Stock Picks

Cosco Corporation: Hold (Phillip Securities, 31 Oct)
Cosco posted net profit of S$158.5m (+13.1% yoy) on revenue of S$987.7 mil (+80.6% yoy) for 3Q08. Earnings growth was attributed to progressive recognition of a larger order book, and higher charter rates from its dry bulk shipping business. Year to date, turnover increased 94.5% to S$2.8b, and net profit grew 49.6% y-o-y to S$482.0 mil. Margins, however, were disappointing, due primarily to high steel costs. Overall gross profit margin fell from 33.5% in 3Q07 to 20.4% in 3Q08. We expect operating conditions to remain challenging, on the back of sustained tightening credit conditions and slowing of global trade. Deteriorating conditions, we believe, will continue to put pressure on the business from all angles. The steep decline in freight rates should start to weigh in more heavily on the Company's shipbuilding and repair, and its dry bulk shipping businesses. Charter contracts for 8 vessels in the fleet will expire between now and end 1H09. Management will put these vessels on voyage charter until better terms can be reached. Following the swift decline in oil price to under US$70/bbl, Cosco's relatively young offshore segment is also at risk if oil producers reduce exploration and production spending. Although we view the factoring in of cancellations to be undue at this juncture, we expect order momentum to slow, going forward. We are maintaining our top line estimate at S$3.6b, and reducing our net profit estimate to S$617m on weaker margins. We are also lowering our fair value estimate to S$0.66, pegged to 3.5x FY08 earnings, which is at a discount to peers listed on the SGX. We view the discount to be justified, due to its exposure to worsening macro conditions on multiple fronts.

Cacola Furniture: Buy (OCBC Research, 30 Oct)
China's property sector has shown signs of weakening, hurting the outlook for furniture makers including Cacola, which derives 80% of its revenue from the PRC. Volume of homes sold from Jan-Aug 08 slipped by as much as 55.5% year-on-year (y-o-y) in Beijing. China's weakening property market, coupled with cautious consumer spending, could dampen spending on discretionary items such as furniture. Cacola's 2nd mega store in Chongqing, which was originally slated for opening in July 2008, was delayed to 2H08 due to disruptions arising from the Sichuan quake. To date, management has not provided any updates on its status and we fear further delays. This exposes our FY08 and FY09 revenue and earnings estimates to downside risk. We will obtain greater clarity on this issue and review our estimates when we speak to management after its 3Q08 announcement. While we expect stronger macro headwinds in the coming months arising from the global economic slowdown, these appear to be priced in at current share price levels. We have trimmed our our FY09 revenue and earnings projections by 7%, and will review our figures after the release of its 3Q08 results (estimated on 12 Nov). Based on its last traded price, Cacola is valued at a mere 0.9x FY08 PER and 0.4x FY07 NTA. Furthermore, it is debt-free. As such, we maintain our BUY rating on the stock, but cut our fair value estimate to S$0.26 (previously S$0.63), in line with the FTSE China Index's valuations.

Koda Ltd: Hold (OCBC Research, 30 Oct)
Koda has positioned itself as a premium designer of home furnishing products. In today's harsh operating environment where recessionary fears prevail, this market segment could experience a sharper downturn as compared to the mass market. The group suffered a 41.9% decline in FY08 net profits as the US subprime crisis took a toll on the group's sales. Although Koda's revenue streams are well-diversified, it will not be able to escape unscathed from the global credit crunch and property market slowdown. As of FY08, the bulk of its sales came from North America (40.5%), UK (23.0%) and Asia Pacific (24.0%). Koda has been struggling with order delays as its US customers have grown increasingly cautious in light of the subprime crisis. Many have held off taking delivery of their goods in a bid to reduce their inventory. We believe that this will continue to be felt in FY09, potentially dulling the group's sales. Fortunately, continued strength from Vietnam and Cambodia could pick up part of the slack from the US and UK. Management is also seeking to expand into contract manufacturing for projects in the Middle-East. Profit margins from contract manufacturing, however, are expected to be below the group's average. We have lowered our revenue projections and eased our FY09 and FY10 earnings estimates by 6% and 27%, respectively. Our US$3.4m FY09 net profit projection implies a 20% contraction. Nevertheless, Koda continues to enjoy a strong balance sheet with net cash position. We peg our valuation at 0.6x FY09F NTA, bringing our fair value estimate to S$0.185. This translates to 4.5x FY09F PER.

Man Wah Holdings: Hold (OCBC Research, 30 Oct)
Man Wah proposed its plan to purchase Famous Bedding (a PRC mattress and bedding accessories company) in August with the aim of beefing up its China operations and eventually listing it as a separate entity with MW remaining as its major shareholder. The transaction is still pending clearance from shareholders at its EGM which we expect will take place in Nov. A successful listing could unlock substantial value for MW's shareholders, but a failed listing could conversely leave shareholders with an enlarged business purchased at costly valuations. Famous Bedding aside, MW's merits lie in its proven track record and aggressive earnings growth profile. It impressed with a 107% surge in FY08 net profit, and managed to grow its US sales by 99% despite the subprime crisis. Going forward, a global recession could dampen its sales performance, but we still expect the company to post positive earnings growth in FY09 and FY10, as it has proven its ability to overcome challenges. Nevertheless, we have lowered our FY09 and FY10 earnings estimates by 6% and 16%, respectively to reflect a more cautious outlook. In view of heightened risk aversion, we are realigning our valuation parameter to 3x (from 8x) in line with the FTSE China Index, and roll over our valuation to blended FY09/10 earnings, bringing our fair value estimate to S$0.175 (from S$0.51). Although this offers more than 50% upside from current levels, the pending acquisition leaves a cloud of uncertainty hanging over the group, and as such, we reduce our rating on MW to a HOLD.

Lippo-Mapletree Indonesia Retail Trust: Buy (OCBC Research, 29 Oct)
LMIR posted S$26.6m in gross revenue in 3Q08, up 8.4% quarter-on-quarter (q-o-q). The results were generally in line with our expectations. The trust will pay out 1.6 S cents for the quarter (35% annualized yield). Since our last report in July, LMIR's share price has fallen 69% to 18.5 S cents. Apart from the broader concerns, we think the biggest factor behind the decline has been currency movements against a backdrop of extreme risk aversion. While SGD-rupiah (IDR) volatility will not threaten investor income (which is hedged), it could affect net asset values (NAV) in Singdollar (SGD) terms. We have tried to incorporate these concerns into our valuation. At the same time, we think the retail story in Indonesia is still compelling. The country's domestic economy has been relatively insulated from recent troubles, especially as the threat of inflation subsides. We take a more cautious view on our assumptions on rental growth, discount rate, and cap rates. Our new fair value estimate is 27 S cents (previously 70 S cents). Maintain with 27cents fair value estimate (previously 70 cents).

Singapore Banks (DMG, 30 Oct)
DBS: Neutral \Target S$11.30
OCBC: Buy \Target S$6.80
UOB: Buy \Target S$16.00
For investors who are very risk averse, purchasing these preference shares is an attractive option. However, we would like to point out that the prices of these preference shares have also fallen sharply in recent months, in the wake of global economic concerns, despite their low risk profile. Though the underlying bank shares could experience more price volatility, their returns are also much more attractive. The market is expecting the economic downturn this time round to be more severe than that of 2003, and therefore pricing the banks shares at P/B ratios lower than that recorded during the 2003 SARS downcycle. We are of the view that the economic conditions would be tough in 2009, but we believe the balance sheet strength of the Singapore banks will enable them to maintain their profitability. We believe investing in the underlying shares will offer better returns than investing in the preference shares. Based on our target prices, OCBC offers share price upside of 42% and UOB 25% over a 12-mth timeframe.

Raffles Medical Group: Buy (DMG, 30 Oct)
RMG achieved a net profit of S$8.2m for 3Q08, on the back of a 17% y-o-y growth in revenue to S$51.3m. All business divisions recorded improved performance during the quarter. For the 9-month of 2008, net profit was S$22.m, 16.7% lower than the corresponding period for 2007, which included a one-off gain in fair value of an investment property and its associated deferred tax charge. Excluding this event, net profit for the 9 months 2008 would have risen 36.1%. During the quarter, RMG recorded higher local and foreign patient load. Coupled with improved operating efficiencies, its operating profit jumped 35.0% y-o-y to S$10.2m. For the first time, the Group achieved operating profit exceeding S$10.0m in a quarter. RMG generated healthy cash flows of S$15.8m during the quarter. Its strong operating cash flows and net cash position will allow RMG the ability to face the challenging operating environment, going forward, brought on by the global economic slowdown. In FY08, RMG would benefit from the full-year impact of full-ownership of the Raffles Hospital building, which would allow RMG to optimize the use of its hospital and clinic space to boost revenue and grow earnings. Contribution from its insurance business (International Medical Insurers, which was started in 2005, to offer health insurance products) is expected in FY08. We have a target price of S$0.77, based on 12x blended FY08/09 earnings.

SingTel: Neutral (DMG, 30 Oct)
The news over the past month have been largely negative for SingTel, including: credit crunch taking a toll on its operations; falling Australian dollar; weakening prospects for regional associates. This has resulted in a 32% slump in the telco's share price, which has outperformed the market for the first eight months of the year, since Sep 08. SingTel Singapore CEO Allen Lew commented earlier in the month that it is "no longer business as usual" for the Singapore operations due to the global financial crisis. It is adopting a framework that "takes into consideration 12-18 months of uncertainty and economic slowdown". The telco will be focused on cost-cutting, details of which will be released during its results announcement on 12 Nov 08. No staff has been cut so far in Singapore, but employees who resign will not be replaced. Over at Optus, 115 employees (~1.1% of its total workforce in Australia) from the network department, were axed this month. The Australian dollar has taken a big knock of late, falling from 1.3 in Jul 08 to 0.96 currently. Previously, we factored in a S$/A$ rate of 1.25, but have since reduced it to 1.0.This will in effect reduce Optus' S$ earnings by: 19.8%, from S$791.2m to S$633m in FY09; 20.0%, from S$821m to S$656.8m in FY10. Our sensitivity analysis suggests that every 1% fall in the A$ will lead to a 0.2% fall in Group earnings. SingTel's regional associates, particularly Indonesia's Telekomsel and India's Bharti are also facing headwinds on the back of challenging environment. analysts covering these stocks have downgraded the estimates on the back of murkier prospects. Collectively, we are now expecting the associates to grow a mere 3%, down from our previous estimates of 9%. Factoring in the above-mentioned dampeners, we have lowered our earnings forecast of SingTel by 7.5% to S$3,805m (from S$4,116m) in FY09 and 7.4% to S$4,115m (from S$4,447m) in FY10. This represents an earnings decline of 3.1% yoy in FY09, and a growth of 8.1% in FY10. We have lowered our target price from S$4.05 to S$2.80, derived from our revised sum-of-the-parts (SOTP) valuation. Given that the stock may be pressured in the near term by negative newsflow from its core operations as well as its regional associates, we are downgrading the stock to a NEUTRAL.

Macquarie Prime REIT: Hold (DBS Research, 30 Oct)
MP-REIT reported a 25% y-o-y rise in 3Q revenue to $32.6m, lifted by higher rents for renewal and new leases. With the softening office leasing market and slower retail sales, rental momentum is likely to decelerate. This coupled with new supply of retail space coming onstream from 3 new malls from 2009, is likely to drag on rental performance. Recent purchase of a 26% stake in MP-Reit and 50% of the Reit manager by YTL Corp is viewed as neutral to slightly positive in view of the possible synergies from YTL Corp. Maintain Hold with TP of $0.71.

CDL Hospitality Trust: Neutral (CIMB, 30 Oct)
CDLHT's 3Q08 results were in line with consensus and our estimates. DPU of 2.93cts grew 24.2% yoy to form 26% of our forecast of 11.2cts for FY08. Gross revenue of S$29.1m was up 21.3% y-o-y on double-digit revenue per available room (REVPAR) growth in its Singapore properties. Room rate increases for Singapore hotels remained strong at 27.6% on a yoy basis, boosted by F1 in September. However occupancy levels slowed from the high base in 3Q07, dropping 4.4 percentage points to 85.5%. In line with our house view that the US financial crisis could result in a marked slowdown in Asia, we cut our REVPAR forecasts (a function of occupancy and average daily rates) to reflect between 10-20% decline in FY09-10. Separately, we remove our earlier acquisition assumptions of S$300m per annum over FY09-10 as we do not expect any acquisitions in the current credit climate. We also increase our cost of debt assumptions by another 50bps from FY09. Following our adjustments, our FY09-10 estimates decrease by 19-29%. We apply a higher discount rate of 10.8% (previously 8.5%) to our DDM valuation to reflect increased risks for the short-stay tenures of the hospitality industry in this climate vs. other property segments (average 3-year leases). Our earnings reductions account for 72% of the change in our target price. Our new target is S$0.77 (from S$1.78). CDLHT's sharp price fall of 77% since Jan 08 has priced in the negatives of slowing growth. Maintain Neutral.

ComfortDelgro: Buy (DMG, 28 Oct)
Crude oil price has fallen from a peak of US$134/barrel (Jun 08 average) to US$103.5 in Sep 08 and the current US$63. Energy and fuel costs account for a significant 10.4% of ComfortDelgro 2Q revenue, and we therefore expect lower future energy and fuel costs to help drive earnings. Our recent check with the company revealed that its diesel and electricity requirements have been partially hedged up till 1H09. Our sensitivity analysis shows that a further 10% decline in energy expenses (from our base case) would raise CD net profit by 9%. The market is also concerned with the weakening of the Pound and the Australian dollar on the group's earnings: UK operations accounted for 24% share of CD's 2Q08 operating profit. Factoring in a 20% depreciation of the British Pound against the Singdollar, this would translate to a 4.8% potential decline in operating profit. Australia operations accounted for 17% share of CD's 2Q08 operating profit. Factoring in a 30% depreciation of the Australian dollar against the Singdollar, this would translate to a 5.1% potential decline in operating profit. This potential 9.9% decline in operating profit would be offset if WTI prices fall by another 11% from our base case. Meanwhile, SBS Transit's (subsidiary of ComfortDelgro) rail and bus ridership recorded 15.4% and 5.8% y-o-y increases respectively, for the first eight months of 2008, The Singapore fare hike effective 1 Oct 08 will also be positive for revenue expansion. Earnings impact is significant as Singapore bus and rail accounted for 16% of ComfotDelgo's 2007 operating profit. We cut our CD target price to S$1.63 which is derived from sum-of-the-parts valuation. This is lower than our previous S$1.85 target largely due to the application of lower P/E multiples for ComfortDelgo's overseas operations – as P/E multiples of overseas peers have fallen. The stock also offers an attractive 2009 dividend yield of 8.2%. We believe ComfortDelgro's stable and resilient business will enable its share price to recover strongly when the panic selling ceases.

Keppel Corp: Netutral (DMG, 24 Oct)
Keppel Corp's reported revenue came in 18% higher than our expectations. Topline grew by 24% year-on-year (y-o-y) to S$3.2b, buoyed by positive contributions from its offshore & marine (O&M) and infrastructure divisions. Its Keppel's 3Q08 PATMI of S$272.9m was higher at 10% y-o-y, but fell 9% quarter-on quarter (q-o-q), which was largely attributed to 45.4%-owned associate, Singapore Petroleum Company (SPC) which posted a disappointing set of 3Q08 results earlier in the week. We reiterate our belief that Keppel O&M's substantial orderbook of S$13.0b and visibility on cash flow do provide some defensive qualities in this current challenging market environment. Going forward, Keppel's O&M would face considerable slowdown in new rig orders as the rig owners' ability to expand their fleet would be constrained by tight credit. Slower launches and take-up rates of both local and overseas residential property are likely to drag on in the near term. Infrastructure, albeit a growing division, is not ramping up as much as anticipated. We expect growth to be only slight and gradual. Outlook for SPC would continue to be uncertain and affected by the current global financial crisis and the severe oil price volatility. We have cut our FY08-09 earnings by 2-6% as we factor in lower contributions from Keppel's associated companies. In addition, we have revised our sum-of-the-parts (SOTP) valuations and we derive a target price of S$4.52, after applying 20% discount to our RNAV valuation. We maintain our recommendation at NEUTRAL.

Frasers Centrepoint Trust: Buy (DMG, 24 Oct)
Frasers Centrepoint Trust (FCT) posted an 11.3% y-o-y jump in FY08 DPU to 7.29¢, which hit our estimates. For the quarter, 4Q08 DPU headed up by 22.9% YoY to 2.05¢ (+9.3% q-o-q), aided by a kicker of 0.46¢ from the release of S$2.9m in distributable income retained during the preceding three quarters. FY08 Gross revenue gained 9.2% y-o-y to S$84.7m, underpinned by positive rental reversions, improved turnover rents and rental boosters. Net asset valuation (NAV) was up 6.9% y-o-y to S$1.24, aided by S$51.6m of revaluation gains. Looking ahead, organic boosters in the shape of positive rental reversions (18.0% and 12.2% in nett lettable area up for renewal in FY09 and FY10 respectively). This is on top of higher contribution from its 31%-owned Hektar REIT, as a result of a stipulated fall in withholding taxes (from 20% to 10%) paid by foreign institutional investors of Malaysian REITs. For FCT, we estimate a 12.5% increase in distribution income from associate, implying a quantum of S$4.7 – 4.8m for FY09 – FY10. (previously S$4.2 – 4.3m). We continue to believe in the resilient business model of heartlander-driven suburban rental malls, where people will still have to shop for non-discretionary items and rents being less volatile during periods of economic slowdown. At 28.1%, FCT is also one of the lower-geared S-REITs, with its next major chunk of loan only due in 2011. At current levels, the stock is trading at FY09F – FY10F yields of 10.9 – 11.3%. Maintain BUY at lower fair value of S$0.86. Key risks include more macroeconomic dampeners and prolonged credit crunch.

Aztech Systems: Sell (DMG, 23 Oct)
Net profit boosted by non-recurring items. 3Q08 revenue was up 11% to S$74.9m mainly due to increased orders of electronic products while a S$9.8m sales contribution from its new Materials Supply business also helped. Profitability generally fell as lower margins took its toll on Aztech although 3Q08 bottomline was 7.4% higher at S$3.9m due to tax adjustments and higher non-operating income which was attributed to the sale of patent rights. Margins were hit all across the board as Aztech experienced a negative macro outlook in the form of rising oil and commodity prices, higher labour costs in China and a weaker US$/RMB. The fall in operating margins, however, was less severe as the company managed to slash its selling and distribution costs. Aztech switched to a net debt position in 3Q08 with net gearing at 24.6% as borrowings increased from S$32m in 2Q08 to S$60.2m. Of the S$17.4m used in capex during 3Q08, we estimate that S$17m has been used for its Marine business for the purchase of tugs and barges. Our view has not turned positive. We remain concerned over the execution risks faced by Aztech's Materials Supply business given its lack of experience. Furthermore, the deteriorating macro outlook for the construction sector is yet another aspect that bodes ill for Aztech – due to the high raw material costs that have been locked in when the contracts were awarded, margins are currently being squeezed for the developers which have resulted in project delays. Given that we have already slashed our earnings estimate to reflect the risks that Aztech faces for its new business during our previous report, we are leaving our forecasts unchanged. At S$0.10, it is trading at 3.7x FY08 P/E that is just a shade above its SGX-listed comparables at 3.5x. Assuming it trades down to the industry average, our target price will be lowered to S$0.095. Maintain SELL.

CapitaMall Trust: Hold (DMG, 23 Oct)
CapitaMall Trust (CMT) recorded a 7.1% y-o-y gain (+3.3% q-o-q) in 3Q08 DPU to 3.64¢. DPU for 9MFY09 came to 10.64¢, making up 76.0% of our FY08 estimates and 73.4% of consensus numbers. Sufficient cash and bank facilities are in place to meet its near-term debt obligations. (S$187.5m and S$80m due in Dec 08 and May 09 respectively) Although we take heart in this 9-month refinancing clarity, we believe that the more salient issue at hand lies in Aug 09, when a major chunk of S$673.7m would be up for refinancing. While we remain confident that CMT should be able to refinance this debt quantum, we are of the view that an overhang would be cast over the counter as long as no concrete commitments have been secured. Further, the widening of credit spreads and volatile base rates (we estimate current all-in funding costs from 400 – 450 bps) raise further worries over higher interest expenses. CMT has slid 27.0% since CEO Pua Seck Guan’s announced his departure. Although we acknowledge that Pua was instrumental in steering CMT, and the timing at which the new CEO – Lim Beng Chee has stepped in is not the most opportune due to the ongoing credit crisis. Given the spectre of a macroeconomic slowdown, we are paring down our rental reversions to 2% pa (previously 5%-8%) for the next two years, as well as trimming portfolio occupancy levels to 95%-97%. (previously 98 – 100%). However, we are also injecting new contribution from Atrium@ Orchard and Sembawang Shopping Centre. The net effect is an increase in forecasted FY08 and FY09 DPU to 14.05¢ (previously 14.00¢) and 15.03¢ (previously 14.50¢) respectively. Although we note that CMT is one out of only two S-REITs to have weathered through a major recession period in 2003, which would serve it well in this current environment, we believe that investors now are placing additional emphasis on S-REITs' debt profiles. At 43.3%, CMT remains one of the higher-leveraged S-REITs. With the increasingly negative investor sentiments, we have increased our risk premium for the counter. Downgrade to HOLD at fair value of S$2.06.

CapitaMall Trust: Underperform (CIMB, 22 Oct)
CMT's 3Q08 results were in line with Street and our expectations. DPU of 3.64cts for the quarter grew 7.1% yoy to form 26.3% of our forecast of 13.9cts for FY08. Gross revenue of S$129.7m was up 13.3% y-o-y on new contributions from Atrium@Orchard and the completion of various asset enhancement initiatives (AEI) in various malls. Management revealed that planned AEI initiatives for Jurong Entertainment Centre, Funan DigitaLife Mall and Tampines Mall have been put on hold due to high construction costs although AEI for Atrium@Orchard and its integration with Plaza Singapura are expected to proceed on track, subject to official approval. CMT has performed well thus far despite weakening global economic conditions. Nonetheless, a deepening global and domestic recession is expected to weaken rental reversion possibilities going forward while the global credit crunch will make debt availability for new acquisitions difficult. On this, we remove our earlier forecasts of acquisitions for Ion Orchard, Clark Quay and Vista Xchange, and drop our rental growth forecasts to 0-2% for FY09 and -10% for FY10, down from 3%-15% growth expectations earlier. We also forecast a 1% drop in occupancy by 2010 for downtown malls which would be facing more competition from new supplies. Separately, we increase our associate contribution forecasts on strong YTD performances and higher cost of debt assumptions for FY09 onwards by 70bp. Following the above various adjustments, our DPU estimate for FY08 increases by 3%, while our FY09-10 estimates decrease by 5-25%. Accordingly, our DDM-derived target price (discount rate 9.7%) drops to S$1.50 from S$3.64. Downgrade to Underperform in view of a weakening macroeconomic outlook.

CapitaMall Trust: Buy (OCBC Research, 22 Oct)
CMT reported a soft set of 3Q08 results. Revenue grew 3.3% QoQ to S$129.7m and the increase was largely attributed to the contribution of S$3.3m from Atrium@Orchard. New and renewal leases contributed just S$0.8m to the quarterly increase in 3Q08. Slowing rental renewal was further evidenced from the decline in the percentage increase in current rental rates against preceding rental rates between 2Q08 (9.9% increase for 6m08) and 3Q08 (9.3% increase for 9m08), implying that reversionary growth had slowed QoQ. DPU of 3.64 S-cents was announced for 3Q08, translating to an annualized yield of 6.9% base on yesterday’s closing price. Management assured that CMT has sufficient cash and bank facilities to refinance its borrowings due in December 08 (S$187.5m) and May 09 (S$80m). However, the lack of investor appetite for medium term notes (MTN) means that CMT is unlikely to be able to draw down on its untapped MTN facility for refinancing purposes unless sentiment changes for the better. While this may have raised more uncertainties on the refinancing of the S$673.7m of borrowings due in August 2009, CMT still has a buffer period of 10 months to seek refinancing. CMT has also announced that it will be putting on hold its asset enhancement initiatives (AEI) for Funan DigitaLife Mall, Tampines Mall and Jurong Entertainment Centre. We see these delays as a positive move by CMT not to overstretch its financial resources and affect its credit rating at a time when its credit health and refinancing should be the priority. With further evidence of slowing rental reversion, we are now cutting our rental growth to 0% for FY09 and FY10, but we maintain our view on the defensiveness of retail REITs. Our fair value of CMT has been lowered from S$3.05 to S$2.57. Current share price still provides an upside of 21.8% and we maintain our BUY rating on CMT.

First Ship Lease Trust: Hold (OCBC Research, 22 Oct)
FSLT's results were generally in line with our expectations and it has announced it will distribute 3.05 US cents per share for 3Q08, up 9% q-o-q. While FSLT had so far secured debt financing on bullet repayment terms, the newest US$65m loan tranche will be amortized from Sep 2010 onwards, eating into distributable income. FSLT has a loan-to-value ratio of 175%; a 20% drop in asset value would trigger a technical default, necessitating a reworking of loan terms. FSLT has a diversified portfolio with long lease terms, but it is not immune to its environment. Counter-party risk and the possible depreciation of asset values are significant concerns. These risks are magnified by the use of leverage. We believe that recent price levels fully reflect the current risks and maintain our HOLD rating. Our fair value estimate of 43 S cents prices in a bear case scenario with a 25% fall in charter income, a 50% fall in terminal asset value and zero distributions from 2009 onwards.

Ezra Holdings Ltd: Buy OCBC Research, 22 Oct)
Ezra has reported a good set of FY08 results with revenue growing 87% to US$268.3m while PATMI grew 155% to US$175.4m. Removing its divestments, Ezra continued performed well with its recurrent PATMI rising 55.5% to US$49.9m. Prior to its FY08 results, Ezra announced that it had obtained new charter contracts ranging from 1 to7 years for four vessels. While the company has contracted out its first multi-functional support vessel (MFSV), it faces risk of delays in vessel delivery. Our forecasts have worked better charter rates into its Offshore division but have lower year-on-year (y-o-y) expectations of its Marine and new Energy Services division in view of its largely project based earnings in a slowing economy. Although our SOTP valuations have come off in tandem with the market, we like Ezra's locked-in long-term charters and young fleet that addresses the deep sea segment. Maintain BUY with fair value of S$1.20

Ezra Holdings: Neutral (DMG, 22 Oct)
Ezra Holdings has posted a healthy set of FY08 results with topline surging 86.9% y-o-y to US$268.3m due to full year contributions from seven Anchor Handling Tug and Supply Vessels (AHTS) and one launch barge; higher daily charter rates on renewal; increased revenue from Marine Services Division as well as maiden contributions from the new Energy Services Division. This flowed down to recurrent PATMI which soared 55.5% YoY to US$49.9m. Despite the robust set of results, no dividend was declared as the company conserves cash for its capex, going forward. Ezra has a committed capital expenditure (capex) of US$750m over the next two years, of which US$650m would be used for five ultra-deepwater Multi-Functional Support Vessels (MFSVs) and 1 AHTS. We understand this would be funded through internal cashflow (20%) and bank loan financing (80%). It's our view that overly aggressive growth companies that are highly leveraged are at the highest risk in this current market condition. In addition, owing to the weak oil prices and capital markets, we see downside bias to E&P spending capex for now. This declining demand, together with an expected increased supply in the offshore transportation/support vessels, would inevitably lead to falling utilisation and chartering rates of these offshore vessels. Hence, we are downgrading Ezra from Buy to Neutral We have revised our sum-of-the-parts valuation deriving a target price of S$0.67 (from S$2.30 previously).

China XLX Fertiliser & China Farm Equipment: Buy (DMG, 21 Oct)
The Chinese government announced earlier this week that they will remove the old policy on land use rights which was implemented in 1949. Farmers now will have the formal right to subcontract, lease, and exchange and swap their land use. By allowing farmers to pool their land, it will inevitably mean greater economies of scale and boost production through modern machinery. Furthermore, this new policy will protect China's current farmland from being taken away by property developers for the purpose of urbanisation. We believe that China XLX is going to benefit from this new policy because it will make fertilisers even more affordable for farmers. Our price target price for China XLX is S$0.70, which is pegged to 8.5x FY08 P/E. We have given China XLX a P/E premium based on our assumption that China's new policy for farmland will translate to better sales of fertiliser in the long term. With farmers pooling their land together, this will help boost sales for China farm Equipment in the long term. Our price target price for CFE is S$0.36 based on 5.6x FY08 P/E which is a premium to the FSTC P/E estimate of 4.0x.

MAP Technology: Neutral (DMG, 20 Oct)
MAP's 3Q08 revenue increased 27.7% to US$47.1m while net profit jumped 44.9% to US$3.9m. Margins in 3Q08 were also up mainly due to growth in the group's precision stamping segment and its new plastics injection moulding division outstripping that of the EMS solutions business, We estimate these two segments to have commanded gross margins of 20 – 25%, significantly higher than the EMS solutions business (5%) and the die-cut segment (11%). We believe that MAP's balance sheet would remain healthy going forward due to the company's strong cash position and its ability to generate constant free cash flows. However, we are revising downwards our earnings estimates by 11.4% and 16.8% for FY08 and FY09 respectively in light of the deteriorating macro outlook although growth in the hard disk-drive (HDD) industry is still expected. Our valuation methodology is now based on the average of MAP's historical P/E band since it was listed. Currently trading at 5.5x FY09F P/E and assuming that it trades up to the historical average of 5.7x P/E, we slash our target price to S$0.35 from S$0.575. Downgrade to NEUTRAL.

Ascendas REIT: Buy (DMG, 20 Oct)
A-REIT's 14.4% year-to-year (y-o-y) improvement in 2Q09 DPU to 4.01¢ was within expectations. Gross revenue gained 21.3% y-o-y to S$80.2m, underpinned by additional rental contributions from 11 completed acquisitions and development projects. Concerns over A-REIT's ability to refinance its next major loan – S$300m CMBS loan due in Aug 09, should be allayed, as it has successfully secured a firm commitment for an S$200m credit facility, as well as establishing a Medium Term Note (MTN) Program to be ready in Nov 08. Its track record of prudent capital management is further affirmed with 76.7% of total debt hedged into fixed rate for the subsequent 3.9 years, resulting in an all-in funding cost of 3.25%. Singapore's September non-oil domestic exports fell 5.7% y-o-y, which further confirmed the manufacturing sector's continued sluggishness. However, we draw comfort from A-REIT's less manufacturing-inclined tenant mix – 79% of NLA in non-manufacturing activities, which is less cyclical. The counter has been massively sold off of late (-38.6% vs. -45.8% for STI), and from our view, its current price offers a good entry point for investors to tap into a strong sponsor-backed industrial REIT with quality assets and proven track record, as well as stable and predictable income backed by long lease tenures (5.5 years). Upgrade to BUY with target of $1.75.

MobileOne (M1) : Neutral (DMG, 20 Oct)
M1's 3Q earnings fell 21.1% to S$34.4m on the back of a 1.7% decline in revenue to S$196.7m. The fall in earnings was due to higher acquisition and retainer costs, following the introduction of mobile number portability in Jun 08. EBITDA margin stood at 42.5%, down from last year's 45.2%. M1 added 10,000 (post-paid +6,000, pre-paid +4,000) more clients in 3Q08, bringing the total to 1.62m customers. The pre-paid segment's growth slowed dramatically as management wanted to concentrate on margins rather than revenue growth. Pre-paid margins have been hit hard since competition intensified last year, with many free cards being offered. Post-paid revenue inched up 0.3% to S$401.8m while pre-paid revenue increased by 20.6% to S$53.9m. Market share for both segments remained steady at 27.6% and 24.6% respectively. M1's Infinity Consortium lost out to OpenNet for the NBN NetCo bid.The latter has indicated that 60% of the project will be rolled-out by 2010, and completed by 2012, some three years earlier than Infinity's plan. The early rollout will benefit M1, as it means that it will be able to introduce more services earlier. Management indicated that there has been no slowdown in the business since the global economy decelerated quickly last month. In fact, it has gotten busier lately, which is in line with our checks with the other telcos. Management has reiterated its dividend payout of at least 80%. We expect the company to pay out 85% of its earnings to investors, which works out to a yield of 9.0% for this year. We have maintained our earnings estimates of S$160.1m in FY08 (-6.8% YoY) and S$149.1m in FY09 (-6.9% YoY). However, we have reduced our price target from S$2.09 to S$1.89 as a result of the rising equity risk premium. This represents an upside of 11.2%. Maintain NEUTRAL.

MobileOne (M1): Buy (OCBC Research, 20 Oct)
M1 reported a slightly disappointing set of 3Q08 results on Friday, with operating revenue down 1.7% year-on year (y-o-y) and also 4.2% quarter-on quarter (q-o-q) to S$196.7m, which was much steeper than the 1.5% q-o-q decline we had expected. Net profit tumbled 20.9% y-o-y and 16.1% q-o-q to S$34.5m, below our S$40.6m estimate. Although we continue to believe that M1's business is fairly defensive in an economic downturn, we believe M1's earnings are likely to be lower. As such, we have eased FY08 operating revenue estimate by 0.7% and earnings by 9.3%; FY09 operating revenue by 3.6% and earnings by 13.3%. This in turn pares our fair value from S$2.33 to S$2.12. With M1 still committed to paying out at least 80% of its underlying net profit this year and likely next year as well, we maintain our BUY rating.

Sino-Environment: Buy (OCBC Research, 20 Oct)
Sino-Environment Technology Group (SINE) is likely to post a marked-to-market (MTM) loss for its equity swap deal with Morgan Stanley, following the sharp decline in its share price over the past few months. We estimate that the MTM loss from the swap could amount to S$37.3m in 3Q08, dragging its earnings into the red; there is also a risk of more MTM losses in 4Q08, unless its share price recovers sharply from here. However, the losses are non-cashflow in nature and we still expect its underlying profit to see year-on-year growth. Nevertheless, we are paring our FY08 revenue and underlying earnings estimates by 13% and 8%, respectively, and our FY09 estimates by around 20% to reflect the credit crunch situation. We are also tweaking our DCF assumptions, resulting in a lower fair value of S$0.74. But we continue to like its long-term business prospects in helping to clean up China's environment, hence we maintain our BUY rating.

Straits Asia Resources: Buy (OCBC Research, 20 Oct)
Straits Asia Resources (SAR) has allayed concerns over its debt refinancing status by announcing that it has received from Standard Chartered Bank a committed, credit-committee-approved offer of US$300m. To recap, SAR has an outstanding US$230m bridge facility that matures on 17 Dec 08. In light of today's tight credit market, there could have been some lingering concerns over its ability to secure refinancing for this loan. As such, we view this latest update positively, and believe that it will put to rest concerns over its funding capabilities. Funds from the new 18-month credit facility will be deployed to refinance its existing US$230m bridge loan, and excess funds may be used to provide additional funding for the group to pursue its capital expansion and development plans. We maintain our BUY rating and S$2.25 fair value estimate on SAR.

Jurong Technologies: Buy (OCBC Research, 14 Oct)
Since end 2007, Jurong Technologies (JTL) has embarked on a one-year restructuring programme to strengthen its financial position and diversify into high-growth, high-margin businesses. Of late, the company had made significant headways in expanding its products and service offerings, such as the formation of a new business unit for Mechanical Contract Manufacturing (MCM), which complements its existing EMS/ODM businesses. Its strategic alliance with Fujitsu has helped to pave the recent JV with SEMINDA Group, enabling it to provide a whole range of networking products and gain immediate access to the fast-growing Indian market. Its Nusajaya plant has also commenced production of energy-saving light bulbs under its JV with a top European distributor, and is now sending the first batch of lighting for verification and reliability test. While the development is not expected to have any material impact on its FY08 results, JTL revealed that it has received considerable backlog of orders for volume production. Its design and manufacture of the breast cancer screening system with another JV is also making some encouraging progress, and may be ready for production as soon as start/mid FY09. We have grown decisively clearer on JTL's new business model, but note that its high net gearing of 106.1% (as of June 2008) and continued tied-up with the major customer are likely to limit its growth in FY09. Pending further developments to improve its balance sheet, we are raising our FY09F sales by a conservative 2.6%. With a quarter left, we roll over our valuation to FY09 but peg it at 0.6x FY09F NTA (from 0.8x) in view of investors’ greatly reduced risk appetite presently. Our fair value now stands at S$0.28 from S$0.35 previously.

CapitaCommercial Trust: Buy (Kim Eng, 3 Oct)
The tumultuous events emanating from Wall Street over the last couple of weeks have led to a massive sell-down of shares related to Singapore office landlords. Investors are worried that the consolidation of large financial institutions in the US and Europe will lead to a decline in the demand for office space here as banks and businesses scale back their expansion plans. However, we believe rentals are in for a soft landing rather than a hard one, over the next 12-18 months. CCT's earnings growth is quite visible up till end-2009, due to the nature of the rental reversion cycle and the low current average rents for the respective buildings. In addition, One George Street will continue to benefit from a 5-year yield protection clause, while HSBC has locked-in a 7-year forward lease w.e.f. 2012 for HSBC Building. CCT has to refinance $656m of debt expiring next year, and another $800m in 2010. We estimate CCT’s estimated end-2009 deposited property value to be $5.7bn, and the gearing ratio would increase to about 0.46x from the current 0.36x, which is still manageable. Backed by high-quality properties, we do not think refinancing would be a major issue for CCT. With 10-year government bonds yielding an average of 3.5%, CCT's forecasted FY09 DPU of 12.3 cents translates to a yield of 9.4% which is very attractive. The recent sell-down is perhaps overdone and CCT looks undervalued at current levels. Reiterating our BUY recommendation.

Singapore Petroleum Co: Hold (DBS Research, 3 Oct)
The threat of weakening oil demand coupled with a glut of new refining capacity that will come on stream at the end of 2008 and 2009 has posed higher risks on the prospects for refining margins. We expect SPC to post weaker 3Q08 earnings, due to lower refining margins and significant inventory write-downs as a result of the sharp drop in crude oil price during the quarter. We have revised down FY08F net profit by 10%, mainly to reflect impact from the expected inventory write-down in 3Q08. We have also cut FY09F net profit by 15%, as we have assumed a more conservative refining margin assumption of US$4/bbl (from US$5.5/bbl). Subsequently, we downgrade our sum-of-the-parts-derived target price to S$4.54, implying 4.9x 2009 PE and 1.1x P/BV. The lower target price is attributed to a lower target PE multiple of 4x on 2009 earnings (from 8x on 2008 earnings) for the refining segment. We believe the current share price has already factored in the prospects of weak refining margins going forward. Despite our earnings downgrade, we still expect SPC to maintain an attractive dividend yield of about 13% for 2008-09. Trading close to our revised target price, we adjust our recommendation from Buy to HOLD.

Keppel Corp: Hold (DMG, 3 Oct)
While the credit crunch has tightened global liquidity leading to fears of a drastic slowdown in newbuilding contracts in the oil and marine sector, we hold the view that these concerns may be premature at this juncture. In fact, greenfield yards with weak balance sheets may face both financing worries and delivery delays, giving rise to opportunities for reputable yards such as Keppel to clinch more contracts. Its total new contracts to date stand at S$5.4b with the announcement of two conversion projects worth S$150m by Keppel Shipyard. Nevertheless, the recent plunge in the share price of Keppel's 80% owned subsidiary, Keppel T&T's has shaved S$1.01 off Keppel's valuation. It is believed that the forced selling of shares may have stemmed from redemption of personal funds, rather than from any structural changes in the fundamental business. Furthermore, Keppel T&T's 20% stake in Singapore listed telco M1 is still reaping attractive dividends. But while we believe that Keppel O&M's substantial orderbook of S$14.8b and visibility on cash flow provides some defensive qualities in this current challenging market environment, Keppel is unlikely to escape the downside risk of the share price, given investors' growing concerns over the cyclical O&M cycle. Coupled with the already lacklustre property outlook, we see heightened risk for further downward price catalyst should the upcoming 3Q08 turn in a disappointing set of results. We have hence downgrade the stock to a HOLD with a revised target price of S$8.64.

ComforDelgro: Buy (Merrill Lynch, 2 Oct)
We recommend investors buy the stock for the 5% dividend yield and earnings recovery. We value ComfortDelgro at $1.70 using DCF, applying a long-term oil price assumption of US$90/bbl. Over 80% of ComfortDelgo's revenue comes from providing basic public transport services that is relatively recession-proof. Barring a spike in fuel cost like it did this year, earnings would have been defensive as fares typically adjust for inflation. The nature of the industry also allows Comfort to generate strong cash flow and build up healthy cash reserves for acquisitions. We expect core FY08 earnings to decline 24% due to higher fuel prices and weak FX. In our view, this is mostly in the share. We expect earnings to recover in 2009 as fuel prices stabilize. We are assuming oil price of US$107/bbl for FY09, and there could be upside to earnings if fuel cost drop further. ComfortDelgro's businesses are very cash flow generative, allowing it to have a declared dividend policy of distributing at least 50% of profit. We expect the company to pay 75% of reported earnings (include one-off item). The FY08 dividend yield 4.8% should lend support to the share price, especially when the dividend is likely to improve further next year. The key risks are high energy prices and loss of operating contracts.

SMRT: Neutral (Merrill Lynch, 2 Oct)
We like the company's defensive land transport business model and recession-proof earnings. However, the stock is already trading at premium to local and global peers due to its 'safe haven' status, and it is difficult to argue for further valuation re-rating. Hence, we are initiating coverage on SMRT with a Neutral rating with a target price of $2.00, assuming long-term oil price of US$90/bbl. SMRT is experiencing a sustainable increase in ridership regardless of the economic environment as the government implements policies to promote the use of the public transport, particularly MRT. The rising ridership and higher load should translate to operational leverage, but higher energy costs will offset some of that in the current financial year. SMRT generates strong cashflow allowing it to distribute a minimum 60% of net profit as dividend. The actual payout ratio has been 80% since FY06, and we expect that to continue. On our estimate, the FY10E yield is 4.8%. We would turn more positive on the stock if it reaches a more attractive level at about 15x P/E, 5.3% yield (or around $1.70) or if the fuel cost decline significantly

SMRT: Downgrade to Neutral (DMG, 2 Oct)
SMRT has entered into an agreement to acquire a 49% equity interest in Shenzhen Zona Transportation, a leading road transport company in Shenzhen. The investment is earnings accretive. But SMRT expects immaterial financial impact on SMRT's FY09 results. Separately, SMRT has signed a new 6-mth fixed-rate electricity contract effective 1 Oct 08. The rate for this new contract is 30% higher than that for the previous 6-mth contract, despite the recent softness in crude oil price. We have therefore raised our forecast of FY09 electricity expenses. On a positive note, we have raised FY09F MRT ridership growth to 10.9% (versus earlier assumption of 9.7%). After factoring in higher electricity expenses as well, we are cutting our FY09 net profit forecast by 1.6% to S$144.5m. SMRT share price has risen 17.9% YTD whilst the STI has fallen 31.9%. Most of the positives are already factored into SMRT share price. Though the investment in Zona is a good start to SMRT expanding overseas, the impact is seen to be marginal in the short term. We see little upside for SMRT share price going ahead. Even the FY09 dividend yield of 4.1% (based on 85% payout ratio) is only slightly higher than the 3-mth SIBOR of 1.85%. The market risk premium is now 9.46%, versus 8.68% two months ago. Consequently, our DCF valuation has been cut from S$2.08 to S$2.03. We are downgrading SMRT from BUY to NEUTRAL.