Maintain Buy on ComfortDelgo with Target Price of S$1.75

1) Central planning has been delayed as the government is having consultations at the grass roots level. LTA could start to amend the bus routes in 2H09 but has not revealed plans as to how the bus industry will be deregulated.

2) CD expects its bus routes to be unaffected by the opening of Circle Line. Bidding for Downtown line has been postponed till next year and mgmt believes that they stand a good chance of winning given their prior experience operating a driverless system.

3) Question on the 41% YoY jump in insurance costs in the 1Q09. Mgmt replied that this was due to a change in the formula of calculating its insurance from burning cost (back-end loaded) to a fixed cost formula in 2009. On an annualized basis, CD's cost of insurance would only have increased by 3.7% YoY.

4) CD has kept its hedge on its diesel and electricity costs at 50% in FY09E at an average cost that is 30% lower than the actual cost in 2008 (average price of oil was US$99/bbl in 2008).

5) Overseas operations continue to see growth. CD can benefit from long-dated fixed operating bus contracts in Australia and UK. Bus and taxi operations in China continue to perform well. However, its taxi call centre in the UK has been affected.

Maintain Buy on CD with TP of S$1.75. We remain comfortable with our earnings forecast as the company can continue to benefit from resilient ridership, moderating costs and higher overseas contribution. The stock has been an underperformer and is trading at a 25% discount to the market PE, below its long term average which is at a 22% premium to the market. We expect the stock to outperform the market if there is a pullback.

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Singtel - Merely a passenger in the Bharti-MTN transaction - valuation impact minimal

Bharti is currently undergeared and the US$4.0 bn net cash outflow from the transaction drives the net debt to unconsolidated EBITDA to 1.4x; still comfortable. Therefore, Bharti does not require financial assistance from SingTel to complete the transaction. SingTel confirmed it is not directly involved in the transaction and will not, therefore, contribute any cash or issue shares as a result of the deal.

As a result of the equity issuance, SingTel’s effective stake in Bharti would decline from the current 30.7% to only 19.6% of the enlarged, merged business. Bharti is already equity accounted anyway, so no deconsolidation is required. Furthermore, at the “entry price” being paid by Bharti on the current terms (14x P/E and 5.4x EV/EBITDA) the dilution to Bharti’s EPS would be limited to only 2.3%. SingTel’s management has not yet been able to inform us of the impact on SingTel’s shareholder rights (and veto powers) following the transaction (and the resulting stake dilution).

Thus, the prima face impact on SingTel will simply be felt through the valuation impact of the transaction on Bharti. Given the share-for- share exchange, the valuation impact on Bharti is complicated. But taking the closing prices of the two shares on Friday 22 May, it appears US$3.8 bn in value would be transferred from Bharti shareholders to MTN shareholders as a result of the deal. This can be thought of as a control premium (equivalent to a 14.3% premium to MTN’s closing price).

SingTel’s share of US$3.8bn in “value destruction” in Bharti would equate to S$0.11/share in value destruction at SingTel, or 3.3% of our current target price of S$3.34/share.

On the other hand, the US$3.8 bn in assumed value destruction is based on the deal terms at the closing market prices on Friday. It takes no account of potential synergies (either on procurement of operating/’back office’ costs), although we are not a big believer in either cost/revenue synergies from international acquisitions. What will probably be of far greater importance in the medium-to-long term will be MTN’s operational performance and the currencies/macro environment in Africa and the Middle East. On 4 March, our MTN analyst cut his MTN target price 38.7%, from ZAR150 to ZAR92 on currency and macro weakness. Should this prove short-lived, Bharti might destroy less than US$3.8 bn in value.

CITY DEVELOPMENTS - Confidence of The New Investor

City Dev and its 2 partners: Dubai World and El-Ad, have secured refinancing for the South Beach project: $800 mln 2-year term facility from DBS, OCBC, UOB, HSBC, and Sumitomo Mitsui Bank; $400 mln 5-year convertible notes issued to City Dev: $195 mln, and Nan Fung (HK): $205 mln.

Land cost for the South Beach development, secured in a land tender in 2007, is $1,688.8 mln (reported to be $500 mln lower than the top bid). It was funded by $1.2 bln bridging loan and $489 mln equity from the 3 partners. The development, designed by Norman Foster (HSBC Building in HK), has to be completed by 2016.

Nan Fung is a privately owned company, founded by the 86-year-old Ningbo-born Chen Din Hwa, who is ranked the 9th richest man in HK. Nan Fung is reported to hold equity stakes in HK-listed Sino Land, Lai Sun, and has a joint venture with Metro Holdings.

1. We believe the refinancing is positive news, largely because the new investor, an old hand in properties, is prepared to invest literally at the “original” land cost of $1.7 bln. Nan Fung will end up with about 23% equity stake upon conversion. (City Dev will see its stake increased to 40% from 33.3%. The stakes of Dubai World and El-Ad will drop to a combined 37%.)

2. This should more than offset the negative aspect that Dubai World and El-Ad have scaled back their investment. Recall earlier market speculation of either, or both had wanted out of the venture.

3. The only people who therefore appear to have a bit of cold feet are the bankers, whose exposure drops to $800 mln from $1.2 bln, representing 70% of land cost. But this could very well have been necessitated by the recent credit crisis. (Only Bank of Tokyo has dropped out of the consortium.)

4. With oil prices close to doubling from the low of US$34 per barrel, it is a relief that Dubai is still in, as is El-Ad now that the financial crisis is well past its worst.

5. We further believe there is still room for flexibility or manouvre, given there are 7 years to mandatory completion, and the project needs no more than 3-4 years to complete. City Dev, which is taking charge of the development estimated to cost $2.5 bln including land, has indicated plans to commence work by end 2010.

6. We have a BUY on City Dev.