US Congressional leaders and the Bush administration have reached a tentative deal on a bailout of imperiled financial markets that could cost taxpayers hundreds of billions of US dollars.

The House could vote on it later today and the Senate on Tuesday. 

US House of Representatives Speaker Nancy Pelosi announced the accord just after midnight Saturday and said it still has to be put on paper. 

Treasury Secretary Henry Paulson talked of finalising the deal but added: “I think we’re there.”

The plan would spend up to $US700 billion, most of it on buying deeply devalued mortgages from the housing market’s collapse and other bad loans held by tottering banks and other investors.

The aim is to prevent credit from drying up and causing a meltdown of the US economy, which is still on the cards.

Media reports indicated the $US700 billion request could end up being cut by as much as half, with the rest subject to congressional approval at a later date.

The proposed bailout, first rushed to Capitol Hill by Paulson as a three-page proposal, has now ballooned into a document of more than 100 pages, CNN reported.

A Democratic Senator said $US250 billion would be immediately available and another $US100 billion could be used when requested by the president for debt purchases.

The Congress could bar the expenditure of the remaining $US350 billion only by passing a resolution to block it from being spent.

Several other provisions in the proposed bill include more oversight and a way for the Government to reclaim losses from companies on mortgage related assets that lose money.

 

---

In Europe Belgium’s Fortis looks like becoming the first large European continental bank to fall victim to the credit crunch, as the global chaos continues with Britain’s Bradford & Bingley mortgage lender and American regional bank, Wachovia also teetering on the brink.

The Belgian central bank and the country’s regulator are paving the way for a bailout of the huge banking and insurance group, which has a balance sheet of well over $A1.1 trillion and a market value at last Friday of just over $A25 billion.

The Belgian regulator is thought to be considering the creation of a “bad bank” for assets similar to the controversial scheme proposed in America as a means of ensuring a deal.

There were reports this morning that french bank, BNP, might mount a bid for Fortis.

Any uncertainty around the future of Fortis is likely to hit Royal Bank of Scotland, its partner with Santander of Spain in the consortium that bought ABN Amro last year for 102 billion euros just as the credit crunch was breaking. 

They refused to withdraw the bid, and were allowed to continue by the UK, Belgium and Spanish central banks and regulators.

The Dutch banking assets that Fortis bought as part of the deal are yet to be transferred out of the special company used to execute the deal, which is legally a subsidiary of RBS, which raised over $A24 million and has sold more than $A10 billion in assets in the past four months.

Fortis, which has 2,500 branches across Europe, replaced its chief executive last week which worried markets.

The Belgian government, regulators, and the Dutch central bank are all involved in the talks and a deal is expected to be announced over the next day to prevent a crisis of confidence that could spark public panic and a run on deposits across parts of Europe;something that would be a replay in Britain where Fortis is Britain’s third-largest private car insurer and the fourth-largest travel insurer.

There’s talk the Luxemborg Government might take a stake in Fortis to support it. 

In Britain Bradford & Bingley looks like being nationalised and then sold off.

The Bank of England, the Financial Services Authority (like APRA in Australia) and the government appear to have agreed to nationalise B&B and then sell it off, much in the way the US regulators closed and seized Washington Mutual last Friday morning and then sold the loans, deposits and branches to JPMorgan Chase.

Santander, the Spanish bank, is in negotiations to buy B&B, but it is insisting on conditions.

It would be the second British bank to be nationalized this year after Britain was forced to take Northern Rock into public ownership in February.

The FSA has been trying to find a single white-knight to take over B&B’s loans in their entirety, but Britain’s big banks refused to get involved.

B&B shares tumbled to a record low on Friday.

The UK government forced the merger between the country’s biggest mortgage lender, HBOS and Lloyds TSB.

Britain’s top five banks — HSBC, Royal Bank of Scotland, Barclays, Lloyds TSB and HBOS — and Santander already own about 30% of B&B between them after they stepped in to help save a rights issue that flopped in June. RBS, HBOS, Lloyds and Barclays (which bought the remnants of Lehman Bros. in the US) are in no position to extend a helping balance sheet, leaving HSBC and Santander which owns Abbey and Alliance and Leicester.

 

---

In the US, Wachovia may struggle to find a ‘friend’ until the bailout bill is law, or there’s some move by authorities to take it under control.

Some US commentators reckon possible suitors, one of whom is Citigroup (Which has gone from feather duster to potential white knight) might use the ploy JPMorgan ploy used with Washington Mutual: wait to see whether regulators will seize the bank, then buy the best assets and let the government sort out the rest of the mess.

Besides Citi, Well Fargo (which might be a target for Goldman Sachs) and Banco Santander are said to be in talks to buy Wachovia.

They were part of the same group that passed up a chance to buy Washington Mutual which JPMorgan bought $US1.9 billion.

Media reports say the possible buyers will wait to see what’s in the bill, but have been demanding Government aid. That’s something the Government refused in the case of Lehman Brothers and Merrill Lynch.

Wachovia shares fell 27% in New York on Friday.

The buyer may get help from regulators, who said the US benefited from seizing and selling WaMu because the Federal Deposit Insurance Corp didn’t have to use its $US45 billion deposit insurance fund.

JPMorgan plans to write down WaMu’s loan portfolio by about $US31 billion ($A37.2 billion) - a figure that could change if the government goes through with its bail-out plan and JPMorgan takes advantage of it.

JPMorgan said there will be another $US1.5 billion in merger costs.

 

---

And further failures will further elevate the month of September to peak of the list of miserable months, surpassing October, when the great crash of 1929 and the plunge of 1987 happened.

The financial landscape has been ripped up by the bankruptcy of Lehman Brothers the investment bank; the government’s takeover of American International Group which was once the world’s largest insurer, based on market value; the shotgun marriage of Merrill Lynch to Bank of America; the conversion of Goldman Sachs and Morgan Stanley to regulated bank holding companies from investment banks, and the collapse of the nation’s biggest thrift, Washington Mutual, which ranks now as the biggest bank failure in U.S. history.

Goldman saw Warren Buffett snap up a $US5 billion shareholding to make his group the largest shareholder, and Mitsubishi of Japan grabbed a 20% stake in Morgan Stanley after they both abandonment the investment banking model to become old fashioned banks.

 

 

It must surely go down in history as the quickest ever development of a new product. You have to give the investment bankers credit for their timing. As banks are folding left, right and centre in the United States and Congress struggles with how or whether it should bail-out Wall Street, investment bankers at Citigroup have developed a new derivative product that will bypass the new short selling restrictions.

Clearly, despite the big pay cheques, fast cars and expensive apartments, there appears to be one thing that they are short of. And that is tact. Oh, and common sense. That’s if they were hoping the government would bail them out.

In reality though, even though this is only a small example, it is an indication that if the market is left to its own devices with this mess, the banks will work a way out of it. And it won’t cost a single taxpayer dollar.

Of course there would be down sides. More of the regional banks would fold, and it would doubtless lead to more job losses on Wall Street. It could also have a detrimental effect on the availability of credit in the short term.

But by giving Wall Street an easy way out with a government bail-out it means that the banks don’t have to think for themselves. They can let someone else do all the hard work while they just hand over the rubbish mortgages.

If the US government stood up for itself and told the banks that they had to sort it out themselves they would soon come up with a solution. Considering their recent scrapes with over-complicated and over-leveraged products, chances are that they would develop a plan that involved a much lower level of risk.

As it stands, if a new bail-out is agreed to it is likely to do little more than let the banks off the hook.

 

 

Midday Market Roundup 18/08/08
August 18 2008 - Australasian Investment Review – (AIR)

 

We have started off the week OK – up 36 – the SFE Futures suggested an 8 point fall in the market this morning. Resources up 1.4%, Financials up 0.4% after another 6% fall from Babcock & Brown this morning with Babcock & Brown Power down 30.6% on news of a big provision. MQG also down 2.6%. Market is waiting for BHP Billiton’s result – Last year they came out at 3:55pm. Expecting record $15.7bn profit. Commentary on China all important and will set tone for the resources sector which has fallen over 25% since May 19th.

 

Wall Street finished higher on Friday – up 44 – The main point was oil and commodities down again on a rising US dollar. Goldman Sachs says the US dollar has bottomed. Continuing credit-related concerns amidst multi-billion-dollar buybacks of Auction Rate Securities plus some weak economic numbers.  Wachovia announced it will buyback $8.5bn worth of auction-rate-securities and pay $50m in fines, retailers close up 1.8% on better-than-expected 2Q results and the University of Michigan’s July consumer sentiment figures were up less-than-expected – suggest an economy still under pressure.

 

• Both BHP and RIO down 1.77% in ADR form on Friday.
• Metals mixed – Zinc up 1.33%, Aluminium up 0.22% and Nickel down 2.2%. Copper down 0.04%.
• Oil price down $1.59 to $113.46 on growing concerns about demand in industrial nations and the stronger dollar. Woodside up 122c to 5542c.
• Gold down $22.30 to $788.40. Newcrest up 40c to 2483c.
• US Bonds up with the 10 year yield down to 3.84% from 3.90%.

 

We have a busy week ahead with a host of results as we get into the guts of the reporting season. Most notable companies reporting include: Tuesday: CSL, Boral, Newcrest Mining, Wednesday: Coca-Cola Amatil, Perpetual, AGL Energy, Thursday: Amcor, Tabcorp Holdings, QBE Insurance and on Friday we have Wesfarmers, Caltex and Boral.

 

Results Today…

 

• Ansell’s (ANN) – GOOD - Final result has come in better-than-expected. FY net profit up 2.6% to $102.6m, better than $97.2m analysts’ had expected. Declared a final dividend of 15.5c. ANN up 5c to 1129c.
• Seek (SEK) – BELOW EXPECTATIONS - Has announced a 37.4% increase in FY net profit to $76.3m, stronger than UBS Warburg’s forecasts of $75m but below Credit Suisse’s bullish prediction of $80.7m. GSJB Were expected $78.1m. SEK up 5c to 514c.
• BlueScope Steel (BSL) – GOOD - Announces an underlying profit of $816m, up 27%. UBS Warburg expected $728m. After significant items, FY profit came in at $596m, down 13%. Declared a 27c final dividend, up from 26c last year. BSL unchanged at 1329c.
• Sino Gold (SGX) has posted a net loss of $2.6m compared to the $3.12m loss announced last year. Revenue of $100.2m. No dividend. SGX down 13c to 421c.

 

Other Announcements

 

• Babcock & Brown Power (BBP) announced it will take a total impairment charge of $452m relating to the takeover of Alinta. Reaffirmed EBITDA and has realized $40m from its decision to sell its Tamar power stations project. BBP down 30.6% to 30c.
• Babcock & Brown (BNB) has also confirmed its interim result guidance saying the guidance (profit warning) last week included the impact of the impairment charge. BNB down 19c to 426c.
• Talk of Commonwealth Bank of Australia making a $6bn plus takeover offer for BankWest having pulled out of the race to buy ABN AMRO’s Australian investment banking operations. CBA down 104c to 4265c.
• Straits Resources (SRL) announced they will sell their coal assets – Madagascar and Brunei - to its subsidiary Straits Asia for US$100.3m. SRL down 12c to 488c.
• Emeco Holdings (EHL) has successfully executed a 3 year $630m senior debt package. Cost of debt up 130bps after the refinancing. EHL up 0.5c to 109.5c.
• Perpetual (PPT) says funds under management fell slightly in July to $30.2bn from $30.3bn in June. PPT up 205c or 4.6% to 4705c. 
• Allco Finance Group (AFG) announces Credit Suisse Group has agreed to waive Rubicon America Trust’s (RAT) financial covenants and obligation to make a debt repayment until August 22. AFG unchanged at 48c.
• GSJB Were maintain their OUTPERFORM recommendation on Crown (CWN) and 1060c target price ahead of its result tomorrow. CWN down 1c to 825c.
• Fairfax Media (FXJ) only down 2c to 273c despite Citi cutting its target price on the stock by 22% to 291c from 371c. They say advertising outlook in New Zealand and regional Australia looks soft. FXJ down 2c to 273c.
• No indication from Treasurer Wayne Swan as to whether the government will approve Westpac’s (WBC) bid for St. George (SGB). He has also told the banks to follow the RBA’s lead and cut rates if the RBA does reduce interest rates at their next meeting.

Business Confidence Lows and Stock Market Lows

NAB trotted out its business conditions survey yesterday. It’s at about the same level as the darkest days of the Tech Wreck.

Should you care two hoots, reader? One hoot?

Perhaps a fraction of a hoot. These surveys are only useful as contrarian indicators. The stock market tends to hit low tide when everyone’s crying into their beer. And you can expect to see every analyst dusting off their favourite ‘turn-around’ indicator in the next year and a half.

It’s a little too early to be talking about stock market bottoms. But here’s our view…the best time to compare our own period with is the last real recession. Back in the early 1990s. Not the Tech Wreck.

So how did business conditions perform during The Recession We Had to Have? They bottomed out in mid-1991. Business confidence had hit a low about a year and a half earlier. High interest rates choked an economy already struggling to deal with global slowing. Tax rates were high. Spending was a luxury. There was enough political hot air to lift Australia off its tectonic plate.

People were wandering the streets looking for dogs to kick. Dogs, by that stage, had figured out the order of things and skipped town. It was a time of gloominess and sore cats.

And what happened right between the lows in business confidence and conditions?

The stock market turned around. Then it went up for 16 years.

Well. We’re not expecting that to happen today, reader. There a lot of differences between that recession and the one we’re facing. But it’s a reminder. When things look ugly, and everyone agrees they’re getting worse, they’re all usually wrong.

One chart, by the way, that’s starting to look particularly gloomy is the CRB Commodities Index. Everyone’s busy agreeing on it too. Gabriel takes a look at that further down.

More Good Numbers for the ‘Out Economy’

Meanwhile, the big firms servicing the mining industry are making a lot of money. Still. The stock market is predicting a big crash in earnings for these guys. It hasn’t happened yet.

Worley Parsons (ASX:WOR) is the Michael Phelps of engineering and mining services. It’s the complete, all-round package. And it’s doing a lot of winning too. The firm just put up annual earnings growth of 53%.

Revenues grew by 33%. Costs grew by 30%. That’s the story at the moment. Firms like Worley and Leighton (ASX:LEI) are winning enough new contracts to outpace rising costs. Leighton just claimed another $422 million of contracts through subsidiaries. Unless the hustle in the mining sector loses a bit of its bustle, that seems to be the trend. There’s plenty of work to do supporting the metals, iron, coal and energy sectors.

Aussie Mining Goes Alternative

But maybe the most interesting news about Worley was its latest renewable project. Worley wants to knock up a solar plant for the Pilbara. That’s the big mining district. It’s also pretty sunny.

So miners are already shifting away from fossil fuel-based resources. Not a moment too soon. Maybe this’ll be what turns the ignition on the alternative energy small caps in Australia. Demand from the mining sector. We’re thinking geothermal and solar.

Australian Small Cap Investigator guru Dan Denning is also The Daily Reckoning Australia’s managing editor. He’s got more reckoning for you on Worley’s solar story today. If you’re not a reader yet, you can sign up here for free.

The Business of Banking Loses More Ground

The ‘In Economy’ isn’t doing so well, unfortunately. By that, we mean the companies that depend on Aussie demand, opposed to demand from developing countries.

Aussie banking leans pretty heavily on domestic demand. And the Commonwealth Bank (ASX:CBA) released yearly results too, yesterday. Total profit was up 7%.

But the biggest earner for the banks is the spread they make on interest. Interest revenues were up 23%. Interest costs came over the top, growing at 26%. It’s like a mirror image of Worley-Parsons. Possibly Australia’s greatest era of banking profits is over.

The Business of Banking Loses More Ground

The ‘In Economy’ isn’t doing so well, unfortunately. By that, we mean the companies that depend on Aussie demand, opposed to demand from developing countries.

Aussie banking leans pretty heavily on domestic demand. And the Commonwealth Bank (ASX:CBA) released yearly results too, yesterday. Total profit was up 7%.

But the biggest earner for the banks is the spread they make on interest. Interest revenues were up 23%. Interest costs came over the top, growing at 26%. It’s like a mirror image of Worley-Parsons. Possibly Australia’s greatest era of banking profits is over.

The RBA Tells You What You Already Know

The Reserve Bank released its Statement on Monetary Policy for August yesterday, reader. It took 25,254 words, 76 graphs and 17 tables for our monetary authority to tell you everything you already know about Australia’s economy and financial markets.

Only 28 of those words meant anything to anyone.

“On the assumption that the subdued demand conditions are likely to continue, scope to move to a less restrictive monetary policy stance in the period ahead is increasing.”

It all boils down to that. The RBA only really needed three words: “interest rate cut”. That would’ve done it.

The rest of the publication is a recap.

Fuel costs are high. Asset prices are falling. Economic growth is slowing everywhere. Inflation is high. The credit crunch isn’t over. Business conditions are deteriorating. Retail spending is falling.

So it looks as though we’ll be getting an interest rate cut. Money markets and analysts are taking it as a given now.

Then again, central bankers have resorted to threats and games before. We guess we’ll find out in a month.

But there was one optimistic point from the RBA’s letter. Australia’s terms of trade are increasing, thanks to coal and iron prices. Buy the ‘Out Economy’, we say.

Another Chance to Buy the ‘Out Economy’…at a 34% Discount

How can you do that? Well, here’s a thought. Iron companies have lost chunks of market value in the last two months.

Fortescue’s (ASX:FMG) down 34% from its high.

Murchison’s (ASX:MMX) off 43%.

Mount Gibson’s (ASX:MGX) 41% lower.

They could go lower.

But the iron business is still a gold rush in its own right, whatever the share prices are doing. Fortescue announced yesterday that plans to double its iron production are ahead of schedule. We asked Gabriel what he thought of the stock. He was pretty keen. Scroll down for the full story.

Meanwhile, fellow iron ore producer Mount Gibson announced a record net profit of AU$113 million. The market didn’t even glance up. The stock traded flat.

You buy when there’s blood in the streets. What about when there’s utter indifference in the streets? What about when the streets are flush with beige?

It’s uninspiring to see investors shun good results. It’s not like insiders anticipated this either. Mount Gibson has been trading lower for the last month. But markets change. It’s handy to get in before that happens.

A Correction in Bank Pain

The market isn’t entirely indifferent these days, though. It shrieks and leaps up on a chair every time another company confesses sub-prime blues.

But as we’ve said before, sub-prime losses aren’t the best measure of how Australian banks are travelling. It’s how much their funding costs rise.

And, as you can see from our Bank Pain Index to the right, funding costs are back to where they were this time last year.

Maybe it’s tempting to think that the credit whipping is over. Especially when Bendigo and Adelaide Bank (ASX:BEN) posts solid, 40% growth in annual profit.

Don’t be fooled though. This isn’t permanent. As we said above, money markets have factored in a rate cut. Probably a double-slash of about 50 basis points. That’s how the RBA usually kicks off the cutting party. It likes to loosen things up with a double-shot of financial liquidity.

But if the RBA makes its move and cuts…don’t expect money markets to follow the cash rate down any further. And that’ll leave banks with a big spread between the cash rate and their own funding costs. A big, nasty, expensive spread.

Or, the alternative…the RBA doesn’t cut rates and money markets skip back up to nosebleed highs. Someone hand ANZ a tissue.

Babcock, the Life of the Party

After looking at that Mount Gibson result, it seems like investors are bored with the share market, reader. And every time things get boring, Babcock and Brown (ASX:BNB) likes to step in and liven the place up a little. Like the attention-seeking guy at a party who loves to make a spectacle. Usually at his own expense.

Right on cue…Babcock’s tipping next half’s profit will be down 40%.

Investors’ lives suddenly became instantly interesting. They had purpose. They had a mission. Their mission was to sell the stock down 12% for the day.

Credit crunch? Not over.

Money Weekend editor Kris Sayce has been all over this story. Babcock’s paying for establishing a high-debt business model that doesn’t work when the cost of debt goes up. And the money markets continue to flog companies like Babcock into submission. It’s not over.

Gold Cheapens to US$828

Meanwhile, gold took a big fall last night reader. It’s gone all the way down below US$830. Gabriel’s trying to figure out whether traders will support it from here, reader. He’ll let you know tomorrow.

Remember…gold’s one of the best ways to sell the financial crisis. This is just a correction. And in a financial crisis this huge, there’s more to come. Watch for gold to move up again later this year.

The market is up 8. An unremarkable day. Financials down 0.7% after a dull performance overnight in the US. Resources up 0.2% after a strong lead from BHP, RIO and energy stocks in the US. Metal prices up. The SFE Futures were up 15 this morning.

 

Dow up 40. Up 69 at best. Down 95 at worst. Main Point: Financials down 1% on Freddie Mac and AIG’s ugly results and Morgan Stanley freezing home-loans. Energy and resources outperformed on good results. 6 out of 10 sectors up – indexes at 6-week highs. Dow encouragingly turned around a 0.7% loss to make a 0.3% gain holding onto the 331 or 3% gain yesterday. Large cap techs offset bad news in the financials. Nasdaq up 1.2% on better-than-expected results from Cisco. Oil price down 5.4% for the week already. Resources up 1% with BHP and RIO up strongly – up 4.36% and 4.72%. Energy outperformed – up 1.9% on better-than-expected results from Devon Energy. Refiners up with Tesoro and Valero up 12% and 7%. Sunoco up 3.3%. Freeport-McMoRan up 11%. Morgan Stanley froze the home-equity lines of credit for thousands of clients while their homes dropped in value. Telecoms down 1.4% - underperformed – Sprint Nextel and Qwest both reported a lost subscribers. USD climbed to 8-week high against the euro and 7-month highs against the yen – the global slowdown and less fears of inflation are helping the USD to rise.

• Both BHP and RIO up in ADR form overnight, 4.36% and 4.72% respectively. BHP down 6c to 3716c. RIO up 110c to 11550c.
• Metals mostly up overnight – Nickel up 1.17%, Zinc up 1.1% and Lead 2.53%. Aluminium up 0.21%. Oz Minerals up 2c to 176c.
• Oil price down 14c to $118.57 after the U.S. Energy Department’s EIA said crude inventories increased by 1.7m barrels to 296.9m for the week ended Aug. 1, slightly more than the 1.2m-barrel increase expected. Woodside up 77c to 5149c.
• Gold down $3 to $878.80. Newcrest down 40c to 2500c.
• US Bonds down with the 10 year yield up to 4.05% from 4.02%.

Nickel and copper stocks mostly upon a small bounce in metal prices (although copper futures dropping intraday). KZL up 2%, JML up 4,4%, WSA up 0.4% and PAN up 3.5%. Banks down again, NAB down 2.1% and CBA down 0.8%. Big industrials up with a sentiment change towards the consumer discretionaries after the RBA flip flopped their bias towards rate cuts on Tuesday. WOW up 1.5%, WDC up 1.5% and WES up 1.2%.

Unemployment numbers are out at 4.3% - steady on last month – new jobs strong. A$ jumped on the numbers. The European Central Bank makes an interest rate decision tonight. Expected to remain hawkish on rates and leave them where they are. Dow Jones Futures down a worrying 47 at the moment. Enough to keep you out of an overnight trade.

Company news

• Tabcorp (TAH) up 6% early on results - booked a hefty loss but underlying results in-line and there was some relief they were not worse. Market happy with solid underlying earnings and dividend being kept.
• Connecteast (CEU) down 16% early on “disappointing” first week of tolling falling to half the rate of toll-free period - UBS also downgraded the stock.
• Minara Resources’ (MRE) weak 1H report shows net profit down 80% on-year with no interim dividend – below consensus. Our analyst thought they’d fall over…but only down 2.7%.
• Fortescue (FMG) signs a rail and port agreement with Atlas Iron to give AGO access to their rail and Herb Elliot Port – Atlas Iron (AGO) up 14% early on the announcement.
• West Australia Newspapers (WAN) downgraded by brokers on poor FY08 results yesterday and cautious FY09 outlook – seen as a warning to all media companies….but up 4.13%.
• News Corp (NWS) kept mostly at a BUY by brokers after they posted results and positive guidance yesterday. A falling A$ helps. Down 3.11% or 52c to 1621c.
• ResMed (RMD) had its target price boosted by Credit Suisse after results yesterday showing positive top-line revenue growth. Up another 3% today.
• UBS has downgraded the Infrastructure sector after reviewing their cost of equity assumptions.
• Merrills says CBA’s crucial results on the 13^th are unlikely to surprise due to fairly good transparency around solid volume growth, improved margins and bad & doubtful debts at 23bps of total loans. Says CBA is under-provisioned yet has limited exposure to single-names. Down 25c to 4360c.
• Merrills expecting Telstra’s August 18^th FY08 result to be “very strong” with net profit up 14.4% and management’s long-term guidance to be upgraded. TLS up 4c to 453c.
• St George Bank has a briefing next Tuesday. SGB up 13c to 2898c.
• Corporate Express (CXP) downgraded by brokers post yesterday’s results showing falling customer sales and deteriorating market. Down 2%.

ALLGREEN, cimb upgrade to OUTPERFORM with target price $1.20($1.35)
- Below. 1H08 EPS of 2.2cts accounts for only 24% of our full-year
forecast
and 25% of consensus, due to a lack of new project launches, which we
had
expected in 2Q08.
- Lacking new home sales. 1H08 revenue declined 47% yoy largely due to
lower contributions from development properties. In 1Q08, AG released
the
remaining units of Pavilion Park and sold over 20 units in the quarter.
A
check with URA records indicated that fewer than five units were sold
at
ASPs of S$780psf in 2Q08. Our ground checks also suggest that sales of
D’Lotus have been slow.
- Earnings forecasts reduced; but does not lack land bank. We have
reduced
our FY08-10 EPS estimates by 15-33% as we push back our recognition
schedule to later years and factor in an additional 8-10% decline in
ASPs
from current levels. We believe our estimates now reflect a 25-30% fall
in
residential selling prices for AG’s new stock from current levels
achieved
by similar projects. AG has over 1.6msf of GFA of attributable land
bank
ready for release. As such, any earlier-thanexpected launches/new home
sales could potentially shore up its FY08 earnings.
- Valuations compelling again; upgrade from Underperform to Outperform.
Factoring in an additional 8-10% decline in residential prices from
current
levels and higher cap rates of 5.5% for its commercial properties (vs.
5%
previously; cap values for Great World City and Tanglin Mall are now
about
S$1,200-1,650psf), our new end-CY08 RNAV estimate falls to S$1.60 from
S$1.69. But with a substantial land bank ready for deployment, our new
target price is set at a 25% discount (vs. 20% previously) to RNAV, or
S$1.20 (from S$1.35). The share price has fallen 37% YTD vs. an 18%
fall
for the STI. Given the strong potential upside to our new target price,
we
upgrade the stock from Underperform to Outperform.

ALLGREEN, cl maintain SELL with target price $0.96($1.15)
-1H08 results was disappointing with revenue down 46.5% YoY at 32% of
our
estimates while earnings was down 54.8% YoY contributing to 31% of our
FY08
forecast and only 25% of consensus. Commercial and hospitality segment
held
up well due to higher room rates and rentals but revenue recognition
from
development projects have been slower than expectations. We are further
deferring launch and construction schedules by two quarters to reflect
current challenging environment and have lower our earnings estimates
by
5.2% and 19.2% for FY08/09. Our target price has been lowered from
S$1.15
to S$0.96 but maintain SELL.
- Revenue of S$162m for 1H08 fell 15.7% QoQ and 46.5% YoY was weak and
came
in below our estimates at 32% and consensus due to slower recognition
on
development projects.
- Gross margins improved YoY from 39% in 1H07 to 57% in 1H08 suggests
that
construction costs have been contained for the time being while net
margins
fell from 25% to 21% in 1H08 clearly reflected higher financing costs
and
rising operating expenses in current environment.
- Net income for 1H08 of S$34.6m was disappointing falling by 1.5% QoQ
54.8% YoY coming in at only 31% of our full year forecast and 25% of
consensus due to higher financing cost (+57% YoY), higher operating
cost
(+67% YoY), unrealised forex loss, higher depreciation (+41% YoY),
higher
effective tax rate and partially offset by write back in provision for
development properties. No dividends were announced.
- Selling expenses was higher in the relevant period also reflected
higher
commissions amid the sluggish primary take up trend for FY08. This has
been
a similar trend faced by other developers who have announced results so
far.
- Investment properties and hospitality segment performed well due to
higher room rates and rentals although no breakdown has been provided.
- As launches have been delayed longer than we had initially expected,
we
have deferred our launch schedules by an additional two quarters
similarly
for construction progress to reflect the slower than expected revenue
recognition. We have assumed no new launches for FY08.
- The result is a 5.2% and 19.2% cut to our earnings forecast for FY08
and
FY09 respectively. Impact to FY08 NAV is a decline of 11.8% and 16.4%
in
FY09 which in turn led us to lower our target price from S$1.15 to
S$0.96
but maintaining our SELL rec.

ALLGREEN, csfb maintain NEUTRAL with target price $1.01($1.46)
-  Allgreen disappointed yet again on 2Q08 net profit of S$17.2 mn
(-37%
YoY, -2% qoq). This brings 1H08 earnings to S$34.6 mn, 30% of our
lowest-on-the-street full year earnings of S$116 mn.
-  Revenue plunged 39% YoY to S$74 mn due to fewer home sales (sold
only 8
units in D.Lotus), delays in construction affecting its progressive
recognition of its various projects e.g., Cairnhill Residences and
Cascadia, as well as higher operating expenses, partially offset by
higher
investment property income.
-  Gearing has risen to 0.45x from 0.38x a quarter ago. Its proxy
status to
Singapore is diminishing with its recent 9th investment in China,
bringing
its overseas commitments to over S$2 bn.
-  We expect construction progress on sold projects to pick up in 2H,
so we
maintain our 2008 forecasts but cut 2009-10e earnings by 8-24% and RNAV
to
S$1.44 from S$1.83 on higher construction costs and 20% lower overseas
selling prices. With the market preference for more liquid big caps and
no
near-term catalysts, TP is cut to S$1.01, on 30% (from 20%) discount to
RNAV.

ALLGREEN, db maintain HOLD with target price $1.40
-2Q08 PATMI of S$17.2m (-36.5% YoY, -1.5% QoQ) came in below our
expectations due to slow profit recognition from pre-sales on key
projects
such as Cascadia and Cairnhill Residences. Due to the subdued market,
there
were minimal sales from ongoing launches with only an estimated 9 units
sold in the quarter from mass market projects D’Lotus and Pavilion
Park.
Income from investment properties improved on the back of higher
rentals
and room rates. Gearing rose from 0.38x to 0.45x due to overseas
investments and landbank acquisitions.
-There was no forward looking commentary on the timing of launches and
business plans. With profit recognition from pre-sales tapering off,
Alllgreen’s earnings are highly dependent on upcoming launches.
Management
has earlier planned to launch Viva, Holland Residences and One
Devonshire
in 1H08, but these projects have been deferred due to market
conditions.
Management is however guiding for lower profits from development
properties
for 2H08, suggesting that profit recognition for Cascadia and Cairnhill
Residences could be lower than our existing expectations and risks to
our
projection of flat earnings this year. For context, Allgreen has around
2.4m sf GFA of unlaunched landbank and relatively limited pre-sales as
a
buffer.
-We are maintaining our Hold rating on the stock and our forecast
numbers
for now, despite the stock’s apparent discount to our TP, until we meet
management next week to clarify its business plans (especially its
recent
JV investments in China) and the timing of its launches following its
land
acquisitions last year.

ALLGREEN, dbs maintain BUY with target price $1.25($1.66)
-Story: Allgreen’s 2Q08 topline fell 39% yoy to $74.1m while net profit
declined 36.5% to $17.2m. This was due to lower revenue from its
development properties as well as higher finance costs from an increase
in
borrowings for its overseas investments in China and Vietnam and for
land
purchases in Singapore. The drop in revenue was partially offset by
improved returns from its investment portfolio properties at Great
World
City, Tanglin Mall and Traders Hotel ? which saw higher rental or room
rates. Overall, its net gearing increased to 0.45x as at end Jun 08
against
0.3x at FYE07 due to downpayments with respect to its projects in
Chengdu
(25% stake), Qinhuangdao (10% stake) and Shenyang (30% stake), all of
which
are JVs with HK-listed Kerry Properties; as well as the completion of
purchase for its leasehold project at Enggor Street and the enbloc
purchase
of Regent Garden.
-Point: Allgreen has indicated that it believes the poor sentiment in
the
physical market will linger for the rest of the year and 2H08 earnings
will
thus be lower than 2H07 earnings. Given this, we do not expect the
company
to be launching any of its new development projects in 2H08. As such,
we
have lowered our FY08 earnings to reflect a further delay in launches
and
construction.
-Relevance: Valuations continue to be undemanding for Allgreen, which
is
the key premise for our buy call. It is currently trading at a 33%
discount
to its 1H08 book value of $1.38 and at an even steeper 48% discount to
its
revised RNAV of $1.78. Taking its investment and development properties
at
book value and netting off its borrowings, Allgreen’s current price
level
is ascribing a 30% writedown in the value of its development landbank.
We
maintain our BUY call at a revised target price of $1.25, based on a
30%
discount to its RNAV.

ALLGREEN, gs maintain NEUTRAL with target price $1.12($1.16)
-What’s changed. Allgreen Properties posted PATMI of S$17.2 mn for
2Q08,
down 37% yoy. For 1H08, PATMI came in well below expectations at S$34.6
mn,
down 55% yoy, just 21% of our full year estimate. Revenue from
development
properties fell 47% in 1H amidst slowdown in number of units sold.
Revenue
from investment properties and hotel segments saw growth in 1H due to
higher rental/room rates achieved. PATMI decline yoy was mainly due to
lower revenue and lower write back of provision for diminution in value
of
development properties (S$4 mn in 1H 08 vs S$38 mn in 1H 07). Gearing
as at
30 Jun 08 is 0.45 x, up from 0.3 x as at 31 Dec 07.
-Implications. We expect earnings contribution from development
properties
to decline yoy in 2H 08. We have a cautious view on SG residential,
particularly the prime segment. We est 29% of its RNAV comes from SG
resi,
with over 90% in the prime segment. We think slow pace of resi sales
resulting in subdued earnings by developers such as Allgreen will be
viewed
negatively by investors. With incremental negatives on the economic
front,
we see no improvement near term in resi market sentiment.
-Valuation. We reduce our 12-m TP from S$1.16 to S$1.12 (set at 30%
discount to RNAV). Our RNAV is reduced from S$1.65 to S$1.60 as we
apply
higher WACC for Singapore development projs. We push back pace of sales
and
completion for Singapore and China residential projects and therefore
reduce EPS estimate for FY08/09 by 22%/21%. We find valuation support
from
the group? Singapore investment properties ~ 54% of RNAV. We think
negative
property market outlook is captured in Allgreen? share price, which is
at
42% discount to RNAV, but find no positive share price driver over
thenext
few months.
-Key risks. Performance of residential markets in Singapore and China.

ALLGREEN, ms maintain OVERWEIGHT with target price $1.45
-Quick Comment - Results Below On Lower Residential Sales: Allgreen
reported a 1H08 net profit that is 30% below our full-year forecasts,
due
to much slower-than-expected residential sales. Allgreen sold a total
of 46
units in 1H08, only 17% of our full-year estimate of 266 units. As the
residential market is weaker than expected, we are currently reviewing
our
sector assumptions. Despite the argument that developers’ strong
balance
sheet enables them to hold back from cutting prices to entice buying
activity, in our opinion, in order to ensure continuity in earnings
particularly after FY2010F, despite a weak residential market,
developers
may be left with no choice but to cut selling prices. We believe this
is
particularly true for developers like Allgreen who are heavily reliant
on a
single market. We believe this could happen in 2Q09.
-Change in Tone, Less Optimistic: Management now expects the current
poor
sentiment to continue for the rest of the year, reversing their
previous
optimistic view that activity would pick up in 2H08. Illustrating this,
the
pace of sales take-ups continue to decline from 57 units sold in 4Q07
to 38
units sold in 1Q08 to a mere 8 units sold in 2Q08. The trend of selling
prices was mixed, potentially skewed by the unit type (facing or floor
level) and timing of lodging the caveats. Exhibit 3 shows that 2Q08
selling
prices were lower by 1-3% QoQ versus 1-24% QoQ increases in 1Q08.
However,
it appears that that the low-end segment has weakened, suggesting
potential
downside risk to our base case assumption that low-end prices will rise
10%YoY in FY08.
-2Q08 data was weaker than expected, particularly in the low-end
residential market and office absorption data. In addition, we see
anecdotal evidence of rising office cap rates in the sector. We
reiterate
our preference for S-REITs over developers ? a relative rather than a
compelling call given the lack of near-term catalysts for a re-rating
of
both sectors. We rate City Developments (CTDM.SI; S$11.40) UW on
valuation.
Our S-REIT top pick, Ascott Residence Trust (ASRT.SI, S$1.06, OW),
offers a
FY08F DPU yield of 8.3%.

ALLGREEN, ssb remains a BUY with target price $1.16
- Results below market expectations:  2QFY08 net profit of S$17.2m was
down
36.5% yoy and flat qoq. Net profit for 1H08 came in at $34.6m, only 30%
of
our estimates and 25% of consensus. The bulk of the fallout from our
estimates was due largely to our under provision for tax.
-  Lower contribution from development properties:  The number of units
sold in 1H08 was significantly slower than 1H07 and contributed largely
to
the 47% yoy fall in revenue. Investment and hotel properties performed
well
due to higher rentals and room rates.
- Gearing increased to 0.45x: Gearing rose as net borrowings were
higher,
mainly due to overseas investments and purchase of development sites in
Singapore. Downpayments were made for its China investments for
projects in
Chengdu, Qinhuangdao and Shenyang, resulting in an increase in deposits
and
prepayments to S$235.6m, from S$54.1m in Dec-07.
- Lower earnings estimates: Wehave lowered our net earnings for FY08-10
by
6-18% due purely to our under provision for tax. We are already
assuming
minimal new sales for the rest of the year.
-  Maintain Buy (1L), TP S$1.16: We maintain Buy for valuation reasons.
Allgreen is trading at a discount of 33% below its last published NAV
of
S$1.38. It is also trading 50% below our 08E RNAV of $1.83. At current
price, Allgreen also offers a fairly attractive FY08E yield of 6%.

CAPITALAND, ubs maintain BUY with target price $7($8.20)
- Event: H108 PATMI was 53% of our full-year estimate. CapitaLand
reported
H108 EBIT of S$1,286.6m (-37.1% YoY) and PATMI of S$762.7m (-49.8% YoY;
UBSe S$502.9m); the latter includes S$417m of revaluation gains and
S$145m.
PATMI was 53% of our full-year estimate. The market has been expecting
a
drop in profit this year (UBS current estimates assume -47% decline in
PATMI CY’08 YoY), hence these headline results are probably slightly
better
than expectations. We remain comfortable with our full year estimates.
- Well-capitalised and well-managed but lacking near-term catalysts.
Despite the H108 PATMI being higher than expectations, we continue to
get
the impression that CL management is bearish on the 6-12mth outlook for
the
macro and credit environment and asset markets, and has set the short
term
strategy and capital management in such a way as to weather a downturn.
The
result is a wellcapitalised and well-managed group but one that could
be
lacking in near-term positive catalysts.
- Action ?Reduce PT to S$7.00. Reiterate Buy.. With the collapse in the
Australand (ALZ) stock price ($2.00+ to $0.59) and the persistent price
weakness in ART and CCT, we have elected to set our NAV to a realisable
price instead of look-through book value for these holdings. As a
result we
reduce our $8.20 end 08 RNAV to $7.80.
- Valuation. Our S$7.00 PT is set at a 10% discount to 08E RNAV of
S$7.80.

CHINA MERCHANT, dbs maintain BUY with target price $1.10
-Excluding higher forex gains of c. HK$16m and a tax write-back, CMHP’s
1H08 results were slightly above expectations, due to a strong
performance
from the Group’s core toll road operations. PBT contribution from the
Group’s toll road operations rose by 10% yoy to HKS$157.5m, making up
87%
of total Group PBT whilst PBT contribution from the Property
Development
business in New Zealand rose by 157% to HKS$23.9m.
-The firm performance of the Group’s toll road operations was primarily
driven by a) both traffic volume growth and rate hike at Guiliu
Expressway
and b) higher contribution from Guihuang Highway due to a 30% rate
hike.
-Net earnings as at 1H08 rose by 26% yoy to HKS$179.2m. CMHP maintained
its
interim dividend of S 2.75cts net.
-Looking ahead, we expect earnings growth from the Group’s toll road
business to flatten out as the 8% and 30% rate hikes for Gui Liu and
Gui
Huang highways respectively occurred in 2Q last year. Management
re-iterated that progress on the acquisitions of Zhengshao and Denggao
Expressways remain on track and that it is optimistic of signing
definitive
agreements within the next few months.
-We maintain our BUY call and S$1.10 target price, which is based on a
target forward net yield of 5%. For the stock to re-rate, management
needs
to deliver on value accretive toll road acquisitions.

DAIRY FARM, jpm maintain NEUTRAL with target price $5.36($4.72)
- Strong results: Dairy Farm announced strong results for 1H08 with a
40%
increase in recurring earnings, 20% better than our estimate. This was
partly driven by healthy sales growth of 19% and partly by margin
expansion
achieved across the region. The company stated in its results
announcement
that the prospects for 2H remain positive as well.
- Sales up strongly particularly in South Asia: Consolidated sales were
up
by 19%y/y. This was driven by store expansion in growth countries such
as
Malaysia and Indonesia and partly by store expansion and SSS growth in
more
mature countries like Hong Kong and Singapore. Sales in South Asia was
especially strong, up 24% y/y, as Singapore supermarket results have
improved and the 7- Eleven chain benefited from the re-branding of
former
Shell stores.
- Notable margin improvement: All regions saw very healthy margin
improvement with consolidated EBIT margin at 5.2% in 1H08 vs. 4.0% in
1H07.
East Asia posted marked improvement in EBIT margin up to 6.3% in 1H08
from
4.8% in 1H07 driven by improvements both in Indonesia and Malaysia.
- Neutral: Following the results we lift our FY08 earnings estimate by
17%.
We maintain our Neutral rating as we do not find valuations compelling
at
18x FY08E and 16x FY09E P/E. We believe Jardine Matheson which trades
at
11x FY09E P/E offers a more attractive alternative. We raise our
DCF-based,
Dec-08 PT to US$5.36 (from US$4.72). A key risk to our PT and rating is
a
slowdown in store expansion.

DEL MONTE, db maintain BUY with target price $0.90
-Del Monte Pacific posted a 1H08 revenue growth of 41.1% YoY to US
$160.3m
with a net profit rising by 10.1% YoY to US$11.6m, inline with our
expectations and consensus. The slower growth in earnings was
attributed to
the US$1.7m losses from its associate, Bharti Del Monte India, higher
interest expenses and increases in A&P and corporate overheads. The
company
has declared an interim dividend of US$0.008 per share or 75% of its
1H08
earnings, inline with our dividend forecasts.
-Sales from S&W rose by more than three-fold to US$1.9m in the 2Q08
with
1H08 sales of US$2.5m, helped by the sales of S&W Sweet 16 pineapples
and
the introduction of its tropical fruit range. While profitability for
the
S&W division remains insignificant, the company has taken steps to
build
its organization structure and also taken direct control over sourcing
and
is looking to broaden its distribution in Asia to grow its sales.
-Del Monte Pacific’s 40% stake in Bharti Del Monte India continues to
post
its share of losses of US$0.8m in the 2Q08 and US$1.7m in the 1H08.
Management has a target to achieve profitability in FY10E as the
division
is refocusing its fresh division to export corn and move into food
service
as well as prepare its retail launch of the Del Monte brand into India.
-The company has expanded its store coverage of 74,000 stores in June
2008
from 41,000 stores in June 2007 and is on track to meet our 80,000
store
coverage in FY08E. Maintain our Buy recommendation on the stock.

GOLDEN AGRI, ubs initial coverage SELL with target price $0.67
- Margin pressure from higher fertiliser cost. Golden Agri-Resources’
high
oil yield of 5.5t/ha is second only to that of IOI, and it should
mitigate
some of the negative effects of higher fertiliser cost. Still, we
believe
margins will be under pressure in 2009 as the potential increase in
palm
oil prices and higher oil yield will not be sufficient to offset the
higher
fertiliser cost. Golden Agri is also trading at a premium to its
five-year
average PE of 8.4x
- Owns the largest unplanted landbank in the sector. Golden Agri has
one of
the largest unplanted landbanks in the sector. It has more than 200,000
ha
of unplanted land in Kalimantan, and it is in the process of acquiring
a
further 1.1m ha, also in Kalimantan and Papua. This will enable the
company
to increase its current planted landbank of 277,629 ha by five to six
times, although only over many years.
- Has seed production facility, expansion plans. Golden Agri’s 20m
seeds-a-year facility is a key competitive advantage because there is a
shortage of seeds in the industry. In common with other big plantation
companies, Golden Agri has ambitious plans to develop new oil palm
plantations. Its ownership of a seed factory not only ensures supply,
but
also quality, which we think is one of the reasons Golden Agri is able
to
deliver high oil yields.
- Valuation: initiate coverage with a Sell rating and a S$0.67 price
target. Our price target is based on a sum-of-the-parts valuation,
where
the plantation division is valued using DCF methodology, assuming 15.6%
WACC, a long-term palm oil price of US$900/t, and long-term growth of
5%.
Our price target is equivalent to 8.2x our 2009 EPS estimate.

HONG KONG LAND,  csfb downgrade to NEUTRAL with target price
$4.20($4.80)
-  HKL.s 1H08 result was 28% higher than our expectation on booking of
profit from Central Park in Beijing during the period versus our
expectation of in 2H08. Rental revenue grew 27% YoY, in-line with our
expectation and office vacancy remains tight at 1.7%.
-  The pace the rental and capital value growth is slowing down.
Capital
value increase 10% in 1H08 vs 12 % 2H07. We raised our cap yield
assumption
on HKL and revised down NAV by 12%.
-  Based on an average discount of 20%, our price target was down by
12%
from US$4.8 to US$4.2. We downgraded the stock to NEUTRAL from
Outperform.
-  Despite our downgrade, we believe the potential downside of the
stock is
limited as supported by its strong earnings momentum coming from the
strong
revenue reversion and the stream of property earnings in Macau, Hong
Kong,
China and Singapore. For exposure to the decentralized office space, we
prefer Swire Pacific, which is the key landlord in Quarry Bay.

SINGAPORE POST, ubs upgrade to BUY with target price $1.17($1.15)
- Impact of liberalisation likely muted. Singapore Post’s (SingPost)
share
price has been affected by concerns of increased competition. On recent
events, we believe the impact on SingPost is unlikely to be as
significant
as feared: 1) Masterdoor keys remain with SingPost; and 2) RAO, which
details network delivery prices to competitors, looks benign. We have
referenced an in-depth analysis of Swedish liberalisation as a case
study,
which suggests the impact of market share loss will likely be minimal.
- Margin pressures proved manageable. SingPost’s Q1 FY09 results showed
it
ability to contain costs. Operating expenses grew just 4.0% YoY,
compared
with +11.6% and +13.0% YoY in Q3 FY08 and Q4 FY08, respectively.
Exposure
to rising fuel costs is marginal; our sensitivity analysis suggests 30%
growth in fuel costs would reduce net profit only 3%.
- Property portfolio (ex SPC) provides potential upside. The company
continues to optimise rental revenue from its post offices, which we
estimate to be located on approximately S$150m worth of land. We
believe
SingPost could have 15 properties available for sale. We have not
included
potential rental income or possible capital gains from the sales in our
numbers.
- Valuation: upgrade from Neutral to Buy; price target S$1.17. We
change
our price target derivation from required yield to a sum-of-the-parts
valuation. We also raise our price target from S$1.15 to S$1.17. We
value
the core business at S$1.05 using DCF analysis, assuming 9.1% COE and
3%
terminal growth. We then add S$0.12 for Singapore Post Centre to arrive
at
our price target of S$1.17. SingPost is trading near its IPO level of
forward yield (6.4% based on 85% payout), and at a minimum yield of
4.9%,
based on the low end of dividend guidance.

SUNTEC REIT, daiwa maintain OUTPERFORM with target price $1.91($1.82)
-We maintain our 2 (Outperform) rating for Suntec REIT (Suntec) after
the
announcement on 30 July of its 3Q08 (year-end September) results. We
believe Suntec is one of the best plays in the Singapore office sector
(please see our sector report, Optimistic on offices, published on 22
July
2008), which, in our opinion, has not disappointed in the latest
reporting
season. We have raised our six-month target price, based on our RNG
valuation method, to S$1.91 (from S$1.82), with the increase in our
core
operating distribution forecast (for FY09).
- Suntec’s 3Q08 (fully-diluted) DPU of 2.47¢, up 34% YoY, was 8.5%
higher
than our forecast. Roughly half of Suntec’s outperformance came from
the
net-property income (NPI) from its core properties, 2.9% above our
forecast, and lower-than-expected fees and borrowing costs accounted
for
the remainder of the positive variance.
- Robust 5.8% QoQ growth in gross revenue at its core properties
probably
came from all segments, in our view. Committed occupancy of its offices
remained high at 99.5% at the end of June. The manager disclosed that
recent leases were secured at monthly rents of S$12-15 psf, up from
S$11.5-13.5 psf for the previous quarter. Meanwhile, the committed
passing
rent at Suntec City Mall continued its appreciation, up 3.1% QoQ, to
S$11.09 psf (per month). Retail leases were renewed, on average, at 15%
above the preceding rental rates during the quarter. The manager also
highlighted the improvement in advertising and promotional income, up
13.7%
YoY for 3Q08 to S$1.75m. We believe this item is still minor, but could
perk up for 4Q08 when Singapore hosts its first Formula One Grand Prix,
located right next to Suntec City, in late September.
- We have revised up our (fully-diluted) DPU forecasts by 5.4% for
FY08,
1.6% for FY09, and 1.5% for FY10. We have raised our six-month target
price, based on our RNG valuation method, to S$1.91 (from S$1.82), with
the
increase in our core operating distribution forecast (for FY09). With
about
43% of its office leases (excluding One Raffles Quay) up for renewal in
FY09, and 26% in FY10, we expect the highly positive rental reversions
to
continue.

WILMAR, gs maintain BUY with target price $6.20
-We raise our FY2008E-FY2010E net profit estimates by 11%-12% to
reflect
higher CPO refining margins based on: (1) sustainability of Wilmar?
US$/ton
CPO refining margins at higher levels, in our view, due to high CPO
prices;
(2) a demand-driven CPO price dynamic, and (3) high working capital
costs
curbing smaller competitors. Over the long term, we see upside
potential
for Wilmar? margins in China, as they are much lower than comparable
businesses worldwide. We reiterate our Buy rating on the stock and
recommend it as a core holding for long-term investors.
-1) Potential consensus earnings upgrades post 2Q08 results (Aug 14)
?The
market appears to expect a sharp decline in 2Q2008 earnings on
seasonally
lower refining margins, but we believe earnings could surprise on the
upside. Our new 2008E-2009E net profit estimates are 7%-8% ahead of
Bloomberg consensus estimates.
-2) Rising CPO prices: Despite the recent sell-down, we remain positive
on
the outlook for CPO prices on the back of rising oil prices, increased
biodiesel utilization rates, and higher soybean prices.
-Valuation. We raise our SOTP-based 12-month target price upwards to
S$6.20
(from S$6.00), as our higher margin assumptions are partially offset by
higher WACC assumptions. Our target price implies 23X 2009E P/E, at the
upper end of the stock? historical 6X-24X trading range (since its
listing
in August 2006).
-Key risks. (1) Higher P/E multiples relative to sector peers, which
could
draw shortselling interest over the short term; (2) sharp decline in
CPO or
oil price and (3) the Chinese government introducing further food price
controls.

[ SECTOR ]

BANK by citi
- Domestic system loans +12% ytd ? Latest monetary data for Jun-08
released
by the MAS indicate lending remains strong (+25% yoy, +11.9% ytd). With
the
loan book having expanded by almost 12% in the first half of this year
alone, we view that this should underpin a good set of 1H08 results
(reporting 5-7 Aug). Top pick DBS; OCBC is also a buy. Sell UOB on
relative
valuation.
- Construction lending continues to drive business loans ? Business
lending
grew by 18.4% in the first six months of this year, benefiting from
broad-based growth, particularly construction loans (+3.7% mom, +55.1%
yoy), manufacturing (+4.1% mom, +15.7% yoy) and general commerce (+2.9%
mom, +29.9% yoy).
- Slower pace for consumer as mortgage growth moderates ? Consumer
lending
grew by 1.5% in June month-on-month, or 4.2% year-to-date. Mortgages,
which
have been showing moderating growth in recent months, grew by S$0.9bn
in
June (+1.2% mom, +14.5% yoy), and ended 1H08 with year-to-date growth
of
3.8%.
- Volatile yield curve movements ? While short-term rates remain
depressed
by flush liquidity, 10yr govt. yields which rose to almost 4% in
mid-June
have now slipped back to 3.2%. Our economist is expecting 3m S$SIBOR to
edge up in 2H08 to 1.6%, on tightening measures by regional central
banks,
and S$NEER coming off strong side of band.
- Weaker stock market turnover ? June-quarter securities avg. daily
turnover (ADT) fell to S$1.67bn (March-quarter: S$1.96bn), a velocity
of
65% (1Q08: 77%). Julymonth ADT weakened further to c.S$1.23bn/day
(velocity: 52%), suggesting weaker near-term earnings for SGX.

BANK by csfb
-  Singapore system S$ loans grew 25.0% YoY/ 4.7% QoQ/ 1.7% MoM in
June,
driven by construction, commerce and housing loans. YoY loan growth has
likely peaked at 26.1% in May and QoQ growth slowed to 4.7% QoQ from
6.9%
in 1Q08.
-  Housing+consumer loans (45% of loans) grew 13.5% YoY/ 3.0% QoQ, and
continued to lag business loans (55% of loans) which expanded 34.9%/
6.1%.
-  Housing loan growth remained steady at 14.5%/ 2.3% helped by units
sold
over the past few years. Consumer loans accelerated to 11.3%/ 4.4%,
partly
on credit card roll-overs (+13.2% YoY).
-Construction loans continued to show good momentum (55.1%/ 8.4%)
setting
yet another record high. Financial institution loans shrank in June
(19.5%/-1.6%).
-  We expect loan growth to decelerate towards mid-teens by the
year-end,
still pretty healthy by any standards. 2009 is more uncertain and we
still
expect low-teens growth as of now.

REIT by ml
-Key takeaways: Slowing rental and acquisition growth. Post 1H08
results
for the S-REIT sector we summarize the key takeaways from analyst
briefings. Notably management teams were more downbeat on the sector
outlook than previous quarters, highlighting issues which included i)
inability of REITs to make new acquisitions until equity market
conditions
improve ii) moderating future rental growth in line with cooling
regional
property markets and iii) increasing debt costs.
-No surprises - strongest growth from hotel & office. On a same store
basis
the strongest rental growth was achieved from exposure to the Singapore
hotel and office exposure. This should come as no surprise given the
jump
in rental rates in the respective sectors over the past 12 months and
the
significant under-renting of many of the S-REIT portfolios. More
challenging times however are clearly likely still to come with hotel
occupancy slipping in the 2Q08 & office rentals likely to be nearing a
peak.
-YoY DPU growth 17.2%, QoQ 2.7%. On average the S-REIT sector delivered
YoY
DPU growth of 17.2% and QoQ DPU growth of 2.7%. Organic rental uplift
together with acquisitions completed over the past 12 months were the
key
drivers of growth, while those experiencing decline were REITs that
have
recently completed equity raisings. For the SREITs under ML coverage we
are
forecasting DPU growth of 3.5% in FY09E.
-Sector valuations: FY09E yield 7.5%, 12% discount to NAV. The S-REIT
sector is now trading on a 7.5% FY09E yield, some 400bpts over the
Singapore 10-year government bond. While yields are, for the most part,
at
historical highs we are forecasting declining DPU for one third of the
S-REITs under ML coverage. On a price to NAV basis the sector is now
trading at a 12% discount to NAV; however, this is skewed to the large
cap
names which are still trading at large premiums to revalued book. We
expect
rising cap rates will put pressure on current NAV valuations over the
next
12 months.
-Maintain underweight stance on S-REIT. We maintain our underweight
stance
on the S-REIT sector relative to the Singapore market. While income
streams
from REITs are arguably more defensive than other sectors we remain
concerned over rising debt costs, moderating rental growth and future
cap
rate expansion. We prefer S-REITs with organic growth potential given
the
muted outlook for acquisition growth in the medium term. Our preferred
exposures remain CMT, CCT and CDLH.

KEPPEL CORP, csfb maintain UNDERPERFORM with target price $9.80($10.30)
-  Keppel.s 1H08 earnings came in at 51% of our already belowconsensus
08E
estimate, with lower operating income across all divisions, except for
O&M
(and associates), on both sequential and YoY bases (Figure 1).
-  O&M.s sustained operating margin of 10.1% was the highlight of the
results but slow O&M revenue growth (6% YoY) and cautious guidance
(flat
YoY revenue for FY08) offset the potential gain.
-  Property was weak as expected, with management guiding for no growth
in
FY08. Infrastructure disappointed again, delivering just S$1 mn of
operating income on S$597 mn of revenues in 2Q08. Investment income was
also subdued. Associates, including M1 and SPC, accounted for 39% of
Keppel.s 2Q PBT.
-  We raised our O&M margin and infrastructure revenue estimates but
also
revised down O&M revenues and profits for property and infrastructure.
We
lowered our earnings estimates by 1% for 2008E and 8% for 2009E. Our
SOTP-based TP is revised down to S$9.80 (S$10.30 previously). Maintain
UNDERPERFORM.

KEPPEL CORP, dbs maintain HOLD with target price $12.30($12.56)
-Story: 2Q08 net profit of S$299m (+15% y-o-y, +14% qo- q), a record
quarter, was slightly better than the Bloomberg consensus of S$282m due
largely to investment gains reported at K1 Ventures. 1H08 net profit
was up
10% to S$561m. An interim dividend of 14 Scts was also declared.
-Point: For the O&M division, 2Q08 revenue grew 30% qoq (off a low base
in
1Q where revenue declined 9%) and 6% yoy to S$1,819m. O&M margins rose
1ppt
yoy to 8.6% (1Q08:9.4%). Coming from a low base, infrastructure
earnings
are improving sequentially, rising 8% qoq to S$13m. Net margins
continue to
exhibit volatility. Property earnings fell 49% yoy to S$29m reflecting
the
completion of projects in Singapore and overseas markets and lack of
new
launches during the period.
-Given the spate of negative news on two O&M projects, management
assured
that all other projects are on track. Specifically, the P-51 is on
track
for completion by end Oct 08 and is expected to breakeven. The Fred
Olsen
and MPU contracts have yet to be resolved. Order backlog is at a record
high of S$13bn. However, we were surprised that guidance for O&M
revenue
for the year still remains conservative; and is only likely to match
2007’s
S$7.3bn. Contract order flow did pick up in 2Q with S$3bn worth of new
projects vs 1Q08’s S$0.6bn. YTD new orders stand at S$4.4bn, making up
72%
of our new order wins assumption of S$6bn. KepLand’s growth has been
trimmed as we have factored in a push back in launches.
-Relevance: Estimates are fine-tuned with FY08 numbers adjusted
marginally
down by 1%. Target price adjusted downwards marginally to S$12.30 based
on
a 10% discount to RNAV of S$13.66. Maintain Hold.

KEPPEL CORP, gs remains a BUY with target price $13.20
- Keppel reported 2QFY2008 net profit of S$299m, up 16% yoy/14% qoq.
1HFY2008 net profit S$561m was up 10% yoy, though representing only 43%
of
our full-year forecast, it was inline. 2Q growth was largely driven by
both
offshore & marine (+19% yoy), and the investment unit (+55% yoy). On a
quarterly basis, while the weakness in property earnings did not
surprise