Stock Picks

Gallant Venture: Buy (OCBC Research, 29 Jul)
Gallant, which owns and sells landbank in Bintan is confident of continued growth in Bintan's visitor arrivals so far, and Singapore's upcoming F1 and Integrated Resorts should buoy arrivals in the near future. For 1H08, Bintan enjoyed a 8.1% YoY growth in visitor arrivals, outperforming the 2.9% YoY improvement for Singapore. Management also revealed that its resorts have been enjoying 100% occupancy rate on weekends, hence drawing strong interest from resort developers for its land parcels, which have already accumulated a record high order book of S$65.4m or 4.7x its land sales in FY07. The decision by the Indonesian government to extend the Free Trade Zone status to more areas within Bintan will encourage more investments and boost demand for Gallant’s industrial parks in Batam and Bintan. Gallant continues to trade at a 27% discount to the value of its landbank and a 26% discount to our S$0.94 fair value estimate. As such, we retain our BUY rating on the stock.

China Hongxing Sports: Strong Buy (Nomura, 28 Jul)
We expect several factors to boost sales of sporting goods in China in the coming years. In addition to the Olympics, other major sporting events in the coming years include the 2009 East Asian Games in Hong Kong, the 2010 Asian Games in Guangzhou and the 2011 World University Games in Shenzhen. The government is increasingly promoting sports to create health awareness among the public. CHS is down 30% over the past three months, on concerns of a slowdown in China. But the fundamentals are intact. Retail sales growth in China hit an all-time high in June, while CHS is on track opening outlets, has held successful sales fairs of late, and 39% of 1Q08 sales were from higher-margin products.

Raffles Medical Group: Buy (DMG, 28 Jul)
RMG recorded a 22.3% year-on-year (y-o-y) growth in 2Q08 revenue to S$50.6 million as all divisions recorded higher revenue. The improved revenue was attributed to the addition of specialist consultants as well as higher patient volume. Coupled with improved operating efficiencies, 2Q08 operating profit jumped 51.1% y-o-y to S$9.8m. As a result, operating profit margin improved from 15.7% in 2Q07 to 19.4% in 2Q08. In FY08, RMG would also benefit from the full-year impact of full-ownership of the Raffles Hospital building, which allows RMG to optimise the use of hospital and clinic space to boost revenue and grow earnings. As RMG continues to expand its services and extend its reach to more corporate clients and private patients, we believe it would be able to grow its underlying earnings. RMG's insurance business –International Medical Insurers. We have a target price of S$1.47, based on 23x blended FY08/09 earnings.

City Developments: Sell (Goldman Sachs, 28 Jul)
We see Singapore residential developers facing a double whammy of weakening demand amidst incremental negatives on the economic front and rising construction costs. CDL's share price has recently been helped by fairly strong response to its mass market residential project, Livia in Pasir Ris. We see CDL's recent share price out-performance as unwarranted, up +9.8% vs +6.6% and +0.8% for CapitaLand and KepLand (1-month), given CDL is most leveraged to high end SG residential property (segment with most downside risk). The share price of July 24 offers 12% downside to our new TP of S$10.50 vs. upside of 11% and 15% respectively for peers CapitaLand and KepLand. We note discount to RNAV for CDL is 9% vs. an average 20%-25% historically when residential market is flat to weak (both peers trade at 19% and 31% discounts). Stress test shows CDL has the most downside risk in a severe downturn, -28%, vs. -13% and -16% for CapitaLand and KepLand.

Parkway Life REIT: Buy (DBS Research, 28 Jul)
2Q and 1HFY08 results were within expectations. 2Q gross revenue was S$12.49 million, exceeding its IPO forecast by 8.8%. Singapore hospitals contributed S$11.97m gross revenue, while its three Japanese assets that were acquired in May contributed S$0.5m. We like PREIT in today’s inflationary environment because its Singapore hospital gross revenue is pegged to the higher of adjusted hospital revenue or 1%+CPI. We have assumed CPI of 6.4% for 2008 in our forecasts. At current price of S$1.12, PREIT offers attractive net dividend yield of 6.1% and 6.4% for FY08F and FY09F, respectively.

SMRT: Buy (DBS Research, 28 Jul)
SMRT's 1Q09 earnings were in line with expectations. The Group's net profit rose by 6.2% year-on-year (y-o-y) to S$40.3m on revenue growth of 11.2% y-o-y to S$216m. Revenue growth was primarily driven by MRT business (+8.2% to S$116m), due to higher ridership, as well as the rental business (+47% to S$13.8m). Higher operating profit at the MRT division (+9% yoy to S$35m) and rental business (+51% to S$10.3m) helped offset losses at the bus division (from profit of S$0.5m to loss of S$3.3m) and taxi division (higher losses of S$1.3m compared to S$300k in 1Q08), both of which were affected by higher fuel costs. Looking ahead, we expect the Group's core MRT business to continue faring well on firm rider-ship growth, which should help to alleviate the weak performance of the bus and taxi businesses. Higher rental income on increased floor space and improved rental yields should also help to contribute to higher earnings for SMRT. We continue to be positive on the long-term prospects of the group, on higher rider-ship and greater use of trains as a mode of public transport. Maintain Buy with target of S$2.00.

Chartered Semiconductor: SELL (UOBKayHian, 28 Jul)
Chartered reported a net profit of US$43.4 due to a tax benefit of US$49.5m. But expect a 3Q08 net loss of US$29m on increased costs and lower margins. We believe Chartered's margin will continue to narrow upon combination of factors including weak demand, weaken US$ and higher commodities price. We downgrade our rating to SELL from Neutral, and cut target price to S$0.58 from S$0.83.

AsiaPharm Group: Hold (Daiwa Research, 25 Jul)
AsiaPharm's share price remains unattractive, trading currently at a 15.6 times price earnings ratio (PER) on our 2008 forecasts, compared with its peer-average PER of 10.1 times, on the 2008 Bloomberg-consensus forecasts. Nevertheless, we have upgraded our rating for AsiaPharm to Hold from Underperform, but maintain our six-month target price of S$0.62, which is based on a 15% discount to the unsuccessful privatisation offer price of S$0.725. We are of the view that LuYe International will make another attempt to privatise AsiaPharm next year, given that it committed around S$118m to raising its stake from 44% to 77% during the privatization exercise. We also expect the majority of existing shareholders to hold out for a revised offer next year, and do not see the share price deviating too far from the previous offer price. We also believe a 15% discount is sufficient to factor in the risk of a non-event.

Frasers Centrepoint Trust (FCT): Outperform (Daiwa Research, 25 Jul)
We maintain our Outperform rating for Frasers Centrepoint Trust (FCT) after the announcement of its 3Q08 (financial year-end September) results on 23 July. We believe the results reinforce the steady and sure nature of FCT's underlying suburban mall assets and the relatively low-risk nature of the S-REIT. We have lowered our six-month target price slightly to S$1.44 from S$1.45, after a slight downward revision to our core FY10 distribution forecast.

CapitaCommercial Trust:Buy (DMG, 18 Jul)
CCT racked up a 22.6% year-on-year jump in 2Q08 DPU to 2.60 cts. Aside from Market Street car park, all properties generated improved quarter-on-quarter (q-o-q) turnover. CCT has managed to lower its cost of debt to 3.5%, and given that 95% of FY08 interest cost has been fixed, there should be minimal upside risks in the near term. For 2H08, topline and DPU should be boosted by about six months of contribution from the newly-injected 1 George Street, which we have already pumped into our estimates. With the office supply only making its entry beyond 2009, we think the near-term office story remains intact, especially with expiring leases still going significantly below market rents. At present levels, CCT is trading at FY08-09F yield of 5.2% to 6.6%. On the back of unabated inflationary concerns, we employ a higher risk-free rate of 3.5%, implying a higher cost of equity. This translates to a lower S$2.37, still a Buy with 19.7% upside potential.

SPH: Buy (UOB KayHian, 18 July)
Singapore Press Holdings' (SPH) has fallen to S$4.07, a 12-month low, following its recently released disappointing results that showed SPH’s newspaper advertising revenue growth falling significantly from 10.5% y-o-y in 2QFY08 to 4.2% y-o-y in 3QFY08. While SPH's newspaper business is seeing slowing growth, earnings contributions from its Sky@eleven residential property development and expansion of the Paragon shopping mall at Orchard road should buffer SPH’s earnings in FY08 to FY10. With dividend yield at close to 7%, we reckon there is limited downside in share price. We advise investors to look forward to the final dividend that will be announced in 4QFY08 results in mid-October. We are forecasting a final tax-exempt DPS of 20 S cts (an interim DPS of 8.0 S cts was paid following 2QFY08 results), which translates into a net yield of 4.9%, an attractive return for an investment period of three months. Traditionally, SPH’s share price sees a rally in the one month leading up to the announcement of the company's final results. With the current share price at 12-month low, we reckon it is timely to accumulate the stock for a play on the final dividend payout. Our earnings forecasts and target price of S$4.70 remains unchanged.

Singapore Banks: Neutral / Buy on weakness (DBS Research)
We spoke to the OCBC, UOB and DBS and gathered that their respective exposure to Freddie Mac and Fannie Mae is immaterial. We understand that such exposures should be within the exposure of each banks' total CDO exposure, particularly within the Corporate CDO exposure. The three banks have made the relevant and necessary provisions for its total CDO exposures. As at end 1Q08, DBS has a total of S$1.4b total CDOs of which S$259m in ABS CDOs and S$1,178m in Corporate CDOs; UOB has a total of S$268m in total CDOs, of which S$86m are in ABS CDOs and S$182m in Corporate CDOs; and OCBC has total CDOs of S$594m, of which S$250m in ABS CDOs and S$344m in Corporate CDOs. We believe share prices may over-react and in these instances, we recommend investors to Buy on weakness. We are not changing our recommendations or target prices: OCBC (Buy, Target Price S$9.70) and UOB (Hold, Target Price S$21.00).

Z-OBEE: Buy (OCBC Research, 11 July)
Z-OBEE is likely to benefit from the booming mobile handset industry. Mobile phone sales in China hit new highs of 43.05 million sets or RMB$49b in 1Q08, and is expected to hit 180 million units by the year-end. Despite the strong growth, the penetration rate in China is relatively low at 41.6%, compared to 80% in mature markets. Based on our forecasts, Z-Obee is currently trading at a compelling 2.3 times FY09F PER and at a striking 42.5% discount to its telecom peers. We are looking at a two-year EPS CAGR of 30%, underpinned by the booming mobile handset industry and expanded capacities at the new Tongqing plant. Pegged to a 4 times FY09F PER, we arrive at a fair value estimate of S$0.18.

AusGroup Ltd: Buy (OCBC Research, 11 July)
AusGroup announced that it has won a new A$42.8m contract from Apache Energy Ltd. This takes its order book to A$223m, a historic high for the company. Higher prices are encouraging investment in natural gas: according to the DomGas Alliance, a group of natural gas buyers, prices in Western Australia have tripled over the last 12-18 months. We believe the oil & gas industry will be the critical revenue driver for AusGroup in the medium-term with growth being propelled by some serious supply constraints. We maintain our BUY rating and S$1.33 fair value estimate.

China Angel Food: Buy (Phillip Securities, 10 July)
China Angel's capacity has increased four-fold with the commencement of operations at its new 32,000 sq m plant. At full utilization, the plant is capable of producing up to 1 million mooncakes per month. A new snack production line will also be installed at the new plant, eliminating the need to engage third party manufacturers for its cookie products. The company will focus on both strengthening its distribution channels, and the marketing of its non-mooncake product segments to build a stronger business base. Management believes that growing sales of its pastry and snacks/other food segments should alleviate reliance on mooncake products and smoothen earnings in the long run. China Angel is presently trading at 5.0 times FY07 earnings and 1.1x P/BV, which is undemanding in our view. Its closest comparable listed on the SGX, Hsu Fu Chi International Limited, is currently trading at 13.3 times PER.

Rickmers Maritime Trust: (OCBC Research, 9 July)
Rickmers has kicked off a three-year acquisition spree costing US$1.35b, with the delivery of the 4250-TEU containership MOL Dominance in early June. RMT plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has already arranged for about US$627.5m in new credit facilities on top of about US$45m that remains unused from its IPO facility. RMT's aggressive growth plans are supported by its ability to run time charters with long-term visibility. It has credit facilities in place that can cover its growth plans for FY08 and FY09. Maintain BUY with S$1.22 fair value

Li Heng Chemical Fibre: Buy (UOB KayHian, 8 July)
Li Heng is the market leader in the nylon industry in China. Based on the sales volumes in 2007, the company's market share is around 8.4%. With its rapid expansion, we expect the company to account for 15.5% market share as of 2010. Li Heng is likely to benefit from its sound domestic presence and large scale in terms of strong brand image, economies of scale, and higher bargaining power. It has shown strong capability to pass on most of increases in its raw material prices and maintain a stable gross margin at 34-35% over the past years. This was made possible by Li Heng’s superior product quality and good relationship with major suppliers. However, to be more conservative, we would like to assume that the gross margin will gradually deteriorate over the following couple of years on continued rising raw material prices and intensified industry competition. However, even with our conservative assumption of a declining gross margin, our earnings forecast for 2007-10 will still reflect a respectable three-year CAGR of 21.3%. Li Heng is currently trading at 3.6x FY08 PE and 3.3x FY09 PE. We initiate coverage with a Buy recommendation. Our 12-month target price of S$0.845 implies 5.6x FY08 PE and 5.2x FY09 PE.

Keppel Corp: Buy (DMG & Partners, 8 July)
Keppel Corporation’s wholly owned subsidiary Keppel FELS (through Keppel O&M) has secured its first semi-submersible contract with Bermuda based corporation, Scorpion Offshore Ltd. This contract, valued at US$405m (excluding owner-supplied drilling and subsea equipment), is subject to the fulfilment of certain conditions by mid-July 08. With the new order and year-to-date contracts constituting 66% of our FY08F assumption of S$6 billion, we are maintaining our target price of S$12.76.

SembCorp Marine: Buy (UOB HayHian, 8 July)
SembCorp Marine's (SMM) subsidiary Jurong Shipyard, has secured a 2nd rig order from Atwood Oceanics Pacific to build a deepwater semi-submersible drilling rig with an option for an additional 3rd unit. The rig is scheduled for delivery in mid-2012. The shipyard contract value for the unit is US$565m (S$768m), which does not include certain owner furnished equipment and owner-related costs. With this contract, SMM's year-to-date contract totals some S$4 billion. If SMM can clinch the Petrobras P62 contract (estimated value at US$1b), this would raise total new contracts to S$5.4b, thus surpassing our forecast of S$4.5b new contracts for 2008. Maintain BUY and our target price of S$5.25.

UOL: Buy (OCBC Research, 7 July)
The outlook for UOL remains positive despite uncertainties in the property market. Development projects launched over the last two financial years should provide good earnings visibility for UOL until FY10. Having launched the Nassim Park Residences, the remaining land banks of UOL fall in the mid- and mass property market segments, which, in our opinion, are likely to be less prone to price corrections going forward. In addition, we see UOL's holding in UOB and UIC shares as potential areas for future unlocking of value for shareholders. We also like UOL for its low gearing, diversified revenue stream, high margin of safety for its RNAV, low land bank exposure to the high-end luxury segment and the potential to unlock shareholders' value. Key risks to our valuation include: weakness in mass and mid-market property pricing and possible de-rating of UOB, UIC and Hotel Plaza. We resume our coverage on UOL with a Buy rating and fair value of S$4.94.

FerroChina: Buy (OCBC Research, 1 July)
Recent price hikes between upstream steelmakers in China and miners in Brazil and Australia are expected to flow down to downstream players like FerroChina. In pre-empting this, FerroChina has earlier embarked on efforts to efficiently produce thinner gauged steel, allowing it to provide similar tonnage of steel with more mileage for its buyers. This puts FerroChina in a great position to garner more new customers looking to reduce costs. Management is also looking to mitigate feedstock price increases by bettering internal efficiencies through faster maintenance work to reduce downtime and increasing rolling speeds. With an anticipated growth 69% CAGR (FY06-09) in bottomline, we maintain our Buy rating at a fair value of S$2.30 based on 9x FY08/09 blended PER.

Hyflux: BUY (DBS Research)
Geographically, Hyflux is also the most diversified SGX-listed water play with operations spanning Singapore, China and the Middle East and North African (MENA) region. Additionally, Hyflux is enjoying fee income as trustee-manager of Hyflux Water Trust (HWT) and recurring dividend income from its remaining 31.5% stake in HWT. More importantly, the company can divest completed projects to HWT to lighten its financial burden and recycle capital to capture better, bigger projects or other opportunities in new markets. Hyflux's orderbook of S$1.6 billion presents excellent visibility till 2010. Given the robustness of water demand globally, we expect Hyflux’s orderbook to continue to grow at a healthy pace. Year-to-date, Hyflux has secured S$818 million worth of contracts including a US$468m desalination win in Algeria. In addition to more orders from China, Hyflux will contest for another US$200m of Algerian orders end 2008. We have derived a fair value of S$3.53 (23.7 times FY09 PE) based on our sum-of-the-parts valuation. Although valuation seems high in absolute PE terms, its PEG ratio of 0.5 times ratio is relatively attractive considering Hyflux's compounded annual growth of 53% earnings per share (EPS) between 2007-2009 when compared to the industry average of 10%.