CapitaLand (CapLand) yesterday announced that the divestment of MenaraCitibank, an office building in Kuala Lumpur, had collapsed as the balancepurchase price had not been paid by IOI Corporation (IOI) on the completiondate. In August, IOI agreed to acquire Menara Citibank for a totalconsideration of S$251.6m and CapitaLand would have reaped a gain ofS$22.1m and cash inflow of S$75.5m for its 30% stake in the building.According to IOI, the decision was taken due to recent sudden adversedevelopments in the global economic environment. In our previous report,we already highlighted the challenging market conditions for assetmonetization and the collapse of this deal further substantiates our point.Deposit paid by IOI will be forfeited and CapLand will recognize a gain ofS$9.3m. Previously, we have not factored in any gain from the divestmentbut we are putting our HOLD recommendation under review in light of therecent decline in CapLand's share price.

Prudent cash management. Ezra Holdings (Ezra) has announced thatit will be reconsidering the purchase of one Multi Functional Support Vessel(MFSV) worth S$69m at Keppel's Singmarine shipyard. This is one of thesix vessels that Ezra has on its newbuild program that it was to add in thenext two years to capture the deepwater offshore vessel support business.With delays and cancellations of deep sea rigs to be deployed in areaslike Brazil, West Africa and the North Sea, Ezra is likely to re-look itsinvestments to efficiently utilize its cash flow.

Assuming cancellations. While we understand that discussions are stillongoing, we are assuming that Ezra will not only be canceling this MFSVbut another one for delivery later in FY10. This will let Ezra pace out itsexpansion plans and watch the developments in the oil industry prior tofurther monetary commitment. In all, Ezra will still be taking deliveries ofthree MFSV and one AHTS in the next two FYs to grow its charteringbusiness.

Impact on financials. With our assumption of two MFSV cancellations,we see gearing at a more comfortable level for FY09 at 0.2x (prev: 0.3x)and 0.7x for FY10 (prev: 0.9x). We are still in the midst of clarifying thefurther reduction in capex as Ezra would also not need to purchase someexpensive long lead time equipment like engines and generators. This canreduce Ezra's gearing further. We are retaining our interest costsassumptions in view of the difficult credit environment but would revisitthem when interest costs are proven to moderate down in the subsequentquarters. There will be no impact on FY09 earnings but our model indicatesa small drop of about 5% from the topline and 3.5% from the bottomline inview of the loss of one vessel's half year contribution for FY10.

Wise management decision, Maintain BUY. We continue to like Ezrafor its focus on the deepwater arena. While new capex plans by the OilMajors and NOCs are hazy, there are still a record number of deep waterrigs that will be delivered in 2009. This will incur the need for deep watercapable support vessels. Ezra could also secure vessel builds at betterprices later should steel prices continue their drop. Our SOTP valuationmoderates slightly to S$1.17 (prev: S$1.20). Maintain BUY.

Yangzijiang announced that it is acquiring 100% interest in JiangsuTongzhou Marine Equipment Co Ltd ("JTME"), which owns shipbuilding facility(including slipway) with production area of 286 sqm, located nearYangzijiang's new yard. Prior to the acquisition, this facility wascontracted to Yangzijiang for a 5-year period, commencing from June 2008for a rental of S$31m per annum.

The consideration of S$114m is payable by 228m of Yangzijiang'sshare priced at S$0.50 each. This is expected to be fully paid by treasuryshares as the Group has already bought back a total of 221.7m shares ytd.The bottomline impact from JTME is expected to be <3%.

The acquisition appears expensive to us. Based on extrapolation of JTME's9M08 earnings of S$8.5m, the purchase price translates to 10x 08PE. Thisimplied valuation is much higher than Yangzijiang's own valuation of 4x08PE and industry average of 5x 08PE for Singapore and China yards.

We acknowledge that Yangzijiang has demonstrated good earningsexecution and impressive risk management since its listing in early 2007.However, the expensive acquisition disappointed us. We are of the view thata better valuation could have been obtained for JTME as shipbuilding is inthe midst of a downcycle. We expect the Group to better utilize its cash toreward shareholders. Hence, we reduce our PE multiple for Yangzijiang to 3xFY09 earnings. Our TP is thus revised down to S$0.34, which is backed bynet cash per share of S$0.30. Downgrade to Fully Valued.

DBS’s underperformance to local peers has become more pronounced this monthfor several reasons. We believe among them are: 1) fear of capital raising; 2) off-balance sheet risk; and 3) potential impairment charge for its Hong Kong franchise.

Standard Chartered’s announcement of a rights issue this week has raised concernas to whether DBS may be next. While DBS has the lowest the Tier-1 ratio among Singaporean banks, its ratio is similar to Standard Chartered after its capital raisingexercise. We believe with a Tier 1 of 9.7% and total CAR of 13.4% a capitalraising exercise is unlikely.

The yearly impairment test may result in a goodwill write down for DBS Hong Kong but its impact is purely accounting as it has no impact on the capital ratios ordividends. Investors have also expressed concern over DBS’s special purposeentities but these should not be confused with the SIVs or conduits as they have noliquidity facilities with the bank. The only risk for DBS involves a cost ofunwinding the structure if they are redeemed early.

We think the wide valuation gap between DBS and UOB is unwarranted as theoperating risks are not significantly different. DBS trades at 0.75x book versusUOB at 1.28x. Our price target is derived from the Gordon Growth Model with aROE assumption of 10.2%, COE of 9.5% and medium-term growth of 4.6%.

4 projects under review. Keppel Corporation (Keppel) said in a pressrelease yesterday that it was reviewing four projects with its clients: 1semisub, US$405m (Scorpion Offshore), 2 Jackups, US$420m (Seadrill)and 1 Multi-Functional Support Vessel, S$69m (Ezra). We understand thatthese discussions are due to Keppel's customers' mitigating their expansionplans in view of the recent unprecedented dislocation in the oil industry.While discussions are ongoing, we postulate some options available. Non-refundable deposits of 5-20% have been paid to Keppel. Work has notstarted on any of these projects.

Scorpion Offshore. It recently announced a 50% YoY rise in revenue toUS$48.8m for the quarter. Net profit rose 64% YoY to US$17m while rigutilisation was high, averaging 98.3%. This semisub was due for delivery in4Q11 and was to be chartered to Petrobras for 6 years. In view of Petrobras'less aggressive but committed expansion, we expect this contract's deliveryto be pushed back rather than cancelled. All of Scorpion's 7 Jackups arecurrently chartered for work.

Seadrill Ltd. Reported its 3Q08 results on 24 Nov 08 with topline rising50% YoY to US$566.2m while net income rose 111% YoY to US$69.3m.Seadrill also received US$2.3b through a sale and lease back agreementfor its deepwater assets. As seen in Exhibit 1, Seadrill has more Jackupsvs. contract work available as demand has been impacted. As such, weexpect Seadrill to likely cancel its order (thus forfeiting its deposit). Wetake the drastic option of cancellation into our forecasting model with 15%retention of its deposit.

Ezra Holdings. Reported FY08 (year end Aug) PATMI rose 157% YoY toUS$175.4 while revenue rose 87% YoY to US$268.3m. While Ezra hassecured financing for 5 vessels, we think that management is mitigatingexpectations of its own customers being able to finance its explorationprograms. While the cancellation of its vessels reduces long term charterrevenue, we think it is prudent to conserve cash in this season. Look out forour separate report on Ezra.

Losing faith. Keppel has risen about 10% since our resumption of coveragelast week, but with the likely cancellation of Seadrill's Jackups, delay ofScorpion's Semisub and cancellation of Ezra's vessel, our SOTP falls toS$5.05 (prev. S$5.24) as we think earnings will be affected in FY09. Thereis also the concern that this might spark a cascade of cancellations in theindustry. As such, we downgrade Keppel to a HOLD (<10% upside)

Niche property developer in China’s lower tier cities. Based in Southeastern China, namelythe provinces of Jiangxi, Zhejiang and Guangdong, Pan Hong Property Group Limited (Pan Hong)is a niche residential property developer. Targeted at the middle to upper class-middle incomelevel residents, Pan Hong’s strategy is to focus on China’s developing cities, or lower tier citieswith immense growth potential.

Proven track record in Zhejiang province. Since 1999, Pan Hong has completed theconstruction of eight residential cum commercial developments in the cities of Huzhou andHangzhou, covering total GFA of 477,000 square metres (sm). To date, all of these projects havebeen fully sold. These historically healthy take-up rates reflect the quality of and consistentdemand for Pan Hong’s developments. In the same vein, this has boosted Pan Hong’s reputation,in turn giving it the confidence to venture beyond Zhejiang province.Commanding presence with sizeable landbank.

At present, Pan Hong has a substantiallandbank of 2.9m sm in GFA, spanning across seven different cities. A total of nine residentialprojects would be borne out of Pan Hong’s landbank, of which 59% are already in thedevelopment stages, while the remaining 41% are still undeveloped. We deduce that these ninedevelopments would be completed and realisable within the next two to four years, implying avisible run of projects over the short to medium term for Pan Hong. Using its historical projects’take-up rates (90 - 100%) as a benchmark, they should serve as an evident source of Pan Hong’sheadline numbers until 2012.

Favorable macroeconomic fundamentals, but risks are not non-existent. While favorablemacroeconomic fundamentals underpin the growth potential of Pan Hong’s lower tier cities, suchas robust economic growth, rising urbanization and increasing annual disposable incomes, as wellas a lack of quality and affordable housing, risks are not non-existent for the company, especiallyin the near term. For one, Pan Hong has a lumpy revenue model, which is not mitigated by stableincome-producing investment properties. It is also subjected to the cyclicality of the propertysector, as well as the ongoing credit crunch. Recent moves by competitors to slash selling pricescould also lead to Pan Hong to inadvertently cut prices as well just to match the lowered prices.

Initiate with NEUTRAL – S$0.25. With a current net gearing ratio of 0.33x and cash position ofRMB111.9m, Pan Hong is equipped with a relatively strong balance sheet. More importantly, itscash and undrawn facilities of RMB80m are more than sufficient to meet its ST loan obligationsdue in Jun – Jul 09. While we are confident of China’s medium-long term real estatefundamentals, especially within its lower tier cities, we admit that the sector’s near-term outlook isplagued with unfettered challenges and uncertainty.

The credit crisis and macroeconomicslowdown have now spread their claws over countries worldwide, and given the intrinsic linkage ofthe property sector to these two key elements, it is certainly not music to the ears for mostproperty developers. In view of the above, we have taken on a conservative stance in deriving ourbase case RNAV for Pan Hong, assuming a further 5% decline in selling prices for the remainingof 2008, 20% dive in 2009, with a slight recovery of 2% in 2010 and steady growth of 4% p.a. forthe subsequent three years. Applying a further 50% trough discount, we arrive at our RNAV-pegged fair value for Pan Hong at S$0.25. Initiate with NEUTRAL. Share price catalysts includefurther expansionary policies in China and recovery of global and China’s property sector.

Oct 2008 Tourism Data:

- In October 2008, visitor arrivals to Singapore reached 843,000, a 8.1%yoy decline.
- The Average Room Rate (ARR) in October 2008 was estimated at S$241,anincrease of 8.4% yoy.
- The Average Occupancy Rate (AOR) for gazetted hotels was estimated toreach 82% in October 2008, posting a 6.8% decline yoy.
- Revenue Per Available Room (Revpar) grew by 0.1% yoy to reach S$199 forOctober 2008.

Sector Impact:

Since June 2008, Singapore has seen a decline in visitor arrivals. Thisreflects the impact of the current global economic slowdown on consumersentiments anddiscretionary spending. The Singpaore Tourism Board (STB) reiterated thatvisitor arrivals and tourism receipts are expected to fall short of the2008 targets of 10.8 million and S$15.5 billion respectively. STB willcontinue its efforts to increase visitor spending during the year-endfestive period.

Valuation/Recommendation:

Although we see near term headwinds for the tourism and hotel industry inSingapore, we are positive on the impact of the opening of Singapore'sintegrated resorts on visitor arrivals and hotels in the mid- to long term.CDL Hospitality Trusts (Buy/Target Price: S$1.43), has the purest exposureto Singapore tourism segment, with its five hotels located strategically atprime areas in Singapore. CDREIT provides a guaranteed yield of 5.4% basedon its favourable lease structure. We continue to see value in CDREIT asthe market has priced in a 60-70% fall from current RevPAR levels, implyingRevPAR levels seen during SARS, based on yesterday's closing price of S$0.61.

The establishment of new townships and new customer connections for gas and electricity distribution can drive steady demand growth in Victoria and benefit SPN, in our assessment. Management reiterated that the group's regulated revenue (90% of total) has been locked in until 2011. All the latest resets were done by Apr 08 and there are no further regulatory resets until 2011. It will also remain focused on maintaining its A debt rating to secure future financing and manage its long-term cost of debt. We maintain our core net profit forecasts and DCF-derived target price of S$1.44 (WACC 10%). Distribution for 1H09 was within guidance and the stock will go ex-dividend on the SGX on 28 Nov 08.

Bidding for Australia's National Broadband Network (NBN) has concluded and Telstra has submitted a non-compliant proposal. A total of six bids had been received, with SingTel's Optus submitting a national bid. The spanner thrown into the works by Telstra's proposal has elevated Terria (the consortium to which Optus is a partner) and Axia Netmedia's chances. We will be negative on any Optus-Terria win as we remain concerned about the economics of NBN, among others. Given the many moving parts and lack of clarity, we are keeping our earnings forecasts and target price of S$2.72 for SingTel intact. Also intact is our Neutral rating over currency volatility.

Venture hit a ten-year low of S$3.90 recently on continuousliquidation prior to its removal from the MSCI Index. With the stock down70% year-to-date and the final round of index-linked selling over, webelieve now is a good time to start accumulating Venture on the cheap.
In revisiting our assumptions, we have slashed FY08 earnings by 33%to fully provide for the remaining S$90m CDO given worsening credit spreadin October. We have also trimmed FY09 earnings to reflect conservativedemand outlook, which we believe could potentially pressure FY09/10 revenuegrowth although Venture should hold up margins better relative to peerswith its higher value-added ODM services.

In spite of our steep earnings cut, Venture looks oversold at anall time low of 5.7x FY09 earnings and 0.6x P/BV. This implies that markethas priced in a lot of negatives including the entire CDO write-off plus aworst-case scenario of massive write-downs for DMX and goodwill from thepurchase of GES (see scenario valuations). However, we think a totalwrite-off is unlikely because 1) management continues to perceive DMX as along-term strategic investment, and 2) GES is still benefiting the companywith stronger customer relationships and cross-selling opportunities. Ourbase case FY09 forecast encompassed complete write down of CDO and 10%amortization of intangibles over a ten-year period.

Valuation aside, Venture is highly FCF generative (c. S$150-200m/ yr) andcan therefore comfortably pay off debts (S$8m net debt at end 3Q08), andstill sustain dividend payment of S$0.50/shr, translating to a solid 12%dividend yield, amid falling profits. With our revised assumption, we nowsee fair value at S$6.40, still pegged to 9x FY09 P/E. Upgrade to Buy.

Expect record CDO write-downs in Q4. As of end 3Q08,Venture’s CDO holdings were S$90.7m, equivalent to 54%of the host value. Given that credit spreads have continuedto widen from 168bps at end Sep to 280bps currently, webelieve the mark-to-market losses in 4Q08 would be evenbigger than the S$29.8m recorded in Q3. To date, Venturehas already provided for 46% of the host value of S$167.8mand it is likely that management will fully provide for theremaining value to remove overhang on the share price. Tobe prudent, we have assumed a full provision of S$90.7m in4Q08 for the remaining CDO value.

Near term, Q4 outlook is unexciting as like the rest of itscompetitors, Venture noted a lack of seasonal uptick thisyear. Management has not seen a major slowdown inorders but cited higher pricing pressure as customers striveto cost-down, with many tightening control on inventoryand focusing more on cash preservations.

While difficult to forecast with precision the impact of themarket’s falloff on each customer, management’s outlookfor FY09 is muted as weakness in the technology sector isexpected to continue. In light of the worsening demandoutlook globally, our forecast have cautiously built in a 15%y-o-y decline in FY09 sales to S$3.2bn, compared to previousforecast of a 5% drop. Compared to a 2% sales decline in2001 and another 4% in 2006, our forecast has assumedthat this would be Venture’s biggest revenue decline in thelast fifteen years. We have imputed a broad-based contraction in all of Venture’s divisions. On a positive note, astronger USD and more outsourcing from new customerscould help to mitigate the slowdown for Venture.

Slight moderation on margin assumption. AlthoughVenture’s higher value added proposition in terms of cost-effective designs and component cost-down would likelyhelp the company defend its margin better than peers, wethink it is unlikely that Venture can escape current aggressivepricing environment unscathed. In our forecast, we havereduced gross margin by 90bps from 12.4% to 11.5%.

We continue to like Venture’s strong free cash flow. With anall time low PE of 5.7x and P/B of 0.6x plus a dividend yield ofover 12%, one is buying Venture on the cheap and is gettingpaid to wait out the economic downturn. Upgrade to Buy

We recently lowered our estimated office capital values and REIT target pricesfollowing the cut in our Singapore GDP growth forecasts to 2% in 2008 and -0.5% in2009 (previously 4.3% and 4.1% respectively). As a result, we lower our RNAVestimates and price objectives for developers to reflect our new assumptions (seeTable 2) and the latest 3Q08 figures. Our cautious stance on the sector is unchanged.

Although property stock prices have fallen by 41%-63% since Aug 08, we think itis still too early to bottom-fish at this stage. Firstly, valuation metrics are extremelyvolatile as the economic climate continues to deteriorate. Secondly, we see nocatalyst to sustain a re-rating in stock prices. We strongly believe that there mustbe some visibility in physical property markets before we even attempt to startbottom fishing.

Within the commercial market segment, we think the office sub-segment has thegreatest downside risk to capital values and rentals. We recently downgraded ourrental and capital values forecast on a weaker demand-supply outlook. Inanticipation of record high supply coming onstream and weakening demand, weexpect rents and capital values to stabilize in 2011 at S$5psf (from S$8psf) andS$800psf (from S$1400psf).

We would stay away from the Singapore properties space for now given the lackof visibility. Developers with the best ability to weather this storm are those with –(1) a cheap landbank, (2) a strong balance sheet, (3) and a stream of cashflow tosustain them through this challenging period. In this regard, our view on thecompanies we cover has not changed. We still think City Developments standsout as the most resilient from the pack and maintain our Neutral rating. We alsomaintain our Underperform ratings on CapitaLand and Keppel Land.

Post 3Q08, we revisit our assumptions on ComfortDelGro arising from:(i) lower crude oil price; (ii) its A$149m acquisition of Kefford Group inVictoria, Australia (iii) changes to our forex assumptions (GBP and AUD,against SGD).

1. Crude oil price assumption lowered to US$60/bbl and US$70/bbl in2009-10, from US$80/bbl. The net positive change is S$38.5m and S$21.8m.

2. Kefford Group acquisition. The A$149m acquisition was announced on 20Nov. Our estimate of the net profit contribution to CDG is S$5.7m in FY09and S$5.9m in FY10. We view this acquisition as positive and are in linewith the Group’s strategy to achieve 70% revenue contribution from overseasby 2012. Its existing operational experience in Australia reduces operatingrisks for this venture, in our view.

3. Lower forex assumption. We revised our GBP and AUD (against SGD) downto S$2.30/GBP and S$0.98/AUD. These change our forecast by -S$41.5m and-S$45.5m for FY09F and FY10F respectively.The net impact is minimal on our FY09F earnings but our FY10F has beentrimmed down by 8%, largely due to a smaller revision in oil price (toUS$70/bbl vs US$60 for ‘09F).

Singapore bus/train ridership remain robust. Bus and train (NEL) ridershipgrew 4% and 16% y-o-y in Oct. YTD, ridership growth of 6% (bus) and 16%(train) is in line with our FY08F assumption.

Despite the downturn, we believe the Group’s business will berelatively less affected given its exposure in the public transport. Wealso like CDG for its strong balance sheet and healthy operating cashflow.Maintain Buy. Our TP is maintained at S$1.59, still pegged to 15x on FY09F.

In our view, Oceanus should see rapid earnings growth and has good visibility onhow it will get there. In our opinion, the key variables to Oceanus’ earnings are: 1)the number of tanks the company operates, 2) the future price of abalone, 3)disease, and 4) Oceanus’ physical ability to distribute abalone into the market.Thus, we specifically addressed these key issues with Dr. Ng.

Oceanus guides for 20,000 and 40,000 tanks by the end of 2008 and 2009,respectively. It had 17,500 tanks as at 30 September 2008. We understand thatthere is sizeable undeveloped land on two newly acquired farms (one which wesaw personally in April 2008). We are confident that Oceanus will reach or slightlyexceed its guidance for FY08 and FY09 because of the relative simplicity of thetank designs and scalability once pumps and filters are built. Dr. Ng does not wantto expand too much beyond the 40,000 tank 2009 goal, as he wants to focus onsales and does not want to be exposed to too much inventory risk.

Management said that 3Q08 market prices for Japanese abalone in China werefairly steady compared with those for 1H08. Going into 4Q08 and January 2009,management expects a seasonal premium to develop for larger abalone (ie, morethan five years old). After the Lunar New Year in 2009, we expect abalone pricesto decline modestly, due to economic deceleration in China. We assume abaloneprices decline from FY08 to FY10.

Currently, Oceanus does not have insurance on its bio-stock. While we think thechance of disease affecting Oceanus’ entire bio-stock is very remote, we believethat would be one of the few events that could affect the company dramatically if left uninsured. Oceanus is investigating insurance coverage for its bio-assets. WhileOceanus has not signed a contract, the company will make an announcement if thissituation changes.

As at 30 September 2008, Oceanus had around 171.4m abalone. We expect thecompany to roughly double this figure by 2010. Assuming it sells roughly one-third of this population every year after 2010 (eg, about 125m abalone), we believeOceanus’ biggest strategic issue would be its ability to sell all those abalone. Thecompany has had a three-pronged approach to its sales channel: 1) live distribution,2) industrial distribution, and 3) retail distribution.

According to management, the company is turning away business because it doesnot have enough abalone to sell. However, we believe that Oceanus’ abaloneproduction will exceed latent demand in 2010, and we are sceptical that it can gainenough market share in order to sell its 100m-plus abalone per year into the liveanimal sales channel. At most, we estimate that Oceanus can sell 50m live abalone.We believe that Oceanus will have to rely on industrial and retail distribution,which we think taps a much bigger market opportunity.

On 8 August 2008, the company announced plans to create a joint venture calledOceanus Food Group (OFG) with Ah Yat Abalone Group, a Singapore-basedabalone restaurant group with some locations in China. It was our understandingthat this joint venture was supposed originally to be the investment vehicle thatoperated restaurants in China and licensed its intellectual property rights. Thepackaging operations were supposed to be operated through a joint venture withanother company. This 70/30 Oceanus/Ah Yat joint venture will do all four, ie,owning the rights to the Ah Yat brand, industrial packaging, retail canning andrestaurant operations. According to Dr. Ng, Ah Yat will inject its Ah Yat brandingrights immediately, build its industrial packaging operations in 1Q09, build its firstrestaurant in 1Q09 and open up canning operations around mid-2009. We expectthe packaging operations to be in Fujian near the farms

No questions on Darco's technological competency. Organic and inorganic treatments; membrane filtration and separation; electro-winning; chemical precipitation; vacuum degasification ? name it and Darco's veteran CEO is able to clearly articulate each process and its use within the water treatment spectrum. Having only the technology is not sufficient as a competitive edge noted CEO Mr Thye; ability to match and execute solutions effectively is the key.

Municipal treatment plants at final stage of construction. Darco expects both its Chu Bei and Kerya wastewater treatment plants to be completed and commissioned by end of this year. The Chu Bei and Kerya plant is planned for treatment capacity of 20,000 cmd and 30,000 cmd respectively. Upon commissioning, Darco will provide management services to these plants for a period of 3 and 5 years.

True environmentalist. Darco purifies the environment through solid, water and air. The recent addition of BOO waste recycling facilities ("WRF") in Tao Yuan County marks its foray into solid waste management. Darco's WRF handles all domestic garbage for the County backed by a guarantee minimum volume of 50,000 kg/day from the County government. The management believes that WRF is the first in Taiwan and is optimistic about expansion to other counties in Taiwan following the success in Tao Yuan.

Cerebos's 4Q08 net profit of S$19.8m was below our expectation of S$24.2m, bringing FY08 net profit to S$81m (-4% yoy), or 95% of our FY08 estimate. The miss was largely due to lower-than-expected net interest income as a result of lower interest rates and a lower cash balance. Management proposed a total dividend of 25 Scts, unchanged from last year. Our FY09-10 EPS estimates have been reduced by 10-12% on the back of lower sales and margin assumptions, and lower interest rates. Nevertheless, our sum-of-the-parts target price increases to S$5.42 from S$4.86, due to a decline in beta. Maintain Outperform.

Wilmar delivered a strong set of results for 9MFY08, mainly on betterperformance posted by the refining and oilseed processing segments.Being the world’s largest palm oil refiner, we believe that increasedpalm oil production in Malaysia and Indonesia has contributed to thejump in Wilmar’s refining volume, while we attribute the remarkableimprovement in margins to timely purchases of raw materials andsales of products, as well as a strong hedge against falling edible oilprices. Generally, we believe that the means for further marginenhancement will be limited, as we expect reduced edible oil pricevolatility in 4Q. Therefore, we believe the strong margin expansion in3QFY08 is not likely to be repeated in the coming quarter.

As previously highlighted, we believe Wilmar has substantially soldforward its CPO production prior to the collapse in prices. Therefore,despite CPO prices falling by over 50% between 2QFY08 and3QFY08, Wilmar’s plantation division only saw a 5% q-q decline inpretax profit.

Meanwhile, margins for consumer packs have improved due toweaker raw material costs. Note that Wilmar has cut selling prices by12% in August, but given that the fall in feedstock costs wassignificantly larger than the cut in selling prices, we expect furthermargin expansion for this division in the coming quarter. Also, volume should also bestronger in the immediate term with customers increasing their purchases ahead of theLunar New Year festival.

Wilmar’s balance sheet has strengthened, as the sharp decline in commodity priceshas lowered its working capital requirement, resulting in a fall in net gearing from 0.52x(as at 31 December 2007) to 0.41x. If adjusted for liquid working capital, Wilmar’s netgearing would be even lower at 0.12x. Meanwhile, its cash reserves surged fromUS$968mn to US$3.7bn. As we have argued, the tight credit market is not likely toaffect Wilmar’s liquidity in terms of securing necessary funds for its businessoperations. Wilmar’s credit facilities remain strong with an outstanding balance ofUS$3.9bn (total liquidity is US$4.9bn, inclusive of US$1bn of excess cash). As close to75% of the total credit facilities utilised are trade finances and, hence, secured byreceivables and inventories, we do not foresee any refinancing issues.

In addition, its cash conversion cycle has improved from 61 days (as at 31 December2007) to 51 days, due mainly to lower inventory and receivable turnover days

As mentioned, one of the key factors that have helped to enhance margins was thepresence of a disciplined hedging policy. This is evident by a gain on derivativeinstruments (essentially plain-vanilla instruments) of US$448mn in 3QFY08 versus aloss of US$46mn in 2QFY08. The gain in 3Q was substantial, because of the collapsein commodity prices, a testimony of Wilmar’s successful commodity price riskmanagement. Rightfully, the gain should not be viewed in isolation, because a hedgingstrategy would mean gains on derivatives are accompanied by losses on the physicalassets. Also recall that Wilmar has good market intelligence in the demand and supplydynamic of edible oils, owing to its extensive global footprint and superior integratedbusiness model, which leads to an effective hedging strategy. We believe Wilmar hassolid timing and trading capabilities, given the continued expansion in refining andcrushing margins since the completion of its merger exercise in 2Q07.

On foreign exchange risk management, Wilmar only suffered a marginal forextranslation loss of US$12mn in 3QFY08, compared to circa US$60mn (or RM212mn)loss for IOI Corp in 1QFY09. In addition, IOI Corp has also incurred a realised forexloss of US$28mn (or RM100mn) versus an estimated forex gain of US$20mn forWilmar in the same quarter. Although IOI Corp is not entirely comparable to Wilmar, itis seen as a close peer to Wilmar due to it having international downstream operations.On the weakening rupiah, we do not expect any adverse impact on earnings, giventhat sales proceeds of its Indonesia businesses are denominated in US dollars, whilecost is denominated in the weaker domestic currency.

Given the consistent good performance recorded by the merchandising & processingdivision, we are raising the respective margin for the refining and oilseed segments toUS$26-31/tonne (from US$25-27/tonne) and US$33-50/tonne (from US$29-38/tonne)for FY08-10F. Our earnings sensitivity suggests that for every US$1 change in marginper tonne, Wilmar’s earnings would change by 2.6%.

We are lowering our CPO price assumption by 12-17% to RM1,900/tonne in FY09Fand RM2,200/tonne in FY10F, due to the reduction in our crude oil price assumption toUS$60/bbl (Oil under water, 14 November). We generally believe that Wilmar’splantation division could post better performance than its peers, due to its ability topreserve, if not enhance, profit margin through solid risk management. We are leavingour forecasts for the consumer pack division unchanged.

All in, we revised upward our FY08F earnings by 29%, due to higher marginassumptions for the merchandising & processing division. However, this increase waslargely offset by a lower CPO price assumption for FY09-10F, resulting in only a 4%earnings revision.

Given its substantial cash coffers, we believe that the current economic and financialturbulence would present good opportunities for Wilmar to extend and expand itsbusiness operations via M&A investments. We have also reduced its annual newplanting programme from 40k to 20k, as we believe the opportunities to acquiredistressed smaller-scale plantation are abundant in this current downcycle and, hence,lowering the requirement for greenfield expansion.

Wilmar remains as our top pick for the sector and we maintain our BUYrecommendation. Our price target of S$3.30 is based on sum-of-the-part valuationmethodology (exhibit 6). This implies a FY09F P/E multiple of 13x, which is at a 15%premium to plantation peers. We think a premium valuation is warranted, given that itsintegrated business model will be more resilient during a downcycle period. In addition,we believe Wilmar is in a better position to benefit from M&A opportunities in view of itscash pile.

Key risk to our valuation is the possibility of a faster pace of decline in consumption ofstaple food products, which could lower our earnings estimates due to lower salesvolume for the merchandising & processing and consumer pack divisions.

From the recent results announcements, HP's guidance is below analyst forecast and Agilent expects a YoY decline in sales in FYQ109.However, we believe Venture has worked closely with these key clients on rapidlygrowing new products such as HP’s multi-function printers and wireless printersand could benefit from a potential increase in outsourcing..

Venture’s Q3 inventory level increased 10% over Q2 on flat QoQ sales growth andcaused some investor concern. Our checks suggest this is due to Venture’scontinuing efforts in expanding ODM activities and the company’s unique highmix/low volume business model.

While the inventory turnover days rose from 33 in 2004 to 67 in 2007, gross/EBITmargin improved from 16.8%/5.5% in 2004 to 20.4%/6.7% in 2007. We believethese two factors should help Venture deliver more defendable profit margins thanother EMS companies with high consumer electronics exposure such as Hon Hai.This is because Venture’s broader product portfolio and unique design servicescould be difficult for its rivals to replicate.

In light of Venture’s strong cash position, and historically low P/BV, we maintainour Buy rating and price target of S$9. Our DCF-based price target is based on6.0% EBIT margin, 3.2%/3% medium-term/terminal growth, and a WACC of8.6%.

Could there be repercussions from not reigning in DPS? We examinethe risk of default at the Sky@Eleven property project given that recentsub-sale transactions have started to fall below the original averageselling price of S$975psf. Most of the unit sales have been on a DeferredPayment Scheme (DPS) basis and from what we understand, none havebeen converted to progress payments, hence financing could becomedifficult later if asset prices fall at an unprecedented rate.

Defaults would hit FY10E earnings but not SOP: If defaults arisewhen the Temporary Occupation Permit (TOP) is issued in 2010, we dosee a significant hit to our FY10 estimates as SPH will have to writeback earnings recognized before that point. However, we do not expect asignificant impact to our Jun-09 SOP-based S$4.65 PT as the NPV ofthe project currently accounts for only 7% of our SOP. The bulk of valuein SPH is still the publishing business at 60% of the SOP based on ahistorically resilient 12x trailing P/E. The Paragon mall supports 28% ofSOP. Risk to our PT is a perceived de-rating in the publishing businessin the form of lower circulation rates; SPH has differentiated itself fromWestern media which has succumbed to growth of the internet platform.

The biggest hit from Sky@Eleven defaults would be on dividends: Ifmanagement decides not to pay out the related property developmentearnings on perceived risk of defaults, dividends could be cut by as muchas 10 cents per share, or 36%, in FY09 and FY10. A lower dividendyield could affect the stock’s ongoing outperformance. However, webelieve it is too early to make such a call as the risk of DPS defaults, ifany, will be marginal, in our view. Based on sub-sale transactions to datea substantial amount of capital has been committed by investors inSky@Eleven and the fact that transactions have not ground to a halt andare taking place at lower levels, suggests there is the propensity for thespeculation to clear

9MFY2008 financial results. Sinwa Limited reported a 12.13% growth (year-on-year) in revenue from SGD 89.77 million in 9MFY2007 to SGD 100.66 million in9MFY2008. In addition, net profit grew by 10.82% (year-on-year) from SGD 7.18million in 9MFY2007 to SGD 7.95 million in 9MFY2008. On a quarterly basis,revenue grew approximately by 13.84% (year-on-year) from SGD 30.33 million in3QFY2007 to SGD 34.53 million in 3QFY2008. However, net profit fell by 12.38%(year-on-year) from SGD 2.15 million in 3QFY2007 to SGD 1.91 million in 3QFY2008.The decline in the quarterly net profit was mainly attributed by the increase in theGroup’s financial expenses.

Profit margins. The Group’s gross margin continued to improve by 3.59ppts (year-on-year) from 23.10% in 9MFY2007 to 26.69% in 9MFY2008, attributed by their jointventure with Nordic International Limited. From 3QFY2007 to 3QFY2008, gross profitmargin also improved, by 4.93ppts (year-on-year), from 22.50% to 27.43%respectively. However, net profit margins were eroded due to the increase in financeexpenses. In 9MFY2008, net profit margin fell by 0.05ppts (year-on-year) from 7.95%in 9MFY2007 to 7.90%. The Group’s net profit margin also fell by 1.56ppts (year-on-year), from 7.08% in 3QFY2007 to 5.52% in 3QFY2008.

DPII 300 Men Accommodation Barge. The vessel is scheduled to be delivered bythe second half of 2009. However, in view of the current global economic sentimentsand the slowdown in the shipping industry, we are bearish on the charter possibility ofthe vessel which has yet to be confirmed and announced.

Estimates. We have further trimmed our estimates by forecasting revenue growth of12.32% for FY2008 and 10.90% for FY2009, encompassing revenue contributionsfrom the joint ventures with KS Energy Limited and Nordic International Limited. Wehave maintained our forecast for gross margins of 26.27% and 28.89%. However, inview of the Group’s financial expenses, we have adjusted our forecast for theGroup’s net profits to SGD 9.77 million and SGD 11.68 million for FY2008 andFY2009 respectively. The contracts with Nordic International Limited and KS Energyshould potentially improve the Group’s gross profit margins. Despite decrease in netprofit margins, the Group should still be experiencing net profit growth of 22.57% and19.50% in FY2008 and FY2009 respectively.

Maintain BUY. We have revised our estimates and revalued our fair value estimateto S$0.25 per share. This is derived from a 1x pegged to the Group’s FY2008 nettangible asset per share, translating to 150.00% upside. In view of the globaleconomic sentiments and the slowdown in the shipping industry, we remain cautiousand conservative of the Group’s growth and earnings from their main core business,supply and logistics in the year ahead. However, we believe that the Group’searnings would be bolstered by the contribution from their joint venture projects.

Equally beaten down. Both Keppel Corp and SembCorp Industries have beenbeaten down by about 60%, underperforming the market by 15-25% YTD. This waslargely due to market jittery and a reduced appetite for offshore & marine stocksfrom credit volatility, order deceleration and falling oil prices.

Which is more resilient? We believe that both SCI and KepCorp are on a levelplaying field in the offshore & marine sector. Execution of significant order backlogsshould continue to underpin their earnings growth in FY09. Similarly, both face thethreat of order deceleration from a tight credit environment. In this report, we lookfor values in their remaining entities other than offshore & marine, focusing onproperty, SPC and utilities as these segments are key non-offshore & marineearnings contributors.

Keppel Corp: triple whammy. Apart from negative sentiment on offshore &marine, Keppel is crippled by a sluggish outlook for Keppel Land and SPC. Webelieve that more de-rating of KepLand is possible on the back of impendingpressure on the Singapore office market, uncertainties in the residential property aswell as substantial capex commitments for MBFC. SPC’s outlook remainschallenging as there could be further inventory write-downs depending on oil prices.Refining margins could be squeezed by demand destruction due to the economicslowdown and supply of new refineries globally.

SCI’s Utilities business more shielded from negative sentiment. We expectearnings from Utilities to remain stable with a slight dip of 1% in FY09, incorporatingzero growth for Singapore and a weaker UK as it takes the full impact of the expiryof favourable supply contracts (in 1Q08) and lower translated earnings from adepreciating sterling. However, from FY10 onwards, we expect growth to resumeon the back of: 1) ramped-up contributions in Singapore as Exxon and Shell’sexpansion plans are due for completion which could translate into additionaldemand for utilities on Jurong Island; and 2) more normalised earnings from the UK.

Maintain Neutral on Keppel Corp and target price of S$5.40, based on sum-of-the-parts valuation. We believe Keppel will be more susceptible to a slowdown ofeconomies, affecting its offshore & marine, property and refining businesses.

SCI our preferred conglomerate; maintain Outperform, but lowered targetprice to S$3.23 from S$3.31. Based on current implied valuations (ex-SMM), SCI’sUtilities business is worth S$1.2bn or 6x CY09 P/E, which is below the level of itsinternational peers (9x). We prefer SCI to Keppel as we believe the utilities businessis still under-appreciated for its defensiveness and resilience in an economic turmoil

Resets boost 1H09 revenue. SP AusNet (SPN) posted a 8.9% YoYincrease in 1H09 revenue to A$635.5m, boosted by recent positive regulatoryprice resets, higher usage due to cooler winter weather, and higher volumefrom new customer connections. Profit after tax, however, fell 22.9% YoYto A$92.2m because of a non-cash impairment charge of A$43.3m. Thecharge was taken on SPN's electricity meters in line with a revised costrecovery model on the 'smart meter' roll-out. SPN will pay out about 5.9 Acents for 1H09 and said it is on track to pay out 11.85 A cents for the fullyear, as guided. This roughly translates to a 10.5% yield.

Distributions from operating cash flows. The ongoing sell down of yieldinstruments in both Singapore and Australia reflects, in our opinion, investorfears that the dividends paid out by such instruments are unsustainable.Some of SPN's infrastructure peers have come under pressure in recentmonths because of aggressive distribution payout policies that rely onleverage (borrowing future growth to pay investors today). SPN, meanwhile,uses its operating cash flows to service its distribution to unitholders (seeExhibit 2). In FY08, SPN paid out 39% of its operating cash flow asdistributions. The remaining funds were used to make interest paymentsand to fund capex. We note that SPN has newly introduced a distributionreinvestment plan. Depending on the take-up, SPN will be able to utilizemore of its operating cash flows to fund its capex program.

No near-term debt expiry. SPN's infrastructure peers with near-termrefinancing needs have also seen their share prices fall. Refinancing existingdebt in the current market has become more expensive, and in selectcases, nearly impossible. We note that SPN stands out in the sectorbecause of (1) its 51% investor, Singapore Power (100% owned by TemasekHoldings) and; (2) SPN also has no refinancing needs in the near-term - itwill next see debt expiries in Sept 2010. In the meantime, SPN still plansto spend A$2.7b in capex over the next five years using a combination ofdebt (60%) and internally generated funds (40%).

Relative out-performer. SPN has seen a 23% decline in its share pricesince June, in line with the 26% devaluation in the AUD/SGD. In contrast,the STI has fallen 45% over the same period. About 90% of SPN's revenueis regulated, and is locked in until 2011. We do not have a rating onSPN.

Good tidings from Jembayan mine. Straits Asia Resources Ltd (SAR)has delivered another positive update, hot on the heels of its announcementlast week regarding the finalization of its refinancing arrangement. Thistime, the company has upgraded its Jembayan mine's available resourcesto 254Mt (from 138Mt) as continued exploration work had bore fruit. This isthe second upgrade of Jembayan's resource since SAR acquired the minein Dec 07, and management is optimistic that further drilling efforts will leadto more resource upgrades. On top of this, SAR has also raised itsexploration target for in-situ coal at Jembayan to 600Mt - 700Mt, substantiallyhigher than the 200Mt it had originally targeted.

Long-term cheer but no near-term earnings impact. The resourcesupgrade puts SAR in the position to raise its reserves and production outputin the long run, boosting its future revenue stream. However in the nearterm, capacity constraints remain, and as such, our projection stays intact.Our combined production target from Jembayan and Sebuku remains at9Mt for FY09 - the lower end of management's guidance. Of this, 73% hasbeen fully priced at US$114/ton (+62% YoY), leaving only the residual 27%of its output exposed to price volatility.

Bridge loan repaid in full. SAR also announced that it has drawn downUS$250m from its recently secured US$300m loan facility to repay itsbridge loan in full. This leaves the group with an additional US$50m ofuntapped facilities which we expect will be kept as cash buffer until itearmarks the funds for expansion and development plans. Management isconfident of meeting its repayment obligations, given its robust anticipatedearnings and healthy operating cash flow in FY08 and FY09, buoyed bystrong order book visibility.

Bear-case assumptions factored in. Maintain BUY. We are leaving ourestimates unchanged. Our numbers have already accounted for bear-casescenarios including weaker output from Sebuku following delays in obtainingthe relevant permits, as well as lower selling prices in FY10 and beyond inlight of falling energy prices. The stock has experienced volatility in recentweeks, possibly triggered by liquidation among funds, and we suspect thatthis could persist in the near term. Nevertheless, fundamentals of thecompany remain intact. As such, we reiterate our BUY rating and S$1.35fair value estimate.

Kingsmen’s $14.5m maiden contract with Resorts World at Sentosa indeed blossomed into largercontract wins from the Universal Studios worth $59.5m. This involves a contract of $42.5m todesign and build the theme façade, and provide area development works for part of the themepark, and a contract worth $17m to build the interior fit-out works for the F&B andretail/merchandise outlets within the theme park.

These 2 contracts which will be completed by Oct 2009 have already constituted 27% of ourFY09 revenue forecast. Despite the on-going contract wins, we are lowering our earningsestimates for FY08 and FY09 by 13% and 20% respectively in consideration of adjustment inrevenue recognition schedule expectations. Earnings visibility for the next 2 years is clear, led bystrong projects pipeline such as the Singapore Grand Prix, the Orchard ION, Universal Studiosand recurring interior fit out demand from its renowned client base.

Since the acquisition regional affiliates in Greater China, India and the Middle East in Aug 2007,the group’s overseas contributions has now accounted close to 70% of its revenue compared to40% in FY07. We reckon the group’s enlarged regional network will be a sustainable growthengine that opens doors to the limitless events and interior fit out demand globally. Overseasdevelopments have been positive so far as the group benefits from its clients’ global expansion(such as Burberry and Apple), and overseas exhibitions such as the Shanghai Expo.

The group is in a net cash position of $23.9m as at June 2008, generating free cash flow of$6.4m. Its strong war chest of cash, coupled with steady earnings growth will support the group’sgenerous dividend policy. We estimated the group will be able to pay another 1.5 cents DPS for2H08, bringing the total DPS for 2008 to 3 cents. This implies an attractive dividend yield of8.6%.

Against the doom & gloom, Kingsmen is immersed in sweet spot with mounting contracts frommega projects. At just 5x current PER, less than half the PER of its smaller competitor – Cityneon(12x PER), Kingsmen is clearly an undervalued stock which offers both growth and value.

The much awaited re-financing of Frasers Commercial Trust (FCOT)’sshort-term S$70m loan expiring in Nov’08 has been finalized. The loan wasobtained from their parent F&N for a period of 6 months to March ‘09 at acost of 3.7%. The manager aims to refinance this loan together with theS$550m tranche expiring in 2009. Given the strong backing of F&N as itssponsor, we believe that re-financing of these loans should not be aproblem.

During our post results road show and results briefing, these issueswere highlighted.

(1) strategic review continues. Management of FCOT will be keen to divestits Japanese exposure (valued at S$228m) when the opportunity arises. Thisis astute given the parent’s relatively lack of exposure in Japan. ItsAustralian assets remain as part of FCOT plans moving forward, given itsstrong underlying cash flow.

(2) the need to re-capitalize and a stronger balance sheet. At gearing of49% vs S-Reits 30+%, FCOT’s high financial leverage not only incurs highdebt servicing costs but also exacerbates the perceived risk given thecurrent tight liquidity environment. We believe that ways that managementcould explore in solving the current gearing issue will be through (i) anasset sale, possibly Japanese assets, (ii) equity raising either from astraight asset swap or fresh equity call.

(3) Improving operational performance. Management will continue to optimizeyields at its assets, particularly Keypoint where occupancy has fallen to75% in Sept’08. Management aims to bring it up to 90% by end FY09.

Relevance: While FCOT remains one of the cheapest reits at 0.2x P/BV, theoverhang of its ST debt re-financing needs with an overhang from a possibleequity raising could likely weigh on share price performance in the nearterm. As such, we maintain HOLD, TP $0.31, pending affirmation ofabove-mentioned plans.

2 in-line with expectations, 1 below. Most property developers reportedweak sets of results for 3Q 2008, largely attributable to weaker residentialproperty sales. This was inline with the data released URA, which showedthat transaction volume for private properties fell by 61% YoY to 3,994 unitsin 3Q08. Among the developers that we cover, 2 of them - UOL Group andSoilbuild Group turned in robust sets of results that were within ourexpectations. CapitaLand disappointed as profitability was substantiallyboosted by disposal gains and AustraLand turned in weaker-than-expectedprofits.

Developers' balance sheets improved... Among the larger cap developersthat we track, most of them reported stronger balance sheets at the end of3Q08. On average, net debt-equity ratio had come down from 0.52x in2Q08 to 0.49x in 3Q08 and the improvement was generally attributable tostronger equity base, paring down of borrowings and increase in cash holdingfrom divestments.

…But earnings downside risks heightened. We see downside risk todevelopers' earnings for 4Q08. Sentiment in the property market continuesto deteriorate, as evident in the sharp plunge in transaction volume for non-landed properties in October and property sales are likely to be weak in4Q08. Most developers had also guided for weaker outlook ahead in recentannouncements. Construction progress of development projects could alsobe slower in 4Q08 as greater disruptions caused by the wet weatherconditions towards the year end could translate to slower revenuerecognition. Also, developers' earnings could be affected by potential write-downs in valuation of investment properties at the end of the year.

Market is over-pessimistic on developers. Driven by over-pessimism inthe general stock market and negative news flow, share prices of propertydevelopers have been badly battered, with many of them trading at or belowtheir previous trough price-book valuations. On a RNAV basis, which wehad factored in write-downs in asset value, the developers are still tradingat discounts of 44% to 63% to their RNAVs. Valuations are attractive atcurrent level. Among the developers under coverage, we have BUYrecommendations for UOL Group (FV: S$2.88), Keppel Land (FV: S$2.43)and Soilbuild Group (FV: S$0.93). We have a HOLD recommendation forCapitaLand (FV: S$3.28).

HPL posted a net profit of $13.4m for 3Q08 - a 12% decline yoy, despite seeing revenue grow by42.2% to $157.0m in the same period. Profits were weighed down by a $6.4m pre-tax fair valueloss in held-for-trading investments which was partly mitigated by a $1.7m tax write-back. On acore earnings basis, we estimate that HPL’s 3Q08 earnings grew 32.3% yoy, 10.9% qoq. YTDnet profit of $49.4m disappointed, accounting for only 64% of our full-year estimate.

Visitor arrivals in Singapore have been on a qoq decline since July, and the Singapore TourismBoard expects the visitor arrivals and tourism receipts for 2008 to fall short of their targets of10.8m and $15.5b respectively. Even the Singapore Grand Prix held in late September could notprevent a decline in visitor arrivals for the month of September.

We expect 2009 to be a challenging year for tourism, not only in Singapore, but globally. This willnegatively impact HPL’s hotel earnings, which is expected to be the main contributor to totalearnings as we do not foresee it launching its residential projects anytime soon.

HPL’s residential landbank comprises Beverly Mai, Horizon Towers, Farrer Court and GillmanHeights, with an attributable GFA of about 1.4m sq ft. Due to the poor sentiments in the propertymarket, exacerbated by the global recession, we expect HPL to defer the residential launchesindefinitely (note: CapitaLand is the project leader for Farrer Court and Gillman Heights).

In line with the weak outlook for world tourism going into 2009, as well as assuming residentiallaunches to begin only in 2010, we have reduced our FY08 and FY09 earnings forecasts by13.4% and 51.2% respectively. Our target price is lowered to $1.53, based on a 60% discount toRNAV. While HPL has a stable of plum hospitality assets (which are not marked-to-market unlikeinvestment properties), we see a lack of positive catalysts in this economic climate. Downgradeto HOLD.

Restructuring telecommunication operators. China’s restructuring of its telecommunication operators (telcos) is expected to benefit Sinotel, brought on by the expected capex spending byChina Unicom and China Telecom. Both companies have announced capex budgets ofRMB100b and RMB80b respectively, over the next two to three years, for their wireless networks.A portion of these budgets are likely to be allocated to the enhancement and expansion ofexisting wireless network infrastructures. As a provider of wireless network applications andproducts, and given its good relationship with the telcos, Sinotel is in a good position to ride onthe positive effects of the restructuring.

3G network also to boost business growth. With the impending launch of the 3G network,Sinotel has started selling 3G network cards (through China Unicom) in July 2008. This hascontributed to the growth in revenue in the Distribution Solutions segment. Demand for 3G cardsis expected to continue to be strong, going forward, as the network matures.

Balance sheet remains healthy. Although its cash balance at end 9M08 has reduced (fromRMB144.6m at end FY07 to RMB30.6m), largely due to the addition of fixed assets, Sinotelremains in a net cash position. Sinotel has a net cash position of RMB7.9m at end 9M08. Thisworks out to RMB2.8¢ per share or S 0.63 ¢ per share.

Valuation and recommendation. There are no comparable companies listed on the SGX.Therefore we compare Sinotel with similar companies listed in Hong Kong. Its peers are currentlytrading at an average of 2.2x forward P/E or 0.4x P/B. At the current price of S$0.085, Sinotel istrading at 0.9x forward P/E or 0.2x P/B. We peg our valuation of Sinotel to its peers, and arrive ata target price of S$0.20, based on 2.0x FY09 P/E.

We initiate coverage on Sinotel with a BUY recommendation.

We are revising our EPS for 2008E-2010E by -40% to +5.6% and price targetfor Genting International largely to reflect our lower expectations for itscasino business in the UK, and Singapore. Its UK casinos continue tosuffer from sharp economic slowdown in UK, and we do not think it islikely to improve in the near-term considering the weakening consumertrends. As for Singapore, while we do not expect significant constructionor funding risk for its Sentosa Integrated Resorts, Genting International ispreparing for a soft opening of its Universal Studios, four hotels andcasino in early 2010, with the opening of its Western Zone delayed by 6-12months. We are delaying our earnings contribution to end 1QFY2010, andalso cut back our gaming revenues / profitability in view of current globalmarket conditions.

As we have already been factoring in some weakness for its UK casinobusiness over the next 12-24 months, the main earnings downgrade is inFY2010, which we now assume delayed and more modest earningscontribution from the Sentosa Integrated Resorts. With GentingInternational’s key share price driver being the Sentosa Integrated Resortproject, in our view, the progress of its construction as well as the largefunding requirement for the project, remains a key item to monitor —bothof which Genting International says are on-track. As we think it is too earlyto turn positive given the Sentosa Integrated Resorts is only opening inearly 2010, we are maintaining our Neutral rating.

We are revising down our 12-month price target to S$0.45 from S$0.56previously, based on 2009E NAV.

Poor execution and potential cost overrun at the Sentosa IntegratedResort, and further deterioration of the UK casino business.