The Gambler

Lured to the markets by promises of vast and easy profits, the gambler is unfortunately a sizeable group. Typically male, these “investors” are prepared to risk large sums of money on speculative and volatile shares in the hope of making that one big win. Like all gamblers they tend to ignore any losses, boast about the wins and continually chase the perfect trade.

To their credit, they are highly motivated and driven to learn all they can. But unfortunately this can make them very popular with discount brokers, churning accounts as they experiment and try to build trading systems without proper plans and risk management. Many people belonging to this group will eventually end up like any gambler; broke and bitter, rather than learn proven formulas for market success.

The famous investor Sir John Templeton said “The stock market is not a casino, but if you move in and out of stocks every time they move a point or two, the market will be your casino. And you may lose eventually…or frequently.”

Don’t become a gambler. Don’t trade or invest based around emotion. Always have a plan. Boring, age old adages that have survived the test of time and represent timeless wisdom.

The Skeptic

Regardless of what the facts are, there are those that refuse to acknowledge that the market can offer sensible and conservative investment opportunities. Some may have come to this view due to a bad experience with shares (former gambler, see above), others may simply be doubtful due to negative media commentary.

The skeptic will often hold many misconceptions about the share market, and will be ready to quote you any number of examples that support this pessimistic view (HIH, ABC Learning, Allco Finance). This view does nothing except prevent skeptics from participating in the best performing asset class available. And this in turn seriously limits their wealth creation potential.

The Timid

The timid investor is essentially the exact opposite of the gambler. While they are convinced of the benefits of share ownership in principle, they falter when it comes to the real thing.

When prices are going down, they are reluctant to buy for fear that the down trend will continue. When prices are rising, they are convinced prices are over inflated and remain on the sidelines in anticipation of a pull back.

For those that do take the plunge and buy some shares, they sell out at the first sign of trouble and crystalise their losses, removing their exposure to any eventual recovery. Likewise, shares that gain ground are soon liquidated for fear that they may soon reverse direction. In doing so they often miss out on much better returns down the track. In short, the timid investor is often doomed to fail.

The greatest mistake these investors make is the failure to recognize that markets are volatile. And while that means that it is a poor asset class to park your capital in the short term, it always has (and always will) give exceptional results in the long term. The other great mistake these investors make is to let their investment decisions be driven by emotion.

The Imperturbable

This final group is perhaps the smallest, but it is in my experience, the group that has the most success in the market. More often than not, these are the people that have managed to ignore the day to day trials and tribulations of the market and have instead remained resolutely focused on the bigger picture.

Typically, this group is composed mostly of people over 50 who have often done nothing more complicated than buy a mix of quality blue chip shares. They know that regardless of what prices do in the short term, their companies will for the most part continue to pay them reliable, rising and tax effective income. And they have also seen many recessions and bear markets and understand that no matter how bleak the outlook, the human race has survived and gone onto greater prosperity.

The imperturbable investor usually belongs to that era where people bought shares so as to become a shareholder – not to profit from a short term change in share price. They understand the business they invest in, they read all the correspondence, they attend the Annual General Meetings (AGM’s) and they vote in company matters. They know nothing of advanced technical indicators and trade philosophies, and yet tend to out-perform their younger and more reckless counterparts. Grandma it turns out is nearly the perfect model for retail investors to aspire to.

Since July 15 when U.S. markets hit another intermittent low amid the ongoing credit crisis, the Dow Jones Industrials Average (Dow) has gained 7.2%.

But over the same period the most important credit indices have posted declines while others have logged marginal gains. Overall, the broad trend in credit has not been bullish since mid-July. This tells me that stocks are luring more investors into another bear market trap.

Since the onset of the credit squeeze last August, stocks have staged two bear market rallies - the first last September and another one in late March. Both rallies ended badly for investors.

The last bear market rally following the Bear Stearns Cos. bailout was actually supported by a broad-based decline in riskier credits. But that 10% gain for stocks from late March through late May also proved dangerous. In June, the S&P 500 Index plunged more than 8%. In fact, that was the worst June for the S&P 500 since 1930.

Nevertheless, it’s important to gauge what credit indicators are telling us now so we can at least feel more confident dipping our toes back into the stock market.

Lending rates, as defined by LIBOR, which sets the standard for over US$1.5 trillion worth of global funding remains elevated. It’s still 80 basis points above the Federal Funds target rate.

The same is true in Europe where EURIBOR sits at 4.96%. That’s significantly above the European Central Bank’s (ECB’s) base rate of 4.25%.

These lending rates have not eased since June and continue to paint a bad picture for global cross-border lending or the lack of inter-bank liquidity. Central banks, despite pumping the credit markets with hundreds of billions of dollars or euro since last summer, still can’t ease LIBOR or EURIBOR.

LIBOR remains my greatest concern followed by mortgage rates.

Tune in tomorrow and I’ll show you exactly how the credit markets reacted to this past week’s stock market rally.

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.

WASHINGTON - China’s economy will overtake that of the United States by 2035 and be twice its size by midcentury, a study released by a US research organisation concluded.

BRUSSELS - EU finance ministers gave Slovakia the final green light today to adopt the euro on January 1, 2009, leaving the ex-communist country less than six months to prepare for the changeover, an EU official said.

PARIS - Liquid containing traces of unenriched uranium leaked at a nuclear site in southern France, and some of the solution ran into two rivers, France’s nuclear safety agency said.

STRASBOURG - The European Parliament approved a proposal to include airlines in the bloc’s strategy to cut carbon dioxide emissions - a move that could raise the cost of air travel and provoke a dispute with the United States.

PARIS - European plane maker Airbus led arch-rival Boeing in the fight for new business in the first six months of the year with 487 new orders versus 475 for the US manufacturer, Airbus figures showed Tuesday.

MILAN - Fiat, Italy’s largest automaker, will lay off workers at four of its six Italian plants for three one-week periods later this year due to the contracting automobile market, a spokesman said.

HELSINKI - Only three per cent of mobile phone users around the world recycle their old mobile phones, Finnish handset maker Nokia says.

BRASILIA - Brazil’s economy minister, Guido Mantega, on Tuesday criticized opposition to opening up the G8 to economically vibrant nations in the developing world, including his own.

JOHANNESBURG - Harmony Gold halved the cash element in the sale of its Mount Magnet operations to Australian-based junior miner Monarch Gold Mining but the overall price was unchanged.

WELLINGTON - Singapore-based global dairy trader Olam International says it will pay $NZ101 million ($A79.71 million) for a 24.99 per cent stake in New Zealand dairy processor Dairy Trust Ltd.

LOCAL NEWS

MELBOURNE - An emissions trading scheme could force one of Australia’s largest oil refineries to close, cutting competition and threatening further fuel price rises, ExxonMobil Australia says.

CANBERRA - A $21.66 pay rise to Australia’s lowest paid workers could drive up inflation, industry chief Heather Ridout has warned.
The Australian Fair Pay Commission granted the weekly pay rise to over a million workers.

CANBERRA - Prime Minister Kevin Rudd will be in the spotlight of the world stage yet again today when he addresses world leaders in Japan - and he’ll be talking climate change.

HOBART - A coroner has ruled that an inquest is required into the death of Beaconsfield miner Larry Knight.

Stocks to watch on the Australian stock exchange today:

AFG - ALLCO FINANCE GROUP LTD - up 1.5 cents to 36 cents
Allco has sold part of its Singaporean real estate arm for $138 million to Frasers Centrepoint Ltd (FCL).
The sale involves Allco’s 17.7 per cent interest in the Allco Commercial REIT and its 100 per cent stake in the manager of the Allco REIT, Allco Singapore Ltd.
It will generate proceeds of more than $90 million, Allco said.
Allco said the sale, as well as recent asset sales, meant the firm had significantly progressed its restructuring plans.
It said it had refocused its strategy around the company’s core capabilities of sourcing and managing aviation, shipping and rail assets, managing the funds that own those assets and private equity.

CIF - CHALLENGER INFRASTRUCTURE FUND LTD (CIF) - down one cent to $2.74
CIF’s second biggest shareholder has stepped up its campaign to wind up the fund by serving notice for an extraordinary general meeting (EGM).
The London-based Consensus Business Group, which has a voting interest in 18.4 per cent of CIF’s stock, has served the notice on Challenger Listed Investments Ltd, which is the infrastructure fund’s responsible entity.

MIS - MIDWEST CORPORATION LTD - unchanged at $6.38
Sinosteel Corp is on the cusp of gaining control of Midwest after four of the company’s directors decided to tend their own shareholding into the $1.36 billion takeover offer.
Midwest chairman Jesse Taylor and directors Francis Ng, Steven Chong and Stephen de Belle, have decided to accept the $6.38 cash per share bid offer for their collective 4.1 per cent holding in the company.
This will give Sinosteel, China’s second largest iron ore trader, a 49.68 per cent holding in iron ore miner, Midwest.

TCL - TRANSURBAN GROUP LTD - up 15 cents to $4.60
Transurban has reported an increase in annual revenue from tolls and fees on its roads in Australia and the United States, helped by higher traffic volumes and toll increases.
Transurban released traffic and revenue data for the 2008 June quarter and the 2008 full year today.
Transurban said toll and fee revenue from its biggest asset, the CityLink toll road in Melbourne, for 2007/08 had risen 9.2 per cent to $362.8 million, taking into account the impact of traffic volumes of road upgrade works.

HER - HERALD RESOURCES LTD - up one cent to $2.92
Indonesian mining group PT Antam Tbk and its Chinese partner have extended a $553.6 million takeover bid for zinc-hopeful Herald Resources Ltd.
PT Antam and Shenzhen Zhongjin Lingnan Nonfemet Co Ltd, which hold about 19.35 per cent of Herald, have extended their $2.80 cash per share offer for the company by one week to July 15.

CRE - CRESCENT GOLD LTD - down five cents to 14.5 cents
Crescent Gold Ltd shares have sunk to a 12-month low after the gold producer suspended its Laverton operation in Western Australia following problems with the processing plant.
The company has been forced to slash its workforce and implement a six month review of the processing plant, with resumption of production not expected until the first quarter of 2009.

The market is up 36. Resources are up 2.2% following the strong moves in the UK and the US. Financials are down 0.3% but being held up by BNB and MQG with good news on the banks’ waiver of BNB’s debt trigger clause.

Dow down 107. Up 32 at best. Down 155 at worst. SFE Futures down 4. Dow down 14% for the year. Crude up 45% this year. Resources up. Gold up $16. Financials down the most – fell 1.3% - only insurance brokers up 1.9% in the sector. Financials down 6.5% for the week. Merrills down 1% - reported to be about to post more write downs – may sell BlackRock. Consumer confidence survey at 56.4% - lowest for the year. Energy up. Tech majors down. Home builders down. Saudi’s embarking on what they are calling the single largest expansion of oil production capacity in history – will spend $10bn to pump 1.2m barrels per day from the Khurais field by next June. 

• Both BHP and RIO up in ADR form on Friday, 2.22% and 0.88% respectively. BHP up 93c to 4383c. RIO up 384c to 13588c.
• Metals mostly up on Friday – Copper up 1%, both Nickel and Aluminium up 0.7%, and Zinc down 3.1%. Zinifex flat at 820c.
• Oil price up 78c to $139.68 after Qatari Oil Minister Abdullah al-Attiyah say he was considering the possibility of cutting output in response to a US threat to sue OPEC members. Woodside up 84c to 6813c.
• Gold up $16.20 to $931.30. Newcrest up 144c to 3033c.
• US Bonds up with the 10 year yield down to 3.96%.

Lots of weekend press about what a terrible year its been for the stockmarket. The ASX 200 is down 16.54% so far this financial year and down 23.31% (or $400bn) from the peak on November 1^st. The main issues for the year have included $400bn of sub-prime and credit market related losses, the collapse of Bear Stearns, the securities lending debacles (OPES, Lift, Tricom and Chimera), a record oil price, higher mortgage rates, a strong A$, short selling, 70% of IPOs underwater (RAMS down 97%), the collapse of MFS, ABC Learning, Centro, City Pacific, and Babcock & Brown and its satellites, a 35% fall in the foundation sector of Australian long term investments – the banks – and some aggressive tax loss selling in the last month. 

• Managed funds will report their worst returns in 20 years.
• A$ close to all time highs.
• The Dow Jones is now below the peak hit in 2000, in other words it has gone nowhere in eight years whilst the Australian market is up 69%.

Babcock & Brown (BNB) up 12% in early trading on the back of the announcement that its lenders have dropped the market cap trigger clause on its debt facility and that BNB would prepay $400m of its debt using proceeds from recent asset sales – they have also agreed an increase in the rate on their debt facility by 50 basis points which will drop on the re-establishment of their BBB credit rating. Phil Green (CEO) says “The decision by the banks underscores the strength of our business and the banks commitment to Babcock & Brown”. Macquarie follows BNB up 2.4%. The whole Babcock stable having a better day with BBP up 7% and BBI up 4.4%.

• APN News & Media (APN) said sales up 2% on-year to June 30 but 1H earnings to remain unchanged. Said net profit before one-offs would be “broadly in line with the same period last year.” APN down 1c to 300c.
• Flinders Mines (FMS) in a trading halt pending “Further scientific clarification work to be carried out on recent results”. This is the company that recently announced that RC drilling at Hamersley would commence in the third week of June on five iron or targets “proximal” to the known inferred resources of Fortescue Metals.
• Coal seam gas stocks Molopo and Metgasco both up 7% on no announcements.
• Gold stocks having another good day on the back of a $16 jump in the gold price. Newcrest up another 6% on the research this morning post its announcement on Friday securing alternative gas supplies (at higher costs). NCM up 160c to 3049c.
• Macarthur Coal (MCC) said ArcelorMittal has increased its shareholding from 14.9% to 19.9% through buying a 5% stake from Talbot Group Holdings - $20.00 per share. MCC down 30c to 1770c.
• Iluka (ILU) announced it will restart its Western Australia operations having secured an alternative gas supply – diesel LPG. Apache to resume two-thirds production by Aug and full production by Dec. ILU down 3c to 468c.
• Perpetual (PPT) will sell its managed infrastructure funds to investment and broking firm Wilson HTM Investment Group (WIG). PPT up 26c to 4430c.
• Sonic Healthcare (SHL) expands its business into the US by buying Clinical Laboratories in Hawaii and associated pathology business for $121m. SHL up 4c to 1459c.
• Beach Petroleum (BPT) records increased production from its Cooper-Eromanga basin project. Also expects significant Queensland Coal Seam Gas growth. BPT up 4 c to 136c.
• Ausenco (AAX) announced its Sandwell business had started a $12m contract for Porto Brasil’s eleven birth multiproduct port. AAX up 19c to 1549c.

CHINA FARM EQUIPMENT, uob maintain BUY with target price $0.74

CHINA HONGXING, db maintain BUY with target price $0.85

COMFORTDELGRO, citi downgrade to SELL with target price $1.44($2.01)

LIAN BENG, cimb maintain NEUTRAL with target price $0.38

MAN WAH HOLDINGS, ocbc maintain BUY with target price $0.51($0.52)

NOBLE, csfb maintain OUTPERFORM with target price $3.45

NOL, citi maintain SELL with target price $2.70
NOL, leh maintain EQUAL WEIGHT with target price $3.70
NOL, ms maintain OVERWEIGHT with target price $4.80

SINGTEL, csfb maintain OUTPERFORM with target price $4.20

SMRT, citi upgrade to HOLD with target price $1.88($1.48)
ARA, csfb maintain OUTPERFORM with target price $0.98
- ARA announced the third and final closing of its flagship private
real
estate fund, the ARA Asia Dragon Fund (ADF) with an additional
US$133.22
mn, bringing total committed capital to over US$1.13 bn. Together with
co-investment of US$500 mn, the fund has over US$1.63 bn equity,
representing potential real estate investment capacity of US$4-5 bn
with
leverage.
- To date, ADF has invested in real estate with a gross asset value in
excess of US$800 mn, we understand, in development projects in
Singapore
(Grange Infinite) and China.Tianjin (residential township) and Nanjing
(commercial development).
-This ADF closing is within our expectations and hence we are
maintaining
our forecasts. ARA has launched its second Shariahcompliant fund on the
back of the success of AIFEREF and is on track to closing the
US$150-200 mn
fund by end of year.
-We like ARA.s defensive and stable fee income from committed AUM, in
addition to potential growth from its scalability. In our view,
valuation
is compelling at 10x 2008E P/E, or 8x ex-cash, in addition to
attractive
dividend yield of 5-7%. OUTPERFORM.

CHINA FARM EQUIPMENT, uob maintain BUY with target price $0.74
-We recently visited China Farm Equipment’s (CFE) agricultural truck,
farm
equipment, and diesel engine factories located in the vicinity of
Changsha
city, Hunan province.
-Truck ¨C exploiting overseas market to improve overall gross margin.
CFE
deems truck to be one of the important agricultural equipment and a
good
complement to its business. This is why CFE is keen to develop the
trucking
business despite the fact that its relatively low margin will likely
drag
down the company’s overall gross margin. CFE has been actively
exploiting
the overseas market for its trucking business as the 17% export tax
rebate
would boost the gross margin of exported trucks from 13-15% to 26%. The
company targets to increase the proportion of exports to 75% in 2008,
which
will help improve profitability. CFE is also applying for the
qualification
from the Chinese government to export whole trucks instead of exporting
parts and then assembling them at the destination country as it is
doing
now. If CFE manages to acquire the qualification, it will be able to
raise
the average selling price (ASP) of its exported trucks by 10%.
-Farming equipments ¨C profitability expected to remain at same level.
High
steel prices have caused a 13% increase on average in CFE’s raw
material
prices. The company intends to mitigate the impact through the
following
ways: a) a 7% increase in ASP, b) internal cost saving measures to
elevate
gross margin by 2-3%, and c) development and sales of new high
value-added
models to expand gross margin by another 3%. Thus, CFE might earn
Rmb1,000
less on each piece of farming equipment sold as compared with last
year,
but overall gross margin is expected to remain stable due to the
introduction of new higher-margin models such as the 1.36 harvestor. In
addition, CFE is negotiating with the government for the right to
further
raise ASP by Rmb2,000 when supply falls short of demand, or when raw
material prices continue to increase.

CHINA HONGXING, db maintain BUY with target price $0.85
-Reversion to the mean in the long run. In this report, we try to find
out
what is in the price based on the historical mean of China Hongxing.
Our
study finds that the market could be pricing in a 30% drop in sales and
an
8.0ppt decline in gross margins, or a 47.4% decline in earnings based
on
our current estimates. The stock is currently trading below one
standard
deviation and in our opinion offers attractive valuation. Maintain Buy.
-Stock is trading below one standard deviation. China Hongxing’s
historical
average over the past two years has been approximately 23.0x with a
standard deviation of 9.0x. The stock is trading at 11.6x and 8.8x
FY08-09E
PE, respectively, which is its furthest point from the mean in its
trading
history and traded more than one standard deviation in March 2008.
-Recent May retail sales in China indicate a slowdown. Channel checks
revealed that some of the sports shoe companies have experienced slower
May
sales, in line with the latest May retail sales in China. However, the
industry players that we have talked to remain positive on retail sales
in
the 2H08 due to the Beijing Olympics. We also note that sales from the
last
three trade fairs (Dec07-May08) indicate that the company has secured
orders of about RMB2.0bn, or 64% of our FY08E sales.
-A call on valuation. We maintain our Buy rating with a DCF based
target
price of S$0.85. For our DCF calculation, we assume a beta of 1.1, an
equity risk premium of 5.3% and a riskfree rate of 4.9% to derive our
WACC
of 10.7% and terminal growth rate of 2.5% in line with our assumptions
for
other China brands Based on our TP, this implies a forward PER of 21x.
Key
risks: increased competition in the sportswear segment, macro consumer
slowdown and inflationary pressures. See p8 for more on risks and
valuation.

COMFORTDELGRO, citi downgrade to SELL with target price $1.44($2.01)
- Fuel surging, UK slowing ¡ª While long-term growth looks intact,
Comfort
faces near term ROAE pressure from diesel fuel costs and a weaker UK
business. We forecast operating margins of 9.9% in 2008E (2007: 11.2%),
and
ROAE of 12.5% (2007: 15%). A 2008E DPS of S$0.078 (5% yield) gives some
support. New target S$1.44 based on 15.9x 08E PER (2x P/BV). Our
previous
target price of S$2.01 (=2.7x 08E P/B) used a long-term
sum-of-the-parts
valuation.
- Diesel costs surging ¡ª 1Q08 was punctuated by a 7.5% rise in
operating
costs versus a 5.8% rise in revenues, operating margins falling to
10.1%
from a peak of 12.2% in 3Q07. The damage was due to diesel-led fuel
costs,
which in 1Q08 surged 32%yoy. Average 2Q08 diesel prices have risen 29%
over
1Q08. There is understandably little Comfort can do to hedge at these
levels, and there is only limited pass-through that can be made in fare
increases.
- UK slowdown ¡ª Quarterly growth from UK operations (33% of group
revenues,
second to Singapore’s 53%) has faltered, largely due to the c.14%
depreciation of the GBP against SGD since July 2007. Even in GBP terms
revenue growth has suffered from a slower London taxi business, a
product
of economic weakness developing in that financial centre. Our house
view is
for a further 5% depreciation of GBP against SGD for the rest of 2008.
- Lower EPS estimates 12-23% ¡ª Citi’s oil team views that crude prices
may
sustain above US$120/bbl into 2009E, while the UK slowdown may have
just
begun. Our net profit forecasts exclude one-time exceptional items such
as
the recently announced S$26.5m gain on the CityFleet - Cabcharge share
swap.

LIAN BENG, cimb maintain NEUTRAL with target price $0.38
-LBG has won three contracts amounting to S$117m, two of which are for
private residential construction while the third is a civil engineering
project from the Public Utilities Board. This brings its total order
book
to S$800m, for progressive delivery until 2010.
-New residential construction projects. The first project worth S$36.2m
is
for the construction of the 51-unit Bellerive condominium, just off the
prime Bukit Timah Road. Work is scheduled to start in Jul 08 and be
completed by Jul 2010. Construction cost is S$585 psf. The second
project
is worth S$50.4m for the construction of the 33-unit Emerald Hill
development near Orchard Road. Completion is expected in late 2010 at a
construction cost of S$668 psf.
-New civil engineering project. Worth S$30m, this project involves the
design and construction of a NEWater pipeline from Changi to Tuas and
Jurong Island, which will form part of the nationwide NEWater pipeline
network.
-Pleasant surprise for construction margins. For LBG’s two residential
projects, we are pleasantly surprised that it had managed to price its
construction costs at S$585 psf and S$668 psf respectively. We estimate
that gross margins should be in the midto high teens, assuming material
prices do not rise further. The niche nature of these projects would
probably allow the developers to price them at premiums, which probably
explains LBG’s ability to price in higher construction costs. With the
better margins, we suspect that the wins could significantly mitigate
LBG’s
higher cost of construction materials, especially steel rebars.
-Inevitable margin squeeze. Nevertheless, we maintain the view that the
rapid rise in construction costs will squeeze the margins of developers
and
project owners, who may be approaching pain thresholds. Unless
developers
and project owners have land banks at very low costs or projects so
niche
that large premiums can be charged, we are concerned that construction
costs are nearing a tipping point.
-Reduce exposure to main contractors. We continue to advocate reduced
exposure to main contractors such as LBG. These companies have large
order
books that can run into the next 2-3 years, and stand a higher risk of
margin erosion from unhedged construction material requirements. We are
also concerned about contractors that had turned opportunistic property
developers late in the cycle. These are likely to be saddled with
unsold
inventories and/or expensive land banks. LBG has both a large order
book of
over S$800m and unsold residential properties potentially below cost.
-Maintain Neutral and target price of S$0.38. We maintain our FY08-10
forecasts as we earlier factored in its growing order book. Our
valuation
of 8x CY09 P/E has been pegged at a 20% discount to our targets for
industry peers.

MAN WAH HOLDINGS, ocbc maintain BUY with target price $0.51($0.52)
-Taking a bigger slice of the pie. Having completed its capacity
expansion
exercise, Man Wah Holdings Ltd (MWH) has revised its actual production
capacity upwards by a sizable 65% to 500,000 sofa sets p.a. from a
previously projected 303,000 sets p.a. This comes as good news, as
capacity
expansion has been a key growth driver for MWH, given that the company
has
been enjoying a situation of demand surplus and was operating close to
full
capacity prior to the expansion.
-Larger scale, higher estimates. With the larger-than-expected
capacity, we
project stronger revenue growth from MWH. We have raised our FY09 and
FY10
sales forecasts by 12% and 22%, respectively. This in turn lifts our
net
profit estimates by 4% and 10%, respectively. MWH is capable of
exceeding
our forecasts if it meets its target of full capacity utilization by
FY10.
However, given the softening consumer sentiment in US and the possible
contagion effect it may have on Europe, we have taken a conservative
stance
and assumed 70% utilization rate by FY10.
-Unhampered by natural disasters. Addressing concerns about the impact
of
China’s recent natural disasters, such as floods and the earthquake,
MWH
has reassured us that it has been business-as-usual at all its stores.
It
does not foresee any significant impact on its sales and remains
focused on
growing its retail penetration in the PRC. Furthermore, it expects its
US
segment to continue growing as the group’s significantly larger
capacity
will now enable it to take on larger outsourcing orders.
-Sound growth; compelling valuations. Having proven its track record
with a
107% net profit growth to HK$187.8m in FY08, MWH continues to offer
strong
growth prospects at undemanding valuations. Based on the last traded
price,
it is being valued at 4.2x FY09 PER. With all its groundwork laid in
place,
we are forecasting net profit to grow by 23% in FY09 and a further 13%
in
FY10, subject to upward revisions depending on consumer sentiment. We
maintain our BUY rating on the stock, and tweak our fair value estimate
to
S$0.51 (previously S$0.52) to reflect an updated HKD/ SGD forex rate.

NOBLE, csfb maintain OUTPERFORM with target price $3.45
-We met up with more than 20 investors in HK and Singapore over the
past
week, many of whom were bullish on commodities demand over the longer
term
and viewed Noble.s diversified operations as well leveraged to this
structural theme.
-Noble.s growth strategy, the company.s competitive positioning within
each
of its three core commodity segments, and the rationale driving
management.s recent investments into selective infrastructure assets to
build-out its supply chain capabilities, were some of the key issues
that
we addressed.
-The many comparisons drawn between Noble and that of Olam, albeit
focused
in the agricultural commodities subset, suggest the latter remains well
held amongst the institutional investor base.
-While the market has so far accorded a valuation premium to Olam for
the
predictability of its earnings versus those of Noble, we believe that
an
improving core earnings trend, driven by strong growth in its
underlying
commodity operations, should help drive share price action over the
medium
term. OUTPERFORM.

NOL, citi maintain SELL with target price $2.70
-Media reports potential US$5bn loan ¡ª Bloomberg and Reuters indicated
that
NOL could potentially borrow US$5bn or more from a syndicate of banks,
ostensibly for a Hapag-Lloyd transaction. NOL did not make any
disclosure
or comment regarding this news. We nevertheless examine the
implications
should media reports prove true and only see added risk. Sell (3M),
S$2.7
TP.
- Hapag-Lloyd could cost US$6bn or more ¡ª Depending on the details of
any
deal, Hapag-Lloyd could fetch US$6-8bn+ as per news sources such as the
Wall Street Journal, Reuters, and Bloomberg. NOL would thus likely
require
substantial new capital in most transaction scenarios.