Brokers' Take

Genting SingaporeMay 28 close: $0.71OCBC INVESTMENT RESEARCH, May 28
TWO major shareholders of Genting Singapore (GTSG) - controlled by the founding Lim family - have pared their stakes in the company. According to the company's filings, Lakewood Sdn Bhd sold about 265.809 million shares and Golden Hope Limited sold 649.073 million shares yesterday, all reportedly done at $0.72 each via placement agreements through JPMorgan Chase and UBS AG.

In total, the two parties sold nearly 9 per cent of the outstanding share capital of about 9.64 billion to raise $615 million.

However, as these were vendor shares, GTGS will not be getting any of the proceeds.

No negative implications behind the sale. Other than the sharp 16 per cent discount to the previous day closing price of $0.865, we do not think that there are any major negative implications behind the move. For one, reports suggest that the placement was made to close to 40 parties, including specialist gaming investors, long-only Asia funds and deal players who liked the big discount.

As mentioned in our earlier report, the outlook for the gaming market in Asia remains very promising - industry watchers expect the market to grow by 15.7 per cent CAGR (compound annual growth rate) for the next five years.

Lim family eyeing Mirage Macau asset? And the third reason for the stake sale could be related to talks that the Lim family is raising cash for a possible investment in MGM Mirage's Macau casino. Parent Genting Bhd and sister company Resorts World earlier bought a combined US$100 million of secured notes sold by MGM Mirage.

But given the link to Pansy Ho, the daughter of Stanley Ho, the investment could be quite a sensitive issue with authorities in Singapore. As such, we suspect the Genting group may not want to be directly involved.

The news of the discounted share sale has resulted in GTGS's share price tumbling 17.9 per cent on Wednesday to $0.71. As the share price is now 6.6 per cent below our recently revised fair value of $0.76, we upgrade our rating to 'hold'.

However, the near-term outlook for GTGS has not improved - we are still expecting its UK operations to languish for the rest of this year. Although we continue to expect a net loss in FY10, the opening of Resorts World at Sentosa in Q1 2010 could prove to be a wild card. Nevertheless, we would be buyers closer to $0.60 or so.

HOLD

Brokers' Take

Singapore strategy
CIMB-GK Research, April 1

MARKET is expecting the Monetary Authority of Singapore to allow the Singapore dollar to weaken this month. Consensus is predicting that MAS will lower the mid-point of the Singapore-dollar trading range by 2-4 per cent later this month. Our economist, Song Seng Wun, agrees that MAS might favour a weakening of the Singapore dollar, going by weak Q1 2009 GDP figures and receding inflation. However, he thinks that this would be done not by shifting the band downwards, but perhaps by changing the slope of the band. A weaker Singapore dollar would make exports more attractive. Our house continues to forecast a S$1.60 per US dollar exchange rate for end-2009.

We view the offshore and marine sector as a key immediate beneficiary. A lower Singapore dollar would also help exporters such as Venture Corp. Key losers should be companies that sell mostly to the local market, earning Singapore-dollar revenues, yet are dependent on raw materials quoted in US dollars. Obvious losers will be transport companies (SMRT Corp, Singapore Airlines and Singapore Post) where fuel ensures a relatively high US dollar-denominated cost base. Other companies with mostly Singapore dollar revenues and some US dollar costs are Singapore Press Holdings and StarHub.

While there might not be much of an operational effect on others, there could still be a significant translation impact. SingTel will derive some 72 per cent of its FY2010 pre-tax profit and 80 per cent of our sum-of-parts valuation from overseas operations, and stands to be a big beneficiary of a weaker Singapore dollar. Maintenance, repair and overhaul (MRO) operators such as ST Engineering and SIA Engineering can also gain from positive translation of overseas revenues.
A weaker Singapore dollar is good for Singapore's export sector and its wilting tourism industry.

If tourist numbers can recover, stocks such as Genting International and CDL Hospitality Trusts could gain. Also, with the intended effect of a weaker currency being a slower rate of job losses and corporate bankruptcies, the move would be marginally positive for banks. The flipside is that a weaker Singapore dollar trend will be detrimental to investment prospects for property.
Maintain 'neutral' weight on the market and 1,800 Straits Times Index target.NEUTRAL

Singapore Reits
OCBC Investment Research, April 1

CONSENSUS forward yields, ranging from 7 per cent to 38 per cent, are showing a wide divergence in valuations across the Singapore real estate investment trust sector.

Our thesis is that the S-Reit sector is now broadly segregated into two camps - the 'haves' (large, blue-chip sponsored Reits with strong balance sheets) and the 'have-nots' (smaller, non-sponsored Reits with high gearing). Valuation catalysts also vary accordingly - we believe the market focus for the weaker 'have-nots' is still on their ability to secure refinancing but the focus for the 'haves' is on 1) how the macroeconomic picture affects earnings and 2) the need for equity issues to recapitalise balance sheets. Investors can expect some key data points on both the refinancing and the earnings fronts in the coming months.

MacarthurCook Industrial Reit (not rated) announced yesterday that it has received a 60-day extension for its loan facility worth $220.8 million maturing on April 18. MI-Reit is geared at almost 40 per cent and this facility constitutes the bulk of its borrowings. The extension buys MI-Reit some time to continue negotiations with its lenders, National Australia Bank and Commonwealth Bank of Australia.

Its inability to secure a resolution by April is a disappointment, in our view.

MI-Reit's refinancing efforts will likely be benchmarked against the December 2008 refinancing completed by peer Cambridge Industrial Trust (not rated) as both are relatively smaller, non-sponsored and industrial focused.

We expect negative refinancing news to further widen the valuation gap between the two S-Reit classes. For the broader sector, such refinancing news may be indicative of lender-risk appetite. Tighter loan-to-value demands may trigger a sector-wide overhaul of capital structures, potentially via equity issues.

Most S-Reits should report earnings for the first quarter of calendar year 2009 over the last two weeks this month. We believe that H1 2009 earnings are worth watching as the impact of macroeconomic events slowly filters through to the S-Reit bottomline.

For the office sector, we will be watching the pace of the decline in achieved rents as well as any change in occupancy levels. Given the economic slowdown, occupancy levels will be the key metric to watch in the industrial space. We are also looking out for an update on the post-Chinese New Year retail landscape and validation of the consensus 'sub-urban means defensive' view. We leave our estimates and ratings for individual S-Reits unchanged in anticipation of Q1 results.NEUTRAL

Brokers' Take

Shipping trustsOCBC INVESTMENT RESEARCH, March 26

THE container shipping industry faces a major supply-demand imbalance. According to AXS Alphaliner, outstanding orders for new ships account for about 47.6 per cent of the existing fleet. This translates to a 12.9 per cent per annum growth in the world fleet over the next three years.
With the global recession dampening demand, especially the US consumption story, we expect tough times ahead for the container industry.

Major operators, including shipping trust customers, have announced lay ups, vessel re-deliveries, and plans to attempt to delay order deliveries. About 1.1 million TEUs (twenty-foot equivalent units), or 8 per cent of the world's total container fleet, is currently idle. This broader reality can have a major impact on the trusts' cash flows - and consequently, on distributions to unitholders.

Charterer performance will be key in the coming months - if economic conditions continue to deteriorate, we could see charterers approaching the trust to renegotiate leases.

US-listed comparable, Danaos Corp (not rated), announced that it was suspending dividend payments to divert cash towards funding its new-building programme. It also delayed some deliveries. Back in Singapore, Rickmers Maritime (RMT) is contracted to acquire US$988 million worth of containerships over the next two years, with partial debt funding currently in place.
The manager has so far only said that it 'is exploring all options' to finance its order book, but this is not enough. The market needs more clarity on what RMT will do and whether it will (or can) follow the Danaos route of delaying deliveries or cutting dividends.

Unlike RMT, First Ship Lease Trust (FSLT) and Pacific Shipping Trust (PST) have no committed orders. Meanwhile, FSLT will retain about 20-25 per cent of cash income in Q1 2009 (versus a 100 per cent distribution payout previously) to prepay debt as a pre-emptive 'good faith' gesture to lenders eyeing debt covenants.

We believe that there is room for FSLT to lower payout further to a point where both unitholders and lenders are satisfied. In comparison, PST is only paying out about 50 per cent of cash income. An explicit debt repayment plan would also demonstrate FSLT's commitment to sustainability, in our view.

Still 'neutral' on the sector. While the Straits Times Index is down 4 per cent year-to-date, Singapore-listed shipping trusts are down 10 per cent for the year.

On average, the sector is trading at a 66 per cent discount to net asset value (NAV), but we are not quite ready to call this a 'value' opportunity. In our opinion, a re-rating of the sector depends on signs of an improving external environment and the trusts taking more aggressive action to remedy some fundamental concerns.Sector - NEUTRAL

S-shares agriculture sectorDMG & PARTNERS SECURITIES, March 26

FOR the first time since December 2002, China's consumer price index (CPI) slipped into negative.

China's inflation rate was at its 12-year peak of 8.7 per cent y-o-y in February 2008 due to shortages of grain and pork. But China's CPI fell 1.6 per cent y-o-y last month (food prices fell 1.9 per cent y-o-y). Grain prices rose 4.4 per cent y-o-y last month. We believe that this is due to the drought that hit China during Q1 2009.

We believe that if the current deflation in food prices continues in 2009, this will affect China's agriculture sector negatively, namely China Fishery and China XLX Fertiliser.
China Fishery
Aquatic product prices rose 3.3 per cent y-o-y in February, slower than January's 11.6 per cent rise. We believe that fish prices will remain stable in China due to continued demand. Alaskan pollock is the most common type of fish used in fast-food restaurants and as the global economy continues to worsen, we could see more people switching their diets to Alaskan pollock from other more expensive fishes.

We believe that China Fishery's FY2009 revenue will grow by 3 per cent to US$340 million from fishing. Management forecasts a total of 200,000 tonnes/annum of fish to be caught in FY2009 with an average selling price (ASP) of US$1,700/tonne.

Maintain 'buy' for China Fishery with a price target of $0.86 based on 3.9x FY2009 price earnings ratio.

China XLX Fertiliser

Prices for grain rose 4.4 per cent y-o-y in February and 3.9 per cent y-o-y in January. We believe that higher prices for grain were due to speculation of China's drought situation.

Management has indicated to us that the drought in Henan was not as bad as reports indicated and urea ASP remained constant at an average of 1,950 yuan/tonne (S$430/tonne) year-to-date.

If food prices continue to deflate in FY2009, this could negatively affect China XLX, because farmers will not purchase fertiliser due to cheaper food.

Currently, we are monitoring China XLX's urea and compound fertiliser sales. We are concerned that there may be an oversupply situation of fertiliser in China due to more capacity coming on stream. On the other hand, we believe that the government's 12.3 billion yuan expenditure in the agriculture sector is a tremendous step going forward.

We are currently reviewing our earnings for China XLX as we reassess its compound fertiliser profitability in FY2009.Sector - OVERWEIGHT

Brokers' Take

CapitaLand

June 26 close: S$5.69

BNP Paribas, June 26

CAPITALAND has acquired 61.9 per cent of the total retail strata area or 510,418 square feet and the car parks of Sungei Wang Plaza in Kuala Lumpur. At a purchase price of RM595 million (S$250 million), this works out to RM1,166 per square foot (psf), excluding car parks.

The freehold mall is strategically located in Kuala Lumpur's prime shopping belt, Bukit Bintang.
The mall has close to 100 per cent occupancy and attracts 24 million visitors each year. Anchor tenants in Sungei Wang Plaza include Parkson Grand, Giant Supermarket and McDonald's. It is understood that the rental yield is higher than 6.5 per cent, and CapitaLand has issued medium-term notes at a rate believed to be around 4.5 per cent, to fund the acquisition.

For comparison, Starhill Reit's Lot 10 shopping mall, which is located directly opposite Sungei Wang Plaza, is valued at RM402 million, or RM2,309 psf of net lettable area (as of May 2008).

Though the quality of Sungei Wang Plaza is not comparable to Lot 10, due to its ageing condition (it opened in 1977), we think the price is reasonable (50 per cent discount to Lot 10). Also, there is the potential of asset enhancement after the injection into a proposed Reit, which should boost the valuation of the mall significantly.

A RM2 billion retail Reit is on track by end-2008: Sungei Wang Plaza, along with the two malls acquired by CapitaLand in August last year - Gurney Plaza in Penang and Mines Shopping Fair in Selangor - will form the seed assets for the proposed Malaysian Retail Reit.

Collectively, the three assets amounted to RM2 billion, potentially making it the largest Reit in Malaysia. CapitaLand is on track to launch the Reit by end-2008. We believe that CapitaLand will potentially receive higher gain if the asset enhancement of Sungei Wang Plaza is done prior to the injection into the Reit. Asset enhancement is already in progress for the first two assets and is scheduled to be completed by year-end.

Negligible EPS impact; reiterate 'buy': We remain confident that its expansion in the region will continue due to its well-capitalised position. We reiterate 'buy' on CapitaLand, with our target price maintained at S$7.67, equivalent to our estimated RNAV.

BUY

Indofood Agri Resources

June 26 close: S$2.55

DMG & Partners Securites, June 26

KNEE-JERK reaction to higher crude palm oil (CPO) export tax and weaker Malaysian CPO export data: Indofood's share price fell on Wednesday, together with the other Singapore-listed palm oil companies, when news of higher Indonesian CPO export tax levied for July and weaker Malaysia CPO export data broke.

Indonesia's trade ministry raised the base price used to calculate the CPO export tax from US$1,105 per tonne in June to US$1,144 per tonne in July. The tax rate on CPO shipments will be raised from 15 per cent to 20 per cent accordingly.

According to the independent surveyor, Intertek Agri Services, Malaysia's palm oil exports for the period June 1 to 25 declined 9.4 per cent from the prior month to 899,300 tonnes. For the same period in May, Malaysia exported 993,100 tonnes of palm oil.

Selldown overdone, outlook still positive: We are of a view that the sharp selldown is unwarranted as we have already factored in the higher tax rate in our earnings forecasts. In addition, the macro outlook remains positive.

According to the United States Department of Agriculture's projections, global palm oil consumption for 2008/2009 will grow 6 per cent, reaching 42.7 million tonnes.

On the back of forecast growing demand of palm oil from India and China and persistently high petroleum prices, CPO prices are likely to remain at favourable levels, currently at around RM3,553 (S$1,491) per tonne.

Maintain 'buy', fair value of S$3.34: With the global trend of higher consumption and usage of palm oil and the present high CPO price of about RM3,553 per tonne, we believe that Indofood will continue to enjoy the present conducive environment, especially with its high ratio of mature acreage.

This being so, we are maintaining our 'buy' rating and fair value of S$3.34, using a PE of 14 times (in line with the Singapore and Malaysian plantation companies).

Although Indofood's share price has risen 11.7 per cent since our initiation on the platter as at end-May, our fair value of S$3.34 potentially translates into an additional upside of 29.5 per cent from its closing price of S$2.58.

BUY

Brokers' take

Man Wah Holdings

June 23 close: S$0.27

DMG & Partners Securities, June 23

MAN Wah announced an upward revision of its production capacity, following the integration of Phases 1 and 2 of its Daya Bay Plant.

The integration of both phases (Phase 1 is a flatted factory, while Phase 2 is a five-storey facility) allows Man Wah to streamline its operations and achieve better economies of scale. Management highlighted that this has enabled it to raise its production capacity to 500,000 sofa sets in FY2009, compared with 303,000 sets as projected earlier.

This would enable Man Wah to meet the expected growing demand for its sofa sets.

As Man Wah continues to grow its export and local markets, it expects the new plant to be able to achieve a healthy utilisation rate.

While the increased production capacity bodes well for the group, we are maintaining our FY2009 earnings estimate of HK$195.9 million (S$34.3 million) for now, as we believe it would take a while for production to be ramped up and the average utilisation rate may not be very high, given that China, the US and Europe are feeling the pressures of higher oil and food prices.

Maintain 'buy' for a TP of S$0.46 or FY2009 PE of nine times.

BUY

Brokers' Take

Construction SectorCIMB-GK Research, June 6


SUBDUED residential property development: In our last sector update on April 4, we highlighted our growing concerns on construction companies that have become opportunistic developers. We maintain that view. Despite the large number of en-bloc sales in 2007, private residential property development appears rather subdued due to weak buyer demand, as reflected by softening property prices and declining transaction numbers.

At the current pace, we think 2008 construction demand may come in at the lower end of the Building and Construction Authority's forecast range of S$23 billion-S$27 billion.

Growing inflationary pressures: After the spike in sand and ready-mixed concrete prices in early 2007, the rapid rise in steel prices as well as general inflation have been deterring construction companies from aggressively pitching for new contracts. Contractors fear that the higher costs may not be passed on to developers and project owners.

Inevitable margin squeeze: The rapid rise in construction costs will put pressure on the margins of developers and project owners, who may be approaching 'pain' thresholds. Given this, coupled with high land costs, we believe that construction costs are nearing a tipping point.

Investment strategy: We are keeping our 'overweight' position on the construction sector, although we caution against possible risks. We recommend reduced exposure to integrated construction stocks and a switch to specialist construction companies, which have low exposure to higher construction material costs or managed exposure through short project turnaround. Our top picks are Tat Hong, Tiong Woon and CSC.Sector - OVERWEIGHT

Singapore Exchange
June 6 close: S$8.00
UBS Investment Research, June 6

A KEY play on ageing Asia: The United Nations has identified the top three socio-economic issues facing the world in the 21st century. They are global warming, global terrorism and global ageing. We note that Asia has four of the 10 fastest ageing countries globally.

In our Q-Series®: Asia Structural Themes: Ageing Asia report published on June 6, Singapore Exchange (SGX) is highlighted as one of 17 key exposures to Asia's changing demographics.

SGX - one of 17 UBS Asian demographics key picks: Changes in Asia demographics will impact countries' long-term economic growth, governments' willingness to privatise assets and the demand for listed instruments. While growth of stock exchanges is typically tied to domestic markets, SGX's structural growth comes from Singapore emerging as the exchange of choice for many Asian and transnational companies' initial public offerings.

We remain upbeat on SGX despite current market sentiment: We believe the current share price assumes no growth over the next four years, which we think is too bearish as the investment environment in Singapore and Asia appears promising in the medium term, given favourable economic and demographic trends.

Changes in market sentiment, Qualified Domestic Institutional Investor fund inflows and an increase in algorithmic trading are potential catalysts.

We reiterate our 'buy' rating and 12-month DCF-based price target of S$13.00.BUY

United Fiber System
June 6 close: S$0.21
DMG & Partners Securities, June 6

PULP fiction no more: United Fiber System (Unifiber) owns one of Indonesia's largest forest concessions. Unifiber possesses 268,585 ha of forest concession rights in South Kalimantan, one of lndonesia's largest forest concessions and plantations. According to management, Unifiber is probably ranked number 3 in Indonesia in terms of forest concessions' land area. The concession rights entitle it to plant, maintain, process and market products extracted from the concession area up to Feb 26, 2041.

Well located for constant supply of wood raw material: Wood raw material costs make up 60-70 per cent of total manufacturing costs, with the remaining comprising of labour costs, chemicals and energy costs. As such, variability in the price of wood will have the largest impact on costs and profitability.

For Unifiber, the exposure to the variability of wood prices should be partially mitigated as it plans to source a large proportion of its wood raw material from its own plantations. Moreover, Unifiber's pulp mill and wood chip mill are located in South Kalimantan where there are no nearby mills.

Proximity to fast growing Asian market, particularly China: China is a major producer of paper and paperboard products. However, China's lack of wood fibre means that it has to continue to rely on imported pulpwood and pulp to meet this demand. China's import of pulp for paper has grown 272 per cent over a 10 year period from 1996-2006.

Lower cost of production: According to management, Indonesia is one of the world's most cost competitive countries for the production of pulp.

Re-initiate with a 'buy': Given that Unifiber has a few distinct businesses, we believe that a sum-of-the-parts valuation is most relevant. We attain a fair value of S$0.31 per share, which implies a 47.6 per cent upside from current levels. Unifiber has the additional kicker coming in from pulp mill PT MBBM when it starts in 2010. We re-initiate coverage on Unifiber with a 'buy' rating.BUY

Brokers' Take

Sino-Environment Technology
June 5 close: $1.65
UBS Investment Research, June 4

$149 million convertible bond with equity swap: Sino-Environment is issuing $149 million of 4 per cent coupon convertible bonds with $2.19 conversion price, maturing in July 2013 with an investor put date in July 2010.

Sino-Env will use $67 million to enter an equity swap at $1.8276, while $76 million is earmarked for capital expenditure, working capital and M&A activities. We think that the downside, apart from dilution, is the risk from the periodic swap settlement.

We question the need for the convertible bonds, since Sino-Env's 648 million yuan (S$128 million) net cash is sufficient for its current expansion plans.

For de-nitrogenation Sino-Env will spend 265 million yuan for its facility, working capital for three desulfurisation projects should soak up 150 million yuan, and the remaining cash coupled with bank borrowings can be used for acquiring the new dust elimination company and the remaining 40 per cent of Weidong.

We think this could be a prelude to announcements that may be related to:
1) major desulfurisation and de-nitrogenation M&As; and
2) large desulfurisation project wins. Taking the long position on the swap also suggests that management is very confident of positive share price performance, in our view.

Valuation: We are reviewing our estimates. Our 12-month TP of $1.96 is based on discounted cashflow and assumes 10 per cent cost of equity and 2.5 per cent terminal growth.
BUY


China Hongxing Sports
June 5 close: $0.57
Kim Eng Research, June 4

SUCCEEDING at home and abroad: We recently received questions from clients about:
1) whether higher export sales in Q1 2008 suggest less management focus on the domestic market; and
2) whether higher overheads related to current ongoing programmes for store upgrading (revenue discounts) and store lease advance programmes will be temporary or permanent.

What's all the fuss about exports? Export mix in Q1 2008 was higher at 20 per cent of total sales compared to 12 per cent in 2007. The reasons for this are: 1) seasonality, 2) more apparel sales versus previous years, and 3) new overseas markets (eg Brazil, Vietnam, Ecuador, etc). Amidst this, domestic sales still reassuringly grew more than 35 per cent y-o-y.

Domestic sales should accelerate in H2 2008 and reduce the export mix: The higher exports certainly do not mean management is paying less attention to the domestic market, as can be seen from the higher spending on advertising & promotions this year (20 per cent versus 15 per cent in 2007). However, exports serve as a useful valve to keep capacity fully utilised and are opportunistically channelled to demand hotspots.

Vitally, export margins exceed domestic margins due to zero advertising & promotional costs. Also, as export markets are price-takers, we do not expect average selling price growth, currently projected at 5-6 per cent in 2008, to be capped at anything less.

Expansion-related overheads are temporary: China Hongxing currently has two store-related incentive programmes: a one billion yuan (S$197 million) disbursement programme to secure the leases of premium locations for mid-sized stores (100-200 sq m versus the average of 67 sq m), which they aim to complete before August 2008 (499 million yuan already disbursed); and
a 200 million yuan sales discount programme to incentivise distributors to upgrade older stores, which will end in Q1 2009. Normally, distributors are required to self-fund store upgrades every three years, but the current round is ahead of schedule.

Already seeing positive returns: China Hongxing aims to have 420 mid-sized stores opened by August 2008 (183 opened as at end-Q1 2008). Normally, it takes about six months for each store to reach six million to eight million yuan in revenue per annum, which will allow each store to be self-sustaining.

So far, the trend has been encouraging, with some stores reaching the targeted revenue within 4-5 months. We expect the revenue impact of the expanded floor space to be felt more in H2 2008, as the new stores will need to stock up on inventory. We are maintaining our 'buy' recommendation, with a TP of $0.87.

BUY

Brokers' Take

Chartered Semiconductor

June 4 close: S$0.87

Morgan Stanley, June 3

GIVEN the tight capacity at leading edge, judicious capital spending in the industry, and competitors' announced intentions to raise prices, we see Chartered as the key beneficiary with potential for share gains and better profitability this year.

We upgrade the stock to 'overweight', and raise our 12-month TP to S$1.10, implying 31 per cent upside to current share price.

Expanding market share at 65 nanometer (nm) likely for H2 2008: As outlined recently in our foundry monthly report, we believe Chartered has been taking share over the past few quarters.

While most of it has come at the trailing edge, several indicators that we track would lead us to believe that share gains at 65nm are likely for H2 2008. These include our analysis of new 65nm tape-outs and also capacity expansion plans for leading edge.

Margin should improve from Q3 2008 onwards: As most of the 65nm tape-outs are going into mass production in H2 2008 and 2009, we expect Chartered's utilisation to improve significantly in H2 2008 and thus expect an improvement in overall margin structure.

We are forecasting operating margin to improve from (1.6 per cent)/1.3 per cent in Q1/Q2 2008, to 6.3 per cent/9.5 per cent in Q3/Q4 2008, due to larger economy scale and hence operating leverage.

Implications: While Taiwan Semiconductor Manufacturing Co remains the industry leader, high valuation and macro concerns prevent us from being more positive. We believe Chartered is a better play in the foundry sector with its attractive valuation, share gains, and potential for re-rating as its profitability improves.

The stock is trading at 0.86 times P/B, the trough of its historical range of 0.7-1.6 times; risk-reward is attractive.

OVERWEIGHT

Keppel Corporation

June 4 close: S$11.90

DBS Group Research, June 4

JUST two days after announcing its last contract win, Keppel Corp has secured another contract. The contract is valued at US$385 million and is a repeat order to build a semi-submersible drilling rig for Brazilian driller, Queiroz Galvao Oleo e Gas (QGOG). This price excludes the drilling and subsea equipment which will be supplied by the customer, QGOG.

This rig will be built to the DSS 38 design jointly developed by Keppel O&M's technology arm Deepwater Technology Group and Marine Structures Consultants of The Netherlands. Its design can operate in water depths of 9,000 feet (2,740 metres) and can meet the operational requirements in the deepwater 'Golden Triangle' region, comprising Brazil, Africa, and the Gulf of Mexico.

This latest rig, to be named Alpha Star, is a repeat order of the first semi-submersible, Gold Star, which was awarded to Keppel in August 2006. Gold Star will support Petrobras' growth plans when delivered in H2 2009, while Alpha Star may be deployed in either offshore West Africa or South America, when delivered in H2 2011.

With this, YTD wins will amount to S$2.8 billion and account for 46 per cent of our order win assumption of S$6 billion. Order book is estimated to rise to S$13.9 billion. There is no change in earnings estimates as we have already assumed S$6 billion of contract wins for FY2008.

We believe that contract flows over the last one week have stemmed from Petrobras' requiring up to 12 drilling rigs (could be a combination of jack-ups, semis and drillships) with delivery dates by mid-2012.

Both yards are currently able to deliver semis in both 2011 and 2012, while for jack-ups, delivery slots for delivery in 2010 are still available. Maintain 'hold', with TP of S$12.56.

HOLD

Gallant Venture

June 4 close: S$0.775

OCBC Investment Research, June 4

LAND sales gaining momentum: Gallant Venture recently updated that its order book for land sales has reached a record S$64 million as of May 2008 (versus S$19.5 million in April 2008), representing a quadrupling of 2007's sales.

We view Gallant's fast-growing order book as an achievement brought about by the successful launch of its Lagoi Bay project, and this could signal growing momentum of land sales from here on. Furthermore, most of its land parcels were sold at premium prices, implying that investors are still bullish on Bintan's land value despite the ripple effects brought on by the US sub-prime crisis.

Gallant continues to trade at a 21 per cent discount to the value of its landbank and a 20 per cent discount to our fair-value estimate.

We maintain our 'buy' rating on Gallant, and our RNAV-based, fair-value estimate remains at S$0.94.

BUY

Brokers' take

Indofood Agri Resources
June 2 close: S$2.47
DMG & Partners Securities, June 2

INDOFOOD Agri Resources (Ifar) is one of Indonesia's leading oil palm planters and producers of crude palm oil (CPO), producing over 312,000 tonnes in FY2007 and 170,000 tonnes in Q1 2008. It has about 165,853 ha of planted area, with a mature area of 122,151 ha. Ifar's total land bank is 406,519 ha (excluding plasma) as at end- March, up from 237,262 ha before the acquisition of London Sumatra.

Outlook for the palm oil industry is still positive. First, demand for CPO worldwide has remained strong. Consumption grew by more than 28 per cent, from 28.2 million tonnes in 2003 to 36.3 million tonnes in 2006.

Second, prices of CPO have been soaring as under-cultivation in the past has resulted in supply lagging demand. CPO prices rose to a recent high of US$1,395 per tonne in March this year.

About 74 per cent of its planted area is classified as mature and 49 per cent is in the prime age category (seven to 20 years). In addition, another 10 per cent of its planted area will be entering its prime age within the next three years. We believe Ifar's age profile of trees favourably positions it to enjoy the benefits of the current high CPO prices.

With the global trend of higher consumption of palm oil and the present high CPO prices, we believe that Ifar is in a sweet spot for growth, especially with its high ratio of mature acreage.

Using a PE of 14 times that is in line with Singapore and Malaysia plantation companies, we value Ifar at S$3.34, translating into a potential upside of 33 per cent from its last closing price of S$2.51.

We are initiating coverage on Ifar with a 'buy' rating. BUY

Brokers' Take

SembCorp Marine

May 28 close: $4.43

Morgan Stanley, May 27

Summary: We retain our 'overweight-V' rating and raise our price target to $4.80, while our mid-cycle multiple of 18 times 09 estimates is unchanged.

However, extended visibility of orders from Petrobras' recent announcement and high oil prices could push the stock near its peak trading range of 20 times, implying a near-term price as high as of $5.40.

What's New: Last week, we hosted the management of SembCorp Marine (SMM) to meet with US-based clients. We came out more confident about the business fundamentals and less apprehensive about industry concerns.

Investor feedback: Investors are very bullish on the macro theme of oil services industry, yet concerned by rig builder's limited operating leverage.

Positive takeaways from meetings include: Strong order momentum, order visibility from the Petrobras announcement, capacity expansion option, and revenue per unit increase due to input cost increase and margin improvement.

What's changed: Our EPS estimate revision is based on lower earnings from 30 per cent owned subsidiary Cosco and slower than expected order flow in H1 08 taking 2008 EPS lower by 9 per cent, but our 2009 estimates move up based on higher-than-expected margin from improved pricing power.

Risks do exist: SMM's stock price is up 27 per cent in the last three months, while the oil price is up 33 per cent in the same period. The stock is trading at 18 times forward earnings, above its long-term average. We believe lots of positive news has been factored in the price.

OVERWEIGHT
First Resources May 28 close: $1.13 Macquarie Research, May 26

Event: We hosted First Resources (FR) on a four-day non-deal roadshow in Hong Kong and Singapore. The group, comprising the CEO and IR manager, presented FR's Q1 08 results and its corporate strategy. Investors were positive on the growth story, but in general wanted assurance that the current legal case was closed. We maintain an 'outperform' on First Resources.

Key questions: What is management's FY08 net profit expectation? Likely to exceed its previous expectation of US$110 million (Q1 08 was US$34 million) for the following reasons: Strong Q1 08 crude palm oil production of about 72,000 tonnes, or 24 per cent of the full-year target of 300,000 tonnes. Given the typical bumper crop in H2, FY08 production might reach about 320,000 tonnes (up 15 per cent y-o-y), or 7 per cent higher than guidance.

Strong Ebitda margin likely to be sustainable given an estimated stable production cost of US$200 per tonne for 2008, with the locking in of 40 per cent of the production forward contract and of the price of its FY08 fertiliser requirement at about 10 per cent below the spot price. Even with the potential increase in labour costs, higher production should help achieve stable production costs on a per-tonne basis given that about 75 per cent of costs are fixed costs (labour and fertiliser).

What is FR's dividend policy? There is none currently; however, a dividend policy will be set this year. An expected (positive) net cashflow of US$50 million for FY08 can support a dividend payout of about 20 per cent. But given its growth strategy, FR should remain a capital-appreciation play rather than a dividend play.

What is the viability of biodiesel investments? Biodiesel investment is now viable with the current spread of diesel and palm oil prices, coupled with the export tax differential between palm oil and biodiesel in Indonesia. FR's biodiesel plant of 250,000 tonne per annum is scheduled to start in Q4 08.

What is FR's view on CPO prices? CPO prices are likely to remain firm in the medium term. Palm oil demand for food should remain the key driver with rising consumption from emerging economies. While the potential change in biofuel mandates may influence future demand for biofuel, the response lag in palm oil supply should ensure that supply/demand dynamics remain tight for the next four to five years. Hence, FR expects current CPO prices (about US$1,100 per tonne) to be maintained for the next few years.

Is there any pending legal case? Management assured investors that there were no more pending legal cases and the recent legal case involving ex-shareholder, Martias, has been closed. There has been no impact on the company's financials or plantation assets from this case.
Price catalyst: 12-month price target: $1.60 based on a discounted cash flow methodology.
Catalyst: Rising yield from its young plantations, strong palm oil prices.

Action and recommendation: Maintain Outperform. We continue to like First Resources for its excellent asset quality, good estate management and attractive valuation. MAINTAIN OUTPERFORM

Compiled by CHOW PENN NEE

Brokers' Take Published May 3, 2008

S-chips DMG & Partners Securities, May 2

THE Shanghai Composite Index has been on a downtrend over the past few months. Despite the Chinese government cutting the stamp duty on stockmarket transactions (effective April 24), which led to a positive market reaction, the index is still 33 per cent lower than at end-2007.

The FTSE ST China (FSTC) Index, which comprises Chinese companies listed in Singapore, has also weakened in tandem with the weakness for the Shanghai Composite Index. The FSTC Index value of 475 on April 29 is 38 per cent lower YTD, though there was some temporary firmness following the stamp duty cut by the Chinese government.

The temporary firmness in the FSTC Index has been accompanied by a corresponding surge in the volume of FSTC Index member stocks traded. The volume exceeded 400 million units per day for April 22-24 as market players traded on expectations of some measures by the Chinese government, and also post-announcement, sharply higher than the 248 million units daily average from Jan 10 to April 29.

What is more interesting is the ratio of the trading volume of FSTC Index member stocks to the trading volume of Straits Times Index member stocks, which rose to a recent peak of more than two times compared with the average of one time over the past three-and-a-half months. However, over the past two to three days, the ratio has fallen back close to its 3.5-month average.

We note that the FSTC Index typically weakens after the ratio peaks. This occurred in late-February and early-April. It is likely that the ratio peak from April 22-24 could lead to some temporary weakness in the FSTC Index in future, barring any other measures by the Chinese government which could stimulate the stock market. If the FSTC Index does weaken, it will lower the PE of S-chips to below the current 9.5 times, which is already attractive.

Notwithstanding this possible weakness, we recommend investors to buy into S-chips with strong fundamentals such as China XLX ('buy', TP: S$1.00) and Ferrochina ('buy', TP: S$2.14). In addition, JES International (unrated) and Li Heng Chemical Fibre (unrated) look interesting.


Singapore PostMay 2 close: S$1.15DBS Group Research, May 2


UNDERLYING Q4 FY2008 net profit of $33.6 million (down 1.2 per cent y-o-y, and 8.0 per cent lower q-o-q) was below our $35 million forecast, as a 13 per cent y-o-y increase in operating expenses (excluding an impairment charge of $4.9 million) was above our already high single-digit growth estimate. The company declared a final dividend of 2.5 cents, taking full-year dividends to 6.25 cents.

Operating expenses grew mainly due to: 1) rising wages; 2) higher traffic volume coupled with higher oil prices; and 3) higher selling expenses for boosting retail sales. Management has guided for stabilisation of operating costs at Q4 FY2008 levels, which means that Q1 FY2009 and Q2 FY2009 could be hit by a high cost base compared to the corresponding quarters in FY2008. Moreover, postal liberalisation, although not very significant, can put additional pressure on Singapore Post's margins.

We have trimmed our FY2009 earnings estimates by 6.5 per cent on lower margin assumptions. In view of an uncertain property market, sum-of-the- parts valuation based on the assumed sale of the SPC building may be less relevant now. Our new target price of $1.12 is pegged at 15 times FY2009 PE (based on a historical range of 15-18 times), and we downgrade Singapore Post to 'hold'. Stable earnings with a 5.5 per cent dividend yield remain as key attractions of the stock.HOLD


CapitaLandMay 2 close: S$7.09CIMB-GK Research, May 2

CAPITALAND'S Q1 2008 core EPS of 7.5 cents formed 20 per cent of our full-year forecast. We believe the results were below consensus forecast. Q1 2008 saw revenue from the residential segment falling by 8 per cent y-o-y to $412 million, while revenue from commercial and retail operations leapt 62 per cent and 67 per cent y-o-y respectively. With the pace of completion of residential projects expected to pick up, we expect stronger recognition in the next few quarters. CapitaLand is also expected to launch several overseas projects this year.

We have lowered our FY2008-10 core EPS forecasts by 21-219 per cent on less aggressive recognition assumptions in Singapore. On the other hand, our end-2008 RNAV estimate and target price have been raised by 6 per cent to $6.86 to factor in higher market valuations for its listed subsidiaries and higher fee income growth assumptions. Rich valuations remain the main reason for our 'underperform' rating.UNDERPERFORM

Glossary:

EPS - earnings per share
Ebit - earnings before interest & tax
Ebitda - earnings before interest, tax, depreciation & amortisation
FY - fiscal/financial year
H1, H2 - first or second halfNAV - net asset value
9M - nine months
P/B - price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 - first, second, or third quarterq-o-q - quarter-on-quarter
ROE - return on equity
RNAV - revised net asset value
TP - target price
y-o-y - year-on-year
YTD - year to date
- Compiled by CONRAD TAN

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein. Brokers who wish to send in their reports can email us at btnews@sph.com.sg

Brokers' Take Published March 29, 2008

CapitaCommercial Trust

March 28 close: $2.18

CITIGROUP RESEARCH, March 27

CALL option on 1 George Street at a price of S$1.165 billion: This works out to be S$2,600 psf of NLA. The call option is conditional upon unitholders' approval at EGM by June 30, 2008.

4.25 per cent net property yield support for 5 years: CapitaLand will provide a yield protection to CCT, ensuring a minimum net property income (NPI) of S$49.5 million per annum for 5 years to 2013. The minimum. NPI translates to a breakeven rental rate of S$10.50 psf per month.

Net debt/asset ratio to rise from 27 per cent to 40 per cent: CCT has obtained 100 per cent committed debt-funding for the transaction and will not be raising equity via placement of CCT units or rights issue. The acquisition will increase its asset size to S$6.5 billion from S$5.3 billion.

Little disclosure: Although CCT disclosed during the media/analysts briefing that 50 per cent of the leases are due for renewal over the next two years, the manager was unable to provide details and if there are rental caps among its key tenants. The cost of debt is not disclosed either. Based on our initial estimates, DPU enhancement could be 1.3 per cent, 3 per cent and 5 per cent respectively if cost of debt is 3.5 per cent, 3.25 per cent and 3 per cent.HOLD.

MACQUARIE RESEARCH EQUITIES, March 27

CCT has been granted a call option from parent CapitaLand to buy 1 George St, a completed office building for S$1.165 billion, or S$2,600 psf.

In August 2007, CapitaLand bought out the balance 50 per cent interest in 1 George St from the Eureka fund for circa S$2,700 psf. With 100 per cent ownership, it has granted to CCT the option to purchase the asset, subject to unit-holder approval at an EGM to be held before June 30, 2008. If approved, timing of completion is expected to be before July 31, 2008.

CapitaLand is providing a 5-year yield protection for CCT, to ensure a minimum net property income (NPI) of S$49.5 million per annum or a 4.25 per cent yield at the purchase consideration. The implied rental rate is circa S$10.50 psf, which is lower than spot rents of S$16-18 psf.

1 George St was completed in 2004 when rents were softer, hence we believe the current NPI is likely to be below the guaranteed amount until the next reversion cycle.

The acquisition will enhance CCT's position in prime office exposure, from 43 per cent of income to 55 per cent of income. Its total office exposure will also rise from 59 per cent of income to 69 per cent. Further, the single asset concentration is reduced from 40 per cent (from Raffles City) to 32 per cent.

The purchase will be debt funded, and borrowings are already fully underwritten by banks. Hence, there will be no equity issuance in any form.

CCT's gearing will increase from 27 per cent to 40 per cent post this transaction, well within its optimum of 40-50 per cent and below the regulatory limit of 60 per cent. Based on current passing rents of S$6.50 psf, the net yield works out to about 2.2 per cent; hence a theoretical dilution to FY09 DPU of 12.5 per cent. However, given the current spot rents of S$16-$18 psf for that location, we believe that by FY09/10, the rental income may even be higher than the income support provided.

Earnings revision: No change. We have not included the contribution from 1 George St until the acquisition is approved. With the income support, assuming 3.6 per cent cost of debt, accretion to FY09 DPU will be 4.3 per cent. Even if CCT gets funding at its current portfolio cost of debt of 3.9 per cent, accretion will still be about 2.1 per cent.

12-month price target: S$3.53 based on a DCF methodology.

Catalyst: Strong rental reversions in 2008E and 2009E. Passing rents are 50 per cent below current spot rents.

CCT remains our top S-Reit pick with potential upside of about 70 per cent. Its asset base will grow to S$6.5 billion once 1 George St is acquired.OUTPERFORM.

StarHub

March 28 close: $3.11

CIMB RESEARCH, March 28

StarHub has successfully retained its four lots of 1800 MHz spectrum rights and won two additional lots of 2G spectrum - one lot of 1800 MHz and one lot of EGSM - in a spectrum reallocation exercise by the IDA. Existing spectrum rights for all three mobile operators were originally due to expire on Sept 30, 08, but have now been extended to Dec 31, 08. The six lots of spectrum would cost StarHub a one-time fee of S$1.9 million.

Comments: Prospects of improved coverage quality but no significant earnings impact. The win of the EGSM spectrum, which operates on 900 MHz, will enable StarHub to improve its mobile coverage in harder-to-serve areas due to better signal propagation properties relative to the 1800 MHz spectrum.

This would improve its mobile subscriber experience but we do not expect a big impact on earnings. The new spectrum lots are not expected to require fundamental changes to mobile networks and the cost for spectrum had been included in management's guidance for 2008.

DCF-based target price of S$3.76: StarHub remains our top Singapore telco pick for its attractive CY08 yield prospect of 9.8 per cent backed by strong free cash flow, an unrivalled triple-play proposition and exposure to telco service consumption growth in Singapore.

Key catalysts for a sustained outperformance could include an upgrade on consensus dividend/capital return expectations which remain well below StarHub's free cash flow prospects, steady earnings delivery (cable TV likely to surprise on the upside) and a risk-averse market environment. OUTPERFORM.

Compiled by UMA SHANKARI
Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein. Brokers who wish to send in their reports can email us at btnews@sph.com.sg

Brokers' Take Published March 28, 2008

Olam International

STRUCTURAL de-leverage needed: We are downgrading Olam to 'sell' from 'neutral' due to: 1) reduction in our fair value estimate to S$1.60, 2) high net gearing of 4.6 times implying an immediate need for equity, 3) reduction in growth associated with de-leveraging, and 4) aggressive accounting policy. We are one of the first to advocate a 'sell' on the stock.

Gearing at risky level: Olam has become dependent on leverage for growth which, in our view, is not sustainable given the high 460 per cent net gearing and low 1.7 times interest coverage. We think a structural de-leverage is imminent since we believe bankers would likely impose stricter covenants as debt usage accelerates.

Lower leverage = slower growth = lower multiples: We are expecting earnings growth in FY09-FY10 to fall short of management guidance, in the absence of an equity placement. Our FY09 estimate is 10 per cent below consensus. Even with an equity injection, the sustainable ROE would likely fall to the around 20 per cent achieved in 2005-2007, as de-leveraging takes place.

The prospect of de-leveraging and slower growth would lead to a de-rating of valuation multiples.

Fair value of S$1.60; switch to Noble Group: The stock is trading at 5.3 times FY08 NAV estimate. We think 5.3 times book value is a high price to pay for a business that generates 20 per cent ROE. We value the company at 3.6 times FY08 NAV estimate or S$1.60 using the Gordon growth model. At the current level, we recommend a switch to Noble Group, which is trading at 2.1 times NAV and 13 times PE.SELL

Jurong Technologies
March 27 close: S$0.315
Nomura Research, March 26

OUR VIEW: Margins at Jurong Technologies' (JTL) handset ODM business look under pressure, given increased competition from global handset OEMs and Chinese tier-1 handset players. With JTL facing a funding crunch given its high gearing, and margins unlikely to recover in the short term, our numbers depend on strong execution by management.

Anchor themes: As flagged in 'Handsets: Sleep mode' (March 21), we believe that while developed markets will bear the brunt of the consumption slowdown, handset OEMs will re-direct resources to 'relatively safer' emerging markets, especially the sub-US$50 market, increasing the competition for JTL's ODM business.

Sales from the accessories business rose to 46 per cent of the total in FY07, from 15 per cent in FY06, increasing working capital needs. With net debt to equity at 100 per cent, JTL faces a catch-22 situation in its attempts to clean its balance sheet.

Fair value at S$0.27 per share; 'reduce': We have forecast sales growth will slow as the company changes its product mix to increase ODM business and reduce its exposure to wireless accessories. We now expect sales to grow 7.8 per cent year-on-year in FY08, 4 per cent year-on-year in FY09, and 2.3 per cent year-on-year in FY10.

We expect Ebit margin to fall 0.5 percentage point year-on-year to 3.4 per cent in FY08, to reflect: 1) pressure from core EMS business, ie, lower utilisations in PCBA and rising sales of lower-margin wireless accessories; 2) higher operating expenses given the increase in R&D as JTL positions itself as an IP design house; and 3) higher interest costs as loans increase to fund higher working capital needs. We have assumed the Ebit margin will return to the 4-5 per cent range (closer to industry Ebit margins) after FY08, contingent on execution by management.REDUCE

Venture Corporation
March 27 close: S$11.20
DBS Group Research, March 27

SLOWER-THAN-EXPECTED Q1: Our recent update indicated that apart from a seasonally softer March quarter, customers have continued to tighten and rebalance supply chains for printing and imaging as well as some retail store solutions (RSS) products. This, coupled with further weakening of the US dollar against the Sing-dollar, down 4 per cent year-to-date, would result in sequentially lower Q1 sales.

It is also inevitable that Venture's bottomline would be impacted by bigger marked-to-market losses for CDOs, as the market spread has continued to widen from last quarter.

On a more positive note, margins at the operating level could hold steady as new products are driving strong margins in the RSS and communication/networking space, which help to mitigate printing and data storage margin erosions. Venture's design initiatives to lower material content and manufacturing costs are also gaining positive tractions with several key customers, but actual benefits will only be visible over the next few quarters.

FY08 forecast cut by 14 per cent: We now expect Q1 net profit of S$67 million (-5 per cent year-on-year, -10 per cent quarter-on-quarter), on revenue of S$937 million (-3 per cent year-on-year and quarter-on-quarter). We have cut FY08 earnings by 14 per cent to account for weaker revenue and lower non-operating gains, given potentially bigger CDO losses. Consequent to this earnings revision, our target price is adjusted to S$12.81, still pegged to 12 times FY08 earnings.
Downgrade to 'hold': Venture has done well, outperforming the broader market with a 16 per cent gain versus the Straits Times Index's 4 per cent decline in the past one month. Although the stock is undemanding at 10.7 times FY08 PE, upside may be limited in the near term, given a lack of positive price catalyst and continued pressure from forex and credit risks.HOLD

- Compiled by UMA SHANKARI

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein. Brokers who wish to send in their reports can email us at btnews@sph.com.sg