Cooking oil selling prices easing. An update with management uncovers that IFAR’s selling prices of cooking oil and fats in Indonesia has been revised downwards by 10-15% on average, due to the steep decline of CPO price since its highs in mid July. We have adjusted our FY09 valuations to take into account a 10% decline in margarine’s and a 15% decline in cooking oil’s selling prices, from 9M08 average selling prices.

Capex plans under review. During the update, management has said that they are maintaining their target to expand oil palm planted area to 250,000 ha by end 2010. Assuming no new plantings were carried out in 4Q08, this works out to approximately 38,000 ha of new plantings per year in 2009 and 2010. However, in view of the current credit tightening environment, management has also indicated that they are reviewing non-essential capital expenditure currently.

Downgrade to neutral, new fair value of S$0.51. We are maintaining our CPO price assumption of RM1,500/tonne for FY09 (CPO futures for Jan 09 delivery is RM1,675/tonne) and a 10% YoY CPO production growth per management’s guidance. However, taking into account the reduction in selling prices for cooking oil and margarine, FY09 earnings has been revised downwards by 48% to IDR802b. Factoring in a P/E of 7x our FY09F earnings (7x being the average of 10-year historical low P/E valuation for Indonesian and Singapore listed plantation companies), we derive a new target price of S$0.51 (S$1.12 previously) and downgrade our call on the stock to neutral.

Cosco has issued a profit warning, stating that FY08 earnings will be lower than FY07. The bulk of the lowered earnings will be caused by provisions of doubtful debts. Cosco recorded a net profit of S$336.6m for FY07, and had already posted net earnings of S$326.5m for the first 9 months of FY08. This profit guidance therefore deviates significantly from FY08 consensus estimate of S$425m and our own forecast of S$465m. We are downgrading Cosco to a Hold, while we re-assess our earnings forecast and target price.

Specifically, Cosco says it has recently received requests for delays in making payment by several ship owners. Accordingly, provisions will have to be made for doubtful debts. While increased operational costs such as higher steel and sub-contracting costs and additional development costs at Zhoushan are also being cited, these issues were already well-known and have been addressed by the market. However, Cosco says that these operational issues have also contributed to further delivery delays, and Cosco said it is assessing the various causes of delay and consider the need for further provisions for penalties under these contracts.

In addition to this, Cosco has also announced that it has been asked to reschedule the delivery dates of a total of 7 units of 57,000 dwt bulk carriers by these ship owners. The delivery dates of 4 of these vessels have been rescheduled from between February 2010 and June 2010 to between February 2011 and November 2011, and the delivery dates of the other 3 vessels have been rescheduled from between August 2009 and November 2009 to January 2012. We are also in the process of factoring in these delays to our forward earnings forecasts.

CMT duly responded to the SGX query that it did not know of any reason(s) for yesterday’s $1.40 or 87% surge in its market price to $3.00, the highest since Aug 7th ’08. There was therefore no request for a Trading Halt.

2 mln CMT units were traded at $3 just after 5 pm yesterday, representing just over two thirds of total volume traded, which were all done at $1.59 - $1.61.

If it were CapitaLand (C-Land) as the buyer, one would expect them to announce quickly that it was behind the purchase, given the sensitivity of the matter. (Note that CMT’s reply to the SGX was also reported by C-Land to the Exchange, in its capacity as the controlling unit-holder of CMT.)

And if not, it would be a giant leap of faith for anyone to pay 26% premium to CMT’s latest book NTA of $2.39, when the retail Reit was going for >30% discount for weeks!

One recalls an almost similar situation within the C- Land stable on Nov 6th, when Ascott Residence’s (ART) market price shot up 9 cents or 15% (way below CMT’s 87% surge) to 66.5 cents on market speculation C-Land was going to privatize it. Nothing has since materialized however, and ART was down 29% to 47.5 cents two weeks later on Nov 20th. ART ended yesterday at 57.5 cents, which was the closing price on Nov 5th.

We had recently suggested ART,CapitaCommercial Trust, K-Reit and CDL Hospitality as possible privatization candidates by their respective parents - C-Land, Keppel Land and City Developments, given they are all trading at sizeable discount to NAV, albeit all due for write- downs.

First Real Estate Investment Trust (First Reit) yesterday said that there was no significant change in the total value of its eight properties as compared with a year ago. The trust made the announcement after it revalued all of the properties on Dec 26. The eight properties - four in Singapore and four in Indonesia - were collectively revalued at $324.9 million. By comparison, the properties had a book value of $325.6 million in First Reit's balance sheet as at Dec 31, 2007. The revaluation will be reflected in the financial statements of First Reit for the fourth quarter ending Dec 31, 2008, the healthcare investment trust said. Of the eight properties revalued, five - including three in Singapore - were valued at amounts slightly lower than they were a year ago. The properties in Singapore were valued by Colliers International, while those in Indonesia were valued by Knight Frank and PT Willson Properti Advisindo. The trust said in September this year that it is buying its ninth property, a healthcare logistics and distribution centre in Tuas, for $42 million. The proposed acquisition is slated to be completed in end-2009.

Singapore Technologies Engineering (ST Engg) yesterday said it has secured $86 million in contracts for works at Resorts World at Sentosa (RWS), bringing its order book to a record high of more than $10 billion. 'With this deal and various other contracts secured in the fourth quarter of this year, despite an unprecedented very challenging second half 2008, our order book as at end 2008 will exceed $10 billion, which is an all time high,' said president and chief executive officer Tan Pheng Hock. The latest contracts are to supply an integrated security system, an IT infrastructure system and a car park guidance and payment system to the upcoming integrated resort and were awarded to ST Engg's electronics arm ST Electronics. The contracts are the first major win for ST Electronics from an integrated resort. ST Engg said in a statement that work will begin immediately and that the systems will be delivered over the next two years. The contracts are not expected to have any material impact on the consolidated net tangible assets per share and earnings per share for the group's current financial year, ST Engg said.

City Developments Ltd (CDL) said yesterday it has raised the limit for a medium-term note programme from $700 million to $1.5 billion. The programme was established in May 1999 under which CDL may from time to time issue notes. Proceeds from the notes will be used to refinance CDL's existing borrowings and/or to meet general working capital requirements. 'DBS Bank has been appointed the new arranger of the programme from Dec 12 following the retirement of the previous arranger,' CDL said in a statement to the Singapore Exchange (SGX). 'The notes will constitute direct, unconditional and unsecured obligations of the company and shall at all times rank pari passu as a single class, without any preference or priority among themselves, and pari passu with all other present and future unsecured obligations (other than subordinated obligations and priorities created by law or the trust deed constituting the notes) of the company,' CDL said. Earlier this year, CDL established a $1 billion Islamic bond programme. At Sept 30, 2008, the group had net borrowings of $3.3 billion and cash and cash equivalents of over $800 million.

Sembcorp Marine (SMM) has announced that it has reached agreement with BNP Paribas for a full and final amicable settlement of their original claim of US$50.7m arising from the forex derivatives transaction losses that stemmed from allegedly unauthorised trading carried out by SMM’s ex-finance chief. The claim has been settled for around US$30m.

The outstanding US$50.7m was previously recorded as a continent liability, while another separate charge of S$308.2m had been taken in its FY07 earnings for claims from other banks. Arising from this latest settlement, SMM will now take a charge of approximately US$30m in the fourth quarter of 2008. All outstanding liabilities have now been either provided or accounted for.

We are unable to determine the status of the outstanding disputes with the other banks, but we believe that SMM is unlikely to pursue the matter further. SMM is now in a position to move on from this issue. The latest charge amounts to some 2 cents per share, and will not have a significant effect on SMM’s book value per share. Furthermore, the market has already long ago factored in this liability, and is unlikely to further affect sentiment on the stock.

On account of this latest charge, our FY08 forecast is reduced to S$438.3m, from S$484.5m previously. We maintain our Hold recommendation on SMM, with target price at S$2.10, but we see no near term catalysts for the stock. Fundamentally, the demand for new rigs will remain muted in the current economic environment, with weak demand, crude oil prices below production breakeven and the inability for customers to secure financing for new orders.

ComfortDelGro(CD) has further increased its presence in China through:
1) The purchase of 100% of the issued share capital of Jia Run Taxi Co.,Ltd through its subsidiary Beijing Jin Jian Taxi Service Co.,Ltd and,
2) An increase of its shareholding in Chongqing ComfortDelGro Driver Training Co.,Ltd.

Under the first agreement, Jia Run Taxi Co., Ltd was acquired for S$16.2m. At 1.0x NAV, the purchase consideration compares favourably with CD's 1.9x P/B. Taxi fleet size in Beijing will increase by 342 or 6.7% to 5,421 vehicles.The acquisition will be immediately earning accretive, adding approximately S$0.6m or 0.3% to the Group's net profit in 2009. Although the size of this acquisition is small, it demonstrates CD's capability to make acquisition at attractive valuations amid difficult times.

Under the second agreement, CD increased its shareholding in Chongqing ComfortDelGro Driver Training Co.,Ltd from 80% to 90% by paying S$1.36m for the additional 10% it acquired from its existing partner.

Telechoice has exercised the put option under the agreement dated 4 September 2007 between the company and Fortune to exit the Joint Venture ("JV") by selling to Fortune its 16 million shares in the capital of TeleFortune, which represents 40% of the issued shares in the capital of TeleFortune. The option price payable by Fortune to Telechoice is theaggregate of:

1. HK$49.0 million (after taking into account the option exercise fee of HK$1.0 million payable to Fortune); and

2. 40% of the JV profits for the period from 4 September 2007, the date of completion of the JV, to 31 December 2008, the date on which completion of the Disposal is currently scheduled to take place. The profits can be made as at the date hereof is approximately S$0.901 million (forex RMB/S$ = 4.283).

To-date, the Nokia Fulfillment Agreement ("NFA") has not been novated by Fortune Shanghai to Shanghai TeleFortune and no agreements similar to the NFA have been entered into between Shanghai TeleFortune and Nokia China or its associates, which are conditions to the exercise of the put option. It is not expected that such novation will occur or such agreements will be entered into before the expiry of the exercise period of the put option on 31 December 2008. In view of the foregoing and impending expiry of the put option period, Telechoice has exercised the option to exit the JV.

There is no significant gain or loss is expected from the disposal, neither the change in NTA per share.

1. 4Q results may be exceptionally weaker: While in the past 4Q is the strongest quarter for Telechoice, this trend may no longer be valid for year 2008 given the drastic change in economy that has much affected consumption behavior. The bleak outlook has been deteriorating as the three telcos have cut back the promotion in 4Q after incurring heavy marketing cost since the implementation of mobile number portability (MNP) kicked off in June 2008. As such, we revised down sales in FY08-10 by 5-10%.

2. No profit contribution from the JV FY09 onwards: We trimmed down the contribution of Associate in FY09-10 by approximately S$1-1.7 mil stemming form the termination.

3. Lower profit margin due to higher cost arising from second flagship Starhub store located at Sembawang MRT Station: The new flagship store is not expected to breakeven in near term, thereby putting pressure on its margin. We adjusted down the gross profit margin by about 0.5 ppt in FY08-10.

Potentially lower dividend per share (DPS) this year: The unprecedented change in business environment may warrant the management to rethink their dividend payout this year. While Telechoice has long committed to pay at least 30% of earnings to shareholders, it has historically paid more than 50% since year 2004. Nevertheless, we feel that there are high odds that Telechoice will reduce its payout ratio this year to preserve more cash to weather the current storm. We cut DPS estimates by 0.5-1.0 Sg cts in FY08-13.

China Mengniu Dairy Co Ltd said it expects to incur a loss of 900 mln yuan this year as sales were affected by the melamine contamination scandal in China. It said the group write off certain inventories and incurred costs for disposal of raw milk following the contamination incident. Mengniu said the anticipated 2008 loss is based on preliminary figures. A milk-products contamination scandal broke out in China in mid-September, involving several dairy firms in the country. Mengniu shares opened down 6 pct.

Hyflux has bounced off lows but is still trading near trough valuations at 11x FY09PE. We believe current risk-reward ratio looks attractive, given 1) excellent near term earnings visibility backed by S$1b of order backlog; 2) potential catalyst of new order wins driven by China’s recent RMB4 trillion stimulus package and 3) continued emphasis on environmental protection globally. The credit situation is no doubt difficult but Hyflux maintains better credit profile than peers owing to a distinguished track record; S$300m of multicurrency debt issue and an ongoing divestiture to Hyflux Water Trust. Hence, we maintain BUY on Hyflux with a revised TP of S$2.13.

Record FY08/09 profits within reach. Despite macro-economic uncertainties resulting in a slowdown of orderflows for the entire water sector, Hyflux will continue to expand revenue and profits in FY09, on the back of its S$1b+ orderbook and proposed divestiture gains. We expect headline net profit of S$60m in FY08 and S$77m in FY09. Existing projects continue to be well funded and are on schedule, according to our latest check with management.

Order news flow would be added catalyst. Hyflux is in talks with Chinese municipals and constantly on the lookout for more desalination projects in Algeria. However, projects are taking longer to finalize as company tries to pick the best projects given current landscape of scarce funding and higher costs. Management is confident of growing orderbook; we believe our new wins estimates of S$300m each for FY09/10 is reasonable compared to S$420m in FY07 and S$820m in FY08.

Revised target price to reflect earlier divestment gains. Further to recent announcement of completed divestiture to HWT, we bring forward recognition of divestment gain to FY08, thereby reducing our FY09 net profit forecast by 11%. Consequently, our SOTP-based target price is revised to S$2.13.

Effective January 1, 2009, Mr Lim Chee Onn will relinquish his role as Chief Executive Officer of Keppel Corporation, but will continue to serve as non-executive Chairman. Mr Choo Chiau Beng, currently the CEO of Keppel Offsore and Marine (KOM) will assume the role of CEO for Keppel. Mr Tong Chong Heong, currently Managing Director and Chief Operating Officer of KOM, will be appointed CEO of the division. Mr Teo Soon Hoe is maintained in his role as Group Finance Director.

This brings to an end Mr Lim’s 9-year stewardship of Keppel. We do not see any major issues with Mr Choo’s succession, as he has proved himself extremely capable in the re-emergence of KOM during the last up-cycle. From a bigger picture perspective, the move hints that Mr Lim may be deployed to other areas, possibly outside of Keppel Corp, with other Singapore Government related entities - Temasek may take the opportunity to re-tool and re-organise the focus of Singapore Inc in the current economic climate.

There is no fundamental change to our outlook for Keppel Corporation. We retain our Hold recommendation with a target price of S$4.50, as we see no significant positive catalysts for the O&M or the property division in the near term.

DBS announced a rights issue to raise net proceeds of $4bn, shortly after its $1.5bn preference shares issue in May 2008. The rights issue comprises of 760,480,229 rights shares on the basis of one rights share for every two ordinary shares. The rights price of $5.42 represents 45% discount to the last traded share price of $9.85 on 19 Dec and 35% discount to the theoretical ex-rights share price of $8.37. Its largest shareholder, Temasek intends to subscribe up to 33.3% of the rights issue.

Besides a boost investor’s confidence, a stronger capital position will give DBS an edge to take advantage of growth opportunities such as strengthening its customer relationships and to grow its loans book. The capital raising is mainly to be use for organic growth and not intended for any M&A or extraordinary provisions. This huge capital injection looks timely to ease the burden of a challenging earnings outlook ahead where loans and fee income are set to slow along with potential higher NPLs.

This $4bn capital raising will boost the group’s Tier 1 ratio from 9.7% to 11.8%, catching up with UOB and OCBC who have Tier 1 ratios that exceed 10%. In fact, DBS will likely surpass its peers to have the largest excess tier 1 capital among the Singapore banks post the rights issue. However, this comes with an adverse impact to its EPS and book values per share (BVPS). We estimated the rights issue to dilute DBS’s EPS by 33% and reduce its diluted BVPS (as at 9M08) from $12.69 to $10.28.

According to the group’s trading update as at 22 Dec 2008, its 4Q net profit before one-time charges could end up moderately lower than in the previous quarter. One-time items in 4Q are expected to comprise charges for the recent staff restructuring of approximately $45m and for a further impairment of the banks’ investment in TMB Bank. A review of the carrying value of DBS’s investment in Cholamandalam DBS finance Ltd (at $103m) is also being undertaken for the 4Q results in view of the liquidity stress experienced by non-bank financial companies in India.

Our target price has been lowered to S$10.70 (based on FY09 BVPS) after taking into account full impact of the rights issue. Lack of earnings catalysts, coupled with the dilution from rights issue will likely to depress the share price in the near-term.

Frasers Commercial Trust (FCOT) faces a need to restructure its balance sheet due to 2 factors: (I) lengthen its debt maturity profile, currently at 1.8 years and (ii) improve is gearing position in the event of an asset write-down. We have explored various options appended in our report and believe a combination of a sale of its Japanese assets and equity raising gives a more favorable outcome for the trust. We believe that the current price has largely factored in a need to recapitalize its balance sheet and believe the stock could re-rate once this overhang is removed. Maintain HOLD, TP $0.25.
Recapitalization: Might be key. We note that FCOT needs to strengthen its balance sheet given its gearing of 49%. Options outlined include new equity raisings, asset-for-equity swap with F&N, sale of non-core Japanese assets to pare debtor or a combination of asset sale and equity raisings. We view the last option as least dilutive to existing shareholders.

Short-term re-financing needs. FCOT has outstanding debt of S$620m ($70m in May’09, $550m in Dec’09) expiring in FY09. The quantum of re-financing at a time where the reit is competing with other S-REITs for funds in a tight credit environment will remain top on investor’s minds. We believe that FCOT, leveraging on its strong sponsorship, should have better access to capital than before.

HOLD, TP $0.25. We maintain HOLD, TP$0.25 in anticipation for further directions from management on their strategy going forward. At an FY08F – FY10F DPU yield of 21% - 26% and a low of 0.2x P/BV, we believe that the stock is pricing in a recapitalising of its balance sheet. However, a re-rating of the stock would likely occur only when the actual balance sheet restructuring activity takes place.

Despite weekly rebound in the Capesize and Panamax markets, the BDIreversed into a downtrend over the last consecutive three days.

Eagle suspends dividend. Eagle Bulk Shipping has cancelled eight of itsnewbuildings and put its dividend on hold as it shores up its operatingposition.

Atlas Shipping files for bankruptcy. Atlas Shipping has filed forbankruptcy after losing US$3m per week in the weakened bulk market.

Angelicoussis sues Fortescue after cancelled time charter. TheAngelicoussis Group is suing Fortescue Metals Group for US$129m over acancelled, five-year capesize time charter.

China Cosco doubles FFA losses. China Cosco has more than doubled itslosses on forward freight agreement contracts since 30 Sept to Rmb5.38bafter dry bulk rates sunk to record lows in the fourth quarter.

China may lose half of shipyards in 2009. China may lose half of itsshipbuilders next year as the global financial crisis forces companies toclose down, Shanghai Securities News said.

Greek newbuilding orders at lowest quarterly level in eight years. Greekshipowners ordered just one vessel in 4Q08, representing their lowestquarterly level of newbuilding ordering activity in eight years.

Tsuji shipyard becomes Japan’s first crisis victim. Tsuji has filed forbankruptcy protection, leaving shipowners and shipbuilders in the dark asto what will happen to their orders. Tsuji and its subsidiaries declareddebts of US$834m.

Vessel Fixtures. Despite a weekly rebound in the Capesize and Panamaxmarkets, the BDI reversed into a downtrend over the last consecutive threedays. For the week ending 19 December, 10 time-charter fixtures werereported. These fixtures were made up of two Cape, seven Panamax and oneHandy. Two Panamaxes were taken by Swiss Marine, both 2006 built, the76,585 dwt “ETERNAL GRACE” and 82,800 dwt “YASA FORTUNE.”

DBS has announced a 1-for-2 rights issue at S$5.42 (45% discount to lastclosing, 35% discount to theoretical ex-rights price) to raise S$4b.Largest shareholder, Temasek Holdings, will sub-underwrite 33.3% of rightsissue and has undertaken to fully subscribe for its entitlement of 27.6%.The rights issue is underwritten by Citigroup, Goldman Sachs, JPMorgan,Morgan Stanley and UBS.

Offer information statement will be dispatched and trading of "nil-paid"rights will commence on 6 Jan 09. The rights shares are expected tocommence trading on 2 Feb 09.

Rights issue provides resilience to weather the financial storm. The rightsissue will strengthen DBS' balance sheet and allows the bank to weather thefinancial storm even if we go through a protracted recession. Tier-1 CARwill improve from 9.7% to 11.8%. If we exclude qualifying preferred andhybrid instruments, core tier-1 CAR will improve from 7.8% to 9.9%.Management highlighted that organic growth remains priority and the capitalraising was not intended to fund M&A activities or to cover extraordinaryprovisions.

Trading update. DBS also issued a trading update for 4Q08 results. Totalincome is expected to be stable compared to 3Q08 with higher net interestincome offset by lower fee income due to market-sensitive activities. Netprofit is expected to be moderately lower than 3Q08 if we excluderestructuring cost from reduction of headcount in 3Q08 and one-time chargefor investment in TMB. DBS will maintain dividend of 20 cents/share for4Q08.

DBS is proposing a 1-for-2 Rights Issue at S$5.42. Based on thepre-suspension price of S$9.85, this is at a 45% discount or a 35% discountto the theoretical ex-rights price of S$8.37

The issue is fully underwritten by Citigroup, Goldman Sachs, JP Morgan,Morgan Stanley and UBS. Key shareholder, Temasek Holdings (which has anaggregate holdings of 27.6%), has agreed to subscribe for up to one-thirdof the Rights Issue.

After adjusting for the net proceeds (of about S$4 billion), its pro formaconsolidated core Tier 1 (less qualifying preferred and hybrid instruments)and Tier 1 ratios would increase to 9.9% and 11.8%.

Shares trade ex-Rights :29 Dec 2008 from 9am
Books Closure Date : 31 Dec 2008 at 5pm
Last date and time for trading of nil-paid Rights : 14 Jan 2009 at 5pm
Expected date for commencement trading of Rights Shares : 2 Feb 2009 at 9am

Singapore''s DBS Group, Southeast Asia''s biggest lender by assets, said onMonday it plans to raise about S$4 billion ($2.74 billion)through a rights offering. The bank will offer shareholders one new share for every two existing shares held, it said in a statement. DBS last month reported a 38 percent fall in quarterly netprofit to S$379 million and said it would cut 900 jobs or 6 percent of its staff. DBS raised S$1.5 billion in May through a sale of preference shares that paid investors 5.75 percent per annum. The rate was higher than the 5.05-5.1 percent offered by rivals United Overseas Bank and Oversea-Chinese Banking Corp, which also sold preference shares to strengthentheir capitala round the same time.

Chemical fibres can generally be classified into synthetic fibres and man-made fibres.Synthetic fibres such as nylon and polyester are manufactured by the processing ofpetrochemical products through a series of chemical and physical treatments. Man-made fibres are manufactured using mainly cellulose materials from plants such aswood and bamboo through a series of chemical and mechanical treatments; someexamples would be rayon and acetate.

Natural fibres such as wool, silk and cotton are derived from naturally occurringanimal and plant fibres. Unlike natural fibres whose properties are inherent in nature,chemical fibres can be customized, in terms of its composition and structure, throughman-made processes to enhance the desired properties hence rendering chemicalfibres useful for many different purposes and widely used for commercial andindustrial applications.

For the chemical fibre companies in the People’s Republic of China (“PRC”), themain bulk of their customers consist of textile and fabric manufacturers. The demandfor chemical fibres would then be dependent on ferment manufacturers, who are themain customers of textile and fabric manufacturers.
The textile industry in China is facing strong headwinds currently due to the egative wide spread effects of the sub-prime mortgage crisis, the rapid appreciation of theYuan since early this year, cost increases and trade restrictions from the US and EU.

Hence, we are calling for a NEUTRAL stance on the textile and chemical fibreindustry and initiate coverage with a HOLD for both China Sky (fair value estimate:S$0.35) and LiHeng (fair value estimate: S$0.325).

Singapore-listed China Beauty Holdings said its has signed a letter of intent to pursue a licensing agreement with Japanese cosmetics producer JO Cosmetics Co Ltd. According to the deal, Beauty China will have the exclusive license in China to manufacture, use and sell certain finished and semi-finished cosmetics products using the technology and patents owned by JO Cosmetics. Beauty China said it also plans to expand its manufacturing services to include the supply of selected raw materials and semi-finished products such as lip gloss and eye mascara materials as well as cosmetics powder for its own brands and OEM customers, using JO Cosmetics' proprietary methods. The company said the move will strengthen the group's supply chain, secure customer relationship and improve margins. As of November, Beauty China said it had more than 50 mln hkd worth of new OEM contracts, most of which will be delivered next year. It said 47 mln hkd of the contracts were from two customers in Russia and France to manufacture approximately 21 mln units of skin-care, colour cosmetics and fragrance products for five popular mid-range cosmetics brands in these two countries. Shares of Beauty China were up 0.010 sgd or 2.9 pct at 0.350 sgd.

After saying it was putting on hold its acquisition activities during its recent results briefing, Olam surprised the market with the announcement of a US dehydration plant acquisition on Thursday. The acquisition is expected to increase its spice and dehydrate product offerings. Although the acquisition is relatively small, management's sudden turnaround is likely to cause some unease given still-tight credit conditions and the bleak global outlook. Management also completed a convertible bond buyback which will result in a US$41.2m one-off gain in the current quarter. Our EPS estimates remain largely unchanged. We remain concerned by the challenging operating environment. Our target price remains S$0.97, based on 6.4x CY10 P/E. Maintain Underperform.

Venture does not expect any seasonal uptick in sales this year-end and we would be verysurprised if it said it did, given that 4Q08 is shaping up to be the worse quarter on record for thechip industry. According to industry researcher Gartner, semiconductor sales are expected toslump 25% qoq in 4Q08. Sales are expected to fall 4.4% in the full year and a further 16% in2009.

In 3Q08, Venture’s inventory surged 13% yoy and 10% qoq to $680m or 64 days, the highestquarter since 2005. We would be very concerned if inventory continued to climb in 4Q08 as itcould signal worse quarters ahead. Recently, iSuppli signalled that the excess global stock ofchips is expected to balloon almost 3x qoq in 4Q08 as production schedules have been rapidlyslashed during the quarter.

Despite still holding almost $91m of CDO exposure on its books (after providing 46% of hostvalue of $167.8m), we expect CDO2 to become less and less of a concern as its Dec 2009maturity nears. This being the year-end, we expect Venture to completely write down theremaining exposure in order to start 2009 on a clean slate. We have factored this into our revisedFY08 forecast of S$123m (-41% from previous forecast).

In addition, we have lowered our revenue and margin expectations for 2009 to reflect a weakerdemand outlook as consumers downgrade from premium to value products and higher pricingpressure as customers seek to cost-down. We now project earnings of $190.6m (-22% fromprevious forecast).

Although there is no doubt Venture is a financially strong, capably managed company trading atdepressed valuations (0.7x book, 6-7x FY09F EPS) and a high dividend yield (>10%), we wouldstay neutral to the stock. Clearly where technology is concerned, even value investing can beprecarious. While the de-rating of tech stocks is already several years old, the current economiccrisis could prolong it even further.

Quick Comment – CapitaLand’s and Keppel Land’soutperformance is premature, on the back of ChinaState Council’s intention to revive the property marketrecently. CapitaLand and KepLand outperformed theSTI Index yesterday by 7.0-8.4%. While the news ispositive, our China property team believes it is too earlyto call a recovery in the physical market, awaiting clarityon macro growth expectations and domestic stockmarket recovery. The importance of the policy pointstowards a more relaxed stance on bank lending to Chinadevelopers, which will alleviate worries on solvency andrefinancing risks, which were never issues forCapitaLand and KepLand. Hence, the recent share pricesurge is unjustifiable, in our view. We maintain ourEqual-weight rating on both stocks due to Singaporeasset devaluation risk, which could see them tradedownwards.

Benefits Limited For Now: Both companies couldpotentially benefit from the policy to extend preferentialmortgage terms to second home purchases and shortenthe holding period for business tax from 5 to 2 years,with the tax now on the gain rather than the transactionvalue. Both companies are less beneficiaries of thepolicies relating to low-end housing to which CapitaLandhas zero exposure and KepLand has a mere 3.6%exposure of its total group NAV. CapitaLand’s remainingexposure in China is 12% in commercial and 6% inmid-high end residential, while KepLand has 6.6% in theChina mid-high end residential. With Singapore assetdevaluation risk looming and less visibility in the Chinaphysical market recovery, the recent outperformance isunjustifiable.

China Property Developers: More direct andcheaper way to play this theme, trading at an average of42% discount to forward NAV versus 20% discount toNAV for Singapore developers, at best. For Singaporeexposure, as the sector lacks positive catalyst, we preferthe high dividend yield play of CapitaCommercial Trust,our sector top pick, which offers 12.7% FY09F DPUyield, sustainable in the next 6 months.

We downgrade HKL to Underperform from Neutral given its recent priceperformance, based on an unchanged target price of US$2.32. We are justtwo months into an office market downcycle that may last two years. Webelieve it is too early for a sustained recovery in landlord listed prices.

Short-term recovery only: The HK landlords have bounced 30% off theirNovember lows outperforming the HSI by 16%. This is a typical short-termrally before a sustainable recovery in listed prices that will probably start sometime in 2009. In past cycles, we saw a short rally occur once before the truebottom was reached in the 1994/95 down cycle, twice during 1997/98 andonce during the 2001 to 2003 period. Our Microstrategy team also believeswe are in a typical bear market rally – see their report of 17 December,Settling the debate of “P” over “E”.

Office downcycle likely to last up to two years: We are just two monthsinto an office market downcycle that may last two years if past cycles are anyguide. Yes, new supply is limited this cycle, but future net absorption growth isalso very uncertain. There is significant space in Central to backfill oncefinancial firms move to ICC. The 1994/95 downcycle lasted two years andspot rents fell 40%; the 1996/98 downcycle lasted two years and spot rentsfell 60% while the 2001 to 2003 downcycle lasted three years and spot rentsfell 66%. So far in this cycle, spot rents have probably fallen around 10–15%from their 3Q08 highs.

HKL will look to retain cash – dividend to come down: We expect HKL tokeep its dividend flat (at best) as it enters this downcycle. While this is a betteroutcome than during the Asian Financial crisis where its 1997 dividend wasnot reached again until 2007, we have cut our dividend forecast for 2008 by13%, 2009 by 22% and 2010 by 33%.

We believe the share price will fall in absolute terms over the next 45 days.

This is because the stock has traded up recently, making short term valuation much less compelling. The market hasover-reacted, expecting a huge positive impact on the company with the recent supportive policy shift on the Chinaproperty sector based on the last State Council Executive Meeting. Out of the policies announced, the potential positiveimpact will be from the preferential mortgage terms extended to second home purchases and the shortening holdingperiod requirement for business tax for 5 to 2 years with the tax now on the gain rather than on the transaction value. WhileCapitaLand has 18% of its NAV exposure to China, it has zero exposure to the low cost housing sector in China and 12%exposure to China commercial assets and the remainder in the mid-high end segment. Our China property team believesit is still too early to call for a physical market recovery in China.

We estimate that there is about a 70% to 80% or "very likely" probability for the scenario.Estimated probabilities are illustrative and assigned subjectively based on our assessment of the likelihood of thescenario.

Sector debt refinancing and recapitalising issues are likelyto be the major drivers of the S-reit sector in 2009. Ascredit markets remain tight, access to credit takes priorityover cost of funding. We see recapitalising prospectsgathering momentum when asset writedowns begin. Wesee this as necessary to the sector but size and timing isuncertain under current market conditions. Valuation-wise, these developments appear to have been largelyanticipated in the share price, however, the uncertaintycould hamper share price outperformance in the nearterm. In terms of strategy, we prefer well-sponsored reitswith good access to capital as well as those in the moreresilient sectors such as retail, industrial and healthcare.Maintain buy on Parkway Life Reit and Areit and upgradeFCT on the back of attractive valuations.

Refinancing speed bumps linger: An estimated onethird of the Sreit total indebtedness or $4.9b is due to berolled over in 2009. The tight credit market environmentwould mean that access to funding would be crucialwhile increasing competition for funds would lead to anincrease in cost of debt. Overall interest cost in the Sreitsector would rise above 4% from the present 3.2%. Forevery 50bps hike in average interest cost, DPU would beeroded by 10-15%.

Resetting the bar: We expect asset writedowns tobegin as early as this year-end. Recapitalising issues arelikely to gather momentum in the coming year, however,timing is uncertain as Sreits weigh the need to strengthenbalance sheet against the commercial perspective ofshareholder value dilution and investor appetite. Postfunding, average DPU yield is estimated at 9% andP/adjusted book NAV of 0.75x, indicating that thispossibility is reflected in the share price. Amongst Sreits,those with gearing closer to the 50% LTV mark andriskier sub-sectors such as office would have greaterrecapitalisation possibilities. This includes FCOT with acurrent loan to asset ratio of c49%. In the longer run, thehigher geared reits such as CMT, Areit, CCT may look tostrengthen balance sheet when equity markets recover.

Be selective: Given the headwinds from refinancing andrecapitalisaton rises as asset writedowns, particular in theoffice segment, filter through, our strategy would beselective. In terms of large cap stock picks, we preferAreit for its long lease tenure. In the mid cap sphere, wefavour Parkway Life Reit and FCT with their resilientbusiness model and attractive valuations. Strong balancesheet and low gearing also reduces the need forrecapitalising.

1) Stock has lagged its peers despite unchanged fundamentals
2) Trading near to 52-week low and backed by 9.4% yield
3) Defensive earnings backed by long dated contracts
4) Stock should begin to outperform given attractive valuation.

Starhub has been the standout laggard in the telco sector, under-performing its peers by 3-10% in the current quarter. The stock isdown 28%, compared to 18% for Singtel and 25% for MobileOne.The stock is hovering a mere 6% above its 52-week low of $1.76.

Yet its fundamental performance is not very much different from itspeers, with largely defensive earnings stemming from long-termcontracts of 2-3 years’ duration. Indeed, its ability to bundlebroadband, mobile and cable TV services together arguably gave it acompetitive edge over its smaller peer M1, which is a pure mobileoperator.

The company has committed to a minimum dividend of 18cts perannum; this translates to a yield of 9.4% at current price, similar toM1, but a significant premium to Singtel’s 5%.

Stock currently trades at 10x FY09 P/E (Singtel: 12.5x, M1: 9x),narrowing a historical valuation premium of >20% over M1. Werecommend a buy on Starhub given its attractive valuation vis-à-vis itspeers. Switch out of Singtel into Starhub for better risk-rewards.Starhub is one of the component stocks of the STI and has a profitbase double that of M1; and should begin to outperform should themarket continue on its near term rally.

We visited Li Heng’s plant last week. Market prices of raw materials prices appear to havestabilized at around RMB15,000/ton since November. Li Heng’s nylon yarn prices have alsodeclined in tandem with raw material costs to about RMB21,000/ton, a 16% decline fromNovember. We estimate single digit gross margins in 4Q08, given that Li Heng is still digestingthe higher-priced raw materials purchased in 3Q08.

Capacity utilization rates have held up in both October and November at around 90%. Theconstruction of the polyamide chip plant is on track for trial production possibly by Jun’09. Costbenefits from vertical integration are likely to be reaped only from FY10F factoring in thegestation period. Addition of 90,000 mt in capacity is likely to be deferred to 4Q09, with

Industry players anticipating pro-export measuresThe Chinese government has unveiled policies to stimulate domestic demand. However, itappears that the industry is banking on 1) expiration of export quotas to the US in 2009, 2) likelyincrease in export tax rebate rate by 3 ppt to 17%, and 3) slower yuan appreciation – all pro-export measures – to sustain their earnings. We believe that domestic consumption has notemerged as a key driver to industry growth.

We are reducing our FY08F revenue and earnings estimates by 3% and 9% on expectations of aweaker 4Q mainly as a result of plunging ASPs. The management expects sales volume growthin FY09F due the full year contribution from the capacity expansion in early 2008, thoughabsolute sales value will fall due to lower ASPs. Chances are high that industrial demand in 2009will continue to shrink and raw material prices is unlikely to be supported, leading to even lowerproduct prices. Our gross margin estimates are lowered to 26% in FY09F from 27%, in line withthe management’s take on normalized industry margins.

Our DCF target price is lowered to $0.31. Quarterly result could get worse before it gets better.Measures such as increasing export tax rebates and lowering import taxes on raw materialscould mark the bottoming of industry profits in 2009, similar to policies and the accompanyingresults seen in 1998-99. Our FY08/09F EPS estimates are 15% and 36% below the meanestimates. With possible downside to ASP, we believe further earnings downgrades by themarket are highly likely.

Better Yield Elsewhere: Maintaining our Equal-weightrating on CapitaMall Trust, we have a new lower pricetarget of S$1.52 (from S$2.05). The lower price targetreflects our lower rental assumptions for CMT as well asattempts to capture the risk of our bear case panning outas the macro environment remains fragile. Assigning a20% probability that our bear case may pan out, wehave a new price target of S$1.52 for CMT versus theS$1.66 suggested by our base case DCF-driven NAV.

While we like CMT’s relatively defensive suburban retailasset portfolio, we find CapitaCommercial Trust, our new sector top pick’s riskreward more compelling, offering a higher DPU yield of14.5% and 13.6% for FY09-2010F versus CMT’s8.7-8.3% DPU yields.

Suburban retail relatively safer but not immune:Suburban malls constitute 46-49% of CMT’s total assetvalue and net property income, which are relatively moredefensive, as suburban malls are less dependent ontourism and consumer discretionary spending, whichhas been on a downtrend. Given that management willbe putting on hold its asset enhancement plans forFunan Digital Mall, Tampines Mall, JurongEntertainment Centre and Raffles City’s Phase 3 worksdue to the current market uncertainties, as managementis in cash preservation mode, a number of its assetsremain undervalued.

Sector dependent on macro recovery: The market islikely to remain skeptical on the viability of the S-REITbusiness model given its heavy reliance on credit andwill be keeping a watch on the ability and cost of theS-REIT debt refinancing in 2009. For now, we believeS-REITs are likely to trade in line with the STI Index.

United Envirotech Ltd ("UEL") has been awarded a RMB 72 million contract tomodify, build and operate a 15,000 m3/day membrane based industrialwastewater treatment facility in Dafeng City, Jiangsu Province, China. TheBOT project has a concessionary period of 30 years and it will beundertaken by a project company, which UEL will own 50%. Unlike municipalwastewater, the treatment fee tariff for such industrial wastewater is morethan RMB5.50/m3 depending on the complexity of the wastewater. The projectwill be targeted to complete by March 2009.

Net profit in FY09 expected to increase by S$1.5 million:Of RMB72 million, approximately RMB30 million will be recognized asEngineering, Procurement and Construction ("EPC") revenue in FY09 andthe remaining will be classified as long term financial receivablesunder joint venture account, which will not be reflected in UEL'sbalance sheet. As a result, we adjust up revenue in FY09 by S$6.5million (forex RMB/S$=4.62) to S$54.4 million. The PBT margin forthis upgrading project is expected to be about 23-26%, highercompared to 15% for typical construction project. Accordingly, netprofit in FY09 is revised up from S$4.7 million to S$6.2 million.
Contribution from JV in FY10 expected to increase by S$0.6million: As this contract is BOT project, the wastewater treatmentwill be undertaken by UEL upon completion of plant upgrading. Itsmaiden contribution is expected to kick off at 1Q FY10. On full yearbasis, we expect the additional profit contribution from the JV to benearly S$0.6 million based on 80% utilization, tariff of RMB5.50/m3,conservative estimated profit margin of 25% and 50% stake ownership.Note that treatment of this project does not affect company's salesin income statement, but only contribution from associates and JVs.

We continue to adopt NTAmultiple as our core valuation as it is more conservative method comparedto the rest. Nevertheless, we increase the multiple from 0.6x to 0.7x duemainly to increased return on equity and improved earnings visibility as aresult of higher contribution from treatment business from FY10 onwards andalso. As a result of pegging 0.7x FY10 NTA per share, we derive a targetprice of S$0.15 (previous S$0.11), representing 36% upside potential.Upgrade to BUY.

Higher yield required as less superior to CCT: Weare maintaining our Equal-weight rating on Suntec REITon a lower price target of S$0.68 (from S$0.91). Inaddition to reducing our rental assumptions for its assets,our new price target attempts to capture the risk of ourbear case scenario panning out, as the macroenvironment continues to deteriorate, by assigning a20% probability to our bear case. A base caseDCF-driven NAV suggest a value of S$0.77 for Suntec,on a fully diluted basis. In our view, the risk-rewardoffered by CapitaCommercial Trust, our new sector toppick with 14.5%-13.6% DPU yield, is more attractivethan Suntec’s 13.3%-13.5% yield. We prefer CCT’shigher-quality asset portfolio, leasing track record andbalance sheet, backed by its strong parent, CapitaLand.

Too early to ascertain refinancing risk, as its S$700mdebt refinancing is only due in December 2009.According to management, banks remain keen to workwith Suntec on its refinancing but are reluctant to committo funding rates ahead of time. On a positive note, oureconomics team is currently expecting SIBOR to be0.6% by 2009 year-end and 2.1% by 2010 year-end. Ifrates remain below 1% in 2009, this would be positivefor S-REITs as further increases in required spreadsfrom the current 200-250bp would be cushioned by thelower SIBOR or swap rates. At a current leverage of33%, Suntec has room to absorb a 200bp to 320bp caprate expansion before it hits the 50% and 60% marks.This translates to a 35% to 46% devaluation in its assetportfolio respectively. We believe this buffer is sufficientfor the next 12 months at least.

Sector dependent on macro recovery: The market islikely to remain skeptical on the viability of the S-REITbusiness model given its heavy reliance on credit andwill be keeping a watch on the ability and cost of theS-REIT debt refinancing in 2009. For now, we believeS-REITs are likely to trade in line with the STI Index.

On 16 December, the second asset injection into Hyflux WaterTrust (HWT) was approved by HWT’s unit-holders at its EGM.

HYF and HWT had made a joint announcement on 31 October forthe divestment/sale of five plants with a total capacity of 160,000cu m/day valued at S$88 mn. We estimate the divestment gain forHYF is ~S$14 mn (less HYF’s 31.5% stake), based on 1.3x P/B.

With the go-ahead, this re-affirmed HYF’s capital recycling modeland provides an additional source of funding especially in thecurrent credit crunch environment and allows HYF to furtherstrategically capitalise the growth especially in China and Algeria.

Our SOTP target price is S$2.63 (from S$2.67) following changein HWT’s target price (to S$0.60 from S$0.74). Within theSingapore water sector, HYF remains our top pick for itsdiversified exposure to the water value chain, track record andcredit availability. Key catalysts include continued order flow todrive share price, especially larger-scale construction (EPC)projects, better-than-expected order wins and improved costcontrols.

Telstra said it has been excluded by the Commonwealth from Australia's national broadband network (NBN) RFP because it did not include a plan on how to involve small and medium enterprises in the building of the NBN. With Telstra out of the NBN race, Optus's odds of winning may be elevated as it is now the largest bidder, both in terms of network and balance sheet. We reiterate our view that we would be negative on Optus if it wins the bid give the questionable economics of the NBN, and the funding which may sap SingTel's cash. Also, Telstra holds the cost and infrastructure advantage and may build out its own network to compete with the NBN. Maintain forecasts, NEUTRAL rating and sum-of-the-parts target price of S$2.72. We believe SingTel lacks catalysts due to currency volatility despite its holdings in free cash flow-positive Tier-1 telcos in the region.

China Cosco Holdings Co., theworld's largest operator of dry-bulk ships, fell in Shanghaitrading after saying it may lose 3.95 billion yuan ($577million) from wrong-way bets on rates.

The shipping line dropped as much as 9.3 percent to 8.40yuan and traded at 8.50 yuan as of 9:31 a.m. in Shanghai. China Cosco reported the potential losses from forwardfreight agreements after bulk-shipping rates fell as much as 94percent in less than seven months. Rates tumbled as Chinesesteelmakers curbed production and because the credit crunch madeit harder for companies to raise financing for shipments.

The Tianjin-based shipping line's total losses fromderivatives amounted to 5.38 billion yuan in the year to Dec. 12,according to a Hong Kong stock exchange statement yesterday.That was offset by a 1.43 billion yuan gain. The company hadreported a net loss of about 440 million yuan on FFAs at the endof the third quarter.

The loss is ``the biggest one I've ever heard of,'' HermanMichelet, chief executive officer of Oslo-based freight-derivatives broker Imarex ASA, said yesterday. The Baltic Dry Index closed at 803 yesterday, compared withthe May 20 record close of 11,793.

The ``operating environment'' this quarter is ``verytough,'' China Cosco said in its statement. Demand forcontainer-shipping has also fallen and fees along major routeshave ``declined dramatically.'' The company operates China's largest container line.

We are revising our advertising revenue growth assumption to -20.0% from 3.0% in view of thenegative GDP outlook for 2009. Historically, advertising revenue growth underperformed GDPgrowth in a down market. In 2002, advertising revenue declined 19.8% yoy. Our new projectionshows newspaper and magazine revenue declining 14.8% while overall revenue is estimated tofall by 1.6% in FY09F, mitigated by the contribution from Sky@Eleven. At 11.8x forward PER,SPH is now trading at the trough valuation of 11.8x. Our implied valuation of the core mediabusiness shows a trading PER of 10.6x, which is below the historical low PER of 11.8x.

We reduced our staff cost estimates for FY09F by 29% following the cost cutting measuresinstituted by the management and given that employees’ variable wage component is about 10%.Our net profit estimate in FY09F is reduced to $425.3m, representing a yoy decline of 2.8%. Theimpact of changes to earnings estimates are lower DPS of 23.8 cts for FY09F and 22.2 cts forFY10F, translating to a yield of 7.6% and 7.1%, respectively. The DPS estimates are based on a90% payout from both media and development income.

Free cash flow of $408m expected in FY09F should support the dividend payout of $380m. SPHis in a net cash position of $280m as at Aug’08, with $1.1b in investible fund. An additional$150m three-year loan obtained recently may be deployed for investments in overseas mediajoint ventures.

SPH remains one of our most defensive pick as the company rewards shareholders withdividends even in bad times. Assuming 90% payout of recurring earnings, we are projectingnormal yield of 5.2% (excluding payout from Sky@Eleven), which depicts are more sustainabledividend profile as contribution from property development will cease from FY11.Lower core media business valuation impacts SOTP target priceOur SOTP target price has been reduced to $4.48, mainly due to the lower DCF valuation of thecore media business of $2.96 based on a 7.4% WACC and 2% terminal growth rate. We furtherassumed that the investments will be marked down by 10% due to the uncertain equity marketcondition. Our valuation assumption of $2b for Paragon remains intact as we believe that theopening of competing up-market shopping malls along Orchard Road in 2009 may raise theprofile of surrounding properties and draw new crowds, and hence valuation will find a support.There is a 41% price upside to the new target price. Maintain Buy.

We are upgrading SIA to a Buy, with price target raised to S$13.20, in line with its forecast bookvalue. Lower crude oil prices have led to a corresponding slump in jet fuel to around US$60 perbarrel, a third of its peak price, and down by 30% in the last month alone. This is significantlybelow our forward assumption of US$120 per barrel. Against an uplift of around 40m barrels perannum, every US$10 reduction translates to a S$400m improvement to SIA’s bottom line,indicating a potential significant upgrade to earnings if current fuel prices are maintained.

Furthermore, SIA’s passenger loads have been relatively resilient, and are still higher on a y-o-ybasis. SIA already plans to scale back capacity in the year ahead. Yields are likely to beimpacted from lower demand in the premium classes, but should remain relatively strong - wehave already factored in weaker passenger traffic and load factors to our forecasts.

We remain confident of our EPS forecast of S$1.21 for FY09 and S$1.40 for FY10, which isalready significantly ahead of consensus expectation of S$1.05 and S$1.00 respectively. Whilewe are currently leaving our forecasts unchanged, we also believe there is further room for asignificant upgrade to our FY10 earnings on sustained lower fuel prices. However, potential fuelcost gains in FY09 (year-end March) will be mitigated by its conservative hedging policy.

The Civil Aviation Authority of Singapore (CAAS) has announced that it is extending its Air HubDevelopment Fund by S$130m until end 2009, which essentially is a rebate of up to 25% onlanding fees and rents at Singapore’s airports. However, Changi’s costs are already one of thelowest in the world, and SIA’s landing fees at Changi are relatively small versus its annuallanding fee expenses which exceed S$650m per year. Nevertheless, it exhibits Singapore’scommitment to maintain its position as a global air hub, and SIA remains very much part of thoseplans.

Given that 70% of SIAE's revenue (ex-JVs) comes from SIA, we believe SIAE could ride on SIA's premium brand to contain its load-factor decline and achieve more stable rates, enabling it to outperform peers in this downturn. SIAE is trading close to its 911 and SARS valuation of about 8x CY10 P/E. We believe this is unjustifiable as its earnings are unlikely to plummet to epidemic levels. Maintain Outperform, although our target price has been shaved to S$2.91 from S$2.97 (blended valuations) as we trim our FY09 earnings estimate by 3% on the back of more conservative assumptions. The stock is backed by strong net cash and dividend yields of 9%.

Chartered’s (CSM) lowered guidance should come as no surprise given scoresof downward revisions by other tech giants recently. In response, we havewidened FY08 losses from US$39m to US$84m and FY09, from US$100m toUS$275m. We believe order pushouts and inventory tightening will persistthrough FY09. Nevertheless, we maintain HOLD on CSM as the stock isundemanding at 0.2x P/B and looks an attractive takeover target now that itis priced far below replacement costs.

4Q08 sales cut to US$343m-US$353m, down 24-26% q-o-q, compared with priorguidance of US$362m-US$374m. In addition, CSM expects gross margin tocollapse to 4.3% from 14% in 3Q08 along with lowered utilization forecastof 58%-62% compared to 60%-66% previously. Management now expects net lossto widen to US$80m in 4Q08 from US$24m in 3Q08 and prior guidance ofUS$57m.

FY09 looks worse with deepening recession. CSM will further cut costs,which is helpful to margin. But, we feel that collapsing demand is far morecritical for high fixed-cost business like foundry. Hence, we can expectmore losses next year until demand recovers, probably in 2H, if theindustry over-corrected to the extent that capacity is not available tocope when downstream begins to re-stock.

But M&A is a credible catalyst. With enterprise value at S$2b, potentialbuyer would be getting CSM’s wafer fabs- one 300mm and five 200mm fabs - ata price far below replacement cost, since a leading-edge 300mm fab likeCSM’s Fab 7 already costs more than US$2b. Word on the street has alreadybandied both TSMC and UMC to be interested buyers. Technologically, wethink CSM would be a better fit for UMC.

Maintain Hold but revised TP to S$0.25, based on a lower industry averageof 0.3x FY09 P/B.

The shipping bubble has burst spectacularly. We expect steepdeclines in asset prices, in line with the deleveraging cycle. The threeSingapore-listed shipping trusts were all formed at, or very near, the peakof the shipping cycle. Consequently, their ships were priced at highvaluations. They then continued to grow aggressively by gearing up. Webelieve valuations in 2009 will be focused on survival. The biggest threatto the sector is the loan-to-market value (LTV) covenant, which canpotentially lead to lower (or zero) distributions or distressed assetsales. Pacific Shipping Trust is the only trust without LTV requirements.We expect capital commitments to be another overhang on valuations in 2009? growth, previously a positive, has now become a burden. We have a NEUTRALrating on the sector
First Ship Lease Trust: Covenant concerns

First Ship Lease Trust (FSLT) is currently trading at a trailingyield of about 35%, which we feel is unsustainable even in our best casescenario because of debt repayment terms. We estimate that DPU would fall7.5% to 40% YoY over 2010-12. FSLT has the most diversified portfolio ofthe three Singapore-listed shipping trusts. However, we do not believe anysub-segment is completely immune to the reversal in the shipping andleverage cycles. We also note that FSLT has suspended its acquisitionprogram as it awaits better debt and equity market conditions.Unfortunately, its ability to hunker down and ride out the cycle is limitedby debt covenants. Another 20% decline in fair market value, which is notimpossible, is required for FSLT to breach the loan-to-market valuecovenant, triggering a technical default. Distributions could be reduced,or even cut to zero in such a scenario. We have adjusted our estimatesslightly and our fair value inches up from S$0.43 to S$0.46. Maintain HOLD.

Rickmers Maritime: US$1.1b order book is a burden

Rickmers Maritime (RMT) expects to take delivery of 10 new vesselscosting over US$1.1b from now to 2010. Despite an aggressive acquisitionprogram, RMT has been able to defer an equity issue by ramping up gearingin the near term. This increased leverage comes at a price ? stringent debtrepayment terms mean an equity issue can only be postponed for so long. Allin, we estimate that RMT needs around US$600m in fresh equity. At currentprice levels, any issue would be highly dilutive. We believe order bookconcerns will define 2009 for RMT. Worst case solutions to 'disappear' theorder book will be, in our opinion, the best case scenario for unitholders.Another major concern is the potential breach of the loan-to-market valuecovenant on existing debt. Maintain HOLD with S$0.40 fair value.

Pacific Shipping Trust: Rights issue over and done with

Pacific Shipping Trust (PST) raised about US$92.3m in grossproceeds from its preferential offering (PO) in 3Q08. Sponsor PacificInternational Lines (PIL) had agreed to subscribe for both its pro-ratedshares as well as any unsubscribed units. Its stake in PST has consequentlyincreased from 34.64% to 59.2%. The PO proceeds are being used to financePST's 2008 acquisitions. As of 30 September, PST is geared at 0.8xdebt-to-equity. PST is the only Singapore-listed shipping trust without aloan-to-market value covenant on its loan documents. The PO has come at theprice of a smaller free float but demonstrates the willingness of PST'ssponsor to support its trust. Charters to PIL account for about 70% ofPST's annual revenue. In essence, the risk quantum for PST has become aproxy for the risk of the parent company. PST's share price has fallen 68%over 2008. It is currently trading at a 32% trailing yield.

FCT has a strong sponsor whose recent show of financial supportfor newly affiliated office-focused Frasers Commercial Trust speaksvolumes. Our main balance sheet related concern is the financing of ongoingcapital expenditure. We had previously assumed flat YoY reversionary growthin rentals. We are now pricing in a 5-7% decline per annum over the nexttwo years. We have also refined our estimate of the value of FCT's stake inMalaysian Hektar REIT. FCT's share price has continued to fall in tandemwith the S-REIT sector. In our opinion, FCT's current portfolio lackscritical mass. FCT has now postponed its expansion plans indefinitely,citing credit market conditions. While slowing growth is a sector-wideproblem, its importance to FCT is above average (in our opinion). MaintainHOLD. We have adjusted our estimates and our fair value estimate drops fromS$0.72 to S$0.62. (

Sponsored REITs like Lippo-Mapletree Indonesia Retail Trust (LMIR)are generally perceived to have a lower risk profile. As of 3Q, LMIR has avery low leverage level of about 9% with no refinancing risk until 2013. Wethink the retail story in Indonesia is still compelling. LMIR's portfolioof eight retail malls and seven retail strata spaces is strategicallylocated within well-established population catchments across Indonesia.LMIR's assets are due to be revalued in 4Q08. The REIT's portfolio will berevalued in IDR ? this IDR value will then be converted back into SGD atspot rates. This creates a major revaluation risk ? even if the IDR valueof the portfolio stays the same. We have taken a fresh look at ourvaluation model, relaxing our fairly bleak expectations for the IDR-SGD.Our RNAV estimate for the REIT is S$0.55. Our fair value estimate of S$0.39(prev. S$0.27) prices in a 30% discount to that estimate. Maintain BUY.

Suntec REIT (Suntec) will see almost 70% of its office portfolioex One Raffles Quay up for renewal in the next two years. We estimate theaverage passing rent at Suntec City Office is currently in the S$6.50ballpark, comfortably below our fairly bleak reversionary rent expectationsfor the next two years. On the retail side, we have priced in aconservative 8-10% per annum decline in Suntec City Mall rentals over thenext two years. We also feel capital values are at risk, especially for theREIT's office portfolio. Suntec has about S$825m of debt, or about 40% ofits total borrowings, up for refinancing in the next 12 months. Valuehunters have an opportunity to pick up some really good assets on thecheap, in our view. Back of the envelope, the current share price seems tobe implying a 48% decline in capital values. We think our concerns havebeen more than priced in at this point. Maintain BUY with 90 S cents fairvalue.

Going into 2009, refinancing of borrowings will remain theoverhanging concern for CapitaMall Trust (CMT). We also believe that therisk of credit rating downgrade is higher now given the current tightcredit market and slowing retail rental rates, and a downgrade couldpotentially raise CMT's cost of refinancing and affect its futuredistributions. To reflect a slowing down in consumer spending, we havealready factored in a more conservative stance in our retail rental rateexpectations and expect an annual decline of 5% in rental rates for FY09and FY10. Earlier, we have also already factored in an increase inborrowing costs of +100bp for FY09 in anticipation of higher borrowing costdue to the tight credit market. We are expecting a FY09 DPU of 15.1 S-centswhich translates into a yield of 9.4%. Based on a 15% discount to our RNAVforecast, we are keeping our fair value of S$1.94 for CMT. As upside toshare price is still 21.4%, we maintain our BUY rating on CMT.

We have a NEUTRAL rating on the S-REIT sector. The 'REIT as growthstory' has seen a massive reversal. No thanks to a collapse in unit prices,the sector is now trading at an average 20% trailing yield and a 63%discount to book. We believe that perceived risk will drive S-REITperformance in 2009. This will be assessed on the balance sheet(refinancing concerns, risk of revaluation losses, gearing) and the income(cost of capital, rental declines based on sector and geographic focus)levels. We generally think S-REITs are oversold. While we expect shareprice volatility to continue, value seekers have an opportunity toselectively pick up some good assets at what we think are really fairvaluations. Within our coverage universe, we have BUYratings on Suntec REIT(fair value: S$0.90), CapitaMall Trust(fair value: S$1.94) and LMIR Trust(fair value: S$0.39).

Secured three-year S$390.1m syndicated term loan from HSBC, NationalAustralia Bank, and Royal Bank of Scotland. Share price to rebound as majorrisk hampering the stock is removed.

Cambridge Industrial Trust (CIT) has agreed the terms of commitmentdocuments with three banks for a three-year S$390.1m syndicated term loan,which will fully refinance all existing debt facilities. The three leadarrangers for the syndicated loan are HSBC, nabCapital, a division ofNational Australia Bank, and Royal Bank of Scotland.

Management expects the syndicated loan to be drawn down in Jan 09.Refinancing issue is resolved, thus removing a major risk hampering thestock. Share price likely to experience significant rebound.

Interest cost, inclusive of interest rate hedging cost, is 4.9%. Theeffective all-in interest rate for the syndicated loan is 6.6% p.a., afterincluding amortisation of upfront transaction costs. This is higher thancost of 5.0% assumed in our earnings model. However, the amortisation oftransaction costs does not affect DPU.

We have revised our forecast to factor in the higher cost of borrowings. Weexpect occupancy to taper off to a lower 93% by 2Q09, compared to ourprevious assumption of 96%. We cut our FY09 DPU forecast by 14.3% from 5.1cents to 4.2 cents.

Recent correction in CIT's share price is over blown. CIT provides FY09distribution yield of 21.5% and trades at 74.3% discount to NAV/share ofS$0.76. Its share price has also corrected 80.1% from the peak of S$0.98 inmid-07 and is trading at 71.3% below the price of S$0.68 during the initialpublic offering in Jul 06.

Reiterate BUY recommendation with new target of S$0.62, based on atwo-stage dividend discount model (required rate of return: 9.0%, growth:2.5%).

The US Senate fails to pass a $14bn bail-out package for the car industry, after talks on a compromise measure collapse.

At 1:15pm (Singapore time GMT +8)
Singpaore STI: -68.93 -3.84%
Hong Kong HSI: -1076.69 -6.9%
Japan Nikkei: -471.23 -5.4%

Senate negotiators failed onThursday night to reach a compromise deal to bail out U.S.automakers, Senate Majority Leader Harry Reid said. "There is too much difference" between negotiators to reach an agreement,he said. Reid said the chamber would attempt to proceed with aDemocratic-sponsored plan, but predicted it would not pass.

The Senate rejected the bailout 52-35 on a procedural vote -- well short of the 60 required -- after the talks fell apart.

The collapse of negotiations could possibly doom General Motors to a bankruptcy and closure in the coming weeks, with Chrysler LLC potentially following close behind. While Ford Motor has more cash on hand to avoid an immediate crisis, its production could be disrupted by problems in the supplier base, as could the production of overseas automakers with U.S. plants such as Toyota Motor and Honda Motor.

However, the Big Three could still wind up getting government funding. Bush officials warned wavering GOP senators earlier Thursday that if they didn't support the legislation, the White House will likely be forced to tap the Wall Street bailout to lend them money.

The stunning disintegration was eerily reminiscent of the defeat of the $700 billion Wall Street bailout in the House, which sent the Dow tumbling and lawmakers back to the drawing board to draft a new agreement to rescue financial institutions and halt a broader economic meltdown. That measure ultimately passed and was signed by Bush.

Both Ezra’s and Swiber’s ambitious growth strategies into deepwater play are currentlybeing reviewed. In 2007, Ezra Holdings (Ezra) announced several ambitious plans to build atotal of five large Rolls-Royce designed Multi-Functional Support Vessels (MFSVs), which werecapable of service in depths of 3,000m. The total forward capex required was estimated to beapproximately US$650m. Swiber Holdings (Swiber) had an equally ambitious growth strategy,with previous aspirations to build a deepwater drilling barge, Equatorial Driller, which wasintended for deepwater drilling in calmer environment. The cost of this drilling barge wasthought to be in the range of US$300-350m. However, both companies have recently takenmoves to revisit their capex plans and defer these ambitious strategies, citing the financialturmoil as the core reason.

Venturing into deepwater drilling activity – an overly ambitious step taken. We believefalling asset prices and hefty financing costs are the reasons for deferment of Ezra’s andSwiber’s deepwater plans. The weakening oil prices coupled with the deterioration in capitalmarkets could have brought fears of possible cutbacks in oil producers’ capex, leading toreduced drilling opportunities and subsequently, a lower chartering demand for both drilling andoffshore support vessels.

We did mention that these aggressive growth strategies heighten financing and creditrisks concerns. The accessibility to credit facility capacity remains important facilitators tohighly capital intensive offshore marine players’ growth. We had previously expressed ourconcerns that such aggressive expansion plans could inherently heighten debt financing burdenand stretch the balance sheet. We view any move to lower capex as a prudent measure.

Refocusing on core business objective. For its medium-term outlook, Ezra intends tocontinue to strengthen its financial position and focus on consolidating its integrated solutionsapproach within the Asia market. Swiber has also indicated plans to concentrate its business onperforming EPCIC services for the shallow water fields within Asia.

Prefer ASL Marine amongst the smaller cap oil & gas plays. Our top pick for the smallercap oil and gas services and equipment plays is ASL Marine. We continue to like ASL for itsprudent and quality management, strong balance sheet and consistent business strategy.Maintain BUY on ASL Marine (Target Price: S$0.96) and NEUTRAL on Ezra (Target Price:S$0.67) and Swiber (Target Price: S$0.62). We downgrade our offshore & marine sector toNEUTRAL.

Shares pricing in declining dividends to perpetuity: Using a GordonGrowth model with 9% cost of equity, the shares are currently pricing in a 2%decline in dividend streams to perpetuity from the FY08 base dividend ofS$0.138. Despite aggressive cuts in our forecasts, we see earnings anddividends recovery from FY11 and as such, the shares look undervalued.

Declining earnings outlook is in the price: We are forecasting EBITDACAGR (2007–10E) decline of 5% on both revenue and margins pressure. ForFY09, we look for a 13% drop in net profit on a 5% decline in revenue and130bp drop in EBITDA margin. M1 has little room to cut costs and as such ithas little buffer to protect its cashflows from any revenue shortfall.

Launch of unified cross-border plans a key catalyst: The potential launchof unified price plans across Singapore and Malaysia in 2009 could allow M1to leverage its relationship with Celcom (unlisted) and differentiate its servicesfrom other operators. This initiative encountered delays in the past, but wethink if implemented, will provide the M1 with a good arsenal to defend itsmarket position in Singapore.

National broadband network – all about defending turf: We view M1’sentry into the resale segment in the fixed broadband market as well as thegovernment national broadband network projects as tools that will enable it todefend its postpaid subscriber base.

Our DDM-derived target price translates to an FY09E PER of 12.3x andEV/EBITDA of 6.6x. With over 31% upside to our target price, we formallyupgrade the stock to Outperform.

Relative illiquidity of the shares is a practical constraint especially for largefunds and we have not factored in any liquidity discounts when arriving at ourtarget prices. We believe investors with liquidity constraints should look toaccumulate the shares at appropriate entry price levels.

Despite the lack of activity in the property market, MCL Land’s earnings for FY08 and FY09 arelikely to remain strong, as it recognises profits from its development projects only uponcompletion. With the Esta having obtained its TOP recently and Mera Springs (completed in3Q08) being more profitable than we had expected, we have raised our FY08 earnings forecastby 18.8% to US$65.2m. Going into FY09, we expect MCL to book in profits from Tierra Vue, theFernhill and Hillcrest Villa.

MCL launched 90 units at the Peak @ Balmeg in September, and based on the URA's figures,44 units (24% of the total 180 units) have been sold at an average price of about $1,000 psf as atend October. We have assumed an average selling price of $950 psf for the entire project.Similarly, MCL has sold 14 units of the 50-unit D’Pavilion at and average price of about $880 psf.Our average selling price assumption for the entire project is $850 psf.

MCL had acquired five sites in 2007-08 totalling about S$535m, yielding a GFA of about 1.2m.This works out to an average of nearly $460 psf ppr. We think that the profitability of these sitesare at risk if current market conditions persist, possibly requiring MCL to write the value of its landbank down by our estimation of about S$40m (about US$28m), principally due to NOB Hill, NimPark and Dynasty Garden Court 1. We have adjusted our ASP assumptions downwards by up to15%. If the provisions are indeed taken in FY09, we estimate earnings will still be US$76.4m nextyear.

We have lowered our target price to $0.89, pegged to a 70%-discount to RNAV for its illiquidityand the risk of potential write-downs. We see few positive catalysts for the company in the near-term. However, we believe that the company is financially sound enough to ride through the next1-2 years of uncertainty based on cash flows from past sales. We are downgrading to a HOLDrecommendation.

We retain our OW rating on Wilmar International(WIL) stock, with a new target price of S$4.00/share– implying 39% upside potential. At our TP, WIL wouldtrade at 2009/10e P/E of 15x/11x, relative to itsmid-cycle P/E of 13x and 2010-12e EPS CAGR of 28%.

Upgrading WIL’s 2008-10e EPS estimates by anaverage of 43% – our numbers, on average, are 13%higher than consensus. We are more confident onWIL’s profit outlook given its strong earnings in 3Q08,when the industry experienced a sharp downturn in softcommodity prices. We attribute this to WIL’s superiormarket intelligence – due to its dominant position in themid-stream edible oil industry – allowing it to bettermanage its commodity price risk relative to its peers.

We expect WIL’s dominant market position in theglobal palm oil and China soybean industries tofurther strengthen. In our view, lower soft commodityprices and tight banking liquidity could drive out marginalplayers from the industry, benefiting WIL, which couldinorganically expand its operations at any point alongthe edible oil value chain. We expect WIL to impressthe market with firm profit margins, good earningsgrowth and further market share gains goingforward.

Key risks: 1) Protracted stabilization of CPO price at thecurrent levels; 2) lower-than-expected global CPO andsoybean production volume; 3) significant slowdown inChina economy; 4) lower-than-expected decline inoperating costs; and 5) realization of inorganic growthopportunities.

We reiterate our BUY on Noble, and set an FY09F price target ofS$1.40. We see the interaction of volume growth and additional profitpoints along the supply pipeline as the main long-term value driver,with Noble’s asset-medium business model offering some shelteramid near-term volatility. We cut FY08F earnings by 6.6% (FY09F, -30.6%; FY10F, -32.4%) to capture a sharp decline in commodityprices and lower volume growth projections.

A price-volume scenario analysis highlights, in our view, attractivevalue in Noble’s current price. While we expect declines in averagerevenue per metric tonne to carry across all divisions and particularlyweak volume in the Energy, MMO and Logistics divisions, we believethe declines implied by market valuations are excessive.

Noble manages counterparty risk by being discerning, dealing onlywith tier-one companies it has a long history with. In addition, we viewNoble’s increasingly global footprint and integrated business model asa source of valuable intelligence regarding the supply-demanddynamics of commodity markets, contributing to greater flexibility andresponsiveness to market disturbances.

Some 70% of Noble’s debt has maturities exceeding 18 months, witha US$1.1bn cash position sufficient to cover all short-dated maturities.We see Noble’s liquidity position improving as falling commodityprices translate into lower WC requirements — note that almost allcredit metrics monitored have improved over 9M08. We also highlightthat Noble’s CB is trading on a yield of 15.4% to its June 2011 put.

SembCorp Marine has secured a S$200m FPSO conversion contract from Modec. We believe that the outlook for the production segment is more positive than rig-building as infrastructure is needed to support oil discoveries in recent years. Separately, SMOE and Saipem are contending with Nippon Steel for a US$600m processing platform project from Premier Oil. We believe that the production segment in the offshore & marine value chain would be less susceptible to credit volatility as FPSO and processing platforms are typically owned and operated by oil companies with stronger financial muscles. Maintain Outperform and target price of S$2.28, still based on blended valuations.

We believe that most of the bad news has been priced in. We are removingthe 100bps risk premium attributed to banks when we downgraded the sectorin Oct-08 as (1) we believe the financial sector is stabilising – creditdefault spreads has come off, (2) we believe asset quality would not panout as bad as the Asian Financial crisis and (3) banks are wellcapitalised, with room to raise further capital, if necessary. We areupgrading Singapore banks to Neutral and revising our calls. OCBC isupgraded to a Buy (from Hold) while UOB is upgraded to a Hold (from FullyValued).

Easing concerns The Singapore Government had announced financialenhancements for corporates, which we believe would restore confidence inthe credit market. In addition, Las Vegas Sands has also emerged to affirmits continued committed collaboration to facilitate the completion of theMarina Bay Sands Integrated Resorts project. Meanwhile, we expect positiveactions from the budget to be tabled in January to help boost confidence inthe economy.

Not as bad as Asian Crisis While corporate credit risks have risen, webelieve it is not as bad as the Asian crisis cycle. For developers, whichhave been the key concern for banks in terms of asset qualitydeterioration, we note that developers are in better financial positionsthis time around compared to the previous cycle, judging by their gearing,interest cover and operating cashflows.

Prefer OCBC We prefer OCBC as we believe there could be upside surprisesfor its insurance business as GEH’s underlying business remains robust. Inaddition, OCBC is currently expanding its Islamic banking business inMalaysia which could support NIM expansion. The current valuation of OCBCis already reflecting the dismal contribution from GEH and NPL ratios of3-4%. We think that there is limited downside for OCBC and it has anelement to spring a surprise with its insurance outfit. We upgrade OCBC toBuy (from Hold) with TP revised upwards to S$6.00 (from S$4.40). Ourvaluations are based on the Gordon Growth Model with an implied 1.1x FY09BV. Our trough fair value or worst case for OCBC at S$3.81 reflects NPLratio of 5-6% and provision charge off rate at 150bps, which we think isunlikely.

Jurong Technologies (JTL) yesterday announced that it has receiveda letter from its auditors, Ernst & Young, regarding alleged irregularitiesin the administration of receivable financing facilities extended to thecompany. To verify such an allegation, JTL's audit committee hasimmediately commenced a fact-finding process. Over the weekend, the grouphas also appointed legal and financial advisers in relation to the mattersraised by the auditors. As we understand that the group is unable toprovide further updates during the investigation, we have decided to placeour BUY rating and S$0.10 fair value under review until we obtain furtherclarity. Meanwhile, we note that share price pressure is likely to weighdown the stock.

Going into 2009, refinancing of borrowings will remain theoverhanging concern for CapitaMall Trust (CMT). We also believe that therisk of credit rating downgrade is higher now given the current tightcredit market and slowing retail rental rates and a downgrade couldpotentially raise CMT's cost of refinancing and affect its futuredistributions. We take a more conservative stance in our retail rental rateexpectations and adjust our rental forecast from 0% to -5% per annum forFY09 and FY10. To reflect the tight credit market conditions, we are nowfactoring a higher increase in borrowing costs for FY09, from our previousforecast of +60bp to +100bp now. Our FY09 DPU forecast has been cut by6.8%, from 16.2 S-cents to 15.1 S-cents. A 15% discount has been ascribedto our RNAV and our fair value of CMT has now been lowered from S$2.57 toS$1.94. As upside to share price is still 35.7%, we maintain our BUY ratingon CMT.

We are retaining a HOLD rating for SPC. Its valuations arecheap at 4.6x 2009 PE, 0.6x P/BV, and 60-70% discount torefinery replacement cost. But with crude oil price at a 4-year low, refining margin at US$1-2, and anticipated weak4Q08 results due to a large inventory write-down, there islittle near term share price re-rating prospects. We cutFY08-10F earnings by 11-21% on lower near-term crude oilprice target, and reduced our sum-of-parts target price toS$2.16. Our long-term Brent crude price target and refiningmargin assumptions are unchanged.

Singapore refining margin is currently hovering at onlyUS$1-2 due to weak crack spreads for naphtha andgasoline, while crude oil price has plunged to a 4-year lowof c. US$40. Lower E&P profit, weak refining margins, and asharp inventory write-down could lead to a disappointingS$40-50m loss for 4Q08 vs net profit of S$119m in 4Q07and S$0.6m in 3Q08.

We cut near term Brent crude price target to US$99 for2008 (from US$103), US$60 and US$70 for 2009-10 (fromUS$80), and consequently reduced FY08-10F net profit by20%, 18%, and 11%, respectively. We expect SPC’searnings to tumble 54% in FY08F and drop 4% in FY09F,but grow 20% in FY10F on better oil price and refinery

Target price downgraded to S$2.16This is based on the lower oil price assumption and a de-rating of SPC’s refining business (from 4x to 3x 2009 PE).Our refining margin assumption of US$3 for 2009-10 andlong-term Brent crude price target of US$75 are unchanged.

Biggest shipping and logistics company in Singapore. Neptune Orient Lines(NOL) is in the business of connecting continents and connecting countries. Itservices the international transportation and supply chain needs of a diversecustomer base, ranging from complex multinationals to small and medium-sizedimporters and exporters. Headquartered in Singapore, with revenues of US$8.2billion in 2007, NOL is the largest shipping and logistics company listed onSingapore Exchange. It has three main business operations: APL, APL Terminalsand APL Logistics. In fact, its business activities encompass all aspects of globalcargo container transportation and logistics, with services delivered by more than11,000 employees in around 140 countries.

Innovative company. NOL is an innovative company that constantly seeks toimprove its processes and systems. For example, it launched the world’s largestocean-capable shipping container, “Ocean53TM” to increase the amount of cargothat can be shipped from one location to another. By investing in new products andservices, it hopes to maintain its leadership position in the shipping and logisticsmarkets.

Challenges in 2009. We are anticipating NOL to continue to face difficulties in 2009after it mentions that it expects an operating loss for 4Q 2008. The global economyis facing financial problems and the slowdown in global trade will affect thebusinesses of NOL. This will affect the shipping volumes and the rates that NOL canbill its customers. Given the uncertainties, we expect a small profit of US$2m forNOL in 2009.

Improvement in 2010. Nevertheless, we expect the global economy to pick up in2010 and NOL is likely to be a beneficiary of the increase in global imports andexports. We expect shipping volumes to increase, and rates to stabilise and improvefrom 2010 onwards. As a result, we expect the profits of NOL to increase beginningfrom 2010.

Initiate coverage of NOL with a SELL rating and a target price of S$0.96. Webelieve that NOL is faced with the slowdown in the global economy. It hasresponded to the current crisis by reducing capacity on some of its routes fromOctober to reduce operating costs. Moreover, it is cutting its workforce by 1,000positions. At the same time, it is expecting an operating loss in 4Q 2008. As a result,we have a sell rating on the stock and we are valuing it at 0.35 time book value. Thisgives us a fair value of S$0.96.

We are not entirely surprised by the high ratio of 58% of planters that missed consensus expectations in the latest results season as the market has been overshooting on CPO price estimates and underestimating the impact of the rising operating costs. Investors should brace for one of the sharpest quarterly earnings declines in the plantation sector in the next results season, pulled down by weaker CPO price, high operating costs and seasonally lower production. We observed three key trends from our recent meetings (1) Plantation companies are more bearish on CPO prices than in the previous quarter. (2) Most are contemplating reducing fertiliser usage. (3) They are looking to conserve cash and will give priority to ongoing estate developments and facilities when it comes to capex. Th e sector remains an UNDERWEIGHT in view of the weak CPO price prospects and cost pressures which inevitably mean earnings downgrades by the market. Wilmar remains our top pick.

In light of the recent news on potential order cancellations from the Singaporeyards we assess the balance sheet strength of the customers that Keppel Corpand Sembcorp Marine existing order books have exposure to. We believe thecollapse in oil prices together with tightening credit markets has put pressure onoil services companies to review their previous rig orders.

Excluding Seadrill and Scorpion Offshore who have already announced theirintention to relook at their rig orders, the next most highly leveraged listedcustomers are Skeie Drilling & Production (net debt: US$ 2.6bn; ND/E: 2.9x) andPetroVietnam Drilling and Well Services (net debt: VND 2,822 bn; ND/E: 1.0x).Both of these customers have outstanding jackup orders with Keppel.

Our US oil services analyst, Alan Laws, has assessed the credit risk of some USOFS (including major customers of the Singapore yards like Diamond Offshore,ENSCO & Noble Drilling) and believes that they have considerable financialflexibility to weather the storm. Continued turmoil in credit markets has sparkedinvestor concern, however he believes US OFS companies are generally wellcapitalized, maintain adequate liquidity and have solid earnings/cash flow profiles.

Our Euro oil services analyst, Alejandro Demichelis, keeps a cautious view on thesector. However, he believes Euro Oil Service players look well capitalised (netdebt/equity of 8% in 09E) with limited funding requirements near term. WhilstMajors and the larger NOCs should be able to use their strong balance sheets,the ability of smaller players to raise financing to launch new projects has raisedsome question marks.

In light of the recent news on potential order cancellations from the Singaporeyards we assess the balance sheet strength of the listed customers that KeppelCorp and Sembcorp Marine are exposed to. We believe the collapse in oil pricestogether with tightening credit markets has put pressure on oil servicescompanies to review their previous rig orders. We have limited our analysis to thelisted customers due to the limited information available on the status of privatecompanies’ balance sheets.

Excluding Seadrill and Scorpion Offshore who have already announced theirintention to relook at their rig orders, the next most highly leveraged listedcustomers are Skeie Drilling & Production and PV Drilling.

Skeie Drilling & Production has net debt of US$ 2,598mn and gearing (ND/E)of 2.9x as at 30 Sep 2008. The company was established in Sep 2006 andKeppel O&M has a 5% stake (48% Skeie Technology; 46% externalinvestors). Skeie has ordered 3 KFELS Class N jackups from Keppel withscheduled delivery in 2010 and are fully financed with 11% equity and 89%debt. One of the three rigs has secured a contract with Skeie Energy for aminimum of 3 years. We estimate 13% of Keppel’s current order book isattributable to Skeie.

PV Drilling has net debt of VND 2,822 bn and gearing (ND/E) of 1.0x as at 30Sep 2008. PV Drilling is an affiliate of Vietnam Oil and Gas (PetroVietnam)and has outstanding orders for 2 KFELS Class B jackups with scheduleddelivery in 4Q09. We estimate 3% of Keppel’s current order book isattributable to PV Drilling.

It is reported that Straits Resources (SRL) has received a numberunsolicited offers regarding its 47.1% stake in Straits Asia Resources(SAR). The SRL management has conduct a strategic review upon the offersconsidering that current value of SAR might not reflecting its fullpotential.

The possible divestment of SAR by SRL is positive for SAR minorityshareholders in our view as such event will be able to elevate SAR shareprice to its full potential value. We maintain our target price of S$1 forSAR, thus the counter still presents a 36% upside potential.

Currently SAR’s share price is reflecting a market capitalization toreserves ratio of US$4.7/tons and a market capitalization to resourcesratio of US$0.8/tons whilst latest major coal mine acquisition was done atc.US$4/tons for the former and c.US$2/tons for the later.

The divestment plan will not impact the operational activity for SAR,however if it do indeed happen, some changes in management is highly likelyin which the impact still cannot be measure at the moment.

We downgrade Yanlord from Outperform to NEUTRAL as earnings for FY09 may disappoint and its balance sheet is under more strain. Although presales in Shanghai improved in Nov, we do not expect the rebound to be sustainable. Yanlord's property sales may not benefit much from favourable government policies as it is geared towards the mid- to high-end market. We have chopped our FY09-10 earnings forecasts by 19.9-27.7% to reflect less GFA sold. This reduces our RNAV/share from S$2.30 to S$2.26, which, together with a widening of our RNAV discount from 50% to 70%, leads to a drop in our target price from S$1.15 to S$0.68

Resilient in carnage. Singapore Press Holdings (SPH) has weatheredthe current financial storm in a better fashion than most of its STI peers.While the STI plunged 36.4% in Oct-Nov, SPH demonstrated resilience byfalling only 13.5%, thus outperforming the STI by a credible 22.9%.

Growth looking more elusive. With Singapore falling into the deeperrecesses of economic difficulties, we are expecting SPH to suffer in tandemas advert and classified revenues fall while costs edge upwards as it hasto push through its new media development strategy. As a recap, SPHdelivered 12.3% YoY topline growth to S$1.316b but PATMI still fell 12.4%YoY to S$437.4m. The topline was helped by a stronger recognition of theSky@Eleven project while the poorer bottomline was due to less investmentincome and impairment charges.

Lowering expectations. In view of the challenging year ahead, we havelowered our estimates for its core printing business by 4%. While weunderstand that Paragon is a jewel in Orchard Road, we still lower ourupward rental revisions for renewals to a similar level to FY08 to cater tothe mounting difficulties faced by luxury goods retailers. We also anticipatea 10% cut in valuation for Paragon in its next exercise in Jun 09. The onlyforeseeable upside is SPH's higher recognition from its Sky@Eleven projectfor FY09.

Cash preservation mode. We specifically mentioned in our 13 Oct 08report that while SPH has stepped up its dividend/share to S$0.27 forFY08, we feel that management sent a clear signal when it iterated that itdoes not have a dividend policy. With our latest earnings revisions, our lastestimate of S$0.24/share is further cut to S$0.215/share. Our reason forthe dividend cut is not based on the buyer default rates of the Sky@Elevenproject but more a function of free cash flow. While SPH continues torecognize revenue via progressive construction stages, there is marginalreal cash flow into the company. We expect TOP in 3Q2010 which impliesthat buyers have till then to obtain appropriate financing. Despite the cut,FY09 still gives a dividend yield of 6.1%.

Maintain BUY but lower valuation. While we have reduced our fair valueto S$4.86 (prev. S$5.14) based on our SOTP valuation, we expect SPH tocontinue its outperformance in this down market. Maintain BUY.

We gather that SingTel will continue to be aggressive in acquiring market share despite its leadership positions in prepaid and postpaid mobile and fixed broadband to position itself for the changing behaviour of consumers in the next 3-5 years

• Volatile stability. We came away from SingTel’s investors’ day with the view thatdefensiveness is tempered in the short term by its aggressive ambitions in Singaporeand volatile currencies.

• Capital management. SingTel has no plans to buy back shares and prefers capitalreductions to reduce the number of shares outstanding. It believes there is room toraise its gearing, currently at 1.2x net debt/EBITDA and 0.35x net debt/equity, andwill review it when needed.

• Continued aggression in Singapore. We believe SingTel will continue to acquiremarket share aggressively despite its leadership position in mobile and broadband toposition itself for higher multimedia spending by consumers in the future.

• Australia ambitions. We continue to doubt Optus’s ability to pull off the nextgeneration broadband network (NBN) project without the support of larger partners.• No slowdown in India. Bharti does not expect its growth to be derailed by theeconomic downturn and does not expect its leadership position to be threatened.

• Further margin compression in Indonesia. Telkomsel expects EBITDA margins todecline 3-5% pts if mobile termination rates are cut. However, it has not felt anyimpact from plunging commodity prices on usage or subscriber growth.

• Maintain NEUTRAL with an unchanged S$2.72 sum-of-the-parts target price.Despite its historical trough valuations, we believe upside potential will be capped bypotential margin pressure in Singapore from aggressive customer acquisitions andvolatile regional currencies.