à-vis the STI's 83%. In terms of dividends, we believe management will continue to reward investors with at least 70% payout. Its strong free cashflows of S$113m in FY10 and S$127m in FY11 will support future dividend payments. SMRT currently trades at 15.8x FY10 P/E multiple which is at the lower range of its 15-20x trading band. We upgrade SMRT to BUY with a revised target price of S$2.00 from NEUTRAL (S$1.65 previously) as we expect the twin opening of the Integrated Resorts as well as the government's broader initiatives to encourage public transport usage, to materially improve SMRT's ridership prospects, hence justifying our stronger terminal growth assumption of 2.5% (2.1% previously).

SMRT: Buy (OCBC Research, 3 Aug)
SMRT has released a sturdy set of 1QFY10 results. Despite being impacted by the fare-reduction package and smaller average hired-out taxi fleet, the group managed to maintain its revenue relatively flat at S$215.8m and achieve a 19.6% year-on-year (yoy) growth in net profit to S$48.2m. Looking ahead, SMRT has kept its cautious tone on the outlook, saying that its profitability is likely to be affected by continuing volatility in diesel prices, fare reduction package and ramp-up costs for the progressive opening of the remaining Circle Line stations. We have kept our FY10 sales and profit forecasts unchanged as the results and outlook were largely in line with our expectations. However, we now raise our DDM-derived fair value from S$1.81 to S$1.92 on marginally higher dividend assumptions and lower cost of equity. We believe SMRT has the capacity to grow its businesses both locally and overseas, and to manage its cost efficiently. While we have not factored in any contribution from Shenzhen Zona Transportation pending the completion of its acquisition, we think it is likely to provide further catalyst to its profitability and share price.

CDL Hospitality Trusts: Buy (UOB Kay Hian, 3 Aug)
CDLHT's results are above our expectation with 1H09 DPU representing 60% (6.4 cents) of our full-year forecast. The total income available for distribution was S$17.4m for 2Q09 (-31.5% year-on-year), bringing the income available for distribution in 1H09 to S$35.5m (-26.8% yoy), or 4.25 cents per unit. The income to be distributed per unit for 1H09 stood at 3.86 cents, implying a payout ratio of 90%. The overall portfolio occupancy levels for Singapore hotels for 2Q09 dropped 11.6% yoy to 75.5%, while RevPAR declined 39.8% yoy to S$134 due to softer market demand and the global outbreak of H1N1 influenza pandemic in 2Q09, which took a toll on tourist arrivals in Singapore. The 33.9% yoy decline in RevPAU was better than our overall expectation of a 35% yoy decline for the full year and we expect market conditions to improve further in 2H09 and 2010 on the back of an economic recovery and major upcoming events such as Singapore Grand Prix, Youth Olympics and the opening of integrated resorts. Accordingly, we have revised our overall RevPAU assumptions by 6-12% for 2009 -11 factoring in a 5-12% increase in occupancy levels and average daily rates (ADR) for 2009-11. Maintain BUY with a revised target price of S$1.55, up 25% based on a two-stage dividend discount model (required rate of return: 7.7%, terminal growth rate: 2.5%).