CAPITACOMMERCIAL TRUST, daiwa maintain OUTPERFORM with target price
$2.50
($2.43)
- We maintain our 2 (Outperform) rating for CapitaCommercial Trust
(CCT).
CCT delivered solid (in our opinion) 2Q08 results, with distribution
per
unit (DPU) up 22% YoY, in line with our forecast.
- CCT’s performance is consistent with our optimistic and nonconsensus
view
on the Singapore office sector (see our Singapore realestate investment
trust [S-REIT] sector report, Optimistic on offices, published on 10
July).
Office-building owners are enjoying positive fundamentals amidst tight
supply, and fears of oversupply in 2010 are groundless, in our opinion.
- We have revised up our DPU forecasts by 4.9% for 2008 and 3.9% for
2009,
as a result of lower finance costs and higher net-property income
(NPI), on
evidence that rental reversions have gained further traction.
- We have raised our six-month price target, based on our RNG valuation
method, to S$2.50 from S$2.43.
- We reiterate our view that the primary risk for CCT and the other
office
S-REITs is not future office supply, but the health of the Singapore
economy. We forecast GDP growth of 5-6% YoY for 2008 and 2009 and do
not
expect the economy to slow office-space demand.

CAPITALAND, ubs maintain BUY with target price $8.20
- ALZ results today; CL’s due on 1 Aug08. CL owns 54% of the Australian
listed property group Australand (ALZ). In conjunction with their H1008
results, ALZ has announced a 1:1 renounceable, nonunderwritten rights
issue
to repair the balance sheet. CL has committed to their A$302m
entitlement
(S$400m).
- Impact. RNAV materiality limited as ALZ only 2-4% of RNAV. The fact
that
ALZ is raising equity at A$0.60 or a -63% discount to the pre-deal NTA
of
$1.66 highlights the funding difficulties prevalent in the Australian
real
estate market. If no other shareholders participate, CL’s stake will
increase to 70% from 54%, not far from the 90% level where CL could
move to
compulsory delisting (not CL’s desired outcome in our view).
- Action ?Maintain Buy; capital requirements back in focus. ALZ
comprises
only 3.7% of our RNAV (5% post deal), therefore the potential CL price
sensitivity relates more to increased uncertainty on the access to
efficiently priced capital for their listed entities. Such a deeply
discounted offer in the ALZ subsidiary is likely to increase the focus
on
CL’s other likely funding requirements in H208/2009 ?i.e. the likely
$1.5bn
ION Orchard injection into CMT and the stated intent to inject $1.8bn
of
assets into CRCT by end 2009.
- Valuation - $8.20 ?8 RNAV and PT (set at RNAV) are unchanged. We will
wait for the revised forecasts of our ALZ analyst and the CL results
this
week (1 Aug) before revising CL EPS. H1?8 ALZ EBIT was -$18m (c2% of
UBSe
CL group EBIT) below our CL model estimate due to negative
revaluations.

CHARTERED SEMICON, citi maintain SELL with target price $0.7($0.90)
- Prospects not encouraging CHRT executed on its 65nm process but
margin
decline, higher breakeven utilisation suggest the structural
improvement
achieved previously is reversing. Guidance of higher capex (capture
45nm
process) is also worrying since it increases operating leverage and
raises
earnings sensitivity to volume/ASP fluctuations amid current macro
uncertainties.
- 2Q08 Results: Delivered strong revenue growth as it incorporates a
full
quarter contribution from NHS fab acquisition. Revenue reached US$458m
(+17.9%), in line with our ests. (US$456m; +17.6% qoq), driven by
Communications and Consumer segments. Gross margin reached 15.3%, (vs
18.6%
in 2Q07), below our 20% ests, but in line with CHRT’s reduced guidance.
Net
profit of US$43.4m was aided by tax benefit of US$49.5m.
- 3Q08 Guidance  1) solid pick up in 65nm (+40% qoq) but offset by
decline
in mature process thus qoq sales growth expected to reach 2-5%, lower
than
our 7% projection; 2) Net loss of US$29m, lower than our below the
street
US$4m profit ests. Higher raw material costs, expiry of long term
contract
rate for power supply, and slower wafer starts is contributing to
margin
decline.
- Valuations: Valuation looks undemanding but upside is constrained by
risks of book value contracting since profitability remains uncertain.
We
cut 08 estimates to reflect the new guidance, but 09-10E estimates of
US$1m
?12m profit remains largely intact and is significantly below the
street
forecast of US$66-94m. Our target price is reduced from $0.90 to $0.70,
based on new 0.8-1.0x 08E P/B.

CHARTERED SEMICON, ubs maintain NEUTRAL with target price $0.65($0.85)
- Disappointing margin improvement. Chartered Semi (Chartered) Q208
revenue
of US$458m was ahead of our estimate of US$452m. However, gross margin
(GM)
of 15.3% was behind UBS estimates of 18.7% driven by: 1) lower ASP; 2)
higher work in progress; and 3) rising input costs. Chartered reported
an
operating loss of US$0.6m, compared with our estimate of US$11m for
operating profit. Net income of US$11m was ahead of our estimate due to
a
tax credit of US$49.5m.
- Struggling to make a profit in Q308. For Q308, Chartered guided for
revenue to rise 2-5% QoQ. However, the company expects GM to decline to
10.5%, and net loss to reach US$29m. By products, Chartered sees
strength
in the communication segment, but weakness in select consumer and
computer
segments. Weview Q308 guidance as disappointing.
- Expect resistance from customers on pricing increase. Although
Chartered
plans to pass some of its rising costs to its customers, we expect
resistance given its lack of pricing power. Nonetheless, we expect
pricing
to be stable through H208, given efforts to pass on higher input cost
by
its peers, such as TSMC.
- Valuation: maintain Neutral and lower price target to S$0.65. Given
lower
margins, we cut our 2008E/09E EPS from US$0.02/US$0.03 to
US$0.002/US$0.003, respectively, and lower our price target from S$0.85
to
S$0.65. Our new target price is based on 0.75x EV/CE, implied 7.5%
ROCE, 9%
WACC and 3% growth. We see limited catalysts for the share price in
near
term. We maintain our Neutral rating.

GALLANT VENTURE, ocbc maintain BUY with target price $0.94
-Slowdown in visitor arrivals to Singapore in June… Recent statistics
released by the Singapore Tourism Board (STB) revealed a 4.1% YoY
decline
in June visitor arrivals, marking the first drop following 51
consecutive
months of growth. As Bintan’s tourist arrivals move in tandem with
Singapore’s, any softening would have some spill-over effects on
Bintan,
and this would inadvertently affect Gallant Venture (Gallant), which
owns
and sells landbank in Indonesia’s Bintan island. As this is the first
month
of a slowdown, we have kept our valuations intact as Gallant has
reassured
us of continued growth in Bintan’s tourist arrivals. Furthermore,
Singapore’s upcoming F1 and Integrated Resorts should buoy arrivals in
the
near future.
-But not in Bintan. According to Gallant’s management, Bintan has been
spared from Singapore’s slower tourist traffic growth so far. Visitor
arrivals into Bintan have been rising steadily as robust domestic
travel
within Indonesia and increased awareness of Bintan as a tourist
destination
among new markets such as China and Russia drew more visitors to the
island. For 1H08, Bintan saw a 8.1% YoY growth in visitor arrivals,
outperforming the 2.9% YoY improvement witnessed by Singapore.
Management
expects to see stronger visitor arrivals in 2H08 when the holiday
season
kicks in.
-Land sales still going strong. Given the rosy backdrop, Gallant’s
management remains upbeat on its key profit generator - land sales. It
has
already accumulated a record high order book totalling S$65.4m,
representing 4.7x its land sales booked in FY07, most of which will be
recognised in FY09. With hotel rooms enjoying 100% occupancy rate on
weekends and averaging 60% occupancy rate according to a Knight Frank
report, Gallant is seeing strong demand for its land parcels from
resort
developers, who are likely to take a longer term view of Bintan as a
new
tourist destination and would probably remain unperturbed by near term
fluctuations in visitor arrivals.
-Free Trade Zone is another catalyst. Come December 2008, management
also
expects the Indonesian Government to extend the Free Trade Zone status
to
more areas within Bintan, encouraging more investments into the area
and
boosting demand for Gallant’s industrial parks in Batam and Bintan.
Gallant
continues to trade at a 27% discount to the value of its landbank and a
26%
discount to our S$0.94 fair value estimate. As such, we retain our BUY
rating on the stock.

K-REIT ASIA, citi maintain HOLD with target price $1.40($1.43)
- DPU ahead of consensus expectations: 1H08 annualized weighted average
DPU
of 11.1 cents is ahead of consensus 9.6c. K-REIT paid out a pre-rights
distribution of 6.58 cents on 18 June which included 1QFY08 4.6 cents
and
1.98 cents for the period 1 Apr to 7 May 2008. Post-rights from 8 May
to 30
June 08, DPU was 1.39 cents.
- Property expenses rose faster than revenues QoQ: Revenue +12.9% QoQ
was
lifted by rental reversions, but expenses +61.3% (+33% if excluding
lower
base effect in 1Q from one-off tax writeback) due to higher lease
marketing
and utility expenses, resulting in NPI +0.4% QoQ. Revenue from
Prudential
Tower and Bugis Junction +34% QoQ and 14% QoQ respectively.
- Raising FY08E DPU by 9% and lowering FY09E~FY10E DPU by 4%~6%:(1)
Lower
FY08E finance expenses due to earlier overprovision. (2) Factor in
higher
proportion of leases renewed in 1H08. (3) Raise property expenses on
properties. (4) Raise interest cost assumptions on refinanced bridging
loan
going forward. (5) Adjust occupancy and rental assumptions in FY10E.
- S$361 bridge loan (from Keppel Corp) refinancing clarified: New
revolving
credit facility (based on floating rate) with March 2011 maturity will
replace existing bridge expiring 10 Sept. ‘08. K-REIT estimates that
interest cost would be 3.94% should the loan amount be drawn down
today.
- Maintain Hold, Lower TP marginally to S$1.40: K-REIT offers one of
the
highest FY09E yields, 7.6%, among office S-REITs under coverage.

K-REIT ASIA, cl maintain UNDERPERFORM with target price $1.23
-KReit 1H08 results came in line with our estimates and slightly below
consensus at the DPU level. DPU for the respective period of 3.94?is
only
up marginally 0.8% YoY despite distribution income growing by more than
170% due to higher issued units. Portfolio quality remained robust
despite
only 2.2% of total NLA are due for renewals this year. KReit is trading
cheap relative to peers at 0.6x P/NAV but we remained slightly
concerned on
the higher than average cost of borrowing of 3.94%. We maintain our
Underperform rec with no change to our earnings and target price of
S$1.23
-Results in line, but higher utilities and commisions. 1H08 revenue of
S$24.5m was up 30.9% YoY and slightly ahead of our estimates and in
line
with consensus while DPU for the respective period of 3.94?was up 0.8%
YoY
due to rights issue dilution to unit base came in line with our
estimates
and below consensus. Increase in revenue was largely due to rental
reversions and higher rentals achieved but offset by higher borrowing
costs, commission rates and utilities expenses.
-Portfolio quality maintained. KReit’s portfolio continued to enjoy
100%
occupancy rates and average gross rentals for the entire portfolio was
up
32.2% YoY to S$5.66psf. With less than 2.2% of total NLA up for
renewals
for the remaining of this year, we expect FY08 results to be in line
with
our estimates. More than 46.3% of NLA are due for renewal in the next 2
yrs
including ORQ which suggests most of the leases on ORQ are beyond 2012
capping much of the rental reversion upside.
-Gearing concerns eased. Post the rights issue which degeared its
balance
sheet from 53.9% to 27.7%, gearing concerns has eased significantly
despite
more than 32.7% of total borrowings to be refinanced within 12 mths at
4.06% p.a. Together with the MTN, total borrowing cost averaged 3.94%
which
is still higher than the sector average of c.3% p.a.
-Maintain Underperform. KReit is cheap trading at 0.6x P/NAV vs sector
average of 0.8x P/NAV offering 1yr forward yield of 6.5% higher than
the
commercial asset yields of c.4.5- 5%. But in light of widening credit
spreads, a higher than average of 3.94% borrowing cost and oversupply
situation facing the office sector, we maintain Underperform with no
revision to our earnings estimates and target price of S$1.23.

K-REIT ASIA, dbs maintain BUY with target price $1.61($1.69)
-Story: K-reit 2Q08 revenue grew 32% yoy to $13m while NPI rose a more
modest 26% yoy to $9.2m as expense ratio increased to 29%. On a qoq
basis,
NPI was flat despite 13% higher revenue due to greater marketing and
leasing costs. Distributable income of $14.2m was almost 2.7x over the
previous period and 29% higher qoq with the added associate income from
ORQ. There was no revaluation exercise carried out on the properties
during
the period.
-Point: The improved operating performance was due to positive rental
reversion from its office portfolio, largely at Keppel and GE Tower as
average passing rents rose to $7.37psf/mth from $6.86psf/mth in Q1.
Looking
ahead, we believe DPU growth will continue to derive from positive
rental
renewals as new leases are re-contracted at levels which are higher
(but
growing at a more modest pace than before) vs expiring rates. It has a
total of 36.3% of NLA to be renewed over the next 2 years. In addition,
refinancing concerns have abated. The group has obtained a new loan of
$391m from Keppel Corp, maturing in Mar 2011. When completed by Sep 08,
K-reit’s debt maturity profile would be extended to 2.5 years. Cost of
debt
is estimated at 3.94% and will raise current overall cost of debt of
2.66%
to close to 4% when exercised. With a debt/asset ratio of c28%, K-reit
is
also well placed to tap acquisition opportunities.
-Relevance: We have revised our FY08 and FY09 DPU estimates to 9.9cts
and
8.6cts to adjust for dilution from the rights issue units. The stock is
currently offering 6.1- 7.1% yield over the next 2 years and is trading
at
0.62x of FY09 BV. Maintain Buy with a price target of $1.61.

K-REIT ASIA, nom maintain STRONG BUY with target price $1.89
-K-REIT’s 2Q08 results were in line with our expectations, with the
positive reversionary profile in Singapore over FY08-09F underpinning
valuations. We continue to see inherent value in K-REIT, currently
trading
on an implied enterprise value of circa S$1,175/psf. Having
de-leveraged to
0.28x, K-REIT remains well placed to capitalise on opportunistic
acquisitions in the listed and unlisted markets. STRONG BUY call
reaffirmed.
-On 28 July, K-REIT Asia reported distributable income for 2Q08 of
S$14.176mn, up 26.3% y-y; the 1H08 total represents 52.5% of our
full-year
forecast. Reported DPU was S?.18/unit for the three-month period
April-June
2008 (up 26.0% y-y). We anticipate the positive office rental
reversionary
cycle will underpin net income over our forecast period, with 38.5% of
the
portfolio by net lettable area due for lease expiry between June 2008
and
December 2010.
- K-REIT reported net revenue for 1H08 (including income support from
One
Raffles Quay (ORQ) of S$39.962mn (up 190.7% y-y), underpinned by
positive
office rental reversions, stable occupancy (portfolio committed
occupancy
100%) and contributions from ORQ (ex ORQ net property income rose 33.2%
y-y). Average gross rents in the portfolio were S$7.37/psf pm
(S$6.86/psf
pm in 1Q08 and S$6.02/psf pm in 4Q07). According to Jones Lang LaSalle,
Grade A Singapore Central office rentals were up 5.8% q-q in 2Q08 (up
33.0%
y-y to S$18.35/sf).
- K-REIT’s 2Q08 book value was restated to S$2.26/unit (from
S$2.29/unit
pro forma estimate at end-1Q08) following 1Q08 distributions. Gearing
was
0.28x at end-2Q08, against 0.55x at end-FY07 following the REITs rights
issue.

K-REIT, ml maintain UNDERPERFORM with target price $1.38
-2Q08 results. K-REIT has reported 2Q08 DPU of 2.18cps, down 53% QoQ
and up
2% YoY. The impact of the rights issue, which was completed in 2Q08, is
the
key driver of DPU decline. At NPAT level the results accounted for 50%
of
our FY08 forecasts. We expect rental income to be flat in the second
half
with few leases due for renewal, however NPAT willbe affected by rising
interest rates in 4Q08.
-Debt costs set to increase in second half. K-REIT will re-finance its
existing bridging loan ($S391mn) with a fixed rate loan from Keppel
Corp
when it expires in September 08. The interest rate payable for the loan
will increase from the current rate of 2.28% to an estimated 3.94% with
maturity in 2011. This is inline with our current cost of debt
assumptions.

-No surprise in operational numbers. Committed occupancy across the
portfolio remains strong at 100%. Average portfolio-wide rentals were
up 7%
over the preceding quarter, rising from S$6.86psf to S$7.37psf. Gearing
post the rights issue has been reduced to a more manageable level of
27.7%.
-Maintain underperform. We maintain our underperform rating on K-REIT
and
PO of S$1.38/share. DPU will decline further in 3Q08 as the full impact
of
the rights issue materializes. While operational number should continue
to
be supported by a tight office rental market, we fail to identify near
term
catalysts that will drive share price higher.

K-REIT ASIA, ubs maintain NEUTRAL with target price $1.47
- Q208 property income of S$20m in line with our forecast. K-REIT Asia
(KREIT) reported Q2 net property income of S$20m, in line with our
forecast. Net property income was largely flat QoQ as few leases were
renewed. Interest expense was S$3.2m less than our forecast as KREIT
did
not refinance its bridge loan in Q208. Thus, distributable income was
S$3.6m above our estimate and DPU for Q208 was 2.91c compared with our
estimate of 2.78c.
- Bridge loan of S$390m to be refinanced by Kep Corp. till March 2011.
KREIT said Keppel Corp. will be extending the loan of S$390m to KREIT
for
three years from September 2008 to March 2011. The interest rate will
be
fixed when the loan is finalised in September 2008. The interest cost
could
be around 3.94%. KREIT said this was the most competitive rate as banks
are
unwilling to provide unsecured loans at this point.
- Remain cautious due to low freefloat, low liquidity. We have revised
our
2008 DPU forecast by 3% in view of the H108 results, but retain our
2009-2012 DPU forecasts. We think investors will continue to be
apathetic
towards KREIT because of low freefloat and low liquidity.
- Valuation. Our price target is DCF-derived, using a beta of 1.2, a
market
risk premium of 5%, and terminal growth rate of 2.5%.

K-REIT ASIA, uob maintain BUY with target price $1.67($1.69)
-K-REIT’s 2QFY08 results were better than our expectations. K-REIT
reported
gross revenue of S$13m in 2QFY08, an increase of 31.8% yoy. Revenue
contribution from Prudential Tower, Keppel Towers & GE Tower and Bugis
Junction Towers increased 66.4%, 33.1% and 21.7% yoy respectively.
Contribution from One Raffles Quay (ORQ) totalled S$10.9m in 2QFY08.
Average gross rent increased 7.44% qoq to S$7.37psf pm due positive
rental
reversion. Committed occupancy was 100% at Jun 08.
-Distributable income surged 173% yoy to S$14.2m. K-REIT announced DPU
of
1.39 cents for the period 8 May to 30 Jun 08. This will be paid on 28
Aug
08.
-Benefiting from positive rent reversions. Growth in rental rates has
moderated as the recent escalation in office rentals has forced more
companies to alternatives such as transitional office space and
relocating
support functions outside the Central Business District (CBD). Rentals
for
Grade A office space within Raffles Place increased by a mild 1.7% qoq
to
S$17.82psf pm in 2QFY08. Occupancy has also dipped slightly from 99.1%
in
1QFY08 to 98.3% in 2QFY08 (Source: Colliers). Impact from positive
rental
reversion will be muted in 2H08 as only 2% of net lettable area (NLA)
will
be expiring. Positive rental reversion will resume in 2009 with leases
for
16.8% of NLA will expire and another 11.3% of NLA is subjected to rent
review. Its average portfolio rental of S$7.37 is also significantly
below
current market rentals.
-Refinancing for bridging loan. K-REIT has secured a new revolving
credit
facility from ultimate parent company Keppel Corporation with interest
rate
of 3.94% p.a. and maturity in Mar 2011. The interest rate of 3.94% is
lower
than our assumed worst-case scenario of 4.2%. The arrangement also
provides
flexibility for K-REIT to refinance to achieve lower cost of debt if
conditions in the credit market improve. K-REIT’s gearing has been
reduced
from 53.9% to 27.7% after completion of the rights issue.
-K-REIT provides attractive FY09 distribution yield of 6.6%, a healthy
spread of 3.1% against 10-year government bond yield of 3.5%. Our
target
price is slightly reduced to S$1.67. The stock is trading at a 36.9%
discount to current NAV/share of S$2.22.

LIAN BENG, wc downgrade to HOLD with target price $0.255
-Below our forecasts & consensus estimates, mainly due to lower revenue
recognized for newer projects in the initial phase, leading to FY08
PATMI
of S$11.9m which was 50% below our forecasts & consensus estimates.
1-Tier
dividend of 0.472 Sg cts per share declared with a dividend yield 2.1%
based on yesterday’s closing price.
-Revenue increased 40.4% in FY08 to S$194.8m, with GPM rising 7.4% to
15.0%
in FY08, mainly contributed by projects with higher GPM recognised in
FY08
as compared to FY07. Projects with higher GPM, including 7-storey
industrial building at Paya Lebar iPark, The Sixth Avenue Residences
and
etc, clinched by Lian Beng Group (”LBG? during the financial year
lifted
revenue and GPM in FY08.
-Operating expense increased 62.8% in FY08 to S$13.6m, on the back of
strong contract wins during FY08 leading to increase in staff costs as
well
as foreign exchange losses resulting from depreciation of US$ currency
and
adjustment of profit recognised in previous year for the Group’s
project in
Maldives.
-Orders books of S$647m as at Jul 08 expected to be recognised over
FY09~11F. We estimate that approximately 50% and 45% of the existing
order
books will be recognised in FY09F and FY10F respectively. Despite the
recent high GPM contract wins which will start contribution in FY09F,
we
expect GPM to drop due to rising labour cost, diesel and steel prices.
-Downgrade to HOLD: TP of S$0.255. We value LBG using sum-of-the-parts
valuation method, valuing its property developments and construction
business. We have revalued all of LBG’s development projects at lower
than
recently transacted price to assume 100% sales in current market. We
have
also rolled forward and revised our earnings multiples, reflecting
slower
contract win momentum, to 5x FY09F construction earnings from 10x FY08
previously. We further apply 25% discount factor to RNAV, incorporating
risk of rising labour cost, diesel and steel prices, deriving our price
target of S$0.255.

PARKWAY LIFE REIT, ubs maintain BUY with target price $1.73($1.84)
- Q208 DPU in line with expectations. Parkway Life REIT (PLife)
reported
Q208 results in line with our expectations with DPU of 1.66?(up 1.8%
QoQ;
UBSe 1.66?. We note that H108 DPU of 3.29?is now 49% of our full-year
2008
estimate of 6.71? The result was driven by Q208 NPI of S$11.7m (up 5.3%
QoQ) with 92% contribution from Singapore and 8% contribution from
Japan.
- Impact: model updates; management targets S$1.6bn portfolio by Dec?9.
We
updated our model to include the new Japan acquisitions (S$70m) and
pushed
back our future acquisition assumption (S$530m) to December 2009.
Management continues to target a S$1.6bn portfolio by end 2009, which
we
believe is possible given the significant debt headroom (cS$570m to 45%
gearing) and the fragmented nature of Asia-Pacific healthcare. Post
model
updates, we lowered our DPU estimates for 2008-2012 by an average 1.0%.
- Action: reiterate Buy for inflation-hedged growth. PLife’s portfolio
continues to display operational resilience despite the increasing
macro
headwinds of high inflation and weaker growth. We are positive on PLife
because of its defensive, inflation-hedged cash flows backed by: (1)
100%
occupancy, (2) average lease term to expiry of 14.0 years, (3) 97.5%
leases
(by NLA) with annual rent escalation tied to inflation. Wemaintain our
Buy
rating.
- Valuation. We lower our 1-year DCF price target to S$1.73. This is
based
on a higher beta of 0.8 (previously 0.75), a market risk premium of 5%,
and
a risk-free rate of 3.4%. At the current price, PLife trades at CY08E
DPU
yield of c6.0% and at P/NAV of - 13.4%.

RAFFLES MEDICAL GROUP,  cimb maintain UNDERPERFORM with target price
$1.19
- 1H08 net profit above Street but within our estimates. At first
glance,
PATMI declined 51% yoy to S$7.7m. Stripping out a S$12.5m share of
profits
from its old JV with CapitaLand in 2Q07, core EPS for 2Q08 would have
been
up 24% yoy. 1H08 core profit of S$13.8m represents 51% of our full-year
forecast (vs. 55% in FY07).
- Topline growth intact. 2Q08 revenue grew 22% yoy to S$51m, powered by
Hospital Services (+24% yoy) and Healthcare Services (+15% yoy). 1Q08
and
1H08 turnover accounted for 26% and 50% of our full-year estimates.
- Operating efficiencies. EBITDA fell 44% yoy and 19% yoy in 2Q08 and
1H08
respectively. EBITDA margins fell to 22.1% in 2Q08 (from 47.8% in 2Q07)
as
the cost of full hospital ownership started to take its toll. A more
accurate way of assessing the results is to look at core PBT and PATMI.
Encouragingly, core PATMI margin in 1H08 was 17.9% (15.2% in 1H07).
- Nothing too wrong?Cash hoard further strengthened to S$27m in 2Q08
(from
S$23m in 1Q08), while operating cash flow remained robust at S$10.4m.
Foreign patient load grew more than 20% yoy, still constituting
one-third
of the total patient load.
- but something is still missing. What was disappointing was the lack
of
data points to allow us to gain a greater appreciation of the
underlying
numbers (which were readily available from RFMD’s listed peers), and
the
lack of clarity on its overseas expansion. We are also unclear about
contributions from governmentrelated contracts, whether they lifted the
group’s recurring numbers despite seemingly low occupancy rates of
?0-60%?at its flagship hospital, as indicated by management.
-Maintain Underperform. Overall, not a bad set of results, but the lack
of
major catalysts, a less-sanguine economic outlook, and a lack of
convincing
data make it harder for us to upgrade our estimates. Our earnings
estimates
remain intact. Our target price of S$1.19 remains based on 20x CY09
P/E.
Maintain Underperform.

RAFFLES MEDICAL GROUP, csfb maintain OUTPERFORM with target price $1.80
- Raffles Medical delivered strong results in its Jun quarter, which
arrived very much in-line with our estimates. Revenue was up 22% YoY,
while
core profits jumped 40% YoY to S$7.7 mn.
- The 15% YoY revenue growth in the healthcare segment, as well as the
24%
YoY improvement in hospital operations, reaffirms strong underlying
demand
across the sector.
- Raffles Medical achieved a 19% operating margin for the quarter, up
from
17% in 1Q08, and 16% a year ago, reflecting operational efficiency
gains at
its flagship hospital. Management declared a S1 ct interim dividend,
similar to the previous year.
- With results for the first six months having met 47% of our revenue
and
earnings estimates, we have kept our assumptions, earnings forecast and
our
DCF-based S$1.80 TP intact.
- We continue to believe that Raffles Medical remains best leveraged to
rising demand for private healthcare services in the medium term, given
its
control over an under-utilised hospital asset and the largest GP
network.
OUTPERFORM.

RAFFLES MEDICAL GROUP,  dbs maintain BUY with target price $1.51($1.74)
-Story: Raffles Medical’s 2Q/1H results were slightly above our
expectations. 2Q recurring net profit grew 40% to S$7.7m from S$5.5m a
year
ago. Revenue grew 22% on a 24% and 15% growth in its Hospital and
Healthcare divisions, respectively.
-Point: The strong net profit growth vis-?vis its topline was a result
of
its operating leverage. 2Q total operating expenses grew by a slower
16%
y-o-y, helped by a smaller growth in inventories and consumables used,
staff costs, and drop in operating lease expenses. This is partially
offset
by a higher depreciation expense. As a result, we witnessed a marked
improvement in the Group’s operating margin in 2Q to 18.8%, up 4.3ppts
from
14.5% a year ago. An interim dividend of 1 Scts was announced. Foreign
patient load continues to account for an estimated onethird of
inpatient
admissions. We believe the recent drop in Jun tourists?arrivals ?amid
economic uncertainty ?may not be a definite indication that medical
tourists is slowing as there is a certain level of stickiness in terms
of
demand for healthcare services, in our view. Raffles Med has taken
measures
to diversify its patient base, which has helped to avoid over-reliance
on
any single market. Its hospital foreign patients are understood to come
from over 100 countries.
-Relevance: Maintain Buy, TP: S$1.51. We lowered our TP based on a
lower
target PER. Raffles Med’s has traded at c. 15x to above 30x of its
trailing
EPS. Most recently, it traded at between 22x to 27x on FY08F earnings.
Given the cautiousness of the current market, we peg our valuations to
22x
PER on FY09F earnings, hence our TP is adjusted to S$1.51. In our view,
we
feel that 22x is justified given its growth profile, backed by its
potential to scale up its operations, defensive qualities of the
healthcare
industry, possible benefits arising from the implementation of
means-testing in Jan?9, and a growing population.

RAFFLES MEDICAL GROUP, uob maintain BUY with target price $2.14($2.27)
-Raffles Medical Group (RMG) reported net profit of S$7.7m on revenue
of
S$50.6m (+22.3% yoy). The results were slightly ahead of our net profit
forecast of S$7.4m. RMG booked fair value gain of S$12.9m in 2Q07 for
its
original 50% stake in Raffles Hospital building. Pre-tax profit
increased
49.2% yoy if we exclude the one-time gain last year.
-Economies of scale from Raffles Hospital. Revenue from Hospital
Services
grew 24.1% yoy benefitting from growth in volume of local and
international
patients. International patients accounted for one third of total
admissions. Raffles Hospital has put in efforts to diversify its
revenue
base and sees healthy growth from new markets such as Russia, Vietnam,
Cambodia and Mongolia. International patients provided higher revenue
intensity due to more complex treatment and longer length of stay.
Healthcare Services registered steady revenue growth of 15.4% yoy due
to
the continual expansion of its corporate client base and contribution
from
new clinic at Changi Airport Terminal 3. EBITDA margin improved from
17.9%
in 2Q07 to 22.6% in 2Q08. This is due to shift in revenue mix towards
Hospital Services and economies of scale from Raffles Hospital.
Inventories
and consumables used and other operating expenses have increased by
17.7%
and 18.3% respectively, slower than revenue growth of 22.3%. RMG has
moved
into a slight net cash position after generating positive cash flow of
S$13.6m in 1H08.
-Boost from implementation of means testing. Raffles Hospital plans to
add
another 30 beds in 2H08, bringing the total to 230 beds. It will
benefit
from the implementation of means testing at restructured government
hospitals from Jan 09 as local patients accounts for two third of total
admissions. Subsidies for high-income?patients earning S$5,201 and
above
per month will be reduced to 65% for Class C wards (current: 80%) and
50%
for Class B2 wards (current: 65%). This will reduce the pricing
differential between government hospitals and private sector hospitals.
Raffles Hospital benefits more than its competitors as its pricing are
pegged close to levels at government hospitals.
-Benefitting from tie-up with Bupa. Raffles Medical Group’s wholly
owned
International Medical Insurer (IMI) has tied up with Bupa International
to
offer cobranded health insurance for executives who are travelling
regularly or stationed overseas. RMG is actively marketing the plan in
Singapore, Malaysia and Indonesia and response from corporate clients
has
been stronger than expected. Customers have access to a global network
of
5,500 hospitals and clinics through the partnership. RMG benefits from
referrals from the tie-up and management has noticed an increase in
patient
volume from British expatriates.
-Maintain BUY. We like RMG for the growth momentum at Raffles Hospital.
Raffles Hospital will benefit from the influx of foreign patients,
increase
in revenue intensity and positive impact from economies of scale. We
have
cut our target price from S$2.27 to S$2.14 as we have increased our
risk-free rate from 2.35% to 3.5%.

SIA, citi maintain SELL with target price $13
- Maintain 23% below-consensus FY09 forecast?QFY09 profit S$359m 30% of
Citi FY09E S$1.19bn (consensus S$1.55bn). ROE fell to 9% (4Q: 14%).
Estd.
hedged fuel price US$116/bbl (vs. 1Q spot avg. US$154/bbl); 1Q hedging
gains of S$349m. Associate profit jumped S$57m yoy; we assume due to
oneoff
gains. July-08 avg. jet fuel US$170/bbl, hedging likely more expensive,
load factors waning, yields peaking, costs rising. Sell, TP S$13.
- 1Q09 profit S$359m (4Q: S$528m, -32%qoq): 1Q revenue S$4.1bn +0.6%qoq
on
4% more total traffic (passenger +1%, cargo +8%), yields held
(passenger
S$0.124/RPK, cargo S$0.406/FTK). Costs S$3.8bn +4%qoq (staff -15%qoq
bonus
4Q, fuel +19%qoq, depreciation +13%qoq). Operating profit S$343m
(-27%qoq),
operating margins 8.3% (4Q: 11.4%). S$57m yoy rise in associate profit
helped lift PBT to S$474m (-19%qoq). Net profit margin fell to 8.7%
(4Q:
12.8% and ROE 9.2% (4Q: 14.3%).
- Jet fuel: Estd. 1Q hedged fuel cost US$116/bbl (+16%qoq) vs.
US$154/bbl
avg. spot (+35%qoq). As of May-08, SIA had hedged 36% of FY09 full year
fuel needs at US$104-109/bbl. 1Q09 hedge gains S$349m suggests that
c.70%
of 1Q fuel was hedged. July 2008 avg. spot jet fuel has risen to
US$170/bbl. Sensitivity: US$1/bbl higher fuel price reduces profits by
c.
S$36m.
- Associates: 1Q09 associate/JV profit S$105m (1Q08: S$48m, 4Q08: S$25m
loss). We view SIA associate Virgin should be under earnings pressure,
and
assume one-off profit gains have boosted the associate profit line.

SIA, csfb maintain OUTPERFORM with target price $19
- SIA.s 1Q09 operating and net profit of S$343 mn and S$359 mn fell
15-26%
YoY. We think the profit decline was expected, but the results are
actually
15-22% above the market.s and our expectations of S$295-313 mn. We
leave
our estimates and target price unchanged, pending more details on
associate
income and other costs from the results briefing on 30th July.
- Revenue and operating profit are broadly in-line with our
expectations,
and the key surprises are from lower fuel cost and higher contributions
from associates. Yields remained strong.
- SIA is currently on 4.9x 12 F EV/EBITDAR, close to the lowest point
since
the 1998 trough. Its F P/B of 1.2x F P/B is also below mid-cycle level.
SIA
has never made a loss and 1.0x F P/B appears to be a strong support
level
during previous crisis (911 and SARS).
- Our target price implies 12M forward P/B of 1.4x, which is the
midcycle
level, despite our above-average projected FY09-10 RoE of 10-11%. Our
target F EV/EBITDAR of 6.1x is one standard deviation below historical
average trading range.

SIA, jpm maintain NEUTRAL
- Profits came down but this was no surprise: 1Q FY09 net profit
declined
15% Y/Y and 32% Q/Q to S$359MM. We had already anticipated an earnings
decline given that jet fuel prices rose 88% Y/Y and 35% Q/Q in 1Q FY09.
In
fact, SIA’s results beat market expectations (consensus forecast of
S$326m
based on SIA’s poll).
- Sharp spike in fuel costs more than offset stronger top line: Revenue
grew 14% Y/Y, mainly driven by further passenger yield gains (+8% Y/Y)
and
traffic growth (+6%), as well as significantly better cargo yields
(+13%).
However, this was more than offset by higher fuel costs (+31%) and
depreciation charges (+20% Y/Y) as SIA took delivery of two more A380s
and
four more B777- 300ERs. This pushed up unit costs by 14% Y/Y and unit
costs
exfuel by 8%. Consequently, operating profit fell 26% Y/Y and EBIT
margin
fell 4.5ppts to 8.3%. Breakeven load factors rose slightly to 70% for
the
passenger business but fell to 61% for cargo.
- Associates and JVs contributed 22% of PBT (from 7%): Profits from
associates and JVs rose sharply (+184% Y/Y). SIA Eng and
SATS?investments
accounted for nearly half of these profits. We believe that the
remainder
could have been boosted by key associates Virgin Atlantic and Tiger
Airways. Net profit was also boosted by disposal gains (S$7MM or 2% of
PBT)
as SIA structured sale and leasebacks on five B777s during the quarter.
- Further downward earnings revisions unlikely unless fuel prices
rebound
sharply: 1Q FY09 amounts to c.25% of JPMorgan and consensus full-year
forecasts. SIA will suffer a smaller earnings decline than most of its
peers given its superior fuel hedging (S$347MM gains in 1Q FY09),
greater
surcharge pass-through, and more flexible staff costs (down 15% Q/Q due
to
lower bonus provisions). We also expect SIA to sell and lease back more
aircraft to lower residual value risk although the potential disposal
gains
will likely be smaller given the weakening US$ and potential
depreciation
in aircraft market values. SIA has net cash of S$2.94/share (excluding
upcoming final DPS payment) and we believe it can sustain a 5%-6% yield
in
the next two years. Key risk: further passenger yield gains may be
limited
given that traffic (+6%) has not kept pace with capacity growth (+9%)
in
the past few months.

SIA, ml maintain UNDERPERFORM with target price $13.30
-Reiterate Underperform as revenue trends deteriorate. We remain
negative
on Singapore Airlines as its revenue trend continues to soften. Revenue
per
seat increased by only 5% yr/yr ?its slowest rate since Sars as higher
air
fares and an aggressive 9.4% capacity increase caused more seats to fly
empty. With air travel demand softening around the world, we expect the
lack of pricing power will continue, leading to further erosion of
profit
as costs rise.
-June-quarter results in-line, operating profit down 26% YoY. Operating
income for the June-Q was in-line with MLe at S$343mn, down 26% from
last
year. Higher ticket prices were unable to offset the 14% fuel driven
surge
in unit cost (non-fuel unit costs fell 2%). Net income was 10% ahead of
MLe
at S$359mn (albeit onunusually high associate income) but down 15% on
last
year.
-Outlook remains poor, falling oil may hurt SIA longer-term. The demand
outlook remains poor. We expect yr/yr profit declines for the rest of
FY09.
Our net income forecast is unchanged at S$1.4bn ?down 31% from last
year.
The recent pullback in the oil price has seen the stock rise in recent
weeks. However, we fear this will delay the removal of capacity at
competitors and could enable some to avoid bankruptcy, leading to a
slower
recovery.
-Fair value seen at 1x book value ?13% downside. The stock continues to
trade at a premium to book value, which is its normal support level
during
a cyclical downturn. Our 6-12month price objective is set at 1x
prospective
book ?or S$13.30/share, which offers 13% downside. We view SIA as a net
winner of the current crisis on a 2 year view since some of its key
rivals
are being weakened. But, we would rather own the stock after the
shakeout.

SIA, ms maintain OVERWEIGHT with target price $18
-Impact on our views: Singapore Airlines (SIA) surprised us with an 11%
decline in EPS, significantly better than our estimate of a 47% fall.
However, to achieve the operating profit of S$396 million (down 8%),
SIA
realized a fuel hedging gain of S$349 million in 1Q08 and used about
half
of its 36% fuel hedging position for F2008. If jet fuel prices stay at
current level for the remainder of the three quarters of F2008, SIA
fuel
cost would rise significantly in the next three quarters unless the
carrier
is able to increase its fuel hedging position.
-What’s new: SIA reported a F1Q08 EPS of 30 cents (down 11%) but beat
both
consensus and our expectations of 18 cents and 25 cents, respectively.
Positive earnings surprises came from higher-than-expected passenger
and
cargo yields and significant upfront fuel hedging gain from its fuel
hedging position for F2008. We will revise our earnings model following
the
analysts?briefing at 3 pm on July 30.
-Investment thesis: Our price target of S$18 is based on 1.4x our F2008
BV,
which equates to 5.8x F2008 (adjusted for consensus) EV/EBITDA. The
price
target is supported by the carrier’s hidden aircraft and subsidiary
value,
which implies a valuation of about S$15-16/share (or S$17/share if we
include the potential hidden value for its equity stake in Virgin
Atlantic), on our estimates. Risks to our target include a global
economic
slowdown, aggressive fare-discounting campaigns, and emergence of
successful low-cost airlines in Asia.

SIA, nom maintain NEUTRAL with target price $17.28
-SIA announced a 15% y-y decline in 1Q FY09 net profit to S$359mn,
broadly
in line with our estimate of S$370mn for the three-month period. While
group revenue was up a healthy 14.1% y-y, primarily on higher passenger
carriage growth, expenses were up 19.9% y-y on higher fuel costs. Our
FY09F
estimate assumes a 20% y-y decline in earnings but we expect to review
this, and our S$17.28 fair value estimate, with a downward bias. Our
rating
remains NEUTRAL.
- At SIA’s passenger airline, 1Q FY09 operating profit was down 31% y-y
to
S$265mn, with higher fuel expenses wiping out still-robust revenue
growth.
Group revenue was up a healthy 14.1% y-y to S$4.13bn, on higher
passenger
carriage. But group expenditure on fuel increased 31% y-y to S$1.53bn.
Excluding fuel costs, passenger unit cost actually declined 2.2% y-y,
as
capacity growth outpaced non-fuel expenses.
- Passenger load factor was down to 76.7%, from 78.9% in 1Q FY08,
primarily
due to higher capacity growth. Passenger yield improved 7.8% y-y to
S12.4
cents/pkm, from S11.5 cents/pkm, but this was outpaced by an 8.7% y-y
rise
in unit costs to S8.7cents/pkm. The breakeven load factor was 70.2%,
against 69.6% a year earlier. While capacity was up 9.4% y-y, passenger
carriage expanded by 6.3% y-y.
- Group net profit in 1Q FY09 was down 15% y-y to S$359mn, marginally
below
our S$370mn estimate, primarily owing to higher fuel costs. In 1Q FY09,
SIA’s fuel bill of S$1.53bn accounted for 40% of group expenses. We may
look to adjust down our FY09/10F earnings forecasts pending an analyst
briefing on Wednesday.
- SIA Cargo posted quarterly operating profit of S$5mn, against an
S$11mn
loss a year earlier. Meanwhile, the contribution from SATS (Singapore
Airport Terminal Services) fell 16% y-y to S$38mn, while SIA
Engineering’s
contribution was down 44% y-y to S$16mn and SilkAir posted operating
earnings of S$10mn (+78.6%).

SIA, ubs maintain BUY with target price $19.50($19)
- Q1 results better than expected. SIA has reported that Q1 operating
earnings fell 26% to $S343m (UBSe $221m) and net earnings fell 15% to
$359m
(UBSe $258m; Consensus $325m). The key driver of the earnings surprise
was
hedging gains ($S347m in the quarter). This was partly offset by higher
than expected asset costs (both depreciation and operating leases). The
management statement was understandably cautious.
- Passenger yield growth slows. Gross cash reaches $S6.7 billion.
Passenger
yield growth slowed from 11% in Q408 to 8% in Q1. This reflects the
more
difficult demand environment although strong Q1 yields in cargo (+13%)
highlights that capacity trends are just as important as volumes
(industry
capacity reductions have been aggressive in cargo). Q1 operating cash
flow
was up 37% and a sale/leaseback transaction also strengthened the
balance
sheet. Gross cash is now $S6.7bn (incl. ST investments) and we estimate
total debt (incl. leases) at $S4.5bn.
- Upgrading our EPS forecasts. We are now broadly in-line with
consensus.
We have upgraded our FY09 EPS forecasts ($0.85 to $1.14) mainly due to
higher passenger yield growth (FY09E:+8.0%). The economic outlook
remains
uncertain but at these oil prices we expect further competitor capacity
rationalization. This combined with surcharges should allow SIA to
manage
yields higher.
- Valuation: PT tweaked higher. Oil prices the key short-term issue.
Higher
forecasts have led us to tweak our EV/Fleet based PT up to S$19.50. Our
rating reflects SIA’s strong relative position in a tough industry.
External factors (oil/the global economy) are likely to be the
short-term
drivers of the shares.

SIA, uob maintain SELL with target price $14.30
-Modest decline in 1QFY09 net profit. At the group level, net profit
for
the quarter declined 15.4% yoy to $358.6m even as revenue gained 14.1%
yoy
to $4131.7m. From a qoq perspective, the declines in net profit,
operating
profit and airline EBIT were more pronounced, suggesting the start of a
cyclical downturn for the company. Fuel cost rose 31.4% to $1.53b due
to
higher amounts of fuel uplifted and steeper jet kerosene price hikes.
There
were also minimal currency gains from a stronger Singapore dollar as
compared to the previous quarter. We estimate that airline revenue,
which
includes passenger and cargo revenue would have shown a 15%yoy
increase.
This is below our expectation given steep surcharge increases and
10-15%
increase in ticket prices on average, suggesting that premium traffic
would
have come under pressure.
-Excluding hedging gains, airline operations could have turned in a
loss.
At the group level, hedging gains amounted to $343m. At the parent
airline
level, we estimate the gains at $282.0m. Excluding that, airline
operations
would have turned in a loss of $17m. At the group level, net profit
would
have declined by a whopping 63%. In May, SIA had reported that it had
hedged 36% of its fuel requirements for FY09 at US$108/bbl. The hedging
gain is based on the difference between the hedged portion and the fair
value of forward contracts as at end June.
-Challenging time ahead, hedging gains could be one-off. 1QFY09’s
numbers
show the significant operational risk facing SIA in managing fuel
costs.
2QFY09 is also likely to see smaller hedging gains and a higher fuel
bill.
-Passenger traffic growth could slow. Data released by Singapore
Tourism
Board (STB) showed a 4.1% decline in tourist arrivals in June. The top
seven contributors are Asian countries, which account for a large share
of
SIA’s passenger base. If the trend continues, which we believe is
likely
given the expected decline in discretionary spending, overall passenger
traffic growth could slow down for the rest of FY08. Our working
assumption
is for overall Revenue passenger traffic (RPK) to grow 2.0% and for
passenger yield to average 13 cents/RPK. We would most likely revise
our
yield assumptions downward.
-Fuel surcharges and business traffic growth insufficient in
alleviating
risk. Thus far, the assumption has been that fuel surcharges and SIA’s
leadership in premier traffic would boost yield and offset fuel price
increases. 1QFY09’s results show that while yields have risen, they
still
do not offset the increase in fuel costs. The risk of business traffic
slowing down and price competition from other national carriers could
intensify in the coming quarters. On top of that, we are concerned
about
the profitability and capital requirements of its two associates,
Virgin
Atlantic and Tiger Airways.
-Maintain SELL. Significant operational risks exist for the company. We
are
concerned about a potential slowdown in leisure travel, competition for
business travel, the impact of surcharges on discretionary travel and a
class action suit against the company for alleged conspiracy to fix
surcharges. We would revise our estimates following an analyst meeting
on
Wednesday. Meanwhile, we maintain our SELL call and fair price of
$14.30.

SINGPOST, gs maintain BUY
-News. SingPost reported 1Q09 results and held a conference call on 29
Jul.
The reported net profit of S$40mn was 7% above our forecast; our 2009E
forecast of S$154 mn is above consensus (Reuters) of S$151mn. SingPost
proposed an interim dividend of 1.25 cents per share, in-line with our
expectation.
-Analysis. Reported revenue of S$121 mn was in-line with our forecast;
the
better-thanexpected results were mainly due to improvements in margins
on
the back of lower labor cost (- 3% qoq), volume related exp (-5% qoq)
and
admin expenses (-15% qoq). SingPost reported 1Q09 underlying EBITDA
margin
of 39% vs our forecast of 36% (4Q08: 33.6%). As highlighted in our
earlier
reports, the lower 4Q08 EBITDA margin was mainly due to one-off
expenses
(e.g. consultation fees); market concerns over margin compression could
be
overplayed and SingPost could deliver better-than-expected results.
SingPost said that it remains on track with growth from its core
businesses
and anticipates revenue enhancement through “repurposing/
repositioning?of
its post offices whilst margins/cost pressures should stabilize over
the
next few quarters. On the sale of the head office building, SingPost
said
that it is still at the exploratory stage and the exercise is intended
to
enhance shareholder value (vs M&A). SingPost said it remains committed
to
its dividend policy of min 5 cents/share over the next few years.
-Implications. We believe the results highlight that the company’s
earnings
should remain resilient in spite of the weakening macro conditions. We
believe that SingPost continues to look defensive on the back of: (1)
its
highly visible earnings outlook and (2) its attractive and sustainable
forecast dividend yield of 7% in FY09E-FY11E. We believe that investors
seeking shelter from market volatility should buy SingPost for its
defensive attributes. Our estimates and target price remain unchanged.
SingPost is attractively valued at a CY08 P/E of 13.7X, dividend yield
of
6% and EPS growth of 4% vs. the broader Singapore market at 15X, 3% and
-2%.

STARHUB, citi maintain BUY with target price $3.20($3.30)
- Weakness on likely uninspiring 2Q results an enhanced buying
opportunity:
We think lower mobile margins beckon with 2Q results due 6 August, but
see
margin recovery prospects into 2H as MNP devolves into peaceful
existence
in Singapore. Capital reduction delivery boosting an already attractive
6.5% yield is a high probability event into 2H as well.
- Lower QoQ margins in 2Q:  Our checks indicate high retention costs
into
MNP (started 13 June) driving weak 2Q margins as well (following a weak
1Q). We see 2Q EBITDA at S$165m (+0.9%yoy) and profit at S$76.9m
(-5%yoy).
We see 32% EBITDA margins (off service revenues) in 2Q (vs. 33.1% in
1Q).
- Full-year guidance at modest risk:  Our modestly revised down
estimates
now leave us at 32% margins for the year (vs. StarHub’s 33% guidance).
The
more important issue, in our view, would be extent of margin recovery
prospects into 2H08 and beyond, which then sets up well for earnings
growth
in 2009E off a weaker 2008. M1’s recent and constructive outlook bodes
well
in this regard.
- No NBN = surplus cash return:  StarHub is part of Infinity Consortium
with City Telecom (HK) and M1. The other bidder consortium is Axis
NetMedia
Corp-led “OpenNet?(with SingTel, SPH & SP Telecom), which we think is
more
likely to win the bid. This frees up StarHub to return surplus cash to
equity. Target gearing of 1.5-1.8x (08E) net debt/EBITDA leaves
S$135m-327m
to ROE ?that’s 3-7% yield now and adds on to recurring 6.5-7% dividend
yield.

YANLORD, jpm downgrade to NEUTRAL with target price $2.20
- Downgrade Yanlord to Neutral, with a reduced Dec-08 price target of
S$2.20: Yanlord has outperformed SMID-cap China developers by 12% YTD
on
average due to strong pre-sales, better financial flexibility and the
appreciating S$. However, given that visibility for 2009 pre-sales is
poor
and the valuation no longer looks attractive on a risk-adjusted basis,
we
downgrade Yanlord to Neutral; we prefer CapitaRetail China Trust (CRCT)
for
Singapore-centric investors seeking China real estate exposure.
- Lowering our estimates: We cut our FY08 and FY09 earnings estimates
for
Yanlord by 6% and 29%, respectively, to factor in slowing property
sales in
various markets in China, downward ASP pressure for new projects, and
low
visibility for 2009. We also increase our discount rate by 200bp to 11%
to
incorporate an increased risk premium for China property developers. As
a
result, we lower our RNAV estimate by 25% to S$2.70/share.
- 2Q08 results preview: Yanlord will announce 2Q08 results on 13 August
after market close. We continue to focus on the group’s pre-sales
proceeds
over reported earnings and expect the group to report approximately
S$400million in sales for the quarter. We believe the earnings risk for
2008 will be relatively low given our estimate that 60% of 2008 EBIT
has
been locked in.
-We reduce our Dec-08 price target to S$2.20, at a 20% discount to our
RNAV
estimate. A key upside risk to our rating and price target is
better-than-expected pre-sales in 2H08 leading to better visibility for
2009 earnings; a key downside risk is an unexpected poor performance
from
Shanghai.