SembCorp Marine : Good Results but Catalysts Already in the Price

1Q09 results — Revenue reached S$1.4bn, (-16% qoq, +49% yoy), underpinned by strength from ship conversion/offshore (-25% qoq, +80% yoy) and rig building (-12% qoq, +57% yoy), thanks to a record delivery schedule this year. Ship repair was flat yoy while net profit reached S$120m, accounting for ~26% of our FY09 estimates. Gross margin was largely flat yoy despite an increased mix of offshore conversion projects during the quarter. SMM benefited from S$15m forex gain in 1Q09 (vs $6.3m losses in 1Q08).

Balance sheet — Net cash stood at S$1.9bn but operating cash flow deteriorated and reached $93m (vs. S$857m in 1Q08) due to higher working capital requirements. Capex commitment reached $26m and should increase to S$100-150m by end of the year.

Prospects — SMM now has S$8.4bn of orderbook to deliver till early 2012. Although macro outlook remains challenging, SMM does not rule out potential contract wins with Petrobras, particularly production units (fixed and floating). SMM is also targeting to forge more alliances to perform ship repair work with international shipping names (e.g., oil tankers). Currently, ~80% of ship repair revenue is generated from alliances.

Maintain Hold (2M) – SMM had executed well, capitalizing on the up-cycle, improving margins and visibility with record orderbook. However, the extent of the current downcycle and concerns over customer financing will continue to weigh on the stock.

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Hyflux: Still upbeat about the water sector

Seasonally weaker 1Q09 results. Hyflux Ltd posted its 1Q09 results last night. Revenue fell 1.6% YoY at S$88.2m, mainly due to the continued weakness in industrial sales in China (down 35.1%), hit by the challenging economic conditions. But municipal sales managed to grow 7.3% YoY, driven by its still strong order pipeline in that segment. Gross margin also improved from 23.3% in 1Q08 to 33.2%, largely aided by lower raw material prices as well as subcontractor's costs. Nevertheless, due to the absence of a tax credit in 1Q09 (versus S$1.1m in 1Q08), net profit slipped 11.5% to S$5.1m. On a sequential basis, revenue tumbled 50.8%, while net profit tumbled 62.0%, highlighting the usual seasonality of its revenue stream; the first quarter typically records the lowest revenue due to the long Chinese New Year holiday in China.

Upbeat about Algeria, China prospects. Going forward, management believes that the outlook for the water industry remains upbeat, especially in Middle East & North Africa (MENA). Hyflux is particularly bullish about its growth potential in Algeria, as it has just achieved financial close for the US$443m Magtaa Desalination Plant - touted to be the largest in the world with a capacity of 500k m3/day. Construction of the US$200m Tlemcen Plant is also progressing well and is expected to be operational by end 2009. Meanwhile, management is also equally upbeat about its prospects in China, where the company is building and/or operating as many as 30 water treatment plants. One area that Hyflux sees potential is in the growth of water tariffs in China, which are still extremely low by international standards. Although tariffs have grown some 60% between 2003 and 2007, the average is around US$0.20/m3 versus global average of US$3.00/m3.

Expect seasonal uptick in 2Q09. Although management did not provide an update of its order book - EPC jobs last stood at S$1.14b (end Dec 08), the ongoing projects to be completed should ensure that revenue and earnings see the seasonal uptick in 2Q09 and the rest of the year. As such, we are leaving our FY09 estimates unchanged despite 1Q09 revenueand earnings meeting just 14.4% and 8.3% of our full year estimates. And given the recent re-rating of the equity market, we correspondingly raise our valuation from 16x (trough) to 18x FY09F EPS and our fair value from S$1.87 to S$2.11. Maintain BUY.

Wilmar - Strong start to the year

Wilmar’s results from the past nine months indicates that it has been able to not only circumvent some of the harshest conditions in credit and commodity markets but it has also continued to maintain strong profitability levels. Moves to add “domestic-ownership” to its Chinese units could allow it to outgrow other large foreign competitors there which are increasingly becoming constrained by new rules. We are raising the rating on the stock back to Outperform (Neutral previously) with a new target price of S$5.00.

Sources of outperformance in 1Q09 was in margins at all its key divisions. At oilseeds (US$55/ton), palm merchandising (US$47/ton, highest post RTO) and in consumers oilpacks (with a rather pleasing US$106/ton, the first time it has gone above US$100/ton post its RTO). There was some shortfall in volumes. Consumer oilpacks and its palm merchandising division saw volumes decline 16% and 15% YoY, respectively, as opposed to our expectation for growth of 10% and 5%, respectively. Oilseeds merchandising volumes continue to power ahead, with volume growth of 25% YoY.

Balance sheet benign. Net gearing was 25%, which leaves it plenty of room to manage its business even in a firmer agricultural price environment. Its cash conversion cycle reverted back to its more normal 60 days (from 45 days at end-2008), which to us implies that heightened risk levels seen across 2H08 have begun to normalise.

Drop-off in fertilisers. Another key takeaway lies in the point that its fertiliser unit ('others') saw a loss (of US$14m) vs a profit in 1Q08. Write-offs in fertilisers as well as poorer YoY demand may show up as lower yields amongst agriculture producers in the next 6−12 months.

We have raised our earnings forecast for 2009 by 31%. Our target price of S$5.00 implies PER of 15x (versus S$3.00 on 12x earnings previously).

12-month price target: S$5.00 based on a PER methodology. Catalyst: Volume growth in excess of 5% and 9% respectively for its palm, oilseeds merchandising units.

Wilmar’s unique integrated supply chain model allows it to outperform peers which typically have smaller footprints or only operate in limited segments. We believe Wilmar is rerating as we observe that it is able to have a fairly resilient earnings stream even though it is exposed to fairly volatile commodity/palm oil/oilseeds prices.

SingPost Investment in Postea Inc.

SingPost announced today that it will acquire a 30% stake in Postea Inc., a postal and logistics technology company, incorporated in Delaware, USA. The total consideration is US$33.7m, comprising US$9.4m cash payment, and non-cash consideration of US$24.3m for the licensing of SingPost’s intellectual property rights to Postea. This would include IP rights in its Self-service Automated Machine (SAM), SAMplus, POST21 and vPOST systems.

Postea was founded in 2007 and specialises in providing automation technology solutions for the postal, courier and logistics markets, such as automated parcel processing systems. Its subsidiary Innovations Group is currently the contractor for the US Postal Service providing mailing systems to Contract Postal Units across the country. We believe Postea is not immediately earnings accretive.

The transaction recognizes SingPost’s postal technology IP rights as intangible assets, which we believe will result in an extraordinary gain for FY10 of cUS$24m. More importantly, we believe Postea will serve as the platform for SingPost to “productise”, further develop, and leverage its internal postal technologies going forward.

Our price target of S$0.96 is derived from DCF assuming 9.5% COE and 3% terminal growth. At our price target the implied FY10 yield is 5.8%.

DBS - Core Profit S$456m: Strong Operating Performance

Reported net profit S$433m (vs. Citi S$400m): Excluding a S$23m impairment charge on TMB, DBS posted a 1Q09 core net profit of S$456m, driven by record revenues and lower costs, leading to a 31%qoq jump in pre-provision profit to S$1,024m. DBS used this good result to raise provisions to S$414m (131bps of loans), conservatively including S$182m general provisions. HK net profit recovered to S$94m (4Q: S$16m) from better non-interest income and lower costs. Tier-1 capital ratio 12.5%; quarterly dividend maintained at S$0.14/share.

1Q09 core profit S$456m (4Q: S$383m), +19%qoq: 1Q09 NII S$1,076m down 3%qoq: Loans +3%qoq, NIM 199bps (4Q: 205bps). Loan-to-deposit spread 2.59% (4Q: 2.61%), LDR 74%. Non-II S$586m, fees S$317m (+21%qoq, higher loan fees), other income S$269m (4Q: S$93m) on higher trading gains. Costs S$638m -7%qoq, as staff costs fell 5%qoq and other costs fell 9%qoq; cost-income ratio 38%. Provisions S$414m (4Q: S$269m), 131bps of loans. NPL ratio 2.1% (NPA: 2.4%). Tier-1 ratio 12.5%, CAR 16.7%. 1Q09 EPS S$0.83, BPS S$10.27.

1Q09 Provisions S$414m (annualized 131bps of loans, 4Q: S$269m): S$225m in specific allowances (flat qoq), S$182m set aside for general allowances (including S$49m GP against corporate CDOs) vs. 4Q08 S$46m, and S$7m for other securities. In addition, DBS took a S$23m impairment charge on its stake in TMB (regarded as a non-core item). DBS has 93% coverage of its S$276m ABS CDO and 36% coverage of its S$736m corporate CDO investment, plus another S$218m CDOs in its trading book for a total of S$1,230m CDO portfolio.

Golden Agri-Resources Ltd - Rights issue to fund future growth

Golden Agri has proposed a fully underwritten 17-for-100 rights issue with free detachable warrants at S$0.18/share. We are not surprised as Golden Agri flagged to the market two weeks ago that it was mulling a rights issue. What was new were the two free detachable warrants for every five rights shares subscribed which would be EPS-dilutive if and when the warrants are in-the-money. We estimate that the rights will dilute our FY10 EPS forecast for Golden Agri by 12%. Following the removal of uncertainties surrounding this, we have returned our forward P/E target to 12x from 11x. Factoring this in and the dilution from the rights issue, we arrive at a post-rights target price of S$0.37. Our new cum-rights target price is S$0.41, up from our previous target of S$0.39. Maintain Neutral as the group's attractive valuations relative to regional peers are offset by a potential share overhang from the rights issue.

SingTel: Associates, forex turn positive

4QFY09 in line with expectations. In the three months to 31 Mar 09, earnings came off 17% to S$903m, which was in-line with DMG’s estimates (S$910m) but above consensus (S$853m). The fall in earnings was due largely to forex (A$ slumped 21% YoY) and operational weakness in Telkomsel and AIS.

Strong core ops. Strength was seen in the Singapore business, driven by mobile business and effective cost cutting measures (core earnings +32% YoY). Optus also did well, with earnings up 17% on the back of mobile strength. Group free cash flow for the quarter continues to be robust, growing by 5.2% to S$976m due to lower capex from both Singapore and Optus.

Forex in its favour. SingTel was hit by the strength in the S$ in FY09, but the trend is likely to reverse. In particular, we expect A$ to appreciate given the strength in commodities. We estimate that every 10% rise in A$ will result in a 2.3% boost in Group earnings.

Higher payout likely. Earlier this year, there were some concerns over Optus’ NBN bid as winning it may be a drain on SingTel’s financials. Now that the Australian government has decided to go on its own, the capex uncertainty is cleared which paves the way for higher payouts. This is reflected in the FY09 payout (58%), which came in at the higher end of the guidance (45-60%).

Earnings expected to inch up. We estimate earnings will rise 4.6% in FY10 to S$3.61b on the back of weaker S$ and stronger contributions from its regional associates. Its core Singapore and Australia businesses are also expected to be resilient in the face of the downturn. We forecast EBITDA will be flat for domestic operations, and rise 4.2% in S$ terms for Optus.

Target price raised, call upgraded. Based on SOTP, we derive a target price of S$3.02 (S$2.67 previously), which represents a capital upside of 10.2%. Coupled with a prospective yield of 4.8%, total return works out to 15%. Upgrade to BUY.

Singapore Airlines: Artificially Breaking Even

Singapore Airlines (SIA) posted its first quarterly loss since the SARS epidemic, which came in 15.7% and 22.7% below of our and consensus expectations at the core-profit level. This prompts us to retain our bearish view on the company. While the proposal to distribute SATS shares is net positive to SIA’s valuation, the new fair value of SG$8.80, which is derived from 0.68x FY10 book, or a -2 standard deviation from its historical trading band plus the SATS share entitlement, implies a downside of 26%. Maintain SELL.

First core loss since SARS. At first glance, SIA’s reported headline net profit of SG$1.06bn was spot on with our original estimates. However, after excluding the one-off differed tax liability write-back amounting to SG$138m and the surplus on disposal of assets, the company reported a first core net loss (since the SARS epidemic in 2003). While full-year revenue was flat, it was 20.2% lower q-o-q as traffic, load factor and yield numbers all contracted. SIA’s cargo division operating loss of SG$224m also pulled down the other subsidiaries’ contributions although SATS Group, SIA Engineering and SilkAir reported decent earnings.

Outlook still gloomy. While the plunge in jet fuel prices helped to reduce fuel expenditure by S$666m in 4Q, this was offset by losses in hedging of S$543m. These included a $112m loss resulting from the early termination of several fuel hedging contracts before maturity date. While jet fuel price has corrected, but it may be offset by progressive settlement of fuel hedges contracted at higher prices. Advance bookings were lacklustre and there was another setback in the form of uncertainties arising from the Influenza A epidemic. Aggressive promotions, reduced business travel and possible down-trading activities may also worsen the situation.

Strategic move for SATS shares distribution. SIA proposed to distribute in specie 870m SATS shares on the basis of up to 0.73 SATS Shares for every 1 share in the company. Post distribution, SIA will concentrate on airline and aircraft MRO businesses, while SATS can reduces its dependence on the aviation business. Without making any other changes in our key assumption, we assume the proposal to be completed by end of 2QFY10 and our profit estimates of SG$125m and SG$135m for FY10 and FY11 at SATS level, we tweak our earning estimates downwards to SG$383m for FY10 and SG$765.7m for FY100 or 11.7% and 12.3% respectively. While the distribution is net positive to SIA’s valuation after adding in the SATS entitlement to our BV based methodology, is still insufficient to warrant an upgrade thus SELL maintain.

Golden Agri-Resources announces 17-for-100 rights with free warrants

Golden Agri-Resources Ltd (“GAR” or the “Group”) is proposing to carry out an underwritten renounceable rights issue (“Rights Issue”). The Rights Issue price is 18 Singapore cents per share, on the basis of 17 rights shares for every one hundred existing shares outstanding and two free detachable warrants for every five rights shares subscribed (“Warrants”). The Warrants, which have a 3-year maturity date, are exercisable at maturity at an exercise price of 54 Singapore cents per share and at a conversion ratio of one warrant to one share. GAR’s closing share price on 26 May 2009 was 45 Singapore cents.

The Rights Issue is expected to raise funds of approximately S$311.1 million, while the Warrants proceeds are expected to be approximately S$381.0 million, assuming all warrants are exercised.

The proposed Rights Issue has been initiated by GAR from a position of strength. It is forward looking and intended to provide the Group with the capital and financial flexibility to expand organically as well as undertake any external acquisition opportunities as and when these arise. The issue of Warrants will reward subscribing shareholders, maintain good long-term relationships with shareholders, and also provide GAR with additional future liquidity if exercised at maturity.

To demonstrate their commitment to the Group, Massingham International Ltd and Flambo International Limited, together with their respective nominees and custodians, which directly hold in aggregate 48.59% of GAR’s issued share capital, have undertaken that they will fully subscribe for their respective entitlements under the Rights Issue. The balance of the rights shares are underwritten by the Joint Lead Managers and Joint Underwriters: BNP Paribas, Singapore Branch; Credit Suisse (Singapore) Limited; and UBS AG, acting through its business division, UBS Investment Bank.

Group Chief Executive Officer, Franky O. Widjaja stated, “The proposed Rights Issue is a part of our growth strategy. It will provide capital to promote sustained growth, allow us to take advantage of value-creating expansion opportunities, proactively strengthen our balance sheet and provide financial flexibility. Ultimately, our aim is to maximise returns to shareholders over the long-term.”

Mr Widjaja further highlighted, “The proposed Rights Issue will strengthen our competitive position and prepare us for potential acquisition opportunities when they arise. These efforts will form the foundation of Golden Agri’s continued growth and profitability well into the future.”

Genting Said....

Genting wish to inform that the Company has just received confirmation from the following substantial shareholders at 12.32 p.m. today that:

(i) Kien Huat Realty Sdn Berhad has disposed of 265,809,000 shares in the company by Lakewood Sdn Bhd via a placing agreement;

(ii) Parkview Management Sdn Berhad as trustee of a discretionary trust, has disposed of 265,809,000 shares in the Company by Lakewood Sdn Bhd via a placing agreement; and

(iii) G Z Trust Corporation as trustee of a discretionary trust, has disposed of 649,073,320 shares in the Company by Golden Hope Unit Trust via a placing agreement.

Positive operational development. A recent company visit confirmed/revealed some positive developments - Resorts World at Sentosa may be opened by Dec 2009, perhaps earlier than Marina Sands. The Singapore government to build a covered and air-conditioned walk-alator from Vivo City to the resort (7 minutes walk) by mid-2010.

Strong earnings prospects at Resorts World at Sentosa (RWS) but fundamentally priced in. On the optimistic side, our initial calculations show that by 2011, RWS could churn out revenue and net profits of US$2.6b and US$344m respectively. Key assumptions are 700 gaming tables at the casino, 60:40 gaming:non-gaming revenue mix, 25% Ebitda.

The shares could maintain the upward momentum, heading towards the casino's opening day. However, the theoretical floor NPV of this project would only be US$0.56b or S$0.78b, assuming 9% discount factor and 5% revenue growth rate beyond 2011 until the end of the concession on 2036. The low NPV reflects the high capex of around S$6.5b. Fundamentally, the stock appears expensive if the NPV enhancement is stacked against the company's market cap. Without RWS, the company is expected to be loss making due to weak casino operations in the UK. On PE basis, assuming just contribution from RWS and that the UK operations break-even, Genting Singapore is trading at around 16.5x prospective EPS of around S$ 5 cents.

Sharp rally in Genting group shares unwarranted; reduce positions

Genting shares rally post recent MGM senior notes investment Genting-related shares have rallied 12-15%, since Genting and Resorts World’s 20 May announcement that both agreed to subscribe for US$50m each (two equal US$25m tranches, 10.375/11.125% notes due May 2014/November 2017 respectively) of MGM Mirage’s (MGM) issues for US$1.5bn senior secured notes. Though Genting and Resorts World have stated the move is to boost yields on excess cash, Bloomberg reported that there is market speculation that the investment could be prelude to a potential expansion of the Genting group to Macau. In response, both Genting and Resorts World stated on May 26 that the group constantly evaluates/reviews potential investment opportunities.

Following MGM’s application to renew its Atlantic City casino license, the New Jersey Division of Gaming Enforcement recommended last week for MGM to sever ties with its MGM Grand Macau JV partner, Pancy Ho, who the board deemed as ‘unsuitable’. This has led to market speculation that the Genting group could be seen as a potential candidate for any potential stake disposal in the Macau JV, given the Genting group has in the past stated its interest in expanding into Macau. However, we see both MGM and Pancy Ho deliberating the matter with the New Jersey board, which will likely take time. We think the situation remains highly fluid, and it is too soon to expect any outcome. We recommend investors to reduce positions on the back of recent strength in Genting group shares.

Assuming there could be potential expansion opportunities, we think it is more likely Resorts World (Neutral, 12-m SOTP-based PT: MYR2.50), which has the balance sheet capacity (MYR4.6bn net cash end-08) to be the acquisition vehicle. Currently our preferred pick within Genting group, Resorts’ valuations are undemanding at 6X 2009 EV/EBITDA vs 9X historical average. No change to our Neutral on Genting, 12-m NAV-based TP of MYR4.10. For Genting Singapore, we retain Neutral, but revise our SOTP-based 12-m PT to S$0.44 from S$0.37, largely as we roll over to 2010E. Following detailed review of its 1QFY2009 results, we have raised 2009 earnings by 50%, mainly as we expect Genting Singapore to charge less pre-opening expenses to P&L this year. Key upside/downside risks: Singapore casino opening, gaming revenue demand, potential M&A investments, weaker/better economic recovery.

Keppel - Upgrading O&M new orders and SOTP modifications

In line with our more positive view on O&M, we have increased our earnings estimates for KEP by between 3% and 10% for the next three years and raised our target price from S$7.10 to S$9.40. We consider KEP well-positioned in O&M and its recent strength in Infrastructure has been a pleasant surprise. Buy.

We believe the recent rise in oil prices and recovery in confidence may lead to a resumption in E&P spending, which had previously been put on hold. We view KEP as well-positioned to benefit from Petrobras’ significant investment plans, in our view. Credit markets should ease over time, and when they do, we expect offshore-related new orders to return. We firmly believe that accelerating global reserve decline rates will prompt industry capex to continue growing.

We raised our 2009E-2011E new order assumptions from S$1.5bn, S$2.0bn, and S$3.0bn to S$1.7bn, S$2.5bn, and S$3.7bn. Our target multiple for O&M has been raised from 12x to 15x, which we believe is justified considering our expectation of the resumption of new orders, KEP’s strong branding and positioning, and the study of a more direct play SMM, which saw its PERs punching comfortably past 16x when new orders increased from about S$1bn in end-03 to S$2bn in end-04.

Maintain Buy; long-term prospects remain healthy and intact. Our SOTP-based TP is S$9.40 (target multiple of 15x FY09E earnings for O&M; market value for bulk of other components). Key risks: greater-than-expected US$ depreciation, unexpected cost increases, and contracts execution.

ComfortDelgro: 1Q09 revenue would have expanded if not for negative currency translation

ComfortDelgro reported 1Q09 net profit of S$52.5m, up 4.6% YoY, in line with our expectations. Revenue contraction due to negative currency translation effect. Revenue contracted 4.4% YoY to S$716.6m. If we strip out the negative translation effect of the GBP and A$ of S$50.1m, revenue would have risen 2.3% YoY. Overseas revenue accounted for 40.3% of total revenue, versus 44.5% in 1Q08.

Australia bus operating profit up due to recent acquisition. Singapore bus revenue contracted 0.4% YoY due to a 0.3% YoY fall in 1Q09 average daily ridership. However, operating profit from this segment was up 6% YoY due to lower fuel costs. Whilst London bus revenue and operating profit were down due to the weaker GBP, Australia bus operating profit was up 11% YoY due to the acquisition of CDC Victoria since its 23 Feb 09 acquisition.

Operating profit of S$81.5m was 7% higher YoY. Stripping out the negative foreign currency translation, operating profit would have been 11.2% higher. Taxi revenue was down 2% YoY due to weakness for the UK taxi business, but partly offset by increases in the Singapore and China taxi businesses. But taxi operating profit was down 11% YoY.

Whilst the Singapore bus fare reduction effective 1 Apr 09 will lower Singapore bus revenue, we expect Australia bus revenue growth and YoY declines in fuel costs to contribute to overall net profit growth. We are assuming FY09 average crude oil price of US$59/bbl, versus FY08’s US$105/bbl. After factoring in the hedges made by ComfortDelgro, we forecast a 37% decline in FY09 fuel costs. The weakening of the GBP and the A$ started in Sep/Oct 08 and hence the negative currency translation effect should diminish by 4Q09.

Our S$1.78 target price is derived from sum-of-the-parts valuation. Share price catalysts include our forecast 32% recurring net profit increase for FY09, and an attractive FY09 dividend yield of 4.7% (based on a 55% payout ratio).

Keppel selling SPC stake - Generous offer by Petrochina

Acquisition by Petrochina. Keppel announced yesterday that it had entered into an agreement to sell its entire 45.51% stake in SPC to Petrochina for S$6.25 per share, or US$1.47bn in cash.

Generous offer. The offer price is at 24% premium to Friday’s closing price and implies 15.7x 2009 PE and 11.6x 2010 PE, and 1.8x and 1.7x P/Bv, respectively. The offer price is generous and valuations are significantly higher than regional peers’ average of less than 10x PE for 2009-10 and 1.1-1.2x P/BV. But for Petrochina, the price tag implies EV/refining capacity of US$16,000/bpd including SPC’s distribution network and E&P assets, which is still lower than the estimated refinery replacement cost of US$20,000/bpd.

Upgrade to Buy with target price of S$6.25. The share sale should trigger a tender offer. In our view, the offer price is attractive and we recommend investors accept the offer. With this tender offer, SPC’s share should rise to S$6.25, which implies 24% upside.

Starhub results were within expectations, Hold maintained

1Q FY2009 results. StarHub reported 1Q FY2009 operating revenue of S$530.6m (-0.8% yoy) and net profit of S$82.5m (+3.0% yoy). It also declared an interim dividend of S$0.045 per ordinary share, which was the same as 1Q FY2008.

Despite the slight decrease in revenue, net profit rose because of the tax credit adjustment due to the reduction in corporate tax to 17%, lower operating costs and lower interest expenses.
Performances of the various business units. StarHub reported mixed performances in its business units: mobile revenue was S$264.7m (-3.1% yoy), Pay TV revenue was S$102.0m (+4.9% yoy), broadband revenue was S$62.4m (-2.6% yoy), fixed network service revenue was S$79.1m (+8.7% yoy) and sale of equipment revenue was S$22.4m (-19.3% yoy).

StarHub continued to be successful in attracting new customers to its services. As at 31 March 2009, the number of customers for its mobile, Pay TV and broadband businesses were 1,815,000, 527,000 and 383,000 respectively. However, mobile revenue fell because customers made fewer domestic and international calls. In addition, broadband revenue decreased as customers opted for subscription discounts. Moreover, consumers were more cautious in their purchases of handsets during the economic slowdown. Meanwhile, Pay TV and fixed network service posted single-digit growth due to the increase in the number of customers.

Profit margin. Net profit margin decreased from 16.3% in 4Q FY2008 to 15.5% in 1Q FY2009. This was because of the the tax relief adjustment of S$10m in 4Q FY2008, which resulted in higher profit.

FY2009 Outlook. StarHub expects the service revenue for 2009 to be maintained at 2008 level. In view of the recession, it will focus on customer retention and preservation of operating cash flow for 2009. Furthermore, it intends to pay a minimum cash dividend per quarter of S$0.045 per ordinary share, bringing the total to S$0.18 for the full year.

Maintain HOLD recommendation and target price at S$2.14. As StarHub’s results were within expectations, we maintained our target price of S$2.14 under the discounted cash flow (DCF) model.

Although StarHub offers its services only in Singapore, it continues to be an attractive stock as it offers dividend yield 9.2%. We kept our Hold recommendation because of limited upside in the share price to our target price of S$2.14.

Parkway - Removed from MSCI Singapore

Parkway will be removed from the MSCI Singapore index, as part of theindex’s regular review. The change will take effect after market close on 29May.

Fund managers’ portfolio rebalancing in-line with Parkway’s removal fromthe index could result in near-term weakness in Parkway’s share price.Parkway shares closed at S$1.31 today (down S$0.12 or 8.4% fromyesterday’s close) upon news of its removal from MSCI Singapore.

We like Parkway's strong franchise and successful foray into the region butremain cautious on the stock due to funding requirements ($500m and$850m loans due in 2011 and 2013 respectively). Success marketing itsmedical suites will be critical to plug financing needs.

Parkway reports 1Q09 results on Friday, 15 May 2009 and we expect theresults to be in-line with consensus forecasts. Note that sharp earnings cutsby the street over the past few quarters have brought expectations to moremanageable levels.

UOB: Collective impairment still up

Q-o-q performance. 1Q09 net profit grew 23% to S$409m, driven by non-interest income and lower expenses. NIM was robust at 2.4% but 4bps lower due to narrower average loan spread. Non-interest income improved 11%, supported by higher investment and fee income. Expenses were lower while cost-to-income ratio was 36%. Specific provisions were lower, but collective impairment continued to rise to S$174m (+64%) as expected. NPL ratio inched up to 2.1% from 2.0%, while absolute NPLs rose 6%; specifically, Singapore and Thailand registered higher NPLs. By industry, increases were seen in Manufacturing and general Commerce. UOB’s Tier 1 and Total CAR rose 1.4ppt and 2.0ppt to 12.3% and 17.3%, respectively.

Expect NIM to hold up, but selective in lending. We expect NIM to hold up as loans get re-priced at higher yields. Loans will grow, specifically from Singapore, but we believe that UOB will be selective about lending. We are retaining our loan growth assumption of 6%.

Upgrade to Buy, TP S$16.50. UOB had underperformed its peers and the market due to impairment to book value. But it should be able to steer away from this setback now, given that credit markets have stabilised. Upgrade to Buy. We roll forward our valuation window to FY10F to derive a higher target price of S$16.50, based on the Gordon Growth Model. This also implies 1.6x FY10F P/BV, which is the normalised mid-cycle multiple.

Genting Singapore: Posts S$31.9m loss for 1Q09

Muted 1Q09 results. Genting Singapore (Genting) posted a weak set of 1Q09 results last evening, with revenue dropping 37.6% YoY to S$105.4m; management attributed the drop to several factors, key among which would be poor luck factor (accounted for 20% of the decline), weaker pound against the SGD (16-17%) and reduced patronage volume (2%). Although gross profit improved by 2.9% to S$7.7m, EBITDA tumbled 80.7% to S$2.1m, as it had to incur higher pre-operating expenses of S$7.1m (versus none in 1Q08) for Resorts World @ Sentosa (RWS). And also because of fair value adjustments of -S$8.0m, net profit slipped into the red to the tune of S$31.9m, versus a gain of S$6.0m in 1Q08 (includes fair value adjustments of +S$18.8m). However, if we strip out these adjustments as well as forex impact, Genting would have posted a smaller loss of S$23.9m, although still wider than the net loss of S$12.7m in 1Q08.

Outlook for UK operations still uncertain. However, outlook for its UK operations remains uncertain, hampered by both the economic slump there as well as several new measures by the UK government to raise gaming taxes. These measures include a higher license fee for gaming machines and higher tax on the gains from poker games which ranges from 15-50% depending on the magnitude of the win. Management expects these measures to have a marginal £1.2m impact on the profitability of its UK operations, which should be mitigated by its ongoing cost measures.

RWS on track for 1Q10 launch. As for Singapore, RWS is still targeting for a soft launch in 1Q10, and will try for the early part of 2010; construction is progressing well and it has awarded S$4.67b of the S$6.59b project costs. It also drew down another S$425.0m in 1Q09, bringing the total to S$1.025b. By the opening, its capex is projected to be less than S$6.0b, of which S$2.0b is equity funded and the rest by bank borrowing. On the licensing front, we understand that Genting has already received the draft application and can start the application proper in 3Q09.

Bets placed too early? As revenue and net loss met 18% and 24% of our FY09 estimates, we are leaving our numbers unchanged. But we are raising our fair value from S$0.33 to S$0.45 to reflect the improving risk aversion in the overall market. However the recent sharp rally may have run ahead of fundamentals. As such, we maintain our SELL rating.

SingTel: Associates, forex turn positive

4QFY09 in line with expectations. In the three months to 31 Mar 09, earnings came off 17% to S$903m, which was in-line with DMG's estimates (S$910m) but above consensus (S$853m). The fall in earnings was due largely to forex (A$ slumped 21% YoY) and operational weakness in Telkomsel and AIS.

Strong core ops. Strength was seen in the Singapore business, driven by mobile business and effective cost cutting measures (core earnings +32% YoY). Optus also did well, with earnings up 17% on the back of mobile strength. Group free cash flow for the quarter continues to be robust, growing by 5.2% to S$976m due to lower capex from both Singapore and Optus.

Forex in its favour. SingTel was hit by the strength in the S$ in FY09, but the trend is likely to reverse. In particular, we expect A$ to appreciate given the strength in commodities. We estimate that every 10% rise in A$ will result in a 2.3% boost in Group earnings.

Higher payout likely. Earlier this year, there were some concerns over Optus' NBN bid as winning it may be a drain on SingTel's financials. Now that the Australian government has decided to go on its own, the capex uncertainty is cleared which paves the way for higher payouts. This is reflected in the FY09 payout (58%), which came in at the higher end of the guidance (45-60%).

Earnings expected to inch up. We estimate earnings will rise 4.6% in FY10 to S$3.61b on the back of weaker S$ and stronger contributions from its regional associates. Its core Singapore and Australia businesses are also expected to be resilient in the face of the downturn. We forecast EBITDA will be flat for domestic operations, and rise 4.2% in S$ terms for Optus.

Target price raised, call upgraded. Based on SOTP, we derive a target price of S$3.02 (S$2.67 previously), which represents a capital upside of 10.2%. Coupled with a prospective yield of 4.8%, total return works out to 15%. Upgrade to BUY.

Olam International - Steady growth

3Q09 results in line with expectations. Olam International Ltd's (Olam) 3Q09 results were in line with expectations. Revenue slipped 4.8% YoY to S$2.3b on lower commodity prices, but this was partially offset by volume growth. Reported net profit surged 56.1% to S$87.0m, mainly due to non-recurring gains from the buy-back of its convertible bonds. Stripping off these gains, core net profit would still have risen by a credible 12.0% to S$62.4m. Olam's 9M09 core earnings have met 67% of our full year estimate. We are leaving our projections intact since 4Q is a seasonally strong quarter.

Steady growth in volume. Olam registered a 6% YoY increase in overall volume in 3Q09. Edible products, which made up 79% of the group's revenue, formed the backbone of this growth, while industrial raw materials succumbed to weak demand. This is not surprising, given the relative inelasticity of demand for food. Olam's various food segments registered volume growth in the range of 8% to 16% in 3Q09. Its Fibre & Wood segment, on the other hand, languished with a 16% YoY decline in volume handled.

Healthier cash flow. Commodity price disinflation eased working capital requirements and boosted Olam's cash flows. 9M009 operating cash inflow improved significantly to S$108.1m from an outflow of S$192.0m a year ago. 3Q09 saw a YoY decline in operating cash flow, but this was due to a later procurement season coupled with the late arrival of crops, which delayed payment to its suppliers to the current quarter.

Light at the end of the tunnel? There have been signals suggesting that commodities markets could be bottoming out. According to management, prices and trading volumes of commodities such as cotton, wood and dairy rebounded sharply in April and May, providing a glimmer of hope that recovery could be in sight. For now, however, it remains premature to conclude if the rebound is due to genuine improvements in fundamentals, or whether it is purely a case of inventory restocking, in which case the rally could be short-lived.

Upgrade to BUY. Having delivered a 16.6% growth in 9M09 volume, Olam is on track to meet its target of 16% growth in FY09 volume. Olam has been a laggard in the recent rally, and is now trailing at 13.5x FY10F PER vs. the STI's 15x. We believe that Olam will continue deliver consistent growth, and are raising our valuation parameter to 15x (from 11x), and fair value estimate to S$2.06 (from S$1.51). Upgrade to BUY.

Sembcorp Marine Ltd: Pricing for Hope

Good results. Sembcorp Marine Ltd (SMM) reported its 1Q09 results with topline came in at S$1.36b (+49% YoY, -16% QoQ). PATMI registered S$120.2m (+32% YoY, +73% QoQ). SMM did well when compared to a weak 1Q08 which had project revenue recognition timing issues. The group also experienced a better gross margin this quarter as it started reaping from the better priced contracts signed during the peak 2007-2008 phase. The group's net cash position stood at S$1.89b while order book stood at S$8.4b.

Repair activities seem peak-ish. SMM's ship repair activities seem to have come to a plateau with a net change in ships repair growing in the high single digits this quarter. While SMM iterates that a base load (~80%) of its repairs consists of exclusive agreements with major shipping/oil companies that are regulars at its docks, we are waiting to see if this should tail off as companies anchor vessels as demand for goods and raw materials slows down. A slew of LNG tankers coming on stream could affect SMM's repair of this vessel class as the recession takes demand off fuel.

No clarity with Petrobras… yet. Management has indicated that discussions with Petrobras are ongoing and are confident of some positive newsflow in the future. With about half of the 28 drilling assets slated to be semi-subs, it translates to about US$7.7b worth of orders (14 x US$550m). However, there is no clarity on the quantum and timing of contracts being discussed. The bug-bear issue with Petrobras is its requirements for the use of "local content" to sustain employment in Brazil's yards. SMM's jointly operated MacLaren yard is its only presence in Brazil. MacLaren is currently building a new dock (ready 2H09) capable of drydocking the largest of semi-submersible rigs.

Pricing for hope. We have upped our estimates in view of a more aggressive recognition of higher valued projects from FY07/08. However, SMM still has another S$1b worth of wins to catch up with our forecasts for FY09. Oil prices have run up in tandem with equity markets and we bump up our valuation peg to 13x FY09F PER (prev. 11x). While our fair value is now raised in tandem to S$2.65 (prev. S$2.02), we find the hope of the sustained oil price rise of the recent magnitude to lack fundamentals. As such, we are maintaining our HOLD rating.

Ezra - Share placement underway

65 million shares at $1.18-$1.22: According to a Reuters article, Ezra is seeking to raise up to US$53 million through the placement of 65 million new shares at S$1.18-S$1.22 per share. This represents a 6.2% - 9.2% discount to the last close price of S$1.30 (May 20, 2009). The deal has an upsize option of up to 19 million shares, which could raise an additional US$16 million.

Potential dilutive impact of 10%-12%: The deal would have a potential dilutive impact on FY09E EPS by about 10%-12% depending on whether the upsize option is exercised.

Alleviating the working capital strain: While the news highlighted that the cash will be used for capex, debt repayment and possible M&A, we believe that it will primarily be used to fund working capital needs for now as we noted that net cash generated from operating activities was a mere US$259,000 with cash conversion cycle increasing from 100 to 130 days as of 1H FY09. Some of the cash could also be deployed to fund its ongoing capex of US$350 million (2 multi-function support vessels & 1 AHTS for US$275 million and US$75 million for Vietnam yard expansion) but we believe this could be minimal as management has highlighted before that it has secured the required debt financing for the capex.

Gearing: Gearing would potentially come down from 47.1% to between 28.7 and 33.0% post the fundraising.

Valuation impact from the 2 MFSVs: We have not factored in the contribution from the 2 incoming multi-function support vessels to our valuations, which are slated for delivery from 2H 2009 and 1H 2010. With an improved cash position post the placement, Ezra should have no difficulty in taking delivery of these 2 vessels, which could potentially add another 20% to our SOTP.

Hyflux - Seasonally weaker 1Q

1Q09 core net profit of S$5.1m (-11% yoy) came in within consensus and our expectations. 1Q is seasonally weaker for the group, and accounted for 6.9% of our FY09 forecast. The decline in profit was due to the effect of a tax credit recorded in 1Q08. PBT was up 22.8% yoy to S$6.8m in 1Q09. Construction of the Magtaa plant in Algeria has commenced and is scheduled for completion in 28 months' time. Our estimates are intact, target price unchanged at S$2.66, still based on SOTP valuation. Hyflux is well-positioned to weather the economic turmoil on the back of its municipal business, which should benefit from government infrastructure projects. Maintain Outperform.

Hyflux Ltd posted its 1Q09 results last night, with revenue seasonally weaker as expected; revenue fell 50.8% QoQ (down 1.6% YoY) to S$88.2m, while net profit tumbled 62.0% QoQ (down 11.5% YoY) to S$5.1m. Besides the usual disruption due to the long Chinese New Year holiday in China, its industrial sales there were also affected by the economic slowdown. Nevertheless, Hyflux continues to remain upbeat about the water industry, and about its prospects in both Algeria and China. Although management did not provide an update of its order book ? EPC jobs last stood at S$1.14b (end Dec 08), the ongoing projects to be completed should ensure that revenue and earnings see the seasonal uptick in 2Q09 and the rest of the year. As such, we are leaving our FY09 estimates unchanged despite 1Q09 revenue and earnings meeting just 14.4% and 8.3% of our full year estimates. And given the recent re-rating of the equity market, we correspondingly raise our valuation from 16x (trough) to 18x FY09F EPS and our fair value from S$1.87 to S$2.11. Maintain BUY.

SATS bonanza for SIA shareholders

Singapore Airlines is divesting its 81 per cent stake in listed airport and ground services subsidiary Singapore Airport Terminal Services (SATS). SIA shareholders will receive up to 730 SATS shares for every 1,000 SIA shares held. 'Distributing shares through an in specie dividend will unlock shareholder value by giving SIA shareholders direct ownership of SATS at no cost to them,' the airline said in a statement. 'The proposed distribution will allow Singapore Airlines to concentrate on its airline and aircraft maintenance, repair and overhaul businesses.'

Based on that day's prices, each SIA share will get the holder $1.13 worth of SATS stock. The airline is also paying a total dividend of 40 cents per share for the year - compared to $1 last year. This means that while shareholders get a bigger potential payout this year, SIA ends up paying less cash. SIA added that the proposed distribution - which has to be approved by shareholders, including parent Temasek Holdings, at an EGM - would not have any impact on its financial position. The divestment will see SIA and SATS becoming sister companies under a single parent - Temasek Holdings, which currently owns about 55 per cent of SIA.

Besides announcing the divestment, SIA also announced yesterday that it made a net profit of $42 million in its January-March fourth quarter, down from the $486 million it made in the same period last year. This was thanks to a $138 million deferred tax write-back, and contributions from its subsidiaries SATS and SIA Engineering. At the operating level, SIA was in the red to the tune of $28 million as it incurred a fuel hedging loss of $543 million. The airline is hedged at an average of some US$112 per barrel versus the US$65 pbl spot fuel price. Still, SIA's fuel bill fell some $666 million during the quarter. Topline revenue fell 19.1 per cent or a whopping $786 million to $3,321 million during the final quarter, as the decline in passenger and cargo carriage accelerated in the fourth quarter. For the full year ended March 31, SIA posted net earnings of $1.062 billion, some 48 per cent or $988 million down from the previous year's $2.049 billion.

DBS: Downgrade to HOLD though Better than expected 1Q09 earnings

Better than expected 1Q09 earnings. DBS posted 1Q09 net earnings of S$433m, down 28% YoY and 47% QoQ. This was above market estimates (with Dow Jones consensus estimate of S$353m). Net Interest Income rose 2% YoY, but was down 4% QoQ to S$1076m. With Non-interest Income of S$586m, up 63% QoQ, total income improved 6% YoY and 13% QoQ to S$1662m. Net Interest Margin fell from 2.04% in 1Q08 and 2.09% in 4Q08 to 1.99% in 1Q09. This was due to a decline in Singapore interbank rates, but partly offset by higher credit spreads and prime-HIBOR spreads in Hong Kong. Fee and commission income fell 10% YoY (but was up 21% QoQ) to S$317m due to weak capital market activities.

Allowances surged 3x YoY. Total expenses fell 3% YoY and 7% QoQ to S$638m, resulting in cost-to-income ratio of 38.4%, down from 42% in 1Q08 and 46.8% in 4Q08. As expected, allowances surged, up 3-fold YoY or 38% QoQ to S$437m. This comprised of specific loan allowances of S$225m. NPL doubled YoY to S$2721m, while NPL ratio rose from 1% in 1Q08 and 1.5% in 4Q08 to 2.0% in 1Q09. This compares with 2.1% for UOB and 1.8% for OCBC in 1Q09. Management has declared a 1Q dividendof 14 cents payable on 4 Jun 2009.

Downgrade to HOLD, but raising fair value estimate to S$12.40. Management expects NPL to remain high (2% currently), although deterioration appeared to have stopped. We expect impairment charges to remain high for 2Q and 3Q, although at lower level than 1Q, making full year charges of S$1386m. We have revised our numbers and raised net earnings from S$1328m to S$1572m for FY09 taking into account slightly better 1Q09 performance. As the worst appears to be over for the global economy, we have also raised our expectations for FY10, increasing net earnings from S$1723m to S$1965m. Since our last report in Mar 2009, the stock has appreciated some 64% to S$11.90 currently. With the recent re-rating for Singapore banking stocks, with average P/book of 1.4x, we are raising our fair value estimate to S$12.40 (based on 1.2x book, the discount being for the still cautious economic environment). However, until we see clearer increase in regional trades and activities, price upside looks limited at current price level. As such, we are downgrading the stock to HOLD.

Singapore Technologies Engineering: Slow start to the year.

Outlier quarter. Singapore Technologies Engineering's (STE) 1Q09 topline was flat at S$1.32b while PATMI shrunk by 30% YoY to S$85.2m. The quarter was primarily marred by STE's Aerospace division as it did not deliver any MD-11 conversions. STE grew its order book to S$11b where S$2.88b (52% of our FY09F revenue) will be delivered over the next three quarters. Management has indicated that the next three quarters should see improvements in margins and better spaced out deliveries that will provide comparable annual performance vs. FY08.

Sticking to its guidance. STE continues to iterate its guidance for a "comparable" PBT for this year while turnover has been downgraded from "higher" to "comparable". For 1Q09, "nil" deliveries of the very mature and profitable MD-11 Passenger-to-Freighter (PTF) conversion created the gap between our forecasts and actual earnings. While Aerospace has contributed to significant drag in the previous quarters, the 757 PTF conversions are expected to be accretive in FY09F after its loss-making year in FY08. This should kick in during 2H09. We have adjusted our estimates to factor in a weaker 1H09 and are giving STE a chance to perform for its 2H09.

Still vague with order book. With the exception of Land division, management maintained its enigmatic view of the division that has driven the order book to its record highs. The remainder of the 48% of our topline can be fulfilled from recurrent businesses that are not reflected in the order book.

Defensive but not growth. STE's share price initially saw its share price trade in a tight range (S$2.00-S$2.50) without large contract wins or accretive acquisitions that typically served as share price catalysts. While its S$1.38b of cash equivalents puts STE in good stead to make acquisitions, we doubt that significant ones that will give major earnings accretion to the group will occur this year. We have rolled our valuation forward to a blended 16x FY09/10F PER (prev. 15x FY09F PER) and our fair value is bumped up to S$2.46 (prev. S$2.31). However, the recent 30% surge with the market rally since our upgrade on the 13 Feb seems to have factored in a growth story vs. our estimates which show a decline for FY09F. In view of the limited upside, we are downgrading our rating to a HOLD. Sustained improvements in margins and accretive contract wins will incentivise us to re-peg our valuation.

PetroRig I acts to block rig sale by Jurong Shipyard

Jurong Shipyard's planned sale of a disputed rig could hit a roadblock after PetroRig I Pte Ltd filed an application before the bankruptcy courts in New York yesterday. The application is seeking a preliminary injunction restraining Jurong Shipyard, a unit of Sembcorp Marine, from selling the rig, and comes just hours before today's noon deadline for interested parties to submit their bids. In a brief statement issued to the media, SembMarine said the application was fixed for hearing yesterday at 10am in New York (10pm Singapore time). 'Jurong Shipyard has sought and obtained legal advice and will vigorously resist the application filed for hearing in New York. Jurong Shipyard has also received a copy of the complaint filed by PetroRig I seeking protection under US Chapter 11 procedure,' it said. SembMarine added that Jurong Shipyard was advised that the application is 'without merit' and that it will resist the action on various grounds, including the jurisdiction of US bankruptcy courts over a company incorporated in Singapore'.

This latest twist in an increasingly complicated saga comes just after SembMarine said on Monday that it was unaware of 'any injunction of any kind' restraining Jurong Shipyard from proceeding with the rig sale. SembMarine also said then that it was unaware of a lawsuit filed against Jurong Shipyard by PetroRig I over the termination of a rig construction contract. PetroRig I sought bankruptcy protection on Sunday and was said to have launched a lawsuit against Jurong Shipyard, which it had hired to manufacture its US$464 million oil rig. PetroRig claimed that the shipyard attempted to deliver an 'incomplete and inoperable' rig. On April 29, SembMarine said Jurong had terminated the contract with PetroMena - an oil services group in Norway - because the final payment had not been made and planned to sell the rig to recover money owed.

PetroMena's three Singapore subsidiaries - PetroRig I, II and III - entered into agreements to build three ultra-deepwater semi-submersible drilling with SembMarine. The rigs were scheduled for delivery from Jurong Shipyard in April 2009, September 2009 and January 2010. PetroMena has since struggled to come up with adequate financing to complete construction of the rigs, which have previously been assigned five-year drilling contracts. In its earlier statement on Monday, SembMarine maintained that Jurong Shipyard was confident it would be able to sell the rig and to recover all outstanding amounts owed to the shipyard. As for what happens next, SembMarine said things would have to wait until the hearing in New York is over. 'Sembcorp Marine will make the necessary announcement at the appropriate time of the development of the proceedings.'

Singapore Telecom:Spectacular show

Underlying net profit of S$949m (-0.9% yoy) was up 15% qoq mainly due to three reasons (i) Singapore EBITDA of S$578m (+3% yoy) improved 3.1% sequentially despite weak economy as corporate data and mobile services showed no weakness while costs were lower (ii) Excluding tax credits, tax rate for Singapore was around 10%, lower than our 17% expectations (iii) Optus EBITDA (+8.5% yoy) improved 14.5% sequentially due to significant improvement in both revenue and margins in the mobile segment.

Singapore guidance. Single digit growth in Singapore revenue, 36-38% EBITDA margins lower than 39% in FY09, implying flat EBIDTA. Capex below S$800m compared to s$736m in FY09, as such management expects slight decline in free cash flow.

Australia guidance. Low single digit growth in operating revenue and EBITDA, with growth in mobile and wireless broadband. Capex of about A$1.1b, mainly in mobile network, compared to A$1.0b in FY09. Free cash flow is expected to be stable.

Associate guidance. Growth in local currency earnings of Bharti and Telkomsel. Management expects lower ordinary dividends from the regional mobile associates as Telkomsel and Globe reported lower profits in 2008.

We have revised up our FY10F and FY11F estimates by 6% each. Upgrade to BUY with revised TP of S$3.05. Our FY10F earning estimates can be revised up by 5% on the back of strong Singapore and Australia performance.

OCBC - 1Q09 net profit S$545m, boosted by S$175m non-recurring profit

Recurring profit S$370m (vs. Citi S$300m): Stronger than expected non- interest income (insurance and FX/securities trading income) drove a 48%qoq rise in net profit (4Q: S$250m), plus fairly robust net interest income and lower operating costs. Provisions charges at an annualized 99bps of loans reflected a conservative stance to fully write down legacy CDOs. Life insurance enjoyed non-recurring profits of S$201m (S$175m net of tax) largely due to the adoption of a risk-based capital framework in the Malaysia business.

1Q09 recurring profit S$370bn (4Q: S$250m), +48%qoq: 1Q09 NII S$740m - 6%qoq: Loans -1%qoq, NIM 242bps (4Q: 247bps). Loan-to-deposit spread 2.79% (4Q: 2.91%), LDR 87%. Non-II S$406m (excluding non-recurring profit S$201m), fees S$155m (-3%qoq), recurring insurance earnings S$96m, other income S$155m (4Q: loss S$46m) on turnaround in FX/dealing. Costs S$413m -11%qoq, lower staff expenses (helped by job credit grants). Provisions S$197m (4Q: S$244m). NPL ratio 2%, coverage c100%. Tier-1 ratio 15.2%. 1Q09 annualized EPS S$0.68 (recurring profit EPS S$0.46 (cash EPS S$0.48)), BPS S$4.75.

1Q09 Provisions S$197m (annualized 99bps of loans): S$88m specific loan provisions, S$2m general, S$94m allowances for corporate CDOs, plus S$13m against other debt securities.

Total CDO portfolio S$305m (4Q S$453m): ABS CDO portfolio S$100m is 100% provided. The S$205m corporate CDO portfolio has cumulative allowances of S$136m, and including S$69m of cumulative mark-to-market losses previously recognized to the income statement, in effect full provision has been made. Credit rating of total CDO portfolio as of Mar-09: A: 2%, BB: 20%, CCC: 45%, CC: 33%.

Valuation now at 1.4x P/B post share rally: OCBC surprised the market with a strong 1Q09 result, up 48%qoq even excluding the large one-time earnings from its insurance business. Robust margins, better-than-expected FX/dealing income and good cost control lifted the bottom line, even though management conservatively decided to make provisions for the rest of its corporate CDO book. At 1.4x P/B there remains a valuation gap to OCBC's P/B cycle mean, with possible upside to consensus. Detailed management briefing highlights are on page 4 of this report.

Outlook: Mgmt remains very cautious on the economic outlook but still sees opportunities for mid-single digit loan growth given govt-assisted loan schemes, refinancing opportunities and the scaling back from foreign banks. While it is difficult to predict NPL growth, mgmt has stressed the importance of being proactive in identifying problems and mitigating losses. Full provision for CDOs will mean no further burden to earnings. Although insurance operations had a poor quarter, mgmt seemed confident of improvement later in the year.

1Q09 recurring profit S$370bn (4Q: S$250m), +48%qoq: 1Q09 NII S$740m -6%qoq: Loans -1%qoq, NIM 242bps (4Q: 247bps). Loan-to-deposit spread 2.79% (4Q: 2.91%), LDR 87%. Non-II S$406m (excluding non-recurring profit S$201m), fees S$155m (-3%qoq), recurring insurance earnings S$96m, other income S$155m (4Q: loss S$46m) on turnaround in FX/dealing. Costs S$413m -11%qoq, lower staff expenses (job credit grants). Provisions S$197m (4Q: S$244m). NPL ratio 2%, coverage c100%. Tier-1 ratio 15.2%. 1Q09 EPS S$0.68 (recurring profit EPS S$0.46 (cash EPS S$0.48)), BPS S$4.75.

SemMar - Offshore remains strong, on established orderbook

SMM posted 1Q09 profit of $S$120.2m, up 31.6% versus 1Q08, on the back of a 48.8% rise in turnover to S$1.36bn. This strong showing was despite the shortfall in associate contributions from Cosco Shipyard Group, which reported disappointing earnings earlier in the week. Despite this, SMM’s operational results were in line with expectations.

Revenue was driven by the rig-building segment, which posted a 56.9% increase to S$759.5m. Offshore and conversion also rose 80.4% to S$401.0m. Both segments reflect SMM’s strong orderbook for offshore oil and gas. EBIT margin at 10.7% was flat versus 1Q08, but weaker versus FY08’s 12.9%. This is in line with SMM’s portfolio of higher value turnkey projects, as well as recognition differences, but is still extremely healthy.

SMM’s current orderbook stands at S$8.4bn stretching to 2012, lower than the S$9.0bn as of end-FY08. SMM only secured S$378m in new orders for the quarter, in line with the uncertain credit and economic environment. We do not expect a quick resumption of orderbook growth, despite an improving credit environment. In fact, we expect customer risk to increase further, as evidenced as by the recent bankruptcy of Petroprod and the non-payment by PetroMena.

We are adjusting our FY09 net profit forecast down by 4.8% to S$497.0m from S$522.0m previously, to factor in the weaker contributions from CSG. While 2-yr earnings CAGR is still a healthy 12.7% p.a., we expect turnover to taper off from 2011 onwards, and the risk of more orders being delayed or cancelled. Despite continued interest in the deepwater segment, we do not see this translating to orders in the near term.

We are adjusting our price target to S$2.31 from $2.07 previously, based on higher shipyard multiples in our sum-of-the-parts valuation. However, we believe that valuations have run ahead of fundamentals in this current liquidity-driven market rally. We are reducing SMM to a Sell, as current share price exceed our target by 19%. With a less attractive dividend yield of 4.7%, shareholders are not fully benefiting from SMM’s current earnings strength.

Wilmar International: Ever resilient

1Q09 earnings ahead of expectations. Wilmar reported net profit of US$409.9m in 1Q09 (+9.5% q-o-q, +19.2% y-o-y), mainly on the back of strong contribution from the group’s palm and lauric M&P business. Revenues were, nevertheless, lower by 14.9% q-o-q and 30.6% y-o-y to US$4,958.1m, on lower prices and seasonally lower volumes.

Listing of China subsidiaries explored. The management announced their intention to list the group’s China subsidiaries separately in either Hong Kong or Shanghai; although timing wise, a Hong Kong listing may be looked at earlier. We are quite positive on this prospect, as in addition to unlocking value, we believe it would increase the group’s visibility and strengthen its brand equity in China.

Forecasts raised on CPO prices and M&P margin. We upgrade our FY09F and FY10F CPO prices to RM2,300 and RM2,300 from RM1,900 and RM2,000, respectively, to reflect tight vegetable oil supply this year. While we still expect margins to taper off over the following quarters, we have also raised palm & lauric M&P pretax margin to 4.5% from 3.8% on the back of strong results.

Buy rating reiterated. Our changes resulted in revised TP of S$5.15/share (based on DCF, WACC 10.5%, terminal growth rate 3%). While the recent price surge has reflected the good results, we continue to like the group’s ability to deliver; and given 16% upside on our revised TP, we reiterate our Buy call.

United Overseas Bank - back on its feet

We are upgrading UOB to OW from N as we increase our Dec-09 PT to S$17 (2-stage DDM) from S$13 on back of higher earnings, removal of capital raising risk and solid operating trends. We increase FY09E-11E estimates by 6-13%, primarily on higher margin and revenues. The call essentially is for relative outperformance by the stock in next 3 to 6 months, funded by OCBC within the sector. We also add UOB to our regional financial Long only and Long/Avoid portfolios.

UOB should reverse YTD 10% underperformance against STI as the stock re-rates due to fading away of capital call probability following a 1.4% pt increase q/q in Tier 1 ratio to 12.3%. We continue to believe that the bank gets benefit of regulatory forbearance in form of exclusion of AFS losses from CAR calculations. But given that the benefit has persisted for two of the most volatile quarters, and part of losses are now reversing, we do not expect this issue to remain a concern.

Bank revenues should benefit from better than expected margins and a resilient fee income. Pricing power should lead to consistent increase in loan spreads and higher loan-related charges, while low rate environment should result in further increases in CASA deposit mix. As in the case of 1Q09, a combination of steeper yield curve and buoyant capital markets would also bring about ALM gains, though this remains a volatile revenue source.

We are factoring in a protracted asset quality cycle as staying power of firms would be tested in a low-growth environment, especially SME. We also expect consumer NPLs to rise along with rising unemployment. We assume 135bp of provisions for 2009E, declining to 100bp in 2010.

Significant and sustained decline in interest rates, leading to lower deposit spreads and NIMs, higher than expected credit costs and a negative turn in treasury income are key risks to our view.

CapitaCommercial Trust: Results above expectations

Results exceeded our expectations. CapitaCommercial Trust (CCT) delivered a strong set of 1Q09 results that exceeded our expectations. Gross revenue increased 34.5% YoY to S$97.5m but on a QoQ comparison, the increase was a marginal 0.3% as higher contributions from the positive rental reversions of the office buildings were offset by the weaker contribution from Raffles City's hotel revenue. Property operating expenses increased 27.9% YoY due to its acquisitions but fell 12.6% QoQ as cost savings measures took effect. As such, net property income for 1Q09 increased 40.8% YoY and 6.5% QoQ to S$69.9m. DPU for 1Q09 has also increased25.1% YoY and 19.6% QoQ to 3.24 S-cents, translating to an annualized yield of 15.2%.

89% of FY09 forecast GRI locked in. During the first 4 months of 2009,CCT secured new leases and renewals for 335,800 sq ft of spaces. Positive rental reversion on a weighted average basis was ~49% higher than previously signed rents. This was also better than our expectations as we had expectedweaker reversionary growth from CCT due to the declining office rentalmarket. With that, CCT has now locked in 89% of our forecast gross rental income (GRI) for FY09, which amounts to S$318.1m. An additional GRI of S$35.8m had been locked in since CCT announced its FY08 results, which further enhanced DPU visibility for FY09.

Completed refinancing for FY09. CCT also announced that it had secured commitment for a 3-year secured term loan of up to S$160m. The loan is secured against HSBC Building and the all-in margin for the term loan is 3% per annum, which is lower than what we have expected in the current tight credit market. As at end-1Q09, CCT had a gearing level of 38.3% which we think, is unsustainable in light of the falling rents and capital values of office buildings in Singapore. With another S$885m and S$1,012m (assuming early redemption by bond holders) of borrowings due for refinancing in FY10 and FY11, we continue to believe that an equity fund raising will be inevitable over the mid-term.

Fair value raised to S$1.33; Maintain BUY. After a better-than-expected positive rental reversions in 1Q09, we are now raising our FY09 and FY10 DPU forecasts to 11.2 S-cents (previously 10.2 S-cents) and 9.9 S-cents (previously 8.7 S-cents) respectively, which translate to attractive FY09 and FY10 DPU yields of 13.1% and 11.5%. Our fair value has now been raised to S$1.33 (previously S$1.06). We maintain our BUY recommendation for CCT.

SIA- Management sheds light on fuel hedging, yields and capex

1. SIA had hedged 25% of FY10's fuel requirement at US$120bbl- The hedged level was higher than our initial expectation of US$100bbl. Still we estimate that fuel cost will fall by 46% for the year towards $3450m. Jet kerosene now stands at US$63bbl.

2. SIA Engineering(SIAEC) is strategically more important than SATS, diverstment unlikely- Not surprising, given that SIAEC is the main MRO arm of SIA and that the SIAEC will very likely benefit from future operating leases undertaken by SIA. From a financial standpoint, SIAEC now has the highest ROE(21%) among its business units and as such it would not make sense to divest the unit via scrip dividend.

3. Plans to sell 13 aircraft- 9 B777-200 and 4 B747-400s are up for sale but credit market remains tight and is deterring buyers. We have assumed that 3 B777-200s would be sold for US$140m each in FY10.

4. Forward bookings show that the rate of decline is leveling off-Management indicated that the 20% odd decline in forward booking appears to be stabalising and that is positive. They also indicated that they will be engaging in promotional activities and market directly to frequent flyers to reduce deferred revenue liability.

Our take- There are 4 key factors which will affect earnings and ratings on the company. They are :
1) extend of lower fuel expenses( we are looking at 46% decline),
2)the extend of decline in yields ( we are looking at a further 4% decline in pax yield fm 4Q09 and no change in cargo yield from 4Q09)
3)the strength of the Singapore dollar and the ability to sell aircraft.
4) The extend to which air travel will slow down in the wake of rising Influenza A virus infections . ( We have assumed a 12% decline for FY10)

We believe that SIA should continue to trade at a discount to book value ( $11.78) and the stock should be measured on a PE basis as well. At $11.80, the stock is trading at 20x our forward estimate and 21.5x consensus estimate. We rate the stock a SELL, pending adjustment of our target price.

Straits Asia Resources: 1Q09 results within expectation

Straits Asia (SAR) reported its 1Q09 net earnings of US$35.5mn, a 10% q-o-q decline and came in inline with our estimate.

Total revenue decline by 8% q-o-q to US$139.6mn due to lower sales volume of 1.6mn tons (-21% q-o-q) amid better ASP (+17% q-o-q). We expect production in coming quarters to pick up to achieve the full-year target of 10mn tons.

Production cost dropped by 11% q-o-q due to lower production volume (-13% q-o-q) despite a slight increase in production cash cost (+3% q-o-q).

SAR balance sheet remains firm with total cash balance of US$183mn and net gearing ratio of 26%.

Generally the 1Q09 results is inline with our expectations, hence we are maintaining our view that SAR profit in FY09 will still be growing as a result of higher sales volume and ASP. We expect sales volume to reach 10mn tons with an ASP of US$78/ton for FY09.

We are maintaining our forecast for SAR, however, we raised our TP to S$1.55 as we have lowered our WACC to 11.4% due to lower risk premium assumption. Hence, we reiterate our BUY recommendation on the counter.

SembCorp Industry - 1Q09 Results In-Line

1Q09 results — Forex gain of S$18m (vs. S$7m loss in 1Q08) and S$8.7m tax writeback of provision for deferred tax helped boost 1Q09 profit to S$134m (9% yoy), accounting for 29% of our full-year profit estimate. During the quarter, O&M was the key profit driver (55% of PATMI vs. 45% in 1Q08) while Utilities was largely in-line (after adjusting for one-off items), with weaker performance from UK with beneficial feedstock pricing contract expired since 1Q08.

Utilities — Total Utilities PATMI reached S$51mn (-16% yoy) on back of S$696m revenue (-38% yoy; due to lower HFSO prices). Sale of fuel amounting to $5m and tax writeback of $5.7m boosted Singapore Utilities PATMI by 13% to $32m and helped partially offset weakness from UK ($9m, -73% yoy). Both China and Vietnam operations are progressing well and current profitability levels should see sustained improvements as more greenfield projects kick in.

Enviro/Parks — Lower operational costs for Enviro biz helped boost profit by 79% to $1.5m despite lower revenue (-10% yoy). Industrial Park reported $4m (-40% yoy) profit due to lower land sales from Vietnam Park and lower share of results from Gallant Venture; Chinese Parks performance remains unchanged yoy. Both segments are not expected to have material impact for 2009-10 since we forecast marginal EPS contribution from Enviro/Parks.

Hold ---- SCI’s strong balance sheet (both at group and divisional level) should enable the group to weather the economic and financial crisis. After the recent sharp rally, Utilities is now trading at 9x 10E P/E (vs 12.7x for industry). The stock will likely trade range-bound given limited catalysts in the near term.

F&N: 2Q hit by charges; No rights issue

2Q09 below on charges. 2Q09 net profit slipped 25% to $153m. The below expectation results was due to: (i) an allowance of $20m for foreseeable losses in overseas property development projects; and (ii) $11.7m impairment charge from its Printing and Publishing (P&P) division. Excluding these items, PBIT would have been within expectations.

70% ST debt covered; no plans for rights issue. Of the $2.1bn that is due within the year from Sep 08, 70% has been repaid/refinanced. The remaining 30% would be refinanced/repaid as and when they fall due. The Group has no plans for a rights issue, unless there was a substantial M&A deal.

Hold, TP raised to $3.44. We trimmed our FY09F earnings by 12.5%, taking into account the allowance for foreseeable losses for its overseas development properties and other one-offs. Our revenue forecast stays intact. Our TP is raised to $3.44. We narrowed our RNAV discount to 20%, from 30% previously, in line with our house view that the worst is over and a recovery in 2H. However, this counter has surged by 28% in the past week, catching up with the market rally. In view of the limited upside to our TP, we maintain our Hold recommendation

SembCorp Marine: Not a one-way street yet

Margins held up well in 1Q09. SembCorp Marine’s (SMM) EBIT margin rose 2.2ppt y-o-y to 9.9% in 1Q09, resulting in S$134.6m EBIT (+69% y-o-y). SMM’s net profit in 1Q09 was US$120.2m (+32% y-o-y), in line with our expectation. The lower net profit growth was due to smaller contribution from associates, as Cosco Shipyard Group’s (CSG) net profit dipped 58% y-o-y to S$13.3m. Our FY09 net profit is cut by 2% to S$468m, due to lowered projection for CSG’s earnings.

Sale of Petrorig 1 is going on smoothly. SMM guides that there were active enquiries on its sale of Petrorig 1, despite the requirement for each bidder to put US$15m deposit before proceeding further with the bids. The potential selling price for the rig is US$450m, and we believe that the results may be known by late May.

Downgrade to HOLD. SMM’s share price has also done well (+28%) since we commenced our 3-week Asia roadshow on 22 April, outperforming Keppel Corp [FULLY VALUED, S$4.41] by 10ppt. We now believe that even SMM’s share price is no longer cheap, despite: 1) Our contrarian view that order cancellation risks are dissipating, and 2) Our earnings model having factored in one of the highest new order win (S$3b) in the streets. We downgrade SMM to HOLD. Our new fair value is S$2.61, factoring in higher share price target for Cosco Corp [FULLY VALUED, S$0.85] in our SOTP valuation metric for SMM. The key catalyst for future upgrade remains the lifting of credit crunch, which would release the lid on the new orders for floaters.

DBS - Rising provisions and earnings volatility remain a risk

DBS recorded 1Q09 net profit of $456m (+19% qoq, -24%yoy), above market expectations. Positive surprises come from a $269m gains in trading and sale of investment securities, a 92% surge in loan-related fees and better-than-expected cost efficiencies due to lower staff cost. Robust operating profits, including the sharp rebound of its profits from Hong Kong (>100% qoq) offset higher provisions during the quarter.

Operating profits were lifted by gains in trading and sale of investment securities and loan-related fees, which could be volatile. In addition, rising provision charges remain a bugbear. Specific allowances continue to be hefty at $225m while general allowances doubled against the economic uncertainties. Provision risk is likely to remain high on the back of surging NPLs (+129% yoy) in particular from overseas. Charges for Hong Kong SME loans are expected to remain at elevated levels.

Gross customer loans rose 3% qoq. Excluding the 2% growth from translation effects, loans growth was due largely to Singapore-dollar corporate borrowing for infrastructure projects. DBS increased its market share of Singapore-dollar loans from 20% to 21%. We expect net interest income to remain resilient in view of its strengthening Singapore franchise and easing margin compression as SIBOR hit historical lows. Sufficient capital also put the group in a good position to expand its market share further.

The group maintained its quarterly payout of 14 cents per share. This works out to a dividend payout of above 70% that is way above its past dividend payout of below 50%. With a strong capital strength supported by strong Tier-1 CAR of 12.5% after a $4bn rights issue and a coverage ratio on unsecured NPA of 156%, we believe the group has room to sustain its attractive dividends payout.

We have raised our earnings estimates for FY09 by 8% to reflect the strong quarter and increased our FY10 earnings to reflect better cost efficiencies. At 1.16x FY09 PBV, DBS’s valuation is still very attractive relative to its peers which are trading near 1.5x PBV. We are reiterating our BUY recommendation on DBS with a higher target price of $13.90, pegged to its recovery stage forward PBV of 1.36x.

SembCorp - Marine the largest contributor

Sembcorp Industries achieved another steady quarter that were in line with our expectations, with net profit rising 8.6% to S$133.6m versus 1Q08 on the back of flat turnover at S$2.1bn. The strength at Sembcorp Marine (SMM) offset the anticipated weakness in utilities, with marine now accounting for 55% of group earnings.

Utilities turnover dropped by 38% to S$696m, mainly due to lower fuel prices, which are a pass-through item. Utilities PATMI fell by 16%. The UK business was down 73% with the expiry of a contract on more favourable terms, and the depreciation of the GBP. Singapore utilities earnings grew 13%, with a tax writeback of S$5.7m and a one-off fuel sale offsetting a provision made for upcoming unscheduled maintenance.

With regards to its bid for the US$1bn Salalah independent water & power project (IWPP) project in Oman, management said that it is still in the process of locking down financing. With tighter credit markets, it now has to rope in more banks as individual banks have overall reduced their allocation in order to reduce its risk exposure. However, SCI still seemed optimistic on securing the project.

We are leaving our FY09 forecasts unchanged, where we expect SCI to post 9.8% growth to S$557.0m. We are forecasting steady earnings CAGR of 9% p.a. over the next three years, with earnings expected to decelerate in FY11 due to the marine business. Utilities are expected to perform in line with muted GDP growth, while we are not factoring any significant project wins at this point.

We are adjusting our SOTP price target upwards from $2.70 to $3.03, in line with SMM and Gallant Ventures’ price rises. However, we are reducing our recommendation to a Hold, as SCI’s share price is currently in line with this. We do not expect any significant near term catalysts, with a potential win at Salalah possibly to come at the expense of margins.

Singapore Exchange: Proxy to bull market; BUY

Higher trading volume in line, velocity may improve. The pick up in trading volume appears to be sustainable based on the trend over the last month. Given revived interest in equities, we also expect velocity to improve to 80% (from 70% previously), close to the peak in late 2007 and early 2008.

Upgrade assumptions and earnings. We raised FY09F volume and value assumptions to 1.2bn and S$1.1bn (from 1.0bn and S$950m) respectively, to reflect strong 4QFYJun09 market activity. In anticipation of the market gaining momentum towards FYJun10F, we raised FYJun10F volume and value assumptions to 1.8bn and S$1.7bn (from 1.4bn and S$1.3bn), respectively. We also raised ‘stable income’ by 5-8%, in view of higher market capitalisation as values revise upwards. In all, we raised earnings by 3-14% for FYJun09-11F. Correspondingly, DPS for FYJun09-11F are raised to 27cents, 35cents and 40cents (from 26cents, 32cents and 35cents) respectively, based on a 90% dividend payout ratio, which implies a 4-5% yield. Note that SGX has a base DPS of 3.5cents per quarter, with any shortfall made up in the 4Q of the financial year.

Cheapest exchange in the region, Buy. Although SGX is currently trading at 18x forward PE, it is still the cheapest stock exchange in the region. Hence, we upgrade SGX to Buy with a higher TP of S$7.80, based on 20x forward PE. This is derived from a correlation relationship with market velocity, like our valuation methodology for HKSE.

ST Engineering: Losing steam

Core numbers weaker sequentially as well. While revenue of S$1.3b was within expectations and flat y-o-y, PBT was down 29% y-o-y to S$111.3m. While it looks better than 4Q08 PBT of S$88.9m at first glance, it should be noted that the 4Q08 number includes S$54m of charges related to impairment and allowances.

Strong showing by Electronics and Marine but... Aerospace PBT was down 52% y-o-y to S$40m, as the B757 PTF conversions continue to be loss making. In contrast, the MD-11 conversion program was already profitable and accretive in 1Q08. The Land Systems arm saw revenues dip 32% in 1Q09 as auto sales in US declined sharply. We expect both these sectors to be weak in FY09 – the Bronco deliveries to UK have already been pushed to 2010 and aircraft maintenance/ conversion schedules may be susceptible to deferments.

Time to look beyond defensive. Management expects to achieve results in FY09 comparable to FY08. Orderbook did indeed climb to a record S$11b and balance sheet looks stronger with higher net cash of S$480m. However, given the weakness in Q1, unfavourable timing of programs in Aerospace and lower margin projects across segments, we lower our FY09 and FY10 EPS estimates by 6-8%. Downgrade to HOLD, in the absence of any near-term catalysts – the stock is ex-dividend now – and we believe high beta stocks are more likely to perform in a recovery scenario than defensive stocks. Our TP is maintained at S$2.50 –pegged at 17.5x FY09F. At current price, the stock is trading close to its normalized PE of 18x to 21x.

Indofood Agri Resources - Re-rating likely to continue

We upgrade our recommendation on Indofood Agri Resources (IFAR) to Outperform from Underperform and raise our 12-month price target to S$1.11 (from S$0.49 previously) based on our new CPO price assumptions. IFAR is our top pick among the Indonesian plantation plays.

Downside risk to CPO price in the near term: We have raised our market CPO price assumption to US$520/t in CY09 (from US$400/t earlier) due to higher prices in the first four months of the year. However, we believe that CPO prices will weaken from June till end-2009, as supply concerns will likely recede, exports may slow and Malaysian inventories could start rising again.

Soybean supply shortage could lead to higher prices in 2010: We have also raised our price assumption to US$625/t in CY10 from US$450/t earlier, but still below the current price of US$770/t. The change is driven by the current low stock of soybeans in the US, soybean reserve building by China and poor South American production. We believe the world is likely to be dependent on the upcoming US crop for the supply of oilseeds next year and hence, the risk to the price should be on the upside for 2010.

Improved credit market conditions mean debt refinancing should not be an issue: We believe that credit market conditions have improved significantly since our update in February this year and access to debt has not been an issue for plantation companies in Indonesia. This was a major concern for us with regard to IFAR, since 38% of its debt is due for refinancing in 2009 (amounting to about Rp2,380bn) and failure to refinance this would significantly impact the company’s expansion plans.

We have raised our FY09, FY10 and FY11 EPS estimates by 68%, 120% and 84% respectively on higher CPO price assumptions. Our target price is based on 8x June 2010E EPS, a slight discount to AALI’s target PER of 9x due to the company’s small-cap status.

12-month price target: S$1.11 based on a PER methodology. Catalyst: Completion of refinancing of short-term debt by August. We upgrade our recommendation on IFAR to Outperform. IFAR is our top pick in the Indonesian plantations space. At 6x 1-year forward earnings (June), it is the cheapest plantation stock under our coverage. We believe that once the debt refinancing issue is behind us by August 2009, the stock is likely to see a re-rating and trade at PER levels similar to those of its Indonesian peers.

City Developments: Weak M&C earnings a prelude to CDL 1Q09 results

M&C pre-tax earnings down 50% YoY in 1Q09. Millennium & Copthorne (M&C), the hotel subsidiary of City Developments (CDL), reported its 1Q09 yesterday. Revenue declined by 1.9% YoY to £50.7m but on a constant currency basis, it would have fallen 18.2% YoY. Hotels in New York and Singapore were the underperformers in 1Q09, as RevPAR fell by 37.8% and 30.6% YoY respectively. Headline operating profit before tax plunged 50% YoY to £11m. On a constant currency basis, it was down 58.6% YoY. For April, RevPAR continued to deteriorate sharply, falling by 22.9% YoY.

Weak GBP-SGD exchange rate could further weigh on results. We believe that the weakness in M&C's 1Q09 results could be further compounded on the financials of CDL due to the weakness in Pound sterling (GBP) (M&C's reported currency) against SGD (CDL's reported currency). During 1Q09, GBP was trading at a band of S$2.0734-S$2.2510 per £, which was 17.5%-27.5% lower than the band of S$2.7289-S$2.861 per £ in 1Q08. On a QoQ comparison, GBP stayed weak against the SGD in 1Q09, trading at the lower half of the GBP-SGD band of S$2.0709-S$2.5701 per £ in 4Q08.

Influenza H1N1 virus. The hospitality industry had already been badly affected by the financial crisis and economic slowdown. With the recent outbreak of Influenza H1N1 virus, the hospitality industry could sink into deeper woes as we expect to see a further decline in global travel if the virus outbreak worsens. In a situation whereby the virus outbreak turns for the worse from current status, CDL's earnings could be negatively affected as it has significant exposure to the hospitality segment (63.4% of FY08 revenue and 29.4% of FY08 pre-tax profit coming from hotel operations). This was evident during the SARS period in 2003 when M&C reported pre-tax loss of £6.3m for 1H03.

Downgrading to SELL. As CDL is announcing its 1Q09 results next Monday, we are now keeping our earnings estimates unchanged for now. Its share price has now surged 85.2% from its March low of S$4.05 and base on yesterday's closing price of S$7.50, CDL is now trading at Price/ Book of 1.26x and Price/RNAV of 0.99x, which is already at the upper band of its historical downcycle Price/RNAV band. We are keeping our fair value of S$5.53 unchanged, implying a downside potential of 26.3%. While we still like CDL for its strong balance sheet and prudent management, we are now downgrading CDL from HOLD to SELL on its heightened risk profile and valuation concerns.

Genting Singapore Plc - A big bet

Genting Singapore's annualised 1QFY09 core net loss made up 20% of our forecast and 74% of consensus. But this is broadly inline given that its Sentosa IR project is expected to incur significant pre-operating expenses towards year-end. 1QFY09 EBIT remained in the red, largely reflecting the lower business volumes and drops further exacerbated by poorer luck and negative forex effect. With unexciting prospects for its UK ops, the spotlight will be on its Sentosa IR. To-date, GS has committed S$4.67bn to the project and it recently drawdown another S$425m from its secured loan facility. 3QFY09 could play host to two key project milestones i) the revelation of a firmer opening date and ii) its application for a casino licence. No change to our FY09-11 earnings forecasts. But our SOP RNAV-based target price is raised to S$0.51 from S$0.33 as we now peg a higher 13x EBITDA multiple (10x before) to its Sentosa IR component following the higher market P/E. GS remains an UNDERPERFORM given its rich valuations. Investors seeking for a cheaper indirect exposure should consider GS' parent, Genting Bhd.

Wilmar International - China Operation to List in HK within six month

To list China Operation in HK. For 2008, China operation generated about US$600m net profit. Based on China's consumer listed PE of 15x, this will translate into a potential market cap of US$ 9.0b. Management intent to float 20-30% to the market, which will bring in cash proceed of US$1.8b to US$2.7b.

Listing rationale:
o Unlock shareholder value
o Strategic to have Chinese investors participate in growth

Targeting to be listed in HK within 6 months. Eventually will be doing a dualisting or move to Shanghai for listing within the next 2 to 3 years.

CPO price outlook steady with small correction in 2H due to higher production. No big correction is expected due to
o Better macro outlook for India and China ? the two key market for palm oil
o Stable crude oil price ? provide a proxy to edible oil
o Tightness in oilseed and edible oil supply ? Indonesian palm oil supply could be lower due to bad weather in 1Q in selective areas. These areas down by 40% yoy in 1Q09.

2009 still betting on volume growth. Strong refinery's margin and consumer pack's margin unlikely to sustain due to the higher raw material cost. But still well supported by volume growth of 10-15% for 2009.

Reviewing price target with an upside of 15-20% from our current pricetarget of S$3.80 on (1) higher CPO price assumption for 2009 and (2) betterrefinery and crushing margins. Potential special dividend from HK IPOproceed will be another share price catalyst.

OCBC - Lowest equity-fundraising risk

Despite persistently high loan-impairment charges, OCBC’s performance could prove the most resilient in the sector due to a recovery of its insurance business (we forecast the net profit from Great Eastern Holdings [GE SP, S$8.39, Not rated] to rebound to S$356m for FY09 [from S$272m for FY08] on an abatement of marked-to-market losses) and a steady performance from its banking subsidiaries in Malaysia and Indonesia.

With the highest Tier-1 ratio and management practically dismissing (in our opinion) the possibility of raising common equity, OCBC’s slight premium valuation to the sector is partly justified, in our opinion.

We do not believe the 4Q08 NIM of 2.47% (from 2.18% the previous quarter), is sustainable, due to one-time factors, and expect subdued results due to persistently high loan-related provisions. The insurance business offers potential to surprise positively.

OCBC’s shares trade above our zero-growth DDM value of S$4.31 (excluding the 2008 final dividend). We have assumed a CAPM-derived cost of equity of 6.58%. Our new target price is equivalent to 0.89x book (December 2008). The stock’s previous PBR troughs occurred in 2003 (1.04x) and 1998 (0.58x).

AREIT announces S$175m devt project for Singtel

AREIT will be undertaking the build-to-suit development of a hi-tech industrial blg for Singtel. The est. invt cost is S$99.6m with a further S$75.8m for the installation of additional equipment. This brings AREIT's devt pipeline to 4 projects amounting to ~S$334m. The blg is expected to have GFA of ~353,723sf upon completion in 1Q10. Singtel will enter into an agreement to lease the devt for an initial tenure of 20 years with annual rental escalation and option to renew for a further 10 years on expiry.

This devt is DPU accretive, with pro-forma DPU accretion of 0.28cts (no comments on the yield; we estimate ~8-8.2%) and 2% net profit contribution, assuming fully debt funded and held for the whole of FY09E. The stability of the long lease, high credit quality of Singtel and absence of leasing risk could justify a tighter yield. It has commented that it may fund the devt by debt and/or equity. AREIT currently has 51% of unutilized bilateral banking credit facilities of S$1,120m and may issue notes from its recently established S$$1bn MTN prog Gearing could potentially rise to around 37.4% (fr 35.5%) assuming full debt funding.

AREITs development activities provides a competitive advantage in delivering DPU growth even in the absence of open market acquisitions. It has historically achieved avg 35% value accretion upon completion (although this is unlikely to be achieved for this transaction), and this may offset book value erosion from potential revaluation deficits. We maintain our Buy with TP of S$1.80. AREIT is currently yielding 9.5% for FY10E.

Frasers Commercial Trust: Results slightly below expectation due to higher interest cost

Operationally weaker yoy. FCOT reported 1Q09 results which were slightly below expectations. Gross revenues and NPI fell by 16-17% yoy to S$24m and S$18.7m respectively on the back of (i) weaker earnings from its Australian properties due to weaker forex and loss of income support from Central Park, (ii) lower draw-down of income support from Keypoint (S$0.9m vs S$2.3m in 1Q08) and (iii) lower contribution from Cosmo Plaza due to the loss of a major tenant.

Further DPU erosion from increasing interest cost. DPU of 0.72 Scts for 1Q09 (-56% yoy, -47% qoq) was largely due to higher than projected interest cost on the extension of its debt facility. Our forward FY09-10 DPU estimates are adjusted downwards to 3.4cts to reflect higher interest cost on its debt.

Writing down a further S$143m off book. FCOT recorded a further devaluation of its portfolio in 1Q09, a reflection of an updated realizable value of its properties in current environment. Management believes that further write-down of its property value is unlikely in the immediate term. NAV is adjusted downwards to S$0.79. As a result, gearing level is hiked up to 58%.

19% of space up for renewal in remaining quarters. A majority of expiring leases are from Keypoint which has an average passing rent of S$4.45 psf pm, we expect continued positive rental reversions given its low base.

Maintain HOLD, TP S$0.18. We believe that improving its balance sheet strength will remain key for a possible re-rating of the stock in the near term. Maintain HOLD, TP S$0.18 based on DCF. FCOT currently offers a prospective FY09-10F yield of 19%.

F&N - Dividends cut amidst group / FCOT refinancing needs

1H09 profit before one-time items was $158m (-17% yoy) or 49% of our full year forecast. Reported net profit fell 25% to $153m, pulled down by a $31m provision for future losses on development properties and a $16.8m provision for the lower fair value of investment properties (mainly UK hospitality assets) while share of associates fell into the red after absorbing its share of losses in FCOT, which was hit by a hefty negative revaluation of $144m caused by properties in Singapore, Japan and Australia. The fall of the NZ$ and Rupiah also took away $8.8m.

F&B accounted for 54% of group profits, up from 40% a year ago, led by a strong profit rebound in Dairy (+40% yoy) and decent performance by Soft Drinks (+8%) and Beer (+9%). The festive season boosted Soft Drinks volume, while Dairy (PBIT +125% yoy in 2Q) in particular saw profits boosted by lower raw material costs. Beer profits would have grown by 16% yoy if not for forex and gestation losses. However, property profits fell 34% yoy to 46% of group profits as several Singapore projects (Raintree, Azure, One Leicester and Infiniti) were completed while $31m in foreseeable losses on overseas projects was provided for.

Interim dividend was cut from 5 cents (36% payout) to 3 cents (26% payout) as F&N opted to conserve capital as it still needs to refinance some $600m in borrowings. While management ruled out a rights issue of its own, it may still need to support FCOT’s rights issue, which we reckon is more likely to happen than not. As at Mar 2009, FCOT had short term debt of $619m due in July and F&N owns 22% of FCOT.

With Coke out of the picture next year, F&N will be able to add new product categories and expand beyond Singapore and Indonesia. Growth prospects post-Coke could be exciting but in our view, will take some time to fully emerge.

We maintain a Hold call on F&N while price target has been raised to $3.50 based on 15x P/E. Our RNAV is $3.79 and includes a 30% discount). Dividend yield is also not exciting at just 2.4%.

Venture: Cautiously improving 2Q09 outlook

Tough 1Q09 as expected. Venture Corp (VMS) reported its 1Q09 results last weekend, where the results reflected a tough quarter as expected. Revenue fell 22.7% YoY to S$725.5m, coming in about 4.5% shy of our forecast, as it had suffered sharp falls (~30%) in almost all segments of its business, except for Printing & Imaging (P&I). We note that it was due to the shift to a full product configuration model by a key customer, which resulted in positive revenue impact but without the attendant margin i.e. very little value-add from VMS on these products. Net profit slipped 50.8% YoY to S$27.7m, and was 1.0% shy of our forecast. Despite excluding a forex gain of S$9.1m and a marked-to-market impairment loss of S$12.6m for its CDO, core earnings still showed a 57.2% YoY drop.

2Q09 outlook cautiously improving. Although management expects 2009 to remain challenging, it also noted that it has seen some improvements in some customers' forecasts; this has already resulted in monthly improvement in sales since late Feb. VMS will continue to pursue growth through addition of new customers, which we understand will be through its ODM projects - management revealed that there were >25 such projects under development and has made entry into the aerospace sector with a reputable new customer. In the longer term, it targets to develop as many as 10 solution enterprises from its existing operations (mainly those in product marketing and distribution channels) - to enhance its value creation.

Potential CDO writebacks. VMS has already almost fully marked down its original S$167.8m CDO2 investment to S$10.9m, and should credit markets improve, we can expect potential writebacks in the next few quarters; however, we prefer to remain conservative and only adjust our numbers if/when it get its full investment back by end Dec. Meanwhile, we believe our FY09 estimates already reflect the still uncertain environment and we will leave them intact until we see more concrete signs of recovery. As such, our fair value remains at S$5.64 (based on 8x FY09F PER). As the stock has run up nearly 25% since our upgrade in March, and the current prices exceeds our fair value by 4.7%, we downgrade our rating to HOLD; but we still think that the company remains fundamentally sound and its S$0.50/share dividend payout remains sustainable (8.4% yield).

CCT - Signs of easing credit

CCT delivered a 25.1% yoy jump in its 1Q09 DPU to 3.24 cents (annualised distribution yield of 15.9%), and is on track to deliver its forecasted 12.34 cents for the full year. Despite the challenging business environment, the DPU grew by almost 20% sequentially, aided by lower property operating expenses and borrowing costs.

CCT signed on new leases and renewals for 335,800 sq ft of space in the first four months of 2009, leading to a 49% improvement in signed rents. About 89% of the management’s forecast gross rental income of $408m has already been locked in with committed leases. The current portfolio committed occupancy is 97.7%.

CCT has a buffer against the still-falling market rates, which are relatively higher than the office passing rent of $7.73 psf. The limited percentage of leases expiring for its four key office buildings (Capital Tower, Six Battery Rd, One George Street and Raffles City Tower) also lowers its downside risks associated with the weakening office market.

Pursuant to the $580m already refinanced earlier this year, CCT announced that it has obtained a commitment for a $160m, 3-year term loan secured over the HSBC Building. The all-in margin for the loan is 3.0%. This compares favourably against the 3.75% margin obtained by Suntec REIT in the refinancing of $825m in debt. CCT’s gearing level remains at a comfortable 38.3%.

Based on our forecasts and the current price, we expect CCT to be able to consistently pay an attractive annual DPU yield of about 14% over the next 3 years, despite the challenging business environment. We reiterate our BUY recommendation, trimming our DDM-derived target price of $1.32, assuming a 0% terminal growth rate, beta of 1.1 and a risk-free rate of 3%. CCT currently trades at 0.3x P/B, which implies the market is valuing its office portfolio at about $793 psf.

UOB - Rights issue risk has diminished

We admit that UOB’s 26% QoQ increase in total NPLs for the final quarter was disconcerting, but we believe it would be premature to conclude that its asset quality will underperform those of its peers, considering that its credit growth has been the most restrained among the local banks. Chairman Wee Cho Yaw (during UOB’s annual meeting with shareholders on 29 April) argued that profitability is more important than having the highest NPLs in the sector. However, he also cautioned that there would be more bad loans.

We believe the possibility of an imminent rights issue has diminished greatly after Wee Cho Yaw said that UOB does not need a rights issue and is comfortable with its current capital and it is being careful with loan growth.

UOB’s NPL rate rose the sharpest quarter-on-quarter, to 2.0% at the end of December, from 1.5% at the end of September. We expect a more gradual increase for 1Q09, but believe UOB shares risk a further de-rating if its NPL growth outpaces that of the sector again.

UOB’s shares trade above our zero-growth DDM value of S$8.98, including a final FY08 dividend of S$0.40 (ex-date: 7 May 2009). Our new target price is equivalent to 1.01x book (December 2008). UOB’s previous PBR troughs occurred in 2003 (1.11x) and 1998 (0.54x).