Stock Picks

Lippo-Mapletree Indonesia Retail Trust: Outperform (Macquarie, 30 Sep)
We initiate coverage on LMIR with an Outperform and a DCF-based target price of S$0.56. LMIR offers a stable distribution income yield of 10.3% (based on a 90% pay-out from 2010E) from its diversified portfolio of mainly suburban retail malls in Indonesia. There is very little risk of an equity issuance given its current gearing of only 12.3%. LMIR is a play on domestic consumption in Indonesia. We expect DPU of 6 cents (100% pay-out) this year and 4.7 cents (90% pay-out) next year which translates to an attractive yield of 10.3%. We estimate renewed rents declined 6% year-on-year (yoy) this year due to the global downturn but will provide a solid base in the future with a weighted lease term to expiry of about 5.4 years. The Lippo Group manages 16 malls (ex-LMIR) which could be injected when the yield is stabilised over the longer term. The Indonesian retail market is also fragmented, which presents opportunities for tactical acquisitions in our view. LMIR has the lowest gearing of 12.1% among our SREIT universe. Assuming a target gearing of 30%, we think LMIR can increase its asset base by 26% to 60%, depending on the debt-equity structure used for such transactions. LMIR has cross currency swaps in place to protect the distributions from a sharp depreciation of the Indonesian rupiah (IDR) but only on a quarter-by-quarter basis. The period-end exchange rate will affect the valuation of the assets. Hence LMIR is likely to keep gearing lower than its peer group to account for such fluctuations.

CapitaLand: Hold (OCBC Research, 30 Sep)
CapLand has announced that its sponsored funds had entered into an asset swap agreement with SZITIC Commercial Property (SCP). Following the asset swap, the cooperative agreement with SCP will be terminated. The asset swap is not expected to have significant financial impact on CapLand, as no additional investment outlay is required. Over the longer term, the termination of the cooperative agreement could be beneficial to both CapLand and SCP as both companies will be able to take on their preferred strategies without the need to reconcile any difference in opinions. We maintain our RNAV estimate of S$3.72 and fair value of S$3.72, which is pegged at par to our RNAV estimate. We think that the asset swap could accelerate the process of injecting the malls into a REIT, which could lead to a positive re-rating of the stock. We maintain our HOLD rating on CapLand.

Ezra: Buy (BNP, 30 Sep)
There are easily 40 stocks listed in Singapore with claims to an offshore oil & gas exposure. However, with the exception of the rig yards, which have capitalised magnificently on the rig boom since 2003, the bulk of exposure has been mainly been about asset ownership/trading or widget making. The technical franchise is usually not sophisticated. Ezra is an exception. The recent purchase of five remotely operated underwater vehicles (ROV) was a crucial step in launching Ezra?s subsea services. The breadth of subsea work is huge, including assessing terrain, planning fields, installing wells, maintaining them and eventually decommissioning. One thing is certain though, you will need an ROV to do all these. Ezra may be just starting out and there are global leaders already in the field, but the pie is growing fast and the industry remains fragmented. We think the stock should track its historical valuation as it did in the last cycle (2006), when significant growth was expected. At the time, Ezra traded at 12-18x forward. Our DCF TP implies a 14x multiple. Despite a magnificent run since March 2009, we think it is not yet time to cash out. Wait for contracts for new services to manifest. We think offshore services will see significant growth and Ezra is an excellent proxy. We have raised FY11 earnings by 10% as we think margins for subsea services will likely improve to 20% after a year of operations. Our current gross margin assumption for FY10 (subsea) is 16%. We do not think that these are aggressive especially when Oceaneering International (the largest ROV operator globally) achieved operating margins of 44% for ROV services in 2008. Our target price has been raised to $2.64 from $1.91.

ST Engineering: Hold (UOB Kay Hian, 30 Sep)
STE has to date secured more than 10 rail electronics projects in China. In Guangzhou, it had secured its sixth contract. These contracts involve passenger information system, automated fare collection system and the construction of platform doors. The division is a major electronics solutions provider in Asia and has recently won similar contracts in the Middle East, India, Hong Kong, Taiwan and Thailand, all of which will contribute to earnings in 2010. In Singapore, the division will showcase two noteworthy projects – a S$92.8m integrated Security System for Resorts World Sentosa and a command & control system for Singapore's Downtown MRT line worth S$180m. The delivery of the first batch of Singapore-made vehicle for the UK Army is an important milestone for STE. The division will deliver an initial batch of 100 all-terrain vehicles to the UK by end-09. The vehicles will enter combat service in Afghanistan in 2010 and will enhance STE's prestige as a first world defence contractor. About 80% of its maintenance, repair & overhaul (MRO) work is from repeat business and 20% is from the spot market, which is still soft. Still, defence-related MRO work is expected to be resilient and ST Aero will very likely book in some MRO revenue on some of the Air Force's newer assets. An additional sweetener would be the continued strength in the US dollar which has risen 3.4% in 3Q09. In Panama, ST Aero has capacity for 1 million man-hour of work, but utilisation is only about 15%. The centre is touted as a low-cost MRO centre with the potential for MRO to be outsourced from North America. In China, ST Aero will be expanding its Pudong hangar in Shanghai and this will add 700,000 man-hour capacity by 1H10. The Pudong MRO centre is a 49:51 jv with China Eastern and should lead to greater MRO content with the merger between China Eastern and Shanghai Airlines. While the outlook for the Aerospace division remains murky, we are encouraged by the growing prominence of its Electronics and the Land System?s divisions. An added attraction is the stock's dividend yield, which even at current price of S$2.72 offers a yield of 5%, going by our and consensus estimates. We have raised our fair price to S$2.69, valuing the stock at mid-cycle PE multiple of 18.5x on the average of FY09 and FY10 earnings.

Wilmar International: Buy (UOB Kay Hian, 30 Sep)
Wilmar confirms it has decided to delay the upcoming Hong Kong IPO of its Chinese operations, which initially was scheduled for end-October. The decision follows overall market instability and weakness in recent primary deals throughout the region, while the timing remains largely dependant on the market. We believe that although the listing is likely to raise at least US$2.5-3bn, Wilmar is in no immediate need to raise capital. However, an extended deal delay into November could result in further delays as Q309 results would need to be included in the prospectus. Third quarter results are currently scheduled 12-13 November 2009. The deal delay and valuation has resulted in 10% share price weakness since 24 September, which we believe represents a buying opportunity. We remain bullish on Wilmar as we expect Chinese cooking oil consumption to pick up on account of renewed urbanisation and real consumption growth. We maintain our Buy-rating and S$7.00 12-month price target, which is derived from a DCF analysis. Our valuation incorporates a WACC of 8.32%.

Wilmar International: Buy (Phillip Securities, 30 Sep)
Wilmar is one of the largest vertically integrated edible-oil processors in the world. The company is a leading refiner of palm oil globally and soybean in the PRC. Wilmar is also the largest provider of branded cooking oils in China, accounting for more than 40% of the market share. In addition, the company also owns the world's third largest palm oil plantation.
It is also Asia's biggest agribusiness group with a leadership position in most of the business segments in which it operates. It commands significant bargaining power and good market intelligence in the demand and supply dynamics of edible oils due to its extensive global footprint and superior integrated business model. China is the key market for Wilmar's oilseed processing and consumer pack businesses. We estimate that China contributes about 50% of the group revenues and 48% of the group earnings in 2008. In the near to medium term, we believe the impending growth in China will remain a key driver for Wilmar's performance. Our sum-of-parts derived target price of S$7.75 offers 19% upside. We believe Wilmar deserves to trade at a premium given its dominant market position in almost all of its businesses and strong management team. The shareholder restructuring and the possible resulting increase in MSCI weighting will be drivers for the stock price. Initiate with a BUY recommendation.

Wilmar International: Buy (Kim Eng, 29 Sep)
The recent pullback in Wilmar's share price provides an excellent entry opportunity, ahead of its upcoming listing of its China assets. Based on indicative IPO valuations, Wilmar is valued at S$7.50 per share, with potential upside from a better than expected launch of Wilmar China. News reports indicate that Wilmar China will begin trading as soon as 23 October, with an EGM to approve a sale of between 20-30% of Wilmar China scheduled for 2 October. We reckon Wilmar will raise around US$3.0-3.5bn from the sale of new shares – a 20% stake sale implies Wilmar China to be worth US$15bn. Based on our earnings estimates of US$835mn for the China business, this values Wilmar China at just 18x FY09 PER, which is at the low end of our expectation of between 16-24x. Wilmar reportedly intends to use the cash raised from the IPO in the following manner – 40% to expand production capacity, 35% for acquisitions, and the rest for debt repayment and working capital. Wilmar has previously iterated its plans to use its wide China distribution network to expand into other food and beverage products. Wilmar's share price has shown increasing correlation to the Hang Seng and Shanghai indices, which is unsurprising given the interest for the enormous potential unlocking of value from the Hong Kong IPO. Fundamentally, Wilmar's business foundations remain solid – Wilmar will be a beneficiary of an economic recovery in China and India, and has an established network that it can use to grow existing and new businesses. The current share price values Wilmar's non-China businesses at just 13.4x, which is sharply below its historical average of 19x. Our fair price target of S$7.50 is based on a multiple of 21x for Wilmar China and 19x for its non-China business. A better than expected showing for its upcoming IPO implies even more upside – a 24x multiple for Wilmar China yields a fair price of S$8.00 per share.

Midas Holdings: Buy (OCBC Research, 29 Sep)
Midas has announced that its 32.5% owned joint-venture, Nanjing Puzhen Rail Transport (NPRT), clinched a contract worth RMB1.76b to supply 288 train cars to the Hangzhou Metro. The cars will be delivered from 2011 to 2013. NPRT's likelihood of winning contracts was highlighted in our previous reports. While it will not affect Midas' financials in the near future, we conservatively estimate that this contract can attribute up to RMB25-30m in bottomline impact from 2011-2013. We are awaiting the impending announcements of China's Ministry of Railway tender awards in the next 2-3 months where Midas is expected to add to the healthy backlog of RMB1.4b (to last till 2011). We think that the positive news flow will be a share price catalyst. Maintain Buy at fair value estimate of S$1.05.

DBS: Buy (UOB Kay Hian, 29 Sep)
DBS' Non-performing loan (NPL) ratio for Hong Kong peaked at 2.6% in 1Q09 and receded to 2.4% in 2Q09 while NPL for home base Singapore edged up from 1.2% to 1.3%. DBS Group Holdings (DBS) has larger exposure to the manufacturing sector compared with peers (DBS: 12.0% of total loans, OCBC: 7.1% and UOB: 9.1%). We expect sequential recovery in non-oil domestic exports to result in NPL recoveries for manufacturing, which has the highest NPL ratio estimated at 5%. Further increases in NPL ratio in 2H09 are expected to be rather muted. DBS built a strong pipeline in residential mortgages through active promotion in 1H09, participating mainly in owner-occupied upgrades. Disbursement for housing loans is expected to be more pronounced in 2H09. Demand from the corporate sector, which usually lags recovery in economic growth, is still lacklustre. We expect a single-digit loans growth of 8% in 2010. We expect NPL ratio to hit 3.4% by end-10 as we expect DBS to beef up loan loss coverage and maintain our assumptions for loans growth at 3.2% for 2009 and 8.2% for 2010. We have raised our 2009 net profit forecast by 5.2% to S$1,799m after fine-tuning our assumptions for credit cost. Our forecasts for 2010 and 2011 remain relatively unchanged. Our target price of S$15.60 is based on a P/B of 1.43x, and assumed a higher growth rate due to projected positive GDP growth of 4.5% for 2010.

Ying Li International Real Estate: Buy (DBS Vickers, 29 Sep)
Ying Li develops high-end commercial and retail properties in Chongqing's urban areas, and is the largest Western China property player listed on the SGX. Specialising in developing high-end commercial and retail properties in Chongqing's busiest business districts, Ying Li has an established track record of having built some of the city's most recognized skyscrapers. Ying Li has a current land bank of nearly 1 million sq m under development in Chongqing, most of it in the key CBD area including the 173,438 sq m International Finance Centre, which when completed in 2011, should be Western China's tallest building. At the same time, Ying Li is developing other high-end properties for residential, retail and office uses up to 2013. Earnings for Ying Li should be driven by both higher rental incomes from its new developments as well as higher development sales. With Chongqing being groomed by the central government to be Western China's leading light and financial centre, we expect its economy to continue to be growing at double-digit space, driving demand for high-end property developments. Coupled with Chongqing' plan to redevelop over 12 million sq m of land area in its key districts, Ying Li is well positioned to acquire more land bank for future growth. Initiate with a BUY, target price S$1.17, which is based on 10% discount to our RNAV calculation of S$1.30 for Ying Li. There is also room for further upside if Ying Li can acquire more land bank and develop more value accretive projects.

Frasers Centrepoint Trust: Buy (DBS Research, 28 Sep)
FCT's well-positioned portfolio of suburban retail assets, within huge population catchment areas, offers investors DPU and portfolio value resilience in the current moderated economic environment. Rents are still reverting positively with occupancy remaining close to full. FCT holds significant potential for organic and inorganic growth. Within its current portfolio, enhancement works at Northpoint I has resulted in a 20% hike in average rents, which should impact earnings positively from FY10. New contribution potential from unlocking value at Causeway Point, which should be significant, has not been included into our existing forecast, thus raising the possibility of further earnings upside surprise in the longer run. Planned injection of its pipeline assets; namely Northpoint II and YewTee Point, are expected to expand asset base significantly, in view of the low base effect, while the current lower cost of capital would mean accretive additions even through using equity as currency. The investment case for FCT lies in its portfolio resilience, good long-term earnings, valuation growth potential and potential re-rating from expanding its asset size and improving liquidity and free float. Our target price of $1.25 based on an adjusted WACC of 6.5% and beta of 0.7x offers potential 17% absolute return over the next 12 months.

Frasers Centrepoint Trust: Buy (Citi Research, 28 Sep)
Given the better-than-expected economic conditions, we are raising our FY10-11 DPU estimates by 4-12%. We assume asking rentals and occupancy remain flat from current levels, with upside coming from the annual step-up of between 2-3%. We had earlier projected a decline in asking rentals, coupled with a fall in occupancy. Both Northpoint 2 and Yew Tee Mall are ready for injection and should add about S$260m to the portfolio. Based on our estimates, FY10E gearing will reach 40% on full debt financing, with DPU accretion of 7-9%, assuming cost of debt of 3.5-4% and acquisition yield of 5.5%. Following the successful AEIs for Anchorpoint and Northpoint, Causeway Point would be next in-line for AEI, though plans are still in preliminary stages. FCT is still trading at the discount to its NAV of $1.23, while CMT is already trading at a premium of over 10% to its NAV. FCT offers yields of over 7% compared to about 5% for CMT. Gearing is also comparable with CMT at 30% post-rights and FCT presently at 33%. The acquisition pipeline will help improve liquidity and market cap and justify a slightly narrower yield premium over CMT in the longer term. Nonetheless, we like FCT's exposure to the resilient suburban malls, its steady pipeline of assets for injection and organic growth through AEIs. Maintain BUY with target price of $1.30 (prev $1.00).

SPH: Outperform (Macquarie Research, 28 Sep)
Stronger-than-expected recent economic data and a lower decline in recruitment and classified ads suggest a better outlook for overall advertisement revenue for SPH. We upgrade our earnings estimates by 4–7% over the next three years as a result and raise our sum-of-parts target price by 10% from S$3.83 to S$4.21. We reiterate our Outperform recommendation as we believe SPH is one of the best proxies to play the overall economic recovery theme. We estimate total return to be close to 20%. We expect advertising revenue to fall 15.9% this year vs our earlier estimate of a 19.8% contraction. Based on the page count of its main paper, The Straits Times, classified ads appear to have contracted by only 6% in the three months to August 2009, vs a 16% fall in the three months to May, while recruitment ad growth was -39% vs -51% during the same period. We now believe ad revenue will grow 5.0% in FY10 (-3.3% earlier). Operating costs remain under control given the cost-savings measures introduced to navigate the group past a difficult period this year. We also expect charge-out costs for newsprint to decrease by 17% in FY10 to average US$622/t, reflecting the weakness in newsprint costs. Property earnings remain resilient given progressive recognition of its Sky@eleven residential project and from its Paragon Shopping Centre. The swing factor to SPH's earnings remains investment income. Given better market conditions, we believe write-backs of losses in 1Q09 are likely. SPH will report 4Q FY09 results on 12 October. We expect net profit of S$137m, +6% QoQ and +12% YoY, reflecting our revised expectations. SPH is one of the best proxy to a recovery in Singapore's GDP, which we expect to contract by only 2.5% this year and then grow by 5% next year. We expect SPH's core media earnings to fall 18% this year but recover by 18% next year. The group also offers a solid 6% yield over the next two years, by our estimates.

SC Global Developments: Buy (DMG, 28 Sep)
Initiate coverage with BUY and S$2.30 target price, a 20% discount to our FY10F base case RNAV of S$2.88. We like SC Global Developments’ (SCGD) 93% (of RNAV) exposure to Singapore’s prime and luxury residential segments, which are exhibiting inchoate signs of recovery and renewed interest amid increased foreign purchases, improved macroeconomic indicators and upcoming IRs. SCGD is the only listed property developer offering pure high-end residential exposure in Singapore, where prices remain 15 – 25% off their 4Q07 peaks. Out of its 93% (of RNAV) high-end exposure, luxury and prime projects account for 94% and 6% respectively. For every 10% change in residential prices, we estimate its RNAV will change by 24%. Management's ability to set benchmark prices is unrivalled, best evidenced by an impressive 42 – 53% premium pricing of its three existing projects over nearby developments. SCGD also gives a regional real estate exposure through ASX-listed 50%-owned AVJennings and 60%-owned Kairong evelopments, which both develop mass affordable housing projects in Australia and China respectively. SCGD’s unsold inventory of ~ 385 units should allow it to participate in an imminent high-end recovery, where management expects to occur nearing the IRs’ opening. Aside from three existing projects, management intends to launch Seven Palms in end-2009 or early-2010. Book values for its residential sites appear inexpensive having written down S$30m in FY08. Despite a high proportion of foreign buyers for its projects, a historically low sub sale transaction rate and buyers’ strong holding power should remove worries of speculative activity and DPS defaults/walkaways. SCGD outperformed the STI and its peers over the past year. However, we believe the stock remains undervalued at current P/B of 1.49x, vs. average of 1.81x during 4Q06 – 1Q07 when physical market for luxury projects first showed tangible recovery signs. It hit an apex of S$3.34 (adjusted for sub-division) in Jul 07, 5 months before residential prices peaked in 4Q07.

Yingli International Real Estate: Buy (Phillip Securities, 28 Sep)
Yingli announced that they have acquired another prime area in Yuzhong, Chongqing through a government land auction for RMB 851.6 million. This land area is approximately 28,200 sqm and the company intends to develop it into an integrated development project, with high-end residential, hospitality, as well as high-grade retail component. Initial estimates from the developer are that the project will consist of 200,000 sqm of high-end residential units and 100,000 sqm for retail and hospitality. Management further updates that they intend to span the development across three years from 2010 to first half of 2013. Construction costs will amount to approximately RMB 750 million and they will sell the residential properties but retain the retail portion as investment properties. Using a ballpark selling price and rental for its residential and retail properties, we gauge that this project will add NPV of approximately RMB 3065 million to the company. We add the new project into our valuation model to arrive at a RNAV of S$1.270 and maintain our Buy rating. We reduce our earnings for FY2009 as we foresee that there may be delays in the delivery of San Ya Wan project. Accordingly, we defer that portion of the net profit to 2010. We think that by bidding the site with only approximately RMB 194 million in total cash after the placement in August 2009 could be quite taxing on the company's cash position.

Mapletree Logistics Trust: Buy (OCBC Research, 28 Sep)
We expect MLT to report 3Q results in three weeks' time and are keen to get an update on occupancy levels (prev: 98.3%). Business conditions have improved since then and this may ease downward pressure on rents and capital values, in our view. Still, there is a big difference between stabilization and recovery. We believe tenant retention, as opposed to positive rent reversion, continues to be a key priority for the existing portfolio. As such, MLT may turn to acquisitions to support and grow DPU. The sticking point is property yields, which would have to be fairly high for the transaction to be DPU accretive. We find a large divergence in value among the industrial REIT space. Price to book range is wide: MacarthurCook Industrial REIT trades at the low of 0.36x 2Q CY09 NAV but A-REIT trades at 1.21x book. The sub-sector is highly geared, with an average leverage of 39.7%. A-REIT has raised equity twice, and Cambridge Industrial Trust has raised funds once. This space offers some of the highest yield opportunities but gearing levels and an uncertain outlook continue to concern us. Consequently, we prefer to focus on the top-tier industrial names for now.
We find MLT's valuations (0.84x book, 7.4% estimated FY09 yield) fairly attractive. We also like the quality and diversification of its portfolio. We have not made any changes to our earnings estimates but have lowered our discount and cap rate assumptions to less rigorous levels. We revise our fair value estimate for MLT to S$0.78 from S$0.52 previously. While upside of 5% to current price is limited, total return of 12% is attractive (in our view). Upgrade to Buy.

Ascott Residence Trust: Buy (OCBC Research, 25 Sep)
ART has re-rated 15% since our July upgrade and has achieved our prior S$0.97 fair value. However, its performance lags closest peer CDL-Hospitality Trusts. Using end-June 2007 as a base, both S-REITs saw a roughly 83% decline to trough values. But CDL-HT has recovered 260% from its trough versus ART's 177% recovery. A similar discrepancy plays out in price to book; CDL-HT is trading at 1.08x 2Q09 NAV while ART trades only at 0.71x 2Q09 NAV. There is also a 227 basis point trailing yield differential between the two. Key drivers of this discrepancy, in our view: 1) CDL-HT is an earlier beneficiary of economic stabilization and any nascent recovery (shorter-stay hotels versus extended-stay serviced residences); 2) it is a purer IR play; 3) its balance sheet is stronger, with 19.3% leverage versus ART's 40.7% leverage; which has led to 4) the market pricing in the possibility of a cash call. We believe value can be extracted from the gap between the two hospitality REITs even when those balance sheet risks are quantified. We maintain our earnings estimates but lower our discount rate inputs. Our new SOTP value for ART is S$1.40, and we charge a 15% discount to derive a fair value estimate of S$1.19 (prev: S$0.97). Fresh equity could be utilized to support asset enhancement plans and fund acquisitions, but the manager has the luxury/inclination to wait for further re-rating, in our opinion. Note that with a hypothetical equity issue raising S$150m, our SOTP value could fall to S$1.28 (S$0.87 issue price, 10% discount to current price) or to S$1.21 (S$0.68, 30% discount). This still covers our S$1.19 fair value. Maintain Buy (30% total return).

Indofood Agri Resources: Buy (Goldman Sachs, 25 Sep)
We maintain our Buy rating on the stock due to attractive valuations (lowest P/E, P/B and EV/ha in the plantations sector) and highest leverage to crude palm oil (CPO) prices. We estimate that a 10% increase in CPO prices could boost 2010E earnings by 18%. Our bullish view on CPO prices is due to (a) slowing CPO production growth, (b) tight soybean supply, (c) supply risks from El Nino, (d) increasing government mandates for bio-diesel, and (e) rising oil prices. In addition, its 2008-2011E production volume growth CAGR of 13% is highest in the sector. We maintain our 12-month target price of S$2.2 using 13X 2010E P/E which is in line with the mid-cycle P/E (since listing in February 2007) and is at a 15% discount to the Singapore market average. Key risks to our 12-month target price include a sharp decline in CPO prices.

Raffles Medical: Buy (UOB Kay Hian, 24 Sep)
We do not expect a significant impact on Raffles Medical (RMG) from the government's rollout of the step-down healthcare system integrating specialist services, polyclinics, community hospitals and long-term care services such as nursing homes. In terms of clinic patient volume, 70% of its healthcare service revenue is derived from corporate accounts and this is unlikely to be affected given corporate preference for ease of access to RMG's expansive network of 65 clinics island-wide and service consistency. In terms of specialist services, RMG focuses on specialist curative care targeting the higher income group and foreigners. This patient segment typically seeks quality curative care from private hospitals, with 60-70% paying cash. There is also the foreign patient component within this segment, which generally prefers private-sector healthcare. We like RMG for its tried-and-tested Group Practice track record, a business model that has generated sustained growth over time. Growth over the longer term for RMG will be driven by the continuous expansion of its clinic network at a rate of five clinics per year on average, as well as its selective upgrading of strategically located clinics into more revenue-intensive medical centres. Together with the sustained growth in foreign patient volume, these drivers are expected to support a top-line CAGR of 10% p.a. over 2008-11. RMG is trading at a 2009 PE of 18.7x, above its long-term average PE of 14.0x but below peer Parkway Holdings' 2009 PE of 23.0x. The target price for RMG is pegged at S$1.76. At this level, RMG offers a potential upside of 32%. Maintain BUY.

Action Asia: Buy (CIMB, 24 Sep)
We have initiatee coverage on Action Asia with a Buy recommendation and a target price of S$0.21, offering 50% upside potential. Action is an investment holding company with subsidiaries involved in the design, manufacture and assembly of mobile audio and video entertainment products. Our target price is based on parity to its CY10 NTA per share of S$0.21. With a prospective 3-year average ROE of 20.7% backed by 8.6% dividend yields and net cash per share for FY10 at S$0.15, higher than its current price, the market appears to be grossly undervaluing Action. Action has positioned itself strongly in the portable DVD player market and the growing replacement market for photo frames. Just as digital cameras replaced film-based cameras in the recent past, we believe digital photo frames have the potential to supplant traditional photo frames, benefiting Action, which has an early-mover advantage. Action's earnings have turned around strongly since FY07 when it diversified into the production of lifestyle products such as portable DVD players and digital photo frames. Through its competitive pricing and continuous investments in R&D, it has become one of the key producers of these products for Philips. Balance sheet remains healthy with net cash per share of S$0.08 as at end June 09. Net cash per share is expected to grow to S$0.15 by FY10. Prospective dividend yields of 8.6% are also attractive.

Asiatravel.com: Buy (Kim Eng, 24 Sep)
Following AST's recent share price out-performance above our target price, we see further share price upside. We have raised our target price of AST to 81 cents by applying a higher FY10 PER multiple of 12.5x (8x previously) that is within its recovery PER cycle. Despite a smaller market capitalisation, we believe AST deserves a narrower valuation discount to peers given its lowest PEG in the sector and resilient earnings. Being an existing coach operator that offers inbound tour packages in Singapore, AST is well positioned to benefit from the integrated resorts (IRs). With physical presence across 8 countries and over 5000 direct hotel contracts in Asia, we are confident on AST's target to ferry 1000 visitors to the Universal Studio a day (out of the IRs' target of 30,000 visitors a day). We estimate that this lucrative source of income could potentially double its earnings. With the tourism industry bottoming out and the debut of the IRs, we estimate that room nights could resume to a growth rate of 30% along with higher room rates. New products such as flights sales and video productions will further boost earnings scalability. AST's enhanced online booking engine that provides instant confirmation and multiple stopovers makes it a strong contender in an upturn. The fully integrated technical platform, which the group painstakingly took 15 years to build and constantly improves, could already be worth some US$84m, or 92% of its market capitalisation. Besides its exciting growth prospects, the stock makes an attractive M&A target given its powerful on-line platform, its network of exclusive hotel partners and widespread physical presence across Asia. Key risks will be a weaker-than-expected macro economic recovery. Maintain BUY.

Noble Group: Buy (OCBC Research, 24 Sep)
Noble Group Ltd (Noble) has announced a placement of 573m shares (comprising 438m new shares and 135m vendor shares from CEO Richard Elman’s trust) at S$2.1137 per share to China Investment Corporation (CIC), which has emerged as a new strategic investor with a 15% stake. The new shares will enlarge the group’s issued share capital by 13% and the issue will raise net proceeds of US$642.2m. The strengthened capital base will support Noble's strategic investment plans and pursuit of distressed assets. We view CIC's investment positively as it cements Noble's presence in China, where tremendous growth potential exists, and paves the way for more investment opportunities. Noble's placement is opportunistic rather than need-driven. The group was not in need of additional capital given its strong cash position of US$805.8m and low gearing of just 0.15x (after adjusting for readily marketable inventories) as of 1H09. In our view, the placement was an opportunistic move by the group to secure a long-term strategic investor and at the same time leverage on its strong share price to enhance its capitalisation for long term planning. Noble is now better positioned to capture growth opportunities that may emerge in the near future, and CIC's support may imply easier access to capital should the need arises in future. Olam's shares soared by 11% upon Temasek's emergence as a strategic shareholder and we believe that the market will similarly view CIC's investment in Noble positively. We have raised our earnings projections marginally on lower finance costs, rolled over our valuations to FY10, and raised our parameter to 14x (from 13x) to reflect the improved growth prospects, bringing our fair value to S$2.67 (from S$2.50). We reiterate our Buy rating on Noble, which remains our preferred pick within the commodities sector.

Parkway Life REIT: Buy (Phillip Securities, 24 Sep)
Plife has an underlying stable of properties that commands relatively stable cash flows with a growth component. As a reiteration, approximately 80% of gross revenue is contributed from the Singapore portfolio of hospital which grows at an annual rate of CPI + 1%. During the last revision in August 09, this was set at 4.36%. The Japan properties currently account for 20% of gross revenue. Being exposed to the defensive healthcare industry, its portfolio of properties faces little risk of asset devaluation as they are secured by relatively long leases with stable cash flows. Besides organic growth from upward revision of rental, Plife has a growth strategy from asset enhancement and acquisition. Management revealed that it has dedicated personnel who are exploring the possibility of maximizing plot ratio of its assets and also efficient utilization of available spaces. In a recent asset enhancement initiative that was completed on the Matsudo property, incremental return of 19% to its gross revenue was achieved against capital spending on the property of 7%. Management also indicated that it is targeting the Singapore, Malaysia, Japan and Australia markets for potential expansion opportunities given the demographic and infrastructure suitabilities. The other impetus for growth is the low gearing ratio of the REIT. Current gearing is 23% with total debt of $242 million. Assuming a gearing level of 35%, Plife has the capacity of take on an additional $200 million of debt for its expansion. We feel that the REIT sector has resolved most of the refinancing debacle that has plagued the sector in the past year. With credit issue out of the way, REIT managers should be turning their attentions to their growth strategy. In our opinion, Plife has satisfied all the criteria in carrying out an Our forecasts have not factor in any acquisitions yet. We believe Plife will be making in-roads on the acquisition front soon. Fair value raise from $1.21 to $1.37. Plife is currently trading at 0.86 times book value and offers a dividend yield of 6.6%. Reiterate our Buy recommendation on a value plus growth thesis.

K-REIT: Buy (UOB KayHian 23 Sep)
The freefall in office rents has abated. Tenants who previously wanted to release space back to K-REIT Asia (K-REIT) have retracted their requests. Management has seen more enquiries since Jun 09. Some of these enquiries have translated into actual commitment in Sep 09. Tenants have also renewed for longer lease terms as they find current office rents attractive. The gap between office rents at Raffles Place and business parks outside the central business district (CBD) has also narrowed. Management expects average rents for Grade A offices to level out at about S$7psf. We expect the office market to remain fragile due to the supply of 8 million sq f tcoming on stream from 2H09 to 2013, representing 11% of total office stock. A massive 2.8m sq ft and 2.6m sq ft will hit the market in 2010 and 2011 respectively, compared with the average annual take-up of 1.3m sq ft for the past 10 years. An estimated 87.2% of the known supply is concentrated within the CBD at Raffles Place, Marina Bay, Shenton Way and Tanjong Pagar. Take-up for office space was negative 570,000sf in 1H09. Take-up is likely to remain in negative territory in 2H09 as there is usually a time lag between retrenchment exercises and the release of excess office space. We continue to expect average rents for Grade A offices in Raffles Place to slide further to S$6.00 psf by end-10, representing a two-third correction from the last peak of S$17.90 psf pm recorded in 3Q08. K-REIT is our only BUY call among office REITs. Our target price for K-REIT is S$1.32, based on a dividend discount model (required rate of return: 8.25%, growth: 2.5%).

Olam International: Buy (OCBC Research, 23 Sep)
Olam has announced the acquisition of Australia's Timbercorp Ltd's distressed assets for A$140m via liquidation proceedings. The purchase appears to be a bargain at just A$128m (gross) vs. an estimated greenfield establishment cost of A$400m. The acquisition is in line with Olam's upstream integration growth strategy and is expected to reap synergistic benefits from its existing Edible Nuts portfolio, which provides a platform of common customers and shared processing capabilities. The acquisition allows Olam an accelerated entry into Australia's fast-growing almond industry. The global almond industry is currently dominated by the US but Australia is expected to catch up as its young orchards approach full maturity. The country's production is expected grow by 17.5% CAGR between 2008 and 2015 and Olam anticipates that it will account for a third of Australia's market share by 2013-2014. On top of gaining access to a high-growth industry, this acquisition lifts Olam's profit margins (estimated steady state PBT margin of 35% vs. group PBT margin of 3.0%), enables low risk expansion into a new product, and secures access to stable long term supply. The acquisition is also expected to be earnings accretive from the current financial year. While the acquisition entails high growth potential, it introduces earnings volatility arising from fair value changes of biological assets. The group will also be exposed to plantation risks such as weather changes and diseases. Olam has mitigated some of its risk by securing PWRs to hedge against volatile water prices. It will also retain third-party orchard management agreements to reduce execution risk. We have raised our FY10 and FY11 earnings projections by 4.6% and 8.3% respectively to account for higher contributions from its Edible Nuts segment, lifting our fair value estimate to S$2.85 (from S$2.72). We foresee further earnings upgrades as Olam embarks on more earnings accretive acquisitions. We maintain our Buy rating on the stock.

Wilmar International: Buy (OCBC Research, 23 Sep)
According to a Reuters report (citing the Hong Kong Economic Times), Wilmar International is expected to spin off its China operations via a flotation of shares in Hong Kong in October. Based on a preliminary listing document, Wilmar is set to sell 7.33b shares of Wilmar China, its food processing business in the mainland, to raise some HK$27.3b (US$3.5b). This effectively prices the IPO at a prospective 16-20x FY09F EPS. Reuters reports that the IPO roadshow is expected to kick off on 5 Oct and will open for public subscription in Hong Kong on 12-15 Oct; the trading in Wilmar China shares is scheduled to start on 23 Oct. The timing of the IPO comes slightly ahead of our expectations of an IPO early next year (before Chinese New Year). In any case, given the still buoyant sentiment in the global equity markets, we believe that the IPO should be very well received. Separately, we note that Kerry Holdings, Great Cheer and Zheng Ge Ru Foundation (all members of the Kuok Group) have subscribed for 1.61% of the enlarged share capital of Wilmar China for a total consideration of HK$1933m. The report further adds that Wilmar China will use 40% of the proceeds to expand production capacity, 35% for acquisitions, and the rest to repay debt and as working capital. Wilmar is already one of the largest oilseed crushers in China and its consumer packs command a large share of the cooking oil market there. Based on previous meetings with management, we understand that Wilmar may focus on acquiring other food-related companies to expand its product range as well as utilize its well-established distribution network in China. While we will hold off adjusting our earnings numbers just yet, we are revising our fair value from S$7.28 to S$7.51 (maintain 20x valuation but push out to FY10 instead of blended FY09/10). Maintain Buy.

SingTel: Overweight (Morgan Stanley, 23 Sep)
We upgrade SingTel from Equal-weight to Overweight with a new price target of S$3.65, implying about 20% total return potential. After the stock’s 26% underperformance YTD, we believe it is attractively valued at F10E P/E of 12.6x, slightly above regional average for a company offering high-quality diversified exposure to Global Emerging Market (GEM) mobile. We see SingTel becoming a compelling GEMs proxy for telco investors. Assuming consummation of the Bharti-MTN deal and an increase in Singtel's stake in the combined entity to ~25%, the company would boast substantial exposure to India, ASEAN, the Middle East, and sub-Saharan Africa. Key reasons for our upgrade: 1) Continued positive newsflow from EM affiliates. Telkomsel has continued to gain market share in a repairing Indonesian mobile market after last year's price war, which has been boosted by a strengthening rupiah due to recent sovereign upgrade of Indonesia. In Thailand, the announcement of 3G licensing terms of reference opens an opportunity to improve margins. 2) Long-term opportunity for Optus. The Australian government’s recent announcement opens the way for a "structural/functional" separation of Telstra. Optus could thus gain market share in the fixed line and broadband market. We estimate that Optus can add 12-15% to its medium-term revenue and EBITDA if it gains 10% market share in the fixed line market. 3) We do not expect the Bharti-MTN deal to dilute EPS for SingTel materially. Related newsflow has overhung SingTel stock; however, if SingTel increases its stake in the new entity using its debt capacity, we see room for slight EPS enhancement.

CDL Hospitality Trusts: Buy (DMG, 23 Sep)
CDLHT is our top pick within the hospitality sector, being among the largest hotel owner in Singapore with 7% (2,351 rooms) of total room stock. The group's hotels are leased to international hotel operators, including its sponsor Millennium & Copthorne (M&C) and the Accor Group. CDLHT's portfolio of hotels is located in the CBD and is geared generally to the upscale 4-star market segment. From an initial portfolio of five properties, CDLHT acquired Rendezvous Hotel (NZ) in Dec 06 for NZ$113m and Novotel Clarke Quay in Jun 07 for S$201m. Including its NZ operations, CDLHT has a portfolio size of S$1.48b as at end-08, with a total of 2,806 hotel rooms. Singapore's visitor growth will easily punch through the 15-20% level in the initial year of opening (possibly even 30%) of the integrated resorts, with sustained 3-5% growth thereafter. Visitors are expected to extend their stay, leading to a 20-35% spike in visitor days in 2010. Our feedback from hotel operators indicates that pricing power will return when occupancies hover above 80%. We expect systemic occupancies to rise to 84% next year, with average room rates (ARRs) rising to S$250. We believe room demand will immensely overshadow the 16% new supply that is projected to come onstream in 2010. We initiate coverage on CDLHT with a BUY recommendation and target price of S$1.80. We are sanguine that CDLHT remains the best proxy to a multi-year tourism resurgence that will take place next year. CDLHT is our top pick among the large cap S-REIT counters. Our price target of $1.80 is based on a 9.3% cost-of-equity assumption and a terminal growth rate of 3%.

Yanlord Land: Neutral (JP Morgan, 23 Sep)
Yanlord has acquired four adjacent residential sites in Waigaoqiao of Pudong District in Shanghai with a total planned GFA of 162,074sqm for a total consideration of Rmb2.61 billion, or Rmb16,128psm. These sites were adjacent to the other two land parcels that were purchased by the group in July 2008 at Rmb7,503psm. The group will combine the two land purchases to develop high-end residential projects, and the blended breakeven cost for this development is likely to be about Rmb19,000psm on our estimates, equivalent to the current ASPs for the projects in its vicinity. Compared to the recent acquisitions done in Pudong District where a local developer paid Rmb36,481psm for a site next to SHKP’s Wei Fong project and Poly paid Rmb33,826psm for an adjacent site, Yanlord's purchase would be viewed as cheaper. However, we see limited RNAV accretion from the purchase, and we expect a limited impact on its share price. Recall that the group purchased a site at New Jiangwan City at about Rmb20,000psm back in November 2007. The breakeven price for that project was equivalent to the average selling price (ASP) of the nearby projects at that time. Our current estimates assume a development margin of about 25% for this project, whereas management had guided for a 30% development margin. The New Jiangwan City project will be launched next year, and the development margin achieved on this will give a good indication of the potential value that could be created by Yanlord. We also note that the stock did not react to the news last time around, with the one-month share price performance being flat.

Noble: Outperform (Macquarie Research, 22 Sep)
Noble has added China Investment Corporation (CIC) as a shareholder via a placement of 438m new shares and 135m vendor shares from CEO Richard Elman's trust fund at S$2.11. We raise our rating to Outperform from Neutral and our target price to S$2.80 from S$1.95. The new shares represent about 11% of Noble's enlarged share base. CIC is now a 15% shareholder in Noble. Noble will raise about US$642m in fresh capital. This transaction will likely reduce Noble to an ungeared position and gives Noble plenty of working capital for its core operations and long-term capital for M&A. Noble should now have cash levels in excess of US$1.4b, and it will also enjoy better rates when it next issues fresh debt on account of its improved credit rating from S&P last week. Symbolically, Noble gains a "steady" customer, as China is already a big consumer of things that Noble supplies (eg soy beans, iron ore). Noble can also gain further access to capital for M&A (especially as Chinese parties have been busy acquiring resources around the world).
It would be positive if CIC were to take on some of the capital commitment necessary for Noble to develop some of the resources that it has acquired over the years. FY10E earnings raised by 1.4%. There is ~10% FY10E EPS dilution from the new shares. Our target price is now based on 18x FY10E earnings (vs 12x FY09E previously), as we anticipate that the addition of CIC as a stakeholder may help Noble reduce its earnings volatility over time via the longer-term volume off-take agreements from Chinese parties. We believe that the CIC investment will certainly spark renewed interest in the name. Noble is on track for a strong 2009, with ROE at near 20% (or 25% inclusive of revaluation gains).

Sing Holdings: Hold (Phillip Securities, 23 Sep)
Sing Holdings has achieved sales of 92%, or 47 out of 51 units, for BelleRive at Keng Chin Road at an average selling price of S$1,382 per square foot (psf). Most of the buyers are residents in the surrounding areas. This project will be completed in 4Q09. The revenue will be recognized in FY2009F and FY2010F. For this project, the selling price came in within our expectations of S$1,380 psf. Due to higher expected selling prices and lower construction costs of the Laurels, the RNAV of Sing Holdings increases from S$0.42 to S$0.48. Applying a discount of 30% to the RNAV, we derive the fair value of S$0.34 for the stock. The share price of Sing Holdings has more than trebled from its low of S$0.10 in April 2009. We feel that there is limited upside to the stock price. Therefore, we maintain our hold recommendation on the stock.

Mermaid Maritime: Buy (DBS Research, 22 Sep)
Mermaid has announced 9-for-20 rights share issue to raise gross proceeds of S$156m, or net proceeds of S$152m. The rights shares will represent 31% of the enlarged outstanding shares of 785m. The rights share price is S$0.64 per share. We estimate that Mermaid would have a cash hoard of US$192m (or Bt6.5b) by end FY09 (FYE September) for acquisition opportunities; post rights share issuance. With this newly raised equity, Mermaid agrees with our view that any distressed asset acquisition could occur within a 3-6 months time frame, and also adds that any strategic company acquisition may occur within the next 12 months. While an asset acquisition announcement together with the rights share issuance is preferred for better earnings clarity, this equity fund raising exercise has, nonetheless, increased the probability of a distressed asset purchase in the next 3-6 months. Assuming Mermaid uses net proceeds: 1) to buy an offshore rig at 20-25% discount to peak prices, and 2) deploy this asset only 12 months later in October 2010, r in 1Q11, at current day charter rates of US$0.1m, we have raised our net profit estimate by 14% to Bt2.7b in FY11. We have rolled forward our valuation metrics to 9x and 12x blended FY10/11 PE (FYE September) for Mermaid's subsea engineering and drilling businesses, respectively, on higher chance of near term price catalyst. Hence, our target price is raised to S$1.71. The fully diluted target price (ex-rights adjustment) is S$1.18. Maintain BUY rating on Mermaid.

SMRT: Hold (Kim Eng, 22 Sep)
Train and bus ridership continues to slow – Aug MRT ridership rose just 1.6% year-on-year (yoy), the slowest since Feb 2007, while bus ridership in July actually fell 1.2% yoy. The same slowdown has been seen with ComfortDelgro as well. The fact that this slowdown is taking place amidst buoyant stock and property markets and despite lower fares and higher transfer rebates suggests that the real economy remains in the doldrums. This may not be good news for SMRT's advertising business, which posted its first negative quarter in 1Q10 (-4.5%) following weaker ridership growth. We would not be surprised to see ad revenue fall for a second consecutive quarter in 2Q10. In addition, we expect operating costs to rise following the opening of Circle Line Stage 3. Rental, accounting for 22% of 1Q10 profits, will be the sole bright spark. Recently, SMRT successfully raised $150m in AAA-rated medium term corporate paper maturing in Oct 2014. Funding cost (fixed 2.42%) is lower than its existing $100m fixed rate note of 3.3%, which is due in Dec 2009. It has another $50m in floating rate notes due in Jan 2010 and a $100m fixed rate note (3.27%) maturing in Dec 2011. We therefore maintain a Hold call on SMRT with target price of $1.70.

Midas: Buy (Kim Eng, 22 Sep)
While Midas still holds a clear lead in terms of certification and track record, management expects competition to intensify, with listed peers such as Shandong Nanshan (Shanghai) and Zhongwang (HK) stating their intentions to break into this market. Going forward, they believe achieving a lower 50-60% market share of this growing pie would be a more reasonable target, which will still ensure strong growth. Improving the rail infrastructure network is an important government initiative, with current directives providing clear visibility over the next 2-3 years. Even subsequent to the stimulus package, we expect this program to continue. Over the longer term, management will look into other feasible, promising industries such as aviation to continue its growth. We now expect the 4th and 5th extrusion lines to come onstream by 2Q09 and 4Q09, earlier than our earlier estimates. Our model factors in Midas winning a 50%-60% market share of the upcoming round of orders, which is twice the size of the first round. This will already keep all its five extrusion lines busy at about 75% utilisation. We adjust our earnings to take into account higher effective capacity in FY10 and higher tax rates in FY11. We now peg our target price to 20X FY10E. We believe the Chinese rail industry is still at its early-mid cycle. With the Ministry of Railway due to announce the 2nd round of high-speed train orders, we expect orders to flow down to Midas within 3-4 months. Maintain Buy with target price: $1.15 (Previously $0.985)

Midas Holdings: Buy (OCBC Research, 22 Sep)
Midas has announced that it is planning a secondary listing of its shares on the Main Board of the Stock Exchange of Hong Kong. Midas has appointed Credit Suisse (Hong Kong) to assist the group in evaluating and preparing for this listing. Mr Patrick Chew, CEO, says that Midas "is now ready to take Midas towards the next development phase and is optimistic that a listing on both the Singapore and Hong Kong bourses will allow Midas to tap into a wider investor base, increase liquidity and enhance the stock value." Hong Kong valuations tend to be richer and this could bode well for dual-listed Singapore stocks. Maintain Buy with fair value of S$1.05.)

OCBC: Buy (UOB Kay Hian, 22 Sep)
While OCBC incurred new non-performing loans (NPL) of S$417m, NPL recoveries and upgrades increased 30.1% qtr-on-qtr (qoq) to S$160m in 2Q09. NPL formation has slowed while recoveries and upgrades continue to improve in 3Q09. NPL ratio is therefore expected to peak in 2H09. The improvement in asset quality is most significant in Singapore. Singapore achieved strong sequential recovery in non-oil domestic exports, which helped reduce NPL formation for the manufacturing and general commerce sectors, areas badly affected by seizure in the credit markets. We estimate NPL ratio hit 3.0% by end-10 (previous: 3.8%). Our earnings model has imputed credit losses of 80bp in 2H09 (previous: 80bp) and 40bp in 2010 (previous: 60bp). We maintain our assumptions for loans growth at 1.6% for 2009 and 11.7% for 2010. We raise our 2010 net profit forecast by 6.9% to S$2,092m. Our target price of S$10.10 is based on a P/B of 1.89x derived from the Gordon Growth Model (ROE: 12%, payout ratio: 48%, required return: 8% and constant growth: 4.8% [previous: 4.5%]).

Olam International: Outperform (CIMB, 22 Sep)
Olam has announced an agreement to acquire Timbercorp's almond orchards, for A$128m in cash to be funded by internal accruals and existing credit facilities. Timbercorp, previously one of Australia's leading agribusiness, which provided various managed investment schemes, went into voluntary liquidation in early 2009. The acquisition will make Olam Australia’s largest almond grower, with almost 30% of Australia's almond orchards, and amongst the top 3 almond growers globally. The transaction is expected to be earnings accretive from FY10, with completion targeted by December 2009. The acquisition provides Olam accelerated entry into the almond plantation business (to become the top 3 almond orchards owner globally), and helps to consolidate the company's leadership position in the edible nuts industry. In addition, upstream plantations account for more than 50% of the value pool within the almond value chain, making it the most profitable part of the almond value chain. Management also claims that the acquisition cost is cheap at almost 36% of the costs of a greenfield project. According to management, the IRR of the project is expected to be 20-24%, with cashflow breakeven in the 3rd year, total production costs at A$3.88/kg, with profit before tax at steady state approximately A$50m/year. Management also expects to incur an additional A$25-30m in capex over the next 2-3 years. The war chest of roughly US$900m from the recent fund-raisings puts the company in a strong position to acquire more distressed assets cheap and boost future growth. Target price remains at S$2.75, based on 22x CY10 P/E, the historical mean since 2005. Catalysts for upgrade would be the announcement of significant earnings accretive acquisitions. Maintain Outperform.

Olam International: Buy (OCBC Research, 22 Sep)
Olam has acquired almond orchards and permanent water rights in Australia for A$140m. The distressed assets, which were purchased via liquidation proceedings, will be funded via internal accruals and existing credit facilities. Benefits from the acquisition include: (i) accelerated entry into Australia's fast-growing almond industry, (ii) lucrative profit margins, (iii) earnings accretion from the current financial year, (iv) synergy with its existing Edible Nuts portfolio, and (v) secured access to almond supply. However, we caution that the group's overall risk profile will also be heightened by plantation risks and fair value changes of biological assets. We have raised our FY10 and FY11 earnings projections by 4.6% and 8.3% respectively to account for higher contributions from its Edible Nuts segment, lifting our fair value estimate to S$2.85 (from S$2.72). Maintain BUY

SPH: Buy (Citi Research, 22 Sep)
SPH's 4Q09E (ending Aug-09) print ad revenues may surprise positively: AdEx statistics for Singapore compiled by Nielsen bucked seasonal Jun-Aug weakness to show a sequential improvement over Mar-May quarter. We expect AdEx growth to remain strong into FY10E as consumer confidence returns and retailers spend more to attract attention. Opening of the IRs in 2010 could also boost ad spending from retail and MICE sectors. Core media P/E is currently below its historical average and remains at a 5% discount to STI P/E, which we think is undemanding for a near-monopoly local print media business. SPH also looks cheap compared to its regional peers operating in competitive markets. We reiterate our Buy rating on SPH as we think SPH remains a good proxy to Singapore's V-shaped economic recovery. SPH’s core media P/E tends to trade at a premium to the STI, but our S$4.20 TP is based on a conservative 18.4x FY10E core media P/E and about 15% discount to the latest external valuation for Paragon, implying upside risk to our TP. SPH is a Singapore top pick.

Oceanus Group: Buy (DMG, 22 Sep)
Oceanus, which is the largest land-based abalone producer is gunning to be the first vertically integrated abalone group. Its tie-up with renowned restaurant chain, HK-based Ah Yat Abalone Group, is particularly exciting. With plans for 170 stores by FY11, the JV may be able to rake in as much as RMB100m in earnings. If it were to list by then, it should be able to easily dwarf all restaurant groups in Singapore. Organically, its production business continues to thrive and we expect stronger sales in FY10. As the largest abalone producer, it has about 110m caged abalone ready for sale (excluding 140m uncaged young abalone) and a staggering 12 sq km of abalone farm stretching from Zhangzhou (Fujian) to Guangzhou (Guangdong). Given economies of scale, it is able to sell its abalone more cheaply compared to its competitors (RMB0.30/kati vs RMB0.60-0.70/kati). Oceanus can potentially consolidate the market by reducing its price, a move which we consider to be plausible. Oceanus entered into downstream abalone retail and processing business through a 70:30 JV with Ah Yat in favour of Oceanus in 2H08. The restaurants are targeted at the mass affluent rather than the rich. Currently, there are six operating outlets in Shanghai and Hong Kong with 16 more to come by the end of year (including one in Singapore which will open on 21 Sep 09). Management targets 170 restaurants and RMB100m earnings by FY11. We expect Oceanus' PATMI to rise 46% and 25% for FY09F and FY10F respectively on the back of growing number of profitable retail outlets and the contribution from the processing business. Our target price of S$0.520 is based on a 30% discount to the peers' P/E relative to their respective indices (15.6x FY09 and12.2x FY10 P/E).

Wilmar International: Buy (UOB Kay Hian, 18 Sep)
Investors are looking for the next re-rating catalyst for Wilmar given its strong share performance, i.e. 131.2% year-to date ahead of the listing of Wilmar China Ltd (WilC). The re-rating catalyst is emerging as greater earnings visibility and the strategy of Wilmar’s China operation will be revealed with the commencement of its pre-marketing roadshow next week in Hong Kong and subsequent week in Singapore. Based on the timeline, the listing of Wilmar China is likely to take place by end-Oct 09 by floating at least 20% of its holdings. This is earlier than our expectation of Nov 09 at the earliest. Given the strong performance in the Hong Kong stock market, the market is likely to be excited by the listing as it comes just in time to ride on China's economic growth. Wilmar has a strong position in the edible oil market, and its sales volumes are at least double that of the second largest players in China, such as China-Agri Industries and China Foods Ltd. Beside its larger market share, Wilmar also delivers better margins on economies of scale and efficient networking. As an integrated player, it also gains advantage from its upstream operations (oil palm plantation) in Malaysia and Indonesia and soybean supply through its investment partner Archer Daniels Midland (ADM). Based on Hong Kong-listed Chinese consumer companies, market leaders such as Tingyi, Tsingtao, China Mengniu and Want Want are trading at FY10 PE of 19-25x. Thus, even if Wilmar China lists at 19x FY10 PE, it can still provide potential upside of 20-30% if it is trading on a par with other market leaders. The next focus would be Wilmar's investments in rice and flour milling and mineral water businesses. Although these are small contributors, they should do well with Wilmar's extensive marketing network and clients to cross-sell these products. We expect these products to be major earnings growth drivers for Wilmar China in the medium term. The upcoming pre-marketing roadshow would be a good opportunity for investors to obtain more information and learn more about the growth strategies for these divisions.Wilmar's target price is S$7.50 based on 17x 2010 PE for its China operation and 15x FY10 PE for its palm oil business. Given the potential listing valued at 19x FY10 PE, fair value would be S$7.85.

China Fishery: Buy (DMG, 18 Sep)
We estimate CFG's FY09 North Pacific trawling sales volume to be 145,000 MT versus FY08's 186,000 MT and FY09 average selling prices (ASP) to increase 11% versus FY08. FY09 Peru fishmeal sales volume is estimated at 102,000 MT versus 122,000 MT in FY08 whilst ASP remains flat. Catch from their new South Pacific operations is expected to be negligible in FY09. CFG currently has five trawlers and two catcher vessels. Two more catchers will be purchased next month and three more will be hired by Dec 09. The upgraded factory vessel will reach in Dec 09 as well. With a combined fleet size of 13 vessels by Dec 09, we are confident that China Fishery will be able to meet their expectations for their South Pacific Operations. The initial plan was for the factory vessel to arrive in the South Pacific by end Sep 09. The delay is due to upgrades for the factory vessel to have fish catching capabilities. It is estimated to have a massive storage capacity of 30,000 MT of fish, versus a catcher vessel's average catching capacity of 450MT/day. We raise our target price to S$1.55 from previous S$1.38 based on 6.0x FY10 P/E, which is a 10% premium to peer, Pacific Andes Resources Development's FY11 P/E of 5.5x. Since 2007, China Fishery has been consistently trading at a premium to PARD, with a P/E average of 11.5x versus pacific Andes’ 7.0x. This additional premium as opposed to none in our previous report takes into account our increased confidence in its South Pacific Operations.

SPH: Buy (Kim Eng, 18 Sep)
SPH will report their FY09 results on 12 October 2009. We estimated revenue to decline 11% to $1313.2m and net profit to decline 10% to $399.6m, in line with consensus estimates. The Group looks on track to meet expectations. Given the recent gains in the stock market, net profit could get a further boost from investment income. In 9M09, print advertising revenue has declined 16.4% year-on-year (yoy). For the full year, we are estimating a decline of only 15% yoy due to the pick up in advertising revenue from Apr-09 towards Aug-09. Ad spending from the property sector is most likely to have contributed to the improvement. SPH paid an interim dividend of 7 cts. We have estimated total final dividend of 17 cts to be declared, based on almost 100%-payout. This will bring the full year DPS declared to 24 cts, a decline of 3 cts from FY08. Consensus DPS estimates range from 22 cts to 25 cts. At the current price, the final DPS offer a yield of about 4.6%. In view of SPH’s huge cash pile of S$0.9b, we believe that landbanking for another private residential project is a viable option after Sky@Eleven's completion in 2010. The reinstatement of the Confirmed List for the GLS program in 1H10 provides more options. Our target price is raised to $4.15. The stock trades mid-way between 11-23x PER based on the implied valuation of its publishing business. The expected improvement in ad revenue spurred by the opening of the integrated resorts (IRs) could move SPH into an up-cycle valuation. Normalized yield of 5% remains sustainable. Maintain Buy.

Rotary Engineering: Buy (OCBC Research, 17 Sep)
Since we recommended Rotary as a positive themed investment on 8 Jul 09, the counter has returned about 62% while the FSSTI gained 18% during the same period. Rotary is progressing well on its development of the SATORP project in Saudi Arabia. Engineering and design work is slated to be concluded in 2Q10. Subsequently, material take-off will start and revenue recognition will ramp up. This is in line with our forecasts that significant accretion will only kick in from 2010 onwards. Rotary is still pursuing projects in the region despite clinching the landmark US$745m SATORP project in Saudi Arabia. While caution is still prevalent, credit has loosened somewhat and Rotary should be able to seal a deal before the year is out. On the local front, 10 projects are slated to conclude by 2H09 and we think tail-end variation orders will be awarded and/or write backs of project provisions. This will accrete positively for Rotary. Historically, Rotary's projects have largely been self-financing, even for its previous mega project of the Universal Terminal. As such, we do not expect Rotary to require additional significant amounts of debt except for trade financing for intermittent gaps. While M&As are an option with a net cash horde of S$110m, we think that Rotary will explore joint venture or alliances first to evaluate the partner and market it intends to penetrate into. In a blue-sky scenario, we postulate that targets might be skewed towards acquiring expertise in more complex process and plant design engineering in the likes of Fluor and Foster Wheeler. After its record earnings in 2007, Rotary gradually reduced its dividend payout in line with its bottomline performance. With the anticipated surge in earnings, we highlight our doubled dividend forecasts for FY10F to 4 S cents. This brings the yield to 3.5%, a respectable return for an industrial-based company. With good progress on the SATORP project, more regional-based projects slated to come online and improved equity risk appetite, we have re-pegged our valuation to 13x FY10F EPS (prev. 12x). We reiterate our Buy call for Rotary with a fair value of S$1.37 (prev. S$1.26).

Ezra Holdings: Buy (DMG, 17 Sep)
Ezra announced that it would be expanding its fleet to include five new Remotely Operated Vehicles (ROVs). Late last month, Ezra said that it has entered into an operating agreement with an offshore specialist fund to manage four of its 5,000 bhp Anchor Handling, Towing and Supply Vessels (AHTS) for five years in return for a half-share of the net profit earned. We estimate 80% of Ezra's current fleet has contract coverage in FY10. We believe with such high contract rate, this fleet management program is the right strategy for Ezra, for it enhances Ezra's fleet without causing any financing strain. Our back-of-the-envelope calculation suggests that the daily chartering rate for Ezra's recent contract is at an average of US$1.90/bhp per day (assuming each AHTS has a capacity of 12,000 bhp), marginally less than management's guided rate of US$2/bhp. We are comforted that Ezra has managed to secure contracts at these rates considering North Sea spot market is currently experiencing weak rates. Ezra's 49%-owned associate, EOC, is rumoured to have secured Premier Oil's FPSO chartering contract for Chim Sao oil project in Vietnam. We estimate this charter contract to be valued at US$500m for a charter period of 10 years, implying day rates of about US$200k. Ezra's other 15%-owned associate, Ezion, may see earlier revenue stream following the recent Australian government's final approval for Gorgon Gas development. Incorporating the recent positives, we raise FY10 net profit by 3% and introduce FY11 earnings. Ezra is currently trading at FY11 P/E of 9x and we opine this is not high against FY06-FY11 CAGR earnings of 37% on the back of our blue-sky scenario assumptions. We roll over our valuation to FY11 and revise up our P/E parameter on Ezra's FY11 core operations to 15x. Our target price is raised to S$2.39 (from S$1.51 previously). Maintain BUY

Yingli International Real Estate: Buy (Phillip Securities, 17 Sep)
Yingli is a niche property developer engaged in the development of high-grade commercial properties in the prime city centre of Chongqing, including several landmark property developments that reshaped Chongqing’s skyline. Chongqing's export volume only contributes 7.6% of the local GDP, this inward economic structure is the reason why Chongqing is less impacted by the global financial crisis. Chongqing is also experiencing rapid rural-to-urban migration which has spurred the demand for housing in cities. Yingli specializes in urban renewal in the prime areas of Chongqing, having successfully worked with the local authorities to modernize the landscape of the city centre in Chongqing's main districts. This is inline with the initiatives and targets set in the most recent 11th Five Year Program for Chongqing. In the program, the government of Chongqing intends to redevelop 7 million sqm of old and dangerous housing in the city, 2.7 million sqm of living sheds and 3 million sqm of improper buildings to improve the living standards of the local people. We arrive at a valuation S$0.950 using revalued net asset valuation (RNAV). Yingli's future strategy includes focusing in developing office units and retaining a large portion of it as investment properties to enjoy recurring rental income and capital appreciation. We initiate coverage with a buy rating.

Sinotel Technologies: Buy (Phillip Securities, 17 Sep)
Sinotel Technologies' application to have an American Depositary Receipt (ADR) facility in the US has been approved by the US Securities and Exchange Commission. Each Sinotel ADR will represent 20 ordinary shares and trades on the over-the-counter (OTC) market. The run-up in the share price by 17.1% from S$0.585 recently due to the ADR application reinforces our believe that the facility opens Sinotel to a more diversified investor base and increases its liquidity. We believe that there is more upside potential to come bearing in mind the trading of Sinotel shares in the US has not officially started. The next step would be establishing a market maker before US investors can start trading the ADR. We maintain our view that the completion of the ADR facility from approval to initial US trades should serve as a significant catalyst and maintain our Buy call with target price remaining at S$0.93. We will be monitoring the development of the ADR facility closely and issue updates as and when appropriate.

Singapore Airlines: Sell (OSK Research, 16 Sep)
SIA's operating statistics for Aug09 continue to suggest that the worst may be over, but the threat posed by downtrading in air travel and poor premium traffic should linger for some time. We think the company would have to continue with its aggressive price mechanism and capacity management, which may in turn dampen overall yield. With that, we are keeping our SELL recommendation with our 12-month target price tagged at S$11.22. Undeniably, SIA's system-wide passenger numbers continued to look bleak in August 2009 compared with the same month in the preceding year, as the number of passengers carried fell 16% year-on-year (yoy) to 1.4m. Also down were revenue passenger kilometres (RPK), which dipped 14.1% yoy, outpacing the reduction in available seat kilometres (ASK) of 12.9%; hence its passenger load factor (PLF) slipped 1.1% to 78.3%. Nonetheless, its operating performance is deemed commendable despite a small m-o-m drop as this is well in line with the airline’s historical traffic trend, whereby August is a quieter travel period than July. As the global economic downturn dampens air traffic, especially in the premium segment, we suspect that the statistics may be attributed to price under-cutting and capacity management by SIA. The airline's cargo load factor (CLF) improved by 0.9% yoy as overall cargo carriage measured in freight tonne kilometres fell by only 17.7%. CLF improved for all regions, except for South West Pacific and West Asia, and Africa. The moderate expansion in CLF was largely the result of better capacity management and sales efforts. While the worst of the economy may be over, travelers have been downgrading from business to economy class travel and from premium class to low cost carriers (LCCs). We also expect airlines to continue with aggressive marketing efforts to fill up seats, but this will unfortunately be at the expense of yield. With that, we expect a prolonged struggle by premium airlines like SIA in winning back its customers and regain yield prior to the downturn. In view of this, the S$1bn-profit mark may elude SIA for a while longer.

SingTel: Buy (OCBC Research, 16 Sep)
News that the Australian government wants Telstra Corp, Australia's incumbent telco company to split its retail and wholesale network business is likely to be a long-term positive for SingTel's Australian unit Optus. According to media reports, the government hopes that the shake up will pave the way for Australia to proceed with its high-speed broadband network. The move, we think, should reduce the dominance of Telstra in the fixed network space and allow other competitors such as Optus to gain a better footing. However, the break-up could still remain a long-drawn affair (Telstra and the regulators could take months to hammer out the finer details). As such, we do not see any immediate boost to Optus or SingTel and will keep our estimates unchanged for now. Maintain BUY on SingTel with S$3.51 fair value.

CapitaMall Trust: Hold (Kim Eng, 16 Sep)
Based on CBRE's latest report, prime suburban retail rents inched up 0.7% qtr-on-qtr, as opposed to a 2.9% contraction for prime Orchard Road rents in 3Q09. Suburban rents are expected to be more resilient due to more limited availability and their positioning towards necessity spending. This bodes well for CMT, as its portfolio consists mainly of suburban malls. We also noticed that despite the opening of the new malls along Orchard Road, shopper traffic remains relatively high at Plaza Singapura and Raffles City, two of CMT's more centrally located malls. It is widely expected that ION Orchard and Vista Xchange are acquisition targets for CMT sometime in the future. While it is still early days, we believe that Vista Xchange would provide a good fit for CMT's portfolio, as it is located in the suburbs and is near Buona Vista MRT Station, which serves two MRT lines (East-West Line and Circle Line). CMT has outperformed both the STI and FSTE REIT Indices over the last three months. We have revised our DDM-derived target price upwards to $1.68, factoring a cost of equity of 8.5% and a beta of 1.0. While we still like the resilience of the portfolio, we think that the price has run ahead of fundamentals. Distribution yield is also no longer attractive.

Hi-P International: Buy (DMG, 16 Sep)
Hi-P International is an electronics contract manufacturer that specialises in providing manufacturing services to the various global original equipment manufacturers (OEMs). With 25 manufacturing plants globally, Hi-P is a contract manufacturer to OEMs such as Apple, Motorola, Nokia, Research In Motion (RIM) and Procter & Gamble (P&G) with products ranging from handsets, smartphones, electronic toothbrushes and shavers. Presently, we estimate that the company derives around 40% of its total revenue from RIM, known for the ubiquitous BlackBerry. We have compared Hi-P against its SGX-listed peers and found that the company has historically commanded the highest net margins amongst all of them, a testament to its efficient cost structure. Other positives of Hi-P include its strong balance sheet, its vertically integrated model, established track record and a bullish macro outlook in the smartphone space. We believe that the market has already priced in a dismal 3Q09 for Hi-P given that management has officially mentioned it is anticipating much lower revenue and net profit in the coming quarter – we nevertheless expect the company to recover and record net earnings growth in FY10. Valuations-wise, relative to its peers, Hi-P is looking attractive as it trades at just 8.2x FY09F P/E as compared to the industry average of 10.1x. As we are of the opinion that Hi-P should trade up to such a valuation, we initiate coverage with a BUY recommendation with target price of S$0.87.

Singapore Exchange: Sell (DMG, 16 Sep)
For the two months of Jul and Aug 09, value per share traded was S$0.79, sharply lower than FY08 and FY09’s S$1.08 and S$0.94 respectively. This suggests that trading activity is more concentrated in the penny stocks. Historically, the penny stocks were the last to move in an upmarket. We are not optimistic that equities market trading volume will stay high in the months ahead. Our analysis shows that SGX target price would be S$8.00 if FY10 average daily turnover (ADT) hits S$1.84b, or S$9.10 if ADT is S$2.20b. Investors who are more optimistic on the market trading volumes can trade on SGX. But we are not so optimistic. Equities trading accounts for a third of SGX’s operating revenue, lower than Bursa Malaysia Berhad (BMB)'s 47%. A 25% rise in SGX ADT (above base case) will raise SGX FY10 net profit by 15%, whilst BMB's FY10 net profit could rise by a stronger 21% for a similar percentage change in ADT. This is not a positive for SGX as we are forecasting FY10 ADT to be stronger than the FY09 level. SGX is committed to an annual base dividend of 14S¢/share. We are forecasting FY10 dividend of 28.9S¢/share, based on a 90% payout ratio (FY09 payout ratio was 90%). This gives an unexciting dividend yield of 3.4%. We are maintaining our assumption as current market valuations are not cheap and investing interest may not be sustained. Our SGX target price of S$7.00 is derived from 22x of our FY10 EPS, which is close to the 22x average for the past four years.

CH Offshore: Buy (DBS Research, 15 Sep)
CHO owns and operates eight small Anchor Handling, Towing and Supply Vessels (AHTS) and five large AHTS as of end FY09 (FYE June). CHO will increase its fleet of large AHTS to seven by end FY10. We project CHO's free cash flow per share to rise to 8.5 US cents in FY11 (or equivalent to c. 22% of current share price), vs. 2.5 US cents in FY09 and an estimated 1.1 US cents in FY10. We expect CHO to have 40% dividend payout, vs. recurring net profits, in the FY10-11 forecast periods. The 22% dividend payout in FY09 amidst uncertain economic condition is an anomaly. CHO now trades at 6x recurring FY10 PE (FYE June), vs. 9x average PE for the small-mid cap offshore service providers in our coverage. CHO is also not seen as a core holding for Chuan Hup, its second largest shareholder. Hence, in our opinion, an undervalued CHO may be an attractive M&A target for global AHTS owners, including John Fredriksen's Deep Sea Supply (which has close to a 5% stake in CHO). Our fair value for CHO is S$0.89, based on 9x blended recurring FY10/11 PE (FYE June). This gives around 58% potential upside from current price. We initiate coverage on CHO with a BUY rating.

Noble: Buy (OCBC Research, 14 Sep)
Evidence of a global economic recovery has enhanced investors’ preference for cyclical stocks such as commodities. Most stocks have appreciated significantly on expectations of earnings recovery, leaving few with cheap valuations. Against this backdrop of weighing the twin objectives of valuations and outlook, we reiterate Noble Group as our preferred pick within the commodities sector. Noble has performed exceedingly well against an extremely challenging boom-and-bust cycle in 2008 and 1H09. Relentless market share gains have driven volume growth and good balance sheet management has yielded the group superior financial flexibility to capitalise on inorganic growth opportunities. We expect Noble to reap the rewards of its good management in FY10 as global economies recover and commodities markets normalise. Noble's growth prospects are backed by several drivers: (i) market share gains as buyers seek quality counter parties, (ii) normalising commodities markets, (iii) new capacity coming on stream, and (iv) inorganic growth. Noble recently acquired distressed assets of SemFuel via bankruptcy proceedings. The acquisition is expected to boost its product portfolio and enhance synergy. We believe that more distressed assets could emerge from the economic slump. Noble is well positioned to capitalise on such opportunities given its strong cash position (US$805.8m as of 1H09). The group's prudent balance sheet management has allowed it to fund acquisitions without needing to raise additional capital. In contrast, its peer Olam has recently raised additional capital to fund inorganic expansion, at the expense of diluting existing shareholders’ interests. We have raised our FY10 revenue and earnings assumptions on the back of stabilising commodities prices. This lifts our fair value estimate to S$2.50 (previously S$2.26). Despite the recent share price appreciation, Noble trades at just 13.6x FY09F PER, a sharp discount to Olam's 22.7x PER. Current valuations are also undemanding against its historical valuations of 4.1x to 22.1x PER. The stock may see an upward re-rating as investors gain appreciation of its sound balance sheet health.

CDL Hospitality Trust: Buy (Phillip Securities, 14 Sep)
We initiate coverage on CDLHT with a BUY recommendation and fair value of $1.72. CDL HT currently owns hospitality related properties in Singapore and New Zealand. We believe the Trust is poised to benefit from the economic recovery coupled with the government efforts to boost the local tourism industry. Singapore technically exited the recession in 2Q09. The official forecast from MTI is a contraction of 4% to 6% for 2009. That being said, the share price of CDLHT has re-rated from 0.3 times book value seen in March this year to approximately 1 times book value currently, on optimism of the recovering economy. We believe that CDL HT will continue to re-rate to its historical average of above 1.5 times book value seen during the economic boom of 2007 if the cards are lined up properly. The Singapore government has set a target to achieve 17 million tourist arrivals and tourist revenue of $30 billion by 2015. Hospitality operators like CDL HT will stand to benefit from the government initiatives. CDL HT has one of the lowest gearing among the S-REITs. We view this as prudence on management part in managing capital usage well. CDL HT has gearing of 19% and total debt of $287 million. We believe with the backing of a strong sponsor, it has better access to funding sources. The sponsor of CDL HT is M&C Hotels plc which is majority owned by City Development Ltd. With a right of first refusal from the sponsor, there are ample acquisition opportunities for CDL HT to expand its portfolio. Furthermore, management has indicated that it has the expertise to operate its hotels if any of its lessees decides to terminate their leases.

Ezra: Buy (Deutsche Bank, 13 Sep)
Ezra has announced that it has secured new and renewal charter contracts worth US$152 mn for three Anchor Handling, Towing and Supply Vessels (AHTS). Under the agreements, the vessels will be chartered out for operations in Southeast Asia for periods ranging from 5½ to six years, inclusive of extension options. We believe the group's young deepwater fleet (about 78% of Ezra's fleet is deepwater capable) places them in a strong position for further new contract wins. The AHTS vessels are basic workhorses of the offshore oil & gas support services industry that are deployed throughout the entire oil field life cycle. Ezra has an existing modern fleet of 25 AHTS and 3 crew boats within the Offshore Support Services division. With recent signs of recovery from the financial turmoil, the group foresees upward revisions in capital expenditures by global oil majors, driving strong demand for offshore support services. This is in line with our positive view on the O&M/offshore services sector, especially in the subsea space. Ezra's recent new growth strategy announcement on the subsea market marks a strategic and transformational move to focus on one of the fastest growing segments of the O&M sector. Global subsea spending in the next five years should rise to more than 70% over the previous five years. Subsea spending should total about US$160bn from 2009 to 2013, and 3,222 subsea trees are due to be installed during this period. With its upcoming high specification vessels, enhanced know-how and expertise, and good execution track record, Ezra should be in a strong position to benefit in our view. We maintain our Buy on Ezra for its attractive valuations, strong execution track record, and its move into the high growth subsea market.

Singapore Exchange: Neutral (UBS Research, 11 Sep)
Trading volumes have increased in recent weeks, and we believe these higher levels are sustainable due to an economic recovery and a decline in risk aversion among investors. We raise our FY10/11/12 EPS estimates for Singapore Exchange (SGX) from S$0.35/0.40/0.46 to S$0.39/0.43/0.48, and our price target from S$9.00 to S$9.20. However, we believe the stock is fully valued at current levels and thus downgrade our rating from Buy to Neutral. We expect foreign inflows to Asia to continue because of its better economic growth prospects relative to the west. Additionally, we think local retail participation in Singapore's equity market could rebound after having fallen from an average of 15.2% of household wealth in 2003-07 to an estimated 9.3% at the end of 2008. However, we believe this will be offset by fewer Chinese listings because of the better valuation premium commanded by similar listings in China. We believe SGX's main risk, the potential break-up of its monopoly, has been mitigated by its announcement of a joint venture with Chi-X to set up the first exchange-backed "dark pool" in Asia. We think this partnership should eliminate criticism of SGX's monopoly status and allow it to defend its market share.

Bukit Sembawang: Buy (DBS Research, 11 Sep)
Bukit Sembawang offers the purest play on the Singapore residential market, with nearly 100% of its RNAV attributed to this sub-sector. It has been associated with the development of landed housing in Singapore since the 1950s. The group holds 4.2m sq ft of landbank in Singapore, which places it second among listed developers. About 74% of this is low-cost legacy land from its days in the rubber plantation business, resulting in EBIT margins of 36% to 53%, which is higher than the usual 15-20% EBIT margin associated with mass-market properties. This legacy land is zoned for landed housing, a sub-segment of the residential market that has demonstrated greater resilience in the recent cycle. An increased scarcity of landed sites bodes well for future pricing power and unlocking of value. In 2005-06, BS diversified into the non-landed segment, acquiring about 1.4l sq ft of GFA in the mid- and high-end segments, enabling it to tap into a recovery in these segments filtering up from the mass-market. Its RNAV of S$8.60 implies that the stock is trading at 0.5x P/RNAV, the lowest within the sector and presenting undemanding valuations relative to other mid/- & small-caps stocks with significant residential segment exposure. Our target price of S$6.02 is based on a 30% discount to RNAV, which accounts for lower trading liquidity and a large landbank which would only be completely monetised over the long-term. Though daily trading liquidity for the stock remains relatively low, we believe that this undervalued stock would appeal to value investors with a longer-term view.

Cambridge Industrial Trust: Buy (DMG, 11 Sep)
We raise our DDM-backed target price to S$0.61 (S$0.40 previously) to reflect a lower cost-of-equity assumption of 9.6% (10.5% previously). Stock price has doubled since March underpinned by its successful refinancing. Despite the rally, CREIT still trades at attractive yields of 12.2% based on our FY10 DPU forecast of 5.18¢. CREIT remains our top pick within the small cap S-REIT space. We favour it for its bond-like characteristics anchored by: 1) long tenant leases of 5.1 years; 2) high levels of bank-guaranteed security deposits of 16 months; 3) built-in portfolio rental escalation of 2% pa; 4) high occupancy and diversified tenant mix; and 5) 51% of portfolio sublet providing second layer of income support. Besides, its existing interest costs are hedged for the next three years, minimising interest rate fluctuation risks. CREIT does not have any debt expiring until February 2012. The massive sell-down in 1Q09 was a result of panic that CREIT would fail in its debt refinancing. Sellers were clearly wrong and have overshot the selling. We believe CREIT is still playing catch up. Prior to the crisis, CREIT traded at a 140bp yield premium over competitor A-REIT. That gap now stands at 460bp, which in our view suggests that CREIT is still very much a laggard play. At our recommended target price of S$0.61, CREIT still offers an attractive FY10 yield of 8.5%, which gives it a spread of 600bp. Should the market rally persists, our blue sky scenario implies a fair value of S$0.74 (7% yield at fair value implying 460bp yield spread), premising on our forecast FY10 DPU of 5.18¢.

CapitaCommercial Trust: Hold (UOB Kay Hian, 10 Sep)
CCT has received more enquiries from financial institutions (fund management), oil & gas companies (HQ functions) and professional services (legal and accounting) recently. However, these enquiries have not translated into take-up for office space. Management expects office rents to be on a declining trend till the end of the year, although the magnitude of decline has moderated. CCT’s current priority lies in retaining tenants and maintaining occupancy. Acquisition is kept on the back burner. There are limited opportunities to acquire office buildings in Singapore, especially Grade A office buildings of a decent size. CCT is not keen on acquiring strata office space due to lack of control over management. According to Colliers, average rents for Grade A office space within Raffles Place has dropped by a severe 29% qtr-on-qtr (qoq) to S$7.45psf. We continue to expect rents for Grade A office space within Raffles Place to slide further to S$6 psf by end-10, representing a two-third correction from the last peak. Based on transactions for strata office space at Suntec City Office Towers, capital values rebounded 38% in 1H09 from the bottom in Feb 09 and remained stable in Jul and Aug 09. The huge correction in office rents could once again put pressure on capital values. We estimate NAV/share will be reduced from S$1.50 to S$1.14, assuming 6 Battery Road and One George Street are valued at S$1,680psf (current: about S$2,320psf) while HSBC Building, Robinson Point and Capital Tower are valued at S$1,200psf (current: about S$1,520psf). Gearing will correspondingly increase from 30.6% to 37.0%. We believe office rents will continue to be under pressure due to large new supply coming on stream in 2010 and 2011 and competition from business parks outside the Central Business District (CBD). We have assumed portfolio occupancy tapering off from 94.9% in 2Q09 to 90% by 2Q11 (previous: 88%). Our fair price of S$1.09 is based on the Dividend Discount Model (required rate of return: 7.7%, terminal growth: 2.5%).

Sinotel: Buy (Phillp Securities, 10 Sep)
With the submission of American Depository Receipt (ADR) application to the US Securities Exchange Commission which will enhance the stock's visibility and liquidity, we are pricing Sinotel closer to its US listed peers such as China Grentech Corp Limited and Telestone Technologies Corporation, which are currently trading at a PE of 13.53x and 6.66x respectively. With US investors likely to come in, the view that Sinotel is priced at a discount versus its peers is not unlikely. We thus move our PE to 10x FY09 forecasted earnings. This gives us a fair value of S$0.93, maintaining our BUY call. From the last traded price of $0.585, this represents an upside potential of 59%. As mentioned earlier, we view the ADR as a significant catalyst to the recent run up in share price, approval of which provides US investors a channel to purchase Sinotel shares that is still trading at a significant discount versus its peers. In addition, Sinotel has recently won a RMB15.3 million contract to provide 3G Distribution & Management System to China Unicom. At first glance, the figure seems small relative to its order book but it serves as a significant milestone in our opinion as it opens doors for Sinotel to work with China Unicom's 31 branches nationwide when deploying the system.

Neptune Orient Lines: Hold (Phillp Securities, 10 Sep)
NOL's share price has risen by about 20% since our last report on 2 September 2009. We would like to highlight that NOL is still expected to post a full year loss of US$633m in FY2009F. Although we are anticipating a recovery in 2010, it is projected to report a loss of US$131m in FY2010F. It is only in FY2011F that we expect a profit of US$208m. We have a fair value of S$2.12 for the stock. This works out to 1.2 times book value for FY2009F. We derive our fair value based on expectations that NOL will start recovering from the downturn in FY2010F. Due to limited upside of 11.6% to our target price, we downgrade the stock from buy to hold.

Genting Singapore: Hold (OCBC Research, 10 Sep)
Genting has proposed a renounceable 1-for-5 rights issue at S$0.80 each to raise S$1.63b. According to management, the issue is undertaken to pro-actively strengthen its balance sheet, enhance its financial flexibility and competitive position, and facilitate future business expansion. Based on the last traded price of S$1.19, the rights discount is about 33%; it is also at a 29% discount to the theoretical ex-rights price of S$1.125. Genting also said it intends to use 60% of the net proceeds for funding of future acquisitions/investments, or JVs/strategic collaborations, and 40% for working capital (which includes repayment of bank borrowings). Given the recent run-up in its share price, we believe it may be an opportune time to raise some cash from the market to add to its kitty. While there have been some concerns about the cost over-runs at RWS (Resorts World @ Sentosa) as well as its payment of its syndicated loan obligations of S$4b in 2011 and its S$450m convertible bonds (CB) in 2012, we think that these concerns may be overwrought. Instead, we see the move as more of a insurance, should there be any hiccups in the global financial system again. Genting has also previously said that it will fund the extra S$590m of over-runs with its internal operating cashflows once the casino opens its door; we do not see any issues with this as we nderstand that some of its attractions would only be completed in 2011/2012. Going forward, industry watchers expect the Asian gaming market to be the most promising – growing at 15.7% CAGR for the next five years1. As such, we believe that Genting would focus on making acquisitions or forming JVs in this region. We note that possible targets could be in the Philippines (Subic Bay), Macau (not related to Stanley Ho), or even potential new markets such as Japan and Taiwan where Genting can step in to provide the technical expertise. Adjusting our fair value to S$1.05. In view of the possibility of RWS opening before end 2009 and also the more upbeat regional economic outlook, we have further refined our estimates, raising our FY10 revenue by 11.4% and reducing our loss forecast by 66.7%. We have also bumped up our fair value from S$0.85 to S$1.05 (S$1.01 adjusted). But given the limited upside, we maintain our HOLD rating.

Genting Singapore: Hold (UOB Kay Hian, 10 Sep)
GENS has proposed a 1-for-5 renounceable rights issue of up to 2,043.7m new shares at S$0.80/share, a 32.8% discount to its last done price of S$1.19. This is the third rights issue since its IPO in 2005. The rights issue is expected to raise gross proceeds of up to S$1.63b to strengthen its balance sheet (40%) and facilitate future acquisitions and investments (60%). No further details are provided on future acquisitions although we reckon that Genting Bhd (GENT MK) or Genting Malaysia (GENM MK) will be a better vehicle for this purpose. GENS’ 2010 and 2011 EPS are expected to be diluted by 21.1% after the rights issue. We now project gross debt to reduce to S$4.6b (previously S$5.22b) by end-10 (net debt/equity ratio of 85%). Maintain HOLD with ex-rights target price at S$0.93/share, or a 2011F EV/EBITDA of 12.8x. In the short term, we foresee share price weakness for both GENS and Genting Bhd (GENT's share price has fallen 5-6% in the past two days). However, downside should be limited by the excitement over Wynn's and Las Vegas Sand's planned listing of their Macau casinos, as well as the potential early opening of the Resorts World Sentosa.

Genting Singapore: Overweight (JP Morgan, 9 Sep)
Genting Singapore is undertaking a renounceable underwritten rights issue at issue price of S$0.80 for each rights share, on the basis of 1 rights share for every 5 existing ordinary shares. At the existing share base of the company, approximately 1.9b rights share is expected to be issued, translating to S$1.5B in expected funds raised. Genting Singapore intends to use approximately 60% of net proceeds raised from the rights issue for funding of future acquisitions and/or investments undertaken by the group. The remaining 40% will be used for working capital purposes and includes repayment of bank borrowings. As a result of the interest savings, we are increasing our net profit forecast for FY10E, FY11E and FY12E by 44%, 10% and 4% respectively. EPS in FY11E and FY12E are reduced by 9% and 13% respectively, due to the enlarged share base. EPS in FY10E, however, is higher by 20% as the interest savings were significant as a proportion of the smaller operational income base (1st year of opening of its Singapore project). Ex-rights June-2010 price target of S$1.15; in bullish case, stock could trade up to S$1.95. We adjust our price target downward from S$1.20 to S$1.15 to factor in the additional shares / capital raised from the rights.

Genting Singapore: Sell (UBS Research, 9 Sep)
Genting Singapore has announced a 1 for 5 rights issue at subscription price of S$0.80 which could raise gross proceeds of cS$1.5bn-1.6bn. The company intends to use c60% of proceeds for future acquisitions/investments in leisure & gaming related sectors, and c40% for working capital purposes. RWS remains fully funded with an S$4bn credit facility together with the original S$2bn equity funding from the 2007 rights issue. As of end H109, only S$1.6bn of the S$4bn had been drawn down. We do not expect any downstreaming of new equity funding into RWS from Genting Singapore. Pro forma, net debt to EBITDA would decline from 5.3x to 3.1x in 2010e, and from 4x to 2.3x in 2011e. We believe strategically Genting Singapore may seek acquisition or investment opportunities in casino-related sectors outside of Singapore. However, we consider further investment in UK and new investment in the US as risky. Entry into Macau would be positive, but structural and regulatory issues remain difficult to overcome. Since the subscription price of S$0.80 is only marginally lower than our current price target of S$0.82 and the increase in the share capital is only c20%, there would effectively be no change to our price target based purely on the terms of the rights issue transaction. However future investments may alter our fair value.

CapitaLand: Buy (Kim Eng, 9 Sep)
CapitaLand has unveiled designs for The Interlace last Friday, its latest project to be developed on the former Gillman Heights. Designed by Ole Scheeren from The Office of Metropolitan Architecture (OMA), The Interlace has an avant-garde design and will comprise 1,040 units on a site of 871,884 sq ft. CapitaLand has a 60%-stake in the project. The Interlace is scheduled to be launched in October, and the management has stressed repeatedly that pricing would be affordable. Its construction costs are expected to be between $250-270 psf, lower than the $320 psf we had assumed earlier. We correspondingly lower our estimated breakeven price to $703 psf, while keeping our average selling price (ASP) unchanged at $900 psf. Besides The Interlace, CapitaLand is also preparing to launch the 165-unit Urban Suites, on the site of the former Char Yong Gardens. We reckon that its launch is closer to the year's end. Lowering our cost of construction assumption by 10% to $360 psf, the estimated post-provisioning breakeven cost for the project is $1,925 psf. We maintain our ASP assumption at $2,300 psf. We have lowered our construction costs assumptions for the other projects in CapitaLand's landbank, and pegged the associated companies to market value. Pegged at a 15%-premium to our FY10 RNAV of $3.98, we have raised our target price to $4.57. The stock has been a relative laggard compared to its peers. Upgrading to BUY.

Biosensors International Group: Buy (OCBC Research, 9 Sep)
Our scan of the Drug Eluting Stent (DES) industry has yielded encouraging results. DES usage has risen to the mid-70% range compared to 65% a year ago. While there are still proponents and opponents to DES usage, rising clinical usage indicate that practitioners are more comfortable with the significant research put in for the last three years. Our scan of Biosensors' peer group revealed a tough battleground in the US DES market. Abbott's technology continues to gain ground while Medtronic and J&J struggle to keep up. Clinicians being advocated to "resist short-term distractions and stick with medical evidence" will bode well for Biosensors’ BioMatrix DES, which is authenticated by strong clinical data. Average selling prices (ASPs) have held up well. We still believe a key exit for long-term investors will be an M&A situation and think the company may need significantly more cash and people bandwidth to sustain its growth trajectory past FY11F. Our bets for future acquirers are Medtronic (laggingtechnology pipeline) and Terumo (Asian-based powerhouse and current Biosensors' licensee). Maintain BUY at S$0.74 fair value.

SIA Engineering Company: Hold (OCBC Research, 9 Sep)
SIA Engineering Company (SIAEC) has won a 10-year maintenance service agreement with Panasonic Avionics Corporation, a leading supplier of aircraft in-flight entertainment (IFE) systems. We believe the earnings impact is negligible in view of the long attribution time frame and low revenue intensity as compared to its key airframe maintenance business. In our view, SIA's improving operational performance might be a summer holiday travel blip and without reinstating ground aircraft, SIAEC's airframe business will continue to be crimped. A silver lining in this picture comes from the cost-saving initiatives of about S$1m/month that should flow through from Jul 09 onwards. Despite the recent run up in equities, (maintenance, Repair & Overhaul (MRO) valuations have trended lower, signalling ill confidence in the industry. Consequently, we have lowered our PER peg to 13x (prev. 14x) and our sum-of-the-parts (SOTP) valuation drops to S$2.85 (prev. S$2.95). The recent price downtrend coupled with p oor liquidity may stall any significant price ascension. Maintain HOLD. The current price yields about 5.6% for FY10F dividends.

Pan-United Corporation: Hold (OCBC Research, 9 Sep)
Pan-United Corporation (PAN) announced that it has won supply contracts worth approximately $74m to provide Ready Mixed Concrete (RMC) and specialised cement to the Sato Kogyo and Daelim Industrial joint venture (Sato-Daelim) – one of the main civil contractors for the construction of the Marina Coastal Expressway. Under the supply contracts, PAN will be the sole supplier of RMC, Ordinary Portland Cement and Portland Blast Furnace Cement. The supply tenure is expected to last 2-3 years. We believe the contract was won under the current market conditions of suppressed RMC prices, which have declined 16% since Jan 09. We are maintaining our estimates as we view this contract as a “replacement order” for its RMC production backlog albeit at a thinner margin. Maintain HOLD and DDM fair value of S$0.52.

UOL: Buy (OCBC Research, 9 Sep)
URA has announced the bids received for a 99-yr residential site at Dakota Crescent. A total of 13 bids were received for the site and UOL Group topped the bidding with an offer of S$329m (S$508 psf ppr). Based on an estimated construction cost of about S$250 psf, our estimated breakeven cost for this project is about S$880 psf. Selling price of this project could be around S$1,000 to S$1,100 psf and this is achievable given that Dakota Residences had been selling at S$830 psf – S$1,080 psf and UOL intends to build a high proportion of small units for this project. We think that the bid is reasonable as UOL could potentially reap a margin of 12%-20% for this project. We maintain our BUY rating on UOL with fair value of S$4.07.

Wing Tai: Buy (DMG, 9 Sep)
We are initiating coverage of Wing Tai Holdings with a BUY rating and S$2.15 target price, 10% premium to our FY10F base case RNAV of S$1.96. We view positively Wing Tai's 53% (of RNAV) exposure to Singapore's prime and luxury residential segments, which are improving amid signs of increased foreign purchases and better macroeconomic indicators. Unsold inventory of 466 units in these two segments should allow it to participate in the recovery within the next six to nine months. Recent healthy take-up at better-than-expected prices for Ascentia Sky and Belle Vue Residences has reaffirmed our belief in management's astute market timing. Current net gearing of 0.47x also puts it in a well-capitalised position (vis-à-vis past property cycles), which should be bolstered by progressive recognition of incoming sales proceeds.

MobileOne: Buy (Kim Eng, 9 Sep)
M1 has announced two significant investments recently. One, it will bootstrap itself a presence in the corporate fixed broadband via the acquisition of Qala, a local internet service provider. Two, it will launch the Novatel MiFi, a battery-operated mobile router that allows users to create and bring with them their own personal wireless hotspot wherever they go, even while in a car or in a remote area where there are no public hotspots. M1 will pay up to $17.9m (of which $3m is subject to financial targets being met) for Qala. Qala's profits are currently negligible compared to M1 but it will allow M1 to provide small and medium enterprises (SMEs) with a cheaper alternative to SingTel, which monopolizes the data and telecom needs of companies operating in non-CBD areas. In addition, Qala will be able to cross-sell M1's consumer Internet services, such as its 7.2Mbps wireless broadband. M1 anticipates minimal capex – no network investment will be needed while backend support can be combined with its existing consumer facility. We reckon the innovative MiFi device could have a positive impact on M1's market share in mobile broadband, which stood at 137,000 as at Jun 2009 (estimated to be 25-30% market share). M1 is the first telco in Asia to launch this device. As it allows up to five devices to be simultaneously connected at 7.2Mbps download speed, it may even prompt existing users to switch, depending on the prices for the device and data plans, as well as supplier exclusivity. We reiterate our view that M1 will have the biggest upside once the Generation Nationwide Broadband Network (NGNBN) comes online. Its acquisition of Qala is a credible step in filling up its lack of a corporate business, and will give it upside beyond the consumer business alone. We will start to model in NGNBN benefits once there is more clarity. Target price is raised to $2.18 (13x FY09) with higher peer valuations. M1 is still attractive at 7.2% yield. Maintain BUY.

MobileOne (M1): Hold (Phillip Securities, 9 Sep)
M1 announced that it had entered into a sale and purchase agreement to acquire all the ordinary shares of Qala Singapore Pte Ltd. Qala is an Internet service provider and offers Internet services to corporate, enterprise and public sector customers in Singapore. The consideration is S$14.9 million and another S$3.0 million will be paid if Qala met certain financial targets. We like the acquisition as it helps to strengthen M1's position in the internet services market. M1 is the last player to enter the internet services market and has to catch up with SingTel and StarHub in terms of market share. Through the acquisition, M1 gains access to the customer base and business contacts of Qala. This is likely to boost the revenue of M1 from the Internet services segment. In fact, Internet services (or broadband) revenue is projected to increase from S$2.8 million in FY2009F to S$16.2 million in FY2010F and S$18.3 million in FY2011F. We maintain our hold recommendation as M1 remains the smallest telecommunications player in the Singapore market and does not have any overseas operations. However, due to the benefits from the acquisition and the likely increase in revenue, we raise the target price from S$1.67 to S$1.78 based on the free cash flow to firm model.

Parkway Life REIT: Buy (UOB Kay Hian, 8 Sep)
Parkway Life REIT was offered a S$50m three-year Islamic revolving credit facility by The Islamic Bank of Asia, a subsidiary of DBS Group Holdings. Parkway Life is recognised as Shariah-compliant based on preliminary review. Islamic finance provides financial flexibility as Parkway Life can now tap funding from traditional commercial banks and diversification from Islamic banking facilities. Funding provided by Islamic finance is usually at a lower cost compared with traditional sources from commercial banks. The Islamic revolving credit facility was priced at an attractive spread of 195bp. Parkway Life’s current gearing of 22.7% and all-in cost of borrowings of 2.89% is among the lowest in the S-REIT sector. Its interest cover ratio is a healthy 6.9x. It has debt headroom of S$308.3m for acquisitions before reaching gearing of 40%. Parkway Life has established a S$500m multi-currency medium term note (MTN) programme, which is currently untapped. The trust has completed asset enhancement initiatives (AEI) for PLife Matsudo, a pharmaceutical production and distribution facility in Matsudo City, Chiba prefecture in Japan by converting existing utility space into a device manufacturing room. The enhancement work costs S$2.6m and increases gross rent by 19.4% with effect from Jul 09.Parkway Life has strong defensive qualities due to the long-term leases for healthcare assets. Its low gearing enables it to grow via acquisitions. We have raised 2010 DPU forecast by 2.6% to 8 cents due to AEI for the PLife Matsudo facility and growth from Singapore hospitals. We like Parkway Life for its healthcare focus. It provides strong defensive qualities as rental income from hospitals in Singapore and nursing homes in Japan is linked to inflation. Our target price is S$1.65, based on the discounted dividend model (required rate of return: 7.15%; terminal growth: 2.5%). Parkway Life trades at a 16.4% discount to NAV/share of S$1.34.

FSL Trust: Buy (OCBC Research, 8 Sep)
FSLT has placed out 80m new units or 15.4% of the original outstanding unit base. The issue price is S$0.525 – a discount of 11% to the adjusted VWAP of S$0.59. The proceeds are earmarked for acquisitions. The manager has maintained its guidance of 1.50 US cents 3Q DPU for existing units. This DPU amount will be split into two and the distributable amount for the pre-placement period will be paid to existing units in advance. The manager estimates this amount is roughly 1.27 US cents per existing unit for the period of 1-July to 16-Sep. Gross proceeds of S$42m or US$29.2m are equivalent to about 5.8% of outstanding debt. As the industry and the credit markets are still fragile, we don't expect FSLT to gear up on the proceeds in the near-term. We understand the un-geared proceeds can buy roughly two small ships. The transaction seems small but not from a balance sheet perspective. The equity issue and acquisitions (at current prices) will increase FSLT's asset base – this lowers the trust's gearing and also improves its ability of maintaining required loan-to-market value thresholds in the event of further stress. With this transaction, FSLT has stitched up some of the last remaining gaps in its balance sheet. Over the past few months, FSLT has 1) reduced distributable payout; 2) secured loan-to-market value covenant waivers on its credit facility; and 3) has now launched an equity issue. Taken together, these actions coalesce into a consistent, simple strategy of "defensive to be offensive". FSLT has to fix its business model before it can be taken seriously as an asset owner / financier and as a sustainable investment vehicle. Now that the trust's house is in order (in our opinion); it has the capacity to look outward and onward. Keeping the acquisition-rich environment (weak industry, low credit availability) and the manager’s historically assertive M&A style in mind, we believe a second, much larger round of equity/acquisitions is likely in 2010. Maintain Buy with revised fair value estimate of S$0.72 (prev: S$0.77) due to dilution effects.

Chartered Semiconductor: Accept Offer / Sell into Strength (OCBC Research, 8 Sep)
Advanced Technology Investment Company (ATIC) of Abu Dhabi has proposed to acquire Chartered Semiconductor via a scheme of arrangement at S$2.68/share. In a separate announcement, Chartered also revised its 3Q09 revenue guidance upwards to US$405-415m (US$382-394m previously) on incremental improvement in business from its mature technologies. We have raised our FY09-10 revenue forecasts by 2.5-4.2% following the upbeat update by management. More importantly, we now see the possibility of Chartered returning to profitability as soon as FY10. As such, we use a higher 1x blended FY09/10F NTA (0.6x FY09F NTA previously) and derive a fair value of S$2.44 (vs. S$1.46). While we have turned increasingly positive on Chartered’s growth prospects and the overall semiconductor industry, we caution that the economic outlook remains largely uncertain and volatile. With the offer price at 9.8% premium to our fair value and a slim chance of a competing bid, we think that investors would be better off by accepting the offer rather than face any downside risk due to the uncertain economy. For investors who do not wish to rely on outcome of deal, we also see opportunity to sell into strength should the share price exceed the offer price.

Chartered Semiconductor: Buy (DMG, 7 Sep)
Chartered has officially received a take-over offer by Advanced Technology Investment Company (ATIC) at S$2.68/share, representing an equity value of S$2.5b while major shareholder Temasek Holdings which has a 62.3% stake has also signed an irrevocable undertaking to vote in support of the acquisition. The offer is conditional and requires at least a 75% approval by shareholders. Separately, Chartered also upgraded its 3Q09 guidance on the same day. We have increased our revenue forecasts by 8.3% and 2.7% for FY09 and FY10 respectively given the upgraded guidance by Chartered and we now expect the company to turn profitable in FY10. We believe that Chartered is currently riding on an upswing in the semiconductor space similar to the one seen during Feb 05 to Feb 06 where the semiconductor book-to-bill ratio attained a low of 0.77 but subsequently rebounded to a high of 1.01. We have therefore pegged our valuations using this period as a guideline – with Chartered currently priced at 1.1x FY09 P/B and assuming that it trades up to 1.3x P/B, which represents the average seen in the Feb 05 – Feb 06 period. Given the improving outlook for Chartered and for the fact that downside risks to its share price would be minimal as it should be robustly supported by this offer price, we maintain our BUY recommendation and increase our target price to S$3.14 (from S$2.77 previously) based on 1.3x FY09 P/B.

CapitaLand: Hold (AmFraser, 7 Sep)
CapLand has unveiled its design for a new 99-year residential development located on the former Gillman Heights condominium site. CapLand has a 60% stake in the consortium which purchased the en-bloc site. The new condominium project is called The Interlace, which sits on a eight-hectare site. There will be a total of 1,040 units. Sizes range from 807 sq ft to 6,308 sq ft in the form of two-, three-, four-bedroom apartments, penthouses and duplex garden units. CapLand intends to launch The Interlace next month. The project is expected to be completed in 2014. CapLand has also secured S$660mil project financing for The Interlace with seven participating banks. The loan syndication was particularly well received, attracting over S$1bil in funds. CapLand’s management has conveyed that an all-in interest margin of 3.48% would be payable, or 2.8% margin above the three-month Singapore Interbank Offer Rate. CapLand's management has also guided for land cost of S$363 psf per plot ratio (ppr) and construction cost in the region of S$250 – S$270 psf. Indicative construction cost is above our initial estimates of S$160 psf, probably due to the complex "stacked lego blocks" design. As such we have revised breakeven cost upwards to S$754 psf. Pricing will be "affordable" according to CapLand's management. However, we do not think "affordable will equate "cheap". Considering the design efforts and construction overlay, the project is likely to command an average selling price (ASP) of S$1,200 psf, in our opinion. We think the project will be well received with no nearby comparable projects. Using latest resale prices at One-North Residences and The Rochester as a guide, their ASP of S$1,074 psf and S$900 psf respectively are around 11% – 25% below our expected ASP for The Interlace. We have an RNAV estimate of S$4.72/share. Adopting a 20% discount to our RNAV estimate, our fair value stands at S$3.78/share and we maintain our HOLD rating.

Asiatravel.com: Buy (DMG, 7 Sep)
We initiate coverage on Asiatravel, an established travel portal, with a BUY recommendation and target price of S$0.70. We are expecting strong growth of 69% in FY10 earnings, powered by a recovery of the tourism industry, with improvements in occupancy rates, room rates and airfares all contributing to growth. Its favourable cost structure also allows it to leverage on existing resources to drive revenue growth. In addition, Asiatravel will benefit from the opening of the Integrated Resorts (IR) in Singapore. There are plans to offer sight-seeing tour packages that include passes into Universal Studios. Through its innovative initiatives to raise brand awareness, Asiatravel is positioned to ride on the rising trend of a new breed of travellers – the Internet-savvy whose preference is to shop online and customise their itineraries. It is also able to meet the needs of its customers who require rooms at the last minute. As the first in Asia to allow customers to purchase flights with multiple stopovers, and with instant confirmation, it gives them more flexibility, at a reasonable cost. Its operating costs are largely fixed. Improvement in room rates will flow directly though to net profit, which would translate into better margins. Our sensitivity analysis shows that a 5% improvement in room rates would lead to a 10.6% rise in operating profit. Asiatravel is also a beneficiary of the opening of Singapore's two integrated resorts (IRs). Following the openings, tourist arrivals are expected to rise, and this could mean more business for its online reservation portal. To make it more attractive to book through Asiatravel, it plans to launch a tour package, capitalising on the opening of Universal Studios. It plans to ferry up to 1,000 visitors to the theme park daily.

Yangzijiang Shipbuilding: Buy (OCBC Research, 7 Sep)
Yangzijiang is an established shipbuilder in the PRC with operations dating back to the 1950s.The group operates two yards in Jiangsu province, one in Jiangyin city and the other in Jingjiang City. Yangzijiang has delivered more than 100 vessels including bulk carriers and containerships and is looking to expand its product range as well. In 2Q09, group revenue rose 41% YoY to RMB2.5bm while net profit rose 80% to RMB607.4m, aided by higher gross margins and other gains. Yangzijiang has a strong order book of 139 vessels worth a total of US$6.1b as at 30 Jun 09. This comprises 66 containerships worth US$3.8b and 73 bulk carriers worth US$2.3b. More noteworthy is the fact that management said that the group has not received any order cancellations so far while peers such as Cosco Corp have been hit. We do not discount the possibility of order cancellations, but order delays are more likely, given the group's determination to preserve orders. Despite tougher business conditions, the group's gross margins have held up with the construction of higher margin vessels (24% in 2Q09 and 20% in 1Q09). This compares with 1% shipbuilding margin for Cosco in 2Q09, which was affected by longer-than-expected delivery delays and higher-priced raw materials. However the shipbuilding industry is now out of the boom period and normalised margins are expected to fall in the long run. The last time that Yangzijiang received new orders was in 2Q08, and management expects minimal new orders given low demand and customers' difficulties in securing financing. Hence, the group is proactively looking into new areas such as the vessel scrapping market which is relatively buoyant now. We view this possible development positively, given the resulting business model.We initiate coverage on Yangzijiang with a Buy rating with fair value estimate of S$1.20 based on 11x blended FY09/10F earnings, in line with peers. Project execution has been good with relatively strong margins compared to peers. Its strong order book of US$6.1b which extends to 2012 also lends earnings visibility though we note that new order flow may be minimal going forward. We have not factored in possible contributions from the vessel scrapping business

CapitaLand: Hold (OCBC Research, 7 Sep)
CapLand unveiled the design for its upcoming residential project at the former Gillman Heights site. Estimated construction cost for the project is between S$250psf-S$270psf and our new estimated breakeven cost for the project is between S$695psf-S$720psf. We have now lowered our margin assumption to 20% for this project and the average selling price could be around S$900 psf. On these new assumptions, we have now lowered CapLand’s attributable share of profit contribution from this project to S$138m. CapLand recently also announced its plan to deploy the capital raised during its Rights issue but we think that the initial excitement over the potential value creation from the capital deployment is now dwindling. Our fair value has been lowered marginally to S$3.72 and we maintain our HOLD rating on CapLand. Investors may want to switch to other value property developers like UOL Group (BUY; FV: S$4.07) that is trading at 21.8% to our RNAV estimate.

Epure International: Buy (DMG, 4 Sep)
Epure’s revenue was up 26.7% year-on-year (yoy) to RMB303.4m, on the back of higher contribution from major turnkey projects and sale of customised environmental equipment from Hi-Standard. Gross profit margin was slightly weaker yoy from 32.2% to 30.3% due to the difference in the timing of recognition for the various projects. Consequently, earnings rose 27.9% yoy to RMB66.7m. We note that this was boosted by confirmation of tax incentive for Epure's subsidiary, bringing income tax expenses down by 90.2% yoy to RMB1.1m in 2Q09. We understand that there are approximately RMB900m worth of contracts that Epure is currently negotiating for. In addition, there have been enquiries from other overseas countries such as Philippines, where there is apparently strong construction demand for water infrastructure. We believe that these potential order flows will help maintain, if not boost, order books, which currently stands at RMB1.2b. With the transfer of some existing EPC projects into Epure International Water, the company will enjoy lower tax rates of 0% tax for this year and 7.5% next year. This compares with the higher 15% tax rate without the transfer. Thus, we are lowering our effective tax rate forecast from 16% to 10% in FY09 and to 12% in FY10. This pushes our earnings estimates upwards by 7.2% to RMB 270.2m in FY09 and 4.8% to RMB314.2m in FY10. With the positive industry outlook, we are expecting continued growth in revenue from Epure's project wins. Applying a P/E of 14x (in line with its peers) to Epure's FY10 earnings, we derive a new target price of S$0.75 (S$0.51 previously). We maintain our BUY rating.

Longcheer Holdings: Buy (DMG, 4 Sep)
Mobile handset solutions provider Longcheer reported 4QFY09 results that were inline with our expectations. It registered 4QFY09 revenue of RMB634.6m (+8.7% qtr-on-qtr, -18% year-on-year) while net profit came in at RMB38.3m (+34% qoq, -15.5% yoy) as lower demand for 2G handset solutions in China affected the company. Nevertheless, this was generally inline with our estimates as we were forecasting top and bottomline at RMB534.6m and RMB38.0m respectively. We continue to like Longcheer for its trong net cash position of 28 S¢ per share as of FY09, representing slightly less than 50% of its current share price. We also expect Longcheer to generate full year operating cash flows of no less than its corresponding net profit in FY10F and FY11F respectively. In a growing 3G market in China where the three Chinese telcos are expected to spend RMB280b from 2009 till 2011 to upgrade their 3G networks – Longcheer's 3G products jumped more than five-fold yoy to exceed 1.0m units in FY09 and we are forecasting no less than 2.3m units to be shipped in FY10. 1QFY10 results should at least match 1QFY09's revenue and net profit of RMB905.3m and RMB48.9m which still translates to sequential growth of at least 42.6% and 27.7% in top and bottomline respectively. Our forecasts remain generally unchanged given that its results and outlook were inline. We maintain our BUY recommendation and continue to peg our target P/E to a 30% discount of the industry average – target price is therefore increased to S$0.865 (from S$0.56 previously) based on 7.6x FY10 P/E.

Kian Ann Engineering: Neutral (DMG, 3 Sep)
Kian Ann's FY09 earnings came in within our expectations. While its cash position remains strong, price competition eroded its gross profit margin. A pick-up in demand, in line with a mild recovery, would help normalize margins. 4QFY09 revenue was down 19.5% year-on-year (yoy) to S$32.8m due to lower sales as a result of the lower demand for spare parts arising from the global recession. Earnings dropped a steeper 57.3% yoy to S$1.3m, as gross margins came off by 2.1ppt yoy to 24.4%. On a full year basis, earnings were in line with our expectations, rising by 3.5% yoy to reach S$11.5m. Looking ahead, Malaysia, one of Kian Ann's key markets, which was affected by the slowdown in the timbre industry, is currently showing signs of improvement. In addition, mining activities in Indonesia, the main contributor of growth in the region, has remained stable since Jun 09. In China, infrastructure demand for parts is still looking strong. However, the slow mining activities will continue to be a drag on sales in the foreseeable future. On the whole, we believe that KA has seen the worst and will likely experience volume growth. Management seems hopeful that average selling prices will improve following cuts last year. We have adjusted our earnings slightly for FY10 (-0.7%) with lower revenue projected at S$143m. We have also introduced our FY11 estimates with earnings expected to reach S$12.2m. Applying our DDM model, we derive a new fair value of S$0.17 (S$0.15 previously).

Ascendas REIT: Buy (Kim Eng, 3 Sep)
Started in 2002 with just eight properties, A-REIT has successfully enlarged its property portfolio across five sub-sectors: Business & Science Parks, High-Tech industrial, Light Industrial, Logistics & Distribution and Warehouse Retail facilities. 47% of its portfolio has built-in rental escalation clauses. These properties enjoy above-sector average occupancy rate of 97.1%. Acquisitions have underpinned A-REIT's dividend growth. Its development capability provides an additional boost. Completion of development projects over the next 12 months will continue to contribute positively to income. Growth could also come from acquisitions of its sponsor's Singapore assets (S$1.1b) and ample industrial properties in Singapore. A-REIT has completed two rounds of cash calls this calendar year, raising a total of about S$700m. The proceeds have been deployed towards reducing debt and funding its existing developments. Its gearing has been reduced to 29.3% as of Aug-09. This clears any possible overhang on refinancing issues and frees up its capital for future growth. REIT's strong sponsor, balance sheet strength, resilient portfolio and growth potential underscore its P/B ratio of 1.05x. We find its share price underperformance hard to justify. We initiate with a Buy with a target price of $1.99.

First Ship lease Trust: Hold (UOB Kay Hian, 3 Sep)
FSLT's lenders have given a two-year waiver on the trust's loan-to-value (LTV) covenant by reducing the minimum coverage ratio from 145% to 100%. This waiver period will extend until end 2Q11. Over the two-year waiver period, FSLT will make quarterly repayments of US$8.0m. We believe this is a positive development for FSLT as the waiver eliminates the risk of a breach of its LTV covenant given the fall in ship values. With the reduction in FSLT's LTV covenant ratio and the amortisation of its loans, the shipping trust has reaffirmed its quarterly DPU guidance of 1.5 US cents from 3Q09 onwards, which implies an annualised yield of 14%. While FSLT has begun to repay part of its loans, it still has a total outstanding loan balance of about US$400m due for balloon payment in 2012 and 2014. As part of the arrangement with its lenders, FLST has agreed to bear a higher interest margin of 1.7% over the three-month US dollar LIBOR on the outstanding loan of US$501m (previous margin was 1-1.2%). As such, there will an additional interest expense of US$0.7m per quarter during the waiver period. That said, this has no impact on FSLT’s DPU guidance of 1.5 US cents per quarter. In view of an increase in the cost of borrowings arising from the higher interest margin, we lower our earnings forecasts by 3-18% for 2009-11. However, we maintain DPU forecasts of 7.9 US cents and 6.9 US cents for 2009 and 2010 respectively, based on a distribution payout ratio of 50%. We reiterate our HOLD recommendation on FSLT and maintain our fair price of S$0.64 based on 0.8x 2010 P/B of the container shipping sector. We suggest an entry price of S$0.52 We forecast 19% and 16% yields.

Olam International: Buy (Kim Eng, 3 Sep)
Olam has announced the launch of a new 7-year convertible bond issue of US$400m. While the market should not be surprised at new debt-raising, given management's earlier explicit intention to gear up, we believe a potential equity dilution of about 10% will result in slightly negative sentiments. Management expressed that the main attraction of this deal was the long tenure, which is in line with its intention to lengthen the overall term of its debt portfolio to match higher asset intensity. While the entire amount may not be utilised in the immediate term, being backed by this cash will give management the confidence in executing M&A plans. Post-CB, Olam has an estimated cash position of US$900m. With no immediate re-financing needs, non-utilised cash for the moment will be used to retire existing higher interest debt. CEO Sunny Verghese stated that there is unlikely to be another equity-linked capital raising exercise for the next 3 years and reiterated the target gearing ratio of 2.5-3.5X for working capital and 1-2X for long-term assets. Separately, Olam also announced the acquisition of a stake in New Zealand Farming Systems Uruguay (NZFSU), a New Zealand-listed firm with its dairy farming operations in Uruguay. At this moment we believe earnings contribution is negligible, although this small non-controlling stake could be a precursor to a larger stake in the future. While we believe there could be a potential share price overhang around the conversion price, the 7.3% sell-down has been overdone, and is a good entry point for investors. Conversion price now represents a 35% premium to current share price. We maintain our target price of $2.98, which is based on 25X 2010F.

Olam International: Buy (OCBC Research, 2 Sep)
Olam has acquired a 14.35% stake in New Zealand Farming Systems Uruguay (NZFSU) for US$9.88m. The purchase is likely to be funded internally given Olam's robust cash position of S$531.3m as of end Jun 09. Priced at just 0.3x NAV, this marks another distressed asset purchase. NZFSU strives to apply New Zealand's high-performing farming systems to low-cost land. Olam sees a good strategic fit with NZFSU and aims to achieve low cost production, higher margins and stronger market position with the upstream integration of its dairy business. NZFSU's valuations are, however, depressed for a good reason. It suffered a US$45.9m loss in FY09 (ended Jun) and consensus estimates point to continued losses for the next two years. As such, it could take a few years before this acquisition turns earnings accretive. On a separate note, Olam has proposed to raise up to US$500m (US$400m with the option to upsize by US$100m) via the issuance of seven-year convertible bonds (CB). The CBs carry a coupon rate of 6% and conversion price of S$3.0853. Upon full conversion, issued share capital will be enlarged by 9.4%. As we mentioned in our report dated 2 Jun 09, Temasek's S$437m equity infusion has allowed Olam to expand its debt capacity by up to US$600m. We expect Olam's enhanced capitalization to pave the way for the fulfillment of its acquisitions pipeline, and unlock inorganic growth opportunities beyond the bite-sized acquisitions that it was restricted to prior to its fund raising exercises. We have lowered our FY10 earnings estimate by S$27m to account for finance costs arising from the CB issue. While Olam's fund raising exercises may erode earnings and result in dilution, these are "necessary evils" needed to support Olam's continued growth trajectory. Growth via acquisitions has worked well for Olam, as demonstrated in its FY09 results where new businesses were its key growth drivers. We remain confident of Olam's medium-term growth plans and maintain our Buy rating. Our fair value estimate has been trimmed to S$2.72 (from S$3.08), still based on 26x PER, on the lower FY10 earnings forecast.

Armstrong: Buy (Kim Eng, 2 Sep)
We maintain our BUY call on Armstrong following a visit to its booming automotive parts factory in Changchun. In the past year, Changchun has surpassed Wuxi, which makes electronics parts, as the top producing factory in the group. Armstrong's automotive business in China was the only segment to post positive 20% year-on-year (yoy) growth in 1H09. With June and July continuing to strengthen, that growth looks set to continue in 2H09. Although 2009 automotive growth is driven mainly by government subsidies at the grassroot level to boost domestic demand for vehicles, Armstrong will have the benefit of a wider product line-up at higher selling prices (and margins) to drive growth in 2010. There is also the potential to expand its involvement with a greater number of models with customers such as Audi New products include an EPP rear seat gasket for VW with a significantly higher price than other parts to-date. EPP has great potential to expand further as China wants to raise the level of EPP parts in each vehicle to 6.8kg (only half now). EPP is lighter than steel hence more environmental. We also saw a relatively high price point product for Peugeot. There is talk DPCA will make the 407 in China in future. Armstrong is also interested in expanding into India, which was the world’s nineth largest automotive market in 2008 with an annual production of 2.3m units (vs 9.3m for China) and 15% CAGR forecasted by Booz & Co by 2013. Management has already identified a local partner that is currently supplying die-cut parts to VW, BMW and Tata Motors, among others. A JV structure is likely. We have kept our forecasts intact. Our target price is $0.34, pegged at 12x FY10 forecast. The stock trades at only 8x FY10 PE despite good growth prospects from the trough of this year..

FSL Trust: Buy (OCBC Research, 2 Sep)
FSLT has secured a two-year waiver for the loan-to-value covenant in its credit facility. This waiver, subject to documentation closing, will extend until the end of 2Q11. During the waiver period, the minimum coverage ratio of the charter-free fair market value of the trust's vessel portfolio over its outstanding indebtedness will be reduced from 145% to 100%. FSLT will also make quarterly loan repayments of US$8m during this period. In addition, FSLT's cost of debt will increase by about 50-70 basis points during the waiver period, and then drop to a 25 basis point increase post-waiver period. The manager said that the additional interest expense averages US$0.7m per quarter during the waiver period. With this new development, FSLT has re-affirmed its guidance of a quarterly distribution payout of 1.5 US cents per unit. This is equivalent to a 14% annualized yield. We expected the forced amortization (US$32m versus expected US$35m) and the increased margin was in line with our expectation of an average 60 basis point increase. The lower LTV threshold and the new amortization schedule removes a significant overhang over the unit price and also enables a new, more sustainable business model. Maintain BUY with S$0.76 fair value.

K-REIT Asia: Buy (UOB KayHian, 2 Sep)
K-REIT Asia has entered into a sales and purchase agreement with APF Property Services to acquire six floors of Prudential Tower at S$106.3m or S$1,579psf. The property with a net lettable area of 67,300sf is valued at S$124.5m or S$1,850psf by Colliers. The acquisition comes with income support of up to S$5m for a period of five years and is expected to be completed in 4Q09. The income support ensures a minimum net property income yield of 5.2%. The acquisition will be funded by debt and will increase gearing from 27.6% to 31.1%.
This is a small deal relative to the overall size of K-REIT (purchase consideration represents only 9.5% of existing portfolio). It nevertheless possesses the following positive attributes:
Greater control over Prudential Tower – K-REIT currently owns 108,439 sf or 44.4% of the total strata value of Prudential Tower. The acquisition allows KREIT to own 73% of the total strata value of Prudential Tower. As such, it will have greater control over Prudential Tower upon completion of the transaction. According to Collier, capital value for Grade A office space within Raffles Place has corrected 10% qoq to S$1,893psf in 2Q09. The price tag of S$1,579psf is, therefore, attractive. Prudential Assurance Singapore (still retaining level 30th) previously paid S$2,200psf to purchase seven floors of Prudential Tower back in 1996. K-REIT currently values Prudential Tower at S$2,066psf on its balance sheet. Maintain BUY with target price at S$1.29, based on a dividend discount model (required rate of return: 8.25%, growth: 2.5%).

DBS: Buy (UOB KayHian, 2 Sep)
DBS has appointed Piyush Gupta, a permanent resident with 27 years’ of experience in the banking industry, as new CEO. He will officially start work in Nov 09. Mr Gupta is well qualified and experienced. Although it is too early to tell if he will fit into the DBS culture, we take note that he is well rooted in Singapore given his active involvement in the area of education. Mr Gupta served on the Primary Education Review and Implementation Committee, which advises the government on revamping the primary school education system. DBS has focused on generating organic growth in the core markets of Singapore and Hong Kong. Mr Gupta is likely to follow the same track, at least, in the initial stages. His familiarity with Asian countries will stand him in good stead. Appointment of new CEO will remove uncertainty relating to a vacuum in the top management. DBS has functioned well and achieved significant reduction in cost with Mr Koh Boon Hwee at the helm. The addition of Mr Gupta could add more depth to the management team. Valuation is attractive with P/B at 1.21x, the lowest among Singapore banks (OCBC: 1.57x, UOB: 1.65x). Our target price of S$14.78 is based on a P/B of 1.35x, derived from the Gordon Growth Model (ROE: 10%, payout ratio: 52%, required return: 8% and constant growth: 4%).

Sembcorp Marine: Hold (Kim Eng, 2 Sep)
Sembcorp Marine has terminated its contract with Petroprod D&P I Ltd for the construction of a jack-up rig, as milestone payments due under the contract have not been received. The jack-up rig is a harsh environment drilling rig and is one of the world’s largest jack-up rigs. SMM says that there are alternative buyers who are interested in this rig, and they are confident that it will be able to receive all amounts it should have earned with the sale of this rig. The rig was contracted in 2007, is expected to be completed in mid-2010, and has a value of US$442m. Petroprod is a member of Norway's Larsen Group, and we understand that it is being put in liquidation. We also understand that Petroprod has one other order with SMM, for the conversion of a tanker to an FPSO. On June 8, SMM had announced that it had sold the semisubmersible PetroRig I to Diamond Offshore in order to recover monies due to them following the non-payment by the customer, Petromena. Petromena similarly has ties to the Larsen Group. Petromena also has two more semi-submersibles under construction with SMM. This latest development is indicative of our ongoing concerns for potential cancellations and defaults that SMM faces. Although SMM has so far been protected via progress payments and still-buoyant pricing for rigs, the elevated risk is one of the reasons for our muted outlook on the stock. We are keeping tabs on more potential cancellations, and maintain our Hold recommendation to target price of S$2.91.

Sembcorp Marine: Buy (DMG, 2 Sep)
SMM has announced that its subsidiary, Jurong Shipyard has terminated its contract with Petroprod D&P Ltd for the construction of a jack-up rig as a result of customer non-payment. We are not surprised over this cancellation. We are not overly surprised at this cancellation as SMM has previously hinted that it is not recognising the revenue of this jack-up even though work has commenced. In addition, SMM made an impairment charge of S$7.5m for its 3% stake in Petroprod in the recent 2Q09 results, implying signs of an amicable end to its contract with Petroprod. Our only concern is the amount that this jack-up would fetch in an impending sale. We recall that when this newbuild jack-up was first awarded in May 07, it was touted to be one of the world's largest jack-up rigs to drill in harsh environment. The cost of this jack-up was a hefty US$442m, which was twice the cost of a typical jack-up then. Through our ground checks, we believe the current cost of a typical jack-up rig has fallen by at least 20% year-on-year. SMM stated in the press release that there are buyers who have shown interest and is confident that it will be able to receive all amounts it should have earned upon the sale of the jack-up. We are leaving our earnings unchanged as we have already factored in this cancellation in our earnings model. Our target price of S$3.74 based on SOTP valuation remains. Maintain BUY.

Olam: Neutral (DMG, 2 Sep)
Olam announced the acquisition of a 14.35% stake in New Zealand Dairy Farming Systems Uruguay (NZFSU), an operator of large-scale Kiwi-style dairy farming operations in Uruguay. Olam will purchase this stake for a cash consideration of NZ$14.37m (US$9.88m). We rate this acquisition positively. However, given the uncertain outlook for the industrial raw materials segment (27% of total net contribution), we maintain out NEUTRAL call on Olam. Our S$2.48 target price is derived from DCF valuation. NZFSU applies NZ's high performing pastoral-based farming systems to extensive areas of Uruguayan farm land for dairy farming. NZFSU currently owns 36,300 hectares of dairy farm land. NZFSU produced 44.6m litres of milk in the financial year ended 30 Jun 09 and expects to produce 80-85m litres in FY10. When all its farms are developed by Jun 2012, NZFSU will supply close to 20% of milk produced in Uruguay. The acquisition is in line with Olam’s Dairy Products strategy, which includes participation in dairy farming in low cost origins.

DBS: Sell (DMG, 2 Sep)
DBS announced yesterday that it has appointed veteran banker Piyush Gupta as CEO. He has spent over two-thirds of his 27-year career in South East Asia and Hong Kong, including eight years in Singapore. Gupta is currently Citi's CEO for South East Asia-Pacific, covering ASEAN, Australia, New Zealand and Guam. In this role, his responsibilities encompass all of Citi's businesses including Financial Markets, Corporate and Investment Banking, Transaction Services, Credit Cards, Retail Banking and Wealth Management. The potential benefit from Gupta's appointment will take time to flow through. In the meantime, we continue to be concerned with DBS' asset quality, following its strong loan expansion over the past few years. DBS remains a SELL with a S$11.80 target price, which is pegged to 1.1x 2010 book. For investors who want to be exposed to Singapore banks, UOB (Neutral) is our best pick.

Ezion Holdings: Buy (Kim Eng, 1 Sep)
Since its acquisition of Nylect in 2007, Ezion has laid a strong foundation for growth, and it is now time to reap the rewards. Earnings growth of 109% p.a. is expected over the next 3 years. Despite its share price outperformance, we believe that Ezion deserves a further re-rating mainly due to the maiden delivery of its liftboat and execution of its Gorgon project. Ezion's key strength is to identify opportunities within the offshore industry, and then to finance, design, procure and modify specialised vessels, which it then charters out, at premium margins. Currently, Ezion derives the bulk of its earnings from ballastable vessels, which serve as support vessels for offshore projects. Going forward, earnings will be boosted significantly by the addition of 4 self-propelled jack-up support rigs (aka liftboats) to its fleet of vessels. Ezion also recently won an A$350m contract for early-stage work in the development of Western Australia’s massive Gorgon natural gas project. We anticipate more jobs to come from this project, which has an estimated capex of at least US$28bn. Ezion's share price has moved up sharply on the back of positive news flow such as the Gorgon contract win. However, we believe its prospects have not yet been fully reflected in its share price. Despite FY09 valuations of 35.9x, PE to Growth is still just at 0.33x. We expect further 28% upside to our target of S$0.99, which is based on 15x FY10 earnings.

Ezion Holdings: Buy (CLSA, 1 Sep)
Ezion, founded by the former CEO of KS Energy, is a new player in the offshore support industry with very promising growth opportunities. It is transforming itself from a charterer of 21 offshore support vessels into one of the first providers of lift boats in Asia and the first service provider for the Gorgon project, Australia's largest gas field. We expect Ezion to generate 72% EPS growth in FY09 and 254% in FY10 as it doubles its revenues each year and its net margins rise from 26% in FY08 to 34% in FY10. The 4 lift boats currently under construction will be Ezion’s largest growth drivers expected to contribute more than 65% of PBT by FY11. With an experienced management team Ezion stands good chances of obtaining additional contracts. Initiating with a BUY & S$1.05 TP with potential 36% upside.

Micro-Mechanics: Hold (OCBC Research, 1 Sep)
MMH's 4QFY09 results saw its revenue coming in higher than our estimate at S$7m (-28.2% year-on-year & +28.6% qtr-on-qtr), while net loss was smaller-than-expected at S$0.3m (4QFY08: S$1.7m profit, 3QFY09: S$1.4m loss). This better performance was mainly driven by a swift recovery within its semiconductor tooling segment (+49.2% qoq in revenue), which partially offset the continued weakness in its Custom Machining and Assembly (CMA) segment (-22.7% qoq). As a result of this qoq improvement, MMH's FY09 revenue of S$33.1m was 4.0% ahead of our sales forecast of S$31.9m, while its profit of S$0.5m fared relatively better than our loss projection of S$0.4m. In addition to this positive surprise, MMH declared a final cash dividend of 1 S cent/share, exceeding our payout expectation. Including 1 cent/share interim dividend, this brings the total FY09 dividend to 2 cents/share, representing a yield of 5.1%. As MMH progresses into the new fiscal year, it is also starting to see an improvement in the general business conditions in Asia. Notwithstanding that, the group expects business volatility and uncertainty to continue to pose risks for the group. As such, MMH has started several long-term initiatives to streamline and automate its processes to keep its operating costs lean. Its biggest challenge now, we note, is to bring its operations in US CMA plant to sustainable profitability. While this is taking longer than previously expected, we remain confident of MMH's ability to turn the subsidiary around by end-1HCY10, where market condition is expected to be markedly better. Overall, we are encouraged by MMH's strong financial position (cash balance of S$7.5m with no bank borrowings) and positive operating cash flows (S$4.1m for FY09) despite the current difficult economic conditions. Following the faster-than-expected recovery from its semiconductor tooling segment, we are also anticipating its margins to sustain or even improve in FY10. We have raised our FY10 forecasts by 5-6% to reflect the above assumptions. Still applying a 1.5x FY10F NTA, our fair value is maintained at S$0.35. As the stock appears to be fairly priced at current price, we reiterate our Hold rating.

Rickmers Maritime Trust: Sell (OCBC Research, 1 Sep)
RMT has some very immediate issues to resolve and unfortunately, the increased cash retention is comparatively just a drop in the bucket. It is in the sponsor's best interest that RMT honours its obligations as the sponsor acts like an intermediary on the acquisitions. Possible compromises involve delaying delivery of vessels (for a price) or letting the sponsor warehouse the assets (for a price) or raising a significant amount of equity (ability to do so is questionable). Whatever the final solution, we believe it is not likely to favour the unitholders. With the high level of leverage and sizeable acquisitions fixed at peak prices, we believe RMT is essentially behaving like a toxic asset. When a leveraged play unwinds, the equity tranche is the worst place to be. We maintain our SELL rating on RMT but reduce our fair value estimate to S$0.16 from S$0.39 as we switch to a probability-weighted valuation approach that reflects the likelihood and consequences of distress.