Stock Picks

UOB: Buy (DMG, 27 Feb)
UOB has reported a FY08 net profit of S$1.94b, down 8.2% year-on-year (yoy), which is in line with our S$2.01b expectation. Net interest income may have expanded a relatively robust 20% to S$3.58b, but this was largely offset by the 11.5% contraction in non-interest income to S$1.68b. Fee and commission income was a key contributor to the income weakness, falling 14.3%. Though operating profit rose 12.1%, this was largely negated by the 169% surge in impairment charges for loans and other assets. Consequently, PBT declined 9.6%. A final dividend of 20S¢/share was declared, giving full year dividends of 60¢ per share, or a 47% payout ratio. Management guided future payout ratios of around the same quantum. We are assuming the Dec 09 non-performing loan (NPL) rate to rise to 3.7% (from Dec 08's 2%), factoring in deteriorating economic conditions. We have lowered our FY09 net profit forecast by 9% to S$1.54b (from earlier S$1,69b), due to (1) our raised FY09 provisions assumption of S$1.05b; and (2) our lowered FY09 fee and commission income of S$974m, which is 12% below our earlier projections of S$1,104m. UOB’s book has fallen from Sep 08's S$9.96 per share to Dec 08's S$8.90, due primarily to the fair value losses for available-for-sale instruments. This has led to a cut in our Dec 09 book forecast. Our target price is lowered from S$14.30 to S$11.60, which is derived from 1.2x 2009 book, a slight premium to its Mar 03 low of 1.1x P/B.

Noble: Buy (OCBC Research, 27 Feb)
Noble has delivered a resilient set of FY08 results with revenue growing 54% to US$36.1b and net profit soaring 124% to US$577.3m. Excluding one-off items, we estimate that net profit would have grown 83.4% to US$473.4m. 4Q08 net profit was 41.8% higher while revenue was 13.0% lower. With the exception of Metals, Minerals & Ores, all segments booked higher gross profits in FY08. Agriculture outperformed the rest with a 117.5% growth. Noble's financial standing remains strong. It is in an enviable net cash position and the bulk of its debt matures in more than 18 months. As such, the group is in good shape to ride out the economic downturn. We expect volumes to weaken in 2009 and have trimmed our earnings estimate by 18%. Nevertheless, we maintain our BUY rating on the stock. Our fair value estimate has been eased to S$1.33 (from S$1.58) on lower earnings forecast. It has just announced an offer to acquire Australia-listed Gloucester Coal.

Sembcorp Industries: Outperform (CIMB, 27 Feb)
Sembcorp's 4Q08 core net profit of S$128m (-30% year-on-year) was in line with our estimate and consensus. FY08 core net profit of S$534m (-4% yoy) was 4% above our estimate. Marine was the key profit growth driver (+32% yoy). SCI declared a lower FY08 DPS of 11 cts for a payout of 36% (FY08: 48%).4Q08 Utilities profit of S$30m (-41%) was below our expected S$42m mainly due to one-offs, including prior years' business development costs in Singapore (S$10m) and accounting standards differential adjustments for Phu My 3 (US$5m). Stripping out the one-offs, profit would have been in line. 4Q08 UK profit of S$15m (-20% qtr-on-qtr) was largely affected by the pound's depreciation, which is ongoing. We are projecting a 5% yoy earnings contraction for Utilities in FY09 in view of our more cautious view on the pound, lower onsite service offtake and margin pressure from customers. We expect Marine to contribute 60% to group earnings in FY09, driven by the execution of its S$9bn order book. We were not surprised by the dividend cut, given that SembMarine earlier reduced its payout from 75% to 53%, citing the need to preserve cash. We have adjusted SCI's dividend payout from 50% to 33%, in line with its historical informal guidance (one-third of earnings). The group had a S$1.5bn net cash position. Excluding SembMarine's net cash (S$1.8bn), Utilities' net debt stood at S$244m (net gearing of less than 0.1). Despite the volatile environment and a potential earnings dip in FY09, we still see value in its Utilities business and project operating cash flow of about S$200m p.a on a sustainable basis We have trimmed our earnings estimates by 1% for FY09 but raised by 6% for FY10 to account for lower earnings for Utilities and Industrial Parks in FY09. Maintain Outperform with target price reduced to S$2.46 from S$2.72, based on sum-of-the-parts valuation.

Straits Asia Resources: Buy (OCBC Research, 27 Feb)
SAR FY08 results were ahead of expectations as revenue rose 133.2% to US$585.2m on strong coal prices and higher production volumes, leading to a 335.6% surge in net profit to US$124.4m. Gross profit margin for FY08 ballooned by 16.6ppt to 39.4% on sky-high coal prices, while net profit margin expanded by 9.9ppt to 21.3%. Average selling price (ASP) of thermal coal rose 66% to US$70/ton in FY08 on robust demand for energy, while production volume more than doubled to 8.6Mt from 3.5Mt, thanks partly to contributions from Jembayan mine which was acquired in Dec 07. We see more room for profit margin improvements in FY09 given that the bulk of SAR's FY09 output has been contracted at favourable prices. This will also boost the group's cash flows. A final dividend of 2.18 US cents has been declared, bringing total dividends for the year to 6.83 US cents (yield: 12%).

City Developments: Neutral (DMG, 27 Feb)
CDL has posted a 57.4% (-33.7% qtr-on-qtr) decline in 4Q08 PATMI to S$100.0m, chiefly attributable to net impairment losses of S$90.8m related to M&C's (53.5%-owned subsidiary) hotels in US, UK, Beijing and Bangkok. FY08 PATMI of S$580.9m (-19.9% yoy) lagged our estimates (S$640.5m) and the Street's (S$693.7m) by 9% to 16%. While we are pleasantly surprised that M&C posted a 7.6% yoy rise in FY08 RevPAR to £57.2 amidst the economic unrest, we note that 4Q08 occupancies for its hotels have dropped from 2Q08. Looking ahead, we think occupancies across all regions would be subjected to more downside pressures. We reckon average room rates (ARR) would be trimmed to target the increasingly economical-minded travellers, which could lead to drops in RevPAR and GOP Margins. As such, we have assumed a 10% to 20% fall in hotel's topline contribution from 2009-2010. We estimate CDL sold about 400 homes in FY08 (compared to 1,700 for FY07:and 1,400 in FY06), bulk of which was from the Livia development. Although CDL's Singapore-centric residential portfolio does present a good proxy to the current buoyant interest in mass market, we surmise buying interest here would taper off along with the mid and prime regions as the economy worsens. While we like CDL's robust balance sheet and prudent accounting treatment of investment property valuation, we are mindful of other share price constricting factors. These include the increasingly bleak hospitality sector and its substantial exposure to Singapore's real estate sector (about 79% of RNAV). We are introducing our FY10 estimates, imputing our sector-wide residential price projections and pegging its listed subsidiaries to current market prices. Assuming a 50% discount to RNAV, our fair value for CDL now falls to S$5.08 (previously S$5.53).

Aztech Systems: Sell (DMG, 27 Feb)
Aztech's 4Q08 net profit fell 56.3% although it would have registered a 5.7% increase to S$3.2m if not for the S$1.2m revaluation loss on investment properties in China. On the topline, 4Q08 sales dropped 14.5% due to lower demand from its customers attributed to the economic slowdown while margins were also affected as Aztech saw higher labour costs. FY08 revenue at S$276.5m was below our forecasts of S$356.4m as we had expected a larger portion of Aztech's S$253m contract from its Materials Supply business to be realised in 2008. On the other hand, FY08 net profit at S$12.2m exceeded our S$11.3m estimate as the company managed to fulfil its orders from the Materials Supply segment without much incident – we had earlier highlighted the possibility of execution risks due to Aztech's relative inexperience in this area. For its electronics business, we do not expect Aztech to see any turnover growth in FY09 given that even the bigger players such as Venture Corp are forecasted to register flat topline growth. However, lower oil prices are expected to be a boon to Aztech's Materials Supply segment due to cheaper transportation costs although the currently strong US$ may translate into higher operating and finance expenses for the company. More importantly, while Aztech has been able to operate this new venture of theirs rather smoothly so far and we have now turned less hawkish resultantly, note that execution risks remain as a concern going forward given that the company only has a relatively short track record in this field. We have lowered our forecasts for FY09 on assumptions that its core Electronics business will not do well due to the troubles that the global technology sector is currently facing. Presently trading at 3.6x FY09F P/E and assuming it trades down to the industry average of 2.7x, we slash our target price to S$0.08 (from S$0.095 previously) while we maintain our recommendation at SELL.

China Aviation Oil: Neutral (DMG, 27 Feb)
In the year to Dec 08, CAO's revenue grew 81.4% to US$5.25b while earnings slumped 77.1% to S$38.3m, which was ahead of our expectations. FY07 benefited from a S$160.2m exceptional gain. The sales surge was mainly due to the spike in demand for jet fuel during the Olympics and overall growth in aviation traffic in FY08. The Group handled and supplied a record 5.2m metric tonnes of jet fuel in FY08, 23% higher than a year ago. Doing a simple comparison between FY07 and FY08, we focus on the Group's PBT line. After stripping out the extraordinary items (divestment gain of US$160.2m, one-off finance charges of US$6.7m related to accelerated amortisation and full settlement in deferred debt), we attain a PBT of US$28.8m. This implies that there was still decent growth of 16.3% from FY08, where PBT came in at US$33.5m. Our target price has inched up from S$0.65 to S$0.665, which represents an upside of 7.3% from current levels. Upgrade to NEUTRAL.

Delong Holdings: Neutral (DMG, 26 Feb)
Delong's 4Q08 revenue came in at S$338.2m, down 31.9% year-on-year from S$496.5m while net losses ballooned from S$7.9m in 4Q07 to S$129.2m in 4Q08 despite strong sales . All this boiled down to a fall in demand for crude steel and steel-related products in China, coupled with steel prices that fell 35% QoQ in 4Q08. The Group also recognised a one-time impairment loss of S$20.9m on its fixed assets, which were mainly drop in values of its furnaces and sintering equipment. Stripping out this impairment would have added back 3.9S¢ to its loss per share of 24.1S¢.Revenue for the full year grew 47.4% from S$1.54b in FY07 to S$2.27b in FY08, mainly due to higher production capacity and also higher average steel prices. However, due to a loss of S$129.2m in 4Q08, this pulled the group's FY08 bottom line into the red with a net loss of S$75.8m compared to a NPAT of S$93.8m in FY07. We believe the group was profitable in Jan 09 due to stable steel prices, but much remains to be seen if it can maintain such a performance throughout the year with so much uncertainty in the global economy and continued oversupply in the Chinese market. We also exercise caution on the group's 1.5x net gearing level. We hence lower our previous FY10 P/E rating from 4.4x to 4.0x to attain a new target price of S$0.595 (previously S$0.655).

Sinotel Technologies: Buy (Phillip Securities, 25 Feb)
In view of the current economic focus of the PRC, we remain bullish of the potential developments of the telecommunication industry. However, the peers of Sinotel have provided indicative insight on the performance of related players. Hence, despite posting healthy growth, we are conservative and cautious, as the Group's profitability is highly dependent on their ability to secure related contracts and projects. We maintain our BUY rating with a revised fair value estimate of $0.23, from a peg of 2.51x, based on its 52-week PE range, to FY2009's earnings. Sinotel's larger peers are trading on an average of 3.7x PE. The Group announced growth in revenue of 35.88%, from RMB 266.48 million in FY2007 to RMB 362.08 million in FY2008; and registering growth in net profit after income tax of 29.65%, from RMB 85.38 million in FY2007 to RMB 107.36 million in FY2008. The Group attributes the growth in revenue to the increase in contribution from their "Wireless Network Solutions" and the revival of their "Distribution Solutions" from the commencement of sales of 3G network cards in July 2008. Despite earnings growth, the Group's gross profit margin fell by -4.31ppts from 44.77% in FY2007 to 40.46% in FY2008; while net profit margins fell by -from 32.04% in FY2007 to 29.65% in FY2008. The decline in profit margins was brought about by the change in product mix, as their System Integration Services and Emergency Mobile Base Station ("EMBS") are of lower margins.

Sembcorp Marine: Buy (OCBC Research, 25 Feb)
SembMarine reported a record 4Q08 performance, with FY08 topline growing 12% to S$5.1b while PATMI escalated 78% to S$430m, mainly on the back of expanding operating margins. The company declared 6 cents final dividend which disappointed the streets' and our expectations. As SembMarine expects order flow to slow significantly in view of the difficult credit environment and the low oil price, it is positioned to support earnings with a stable ship repair base load from its regular/exclusive partnerships. Management also updated that all latter contracts have full financing, reducing chances of payment delays/cancellations. While our overall topline remains largely unchanged, we have tweaked our earnings in view of weaker performance from its associate company, Cosco. Despite our lowered dividend payout ratio, SembMarine continues to offer a yield of more than 6%. We have maintained our 10x FY09F EPS valuation but our fair value drops to S$1.85 (prev: S$2.00). We prefer SembMarine Keppel in view of its better operating margins.

Sembcorp Marine: Neutral (DMG, 25 Feb)
Sembcorp Marine has turned in record revenue for 4Q08 at S$1.6b (+21% year-on-year, +14% quarter-on-quarter) while core operating profit margin (excluding forex gains) was a credible 12%, 60bp higher than 3Q08. Excluding the US$30m charge, core PBT would be S$131.9m. This was, however, dragged down by negative contributions from its associated company, Cosco Shipyard Group. Despite a remarkable performance, SembMarine declared a total dividend of 11 S¢, which is lower than consensus estimates of 15.3 S¢ pershare, translating to a mere dividend payout of 53% and breaking away from the historical trend of a 75% payout. We apply a valuation metric of 2.0x P/B to FY10 estimates, (100% premium to SembMarine’s average P/B of 1.0x during FY97-98 crisis period and 33% premium to its average P/B of 1.5x in FY03), deriving a target price of S$1.62 (from S$1.75 previously).

Rotary Engineering: Buy (OCBC Research, 25 Feb)
Rotary's FY08 results saw its topline inched ahead 2% to S$520m while PATMI declined 4% to S$50.9m. The muted results were inline with our expectation. Rotary's final dividend of 2.3 S cents disappointed our expectations of 4 cents. Rotary continues to maintain its high net cash position to align itself for bids for the large Jubail Refinery project. In the meantime, its current order book of S$445.8m (S$300m to be recognised in 2009) will continue to prop its earnings up. Winning some packages of the Jubail Refinery projects could yield up to S$450m/year in revenue for Rotary. We have not factored in the win as uncertainty is still too high. We have lowered our estimates for FY09 in view of better clarity of its order book recognition and slower order wins. Our fair value of S$0.29 (prev: S$0.34) continues to be pegged at 5x FY09F EPS. Despite mitigating our FY09F dividend assumptions (S$0.02/share) for the company, yields are still attractive at 6.9%.

China XLX Fertiliser: Buy (DMG, 25 Feb)
China XLX's net profit for FY08 increased by 9.2% to RMB346.4m, which was better than our RMB314.6m forecast. Stripping out the non-core RMB25.8m income from service contracts, core net profit would have been RMB320.6m. Its FY08 revenue rose 35.3% to RMB2,084.9m, which was better than our RMB1,882m forecast due to higher average selling prices (ASP) for urea, methanol and compound fertiliser (CF) increased by about 9.1%, 10.6% and 60.9% respectively as well as increase in and sales volumes. In addition, China XLX has also expanded into new markets in the northeastern and central parts of China which raised its capacity utilisation rate from an average of about 70% in FY07 to 83.7% in FY08. Net profit for the quarter however declined 37% due to high cost of sales to RMB45.7m due to higher cost of sales for urea and methanol, as ASP for urea and methanol could not increase inline with higher anthracite coal prices The company expects its margins to improve in 1Q09 as coal prices have eased to RMB1,100/tonne as of Feb 2009. The company declared a first and final dividend of S¢1.6 for FY08. We have a price target of S$0.47 based on 8.5x FY09 P/E.

Food Empire Holdings: Hold (OCBC Research, 25 Feb)
FEH's 4Q08 results came in below expectations with revenue slipping 21.7% year-on-year (yoy) and 23.6% quarter-on-quarter (qoq) to US$47.0m, while net profit slumped by 44.9% yoy and 49.8% qoq to US$3.2m. FY08 net profit margin declined by 1.9ppt to 9.5% as persistent labour and selling expenses eroded revenue growth. Falling demand was the culprit behind the weak revenue in 4Q08. The global economic crisis has crimped demand for FEH's products, and we expect selling prices and volume to come under further pressure as the emerging economies continue to be plagued with economic issues such as weakening currencies, rising unemployment and bad debts. Nevertheless, FEH's strong balance sheet should enhance its ability to tackle the anticipated harsh operating environment in FY09. A dividend of 0.35 S cents has been declared. We have cut our earnings estimate and switch our PER-based valuation to 1x FY09F NTA, deriving a fair value estimate of S$0.33. We are downgrading the stock to a HOLD.

UOL: Buy (OCBC Research, 25 Feb)
UOL Group reported weak 4Q08 results, dragged down by impairment charge and fair value losses. Revenue grew 33.5% year-on-year (yoy) to S$260.3m due to higher contribution from property development and rental income. PATMI plunged into the red in 4Q08, losing S$114.1m, but excluding one-off charges, underlying PATMI would have grown by 14.9% yoy. Fair value of UOL's investments in UOB and UIC were also written down by S$348.8m in 4Q08 and charged directly to its reserves. The decline in shareholders' equity resulted in an increase in net gearing ratio from 0.34x (end 3Q08) to 0.4x (end 4Q08). Two mass market launches have been planned for FY09. Our FY09 RNAV is now pegged at S$3.40 per share. We are maintaining a discount at 40% to our valuation of UOL's investment and development properties and no discount to its investments in listed entities. Our fair value of UOL is now lowered to S$2.59.

MAP Technology: Sell (DMG, 25 Feb)
MAP Technology saw flat revenue from its continuing operations while sinking into the red with a US$0.8m loss in 4Q08. For FY08, topline was up 37.9% to US$53.9m although bottomline fell 12.2% to US$4.8m. The FY08 numbers were below our expectations as we were looking for US$198m and US$11.7m in top and bottomline respectively. Margins were also hit as an unfavourable sales mix, higher production costs and increased SG&A expenses (attributed to the acquisition of the plastic injection moulding business from Jurong Tech) took its toll on the company. We note that MAP did not manage to grow organically as revenue from its precision stamping and die-cut components businesses had both contracted by around 46% in 4Q08. Going forward, MAP is expecting 1Q09 revenue to be significantly lower due to the present economic climate, although it would attempt to mitigate this through effective cost management. We have lowered our forecasts accordingly and we now note that MAP presently trades at a relatively high 20.2x FY09F P/E on core earnings of US$3.1m. We also continue to believe that downside risks to MAP's share price for the short term remain in the form of the possible 73.1m share sale by Jurong Tech. MAP currently trades at 0.7x FY09F P/B – assuming it trades down to the industry average of 0.5x, we slash our target price to S$0.185 (from S$0.23 previously). Downgrade to SELL.

GRP Ltd: Neutral (DMG, 25 Feb)
GRP's 1H09 revenue and net profit met 51% and 49% of our FY09 estimates. Revenue fell across all three business divisions, leading to a drop of 12% year-on-year (yoy) to S$13.4m as a result of the economic slowdown and slumping demand. Despite this, GRP achieved a bottomline of S$2.1m – a slight decline of 2% compared to 1H08 because GRP registered a higher margin for its Marine and Hose segment. GRP is currently debt-free and in a cash position of S$12.2m. Operating cashflow for 1H09 was lower at S$1.3b compared to S$1.8b in 1H08. This was mainly due to increased inventory from S$8.4m in 1H08 to S$9.1m in 1H09 as well as longer payable turnover days (from 89 days in 1H08 to 93 days in 1H09). GRP is currently trading at 4.9x FY09 and 6.0x FY10 P/E. We maintain our valuation methodology for GRP based on 0.7x FY09 P/B, deriving a target price of S$0.13.

Aqua-Terra: Neutral (DMG, 25 Feb)
FY08 results within our estimates. Aqua-Terra FY08 results were within our estimates with revenue rising 18% year-on-year (yoy) to S$271.8m buoyed by higher contributions from Oil & Gas (+29% yoy) and Mining & General Hardware (+60% yoy), which offset the slight decline in Marine (-1%). Core operating margins fell from 5.4% in FY07 to 4.6% in FY08 as cost pressures increase during the year. Share of profit from SSH Corp, however, boosted contributions by 44% to S$6.8m, leading to increased PBT (+25% YoY) of S$18m. Aqua-Terra declared a final dividend of 0.45 S¢/share (payout ratio of 12%), translating to a dividend yield of 4%. On a quarterly basis, Aqua-Terra achieved lower revenue of S$70.7m (-12.1% yoy) for 4Q08, due to losses of S$2.5m incurred for shipbuilding cost overruns and provision for foreseeable losses. Coupled with the lower revenue, there was an increase in operating expenses by 110% to S$3.3m. This was largely from foreign exchange loss arising from the appreciation of US$against S$ towards the end of the quarter. This flowed down to PATMI, which decreased by 39% yoy to S$2.6m. We maintain our target price of S$0.12 based on P/E 3.0x FY09 earnings.

Cosco Corp: Overweight (JP Morgan, 24 Feb)
Cosco reported FY08 net profit of S$303m (-10% year-on-year), which is in line with our estimates. Specifically, there was a $61m bad debt expense related to payment delays by ship owners and S$21m of inventory writedown from steel procured at higher prices and S$89MM of expected losses recognized on construction contracts due to cost overruns on delayed shipbuilding work and resident resettlement issues at Zhoushan yard. We believe management conducted a deep round of "kitchen sinking", so provisions related to these issues should not resurface. Management highlighted that 29 dry bulk vessels are under construction. About 20 are expected to be delivered in 2009. So far, 21 have been rescheduled and 4 cancelled, with 110 remaining bulk carriers on the orderbook. Management continues to actively engage its customers in discussions on the dry bulk orders to minimize order cancellations. Together with other offshore contracts, net orderbook stands at US$7.3b. Ship repair and conversion revenue was up 27% yoy, indicating continued resilience in this segment of the business. While the number of ships repaired/converted came down from 480 to 324, average contract value per ship increased 88% based on our estimates, indicating Cosco's ability to secure high-value ship repair and conversion contracts. Ship repair and conversion contributes 55% of group revenue. We rolled over our earnings estimates to FY11E, factoring in the delivery delays into our estimates. As a result, we trim our earnings estimates slightly by between 7% and 9.7% for FY09/FY10.

Cosco Corp: Sell (DMG, 24 Feb)
Cosco's FY08 results saw turnover grew 54% to S$3.5b while recorded net profit was S$302.6m. It declared a total dividend of 7 cents/share translating to a dividend yield of 9%. As per previously guided, Cosco wrote off S$89m for expected losses on ongoing construction contracts largely due to mark-to-market steel prices from an average RMB7,400/t to RMB4,500/t, as at 31 Dec 08. Cosco made a provision of S$61m for impairment of trade and other receivables. Should credit conditions fail to ease, we expect more allowances for trade receivables in the coming quarters. Going forward, we remain concerned over yard execution and timely delivery as the management guided only 25 vessels would be delivered in FY09 (down from 49). Ship repair is also likely to face pricing pressures and reduced repair work scope per ship. For Shipping, three of Cosco’s bulk carriers are currently idling, no thanks to the plunge in the Baltic Dry Index. Should BDI remain weak, we expect Cosco to face difficulty in securing leases for another four bulk carriers when their contracts expire in Mar 09. We maintain our target price of S$0.740 based on 1x FY10 P/B. Maintain SELL.

AusGroup: Hold (OCBC Research, 24 Feb)
AusGroup's 2Q results has exceeded our estimates because of a delayed impact of market shrinkage on ongoing projects and some flow through of conservative variation claims from previous quarters. While we have adjusted our estimates slightly to take 2Q figures into account, we still expect significant contractions in 2H09. Our 2H09F revenue estimate is only 60% of the 1H09 figure, as the company feels the impact of a shrinking order book and slowing project wins. We have previously commented on AusGroup's growing pains since FY08 as it transformed itself into a multinational and multi-platform business. The company is finally showing some signs of "growing up", in our view. We stay cautious on revenue and margin estimates and will track the company closely in the months ahead. We maintain our HOLD rating on AusGroup. Our new fair value estimate is S$0.16 or 4x FY09F earnings (prev: S$0.17).

Cosco Corporation: Hold (Phillip Securities, 17 Feb)
Cosco's full year results did not present with any surprises, as management had earlier guided in December 2008 that profit for the year would be lower than FY07. Revenue for the year increased 53.7% year-on-year to S$3,476m. Full-year earnings fell 12.3% to S$302.6m. The profit guidance announcement issued earlier had also stated that lower profits would have been due to provisions made for doubtful debts and higher costs relating to shipbuilding and offshore marine contracts. The impact of steel prices on profitability was stark in FY08, as it was reflected in the severe margin deterioration. Gross margin fell from 27.0% in FY07 to 18.1% in FY08. EBIT margin took an even larger hit, falling from 22.5% in FY07 to 13.2% in FY08, due largely to the provisions and write-downs. As the Company had previously amassed steel on the expectation of further escalating prices, it has, in the last quarter, written down its stockpile to calendar-yearend prices. As such, we believe that FY09 should see an improvement in margins. Though we believe that Cosco is improving on its execution, the supply of new vessels to come into the market and rapidity of demand deterioration, coupled with a continuing lackluster macro outlook augments an already challenging operating environment for Cosco. Lack of clarity in information dissemination is also a point of concern for us, as we are unable to decipher the viability and profitability of existing contracts. We keep our HOLD call and target price of S$0.67.

Cosco Corp: Underperform (Merrill Lynch, 23 Feb)
The outlook for the shipping building industry continues to deteriorate, in our view. Management presented a notably downbeat 2009 outlook highlighting the risk of further delivery delays and order cancellations. Management also guided that margins for the shipbuilding & shipping divisions will continue to come under pressure and that planed expansion of the shipyards has been scaled back. Trading at 1.5x P/B we maintain our underperform rating and price target of S$0.45.

Keppel Land: Buy (BNP, 23 Feb)
We like KepLand for its resilient book value & relatively low impairment risk. The majority of its land bank (especially in Singapore) was purchased at a low cost: The breakeven costs for its commercial properties are also low: The devaluation risks lie within the office portfolio at its 44%-owned KREIT. However, downside risks are mitigated by its low entry costs for its ventures in China, and the fact that its local partners in Vietnam bear the land bank risk. We have factored in a conservative impairment charge of SGD50m/year for 2009 and 2010. The group's net gearing ratio has since improved to 0.5x (from 1x), putting it in good stead to face the crisis. Also, its total cash of S$663m exceeds short-term debt of $246m. Using history as a guide, KepLand tends to adopt a more defensive strategy during an economic recession. With the robust balance sheet, we think a cash call is unlikely. We initiate coverage with a target price of $1.90, based on a 40% discount to our $3.17 RNAV estimates. The stock trades at a depressed 57% discount to our bear-case RNAV estimates. This is comparable to the 60% discount observed in big developers during the Asian financial crisis and SARS outbreak.

HUPSteel: Buy (DMG, 23 Feb)
HUPSteel registered a topline of S$92.5m for 2Q09, down 8% year-on-year (yoy) from S$100.0m, on the back of lower average selling prices (ASP) of steel products, and sluggish demand due to the economic downturn. NPAT for the quarter, as a consequence, was down 81% to S$1.5m. Manpower expenses fell 20% for 2Q09 to S$2.5m due to quick cost-cutting measures introduced in light of dire business conditions and lower personnel incentives. The Group's inventory level also remained relatively flat for 2Q09. We have cut sales volume assumptions from a growth of 15% to a fall of 7.5% for FY09. We have left our steel price sensitivity assumptions unchanged (-8%) across the same period as current average steel prices for FY09 are 5.9% lower than FY08. However, we have adjusted both average steel prices upward by 15% between FY09 to FY10 as we foresee a recovery in business activity and the steel industry during that period. Despite extremely challenging times, the Group has done reasonably well to still deliver a profit and generate positive operating cash inflow of S$6.2m. We upgrade HUPSteel from NEUTRAL to BUY despite a new lower target price of S$0.15 based on our retained target of 4x FY09 P/E.

Neptune Orient Lines: Sell Phillip Securities, 23 Feb)
NOL reported FY2008 revenue of US$9,285m (+14% yoy) and net profit of US$88m (-83% yoy). It also declared a final dividend of S$0.04 per ordinary share, bringing the total dividend for FY2008 to S$0.08 (-43% yoy) per share. This was much lower than the total dividend of S$0.14 last year. Net profit dropped drastically because of higher bunker fuel costs, vessel costs and restructuring costs. In particular, the deterioration was most significant in 4QFY200 as it reported a net loss of US$147m due to the restructuring costs of US$72m and the 14% drop in container shipping volume in 4Q. The actual revenue and profit were 4.8% above and 52.7 percent below our forecasts respectively. The revenue was slightly higher because of greater-than-expected growth in container shipping revenue for the full year. Nevertheless, the lower profit could be attributed to the higher-than-expected operating costs and the restructuring costs. NOL expects a loss for FY2009. In response to the global financial crisis, it has reduced its capacity on its global service network and will continue to cut costs and improve productivity to meet the challenges in FY2009. We are expecting NOL to report a loss of US$225m in FY2009. A small recovery may begin in FY2010, with profits of US$31m and US$102m for FY2010 and FY2011 respectively.

Venture Corporation: Buy (DMG, 20 Feb)
FY08 turnover inched down 2.3% to S$3,784.1m although it would have increased by 4.6% in US dollar terms. Net profit fell 44.6% to S$167.5m and was below our forecast and market consensus of S$215.2m and S$192.1m respectively. This discrepancy was mainly due to Venture's CDO charges which had also brought 4Q08 net earnings down by 93.8% to S$4.6m. If not for the charges, earnings would have come in at S$68.5m and S$287.5m in 4Q08 and FY08 respectively. While management has admitted that it would be affected by the present economic slowdown and has termed it a "dull year", the company also highlighted that it is moving away from the EMS space and venturing further into the higher-margined segment within the ODM division through the likes of engineering design and other initiatives. Additionally, Venture mentioned that it would continue to look to increase its market share. Nevertheless, we believe that Venture would find it hard to advance against a rising tide. HP's recent financials saw printer unit shipments fall 33% while its profit guidance for 2Q09 was also below analysts' expectations. Additionally, Agilent also warned of widespread market weakness as orders for its Electronic Measurement business fell 28% with weak demand seen from the various MNCs. We forecast Venture's core earnings (excluding the potential CDO charges) to decrease 24.4% to S$217.3m in FY09. While the macro picture of the company may have taken a step back, its valuations appear highly attractive with prospective dividend yield at 12.1% (which we believe is sustainable given Venture's cash generating abilities) and 4.8x FY09 P/E. Assuming Venture trades up to the industry average of 6.0x FY09 P/E, we maintain BUY with target price of S$5.15 (from S$7.40 previously).

Sinotel Technologies: Buy (DMG, 20 Feb)
Sinotel's net profit for FY08 rose 25.7% year-on-year (yoy) to RMB107.4m, on the back of a 35.9% increase in sales to RMB362.1m. The results were in line with our expectations. Net margins declined 2.3 ppts to 29.7% in FY08, as Sinotel increased its revenue from the System Integration segment and the introduction of its new Emergency Mobile Base Station (EMBS) business, which generally yield lower margins. The decline in margins was also due to higher operating expenses. No dividend was declared, as management is setting aside cash in anticipation of upcoming projects. Net cash position of RMB3.1m as at end FY08. The Chinese telcos are expected to spend RMB280b over the next 3 years (of which, RMB150b in 2009) to upgrade their 3G networks. In order to be in a better position to take on the expected increase in contracts in the market, Sinotel would require additional capital. Capital spending by the telcos is expected to increase, as the telcos aim to be the first mover in the 3G market. Its close relationship with the telcos would give Sinotel an edge in securing the upgrading contracts. Apart from the upgrading of networks, Sinotel had started distributing 3G network cards (through a collaboration with China Unicom) in FY08, in anticipation that demand for 3G network cards will increase as the networks mature. It also plans to continue with its efforts to extend its EMBS business into other areas. We refine our FY09 projections based on actual FY08 figures. We also introduce FY10 estimates. We estimate earnings of RMB131.1m (EPS: 46.8 RMB¢) for FY09. Sinotel is trading at 1.4x forward P/E or 0.5x P/B. Its HK-listed peers are trading at an average 4.5x PE. We maintain our target price of S$0.32, based on 3.0x FY09 earnings.

Hyflux: Outperform (Credit Suisse, 19 Feb)
Hyflux's net profit for FY08 was 14% above our expectations; sales jumped 187% driven by 5 times growth in municipal, though industrials fell 25% owing to China.s economic slowdown. Its management gave said projects are on track and the current order book stands at S$1.145 billion, and remains bullish on the municipal water sector in China and Algeria, and sees the November 2008 Chinese stimulus plan as a catalyst. We revise our FY09-10E earnings by -13% to 20% primarily to reflect the lower industrial contribution, the earlier recognition of Algeria EPC revenue, lower opex on new initiatives (in FY09) and lower net interest expenses (lower debt). We revise our target price to S$2.39 (from S$2.52). One near-term key catalyst we expect to drive the share price is continued order flows. We maintain our Outperform rating.

Hyflux: Overweight (JP Morgan, 18 Feb)
Hyflux reported FY08 earnings of S$59m (+79% year-on-year), which was 7% ahead of our estimates. Notably, dividends surprised on the upside with DPS of 3.43 cents, which was 9% higher than our forecast. Growth continues to be driven by municipal sales (+436% yoy) from both China and Algeria as we continue to see progressive recognition of EPC contracts in both regions. The 200,000m3/day Tlemcen desalination plant is about 60% completed, with the 500,000m3/day Magtaa plant expected to achieve financial close by 1H09. The Middle East/ North Africa (MENA) region alone accounted for 40% of revenue. EBIT for municipal work was up 176%. EPC orderbook is at a high of S$1.15b. Industrial sales dipped 25% due to the economic slowdown in China. This resulted in an overall lower margin for the group. Gross margin declined from 45% to 31% while net margin declined from 19% to 11%. Hyflux has already completed the sale of 4 BOT plants to HWT with the remaining Yangkou Rudong Wastewater Treatment plant to be divested around Jun-09. Total consideration for the 5 plants was S$88m. Proceeds for the first 4 plants had been received in Dec-08. There are also another 4 BOT plants which are expected to be divested at a later date. We are maintaining our Overweight on Hyflux given its encouraging growth outlook

China Milk Group: Buy (DMG, 18 Feb)
All of China Milk's core businesses saw strong revenue growth during 3QFY09. Operating profit grew by 27% to RMB150.4m. However, the change in fair value of derivative instrument, a convertible bond (CB) resulted in a decline of RMB8.1m versus a gain of RMB24.6m in 3QFY08. Consequently net profit only grew a marginal 1.9% to RMB119.1m. Raw milk production increased by 26% year-on-year (yoy) to 13,187 tonnes in 3QFY09. Raw milk revenue grew by 24% yoy to RMB42m. Sales volume of its pedigree bull semen business increased by 19% yoy to 1.64m straws, while those of pedigree dairy cow embryos grew by 22.7%. We cut our FY09 revenue by 3% to RMB696.2m based on a reduction in our milk processing sales volume assumptions. We forecast a 15.8% reduction in processed milk sales to 8,000 tonnes because the negotiation process to close a deal with a customer has been delayed. The other main contributor to our earnings reduction is the expectation of negative valuation from its change in fair value of derivative instrument arising from its CB. We expect a loss of RMB29.1m from its derivative instrument. Our net profit forecast is therefore reduced by 5% to RMB447m. The company is sitting on nearly RMB2b worth in cash (US$292.2m) which exceeds its US$150m CB (maturing in 2010). We do not rule out China Milk buying back its CB. However, we cut our price target from S$0.67 to S$0.52 based on 3.6x FY09 price to core earnings (core earnings excludes the change in fair value of derivative instrument), which is pegged to the FSTC FY09 P/E of 3.7x

Indofood Agri Resources: Neutral (DMG, 18 Feb)
Indofood Agri (IFAR) has announced a change in fair value of biological assets for FY08 which comes to about IDR663b (about S$85.6m). The significant losses on the values of the Group's biological assets, are primarily attributed to changes in key assumptions used in the independent valuation, including the steep drop in crude palm oil (CPO) prices during the 2H08 amid the prevailing overall adverse global economic conditions. The projected CPO prices for 2009 assumed in the independent valuation fell from US$854/tonne in Jun 08 to US$500/tonne (about RM1,800/tonne) in Dec 08. We are maintaining our FY09F earnings and target price of S$0.51 (based on 7x FY09F earnings) as we have been conservative in our CPO price assumption at RM1,500/tonne for FY09 – CPO prices has been trading above our RM1,500/tonne level since beginning of 2009. The average CPO price for Jan 09 and Feb 09 (till 16 Feb) are RM1,842/tonne and RM1,892/tonne respectively. Current CPO futures price is around RM1,920 (for Mar delivery). With the stock trading at S$0.555 (equivalent to 7.6x our forward earnings), we are maintaining our neutral call on the stock. Indofood Agri's FY08 results would be released 27 Feb. In the short term, we believe there may be downside price pressure.

ST Engineering: Buy (DMG, 18 Feb)
STE recorded a FY08 net profit of S$473.6m from FY07’s S$503.5m, which included an impairment charge for investments of S$25.9m. Stripping this out, net profit was in line with our forecasts. STE has also proposed a final dividend of 12.8cts per share, and coupled with the interim dividend of 3ct per share, STE has continued its policy of paying out 100% of reported earnings as dividends, with a dividend yield at 7.7%. Return on equity was maintained at an impressive 30%. All divisions performed according to guidance, with turnover growth up 6%, and all divisions recording higher turnover with the exception of Marine. EBIT, however, did decrease by 8% in challenging conditions, particular in the Aerospace division. The impairment charge referred to 3 quoted strategic investments, primarily in the Electronics division. These now have a carrying value of just around S$10m, and we do not expect any further charges. STE’s cash balance of S$1.05b is held in low-risk interest bearing deposits, either with as bank deposits or loans to related companies with guaranteed returns. For FY09 guidance, STE expects a higher turnover and comparable PBT as FY08. Specifically, Aerospace is expected to be flat, while Electronics should record higher PBT. Land Systems and Marine are also expected to outperform. STE's orderbook stands at S$10.6b, of which it expects to deliver S$3.6bn for FY09, or about 66% of our turnover projection. We are trimming our FY09 forecast by 5% to be closer to STE's guidance, and to factor in possible weakness. STE continues to be the star earnings performer in the Singapore market, despite adverse economic conditions. It does not expect to cut its practice of paying out 100% of its earnings as dividends. This yields a dividend payout of around 8.3% for FY09. We are buyers of the stock to a 5% payout of FY09 projected dividends, or S$3.60.

Singapore Technologies Engineering: Buy (OCBC Research, 18 Feb)
STE has showed resilience in its FY08 results with revenues up 5.8% to S$5.3b while PATMI shrunk by 5.9% to S$473.6m. However, 4Q08 was marred by write-downs in its listed investments and doubtful debts. STE sustained its record high order book of S$10.6b and continued its 100% PATMI payout policy by declaring a final dividend of 12.8 S cents (6.1% yield). STE guided for a higher turnover with a "comparable" PBT on the back of delivery of S$3.63b of its order book in FY09 and recurrent businesses not reflected in the order book. We are also enthusiastic that STE will be able to win more and bigger military contracts as it steps up to a higher pedestal with its recent contract wins with the UK armed forces. Our FY09F estimates are largely unchanged but we are upgrading our rating to a BUY based on valuations. Our fair value remains unchanged at S$2.31 as we peg it to the company's trough valuation (15x FY09F PER) during the 2003 SARS period.

StarHub Limited: Hold (Phillip Securities, 18 Feb)
StarHub has reported FY2008 operating revenue of S$2,127.6m (+5.7% yoy) and net profit of S$311.3m (-5.8% yoy). It also declared a final dividend of S$0.045 per ordinary share, bringing the total dividend for FY2008 to S$0.18 (+12.5% yoy) per share. This was higher than the total dividend of S$0.16 last year. Net profit dropped because of higher acquisition and retention costs. This was a result of mobile phone numbers becoming portable on 13 June 2008. In addition, tax expenses were higher in FY2008 because there was credit adjustment for deferred tax assets and tax adjustment for revision in corporate tax rate in FY2007. StarHub reported strong growth in most of its business units: mobile revenue was S$1,079.0m (+4.0% yoy), Pay TV revenue was S$398.2m (+16.5% yoy), broadband revenue was S$253.2m (+2.5% yoy) and fixed network service revenue was S$299.9m (+7.1% yoy). This was because StarHub was successful in attracting new customers to its services. As at 31 December 2008, the number of customers for its mobile, Pay TV outperformed as there was higher take-up of premium channel and strong growth in the subscriber base. However, sale of equipment fell to S$97.3m (-9.8% yoy), possibly due to consumers turning more cautious in their purchases during the economic slowdown. Net profit margin increased from 15.2% in 3Q FY2008 to 16.3% in 4Q FY2008 mainly due to higher mobile, Pay TV and broadband revenue. In view of the worse-than-expected financial results and the negative impact from the recession on future earnings, we have reduced our target price from S$2.99 to S$2.14. Although StarHub offers its services only in Singapore, it continues to be an attractive stock as it offers dividend yield of 8.7%. We kept our Hold recommendation because of limited upside in the share price to our target price of S$2.14.

Valuetronics: Buy (OCBC Research, 17 Feb)
VHL has reported a soft set of 3QFY09 results with revenue up 3.5% year-on-year (-22% quarter-on-quarter) at HK$247.9m and net profit down 41.9% yoy (-43.7% qoq) at HK$12.5m. In the coming quarters, VHL expects to see great uncertainty in demand patterns and significant fluctuations in exchange rates, but also expects to see a positive effect on its cost structure as the Chinese authorities postpone the adjustment of the minimum wage standards in Guangdong province, and as material costs ease due to softening of oil prices. While we have pared our FY09 earnings forecast by 24.9% to accommodate a bleaker outlook, we believe that the group's healthy balance sheet and its continuous emphasis to stay at the forefront of design and development activities in partnership with customers are likely to put it in good stead to take on new business opportunities. Applying 4x FY10F EPS, we derive a lower fair value of S$0.15 (S$0.17 on 4x FY09F previously). We maintain a BUY on 66.7% upside potential and attractive FY09F dividend yield of 11.3%.

CitySpring Infrastructure Trust: Hold (OCBC Research, 17 Feb)
CitySpring has posted a 4.3% year-on-year (yoy) gain in 3Q09 revenue to S$101.2m and a net loss of S$21.3m primarily due to non-cash items such as fair value losses. Most importantly, cash earnings recovered at S$20.3m versus S$1.1m a quarter ago when cash earnings were hit by one-off charges. The trust will pay out 1.75 cents per share for the quarter, up 9.4% yoy. This translates to an annualized trailing yield of about 13.5%. CitySpring's assets have been relatively untouched by the current economic environment. This continues to be a key differentiator against other yield instruments, which are witnessing industry downturns that create either revenue or counterparty uncertainty. The trust said it expected to meet its projected payout of another 1.75 cents in 4Q09. Our view of the trust is intact: we feel the 100% debt financing of the trust's Basslink acquisition is not a long-term solution and an equity injection is inevitable at some point. Maintain HOLD with S$0.57 fair value.

AFOR: Neutral (DMG, 17 Feb)
AFOR's 1HFY09 revenue inched up 1.1% to S$32.9m although net profit fell 60.8% to S$0.9m as Afor was hit on the operating front with EBIT margins declining 5.2 ppt to 3.2%. While the second half of the calendar year is typically the stronger half for retailers, we note that earnings for this period, however, had accounted for less than 30% of our previous FY09 forecasts. The current economic turmoil has yet claimed another victim as Afor's expansion plans failed to translate into higher topline. With the current retail space at c. 10.8k sq ft poised to increase to c. 16k sq ft through the two new retail stores that are set to open before 2010 in ION Orchard and Marina Sands respectively, we believe that Afor could actually incur higher operating expenses going forward. Positives include a healthy demand for Apple products, as evidenced by Apple's recent 1Q results that managed to surpass Wall Street's expectations. Afor's net cash per share at S$0.10 is yet another attribute we like, as it represents a relatively high 79% of current market cap. We have reduced our forecasts for FY09 and FY10 given the dismal 1HFY09 numbers. Currently trading at 6.3x FY09 P/E and assuming Afor trades up to the industry average of 7.0x P/E, this implies a price target of S$0.14 (from S$0.29 previously). While prospective dividend yield of 8.8% in FY09 seems attractive, we note that trading risks would be present in the form of Afor's low trading liquidity.

China Aviation Oil: Sell (DMG, 17 Feb)
CAO has revealed that its main profit contributor; the Shanghai Pudong International Airport Aviation Fuel Supply Company (SPIAFSC) would be facing losses in 4Q08. This loss was incurred mainly from the sharp decline in oil prices during the quarter, alongside the decline in the regulated domestic prices in the PRC in Dec 08. The estimated loss, subject to a final audit, is estimated to be around US$33m, and hence CAO will incur a net loss of around US$11m from its 33% stake in SPIAFSC. We had already assumed a lower contribution for 2H08 versus 1H08 due to the already lower crude oil prices during 3Q08 compared to 1H08. 3Q08 profit contribution was US$5.2m, which was within our expectations. However, the 4Q08 loss was unexpected. Incorporating the US$11m in losses, overall profit contribution from SPIAFSC should arrive at US$9.6m for FY08. Forward estimates of profit/loss contributions from SPIAFSC prove to be ever elusive due to future crude oil prices being an unknown factor. With crude oil prices currently back below the US$40/bbl handle, we are lowering our estimates of contribution from SPIAFSC for FY09 and FY10. We have updated the market-risk parameters and EBITDA cash flow inputs to our DCF model and derived a new target-price of S$0.65, compared to our previous S$0.705. We therefore downgrade the stock from a NEUTRAL to a SELL call with a new target price of S$0.65, implying an 11% downside.

Pacific Andes Holdings: Buy (OCBC Research, 16 Feb)
Despite the recent sharp deterioration in global economic conditions, Pacific Andes Holdings has managed to buck the trend to post a fairly decent set of 3QFY09 earnings. Net earnings rose 11% year-on-year (yoy) to HK$87.1m, while revenue rose 40% to HK$1562m.The company’s management reiterated that it will be in a good position to benefit from the implementation of the long awaited Individual Transferable Quota (ITQ) system in Peru from 2009 onwards. We are retaining our FY09 estimates of net earnings of HK$492m. While global market conditions remain uncertain, we believe the downside for the stock is limited at current levels. Demand for fish could soften in the coming months if market conditions remain weak, but Pacific Andes has put in place longer-term operational strategies for both the North and South Pacific and this should enable it to enjoy higher catch volumes once market conditions improve. We are maintaining our BUY rating and fair value estimate of S$0.30.

Koda: Hold (OCBC Research, 16 Feb)
Furniture maker, Koda 2Q09 results were below expectations. Revenue slipped 34.2% year-on-year (but grew 2.5% quarter-on-quarter) to US$11.8m, while net profit slumped 85.6% YoY and 18.7% QoQ to US$0.3m. Weak demand was the key culprit for the slump in revenue. No dividends were declared. Profit margins came under pressure during the quarter due to persistent raw material costs and fixed overheads. We expect the outlook to remain muted in the next quarter as shorter working months, festive holidays, and overcapacity could continue to weigh on the group. Management has warned that it could slip mildly into the red in 3Q09. On a brighter note, the US market has shown signs of a recovery and orders are flowing in again following inventory depletion. We have trimmed our estimates by 27% to 50% and ease our fair value to S$0.145 (previously S$0.185). The bleak outlook appears to be factored in at current prices, as such, we maintain our HOLD rating on the stock.

Tat Hong Holdings: Buy (OCBC Research, 16 Feb)
Tat Hong's operationally sound 3Q09 was tainted by forex losses arising from the appreciation of the Japanese yen during the quarter. Revenue contracted 7.5% year-on-year (yoy) to S$146m while gross profit declined by 9.6% to S$55.4m. Stripping off the impact of forex, net profit would have expanded 50.6% to S$26.4m, ahead of the street’s expectation of S$18m. However, including forex losses, most of which is unrealised, net profit slumped 86% to S$3.m. Nevertheless, Tat Hong’s underlying fundamentals remained robust with all segments posting improved revenue, except equipment sales. Going forward, we expect stability from its rental businesses to cushion the group from the impact of the slowdown. We have trimmed our estimates and switch our PER-based valuation to 1x FY09F NTA, bringing our fair value estimate to S$0.72 (from S$0.75). Given its sound underlying fundamentals, we upgrade our rating to BUY.

Sino Techfibre: Buy (DMG, 16 Feb)
Sino Techfibre's products have suffered a similar fate to all other chemical fibre players, with the average selling prices (ASPs) of feedstock and end-products making unprecedented quarterly falls in 4Q08, mainly due to crude oil prices declining sharply and rapidly shrinking demand due to slumping economic conditions and a deteriorating Chinese export market. Hence, we have conservatively assumed that gross margins would have been severely affected compared to other quarters. We have slashed gross margins for PU and MFB products by as much as 30 percentage points (ppt). We understand from management that the PU and MFB lines were shut down in the latter half of Dec 08. To further highlight the poor business environment, we have lowered our capacity utilisation numbers to the 25 – 30% levels for PU and MFB products. STF has been caught out with a classic case of over-expansion and then being slapped by a sudden negative change to the business outlook. It seems that its enthusiasm over the PMP business has backfired, at least in the short to medium term. With the economic crisis in China having yet to reach its peak, demand for PMP products will continue to remain weak and we will not be surprised to see the commissioning of the Group's second line being postponed yet again. Taking into account the current economic conditions and market outlook, we have cut our EPS estimates by 17.9% in FY09 and 35.0% in FY10. We are, however, still maintaining our BUY recommendation on the stock due to its current stock price already trading at low levels of 2.1x FY09 and FY10 earnings. Our target price is reduced from S$0.43 to S$0.35, pegged to 4.5x FY09 PE.

China Milk: Buy (DMG, 16 Feb)
All of China Milk's core businesses saw strong revenue growth during 3QFY09. Operating profit grew by 27% to RMB150.4m during the same period. However, its convertible bond was the main culprit which caused its net profit to slump to a growth of 1.9% to RMB119.1m in 3QFY09. Due to its change in fair value of derivative financial instruments component in its income statement, the company saw a loss of RMB8.1m in 3QFY09 compared to a gain of RMB24.6m in 3QFY08. We are concerned that China Milk has not bought back these CBs in the open market. We believe that China Milk will continue to monitor these convertible bonds and buy-back when the right opportunity arises. The company is sitting on nearly RMB2b worth in cash (US$292.2m) which exceeds its US$150m convertible bond (maturing in 2010). We believe that the key to China Milk's success will be going downstream. The commencement of its own proprietary brand, Yinluo is a major step forward. However, the next step for China Milk is sealing what has been a long period of negotiations with an OEM customer. The milk processing business offers China Milk the ability to capture a large market share in China’s dairy industry. We will continue to monitor these developments. Pending our earnings revision, we maintain our price target of S$0.67 based on 5x FY09 P/E. We have given China Milk a premium to the FSTC FY09 P/E of 3.9x.

China Fishery: Buy (DMG, 16 Feb)
China Fishery's revenue grew 13% to US$459.4m in FY08 which was inline with our expectations. Its strong revenue growth was achieved through an increase in sales volume of Alaskan Pollock by 10.3% to 213,000 metric tones (MT). Average selling prices (ASP) for Alaskan Pollock also increased by 7.5% to US$1,609/MT. Through its fishmeal operations in Peru, CFGL was able to acquire 5 addition fishing vessels and 1 fishmeal processing plant in FY08. This helped them increase its catch volume by 39.3% to 326,000 MT and increased production volume of fish oil by 25.6% to 131,260 MT. Net profit grew slightly by 6.6% to US$94.3m due to high fuel costs. We believe that FY09 will be a different story for CFGL as fuel prices are at its lowest from its peak of US$147/bbl in July 2008. We forecast FY09 bunker cost of US$61.8m, 35% less than our FY08 estimate. As of 31 Dec 2008, CFGL has a cash position of US$15.3m as compared to US$18.3m in 2007. We remain concerned that CFGL has a high gearing ratio of 0.92x and a sizeable net debt of US$309.5m. Management has indicated to us that their high gearing is for its CAPEX plans in the South Pacific Ocean. The South Pacific Ocean has an abundant resource of Chilean Jack Mackerel which is used for fishmeal as well as human consumption in Africa. We believe that its trawling operations in the South Pacific Ocean will be revenue contributing in 2H09 and firmer rowth is expected in FY10. We have a price target of S$0.86 based on 3.8x FY09 P/E which is pegged to the FSTC FY09 P/E of 3.9x.

Tat Hong Holdings: Sell (Citi Investment Research, 16 Feb)
Tat Hong's 3Q09 revenue fell 20% quarter-on-quarter (qoq) due to weaker Aussie dollar (~60% of revenues in AUD) and Equipment Sales (-41% qoq) as customers cut back on capital investments and banks tighten credit. FX loss of S$22m due to yen appreciation vs. AUD and SGD. While public construction spending may receive a boost from fiscal stimulus measures, we believe this is insufficient to offset the sharper than expected slowdown in private sector construction driven by end demand contraction and financing challenges. As a result, industry margins will be compressed by competition and more earnings downgrades may follow. Tat Hong's earnings downside risks comes from several areas: 1) Equipment sales continue downward trend as customers delay or reduce purchase plans; 2) Crane rental rates may decline on reduced demand and increased competition – mgmt expects rates to decline by 5-10% in next 12 months; we maintain our assumption of minus 8% to 15% yoy corrections to crane rental rates in FY10/11E; 3) Provisions for bad debts and inventory write-downs may increase; 4) FX fluctuations may increase earnings volatility with downside risks on AUD depreciation or JPY appreciation vs. SGD. We have lowered FY09-11E earnings by 5-16%, after factoring in S$20mn of FX losses for FY09E, and higher debt and interest expenses to meet working capital needs. We maintain our S$0.53 TP based on ~0.6x FY10E PB, equivalent to 3.3x FY10E PE. Stock should remain range-bound due to earnings downside risks and lack of positive catalysts.

DBS: Neutral (DMG, 16 Feb)
DBS reported FY08 net profit of S$1.93b, down 15% year-on-year (yoy) Excluding one-time net charge of S$127m (inclusive of restructuring and impairment costs), net profit would have been S$2.06b, close to our S$2.05b forecast. Net interest income rose 5% to S$4.3b. Average interest-bearing assets rose 11% to S$210b, but net interest margin narrowed 13bps to 2.04%, due to loan yields falling faster than funding costs. Fee and commission income fell 13% or S$188m to S$1,274m. Stockbroking income was down 39% or S$98m, investment banking plunged 47% or S$81m and wealth management collapsed 45% or S$112m. However, loan-related fees rose 29% or S$67m. DBS declared a final dividend of 14S¢/share over the enlarged share base. Whilst DBS still has a low non-performing loan (NPL) ratio of 1.5%, we are assuming the Dec 09 rate to rise to 4.4%, factoring in deteriorating economic conditions. Consequently, we have assumed FY09 provisions to hit 71bps of interest bearing assets, versus 42 bps for FY08. Our FY09 provisions assumption of S$1.56b is 76% higher yoy. We maintain NEUTRAL on DBS. Our target price of S$8.50 is derived from 0.8x P/B, which is similar to the 0.8x that DBS traded back in the low point in 2003.

HL Finance: Buy (DMG, 16 Feb)
HL Finance has reported FY08 net profit of S$78m, down 41.5%. The decline was primarily due to provisions for the Lehman Minibond Notes. Pre-provisioning operating profit was up 9% to S$147.9m, stronger than our S$139.8m forecast. Net interest income rose 8.2% to S$205.6m. HLF has been cautious in its loan book – net loans contracted 7.8% to S$7.41b in FY08. Our assessment is that this cautiousness will enable HLF to minimise its asset quality deterioration in the quarters ahead. We expect loan loss provisioning to rise in the quarters ahead. Having said that, HLF’s conservative stance – evident from its FY08 loan contraction of 7.8% – should help to minimize the rise in non-performing loan (NPL) ratio. We lower our FY09 net profit forecast by 16% to S$91.3m primarily due to an increase in our provisioning assumption from S$12m to S$38m. We are projecting 2009 loan contraction of 2.1%. HLF is not recommending a final dividend for FY08, in view of the difficult outlook for the year ahead. This is despite HLF's strong Tier 1 CAR of 17%. We believe this will disappoint investors. HLF is trading at a P/NTA of 0.7x (based on NTA of S$3.10/share). We maintain our S$2.65 price target, which is pegged to 0.8x of 2009 NTA. Assuming a 49% payout ratio, 2009 dividend yield is a fairly respectable 4.8%.

Jaya Holdings: Overweight (JP Morgan, 13 Feb)
Jaya has reported 1H FY09 net profit of S$35.8m, down 52% year-on-year (yoy) with the company continuing to face volatility in its profits due to its forex hedging. For 2Q09, Jaya reported a S$2.8m unrealized gain on forex hedging instruments, but this was offset by S$31.7m of forex losses from revaluation of bank loans, realized transaction losses, and some account receivables and payables revaluation gain. During the quarter, five vessels were disposed of, recording a capital gain of S$39.7m. Its offshore shipping revenue improved 31% yoy for the quarter helped by improved fleet utilization from 85% to 87% and better average daily charter revenue of S$10,986 (+39%).Shipbuilding revenue was down 75% for the quarter on lower revenue recognition. As Jaya's hedging policy does not qualify for hedge accounting, its hedges inject significant volatility to its earnings amid a volatile forex market. While the marked-to-market losses are expected to be offset by the recognition of higher S$ revenues and profits when Jaya eventually receives the US$ proceeds in future sales, we believe there is a risk that some of the vessels will remain unsold in the future as some of the vessels built by Jaya have not secured customers and are built on a speculative basis. Given the uncertainty in shipbuilding demand, we reduce our earnings estimates for FY09/FY10/FY11 by 27%/46%/47% based on lower shipbuilding earnings. We also lower our dividend forecast to 4 cents per share based on a 20% payout. We reduce our Dec-09 PT to S$0.54 based on 1x P/BV which is the average multiple that Jaya's peers are trading at. With a potential decline in demand for OSVs as upstream rig orders dry up, key downside risks to our price target include a prolonged low level of oil price and a decline in upstream E&P activity.

Nera Telecommunications: Neutral (DMG, 13 Feb)
NeraTel saw 4Q08 revenue increase 20.9% to S$53.7m while net profit decreased 7.2% to S$2.6m although it was better than our forecasts of top and bottomline of S$36.5m and S$2m respectively. The company also announced dividends of S$0.03, translating to a relatively high yield of 15.4%. Management highlighted that it believes long term growth is still viable and that it would not engage in any short term cost-cutting measures which may eventually compromise with the former. NeraTel also mentioned that it is still on a recruitment drive to boost its staff count, which we regard as a positive given the fact that retrenchments have been all but rare of late. Project delays within the Telecom business, which have haunted NeraTel in 4Q08 is still expected to remain as a thorn in the current year. Nevertheless, the Infocomm segment continues to present opportunities even in this uncertain economic climate as infocomm services remain the fundamental services to both consumers and businesses. In light of the better-than-expected 4Q08 numbers, we have increased our FY09 forecast for topline by 14.7% although bottomline has been reduced by 3% as we believe that the lower net margins experienced in the previous quarter could spill over to the current year. Currently trading at 7.6x FY09F P/E and assuming that NeraTel trades up to the 2-yr historical average of 8.8x P/E, we maintain our recommendation at NEUTRAL and target price at S$0.225.

Capitamall Trust: Buy (UBS, 13 Feb)
We maintain our Buy rating on CT. The vehicle offers 6% DPU yield (400bps above 10-year risk free rate of 2%) even on conservative assumptions on retail rents in 2011E. 50% of the asset portfolio are suburban malls with defensive trade-mix and dominate the immediate residential areas. Post the rights issue, gearing is 29%, removing almost all doubts on its capital structure. The key risk for the trust now could be the completion of ION Orchard in Q309, which could reinvigorate scepticism that the main purpose of the S$1.2b rights issue that has just been done is to allow Capitaland to sell the mall to CT.

Olam: Outperform (Credit Suisse, 13 Feb)
Olam has delivered strong December 2008 quarter results, in line with our estimates. Excluding the S$55.9m in gains due to the buyback of CBs, core earnings would have jumped 25% year-on-year (yoy) on volume growth of 20% , driven by growth across all four product segments and contributions from the acquired businesses. Management shared profitability metrics for the three acquisitions completed since November 2008, reaffirming that its supply-chain build-out strategy remains intact. With strong double-digit volume growth across all the categories during the quarter, we see market share gains for Olam remaining a key theme over the medium term. As Olam heads to its seasonally strongest quarter, we envisage resilience in growth for the bulk of its product portfolio (80-85% in food ingredients), while the wood/fibre segment should continue to remain challenging, on the back of weaker end-demand. Its management has reiterated the lower-end of 16-20% volume and 25-30% earnings growth guidance for FY09E. We have kept our forecasts, DCF-based S$2.10 target price, and Outperfrom rating intact.

Kian Ann Engineering: Sell (DMG, 13 Feb)
Kian Ann Engineering is an independent distributor of heavy machinery and diesel engine parts. Its products are used for excavators, bulldozers, trucks, trailers, power generation sets and marine engines. On a year-on-year (yoy) basis, it reported a higher net profit of S$5.6m, which is above our expectations. While sales dipped 0.9% yoy for 1HFY09, PATMI was up 6.9% yoy due to improved gross margins. Sales was down by S$0.6m due to the weakened business activities with the poor global economic environment. PATMI grew 6.9% yoy from S$5.3m in 1HFY08 to S$5.6m in 1HFY09, on the back of an increase in gross profit margin. Gross profit margin improved from 25.3% in 1HFY08 to 27.6% in this period. The company has declared an interim dividend of 0.2S¢ per share, payable on 30 April 2009. For the same period last year, Kian Ann paid out a higher interim dividend of 0.25S¢ per share. This is not surprising as companies are likely to focus on liquidity management and conserve cash in a tight credit environment like the present. With sales already reflecting the drop in demand for its products in 1HFY09, we believe Kian Ann is likely to continue to face headwinds in their operating environment moving forward. As such, we are maintaining our sell recommendation and our target price of S$0.13.

DBS: Hold (OCBC Research, 13 Feb)
DBS posted 4Q08 net earnings of S$295m, down 40% year-on-year (yoy) and 22% quarter-on-quarter (qoq) and below market expectation of S$326m as polled by Dow Jones. This included one-time charge of S$88m for restructuring and impairment costs. For FY08, net earnings came in at S$1929m, down 15% YoY and slightly below our expectation of S$2008m. While Net Interest Income showed some improvement, up 5% yoy and 4% qoq in 4Q08, non-interest income fell 24% yoy although it was up 10% qoq. Overall, net total income amounted to S$1475m in 4Q08, or S$6053m in FY08. Loans grew 17% yoy to S$126.5b in 4Q08. Net interest margin declined to 2.04%, down from 2.11% in 4Q07; for the full year, net interest margin dropped from 2.17% in FY07 to 2.04%. Allowances for credit and other losses, a closely watched number, surged 27% YoY but was down 8% qoq to S$316m; for the whole year, it rose 44% to S$888m. Fee & Commission Income fell 31% yoy in 4Q08. Not surprisingly, the biggest declines came from Wealth Management (-76% YoY), Investment Banking (-56%), Fund Management (-55%) and Stockbroking (-52%). Management has declared a one-tier tax-exempt dividend of 14 cents per share for 4Q08 payable on 29 Apr 2009. Shares will quote ex-dividend on 14 April. We currently have a HOLD rating on the stock. Earlier on, we stated that we will turn buyers when the stock approaches $7.80 or lower. Currently, the stock is already trading close to this level based on yesterday's close of S$8.13.

Karin Technology: Buy (OCBC Research, 13 Feb)
Despite the deteriorating global economy, Karin Technology had managed to produce a modest set of 1HFY09 results. To boost its financial position for strategic business opportunities and greater efficiencies to tide through the global recession, the group had, over the period, also reduced its bank borrowings substantially, while keeping its cash position steady at HK$55.5m (HK$52.6m in June 2008). Looking ahead, Karin has voiced concerns about the possible negative impacts on its profit margins, but believes that the China market continues to present a lot of business opportunities for group. While the 1HFY09 performance is within our expectations, we note that the second-half fiscal year has typically been the slower half. Together with the likelihood that the steep slowdown in global manufacturing activity seen in end-2008 may extend into 1QCY09, we have conservatively pared our FY09 forecasts by 4.1-9.2%. However, as our fair value remains unchanged at S$0.18 (5x FY09F EPS), we maintain our BUY rating on Karin.

Silverlake Axis: Hold (OCBC Research, 13 Feb)
Silverlake Axis' 2Q09 results were pretty dismal year-on-year (yoy). Net profit was fell 73.4% to MYR11.8m but was up 224.3% quarter-on-quarter (qoq). As expected, the twin blow of the financial crisis and economic slowdown has led to a drastic cutback in financial institutions' IT spending. Although there was qoq improvement, it may be too early to say if the worst is over; management continues to expect the trend of temporary delays in finalizing IT agreements to persist for the rest of FY09, given that economic sentiment is still expected to remain cautious. However, Silverlake remains optimistic about the long-term business outlook for the industry in Asia. We will be speaking with management later for a clearer picture of its order book and its project pipeline. But we will be adjusting our numbers later; 1H09 revenue (down 73.4% YoY at MYR28.6m) met only 28.6% of our FY09 forecast, while net profit (down 79.9% at MYR15.4m) was just 24.6% of full-year estimate. Until we clarify with management, we put our HOLD rating and S$0.19 fair value under review.

Avi-Tech Electronics Limited: Sell (OCBC Research, 13 Feb)
Avi-Tech's 2QFY09 results saw revenue down by 53.4% (+11.6% qoq) to S$10.2m and net profit down 49.8% (-0.8% qoq) to S$1.9m. For 1HFY09, revenue came in at S$19.4m (-55.6% YoY, -36.8% HoH), meeting 50.4% of our FY09 sales forecast, while net profit stood at S$3.7m (-51.2% YoY, -11.3% HoH), or 61.6% of our full-year estimate figure. The soft performance was due to continued difficult business environment in the semicon industry which consequently led to a substantial reduction of orders within its core business segments. Despite the downturn, Avi-Tech had managed to improve its net cash position slightly from S$44.3m in 1QFY09 to S$46.6m. Going forward, management expects the global economic downturn to worsen and further impact its businesses. To meet these challenges, the group said it will continue to manage its costs to increase its productivity and explore new business opportunities. For now, we place our SELL rating and S$0.07 fair value under review.

Eu Yan Sang International Ltd: Sell (OCBC Research, 13 Feb)
Eu Yan Sang International has posted a credible set of 2Q09 results which were in line with our estimates. Revenue improved by 6% year-on-year (yoy) to S$53.4m, while operating profit edged up by 2% to S$5.2m. PAT rose 39% to S$4.7m, but after taking into account losses from discontinued operations, net profit grew by a smaller 11% to S$3.5m. Profit margins held steady at both gross and operating levels. Malaysia was once again its key growth driver, turning in a 22% improvement in sales, while Singapore did not disappoint either with an 8% growth in sales. No dividend was declared for the quarter. Moving forward, the challenging economic outlook and weakening consumer spending could weigh on its sales. Its 3Q09 performance, traditionally its strongest with the Lunar New Year season, will be crucial in determining whether the group was able to leverage on its strongest quarter to boost sales in the face of recessionary pressure. We will have more updates after meeting management today. For now, we are putting our SELL rating and S$0.29 fair value estimate under review since the stock has already reached our fair value.

SingTel: Buy (Phillip Securities, 13 Feb)
SingTel reported 3Q FY2009 operating revenue of S$3,701m (-3.2% yoy) and net profit of S$799m (-16.1% yoy). Revenue dropped as a result of the 23% decline of the Australian dollar against the Singapore dollar leading to lower revenue contributions from Optus. Moreover, net profit fell by a larger percentage of 16.1 percent because the pre-tax profit contributions from the regional associates decreased by 24 percent to S$486m. Despite the fall in profit, SingTel highlighted that it had a strong financial position and aimed to achieve cost efficiencies. For instance, it froze the hiring of employees. Although there were economic uncertainties, it was looking for acquisitions to grow its regional revenue contributions. Its Singapore operations recorded 21% increase in revenue due mainly to contributions from Singapore Computer Systems Ltd (SCS), which was acquired in 3Q FY2009. Even when SCS was excluded, revenue grew by 7.1 percent. Similarly, Optus reported a 10.2% increase in revenue as it added 213,000 new mobile and wireless broadband customers in 3Q FY2009. The weaker performances of the associates were due to the depreciation of the regional currencies and poor performances by Telkomsel, Globe and Warid. We have reduced the target price slightly from S$3.86 to S$3.80 as we have cut our estimated profit contributions from SingTel's regional mobile associates. This is mainly due to expectations that Telkomsel and Globe will report lower profits due to greater competition in their markets.
However, we continue to rate SingTel as a Buy as it is the strongest player in Singapore, number two in Australia and has profit contributions from its regional mobile associates.

Olam: Buy (DMG, 13 Feb)
Olam has reported 2QFY09 net profit of S$103.4m, up 173% year-on-year (yoy). Excluding the one-time gains of S$55.9m from the repurchase of convertible bonds, net profit would have been S$47.5m, up 25.3% yoy, in line with our expectations. Its 1HFY09 gross contribution rose 23.5% or S$71.9m to S$377.8m. The key growth contributor was the confectionery and beverage ingredients segment, which registered a S$29m increase. Food staples and packaged foods accounted for another sizeable S$20m of increase. Olam has a net debt to equity ratio of 2.5x. After adjustments for stocks and debtors, the ratio falls to 0.55x. Olam has maintained its volume growth guidance of 16-20% CAGR for the next three years, and bottom line earnings growth of 25-30% CAGR. Olam management expects FY09 growth to be at the lower end of the guidance range. We are raising our FY09 net profit forecast by 40% to S$251.6m, primarily due to the one-time gains from repurchase of convertible bonds. We raise our price target to S$1.83, from S$1.60, due to the fall in market risk premium from 10.85% to 8.51% for our DCF valuation. Olam now trades at FY09 PE of 9.2x, which is low considering its long-term sustainable earnings growth. Maintain BUY.

ComfortDelgro: Buy (DMG, 13 Feb)
ComfortDelgro has reported 2008 net profit of S$200.1m, down 10.3% year-on-year (yoy), which is in line with our S$198.3m expectation and consensus’ S$195m. Excluding the negative forex translation, turnover would have risen S$244.3m or 8.2%. This was driven by Australian business' turnover surging 19.6% in Aussie dollar (AUD) terms, and China business' turnover rising 8.3% in RMB terms. The mild 0.9% rise in UK turnover (in sterling pounds) was due to expansion in bus being offset by taxi turnover reduction due to lower corporate bookings. Although ComfortDelgro has hedged 43% of its 2009 diesel requirements, there will be cost savings from the balance 57% that is unhedged. We are assuming effective 2009 WTI oil price of US$63/bbl for ComfortDelgro, which will lower its 2009 energy costs by 30% from 2008 levels. We expect 2010 earnings to rise further on our assumption of 2010 WTI oil price of US$45/bbl. ComfortDelgro has declared a final dividend of 2.4S¢ per share, giving a FY08 payout ratio of 52%. This is sharply lower than FY07's 85% (which includes special dividend). The market is likely to be disappointed with this. Looking ahead, management said that they will payout more than 50% of its earnings. We raise target price from S$1.63 to S$1.78, on the back of a lower market risk premium for our SBST DCF valuation. Pending imminent announcement on fare cuts, investor interest may be more muted.

Singapore Airlines: Outperform (Credit Suisse, 12 Feb)
The damage on book value from fuel hedging is largely done and unlikely to get much worse, unless spot fuel price falls further. The macro environment remains tough, but SIA’s good track record and strong balance sheet could help it weather the storm relatively better. Its P/B valuation is already close to historical trough, implying low imbedded expectation. Despite better-than-expected 3Q09 results, we have lowered FY2009-10E earnings by 8-17%, mainly on weaker traffic demand and associate income. We expect SIA to pay S$1/share dividend for FY09, but DPS could be cut in FY2010 on lower earnings. That said, the payout could maintain high and SIA should remain in net cash despite rising capex in the next two years. To reflect our earnings downgrade, we have cut our target price to S$13 from S$14, which implies a 12-month forward P/B of 1.1x on 8% FY2010E RoE. Our new target price is based on the historical P/B and RoAE relationship, as we noted that during FY03-06, SIA’s average P/B was 1.1x when average RoE was also 8%.

Singapore Airlines: Sell (Citi Investment Research, 12 Feb)
The fact that SIA's 3QFY09 result beat consensus is scant consolation for a rapidly deteriorating operating outlook into FY10E. Hedging losses and book value erosion appear set to continue, but it is revenue worries on deteriorating traffic and yield data that will pressure earnings. Given unprecedented market conditions, SIA's management has indicated no explicit dividend policy, and we view that a S$1.00 DPS may be at risk in spite of SIA's solid cash position. We have a Sell/Low Risk rating on SIA, target price S$8.50 (from S$9). SIA's competitive position and management quality are strong, in our view, and the company is still the industry brand leader. SIA has one of the strongest balance sheets in the capital-intensive airline industry and should benefit from industry liberalization. However, our Sell/Low Risk call reflects our concern that the airline earnings cycle has peaked and is likely to surprise on the downside.

Singapore Airlines: Sell (Deutsche Bank Research, 11 Feb)
While we acknowledge 3Q FY09 was a strong set of numbers which were above our expectations, we do not think this strong performance is sustainable given the poor macro environment for air travel globally. The strong 3.2% rise in pax yield in 3Q FY09 was due to higher fuel surcharges and higher local currency fares. With forward bookings looking weaker and fuel surcharges set to decline with declining fuel prices, we see yield dropping. While we admit our FY09 forecast looks a little low, we stand by our FY10-11 earnings forecast which is about half of consensus. 44% of fuel requirements for 4QFYMar09 have been hedged at an average price of US$131/barrel versus today's price of US$56/barrel. We think realized hedging losses will hurt 4Q earnings. We think there is a good chance that dividends for FY09-11 will come in significantly lower than the S$1 per share that was paid last financial year (FY). Hence there is downside risk to our dividend forecast. We think the current outperformance is unwarranted given that the strong earnings are unlikely to continue in our view. Hence, we would recommend investors to use the share price strength to Sell.

Chartered Semiconductor: Neutral (DMG, 12 Feb)
Chartered saw 4Q08 topline come in flat at US$351.7m as higher average selling prices (ASPs) of its chip wafers were mitigated by lower utilisation rates. The company announced a US$114m net loss for the quarter as compared to a US$5.9m gain in 4Q07 while it sank into the red for the full year at US$92.6m after recording net profit of US$101.7m in FY07. Chartered had guided for losses to be no more than US$84m for the 4Q which was roughly inline with the analysts' forecast of a US$81m loss. We estimate Chartered to breakeven if ASPs reach US$1,196. We have assumed the ASPs of wafers to hit US$920 for FY09, slightly higher than the US$909 seen in 4Q08 while close to management's guidance of about US$932 for 1Q09. According to our sensitivity analysis of wafer prices based on an average 51% utilisation rate for the full year, Chartered would only be able to breakeven in FY09 if ASPs were 30% higher than our base case scenario of US$920. In accordance with our previous report, we have excluded market leader TSMC from our peer comparison table as it has historically traded at a loftier P/B value. Currently priced at 0.48x FY09F P/B and assuming Chartered trades down to the industry average of 0.45x FY09 P/B, we maintain our recommendation at NEUTRAL with a new price target of S$0.285 (from S$0.25 previously).

Biosensors International Group: Buy (OCBC Research, 12 Feb)
Biosensors has reported another "home run" quarter with its 3Q09 revenue rising 135% year-on-year (yoy) to US$20.6m while gross profit soared 233% yoy to US$13.6m. On a 9-month basis, gross profit grew 3.5 times to US$74.3m. The impressive performance was primarily due to accelerated sales of its Drug Eluting Stents along with better cost controls. The company indicated that with its cash balance of US$63.7m, it will be able to internally service its US$45m Convertible Notes (plus interest) due in Nov 2009. Management also updated on plans to launch its BioMatrix stent in China, with regulatory approval expected within 12 months. We think that Biosensors is now in a position to grow to the next phase when it can compete with global players. We tweak our financials and introduce our FY11F estimates with new management guidance on FY10F performance, better clarity on projections in China, cost estimates and product sales acceleration. We have raised our fair value from S$0.66 to S$0.71.

SSH Corporation: Hold (OCBC Research, 12 Feb)
SSH has reported a 2% fall in revenue to S$55m and a 27% rise in net profit to S$5.5m for 2Q09. Revenue was lower than expected but net profit was within expectations, partly due to higher other operating income. On the whole, it was a good set of results given the difficult operating environment. Going forward, gross margins may be affected by lower steel prices and the group has also made provisions for an inventory write-downs which should not be surprising since similar companies have also made provisions or have written down inventories. Despite the fact that results are historically better in the second half of the financial year, we are lowering our FY09 revenue estimates by 8% in view of the challenging outlook ahead, but maintain our valuation parameter of 2 times blended FY09/10 earnings. Our fair value estimate eases to S$0.11 (prev. S$0.12) but we maintain our HOLD rating for SSH.

MacarthurCook Industrial REIT: Hold (Phillip Securities, 12 Feb)
MIREIT's credit rating was downgraded by Moody's to B1. The main reason for the downgrade is the impending refinancing need of MIREIT for its debt of $220.8 million due in April 2009. This is also our main concern regarding MIREIT. Although we understand the REIT manager has been in talks with various parties, nothing has been announced thus far.Financial results are in line with expectations. Revenue for 3QFY09 is up 54.0%, net property income increases 49.1% and DPU increases 22.4%. MIREIT has maintained a quarterly DPU of 2.35 cents for FY09. Quarterly payout ratio was 92.7%, 87.7% and 98.5%. We believe the REIT manager has anticipated higher operating cost and therefore has maintained a fixed quantum of quarterly DPU so that there is buffer to withstand any volatility. With the retained cash on hand, MIREIT should be able to maintain at least the same amount of DPU for 4QFY09. Funding remains the key concern. Besides refinancing its existing has funding needs of $91 million in the third quarter of 2009 when is expected to complete. Current gearing is 39.7%, and will increase 47% if the $91 million is funded by debt. Although revenue growth is backed by built-in rental escalation, some degree of revenue softening. We maintain revenue assumptions lowered our revenue forecast for FY10F by 3%. Our DPU forecasts FY10F are 9.62cents and 8.58cents, a reduction of 4.5% for fair value from $0.60 to $0.30. Downgrade from Buy to Hold.

Cambridge Industrial Trust: Hold (Phillip Securities, 12 Feb)
For FY08, CIT recorded 36.4% rise in revenue, 37.1% rise in net property income and a 4% drop in DPU. Full year revenue is $72.3 million and DPU is 6.012 cents. Revenues over FY07 and FY08 have increased steadily which reflect the contribution from acquisition as well as the rental escalation component of leases. Net property income is very much in line with revenue growth, however distributable income starts showing a decline from 2Q08 onwards. DPU on the other hand is dismal and has been declining since 4Q07, partly due to the dilutive effect of the equity fund raising carried out in October 2007, CIT has secured refinancing for its debt of $369 million through a 3 year term loan of $390 million. The current gearing is 37.8%. The loan comes at a substantially higher interest of 6.6%(including amortization of upfront cost). We estimate the cash interest circa 5%.We think the higher borrowing cost will continue to be a drag on distribution. We are also factoring in higher tenant vacancies to reflect the macro economic conditions. We revise down our gross revenue forecast for FY09F and FY10F by 3% each and assume a borrowing cost of 5.0%. Accordingly, our DPU forecasts for FY09F and FY10F fall 12% and 11% to 4.73cents and 4.99 cents. Fair value is also lowered to $0.27. We lower our call from Buy to Hold.

Fraser Commercial Trust: Sell (Phillip Securities, 12 Feb)
Full year results were disappointing, although not unexpected. Revenue was up 42.1%, net property income up 31.8%, but DPU fell 5.1%. Revenue increased on the back of full year contributions from acquisitions and the fall in DPU is mainly attributed to higher borrowing cost. Portfolio size dropped 13%, mainly due to translation losses of the Australian properties and also downward valuation of AWPF wholesale fund, Keypoint building and Cosmo Plaza. NAV thus fell from $1.42 in FY07 to $0.97 in FY08. FCOT has a fairly well diversified portfolio with 43% of revenue contributed by Singapore, 40% by Australia and 17% from Japan. However diversification did not work in this case as the Australia dollars depreciated almost 25% relative to the Singapore dollars over the year. Although FCOT has got currency hedges in place, this has not prevented Central Park and Centrelink recording lower revenue in 4Q08. On a quarter-to-quarter (qoq) basis, Central Park revenue fell 23% while Centrelink fell 21%. FCOT has $620 million to refinance this year, $70 million of which comes due in May 2009 and the rest in Dec 2009. We do not think DPU is going to get any respite in the near term. We factor in lower contributions from Australia and also make an allowance for higher tenant vacancies. Another dilution to DPU is the issuance of management fees in units. Approximately 29 million units were issue in lieu of management fee for FY08 versus 8.3 million units in FY07. If share price continues to remain depressed, we project a further 45 million units will be payable for FY09 and DPU will thus be further diluted. We do not rule out an equity fund raising either as gearing is currently at a high of 57%.Valuation. We have revised down our gross revenue estimates for FY09F and FY10F by 12% and 13% respectively, mostly to factor in higher vacancies and forex income losses. Our DPU estimates are 4.47cents and 4.35cents. We feel risk-reward is tilted towards the former and downgrade our call from Hold to Sell. Fair value is lowered from $0.21 to $0.14.

ASL Marine: Buy (DMG, 12 Feb)
ASL's has turned in revenues of S$226.3m while net profit came up to S$40.2m or 54% of our estimates, and 59% of market consensus for 1HFY09. For 2QFY09, revenue from two core divisions, namely, shipbuilding at S$68.0m (+13% YoY, -4% QoQ), and ship chartering at S$26.5m (+31% YoY, +6% QoQ) came within our expectations. The disappointment came from shiprepair's S$13.2m (-33% YoY, -43% QoQ) due to fewer ship conversion jobs. ASL has an outstanding orderbook that comprised of 42 vessels amounting to S$663m as at 31 Dec 08 (compared to S$693m as at 30 Jun 08). Approximately 26% (or S$172m) and 40% (S$265m) would be recognised in 2HFY09 and FY10 respectively. ASL's long-term chartering contracts contributed 23% (S$6m) of ship chartering revenue in 1HFY09. The management further noted that ASL has secured long-term ship chartering contracts worth S$17m. We are keeping our FY09 earnings forecast but have lowered our FY10 estimates by 8% in view of the slowdown in new shipbuilding orders and a cautious shiprepair outlook. We have lowered our P/E parameter from 4x to 3x (a premium above peers of 1.8x) and roll forward our valuation to FY10 recurring EPS. As such, our target price is now S$0.55 (from S$0.96 previously). Maintain BUY. We continue to like ASL for its prudent and quality management, strong balance sheet and clear business guidance.

Tiong Woon: Neutral (DMG, 12 Feb)
Tiong Woon's (TWC) turnover for the six months rose 45% year-on-year (yoy) from S$65.8m to S$95.5m. This increase in revenue is attributable to an increase in revenue from its Heavy Lift and Haulage, Trading and Fabrication and Engineering segments. In line with the robust turnover achieved, PATMI jumped 119% yoy, reaching S$23.1m, up from S$10.6m a year ago. Gross profit margin, also rose from 37.2% a year ago to 43% for the six-month period, due to the higher revenues and margins enjoyed from its Heavy Lift & Haulage projects. While we favour TWC’s niche position as one of the few specialized contractors supporting the oil and gas and petrochemical industries, we believe TWC's earnings would not be immune to both sectors' downturn (factoring in the drop in BCA's forecasted construction demand for 2009 as well). As such, we have revised downwards our turnover for FY09 and FY10 to S$175.2m (-5.1% from our previous estimates) and S$137.7m (-31.6%) respectively. In addition, earnings for FY09 and FY10 have been revised to S$31.1m (-0.5%from our earlier estimates) and S$21m (-39.2%) respectively. Hence, we downgrade our buy rating to neutral and derive a new fair value of S$0.185 (previously S$0.28), based on 3x FY10F P/E (TWC's peers' average currently).

ST Engineering: Underweight (J P Morgan, 11 Feb)
The company's net cash has deteriorated over the past four years to a low of S$58m in 9M08. Taking into account the customer advances portion, ST Engineering is in a negative cash position of -S$955MM as of 9M08. The risk to its dividend payout might be increasingly acute. While we expect the Singapore Armed Forces to continue providing ST Engineering with a good baseload of defense work, defense contracts from the US government might slow, driven by a diminishing US presence in Iraq. Defense work accounts for below 40% of group revenue. With global capacity reduction still in place, maintenance, repair and overhaul (MRO) work for ST Aerospace could decline on lower flight frequency. Its marine’s earnings should restart from a lower base in FY09 with completion of the Frigate Program. Shipbuilding work should slow with ship repair remaining stagnant at best. While 9M08 group revenue was up a mere 6.5% year-on-year (yoy), accounts receivable increased by 24% yoy. ST Aerospace might have extended credit to some customers facing financial difficulties, resulting in potential bad debt provisions going forward. We have downgrade ST Engineering to Underweight with a new Dec-09 price target of S$1.80, based on DDM using a discount rate of 8%, after factoring in lower earnings for FY09E and FY10E, as we do not expect recovery in the Aerospace and Marine businesses so soon. We believe the stock’s valuation premium versus its peers is largely predicated on the company's dividend payout certainty over the years, where payout ratio has been at least 100% since FY02. However, if dividends disappoint, we believe the stock could see significant downside of 47% as the stock's valuation reverts to trade in line with its peers.

Singapore Telecom: Buy (OCBC Research, 11 Feb)
SingTel's 3QFY09 results were broadly in line with our forecasts. Overall revenue came in at S$3,701m, down 3.2% year-on-year (yoy) and 4.9% quarter-on-quarter (qoq), versus our estimate of S$3,696m, net profit fell 16.1% yoy and 7.9% qoq to S$799.2m, but almost smack on our forecast of S$796.7m. Going forward, SingTel expects its operating revenues for Singapore (excluding SCS) and Australia to grow at mid single-digit levels; both EBITDAs will also continue to grow, with EBITDA margin for Singapore expected at around 40%. But SingTel continues to expect lower overall pre-tax contributions from its regional mobile associates. It also expects its consolidated revenue and operational EBITDA to be negatively impacted by the weaker AUD. Nevertheless, we have bumped up our FY09 estimates for revenue by 5.3% and earnings by 2.3% to reflect the relatively upbeat guidance for 4Q09. We have also nudged up our FY10 estimates by 2.3-3.3%. However, our SOTP fair value remains at S$3.09, given the still weak global equity market. With the equity market expected to be volatile and corporate earnings likely to be affected by the global economic slowdown, we prefer to stick with key defensive stocks such as SingTel. Maintain BUY.

StarHub Ltd: Buy (OCBC Research, 11 Feb)
StarHub 4Q08 results saw revenue down 0.4% year-on-year (yoy) at S$536.7m, while net profit fell 10.9% to S$87.5m. For the full year, revenue rose 5.7% to S$2127.6m, or about 0.7% shy of our forecast, and below its growth guidance of 7%, while net profit eased 5.7% to S$311.3m, but still 3.2% ahead of our estimate. StarHub also declared a final dividend of S$0.045/share as promised. Going forward, management expects FY09 operating revenue to grow by low single-digit; it also expects to keep service EBITDA margin at around 31%, and keep its capex within 11% of operating revenue. More importantly, based on its projected profitability and cash flow, StarHub intends to continue to pay S$0.045/cent dividend every quarter, totalling S$0.18 for the full year. But given the still uncertain economy climate, we are just bumping up our FY09 estimates marginally (0.9% to 1.5%), and due to the slightly higher capex, our DCF-based fair value eases slightly from S$2.81 to S$2.78. Nevertheless, we continue to believe that StarHub's business remains resilient and coupled with an attractive 8.9% dividend yield, we maintain our BUY rating.

Oil & Marine sector: Overweight (OCBC Research, 11 Feb)
Recent reports that oil majors are continuing their venture into deepwater exploration should bode well for Singapore rig manufacturers, KepCorp and Sembcorp Marine (SMM). Oil majors like Chevron and BP have reportedly been locked into high rig-charter rates during the boom days when oil was at US$140/barrle and contract terminations would mean high cancellation costs of up to US$219m each. Greater clarity on business directions of the oil companies have also helped to abate a previous flurry of rig cancellation/postponement news flow. With the sustained push into deepwater, demand for newer generation of deepwater capable offshore support vessels will also likely remain elevated. In this O&M space, we prefer SMM (Faire value: S$2.00) and Ezra (FV: S$1.09) in view of undemanding valuations and the purer play on the O&M sector. While KepCorp will benefit from this development, we think its property sector will continue to be a drag on its share price in the medium term. As such, we keep our HOLD rating on KepCorp (FV: S$4.40).

SMRT: Neutral (DMG, 11 Feb)
SMRT announced that it has entered into a contract with Nakheel for the operation and maintenance of Palm Monorail on Nakheel's iconic Palm Jumeirah development in Dubai. SMRT will be responsible for the overall operations and maintenance of the Palm Monorail system, the day-to-day operations of the monorail's stations, as well as maintenance of the entire system. The monorail will open to the public in Apr this year. The contract is for six years and its estimated revenue is AED50m (S$20m) annually. Though the revenue of S$20m represents only 2% of our FY10 SMRT revenue forecast of S$950m, we are positive on SMRT's extension of business operations to outside of Singapore. We believe this could help SMRT secure more overseas projects in the years to come. The Singapore land transport operators are working with PTC on passing the savings from the Budget back to the commuters. This would impact on their revenue (our current assumption is that rail and bus fares remain unchanged at current levels till Sep 2010). Our sensitivity analysis shows that a 1% fare decline will lower SMRT net profit by 3.6%. SMRT remains NEUTRAL, with a price target of S$1.65.

Starhub: Overweight (JP Morgan, 10 Feb)
StarHub has delivered better-than-expected results as management controlled costs and capex in a seasonally margin-squeezed quarter. Its 4Q08 revenues at S$537m (-0.4% year-on-year; +2% quarter-on-quarter) were in line with J.P. Morgan but below Bloomberg consensus. EBITDA at S$165m (+5% yoy; +0.2% qoq) was 21% ahead of our estimates and 2% ahead of consensus as acquisition costs and marketing expenses continued to slide qoq as the competitive environment eased. Reported profit at S$87m (-11% yoy; +10% qoq) similarly beat our and consensus estimates. Despite revenue and EBITDA pressure, our Dec-09, DCF-based price target remains unchanged at S$3.00 as history has shown management delivering lower-than-ceiling capex to sales and we have accordingly reduced our capex forecasts. We remain Overweight on StarHub given its robust dividend yield and the relatively quick management adjustment on the cost and capex base.

SingTel: Neutral (JP Morgan, 10 Feb)
On balance, we believe SingTel’s 3QFY09 results did not disappoint the market and given its proximity to its 3-month trading lows that the share price will likely find support. An absolute share price re-rating will need to wait. We have revised our adjusted profit forecasts by 1%-2% for FY09E-11E to account for the consolidation of SCS; Optus’ better than expected performance; and latest forex spot rates. Our December 2009, DCF based SOTP is unchanged at S$2.75. As an index heavyweight with a consistent dividend payout policy, we believe SingTel remains a viable market proxy as such will trade relatively in line going forward. We acknowledge that at current levels, SingTel could provide trading range upside as the shares have traded at S$2.40-S$2.79/sh over the past 3 months.

Singapore Airlines: Neutral (JP Morgan, 10 Feb)
SIA’s 3QFY09 net profit S$337m was down 43% year-on-year (yoy) but above consensus forecast. Excluding disposal gains, core profit fell 51% yoy to S$292m, in line with our expectations. SIE and SATS contributed 14% and 9% of group profit-before-tax (PBT). We believe Virgin Atlantic was loss-making and likely the main reason behind a S$406m charge to reserves. Revenue fell 3% yoy mainly due to a sharp drop in cargo traffic and yields. SIA Cargo incurred an operating loss of S$46m. Passenger business was hurt by stalling traffic (-1%) and yield growth (+3%) decelerated from earlier quarters given poorer traffic mix and a sharp depreciation in AUD, GBP and EUR revenues. Operating costs rose 6% y/y, mainly due to fuel. Although spot price fell 29%, fuel costs rose 25% yoy due to a S$341m realized hedging loss and a weaker Sing dollar (-2%).SIA's cost-cutting initiatives were impressive as unit costs (excluding-fuel) fell 3% yoy, mainly due to lower staff costs, commissions, handling and catering expenses. Management stated demand should remain weak for much of 2009. We think it is too early to turn positive on the stock as near-term drivers remain negative and valuations are above historical trough. Our Dec-09 price target of S$10 is based on 0.85x P/BV, SIA's average trough valuation in the past 10 years, although it could de-rate further as the industry outlook worsens.

Healthcare Sector: Overweight (DMG, 10 Feb)
Higher Medisave withdrawal limits for surgeries. The Singapore government announced that by June, middle-income Singaporeans would be able to use their Medisave accounts to pay for a larger part of their private hospital bills. The withdrawal limit for operations will be raised, in some cases, by as much as 80%. Currently, the withdrawal limits for operations range from S$150 to S$5,000. The new limits will be between S$250 and S$7,550. The higher limits will allow patients who opt for private healthcare, to cut their out-of-pocket expenses. This would result in patients having more cash on hand, and they may be more willing to pay for additional tests, procedures or elective operations, which they could have initially thought of postponing. This would in turn, contribute to the hospitals' revenue. We are maintaining our BUY call on the sector. We currently have BUY calls on Parkway (S$1.21; Target price under Review) and Thomson Medical (Target S$0.55). While we like Parkway for its regional exposure, we are currently reviewing our target price for Parkway, as the decline in visitor arrivals in Singapore could have a negative impact on the patient volume at its Singapore operations. We have a NEUTRAL call on Raffles Medical (Target S$0.74), as we expect slower patient volume growth, given the protracted economic downturn.

SMRT: Buy (UOB KayHian, 10 Feb)
SMRT Engineering, a wholly-owned subsidiary of SMRT Corporation has entered into a 6-year contract with Nakheel PJSC to operate and maintain the Palm Monorail system in Dubai. Previously, SMRT Engineering was already involved in consultancy work for the Palm Jumeirah project in Dubai. We believe that the winning of the contract cements SMRT Engineering's position as the service provider of choice in future monorail projects undertaken by Nakheel. Currently, the monorail is in its final testing stages and it will be open to the public in April 2009. The value of the contract is AED 50m (S$20m) per annum, and it is expected to add S$4.0m, or 2.1% to net profit annually, starting from FY2010. We maintain our Buy call on SMRT with a target price of S$2.34.

Rickmers Maritime: Hold (OCBC Research, 10 Feb)
Rickmers Maritime (RMT) posted a 11.4% quarter-on-quarter (qoq) increase in 4Q08 revenue to US$29.6m. The results met our expectations except for a surprise US$3.5m non-cash provision for vessel impairment. RMT will pay out 2.25 US cents for the quarter, up 5.1% year-on-year. Its management said that given current conditions, it would not provide any guidance on FY09 DPU. RMT's gearing stands at 1.5x debt-to-equity as at 31 December. It is contracted to acquire US$1.1b worth of containerships over the next two years. The trust needs fresh funding to cover both its FY10 acquisitions and its debt repayment schedule. An equity issue in FY09 itself is, in our opinion, necessary to strengthen RMT's negotiating position with lenders. But the market needs more clarity on financing conditions, the extent of fresh equity required, and the odds of 'disappearing' the order book (through an outright vessel sale, a sale-and-leaseback or a sponsor "bail-out"). Maintain HOLD with S$0.40 fair value.

CapitaLand Ltd: Buy (OCBC Research, 10 Feb)
CapitaLand has reported 4Q08 revenue decline of 46.9% year-on-year (yoy) to S$703.7m. 4Q08 PATMI plunged 88.4% to S$78m, in line with our expectations. CapLand will also be doing a 1-for-2 rights issue at an issue price of S$1.30 per rights share. This rights issue is a pre-emptive move to enhance its capacity to seize opportunities that arise. At the same time, CapLand will also participate in the rights issue by CapitaMall Trust. Consideration to be paid by CapLand could range from S$365.8m to S$739.2m and its post-rights net gearing would be between 0.3x and 0.33x. Using end-FY08 book value, our FY09 RNAV is now pegged at S$3.85 per share. We are lowering our fair value of CapLand from S$3.27 to S$2.99 (or S$2.42 post-rights. We are also upgrading CapLand from HOLD to BUY as the stock has already fallen 34% since our downgrade on 5 Jan 2009 and the overhang from the rights issue is now lifted.

CapitaLand: Buy (DMG, 10 Feb)
CapLand posted an 88.4% year-on-year (yoy) plunge in 4Q08 PATMI to S$78.0m, largely attributable to revaluation losses of S$103.9m related to assets in Japan, Australia and UK, lower revenue and lack of write back of provisions. Stripping away one-off and other non-operating items, we estimate operating income would have shrunk by a smaller margin of 31.6% yoy to S$202.5m. On a full year basis, FY08 PATMI came to S$1.26b, accounting for 104.7% of our estimates (S$1.20b, slightly above) and 92.1% of the Street's (S$1.37b, slightly below). Dividends of 7¢ per share have been proposed. It has announced a 1-for-2 rights issue (1.4b shares) to raise about S$1.84b at S$1.30 per share, which represents a 45% discount to S$2.36 (closing price on 6 Feb 09), 35% discount to S$2.01 (theoretical ex-rights price) and 54% discount to S$2.80 (postrights NTA). While we opine that CapLand's net gearing of 0.47x and cash position of S$4.2b do not warrant any immediate capital raising exercise (not least a share-dilutive one), we believe the additional cash could serve a handful of useful purposes: (i) acquisition of landbank in its core markets of Singapore and China, (ii) maintenance of healthy net gearing in the event of provisions in 2009 and (iii) prudent and precautionary measure against the credit crisis, which could derail its capital recycling strategy . Our new post-rights base case RNAV of S$3.72 takes into consideration the rights issue, as well as new target prices for its listed REITs. Applying a 30% discount due to its more diversified businesses compared to other developers and stronger balance sheet, we derive a new fair value of S$2.60. However, as the rights shares would only begin trading on 23 Mar 09, we will keep our BUY rating for CapLand at S$3.20. Catalysts include unthawing of credit markets, acquisitions of new land bank and signs of economic recovery.

CapitaMall Trust: Buy (DMG, 10 Feb)
CapitaMall Trust (CMT) has announced a 9-for-10 rights issue (1.5b shares) to raise ~ S$1.23b at S$0.82 per share, which represents a 43.4% discount to S$1.45 (closing price on 6 Feb 09), 28.7% discount to S$1.15 (theoretical ex-rights price) and 50.3% discount to S$1.65 (post-rights NAV). As sponsor of CMT, CapitaLand has committed to subscribe up to 60% of the entire rights issue, including its entitlement based on its present 29.7% stake in CMT. The primary objective of CMT's capital raising exercise is to repay its S$80.0m and S$876.2m loans due in May 09 and Aug 09 respectively. On top of having its 2009 refinancing risks demolished, CMT’s post-rights gearing would fall to 29.1%, which we surmise would provide the ideal platform for it to seek more favorable terms for the roll-over/refinancing of its S$1.5b worth of debts due in 2010 – 11. Its current investment grade rating of A2 should also be less liable for downgrades. Taking the new number of shares into consideration, our FY09F and FY10F DPU for CMT would fall by 33.9 – 40.0% to 8.99¢ and 9.89 ¢ respectively, implying an ex-rights fair value of S$1.26. (ex-rights date on 4 Mar 09) As such, we are keeping our BUY rating for CMT at S$1.70.

CapitaMall Trust: Buy OCBC Research, 10 Feb)
CapitaMall Trust (CMT) has announced that it will be doing a 9-for-10 rights issue at an issue price of S$0.82 per rights unit. Issue price is at a steep discount of 43.4% to its closing price of S$1.45 prior to the trading halt. We believe that the purpose of the rights issue is for the long-term sustainable growth of CMT's portfolio. Taking into consideration the dilution impact of the rights issue, we are now revising down our FY09 DPU forecast to 9.1 S-cents. There is no change to our RNAV estimate of S$1.94 per share but we are lowering our RNAV discount from 20% to 15% after our gearing concern has been removed. As such, our fair value of CMT has now been raised from S$1.55 to S$1.65 and our ex-rights fair value will fall to S$1.26. As the potential upside is 13.5%, we are upgrading CMT from HOLD to BUY.

Jardine Cycle & Carriage: Neutral (DMG, 10 Feb)
New motorcar unit sales in Indonesia are estimated to have dipped by 23% year-on-year (yoy) in Jan 09. Domestic motorcycle unit sales also declined by 21% yoy reflecting the challenging situation facing the auto industry in Indonesia, as the global economic downturn and weak commodity prices continues to weigh down on consumer sentiment. In a bid to boost consumer demand in the country, Indonesia's central bank cut its benchmark interest rate by half a percent last week, to 8.25%. However, with the protracted economic slowdown, the interest rate cut is not likely to boost sales in the Indonesian automotive industry much. The Indonesian automotive segment contributes about 22% of JC&C's FY07 operating profit. In our FY09 estimates, we have assumed a 20% yoy and 30% yoy decline in unit sales of motorcars and motorcycles respectively. We estimate earnings of US$462.6m (EPS: 1.15 US¢) for FY08 and US$340.0m (EPS: 0.81 US¢) for FY09. Our target price is maintained at S$10.67.

SPC: Sell (Goldman Sach, Feb 9)
We believe the recent oil price rebound has been driven by transient factors, while fundamentals remain bearish and suggest that prices need to go lower to a supply destruction level (about US$30/bbl for WTI) to balance the market. Longer term, we believe oil markets may have entered the bottoming phase of the cycle and 1Q09 could be the inflection point for E&P stocks as oil prices hit a trough. However, the refining sector may stay depressed for longer, given the significant addition of global refining capacity in 2009E-2010E. We expect Singapore complex gross refining margins (GRM) to fall from the current US$9.9/bbl to an average US$2.50/bbl in 2009E. In our view, SPC is vulnerable to the downturn, given its relatively low complexity and that it is operating in a deregulated market where there are no government price controls to cushion margins. SPC's upstream business is also relatively high cost (we estimate 2008 all-in costs at US$40/bbl). We downgrade SPC to Sell from Neutral and lower its 12-month P/B-based target price 11% to S$1.60.

China Fishery Group: Buy (DMG, 9 Feb)
China Fishery Group Ltd (CFGL) is currently benefiting from China's growing demand for aquatic products. China accounts for 57% of the group's revenue. According to the National Bureau of Statistics of China, aquatic products CPI rose 11.2% year-on-year in Nov 2008, suggesting that demand remains robust relative to supply. We believe that this trend could persist for a few more quarters. Crude oil prices have fallen from a high of US$147/bbl in July 2008 to US$40/bbl as of Feb 2009. We are assuming FY09 average crude oil price of US$65/bbl, lower than FY08's US$100/bbl. Consequently, we forecast FY09 bunker cost of US$61.8m, 35% less than our FY08 estimate. We forecast FY09 net profit growth of 18.7%, which we believe will excite investors. We are concerned that CFGL has a high gearing ratio of 0.93x and a sizeable US$245.8m long-term loan. However, CFGL has strong operating cash flow (US$60.2m for 9M08) which is expected to persist and help its refinancing of US$80m short term loan. Its 9m08 interest coverage was an acceptable 4.5x. In addition, we believe that lower interest rates in FY09 will be positive. We rate CFGL a BUY with a target price of S$0.86.

Straits Asia Resources: Buy (OCBC Research, 9 Feb)
As part of its strategic review to divest all or part of its 47.1% stake in Straits Asia Resources Ltd (SAR), parent company Straits Resources Ltd (SRL) has been accepting proposals from various parties, and we understand that the closing date for submissions ended last week. This has prompted speculation of a possible takeover offer being triggered should the new buyer cross the 30% mark. While neither SRL nor SAR has commented on the deal, there have been press reports alluding to possible interest from Singapore listed Noble Group Ltd and Indonesian coal miner Indika Energy. In our view, SAR's current valuations are compelling. The embattled stock market has dragged the shares down to just S$0.90 from its peak of S$4.30 a year ago, despite 9M08 earnings surging 346%. Its FY09F PER currently stands at 2.3x, way below the 11x PER price tag that Chinalco and Alcoa forked out for their stake in mining company Rio Tinto just a year ago. Furthermore, SAR’s assets are attractive. It has two coal mines in Indonesia – one at Sebuku with 384Mt of resources and another at Jembayan with 254Mt of resources. The low cost appeal of Indonesian coal (which is approximately 20% cheaper than China's) has attracted strong demand from buyers, particularly from China and India. Owning a stake in SAR would tantamount to securing a part of its prized assets and strong future earnings. We view the strong interest in SAR as a testimony of its attractive valuations and viable assets. Investment merits lie in its strong dividend yield, robust earnings growth and order book visibility. Maintain our BUY rating with S$1.35 fair value estimate. As for Noble, it is moving from an "asset-light" business model to an "asset-medium" model and could use present depressed valuations to execute its plans. Historically, it has taken up only minority interests in its investments and is likely to continue with this approach. As such, even if Noble emerges as a potential investor in SAR, we do not expect it to launch a takeover offer. We have a BUY rating on Noble with S$1.58 fair value estimate.

Swiber Holdings: Buy (OCBC Research, 9 Feb)
Swiber is a service provider in the offshore oil and gas industry, offering offshore EPCIC, marine support and drilling services across the Asia Pacific and the Middle East. With the drastic fall in oil prices, Swiber is unlikely to be spared by cutbacks on E&P expenditures from oil companies, but it should be kept busy for this year with its strong order book of US$607m (last announced 30 Sep 08). Swiber is still bidding for US$4.2b worth of contracts for execution over the next five years and we account a 15% (historically about 20%) win rate, translating to US$630m worth of possible contracts. We are mindful that contract flow might be slow in 1H09 due to the cautious outlook on oil but any wins will be a positive share price catalyst. The stock has fallen more than 85% since Jan 08 and we see limited downside risk. Swiber is currently trading at its historical low valuation of ~2x FY09F earnings. We initiate coverage on Swiber with a BUY recommendation and S$0.66 fair value estimate.

Cosco Corporation: Sell (DMG, 6 Feb)
China recently announced a large-scale stimulus plan worth 4 trillion yuan (US$ 585b) to help the various industries cope with the crisis. One of the industries that China is closely monitoring is the shipbuilding sector. The Reform Plan comprises of proposed tax reductions on newbuild vessels, ordered by Chinese owners and built in Chinese yards, as well as export tax rebate. Other initiatives proposed include the easing of government policies to allow financially strong corporate (from other industries) to inject capital into the smaller yards and to encourage state-owned banks to provide for ship construction mortgage guarantees and enlarge loans availability to the bigger yards to ride through the storm. We believe that any form of tax reduction and export tax rebate would be positives for Cosco. We believe that Cosco could benefit from the enlarged loan availability as it requires more cash in lieu of vessel deliveries delay and possibly payment renegotiations. The recent improvement in trade volumes and rise in commodity prices have led to the Baltic Dry Index (BDI) just shy of the 1,500 mark. Only last week, the BDI crossed the 1,000 level from its low of 700 in early Dec 08. We believe this uptrend in BDI is another positive to Cosco's shipping division as the breakeven level for Cosco is at least 1,500. We believe that these factors could provide a slight boost to Cosco's share price performance in the near-term. However, we are of the view that the downside risks on yard execution still persist. Hence, we are maintaining our target price of S$0.74 based on 1x FY10 P/B. Maintain SELL.

Raffles Medical Group: Neutral (DMG, 5 Feb)
As the global economy remains weak, consumer sentiment and discretionary spending is likely to be hit, and visitor arrival numbers are also likely to decline. The number of medical visitors seeking elective treatments (eg. aesthetics, dental surgery) is likely to dip. Those seeking major treatments and who can afford it, may continue coming to Singapore for their treatments. Those who are less able to afford, may travel to regional countries instead. At the same time, as Raffles Medical continues to expand its number of specialists, this could also help to mitigate the slower growth in patient numbers, as specialists tend to bring their patient load along with them. We have tweaked our FY08 and lowered FY09 earnings estimates, taking into consideration the expected slower growth in patient volume, given the continued downturn in the economy. We now estimate earnings of S$29.8m (EPS: 5.5 S¢) for FY08 (down from our earlier projection of S$30.6m). We had previously estimated a 30% YoY growth in Hospital Services for FY09. As the economic outlook continues to remain weak, we have lowered our assumption to 20% growth in Hospital Services. As a result, our earnings estimate for FY09 is lowered to S$35.0m (EPS: 6.2 S¢) (from S$40.4m earlier). Hence, our target price has been lowered to S$0.74 (from S$0.85), based on 12x FY09 earnings. We downgrade our recommendation to NEUTRAL.

China Agriculture Sector: Overweight (DMG, 5 Feb)
China Farm Equipment: Neutral
China XLX: Buy
The Chinese government has vowed to support farmers and the rural population in the midst of the global slowdown. A series of measures will be carried out throughout 2009 to stabilise prices of agriculture products and increase famers’ income. More subsides will be doled out to provide more advanced technology and improved public services to help farmers reduce their production cost. We believe that China Farm Equipment (CFE) and China XLX Fertiliser (XLX) will benefit from these subsidies. CFE’s key product is the combined harvester which is essential in harvesting grain. Through the recent policies, the government will increase the grain purchase price. The new purchase price for grain in 2009 is up 13% to 16% as compared to 2008. We maintain our NEUTRAL calling for CFE because we believe that sales for CFE products will remain tight due to strong competition and high cost of sales will remain in FY09 and FY10. At S$0.10, CFE is trading at 2.0x FY09 P/E. We are currently reviewing our price target for the company. Meanwhile China XLX could potentially benefit from further increases in the price of urea Which is used as a fertilizer as more grain is produced for exports. China XLX is currently trading at 7.8x FY09 P/E and 5.5x FY10 P/E. We maintain our price target of S$0.47 pegged to 9.5x FY09 P/E. We have given China XLX a premium to the FSTC FY09 P/E estimate of 3.9x as we believe that the company will see good growth in FY10 after seeing weaker earnings in FY09.

Li Heng Chemical Fibre: Buy (DMG, 4 Feb)
After suffering from a forecasted dismal 4Q08 financial performance, we are of the view that amidst current economic distress, uncertain demand/supply dynamics and already battered commodity prices, prices within the entire nylon chain should stabilise or even bounce slightly at least in the short-term. This should help Li Heng re-attain their double-digit gross margins, and is positive for them as earnings are adversely affected in a down trending nylon chain price environment. We maintain our BUY recommendation with a S$0.49 target price.

Banking Sector : DMG, 2 Feb
DBS (Neutral \Target S$8.50)
OCBC (Neutral \ Target S$5.30)
UOB (Buy \Target S$14.30)
Loans contracted 0.4% month-on-month in Dec 08 to S$272b, following the sharper 1% contraction in Nov 08. Loan tightening by commercial banks has led to this trend. On a year-on-year comparison, Dec 08 loans was up 16.6%, which is slower than Nov 08's 20.7%. We believe the trend of month-on-month loan contraction will persist for a while. The government's efforts to encourage banks to lend more will have some positive effect, and we believe this will help to cushion the extent of contraction. We maintain our NEUTRAL stance for Singapore banks. Besides the trend of contracting loan book, we see worsening asset quality to lead to increased provisioning which could lead to sharply lower banks' earnings. Our banks' target prices are pegged close to the bottom during the 2003 SARS down cycle. For DBS (NEUTRAL call), we apply a 0.8x 2009 book to arrive at our target price of S$8.50 – similar to the 0.8x P/B that DBS traded in Apr 03 (at the bottom of the 2003 SARS cycle). For OCBC (NEUTRAL call), we apply 1.1x 2009 book (1.0x at the worst of the 2003 downcycle) to arrive at our S$5.30 price target. For UOB (BUY call), the 1.2x 2009 book (1.1x at the worst of the 2003 SARS down cycle) gives a S$14.30 target.

Cambridge Industrial Trust: Buy (DMG, 2 Feb)
Cambridge Industrial Trust (C-REIT) posted a 12.4% year-on-year (yoy) drop (-7.8% quarter-on-quarter) in 4Q08 DPU to 1.37¢, underpinned by considerable increases in property tax, doubtful debt provisions and financing costs, as well as trust expenses related to previous Shariah compliance exercise and aborted projects. The hike in operating expenses was partially mitigated by an improved topline performance (+14.5% yoy, +0.3% qoq to S$18.4m), helped by rental escalations for 21 properties and additional contribution from three new assets. Overall, FY08 DPU of 6.01¢ (-4.0% yoy) matched our expectations (5.99¢) and the Street's (6.1¢). C-REIT's long lease tenures of 5.9 years and high average security deposits of 16 months remain positive selling points, coupled with the absence of any outstanding debt due for renewal within the next two years. Since its agreement of key commercial terms for a 3-year S$390.1m loan facility with three banks to roll over its outstanding debts in 2009, the counter has risen 46.2%. Looking ahead, upside catalysts should be limited given its assets' exposure to core manufacturing and related activities, as well as the economic slowdown, in our opinion. For now, we are reviewing our DPU estimates, fair value and BUY rating for C-REIT.

Chartered Semiconductor: Sell (OCBC Research, 2 Feb)
Chartered reported FY08 revenue of US$1,661.1m (+22.5%), spot on with our sales forecast, while its net loss of US$92.6m was larger than our projected loss of US$57.2m. In view of the negative macroeconomic environment and difficult end market conditions, the group is also guiding for 1Q09 revenue to drop approximately 37-40% year-on-year (yoy) and 31-34% (quarter-on-quarter (qoq) to US$232-244m, and for net loss to deteriorate to US$142-152m. These dreary quarterly results and guidance reinforce our view that Chartered may continue to sustain losses in FY09 and FY10. Based on our revised forecasts, the group may hit a record loss of over US$500m in FY09 and US$300m in FY10. If these projections hold true, its equity base is likely to be severely depleted, and a capital injection could be necessary. Barring any likelihood of a near-term recovery in its profitability, we drop our fair value to S$0.11 from S$0.17 and now recommend investors to take profit following the recent surge in share price. Downgrade to SELL.

Singapore Post: Buy (OCBC Research, 2 Feb)
SingPost has reported creditable results amid a challenging environment, with revenue increasing 1.6% YoY to S$124m and net profit declining marginally by 0.5% to S$36.7m in 3Q09, in line with our expectations. The slowing global and domestic economy will undeniably impact SingPost's financials, but measures unveiled by the recent Budget and proactive measures by the group are reasons to be optimistic. Having taken into consideration the above factors, we maintain our BUY recommendation on SingPost and retain our S$0.93 fair value estimate. The group will be paying out a quarterly dividend of S$0.0125 per share, sticking to its dividend policy of minimum S$0.05 per share a year, implying at least a 6.5% yield.