Stock Picks

Noble Group Ltd: Buy (OCBC Research, 30 Jan)
The recent surge of the Baltic Dry Index, coupled with other positive indicators such as lower inventories and impending demand from China’s RMB4 trillion stimulus plan, has sparked optimism that the bottom could be in sight for the commodities sector. With lingering economic uncertainties, it is premature to draw conclusions to a sustained recovery for commodities. However, we believe that Noble will be able to endure the challenging landscape, given its healthy balance sheet and robust risk management system. Noble is slated to announce its FY08 results on 26 Feb, and we are forecasting a 136% surge in earnings to US$609.9m. In addition, we expect continued strengthening of its credit metrics given that lower commodity prices should have eased working capital requirements in 4Q08. We maintain our BUY rating on the stock, but trim our fair value estimate to S$1.58 (from S$1.83) as we lower our FY09 earnings estimates to allow for weaker contributions from its energy and metals segments.

Parkway Holdings: Hold (OCBC Research, 30 Jan)
While Parkway's growth has not experienced the adverse downswing seen in some other sectors, it was and will not be fully inoculated from the slow down in the economy. Our muted outlook is primarily based on 1) near term challenges for the company in growing earnings; 2) sentiment gravity from its leveraged situation due to a perceived expensive venture in the Novena Hospital business expansion and; 3) faltering medical tourism. We are initiating coverage on Parkway with a HOLD rating. Our sum-of the-value (SOTP) fair value for its healthcare business is based on a PER type valuation as we believe that the share price will be driven by earnings. We peg Parkway to its lower trading band of 16x FY09 EPS to cater to the muted earnings outlook. Adding S$0.14 (pegged at current market value) to our fair value for its 35.5% holding of ParkwayLife REIT, our fair value amounts to S$1.15. FY09F Dividend yield is about 4.5%. We will become buyers as it approaches S$1.00 (trough valuation).

Epure International: Buy (Phillip Securities, 30 Jan)
Epure International Limited is one of the leading water and wastewater treatment solutions providers in the People's Republic of China. Backed by extensive R&D, technical expertise and a proven track record, they have developed proprietary water and wastewater treatment technologies and customized them into effective turnkey solutions for both industrial and municipal projects. The current water shortage situation in the PRC has led to strong Governmental support for water infrastructure investments as indicated in their 11th Five-Year Plan. The stimulus package announced late last year confirmed its commitment to tackle the water issues such as water scarcity; water pollution as well as increase wastewater reuse levels. Given Epure's strong industry track record of 14 years, coupled with its technological know-how and strong R&D capabilities, we believe it is well-positioned to benefit from this new surge in water and wastewater treatment demand. We initiate coverage with a BUY at a fair value estimate of S$0.44, which represents a 62.96% upside from its last traded price of S$0.27.

Frasers Centrepoint Trust: Hold (OCBC Research, 28 Jan)
Frasers Centrepoint Trust (FCT) posted S$19.5m in 1Q09 revenue, down 3.2% year-on-year (yoy) and down 11.8% quarter-on-quarter (qoq). The results met our expectations. The trust will distribute S$10.4m for the quarter, up 4.4% yoy but down about 18% qoq. Unitholders will receive 1.67 cents per unit, or an annualized yield of 10.3%. The trust's earnings were distorted by planned enhancement works at Northpoint. The property earned S$1.6m in net property income, down 58% yoy because of the temporary vacancies (actual occupancy of 52.2% as at Dec 08). FCT has a relatively "safer" suburban portfolio with a mass-market consumer focus. Our key concerns are: 1) the lack of critical mass in the current portfolio; 2) FCT’s low trading liquidity; and 3) the use of uncommitted drawn banking facilities to finance ongoing capex. On the whole, we think FCT is fairly valued. Maintain HOLD with S$0.62 fair value.

Kian Ann Engineering: Sell (DMG, 28 Jan)
Total private sector construction demand is forecasted by BCA to drop by between S$5b to S$9b (-55.2% to -75.1%) in 2009. This significant shortfall in private construction demand is forecast to be partially mitigated by a substantial increase in public demand. In 2009, the government is estimated to spend between S$17b to S$19b, up 17.2% to 31%. We view the government's willingness to boost infrastructure spending as a positive to the various players in the construction industry. For Kian Ann, although demand for their products could be affected by the global slowdown, the government's aid to the industry could help mitigate the impact of slowing construction activity in Singapore. We caught up with the company's management for an update recently and were informed that negotiations for a portion of their term loans due in Jun 08 have already commenced. It is currently negotiating for refinancing of approximately S$6m of its term loans. Meanwhile, Kian Ann's net gearing remains at a comfortable 16% as at end Jun 08. Management informed us that KA is experiencing a drop in demand in Jan 09. This is in addition to the delay in product shipments requested by some of their clients. However, management is not certain at this point in time whether the above is due to the longer break this festive season or solely due to slowdown in global demand. A clearer picture will emerge come Feb/Mar when key customers are back to full operations. Using the dividend discount model, we have arrived at a target price of S$0.13. In view of the potential impact of the recession on the industries that Kian Ann is servicing during this global downturn, we are maintaining our SELL recommendation.

Sarin Technologies: Neutral (DMG, 28 Jan)
Sarin Technologies deals in the development, manufacture and sale of precision technology products used for the processing of diamonds and gems. Its systems comprise of various hardware technologies like electro-optics, electronics, precision mechanics and lasers. Sarin's products are used almost exclusively by the major gemological laboratories worldwide. We believe this gives Sarin a strategic advantage over its competitors, as their selection of Sarin's products is effectively an endorsement of the product quality. FX fluctuations may have an adverse effect on Sarin's business. The strengthening of the New Israeli Shekel against the US dollar may impact the company’s profitability, as some of its expenses are paid in this currency while its sales are booked in the US$. As the overall drive to increase yield and productivity remains a key concern while the access to higher-quality rough diamonds becomes more constrained, ongoing investments pertaining to the automation in the diamond manufacturing industry is expected to continue. We believe that this trend would be beneficial to Sarin. As the diamond industry is mostly an export-based sector that depends predominately on the US and European countries, the health of these economies is expected to be a decisive factor on how well global diamond sales will turn out going forward. Currently trading at 2.7x FY09 P/E and assuming it trades up to its historical P/E average of 3.2x, we arrive at a target price of S$0.135. Initiate coverage with a NEUTRAL recommendation.

SMRT: Neutral (DMG, 28 Jan)
SMRT reported 3QFY09 net profit of S$41.2m, up 7.6% year-on-year (yoy) in line with expectations. Revenue from MRT operations rose 9.1% to S$119.7m, and accounted for a 55% revenue share. Average daily ridership was up 8.4% yoy to 1.41m rides. However, electricity costs surged 67.9% yoy to S$18.8m, due to the higher rates from the six-month electricity contract effective 1 Oct 08. This led to a mild 6.3% yoy increase in MRT operating profit, though this still accounted for a sizeable 69.6% share of total operating profit. Bus average daily ridership grew 4.4% to 770,000 rides, which helped drive bus revenue expansion. Diesel costs of S$11.4m is marginally higher than the S$11.2m in 3QFY08. Bus operations recorded an operating loss of S$1.2m, versus the S$15k gain in 3QFY08. Commercial space rental revenue surged 34.6% yoy to S$14.5m, with total lettable space rising 6.7% to 26,674 sqm. Though this accounts for only 6.6% revenue share, its share of operating profit is a sharply higher 21.4%. SMRT indicated that its commercial space rental is on a three-year basis and most of the rentals were effective in 2008 – suggesting not much rental reversions going ahead the next two years. We are forecasting FY09 dividends of 9¢, based on a 85% payout ratio (versus 78% in FY08). Though this gives a relatively attractive dividend yield of 5.7%, we see earnings (and dividend) downside risk if SMRT were to lower its bus and rail fares as SMRT has indicated that it will pass its budget savings to commuters via lower fares. We are maintaining our S$1.65 price target.

Suntec REIT: Neutral (DMG, 28 Jan)
For its latest period (1 Oct 08 – 31 Dec 08), Suntec REIT registered a 25.4% year-on-year (+0.1% quarter-on-quarter) improvement in DPU to 2.86¢, matching expectations. Helped by improved rentals from both retail and office, topline was up 16.8% yoy (+3.3% qoq) to S$63.5m. As it will be switching its financial year to end-Dec (end-Sep previously), DPU for its 15-month period came to 13.3¢. The decent results were marred by a 7.7% qoq fall in asset value from Suntec City, Park Mall and Chijmes, resulting in an 11% drop in NAV to S$2.01 per share. Primary focus for SUN's management remains the rollover of its S$700m CMBS due in Dec 09, and at present, it is heavily and pro-actively engaged with several banks. While we do not doubt its established banking relationships, quality assets and reputable sponsor, we reckon two key issues will plague SUN's refinancing route. Firstly, we foresee office and retail cap values to further head south from current levels, as rents and occupancies taper off with the weakening macroeconomic environment. Secondly, banks could turn more cautious towards extending credit. We are however encouraged by three REITs' (Cambridge, CCT and A-REIT) recent successful capital raising exercises. SUN's management is closely monitoring the trading performance of tenants, and notes traffic for its malls has generally been stable over the past three years. Nonetheless, we surmise traffic and retail spending would gradually taper off following Chinese New Year. As such, tenants’ bargaining power could increase, sparking off either a fall in retail rentals or restructuring of existing lease structures. For SUN's retail assets, we are assuming flat rental reversion rates (previously -1 to +2%) for FY09 – 11. For its Suntec City office, rents have begun to soften, as leases were secured at an average rent of S$11.20 psf pm for 5Q08, vs. S$12.57 in 4Q08. We are keeping our previous assumptions for its office assets: negative rental reversions of 5% for FY09, 10% for FY10 and 5% for FY11. Meanwhile, portfolio-wide occupancy levels remain at 90 – 95%. Note that our rental assumptions could change slightly once there is further clarity on management's decision on the 40% tax rebates on commercial properties included in Budget 09. Our fair value for SUN now inches slightly lower to S$0.75 (previously S$0.79). With share price upside capped by refinancing risks and economic weakness, we are downgrading SUN to a NEUTRAL rating (previously BUY). Catalysts include refinancing overhang removed, while risks are more economic dampeners.

Suntec REIT: Buy (OCBC Research, 28 Jan)
Suntec will pay out 2.858 cents per unit for the quarter, up 25.4% year-on-year (yoy) but flat quarter-on-quarter (qoq) translating to an annualized yield of roughly 17%. For the quarter, Suntec City office replacement and renewal leases were secured at an average of S$11.20 psf per month – 11% lower than the previous quarter but higher than preceding rents. We expect achieved office rentals to continue softening down to single digits this year. Meanwhile, Suntec's management said the real test for retailers will be the post-Christmas and Chinese New Year shopping landscape. It added that it was open to working on mutually beneficial rental renegotiations (but there wasn't a long queue of tenants seeking to do so, yet). Suntec has about S$825m of debt up for refinancing in the next 12 months. The sooner Suntec can clear this overhang, which is weighing down valuations, the better. Maintain BUY with S$0.90 fair value.

CapitaMall Trust: Hold (OCBC Research, 28 Jan)
For 4Q08, CMT has declared DPU of 3.65 cents and this brings the total DPU payout for FY08 to 14.3 cents (DPU yield: 9.7%). CMT stands out among other S-REITs for its defensive trait in view of its necessity based tenants. Negative impact of higher cap rates on asset valuation was more than offset by the incremental value generated by CMT's asset enhancement initiatives (AEIs). However, over the shorter term, we believe that focus will be on the recapitalizing of its balance sheet. We have lowered our FY09 DPU forecast from 15.1 Scents to 14.5 cents. As such, our RNAV estimate has also been lowered from S$2.28 to S$1.94. Its gearing could be a concern in light of the deleveraging among the REITs. We raise our RNAV discount rate from 15% to 20% and lower our fair value from S$1.94 to S$1.55. We are downgrading CMT from BUY to HOLD.

Keppel Corporation: Hold (OCBC Research, 28 Jan)
Keppel Corporation has reported a topline growth of 13.2% to S$11.8b in FY08 while net profits inched ahead 6.9% to S$1.09b. We have revised our previously bearish FY09F estimates to cater for better guidance from management that KepCorp's "yards will be busier in 2009 than 2008". Better visibility from its Infrastructure division also helped raise our estimates. Overall, our FY09F revenue and bottomline numbers are revised 18% and 21% higher. However, KepCorp's property division persisted with its bad performance, dragging the group's earnings. Silver linings lay in possible EPC contracts from its Infrastructure division and the Sino-Tianjin project, as well as accretive M&As as it swoops down on good companies that are currently over leveraged. Our fair value has been bumped up to S$4.40 (prev. S$4.00) as we work in less bearish estimates. We are maintaining our HOLD rating as we take a wait-and-watch stance for the time being to let any residual delays and cancellations be flushed out of its system.

Keppel Corp: Neutral (DMG, 23 Jan)
Keppel Corporation has carded FY08 revenue of S$11.8b (+13.2% year-on-year) aided by higher contributions from its marine (O&M) and Infrastructure divisions. Core recurring FY08 PATMI of S$1.1b (+6.9%) was in line with the market consensus' estimates of S$1.07b. Positive spot came from improved O&M margin of 9.8% (+190 bp). The negative drag was the poor performance from SPC. While Keppel's FY08 results were credible, total distribution of 35 S¢/share declared was slightly disappointing. This implied a dividend payout of 51% – the lowest in five years – and at the lower end of management's guidance of 50-60%. O&M's FY08 revenue of S$8.6b (+18%) accounted for 73% of Keppel's revenue, while O&M's FY08 PATMI of S$705m (+35%) contributed to 64% of Keppel's PATMI as the division saw the successful completions of 13 jack-ups and three semis. Having current backlog orders of S$10.8b, the management maintained that the yards would still be busy, with 10 jack-ups and six semis stipulated for delivery in FY09. However, we reiterate our cautious stance on the O&M sector. Our FY09 and FY10 new order estimates stay at S$2.2b and S$2.6b respectively. Revenue from Infrastructure division surged 75% to S$2.2b, while PATMI jumped 133% to S$63m in FY08, buoyed by strong EPC contributions from Qatar Solid Waste management and Tuas South Incineration Plant. Nonetheless, this was little comfort to the lower contribution from Investments, dragged down by SPC's poor performance. Downside risks persist including potential orderbook cancellations and sustained period of depressed oil price. However, we are comforted that Keppel's improved ROE of 22.4%, strong free cash flow of S$1.9b and net cash position of 0.04x will strengthen Keppel's ability to weather through this crisis. Our recommendation stays at NEUTRAL, with a revised target price of S$4.48 (from S$4.53 previously) due to DMG's revised target price of S$1.80 (from S$2.00 previously) for Keppel Land and updated market values for the listed entities.

Delong Holdings : Neutral (DMG, 23 Jan)
With crude oil prices retreating spectacularly from the US$147/barrel high to recent lows of US$36/barrel, steel prices followed suit and fell by almost 50% in the space of five months, with the greatest impact felt during Nov 08 and Dec 08. This led to China's steelmakers, such as Delong, to cut down on production and report net losses for 2H08. Management guides that they have used up all their previous iron ore inputs (bought at higher prices) physically, or if not already booked an impairment loss on inventory value for 4Q08. The company has also issued a profit warning for 4Q08, which we estimate to come in at a net loss of S$150m at least. On the positive side, it has reduced its long-term order contracts with their two major Australian and Brazilian suppliers of iron ore due to future price uncertainties, and are now purchasing iron ore in the spot market more frequently to match customer order flow. The Chinese steel industry will still remain lacklustre in terms of business activity and profitability, mainly due to sluggish demand on the back of a property and construction slump, and also due to an oversupply of steel products, iron ore, and production capacity, which combined, should keep prices relatively stagnant. Steel prices have bounced around 15% from the lows a month ago, but we reckon chances of any sustained rally remains a distant hope. We forecast Delong to make a loss in FY08 and FY09, with a recovery slated to occur in FY10. Gross margins are estimated to be -1.2% for FY08, 0.8% for FY09 and 8% in FY10. EPS is forecasted to drop from 17.5 S¢ in FY07 to -20.2 S¢ in FY08, recovering to -12.7 S¢ in FY09, and then returning into the black with 14.9 S¢ for FY10. We have pegged Delong's earnings multiple to 4.4x FY10 EPS as we have forecasted a loss for FY08 and FY09. We derived 4.4x through halving its peers' forward P/Es multiples, which is similar to its own historical trough P/E, hence obtaining a target price of S$0.655.

Telecom Sector: Overweight (DMG, 22 Jan)
With Singapore staring at its sharpest downturn since Independence, there will be an impact on telcos despite the relative resilience. Unlike the mobile segment, Pay TV and broadband segments are seen to be more susceptible to downturns. Instead of completely culling off, people will instead cut back on their subscriptions for Pay TV and broadband. We believe that revenues for Pay TV and broadband will be affected, but not the subscriber count. StarHub has over 520,000 subscribers compared to SingTel's mio TV's 46,000. Both do not have further breakdown of subscribers for competitive reasons. Our sensitivity analysis shows that a 15% fall in subscriptions for Pay TV and broadband segments would lead to a 5% decline in FY09 earnings forecast for StarHub. SingTel will walk off relatively unscathed given that it is not a significant part of the total business Despite the downgrade in earnings, StarHub remains a BUY given its high yields (8.8%) and positive long term prospects. In our view, its hubbing strategy will shine through as Singaporeans get increasingly cost conscious. We maintain our NEUTRAL stance on SingTel, dragged down by the performance of its overseas units, which account for over two-thirds of its business.

Keppel Land: Buy (OCBC Research, 22 Jan)
Revenue for 4Q08 fell 46.8% year-on-year (yoy) to S$197.4m due to the completion of projects in previous quarters and a slowdown in property sales. Shareholders' profit of S$68.5m came in above our estimate of S$42.5m due to one-offs. No provisions were made but we reckon that there is still looming risk over write-downs of its investment properties given the rapid deterioration of Singapore's economy. Its financial position remains sound and we see little concern over its short term refinancing needs. We believe that KepLand's high earnings concentration towards the residential and office sectors in Singapore could lead to greater earnings risk than its peers. As such, we decide to peg a higher discount rate of 60% to our valuation of KepLand's development and investment properties. No discount has been ascribed to the valuation of K-REIT and Evergro. We lower our fair value from S$2.43 to S$1.77, but maintain the BUY rating as there is more than 10% potential upside to our fair value estimate.

Keppel Land: Neutral (DMG, 22 Jan)
Keppel Land has posted an 88% year-on-year (yoy) fall (+48.4% qoq) in 4Q08 PATMI to S$68.5m, making up about 33% of our estimates. However, stripping away one-off items, we estimate recurring income (pre-tax) would inch up 4.3% yoy (+20.3% qoq) to S$71.9m, helped by higher contributions from two associate-level projects (Reflections and Marina Bay Residences) and lower financing costs. For the full year, PATMI was down 70.8% to S$227.7m, but edged past consensus and DMG's forecasts by about 10%. Excluding non-recurring items, FY08 PATMI would fall 23.7% to S$213.3m. Despite significant improvements in PATMI from Property Investment (+50.8%) and Fund Management (+49.6%), they could not offset the lacklustre Property Trading segment, which fell 41.8% to S$160m. True to what management revealed in 3Q08, KepLand did not book in any provisions or revaluation losses for FY08. However, we recall that such items usually occur in the immediate year subsequent to a major crisis. For KepLand, we are less concerned over its residential landbank, which were mostly bagged at relatively low prices. While we like KepLand's well-fortified balance sheet – low net gearing of 0.52x, rich cash position of S$0.63b, cash/ST debt of 3.4x and no near-term refinancing risks, we are still not proponents of residential-focused developers like KepLand, for we hold the view that they are more palpable to the ongoing global residential property down cycle. Coupled with the worsening economic outlook and weakening labour market, we do not foresee any near-term visible catalysts for the counter. Due to lower assumed market prices for its listed entities, and factoring in a slower take-up for its overseas projects, we have trimmed our target price for KepLand to S$1.80 (previously S$2.00). The counter could trade up temporarily if Budget 09 reveals favorable measures for developers.

Pacific Shipping Trust: Hold (OCBC Research, 22 Jan)
PST has posted US$14.5m in 4Q08 revenue, up 67% year-on-year (yoy) and 30% quarter-on-quarter (qoq). The results met our expectations. PST will pay unitholders 0.93 US cent per unit in distributions for the quarter, which translates to a 25% annualized trailing yield. Despite gains in cash income, this DPU figure is about 15% lower on a yoy and qoq basis. PST is in a comfortable position since the completion of its 3Q08 preferential offering. It is the only Singapore-listed shipping trust without loan-to-market value covenants on its books. Our key concern for PST is counterparty risk arising from the trust's two customers, Pacific Intenational Lines (PIL) and CSAV. Tactically, we think it is too early in the cycle to become buyers of shipping trusts. There are still too many unknowns. We rate PST as a HOLD with US$0.16 fair value.

First Ship Lease Trust: Hold (OCBC Research, 22 Jan)
FSLT will pay out 3.08 US cents per unit as dividend for 4Q08, up 27% year-on-year (yoy) and 0.9% quarter-on-quarter (qoq). Significantly, the trust's board has now decided to reduce the payout ratio (from 100% historically) to "increase financial flexibility going forward". The trust is now guiding for a 1Q09 DPU of 2.45 US cents, or a 20% qoq decline. We view this decision as a gesture of good faith to lenders. We have continued to raise concerns about the trust's aggressive payout strategy so we definitely support this decision. But we think this is a first step, at best. If FSLT is serious about adapting its business model to the current environment, it needs to do more. The payout ratio should in our view be even lower. An explicit debt repayment plan would also demonstrate the trust’s commitment to sustainability, in our view. Maintain HOLD with S$0.46 fair value.

Mercator Lines: Hold (Phillip Securities, 21 Jan)
We believe that Mercator Lines (Singapore) Limited is faced with the slowdown in the global economy. However, it is protected from the drop in dry bulk shipping rates as up to 70 percent of its revenue is from long-term fixed rate contracts of 11 months to five years. Only 30% of its revenue is subject to fluctuations in spot rates. In other words, it has a smaller exposure to the volatility in spot rates compared to other shipping companies. It also manages to report a profit in contrast to shipping companies that have excess capacities and report losses. Nevertheless, the risk is high as the shipping sector is challenged by low demand for goods (including commodities) and higher supply of ships as new ships enter the market. Therefore, we have a hold rating on the stock and we are valuing it at 0.4 time book value. This gives us a fair value of S$0.16.

Micro-Mechanics: Hold (OCBC Research, 21 Jan)
In the face of a sharp and sudden contraction in the global economy, Micro-Mechanics (MMH) announced that the group is expecting to see substantially lower 2QFY09 net profit and margins. MMH is putting in place several measures to structurally lower its cost base, including reducing its headcount and the salaries of its employees by 5-40%. While MMH has a relatively strong financial position (cash hoard of S$12.8m and zero bank borrowings as of 30 September 2008), we believe that the semicon industry capitulation, together with faltering business volume and high input costs at its US facility, is likely to cast a pall on its FY09 financial performance and share price in effect. As such, we conservatively revise down our FY09 sales and net profit forecasts by 13.4% and 12.5%, respectively, to account for the poorer outlook, and reduce our fair value estimate to S$0.31, now based on a 7x blended FY09/10F EPS (S$0.38 on 8x FY09F EPS previously). However, as MMH has already encountered depreciation in its share price following the profit guidance, we maintain our HOLD rating on the stock.

Sembcorp Marine Ltd: Buy (OCBC Research, 21 Jan)
PetroMena has encountered difficulties in finding funding for three semi-sub rigs being built at Sembcorp Marine (SMM). It has requested additional funding to take delivery of its first rig while seeking funding alternatives for its subsequent two rigs. Overall, we think that PetroMena will be able to meet its funding requirements for all three rigs, albeit at a more staggered timeline. We think PetroMena's banker (Lloyds) will not intentionally crimp funding as PetroMena has already paid about 50% (out of US$730m) for all three rigs to SMM and will find it hard to retrieve the money. Even in the event of default, SMM should have no problems recovering costs of all three rigs. While this situation will have limited impact on SMM, the rate of order delays/cancellations along with a dire near-term outlook on oil demand have spurred us to lower our FY09 order book to S$1.4b (prev: S$2b) but our FY10 order book has been bumped up to S$2.5b (prev: S$2b) in view of payment deferments. This lowers our fair value slightly to S$2.00 (prev: S$2.05), still based on 10x FY09F EPS. Maintain BUY.

Midas Holdings: Buy (Phillip Securities, 21 Jan)
Midas is a leading manufacturer of aluminum alloy extrusion products and polyethylene pipes, primarily for the transportation and infrastructure sectors in the People's Republic of China (PRC). The Group currently operates three business divisions; namely, aluminum alloy, polyethylene pipe as well as Agency & Procurement. We believe that the rail industry in the PRC has yet to reach its maturity and the Group is still poise to benefit from the Chinese Government's commitment and plans to further develop PRC's rail industry in the coming years. The Group has been able to not only reap benefits from the rail transport developments in PRC through their aluminum alloy division, but also reap profits from the construction of metro trains through their Sino-foreign joint venture, NPRT. On 4 July 2008, NPRT expanded downstream into train car repair and maintenance through their joint venture with Nanjing Metro Industrial Group Co. Limited. The prices of aluminium and crude oil have declined substantially since their highs in 2008. Hence, we believe that the Group will be able to better manage their margins as compared to 2008. We have forecasted revenue growth of 29.57%, 6.97% and 9.9% in 2008, 2009 and 2010 respectively; projected gross profit margin of 34.4% and 34.9% in 2009 and 2010, and net profit margins of 22.36% and 22.60% respectively. We initiate coverage with a BUY rating at a fair value estimate of S$0.63, which represents a 27.27% upside from its last traded price of S$0.495.

Indofood Agri Resources: Neutral (DMG, 21 Jan)
Indofood's management have confirmed that cooking oil prices have stabilized in line with CPO prices. In addition, management has indicated that they would continue to keep a close watch on their competitor's selling prices and if necessary, would adjust their selling prices accordingly. With CPO futures price (Feb delivery) at RM1,843/tonne currently, we performed a sensitivity analysis for Indofood. At RM1,800/tonne (+20% from our current CPO price assumption), its target price would be S$0.65 (+27% from our current fair value of S$0.51). PATMI would also increase by 26% from our current forecast of IDR802b to IDR1t. We are maintaining our CPO price assumption of RM1,500/tonne for FY09. Factoring in a P/E of 7x our FY09F earnings, we derive our target price of S$0.51. With the stock trading at S$0.56 (equivalent to 7.7x our forward earnings), we are maintaining our neutral call on the stock.

CapitaCommercial Trust: Neutral (DMG, 21 Jan)
CCT has notched a 16.3% year-on-year (yoy) jump (-12.5% qoq) in 4Q08 DPU to 2.71¢, which was within expectations. For FY08, DPU came in at 11¢, matching the Street's (11.10¢) and exceeding DMG's (10.38¢) estimates. Earnings visibility for this year should be rather stable for CCT, having locked in 79% of FY09 gross rental income, helped by full year contribution from 1 George Street and Wilkie Studio. Financial institutions' confidence in CCT's quality of assets has been affirmed with the respectable terms pertaining to its recent S$580m loan. In light of the deteriorating economic environment, we are lowering our occupancy levels and average rentals for CCT for FY10 and FY11 but keeping our assumptions for FY09 intact as majority of the leases have been locked in. As such, FY09 DPU remains at 10.86¢ and FY10 DPU falls by 8.3% to 10.16¢. Maintain NEUTRAL at lower fair value of S$1.00.

Sinotel Technologies: Buy (DMG, 20 Jan)
Sinotel announced that it won the bid for the development of proprietary software, for China Unicom in six major locations, namely Beijing, Jiangsu, Chongqing, Guangxi, Hebei and Shanxi. The technology is a proprietary solution offered by Sinotel. This would allow China Unicom to record and monitor signal strengths emitted by individual base stations. This would also allow China Unicom to monitor and improve its network coverage, so that subscribers can enjoy better coverage and mobile services. The race is on for the telcos to speed up 3G upgrading works and to be the first to secure market presence. Management expects more contracts to be up for bids. Both China Unicom and China Mobile have been Sinotel's customers before the restructuring. Following the restructuring of the telecommunication industry, China Unicom sold off its CDMA network (developed by Sinotel) to China Telecom. Hence, Sinotel is also in a good position to secure 3G network upgrading contracts from China Telecom. Sinotel is expected to release its FY08 results in mid-February. We estimate earnings of RMB109.4m (EPS: 39.1 RMB¢) for FY08 and RMB133.4m (EPS: 47.6 RMB¢) for FY09. Sinotel is trading at 1.7x forward P/E or 0.8x P/B. We maintain our target price of S$0.32, based on 3.0x FY09 earnings. Maintain BUY.

MobileOne Ltd: Buy (OCBC Research, 19 Jan)
M1's 4Q08 results revenue was down 5.9% year-on-year (down 1.0% quarter-on-quarter) at S$194.7m, just slightly ahead of our S$190.6m forecast. While net profit fell 3.7% yoy to S$36.6m, it was up 6.1% 10 qoq and was also ahead of our S$33.6m forecast. For the full year, revenue was flat at S$800.6m, while net profit fell 12.6% to S$150m, both pretty close to our S$796.5m and S$147.1m estimates. Going forward, M1 believes that its operations should remain stable, although it remains mindful of the current economic climate; EBITDA margin will remain around 43% to 44%. It intends to spend S$100m to S$120m on capex this year. It also aims to maintain its payout ratio of 80%. However, we are a little less sanguine as we expect M1's churn to remain high, hampered by its lack of bundling abilities. At such, we are sticking to our original forecast of 2.7% drop in revenue and a 4.1% drop in earnings. But against the deepening economic backdrop, we still like M1 for its defensive and strong free cash flow-generating business. As such, we maintain BUY and S$2.12 fair value.

MobileOne: Neutral (DMG, 19 Jan)
M1 saw net profit fall 12.6% to S$150m on the back of a 0.3% dip in revenue to S$800.6m for the year ended 31 Dec 08. The telco was hit with higher acquisition and retention costs as competition intensified in response to mobile number portability (MNP). FY07 also benefited from tax adjustments and excluding which, net profit fell a slimmer 4.5%. The results were below our expectations. EBITDA margin improved to 44% in 4Q08, up from 40.9% in 4Q07 and 41.6% in 3Q08, as competitive pressures tailed off. However, due to compressed margins over the first three quarters, EBITDA margin came in at 42.9% for FY08 or 1.2 percentage points lower year-on-year (yoy). Other signs that competition is easing – lower churn rate as well as falling acquisition and retention costs per customer. Gearing has been reduced from 130% in FY07 to 104% in FY08. It has a net debt/EBITDA of 0.7x, with a healthy EBITDA/Interest of 41.8x. This ensures that that payouts will continue to be healthy. In FY08, it dished out dividends of 13.4 S¢ per share, equivalent to an 80% payout. We have lowered our earnings estimates for FY09 by 5% to S$141.6m (-5.6% yoy). In FY10, we expect earnings to grow 4.6% to S$148.1m. Payout, assuming that it is maintained at 80%, works out to a prospective yield of 8.3%. We have attained a target price of S$1.52, down from S$1.58 previously. We believe that the prospects have already been priced in. Downgrade to NEUTRAL.

Tat Hong Holdings: Hold (OCBC Research, 19 Jan)
Tat Hong has warned of lower profits for its upcoming 3Q09 results. Key areas of weaknesses that will drag the group's performance down include forex losses and weak equipment sales. Forex losses stem from the strengthening of the yen against the Singapore and Australian dollars. As the group imports most of its equipment from Japan, the strong yen will result in forex losses. Weak equipment sales, on the other hand, are a result of the global economic slump and credit crunch, and come as no surprise. We have factored weak sales into our assumptions but expect stable rental income to buffer the group's overall earnings. We have lowered our FY09 earnings estimate by 6% to account for forex losses. Tat Hong's shares have risen 16% since our last report and are nearing our S$0.75 fair value estimate. This, coupled with the prospect of further earnings downgrades, leads us to downgrade our rating to HOLD.

Singapore Exchange: Hold (OCBC Research, 16 Jan)
SGX has experienced a 52% year-on-year decline in 2QFY09 earnings to S$74.7m, dragged down by adverse market conditions. For 1H, earnings fell 44% to S$159.2m. All segments posted quarter-on-quarter (qoq) decline, resulting in a 7% QoQ or 28% year-on-year (yoy) decline in operating revenue to S$146.7m in 2QFY09. SGX has declared a 2Q dividend of 3.5 cents, payable on 18 Feb 2009. With cautious market sentiment, corporates are finding it hard to raise funds. This has led to the sharp decline in capital raising activities, which now look likely to persist into 4QFY09, and could impact SGX's corporate and listing fees. In view of the unresolved turmoil in the market, we are cutting our 2HFY09 earnings, resulting in a decline in FY09 earnings from S$327.9m to S$280.4m. Based on the same 16x earnings parameter, we are lowering our fair value estimate to S$4.50 (previous: S$5.80) and retain our HOLD rating.

Singapore Exchange: Sell (DMG, 16 Jan)
SGX has reported 2QFY09 net profit of S$74.7m, down 52.3% year-on-year (yoy) in line with our expectations. Operating revenue fell 27.9% yoy to S$146.7m. Securities market revenue was down 42.9% to S$69.6m. This came on the back of a 57.2% decline in securities market trading value (excluding derivative warrants) to S$63.9b, with average daily turnover (ADT) down 56.5% YoY to S$1.03b. Net derivatives clearing revenue rose 11% yoy to S$42.8m, with the bulk or 95% coming from futures clearing revenue and the balance 5% from structured warrants clearing revenue. However, Nov and Dec 08 futures trading volume were sharply lower than that for Sep and Oct. SGX is committed to an annual base dividend of 14S¢ from FY09 onwards. We are forecasting FY09 dividend of 26.6S¢/share, based on a 90% payout ratio. SGX traded at mid-teens P/E in 2005, when stockmarket ADT fell 14.5% YoY. We are assuming a FY09 stockmarket ADT decline of 47%, and applying a 13x P/E gives our target price of S$3.95. Our sensitivity analysis shows that a hypothetical S$1.87b stockmarket ADT (including derivative warrants) for FY10 should yield a target price of S$5.00 (close to current SGX share price of S$4.99). This is sharply higher than Oct-Dec 08’s S$1.07b ADT. We believe the market is over-bullish in this respect. SGX remains a SELL.

MAP Technology: Neutral (DMG, 16 Jan)
Jurong Technologies has announced that OCBC Bank is seeking full repayment of the S$56.5m loan owed to the latter and that the former risks being wound up by the bank should payment is not made by 30 Jan 09. We believe that Jurong Tech may have discussed all available options with its creditor pertaining to the repayment terms but eventually could not come to a consensus, therefore resulting in OCBC issuing the statutory demand that was ultimately made public. We also note that this negative development is likely to put further pressure on Jurong Tech by its other creditors to seek repayment. Additionally, in light of the current global credit crunch that has yet to ease and given that Jurong Tech is already highly geared with net debt at S$308.6m, it would be difficult for the company to seek fresh loans. Thus, we believe that Jurong Tech could sell off its existing stake in MAP Technology (MAP) to pay off its debts liable to OCBC. On a separate note, MAP recently announced that it is selling off its entire interest in its Thai subsidiary M&J Technologies (M&J) for US$32m. We view this as a positive for the company, given that the M&J business commands low gross margins of around 5% and that its net asset value at US$12.4m is considerably lower than the disposal price. We expect MAP's capex plans for FY09 to be suppressed after taking into account the several acquisitions it had already made during 2008. Furthermore, we note that this is in line with the current outlook for the industry, given that several local hard disk drive (HDD) contract manufacturers that we spoke to are also reining in on capex as they focus more on strengthening their balance sheets rather than growth due to the global economic downturn. We therefore believe that it is possible that MAP may choose to distribute the proceeds from the sale of M&J as dividends which, according to our calculations, translates to 5.2 US¢ per share. This alone equates to a very attractive 27.4% dividend yield which does not even include its usual year-end dividend payout. Currently trading at 7.0x FY09F P/E and assuming that it trades down to the historical average (since listing on Jul 07) of 5.6x P/E, we slash our target price to S$0.23 from S$0.35. Maintain NEUTRAL.

A-REIT: Buy (DMG, 16 Jan)
Ascendas REIT (A-REIT) posted a 13.9% year-on-year rise (+1.0% QoQ) in 3Q09 DPU to 4.05¢, which was in line with expectations. Gross Revenue was up 25.3% yoy to S$93.2m, largely attributable to additional contributions from 11 completed acquisitions and development projects. A-REIT is seeking to raise approximately S$400m of capital through an equity issuance of 353.9m shares. The issue price of S$1.16 per share represents a 7.9% discount to its last traded price of S$1.26, and 36.3% discount to its end-3Q09 NAV of S$1.82. The recent successful debt refinancing exercises by two S-REITs have undoubtedly drummed up our hopes of seeing more similar cases, not least those with strong sponsor-backed statures. While we did not expect A-REIT to undertake the share issuance route, we view the move positively, especially pertaining to its near-medium term outlook. Upon the equity issuance's completion, AREIT’s gearing will fall from the present 42.2% to 33.7 – 36.0%, which is well within banks' comfortable level. This improved credit profile should expedite A-REIT's negotiation for a new S$250m loan, as well as speed up the extension of its present S$300m term loan due in Mar 10. Simultaneously, the higher debt headway suggests that A-REIT would be well-primed for acquisitions of assets on the cheap. The announced share issuance should cast a temporary share overhang over the counter, as investors begin to price in the dilutive impact to share price and NAV, coupled with the current volatility and weakness within the broader market. For now, we will put our target price of S$1.75 for A-REIT under review and make the necessary changes when the total offering size (including preferential offering) has been finalised.

UOL Group: Buy (OCBC Research, 15 Jan)
UOL Group has announced a mandatory conditional cash offer of S$1.20 per share for United Industrial Corporation (UIC). Depending on the outcome of the takeover, UOL could also be making an offer for Singapore Land Ltd at S$3.57 per share. We believe that the takeover is positive for UOL over the long term as it could be getting a portfolio of prime office buildings at undemanding valuations. UOL will have to pay S$1.56b to complete the takeovers. Fortunately, both UOL and UIC have conservative balance sheets and we believe that UOL's post-takeover balance sheet will not be overstretched. However, we think it is unlikely for UIC shareholders to accept the offer at this depressed valuation. We believe that the takeover could fail but UOL could end up with a greater stake in UIC. We maintain our BUY recommendation for UOL with fair value of S$2.88.

Qian Hu: (Phillip Securities, 15 Jan)
Qian Hu's latest financial results have highlighted its strategy in improving on its margins while striving to achieve growth in revenue. FY08 revenue grew 1.5% year-on-year to $93.1m. Gross profit grew 4.8% to $33m and net profit attributable to shareholders registered double-digit growth of 22% to $6.0m. Quarterly revenue however fell 7.2% in the fourth quarter due mainly to three main reasons. Firstly, there was a shortage in the supply of dragon fish to meet the demand. Secondly, the production in OEM manufacturing of Guangzhou factory was delayed and started only in mid-October. Thirdly the closure of Bangkok International Airport affected fish exports from the Thai capital. Notwithstanding the drop, quarterly figures for gross profit and net profit attributable to shareholders still registered respectable growths of 1.9% and 10%. Actual revenue came in 2.5% below our forecast mainly due to reasons stated. However net profit attributable to equity shareholders and EPS are 7.1% and 7.9% better than our numbers. This can be attributed to the strategy put in place by the company to enhance their profit margins. Qian Hu's strategy is on brand building and it is selective on its product mix. We note the improving trend of net margin from the three-year period of FY06 to FY08 from exhibit 4, even though gross margin was relatively flat, net margin improves from 5.1% to 8%. Qian Hu will still be working on its long-term plan of achieving equal revenue contribution from its ornamental fish division and accessories division. Currently QH exports fish to over eighty countries while exporting accessories to thirty countries. Management has also stated a target of achieving net profit margin of 10%. We make no change to our projections at the moment and maintain a positive outlook on the company. Our DCF derived fair value estimation remains at $0.15, which translates to 11x FY08 earnings and 1x book value.

BBR Holdings: Neutral (DMG, 15 Jan)
The government has announced that it will be bringing back some of the smaller projects, of up to S$50m in value. In addition, the government would be bringing forward other suitable new projects in the pipeline – this is on top of the projects originally planned for 2009. Public sector agencies would also be lowering the quanta of security deposits required for their construction projects. The current 5% deposit would be reduced to a range of 0% to 2.5%,. This would help in freeing up cash for companies, enabling the cash previously tied up in deposits to be utilized in other operating activities. To ease the credit squeeze that companies are facing, Spring has extended the qualifying criteria to allow more construction firms to tap on such schemes and lowering the interest rates for bridging loans to reduce the cost of credit to companies. In our opinion, these measures by the government act as a safety net for the smaller construction firms which are likely to be experiencing significantly higher cost of borrowings or even having difficulties obtaining funding for their working capital and asset enhancement needs. The public sector agencies would be making more frequent, prompt and full progress payments to firms for completed and certified construction work done. We view this as positive for BBR in view of its strong track record in government infrastructure projects, it has a good chance at securing some of those projects that are rolled out, thereby beefing up its order books. BCA's projection for value of contracts awarded in 2009 is between S$22b and $28b, or -19.1% to -36.4% lower from the previous year. In view of a more muted macro economic environment in 2009, we are maintaining our NEUTRAL stance and fair value of S$0.045 for BBR, based on 3x forward earnings.

Ezra Holdings: Buy (OCBC Research, 15 Jan)
Ezra Q09 results saw its revenue rising 1.5 times year-on-year to US$113m but PATMI registered a 93% decline due to a one-off divestment gain recorded in the previous quarter. Stripping the divestment gain, Ezra gave a laudable performance with PATMI rising 2.6x to US$9.3m. Along with bettering our forecasted charter rates, the strong performance was boosted by lumpy contributions from its Marine Services and new Energy Services divisions. But the good topline performance came with a slimmer overall gross margin. Its main chartering business saw a fall in margins as new vessels were taken on its books as compared to previous sale-and-lease back arrangements, translating to an accelerated depreciation. Marine Services registered slimmer margins due to milestone payments of less lucrative non-turn key projects. We expect this division's margins to average 18% on an annual basis. We initially had strong hopes that this business will serve to lift Ezra with its good margin construction/maintenance business. However, EOC's thin asset base of four large vessels was in transition between contracts, resulting in lower charter revenue. Therefore, we have softened EOC's contribution to Ezra by 26% for both FY09F and FY10F. While visibility for its offshore support vessel business is slowly crystallising for 2009, Ezra's contribution from its lumpy Energy Services division and EOC could cause Ezra's earnings magnitude to vacillate. We have maintained a conservative stance on both these divisions and will tweak our estimates as we gain better clarity. Forex risks can also contribute heavily to the swing We have tweaked our earnings model and raised the PER valuation for Ezra's core business to 6x (prev. 5x) FY10F EPS as it demonstrates resilience in charter rates. Conversely, we lowered EOC's valuation to 4x (prev. 5x) FY10F EPS as we remain pensive on its long-term contracts. We maintain BUY with a fair value of S$1.09 (prev. S$1.16).

Ezra Holdings: Neutral (DMG, 15 Jan)
Ezra 1QFY09 results reveal a topline increase of 149% year-on-year but fell 5% quarter-on-quarter to US$113m. Core operating profit, excluding one-off exceptional gains and net forex loss, was US$10.6m – a turnaround from a loss of US$6.9m a year ago. The net forex loss arose from the translation of foreign currency bank deposits and receivables denominated in Norwegian Kroner and Australian dollars. Lower contribution from Ezra's Oslo-listed associate, Eoc Limited, was mainly due to the absence of earnings from Lewek Arunothai and decreased charter income for its vessels. Ezra had initially planned for a capex of US$750m over these two years, of which US$650m would be used for five ultra-deepwater Multi-Functional Support Vessels (MFSVs) and one AHTS. Another US$100m would be set aside for the Vietnam Yard, Academy and Energy Services business division. We believe that Ezra is finalising the termination terms with Keppel Singmarine. Further, we understand that Ezra is reviewing its capex plans of two other MFSVs to be built in a Norwegian yard, with a likely inclination to abort construction of these vessels. As such, we have trimmed our capex accordingly and revised down our FY10's revenue and net profit estimates by 7.8% and 6.4% respectively. Unless oil price stabilises at higher levels, we would continue to see further capex cuts and fewer drilling activities. This will pose a difficult operating environment for Ezra. Given its exposure to contingent liabilities arising from sale-and-leaseback financing and a fleet comprising of high capacity vessels, Ezra's greatest risk is the vulnerability to a decrease in chartering rates. As we see no near-term catalyst, we maintain our Neutral rating and target price of S$0.67.

Pan Hong: Neutral (DMG, 14 Jan)
Pan Hong has attained a take-up rate of 23.5% for Hangzhou Liyang Yuan (HLY), a 226-unit residential project which it launched at the turn of the year. A total of 53 units were transacted at an average selling price (ASP) of RMB9,500 psm, above our estimates of RMB9,000 psm and in line with management's expectations. Assuming a breakeven price of RMB5,600 psm, they would contribute 0.94¢ / share to NAV when completed and handed over in Sep 09. Pan Hong would also book in the proceeds as revenue upon the project's completion. Overall, this project accounts for 5.4% of our GAV. Pan Hong's additional entitlement to HLY's sales agency however was not adequate to offset the continued tepidity within the Chinese property sector. We believe this could also be due to the targeted buyer profile for this project, which is more inclined towards the middle to upper-middle income group, rather than low-income urban families. From our view, if take-up does not improve, Pan Hong could be more open to lowering its initial ASP. Given the low acquisition cost of HLY, PBT margins should remain attractive at above 20% even if ASPs are slashed by 20% to RMB7,000 psm. While keeping our overall estimated ASP for HLY, we have now factored in Pan Hong's new sales of 90 carpark lots in Nanchang Honggu Kaixuan Phase 1. As such, FY09's topline and PATMI increase by 7.9% to 8.8% to RMB83.6m (previously RMB76.8m) and RMB28.8m (previously RMB26.7m) respectively. FY10 estimates are unchanged. Our recommendation for Pan Hong remains a NEUTRAL at S$0.25, 50% discount to base case RNAV of S$0.49.

Golden Agri-Resources: Buy (ABN AMRO, 13 Jan)
Golden Agri's productivity is expected to be higher than initially expected. The company's investments in seed technology are expected to boost the CPO yield from 22.5% to 24% in FY09-10 . According to Golden Agri, it has access to proprietary seed technology, which drives its superior productivity. Golden Agri has exclusive use of the 'Dami' seed which has independently been estimated by agricultural experts to be 20% higher in yield than conventional seeds. This increased productivity raises our FY09F and FY10F net profit by 26% and 22%.We expect a steady recovery in CPO prices in 2009 with prices to average US$520/t in 2009, compared to the average price of US$490/t in 4Q08. The recent 18% spike in CPO prices has led to a 37% rise in Golden Agri's price since 1 December 2008. Golden Agri has also outperformed the STI's 10% rise in this period. This demonstrates Golden Agri's status as a liquid and deeply undervalued counter, benefiting from its significant exposure to the increasing CPO prices. We recommend a Buy and raise our DCF-based target price to S$0.37, implying 23% upside potential. We value Golden Agri at 3.8x FY09F PE, compared to a sector average of 11x. We also value Golden Agri's biological assets at US$3.1bn, which is 54% higher than its market capitalisation. We are 18% above Bloomberg consensus on FY09 net profit expectations.

SPH: Buy (DMG, 13 Jan)
In the first quarter to 30 Nov 08, net profit was down 36% to S$71.5m despite a 9% increase in revenue to S$340.2m. Recurring profit inched up 1% to S$127.8m, as its Sky@eleven project mitigated disappointing numbers from its core print media business which saw revenue falling 4.6% to S$249.4m due to the sudden sharp downturn in the economy and a a 21.3% rise in newsprint cost. But what took the wind out of the bottom-line were the mark-to-market losses of its investment portfolio, amounting to some S$33.7m. Overall, the results were below our expectations. We have lowered our earnings estimates by 22% to S$380.1m in FY09 and 15.7% to S$423.2m in FY10. However, recurring income is expected to fall by a milder 8.2% to S$404m in FY09 and 10.5% to S$406.5m in FY10. On the back of lowered estimates for the print business, as well as a higher cap rate applied to value Paragon (5.5% to 6%), we have reduced our SOTP-based target price from S$4.35 to S$3.88. At the current price of S$3.02, dividend yield continues to be attractive at over 8%.

SPH : Hold (OCBC Research, 13 Jan)
SPH announced its 1Q09 results yesterday with topline growing by 9% YoY to S$343m while PATMI took a 35% nose dive to S$73m. The poor showing was primarily due to a S$33.7m investment loss as SPH suffered significant mark-to-market (MTM) losses on its investment portfolio. Stripping out the effects of investments, SPH managed a credible flat pre-tax performance of S$127.8m despite rising costs and slowing core print revenue. We believe that most of its MTM losses were incurred due to declining values of externally managed funds. SPH’s print revenue also fell more than expected and we are now forecasting a 2.5% (prev. 1.6%) fall in its FY09F print revenue. Overall, our topline estimates are buffered by Sky@Eleven's recognition, but our FY09F bottomline is lowered by 14% due to the MTM losses incurred. Dividends are expected to hold at S$0.215 per share (7.1% yield) for FY09F. Our SOTP fair value is moderated to S$3.13 (prev. S$4.86) and we downgrade to HOLD. With our revised forecasts, SPH is trading at 14x PER, above its trough valuation of 12x (12-28x between 2001 and 2008). We will turn buyers at S$2.60-S$2.65 when FY09F PER is about 12x.

Sinotel Technologies: Buy (DMG, 13 Jan)
The Chinese government released 3G licenses to the three newly restructured telcos – New China Mobile, New China Telecom and New China Unicom – which are expected to spend up to RMB280b over the next two years, on equipment and network upgrading. China Mobile has announced that it plans to spend RMB59b this year, to expand its mobile network. As a provider of wireless network applications and products, and with its good relationship with the telcos, this is a good opportunity for Sinotel to grow its earnings. Prior to the restructuring, Sinotel's major customer was China Unicom. With the restructuring, it presents Sinotel with the opportunity to extend its services further to both New China Mobile and New China Telecom. At the current price of S$0.17, Sinotel is trading at 1.6x forward P/E or 0.8x P/B. Its peers are currently trading at an average of 4.2x forward P/E. As Sinotel is a much smaller company, compared with peers, we believe it should trade at a lower PE. We ascribe a PE of 3.0X for Sinotel. Hence, we are raising our target price to S$0.32, from S$0.20 previously.

China Milk: Buy (DMG, 12 Jan)
China Milk Products Group Ltd announced in Dec 2008 that its new dairy processing plant has commenced raw milk processing. The Group will produce dairy products such as flavoured milk beverages and yogurt drinks under its own proprietary brand, Yinluo. With a total processing capacity of 100k tonnes annually, the company's new processing plant will initially process about 50 to 80 tonnes of raw milk per day. As China Milk's competitors continue to face legal suits due to the melamine scandal, we believe that the commencement of its dairy processing plant is a major step forward in taking advantage of the current situation which will enable them to gain a larger market share in 2009. Despite the melamine scandal China Milk managed to obtain an 82.6% year-on-year increase in 2QFY09 raw milk revenue. With the addition of the new processing plant of 100 kilo tonnes per annum, we have adjusted our revenue and net profit assumptions for FY09 and FY10. In FY09, we believe that China Milk will achieve revenue of RMB715.5m which is 4% more than our previous assumption. Management has indicated to us that they expect about RMB24m revenue contribution from its processing plant which is from its 8,000 tonnes of processed milk to be sold in 4QFY2009. We therefore raise our FY09 net profit forecast by 5% to RMB472.2m. We have raised our target price from S$0.55 to S$0.67 based on 5x FY09 P/E which is a premium to the FSTC forward P/E of 4.3x. China Milk is currently trading at 3.3x FY09 P/E and 2.6x FY10 P/E.

Cosco Corporation: Sell (DMG, 12 Jan)
Cosco has announced yet another case of contract cancellations and deferrals, bringing to date the current number of bulk carriers cancelled to four and deferred to 10. In a press release issued last Friday, two more 57,000 dwt bulk carriers had been cancelled while the delivery dates of the other two bulk carriers had been postponed. We expect more cancellations and deferments in 1H09. With four cancellations, ten deferrals, and more expected to come, the silver lining is that yard capacity constraints would no longer be an issue. We think expansion plans at Cosco shipyards could possibly be halted, resulting in significant reduction in capex spendings for FY09 and FY10. Thus, our revised capex forecasts are S$96m and S$101m in FY09 and FY10 respectively. We are keeping our earnings estimates, which have already factored in 20% of order cancellations, and 50% bulk carriers delivery deferrals (by a period of six to 12 months). As such, we are assuming deliveries of only 25 bulk carriers in FY09 We maintain our SELL rating for Cosco, as well as our target price of S$0.74 based on 1.0x FY10 P/B.

Keppel Corporation: Neutral (DMG, 12 Jan)
Keppel provided an update on the three contracts under review in a press release issued last Friday. Two of the contracts, namely Scorpion Offshore's semi-submersible (Semi TBN), and Lewek's Multi-Functional Support Vessel (MFSV), would be cancelled on mutually accepted terms, while the third contract with Seadrill on the newbuilding of two jack-up rigs would proceed with payment schedules renegotiated. The cancellations totalled US$455.4m, of which 22% would have been recognized in FY09, 38% in FY10 and the remainder in FY11. This would reduce our FY09's and FY10's revenue forecasts by 1.5% and 2.4%, as well as our FY09's and FY10's net profit estimates by 1.6% and 2.6%, respectively. We caution that Singapore yards, including Keppel, may continue to face potential cancellations from highly-geared rig owners that have difficulty to finance out of future operating cashflows. Owners building semi-submersibles on speculative intent are most at risk. We are maintaining our Neutral recommendation and target price, based on sum-of-the-parts valuation.

Golden Agri: Hold (OCBC Research, 9 Jan)
Golden Agri-Resouces (GAR) has made very impressive recent gains rising 44% in just over a month, easily trumping the STI's 11% return over the same period. Two main reasons were behind its superlative outperformance including the recent rally in crude palm oil (CPO) prices and that GAR was among one of the most battered plantation stocks prior to the rally. However, as further upside for CPO prices may be capped by the still-bleak global economic outlook, we believe it is prudent to maintain our CPO assumption at US$500/ton for 2009, hence keeping our estimates unchanged. And as our fair value of S$0.30 has already been met, we downgrade our rating to HOLD, purely on valuation grounds.

Avi-Tech Electronics Ltd: Sell (OCBC Research, 8 Jan)
The semiconductor industry slowdown has continued accelerating due to weakening market conditions. A significant drop in IC demand has resulted in lower sales for Avi-Tech's burn-in and engineering services among its semicon customers, as consumers pull back spending on electronics products. Industry outlook by market watchers have also signaled a 2009 that is potentially worse than 2008. In the latest report by Gartner, global semicon sales is expected to show a record quarter-on-quarter decline of 24.4% in 4Q08, surpassing the 20% decline set in 2Q01. In addition, semicon revenue is forecasted to decline 4.4% in 2008 and a further 16.3% in 2009. This contrasts significantly to its previous forecast made in mid-November 2008, where semicon was expected to grow 0.2% in 2008 and fall 2.2% in 2009. Despite this, Avi-Tech remains unfazed, as it has already in place a long-term strategy to ensure sustainable growth and profitability. In addition, the company has revealed that its business initiatives with the medical/life sciences customers has started to contribute positively and that its net cash position has also improved slightly from S$44.3m as of 1QFY09. However, as the deteriorating market is likely to weigh on its profitability and share price, we again pare our FY09F revenue by 4.4% and maintain our S$0.07 fair value, based on 4x FY09F EPS.

Midas Holdings Ltd: Buy (OCBC Research, 6 Jan)
We are debunking any negative impact on Midas in relation to two published Financial Times articles (2 Jan 09) of interviews with the CEO of Alstom in relation to Chinese authorities being unfairly protective of their domestic railway market while "repackaging" technologies to compete in Europe. We believe that the momentum for such competitive bidding will only grow stronger and Midas will stand to gain from this with its train manufacturing joint venture Nanjing Puzhen (NPRT), which has proven to meet international standards. Even if the EU closes its doors to Chinese companies, the estimated RMB500 billion for train-set purchases will keep NPRT busy for the next few years. As Midas is a certified aluminium profile provider for all major train manufacturers, it is in a win-win situation as it continues to benefit from supply contracts from within or outside of China. We maintain our BUY call with fair value of S$0.65 based on 12x FY09 PER. Midas is riding on the back of macro policy government spending; earnings accretion from its sovereign-backed joint venture and relatively cheap capex in view of depressed valuations.

First Resources: Neutral (DMG, 5 Jan)
According to news reports, Malaysia's export of crude palm oil (CPO) is estimated to reach a record of 1.6 million tonnes in Dec, or up 22.2% month-on-month. As the CPO futures last traded at RM1,735/ tonne yesterday versus our CPO price assumption of RM1,500 per tonne (it was trading in the RM1,500-1,600/tonne range before the new year), we have decided to perform a sensitivity analysis for First Resources. At RM1,800/tonne (+20% above our CPO price assumption), our target price for First Resources would be S$0.51. A 10% CPO price level decline from our assumption to RM1,350/tonne would imply a target price of S$0.28 for the counter. As we do not see this uptrend in CPO price to be sustainable based on fundamentals, profit taking is likely to set in soon. We are maintaining our earnings estimates and CPO price assumption of RM1,500/tonne for FY09. Factoring a P/E of 7x our FY09F earnings, we derive our target price of S$0.36 and maintain our neutral call on the stock.

CapitaLand: Hold (OCBC Research, 2 Jan)
Last month, CapLand announced that it was investing in Peace Base (PB) by exchanging the entire holdings of convertible bonds of principal amount of RMB1,125m (S$249m) issued by Heng Yue. PB currently holds a site in Nanshan, Shenzhen PRC that is slated for the development of Nanyou Shopping Park, which will be a mixed development comprising of residential, retail, office and hotel components. We are positive over the acquisition due to the strategic location of the site, which is strategically located close to the Shenzhen Bay Bridge that connects Shenzhen to Hong Kong. Surrounding the site are built-up residential apartments, which could provide adequate human traffic flow to the shopping park upon completion. However, we have not factored in any potential RNAV contribution from this site yet as development is still in planning stages. We are now lowering our risk-free rate from 3.4% to 2% but our cost of debt has been raised by 100 basis points, from 4.27% to 5.27%, to take into account of the rising cost of financing. We have also adjusted the valuation of CapLand's listed investments base on their current market value. As such, our valuation of CapLand has been lowered marginally from S$3.28 to S$3.27. As CapLand’s share price rose 18.5% since our last report dated 17 Dec 2008, we are now downgrading CapLand from BUY to HOLD in view of the limited upside.

Singapore Post: Buy (OCBC Research, 2 Jan)
SingPost is the designated Public Postal Licensee for Singapore and its main businesses include mail, logistics and retail. Despite the liberalisation of the basic mail services market, it is still in a strong position to remain as the dominant postal services operator. We like SingPost for its stable operating cash flows and dividend yield, and its defensive profile should serve it well given the uncertainty in the markets. Although mail volume growth may be lower with a slowing economy and e-substitution, SingPost has launched new initiatives over the years and diversified into other business areas to pursue growth. We initiate coverage on SingPost with a BUY recommendation and S$0.93 fair value estimate, based on the free cash flow to equity approach with a cost of equity of 8.8% and terminal growth of 2%. SingPost has a dividend policy of minimum S$0.05 per share a year, implying at least a 6.3% yield (FY08 dividend yield was 7.9%).

Karin Technology: Buy (OCBC Research, 2 Jan)
Karin has announced recently that its wholly-owned subsidiary, Karin Technology Ltd (BVI) had increased its investment in Take Talent Investments Ltd from 70% to 75% by the acquisition of 1,250 ordinary shares for a cash consideration of HK$1 (Take Talent is in a net liability position). Take Talent offers IT solutions and professional consultation services and distribution of computer products and peripherals in China. Following this investment, any extra resources, which are presently assigned to Karin BVI will be relocated back to Hong Kong office. This, we note, is part of the management's restructuring measures to drive its cost as low as possible in order to enhance its cost savings efficiency. While we view this transaction positively, we understand that it is not expected to have any material impact on its FY09 financial performance. As such, we are keeping our BUY rating and S$0.18 fair value unchanged.