Chartered Semiconductor reported its 4Q08 results this morning, with a revenue of US$351.7m (-0.3% YoY, -24.1% QoQ), which is in line with its mid-quarter guidance of US$343-353m. Its net loss (before preference share accretion) came in at US$114.0m, missing its guidance of US$76-84m loss, but this is due mainly to a reversal of tax credit amounting to US$34m. Excluding this, 4Q08 net loss before tax stood at US$81.0m, compared to net loss before tax of US$8.7m in 4Q07 and US$13.6m in 3Q08. For FY08, Chartered racked up revenue of US$1,661.1m (+22.5%), spot on with our FY08 sales forecasts, while its net loss of US$92.6m was larger than our projected loss of US$57.2m. Going forward, the group expects the negative macroeconomic environment and difficult end market conditions to continue to impact the foundry industry and the visibility of its business. As such, Chartered is guiding its 1Q09 revenue to drop approximately 31-34% QoQ to US$232-244m, and its net loss to deteriorate to US$142-152m. In addition, it is also cutting its 2009 capex to US$375m, 35% lower than US$576m registered in 2008. We will provide with more updates after our teleconference with Chartered. For now, we put our HOLD rating and S$0.17 fair value under review.

Government committed to expanding public healthcare capacity. For 2009 Budget, S$4b will be spent on healthcare infrastructure, including new public hospitals. More hospital beds will be created over the next five years, alleviating concerns about overcrowding in public hospitals.

Headwinds from falling foreign patient volume. Raffles Medical's (RFMD) foreign patients come from more than 100 countries. With the global economic slowdown, the number of foreign patients coming from outside ASEAN will decline. Raffles Hospital's foreign patient volume could drop 15% in 2009, resulting in a 3.2% yoy decline in revenue.

Private sector's patient load to be hurt by economic slowdown. During both the Asian financial crisis and the bursting aftermath of the dot-com bubble, the growth in demand for private healthcare services as measured by inpatient discharges declined 6.4% and 8.7% respectively. We are projecting Raffles Hospital's domestic patient volume to drop by 7.5% in 2009. Overall, 2009 revenue could decline 9.7% yoy to S$183.9m.

About 70% of staff costs are fixed. Staff costs will thus be less flexible on the downside given the need to maintain operating efficiencies in medical specialties and clinics despite the economic slowdown. Overall, we expect 2009 staff costs to decline 5.5% to S$95.9m.

Maintain SELL; fair price: S$0.59. RFMD is trading at 2009 PE of 14.6x compared with the market PE of 10.4x. Such a premium is not justified as the sector is facing increasing earnings risks attributable to the global economic slowdown. Our fair price of S$0.59 is based on the discounted cash flow model, assuming WACC of 8.0% and terminal growth rate of 0.5%.

We expect SingTel to report underlying net profit of S$835m (down 10% y-o-y, up 4% q-o-q) on 10th of February, which could be slightly lower than consensus estimates. In our view, tax savings rather than associate growth would drive the sequential growth. In 2Q09, SingTel paid $33m in tax on dividends from associates but in 3Q09F there are no dividends to be recognized from associates.

Lower sequential contribution from associates. Weaker Indian rupee (down 3% q-o-q) and Indonesian rupiah (down 10% q-o-q) are expected to impact earnings contributions from Bharti and Telkomsel. We do not expect Telkomsel's contribution to recover yet as it benefited from S$22m one-off tax adjustments in 2Q09, which would be absent in 3Q09F.

Higher sequential contribution from Singapore and Australia 3Q09F would benefit from lower iPhone subsidy compared to 2Q09. However, Optus contribution would be impacted by weak Aussie dollar (down 20% q-o-q).

SingTel trading at premium to Bharti is unsustainable. Currently SingTel trades at 13.1x PER and 7.3x EV/EBITDA for FY10 compared to 12.5x PER and 7.0x EV/EBITDA for Bharti with 15% FY09-FY12 earnings CAGR. We believe either Bharti has to rise or SingTel has to decline or both for SingTel to look reasonable vis-à-vis Bharti, which is the only growth driver in SingTel's portfolio. SingTel's dividend yield of 4.5% is not compelling either. Regional telecom sector average under our coverage is 12.1x PER and 4.8x EV/EBITDA, implying SingTel is not cheap on valuation grounds.

We fine-tuned our FY09 and FY10 estimates which are 3% and 6% below consensus estimates respectively. Maintain FULLY VALUED, with revised SOTP-based target price of S$2.52. Key risks are (i) Weak performance of Telkomsel, Warid and Globe as disposable income is impacted in their countries (ii) cut in corporate spending in Singapore where SingTel has majority market share (iii) Exchange rate risks (iv) Potentially higher capex in Australia, implying short-term funding issues (v) lower growth for Bharti, if Rcom continues with aggressive pricing on GSM network.

Improving macro indicators. Demand for commodities is likely to remain subdued in 1H09. However, there have been signs that suggest that the bottom could be in sight. The Baltic Dry Index (BDI) recently staged a strong recovery, jumping over 50% from its Dec 08 low to cross the 1000 mark. De-stocking and production cut-backs have led to lower inventory levels, while steel mills in China are gradually resuming operations. In addition, the effects from China's RMB4tr economic stimulus package are expected to kick in from 2H09, bolstering demand for metals and energy. Strong credit metrics boosts endurance. We are of the view that it is premature to draw conclusions to a sustained recovery for commodities, given the uncertainty surrounding the global economic environment.

Nevertheless, we believe that Noble Group Ltd (Noble) will be able to manoeuvre the uncertain operating landscape, and ride on its recovery, given its scale, robust risk management system and product diversity. Falling commodity prices will ease working capital requirements and reduce its need for debt. Its strong balance sheet with low gearing of 4% (after adjusting for readily marketable inventories) will enable it to weather the ongoing credit crunch, and its ample cash position eliminates near term refinancing risk.

Dwindling global trade could dampen volumes. While Noble remains in good shape to tide through the current turbulence, it is not immune to dwindling global trade and demand. The credit crunch has crimped global trade and remains a major obstacle hampering the industry. Faltering production has led to a slump in demand for metals and energy. We have moderated our FY09 estimates to account for weaker contribution from its Energy and Metals, Minerals and Ores (MMO) segments, bringing our FY09 earnings estimate 14% lower to US$458.6m.

BUY, with a lower fair value of S$1.58. Noble's FY08 results are slated for release on 26 Feb. We are forecasting a 136% surge in earnings to US$609.9m, including gains from its Portman sale. Key aspects to watch out for include its earnings growth against a climate of falling commodity prices, cash levels and net gearing. Performance of the group's MMO segment is likely to draw scrutiny in light of tumbling demand for metals. We anticipate further liquidation of its MMO inventories in response to weak global demand. We maintain our BUY rating on the stock, but trim our fair value estimate to S$1.58 (from S$1.83) on the back of lower FY09 earnings expectations.

DBS announced that CEO Richard Stanley has been diagnosed with Leukemia and he will be taking 3 to 6 months leave of absence. The diagnosis confirmed that the ailment is treatable and full remission is possible.

Koh Boon Hwee, DBS Chairman, will take on the active management role in the interim. He was acting CEO of the bank from Sep-07 to Apr- 08, after Jack Tai’s departure. We do not expect issues with operational continuity at the bank due to CEO’s leave of absence. A case in point was deft handling of SIV related issues and unwinding of ROSA, which took place in 4Q07/1Q08 under the interim CEO.

We continue to maintain OW on the stock and fundamentally we see limited reasons for a change of view. However, we do not rule out the possibility of adverse stock price reaction and an overhang in the near term, as investors were gaining confidence on longer term strategy of the bank. We recommend adding positions on any share price weakness.

Ascendas India Trust (a-iTrust) said yesterday that distributable income for its third quarter ended Dec 31, 2008 rose 36 per cent to $15.3 million, from $11.3 million a year earlier. Distribution per unit (DPU) for Q3 rose 35 per cent to 2.02 cents. Distribution is semi-annual, so the Q3 distribution will be made with that of Q4. Including 3.47 cents already distributed for first-half FY 2008/09, the nine- month DPU comes to 5.49 cents. Total property income for Q3 was $28.8 million - 7 per cent higher than the $27 million figure the previous year - while net property income grew 9 per cent to $17 million, from $15.7 million. Property income grew on the back of higher occupancy and resilient rental rates. Expenses grew at a slower pace mainly due to the fall in oil prices. As a result, net property income rose. 'Notwithstanding current weak global economic conditions, a-iTrust's portfolio occupancy edged up to 99 per cent from an already high level,' said Jonathan Yap, chief executive of the trust's manager. 'Average portfolio rentals also improved since our last results announcement. These results demonstrate the portfolio's resilience and appropriateness of its positioning vis-a-vis the target customers.'

Parkway Life Reit – Despite having the capacity to do so, the manager of Parkway Life Reit said it will not be aggressive in acquisitions this year as it believes that commercial property prices will come down further. 'If we wait out a bit longer, we will potentially be able to have a more opportunistic buy at a more objective valuation, as well as more objective yield,' said Yong Yean Chau, the newly appointed chief executive of Parkway Trust Management, the Reit's manager.

Revealing the strategy at its fourth-quarter results briefing yesterday, Mr Yong also said that acquisition targets are likely to be narrowed down to those in politically safer countries such as Singapore, Malaysia and Australia. While China remains a core market, the Reit is likely to take a more cautious approach because of legal issues related with property ownership. 'With limited gunpowder right now, we want to be more focused and more targeted rather than hitting everywhere,' Mr Yong added. As of Dec 31, Parkway Life Reit has a net gearing of 23.3 per cent, with a debt headroom of $300 million before reaching its optimal gearing of 40 per cent.

CDL is scheduled to announce its FY08 results on 26 Feb. We are expecting a net profit of $620.9m (or a 14.4% yoy decline), versus a consensus mean of $672.2m. We are expecting earning declines mainly from the property development and hotel operations.

As of 3Q08, CDL has not recognized profits from the Livia, which is 47%-sold. Depending on the progress of contruction, it could contribute to earnings in 4Q08. CDL will continue to book in profits from projects like One Shenton, Cliveden at Grange and Tribeca, but The Sail @ Marina Bay had obtained its TOP in 3Q08.

According to the World Tourism Organisation (UNWTO), tourism declined by 3% in both Europe and Asia for the second half of 2008. It expects 2009 international tourism to be in the range of 0% - 2% decline, with the Americas and Europe being the most affected regions. M&C, which contributes nearly 30% of CDL’s PBT, will be negatively impacted.

CDL recently announced the issuance of a $100m-tranche of Islamic Trust Certificates due in 2010, with a coupon of 3.25% per annum, payable semi-annually. This is the first issue under the S$1bn-programme under the Shariah financing principle of Ijariah. In addition, CDL also announced a new $1.5bn MTN Programme that replaces a $700m one established in 1999. The proceeds are meant for refinancing existing borrowings and general working capital requirements.

We still like CDL for its strong balance sheet and flexible landbank, which it could take full advantage of when the market recovers. We think that the likelihood of write-downs is minimal, but we have further lowered our ASP assumptions for its high-end projects. Reiterating our BUY recommendation, with a target price of $8.22 based on a 15%-discount to RNAV.

Revenue correlates with GDP. Parkway has the largest exposure to the private healthcare sector in Singapore. Its Singapore hospital operations contributed 53% of its FY07 revenue and we estimate a slight drop to 51% in FY09F. With economies falling into a deeper than expected recession, we believe that Parkway's earnings will be affected. The Asian Financial Crisis in 1997 and the 2001 recession caused both an economic and healthcare slump in Singapore. With dire 2009 GDP projection declines of -2% to -5%, we expect challenging times ahead for Parkway.

Bad time to gear up. The Novena Hospital project, currently viewed as an expensive venture, will continue to be a weight for Parkway. Its medical suite sale business model is unique in Singapore's healthcare system. While originally optimistic of good sales for its medical suites to offset development costs, the dire economy has altered expectations significantly. Our base case estimates medical suite selling price of S$3150psf, translating to total income of about S$738m. Netting off the land and estimated construction cost of S$1.28b and S$500m respectively, the estimated eventual cost of Novena Hospital is about S$1b. FY08F net gearing is forecasted to be ~0.43x.

Lethargic medical travellers. The destruction of wealth was felt in all segments of society. With a decline in net worth, medical tourists are likely to put off discretionary procedures or to opt for a cheaper location. We are also anticipating the large middle class segment to cut back significantly and for some to even look to subsidised public healthcare for the time being. We are expecting foreign patients to slow, thus impacting Parkway's high revenue per patient segment.

Muted 2009 at best, initiate with HOLD. We are initiating coverage on Parkway with a HOLD rating. Our fair value for its healthcare business is based on a PER type valuation as we believe that the share price will be driven by earnings. Parkway has traded in a large PER band, ranging from 15-20x in 2002 to 30-45x in 2007 on expectation of the spinning off of its hospital assets into a REIT that would translate to special return of capital to its shareholders. The magnitude of return of capital was not substantial.

We peg Parkway to its lower trading band of 16x FY09 EPS to cater to the muted earnings outlook. Adding S$0.14 (pegged at current market value) to our fair value for its 35.5% holding of ParkwayLife REIT, our SOTP fair value amounts to S$1.15. We will become buyers as it approaches S$1.00 (trough valuation).

DBS announced today CEO Richard Stanley has been diagnosed with acute myelogenous leukemia and will be commencing medical treatment in Singapore immediately. Medical diagnosis confirmed that his form of leukemia is treatable and full remission is possible. Stanley is expected to take a leave of absence from the bank of about three to six months as he undergoes medical treatment.

While Stanley is away from work, with immediate effect, Chairman Koh Boon Hwee will work closely with the Management Committee and assume an active management oversight role. This is to ensure continued strong leadership. Koh is not new to this role as he previously acted in a similar capacity, having taken on an active management oversight role at DBS from September 2007 to April 2008, prior to Stanley's appointment as CEO.

SIA yesterday announced further changes to its route network, cutting capacity on various routes, including its all-business class services to Los Angeles and Newark. SIA had previously guided ASK capacity growth to be not more than 1% in FY3/10, and these service cutbacks are part of the ongoing adjustments required to match capacity with demand, in view of the economic downturn. Maintain NEUTRAL on SIA, with an unchanged target price of S$12.60 and no change to earnings. In this down cycle, we believe that SIA will open a chasm of out performance against its full-service peers. Our target price is based on an unchanged P/NTA target of 1x. Dividends likely to be maintained at S$1/share tax exempt because of its strong balance sheet, although our EPS forecasts for the next three years are now below S$1 per share.

Mercator reported a disappointing set of results in 3Q09 (FYE ended March), with net profit dipping 9% y-o-y to US$13.1m. This was mainly due to higher than expected exposure of 33% to short-term charter contracts, which resulted in more vessel hire expenses and bigger exposure to depressed freight rates in 3Q09. The current cyclical downturn in dry bulk shipping and our expectation of a steep fall in asset prices would continue to put a dampener on the share price. Our fair value is now S$0.12. Maintain HOLD.

Net profit was weaker than expected. Mercator’s net profit in 3Q09 was hit by higher than expected vessel hire expenses, due to a spot chartered-in dry bulk carrier whose contract expired in November 2008. The group’s lower than expected exposure of 67% to long- term charter-out contracts (vs. 75% estimate) also contributed to the 9% dip in net profit.

Secondhand prices have started to fall. The secondhand prices for Panamax have fallen 20% by end October 2008, vs. the peak level in July 2008. While the latest secondhand prices were not available from Clarksons since then, presumably due to the lack of transactions, we expect the next update to reflect further price dip. We have kept our RNAV estimate for Mercator at S$0.04 per share, given our expectation on an 80% plunge in secondhand prices by 2010.
Mercator is worth more than its distressed value. Mercator offers investors longer-term value through its unique business proposition to offer end-to-end logistics solutions to customers with Mercator Lines Limited India (MLL), its India-based parent company. We continue to value Mercator at 0.3x blended FY09/10 Price/NTA, which gives a fair value of only S$0.12. Maintain HOLD.

Solutions provider in diamond manufacturing. Sarin Technologies deals inthe development, manufacture and sale of precision technology products used for the processing of diamonds and gems. Its systems comprise of various hardware technologies like electro-optics, electronics, precision mechanics and lasers.

Market leadership. Sarin’s products are used almost exclusively by the major gemmological laboratories worldwide. We believe this gives Sarin a strategic advantage over its competitors, as their selection of Sarin’s products is effectively an endorsement of the product quality.

Impact from forex volatility. FX fluctuations may have an adverse effect on Sarin’s business. The strengthening of the New Israeli Shekel against the US dollar may impact the company’s profitability, as some of its expenses are paid in this currency while its sales are booked in the US$.

Automation to continue. As the overall drive to increase yield and productivity remains a key concern while the access to higher-quality rough diamonds becomes more constrained, ongoing investments pertaining to the automation in the diamond manufacturing industry is expected to continue. We believe that this trend would be beneficial to Sarin.

The ongoing economic downturn. As the diamond industry is mostly an export-based sector that depends predominantly on the US and European countries, the health of these economies is expected to be a decisive factor on how well global diamond sales will turn out going forward.

Recommendation. Currently trading at 2.7x FY09 P/E and assuming it trades up to its historical P/E average of 3.2x, we arrive at a target price of S$0.135. Initiate coverage with a NEUTRAL recommendation.

KCF issued a profit warning last Friday that it would be reporting a loss for 4Q08, citing lower revenue and selling prices for copper foil. We have cut our FY08 profit forecast by 25% to reflect the losses in 4Q08, and reduced our FY09-10 forecasts by 21-41% to assume lower sales and gross margins.

Accordingly, we trim our target price from S$0.265 to S$0.255, still based on 0.43x CY09 P/BV. We continue to believe that the group has the financial capability and strong parentage to ride through the difficult times in 2009. The group is also a prime privatisation candidate, in our opinion, given its huge discount to book value. Maintain Outperform.

SMRT reported 3QFY09 net profit of S$41.2m, up 7.6% YoY, in line with expectations.

MRT is key contributor to operating profit. MRT revenue rose 9.1% YoY to S$119.7m, and accounted for a 55% revenue share. MRT average daily ridership was up 8.4% YoY to 1.41m rides. However, electricity costs surged67.9% YoY to S$18.8m, due to the higher rates from the six-month electricity contract effective 1 Oct 08. This led to a mild 6.3% YoY increase in MRT operating profit, though this still accounted for a sizeable 69.6% share of total operating profit.

Bus operations was lacklustre. Bus average daily ridership grew 4.4% YoY to 770k rides, which helped drive bus revenue expansion. Diesel costs of S$11.4m is marginally higher than the S$11.2m in 3QFY08. Bus operations recorded an operating loss of S$1.2m, versus the S$15k gain in 3QFY08.

YoY to 26,674 sqm. Though this accounts for only 6.6% revenue share, its share of operating profit is a sharply higher 21.4%. SMRT indicated that its commercial space rental is on a three-year basis and most of the rentals were effective in 2008 – suggesting not much rental reversions going ahead the next two years.

We are forecasting FY09 dividends of 9S¢, based on a 85% payout ratio (versus 78% in FY08). Though this gives a relatively attractive dividend yield of 5.7%, we see earnings (and dividend) downside risk if SMRT were to lower its bus and rail fares –SMRT has indicated that it will pass the Budget savings to commuters via lower fares. We maintain our S$1.65 price target – obtained from DCF modeling. Maintain NEUTRAL call on SMRT.

Following the poor 4Q08 results, we believe quarterly earnings have bottomed out. However, the prospect of soft refining margin and weak y-o-y quarterly earnings in 1H09 should curb share price re-rating. SPC’s valuations are inexpensive relative to regional peers and supported by a minimum of 8% dividend yield. Hence, we expect limited downside risk from current share price and maintain HOLD rating.

Worst is over for inventory write-down. SPC marked to market its oil inventory at about US$40s/bbl at end-2008. Hence, we believe the possibility of incurring another large inventory write-down as in 4Q08 is low. We expect quarterly earnings to normalise from 1Q09 onwards.

No share price catalyst. However, we do not expect share price re-rating soon due to: (i) although refining margin has recovered, it is likely to remain soft relative to historical levels, and (ii) although earnings have bottomed out, y-o-y performance should be substantially weak at least throughout 1H09.

Maintain Hold. SPC valuations are inexpensive relative to regional peers’ average of 7.1x 2009 PE, 0.9x P/BV, and 6% dividend yield. We expect 10.3% dividend yield for 2009 based on existing US$60 crude oil price and US$3 refining margin assumptions. However, if we assume average crude oil price of US$40 for 2009, the dividend yield should still sustain at 8% minimum. Although SPC sum-of-parts target price of S$2.11 is 10% below market price but we expect limited downside risk from current level.

We believe Noble’s active risk management framework has helped it to avoid major balance sheet-related write-downs, even as commodity prices fell rapidly in 2H08.

Lower levels of inventory. Expectations of softer prices led the company to lower inventory levels: in 3Q08, inventory was US$2.1bn (equivalent to 23 days of sales), -14% QoQ, with 94% of this classified as readily marketable or hedged inventory. We think this trend of lower inventory levels continued into the 4Q08.

VAR framework in place. The quarterly net profit was also achieved with Noble's VAR in the daily range of 2.64–1.74% of shareholders’ funds (the daily range last year was 4.59–0.59%). Noble did not run on a VAR risk- management model prior to 2007.

Rising cash levels. Cash levels rose by 37% QoQ to US$1.1bn in 3Q08, helped by a US$1.5bn reduction in current assets, ex cash (led by prepayments, which fell by 30% QoQ). This trend may have continued in the 4Q08 given a continued fall in commodity prices in the quarter. The nominal net gearing ratio in 3Q08 fell to 108% from 132% 2Q08. Adjusted for readily marketable/hedged inventories, the 3Q08 net gearing ratio would have been 4%, which would have continued to decline in 4Q08. The sale of Portman shares in a privatisation exercise would have added nearly US$90m to its cash balance in 4Q08. We expect a further reduction in gearing levels in 1H09 because of reduced working capital needs due to lower commodity prices.

The key risk remains lower volumes that lead to lower profitability being priced-in. We expect a 20% contraction in overall volumes for FY09, with net profit of US$293m, -43% YoY.Earnings revision
Our investment thesis for Noble revolves around the theme that careful inventory management and lower financial gearing ratios will lead to a perception of reduced risk levels. A better-balanced and more-diversified profit pool should enable it to remain profitable this year, albeit at lower levels. Noble currently trades at a FY09E PER of 7x and a P/BV of 1.1x. Our target price of S$1.35 implies a FY09E PER of 10x. FY08 results are slated for 26 February.

- FY08 DPU of 8.78 cents is in line our projections, representing 98% of our full year DPU projection of 9.0 cents. Overall, RevPAU grew from S$132 in 2007 to S$145 in 2008. However, the slowing economy has begun to impact the demand for serviced residences in China (-15% yoy drop in RevPAU for 4Q08) and Philippines (-4% yoy drop in RevPAU for 4Q08). Currently ART's length of stay is more than 7 months on average, which will provide a certain degree of earnings visibility.

-Ascott REIT successully refinanced S$202m in bank borrowings; with more than 80% of loans only due in 2011 and beyond. Gearing remains comforatble at 38.3%.

- Managment guided that operating performance in 2009 is expected to remain profitable but lower than 2008 due to the economic downturn. Ascott REIT will continue to apply cost containment measures as well as control discretionary capital expenditure to maximise asset yield. They will also continue to be prudent and apply a conservative apporach in managing their balance sheet.

Bharti's 9MFY09 results met our expectations at 74% of our full-year forecast but were ahead of consensus. 3Q09 was characterised by: 1) admirable topline growth; 2) continued market-share gains; and 3) improving EBITDA margins. Bharti continues to execute well and is one of the more reliable growth drivers at SingTel. We expect it to account for 24% of SingTel's PBT in 2009 and 37% of SingTel's sum-of-the-parts valuation. Pending the release of 3QFY09 results by SingTel, we are maintaining our earnings forecasts and sum-of-the-parts target price of S$3.10. Reiterate OUTPERFORM.

Full-year distributable income of S$97.4m for MLT was in line with expectations. However, full-year DPU of 7.24cts was above consensus and our expectations due to fewer units in issue than forecast after the rights issue. Full-year gross revenue of S$184.9m was up 30.5% yoy mainly on contributions from 11 acquisitions completed in 2008. Rental reversions were strong in Singapore and Hong Kong. We maintain our FY09-10 assumptions and introduce FY11 forecasts. Despite the fact that acquisitions are expected to take a back seat, we remain positive that full-year contributions from the 11 acquisitions made last year will supplement organic growth for MLT. Maintain Outperform.

CMT’s FY08 results were within expectations, lifted by organic improvement amid a fully occupied portfolio. Continued shopper traffic growth despite a weakening spending environment underlines the more resilient suburban retail sector. The stock offers FY09 yield of 9.7%. Near term catalysts from successful rollover of its debt and recapitalising newsflow within the Sreit sector could spur share price. Upgrade to Buy with DCF-backed TP of $1.92.

Continuous organic growth.CMT reported Q4 revenue of $134.5m, +16% yoy and +3.7% qoq while distribution income came in at $60.9m, -2.1% yoy and +0.3% qoq. Topline benefited from The Atrium income and organic improvement within its portfolio. Occupancy remained at c100% and new lease/renewals were transacted at an average 9.3% over preceeding levels. However, a hike in expense ratio to 36% (vs 33% previously) after charging a $4m capital allowance and greater interest cost eroded bottomline growth. Asset values rose by 9% yoy despite a 15-25bps hike in cap rates, bringing book NAV to $2.41 and gearing 43%.

Locked in >87% of revenue.While retail sales outlook is dampened by the poorer economic outlook and discretionary spending had weakened towards end 08, shopper traffic at CMT malls continued to grow, showing the resilience of suburban malls. In addition, based on committed leases @ end 08, CMT had locked in >87% of its FY08 revenue for FY09. In terms of capital management, the group has $986m of debt due to be rolled over in 2009, of which $876m is maturing in 2H09. The group is exploring options for refinancing and intends to complete its refinancing ahead of the deadline.

Upgrade to Buy.CMT offers investor exposure to the more resilient suburban retail sector. Share price had fallen by 17% since early Jan 09 and is trading at 9.7% yield based on our still-below-consensus DPU forecast of 14.4cts. We expect newsflow on both its debt refinancing and removal of overhanging deleveraging concerns in S-reit sector via recapitalisation activities to be a driver to share price performance in the near term.

With Singapore looking to be mired in its worst recession since independence, the Government delivered a major fiscal package in response. Key tasks were to save jobs and to help companies. Corporate tax rate was brought down to 17%, and property tax rebates were introduced. Greater confidence was also injected to the banking sector, with the government stepping in to share the risk in lending to SMEs. Key sector beneficiaries: Banks (UOB, OCBC), Property (City Dev, Wheelock, Allgreen), Transport (SMRT, ComfortDelgro).

Saving Jobs, Saving Companies.The key thrusts of Singapore’s 2009 budget were to save jobs for Singaporeans and to keep companies afloat in what is looking to be the deepest recession since independence. The Government unveiled a S$20.5bn Resilience Package, acknowledging that it will not be an instant cure, but affirming its commitment in pushing through a strong fiscal move to avert a sharper downturn.

Key Measures.The key measures were a job credit scheme which gives employers the incentive to keep workers, as well as a Special Risk-sharing Initiative (SRI) ,which aims to improve credit availability to SMEs, with the government taking on a significant portion of the risk. The government also cuts the corporate tax rate from 18% to 17%. The property market also saw a 40% tax rebate initiative for commercial and industrial properties, among other measures.

Not an Instant Cure. Despite this fiscal boost, the openness of Singapore’s economy and the lagging effect of the fiscal measures mean that the tide will not turn overnight. The market will remain volatile in 1Q09 as economic data points continue to head south. Even though the market is currently trading at a P/E of 9.4x (FY09F), which is lower than the average of 16x in the past decade, negative newsflow from the corporate sector will continue to cap performance. We continue to expect a trading range of 1450 to 2180 for the STI, which implies a standard deviation of –2, as is the case in recession years.

We are now less negative on the plantation sector than when we downgraded the sector in July 2008. Share prices have corrected substantially, palm oil price stabilisation measures have been introduced, fertiliser costs have come off 15-50% from their high and there are rising supply risks stemming from adverse weather conditions in major planting areas in South America. However, these positives are offset by concerns over a weakening of edible oil demand growth due to a sharper-than-expected global economic downturn, lower-than-expected crude oil prices, high palm oil inventories and declining government interest in biofuel mandates. We are keeping our UNDERWEIGHT stance on the regional planters as the stocks in Indonesia and Malaysia are trading at premium P/E valuations against the market and we think that the recent rise in CPO price is not sustainable unless the drought conditions in South America worsen. Wilmar and Indofood Agri are our top picks in the sector. Key de-rating catalysts are falling prices for CPO and crude oil, improved weather prospects in South America and a weaker-than-expected global economy.

CRCT FY08 distributable income grew by 43% to S$45.9m (DPU of 7.53 Scts), mainly due to contribution from its acquisition of Xizhimen asset. We view that share price performance could be capped by potential equity raisings, given its current gearing of 33% is near the 35% regulatory gearing cap. Maintain HOLD, TP$0.66. CRCT currently is trading at c.12% FY09-10 DPU yield.

Results in Line 4Q08 results in line with expectations. Distributable income of S$14.1m was 23% above forecast and a 64% growth from a year ago. Gross revenues grew 75% yoy to S$31.3m, helped by contribution from the acquisition of Xizhimen. FY08 distributable income came in at S$45.8m (+43.4%), translating to a DPU of 7.53 Scts. Portfolio asset revaluation was 2.5% higher, pulled up by Xizhimen (+10%), offset by declines in values for most of its other properties.

Lower than consensus estimates.We believe that rental growth is peaking on the back of an uncertain outlook in China. As such, our DPU estimate of 7.3 in FY09, while at the lower end of consensus estimates, reflects a 10% decline in asking rents combined with increased vacancies at its multi-tenanted malls by 5-10% in 2009. In addition, potential downside risks to our DPU estimates exist if CRCT reduces its current payout ratio, against our estimated 100% payout.

Gearing level cap of 35% could mean possibility of equity raisings. While CRCT’s gearing remains relatively low amongst S-REITs at 32%, its current non-rating means that its debt-funding capacity is limited to a cap of 35%. This might lead to a possible overhang over the share price performance in the near term with unitholders facing a possible equity raising when (i) trust purchases a further asset, (ii) further devaluations in 2009, leading to the trust bursting the 35% regulatory limit.

Quick Comment: With no clear visibility of a macro recovery, which we believe is required ahead of a physical property market recovery, we continue to believe that Keppel Land’s share price is likely to trade towards our bear cases, which suggests the stock trading down to the S$1.05-S$1.25 levels in the near-term. Maintain Equal-weight rating.

What's new: KepLand’s FY08 earnings came in 23% and 17% below our estimates on the operating and net profit levels respectively. This was mainly due to achieved residential sales and profit recognition falling short of our expectations. No provisions on its residential landbank and no impairments on its investment buildings were made this quarter. Management expects physical markets to remain soft in 2009, but is comfortable with its balance sheet with only 9% out of a total S$2.1bn of debt due for refinancing in 2009 and 36% due in 2010-2011. While KepLand is not planning to raise funds via a rights issue, it will be seeking shareholders’ approval for a proposed dividend reinvestment scheme, where shareholders will be given a choice of either taking cash dividends or reinvesting the dividends by acquiring additional shares in the company, in its effort to conserve cash.

Caution - Bears still lurking: Our inclination to remain cautious on the developers, focusing on our two bear case scenarios was substantiated with the recent downgrade in Singapore’s 2009 GDP forecast to -3.5% by our economics’ team, ahead of the Singapore government’s own GDP revision today, to -5% to -2% range for 2009. While we have imputed drastic residential price assumptions in our base case scenario, the rapid deterioration of the Singapore office sector may have not been fully reflected in our base case NAVs. City Developments (Underweight rating) is the biggest loser, followed by KepLand, potentially trading down to S$3.33-S$4.23 and S$1.05–S$1.25 respectively.

Pacific Shipping Trust (“PST”), a business trust listed on the SGX-ST, reported gross revenue growth of 67% for 4Q08 to US$14.5m, mainly attributable to the contribution from four new vessels delivered during the year. A full quarter’s contribution from its new vessel, CSAV Laja (acquired on September 15, 2008), was recorded in 4Q08, whilst approximately 50 days of time charter income was attributable to CSAV Lauca (commenced charter on November 12, 2008). Both CSAV Laja and CSAV Lauca have been chartered to Compania Sud Americana de Vapores S.A. (“CSAV”), the 17th largest container company in the world and the largest shipping company in Latin America on long-term, fixed-rate time charters of five years each.

Total Distributable Income increased by 68% to US$6.3m. For 4Q08, PST would be distributing income of US$5.5m, up 48% from the same period in 2007. This represents 0.93 US cents per unit which is 15% lower than Q4 FY2007; primarily due to the 10% retention of distributable amount and timing difference between the receipt of funds from a Preferential Offering in September 2008 and the earning of income from the new vessels acquired. The proceeds from the offering were used to partially finance vessel acquisition and repay existing debt which helped to strengthen its balance sheet and reduce its gearing to 48%.

For the full year FY08, gross revenue grew 29% to US$44.6m from US$34.5m in the previous year. Net profit rose 75% to US$18.3m, while distributable income increased 28% to US$18.5m.

Investment property and land write-downs not a concern. Unlike other developers, City Developments (CDL) is unaffected by concern over investment property write-downs as it carries these assets at historical cost less depreciation. Also, the impact from potential land write-downs is limited as the bulk of CDL's landbank was purchased at a low cost before the current cycle.

Limited impact from potential default under DPS. The Group has sold only one-third of the units of its pre-sold projects under the Deferred Payment Scheme (DPS). It does not extend DPS to sub-sales. There were no defaults in the recently-completed development The Sail @ Marina Bay Tower 2. Most of the Group's launched properties are expected to receive TOP in 2010-11.

Alternative source of financing provides flexibility in tough credit environment. CDL established a S$1b unsecured Islamic Trust Certificate Programme on 19 Nov 08. The S$1b Islamic Multi-Currency Medium Term Notes programme is Singapore's first corporate Islamic unsecured Sukuk-Ijarah financing arrangement. This will diversify the Group's stream of investors.

Beneficiary of supportive government policies. The Singapore government could introduce initiatives to support the property market in the upcoming budget. CDL is likely to benefit from such initiatives as it derives nearly 84% of its value from Singapore.

Maintain BUY, target price S$8.15. CDL is our top pick among large-cap property stocks. It is trading at an attractive 22% discount to our stress test scenario that assumes a 40% decline in residential and commercial property prices, a 10-30% decline in land values for landbank purchased in 2006-08 and a 50% default rate on residential projects sold in 2006-08. We maintain BUY with a target price of S$8.15 pegged at a 20% discount to 2009 RNAV of S$10.19.

CCT posted a 17.4% yoy growth in its 4Q08 distributable income. Its distribution per unit for 4Q08 is 2.7 cents, bringing FY08 total DPU to 11 cents, representing a 12.8% distribution yield, largely in line with expectations. This came at the back of a robust 40% growth in gross revenue due largely to the acquisition of One George Street and positive rental reversion.

CCT’s management is confident of delivering its forecast DPU of 12.34 cents for FY09, having already locked in 79% of the forecast gross rental income. DPU growth will be contributed by the income from newly completed Wilkie Edge and further positive rental reversions given the low current portfolio passing rent of $7.44 psf.

Following the successful refinancing of the $580m CMBS maturing in March this year, CCT’s management does not see the immediate need for equity fund-raising. The refinancing has freed up 8 assets from encumbrances, valued at $2.7 bn in all. We are of the view that these assets could be pledged against loans of nearly $1bn, even if capital values decline 30%.

CCT’s gearing stands at 37.6%, comfortably under the 60% that is allowed under the Property Fund Guidelines governed by the Monetary Authority of Singapore (MAS) for a credit-rated REIT. The MAS has clarified that if the leverage increased as a result of declining property values, it does not amount to a regulatory breach.

Despite prolonged concerns related to the economic downturn and the looming new office supply, we still like CCT for its strong asset quality and room for positive rental reversion. We have revised our rental forecasts downwards, reducing our target price to $1.64, at the back of a terminal growth rate of 1%. Reiterate BUY.

33 SGX-listed companies have issued profit warning for the last quarter or financial year. Here is a list of the companies and their profit guidance or warning, together with the expected results annoucement date. Some of the counters include: TPV, New Lakeside, CHINA SUN BIO-CHEM, Jiutian Chemical Group, Tat Hong, C&G INDUSTRIAL, SKY China Petroleum Services, Delong, COSCO CORPORATION.

Click the image to enlarge. Hope your counter is not in the list. Then you are LUCKY.

Keppel Land's listed office trust, K-Reit Asia, yesterday reported a distributable income to unitholders of $17.4 million for the fourth quarter ended Dec 31, 2008 - a 152 per cent jump from a year ago. This followed a 68 per cent year-on-year increase in net property income to $11.8 million, due to lower property expenses and higher rental income. Investment propertiesheld directly by K-Reit achieved an average gross rental rate of $6.08 psf in December last year, compared with $4.65 psf in December 2007. Despite the higher earnings, K-Reit's distribution per unit (DPU) in Q4 2008 was 2.67 cents, lower than the 2.8 cents in the same period last year. This was due to K-Reit's rights issue in May last year, which added more than 390 million new units to the market.

On an annualised basis, K-Reit's DPU in Q4 was 10.62 cents, generating a distribution yield of 15.2 per cent based on its unit closing price of 70 cents as at Dec 31, 2008. K-Reit last closed unchanged at 67 cents yesterday. For FY2008, K-Reit reaped a net property income of $39.7 million, 40 per cent higher than in FY2007. This led to a 167 per cent surge in distributable income to $58.1 million. DPU for FY2008 was 8.91 cents, marginally higher than the 8.82 cents a year ago. This translates to a distribution yield of 12.73 per cent. For the period July 1, 2008 to Dec 31, 2008, K-Reit will pay out 5.07 cents per unit on Feb 23 this year. This will bring the total DPU payout to 13.04 cents for the period Jan 1, 2008 to Dec 31, 2008.

Trust manager K-Reit Asia Management sought to reassure investors about K-Reit's financial strength yesterday. Having raised proceeds of $551.7 million from the rights issue in May 2008, K-Reit has a low aggregate leverage level of 27.6 per cent as at end-December 2008 and has no debt refinancing needs until 2011, said CEO of the trust manager, Tan Swee Yiow. K-Reit also established a $1 billion multi-currency medium term note programme yesterday as an additional source of funding. Mr Tan added that it would take a more than 54 per cent drop in K-Reit's portfolio value for the leverage level to exceed 60 per cent. Under current rules, a Singapore-listed Reit's aggregate leverage should not exceed 60 per cent of its deposited property if it obtains a credit rating and publicises it. And while the year ahead could be challenging, K-Reit is still keeping an eye out for selective asset acquisitions across Asia. The Reit will adopt a 'cautious and prudent' approach to this, said Mr Tan.

SMM's client problems. PetroMena has issued a summons as it is facing a US$300m funding gap for three semi-subs currently being built at Sembcorp Marine's (SMM) Jurong Shipyard. Against total costs of ~US$945m for all three rigs, PetroMena only has access to US$600m (US$200 for each rig). With the first rig to be delivered by end 1Q09, PetroMena needs another US$100m for payment to Sembcorp Marine (SMM) or risk default.

Lloyds' conditional precedents are achievable. PetroMena has requested the additional US$100m for the first rig from its banker, Lloyds.The bank is willing to increase the facility to US$300m but will only honour its US$600m obligations to the next two rigs if certain conditions are met. As we know it, the main conditions are for the next two rigs to be delivered on-time, on-budget and with definite charters. SMM and PetroMena has updated that both rigs are on-schedule and on-budget with long term charters. As such, we think Lloyds' would honour its obligations for the next two rigs.

Cancellations unlikely. However, we have moved PetroMena's milestone payment of US$105m (for Petrorig III) due on 31 Jan 2009 to Jan 2010 in view of PetroMena's tight cash flow. Order cancellations are the least preferred route for all three parties although SMM is the most buffered should this happen. Order cancellation is highly improbable as PetroMena has already paid about 50% (total ~US$730m) for all three rigs to SMM. Lloyds would find it difficult to claw back that money.

SMM has advantageous position. Even in the event of default, we think SMM will finish building the rigs with its strong balance sheet (S$1.5b net cash) as all three rigs have secured long-term charters. When SMM sells the finished rigs, cost recovery should not be an issue (see Exhibit 3). Changing order win assumptions. While this situation will have limited impact on SMM, the rate of order delays/cancellations along with a dire near-term outlook on oil demand have spurred us to lower our FY09 order book to S$1.4b (prev: S$2b) but our FY10 order book has been bumped up to S$2.5b (prev: S$2b) in view of payment deferments. This lowers our fair value slightly to S$2.00 (prev: S$2.05), still based on 10x FY09F EPS. Maintain BUY.

Keppel Corp will be releasing its FY08 results on 22nd Jan 2009. While we expect FY08 EPS of 66 cts per share versus consensus of 67cts, Keppel’s numbers could be severely eroded by a shortfall from SPC, as well as a significant amount of provisions or write-downs from order cancellations, inventory adjustments etc. We are unable to fully quantify the extent of write-downs, but the market looks to have already braced itself for this. Qualitatively, the outlook for the Group remains weak too.

Associate Singapore Petroleum Company (SPC) is releasing its FY08 numbers on 20th January, but had already warned of weak earnings on 12th December. SPC cited a sharp slowdown in product demand and a decline in refining margins. In 3Q09, earnings had already collapsed to practically nothing, for year-to-date earnings amounting to S$279m, down 28%. We expect full year earnings to fall short by between $50-100m.

Besides the recently announced order cancellations from Scorpion Offshore and Lewek, Petrobras recently cancelled the tender processes for its P-61 tension leg platform and P-63 FPSO projects because the bids were deemed too high amid current market conditions. This clearly indicates that customers are no longer willing to pay through the nose, unsurprising in the current oil price environment. The implication is that the offshore space is getting more competitive, impacting margins.

We expect Keppel Land, which reports on 21st January, to post a 24% fall in core earnings. However, we do not expect any write-downs to its landbank at this time due to its low historical cost, nor do we expect any similar write-downs for Reflections. However, the outlook for the mid-to-high end segment in Singapore remains weak.

Given the lacklustre outlook across Keppel’s businesses, our Hold recommendation is maintained, as is our target price of $4.50, based on a 20% discount to its sum-of-the-parts. While we expect Keppel to maintain a high dividend payout in order to optimise its capital structure, our current estimate of 44 cts per share may be at risk due to potential write-downs and provisions.

Key indicators showed that there is continuing growth in AST’s online hotel and air ticket reservations for 1Q09. Total online monthly room nights rose 3% y-o-y on average, while online air ticket sales continued its fast track, up 44% q-o-q.

The online air ticket sales were on track, but online monthly room rates were weaker than we expected due to the closure of the Bangkok Airport in Nov 08. Amid the recessionary environment and slow online monthly room nights in 1Q09, we are reducing monthly room nights assumption from 15% to 8%, and lowered our earnings estimates by 4.2% for FY09.

According to PhoCusWright’s US Online Travel Overview Eighth Edition in Nov 08, the annual growth in online travel in the US will continue to outpace the total travel market through 2010. Online leisure/unmanaged business travel, which accounts for close to 35% of the total travel business in US, is expected to grow 9% in 2008 and 7% annually through 2010. The online travel segment in Asia which accounts a mere 10% of the total travel business looks to have a greater growth potential.

AST has been actively buying back its shares since May 08 collected some 7.6% of its issued shares at average cost of 29c. Moreover, AST’s recent white label channel agreement with Yahoo! SouthEast Asia Pte to make available its full range of travel products on an independently branded site reflects good recognition for its travel services and opens doors to future collaborations with renowned international players.

AST’s current market capitalisation only reflects the value of its fully integrated instant confirmation booking engine that is estimated to worth up to S$60m, notwithstanding its steady earnings stream. Moreover, its good financial shape ($7m in cash with zero bank borrowings), coupled with a near 30% discounted valuation to the sector average of 17x current PER, make AST an attractive acquisition target. Reiterate Buy.

Swiber's 4Q08 gross margins may fall short of its average 20-25% due to higher external chartering costs and weather downtime. We expect order awards for offshore construction projects to decelerate in 2009 and have revised our order assumptions for Swiber to US$350m from US$500m for 2009. Our earnings estimates have been cut by 3-9% for FY08-10. Our target price also drops to S$1.04 from S$1.38, now based on 5x CY10 EPS (from 6x). Swiber looks cheap at 2x CY10 P/E and 0.5x P/BV against an order book of about US$600m and a 3-year core earnings CAGR of 27%. Maintain Outperform.

Forex losses will drag earnings down in 3Q09. Tat Hong Holdings Ltd (Tat Hong) has warned of lower profits for its 3QFY09 results due 13 Feb 09. In its profit guidance, management highlighted two key areas of weaknesses that will drag the group's performance down: forex losses - realised and unrealised - as well as weak equipment sales. Forex losses stemmed from the strengthening of the Japanese Yen (JPY) against the Singapore Dollar (SGD) and Australian Dollar (AUD). As the group imports most of its equipment from Japan, the continued strengthening of the Yen will result in forex losses and lower inventory levels. Exhibit 1 illustrates the movements of the SGD and AUD against the Yen in 3Q09. The AUD swung by approximately 39% from peak to trough, while the SGD fluctuated by around 20% against the Yen. We estimate that Tat Hong could incur ~SGD5m of forex losses for every JPY1b of inventory purchased during the quarter.

Equipment sales weakened by credit crunch. Weak equipment sales will weigh on the group's earnings. This comes as no surprise and has already been factored into our assumptions. The global economic slump has curbed capital expenditure among industry players, while the credit crunch has restricted the availability of loans to many of Tat Hong's customers, resulting in slumping equipment sales. Nevertheless, we believe that the group's stable rental income will partially mitigate the impact of weakening equipment sales on its overall earnings. Tat Hong's business model has transited from equipment sales to equipment rental with rental income accounting for over 66% of the group's gross profit. Rental income is expected to stabilise the group's long term earnings in difficult times like these.

Beware of earnings downgrades; reduce to HOLD. We have lowered our FY09 earnings estimate by 6% to account for forex losses, bringing our forecast to S$85.2m (from S$90.6m), which is below consensus. However Tat Hong could still miss our estimates, depending on the severity of forex losses, which will only be made known during the release of its results. Tat Hong's shares have risen by 16% since our last report and are trading close to our S$0.75 fair value estimate. This, coupled with the prospect of further earnings downgrades after the release of its results, leads us to downgrade our rating to HOLD.

M1

While some impact of MNP-based competition continued to be felt in 4Q08, with M1 suffering a 1.4% QoQ decline in airtime revenue, revenue was still firm enough to meet our FY08 forecast. More importantly, acquisition and retention costs are already declining after peaking in 2Q08 (MNP launch), resulting in 4.5% QoQ EBITDA growth, and M1 exceeded our FY08 EBITDA forecast.

While we continue to see competitive/regulatory factors as the key drivers of telecoms earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revisedown our FY09 revenue, EBITDA and net profit forecasts by 3.6%, 2.4% and 3.3%. We have cut our DCF-based target price by 3.2% from S$2.48 to S$2.40.

Looking into the medium term, structural drivers look to be positive as M1 remains the key beneficiary of the NGN rollout. With relatively defensive earnings, a 12.5% FY09 cash flow yield and a 10.4% FY09 dividend yield, we rate the stock OUTPERFORM.

Singtel

M1’s 4Q08 earnings figures, released on Friday, 16 Jan after market, suggested that the brief intensification of competition in 2Q08-3Q08 surrounding the launch of MNP and the iPhone is already winding down. M1 reported falling acquisition and retention costs, and rising EBITDA margins.

While we continue to see competitive/regulatory factors as the key drivers of telecoms earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revise down our FY3/10 SingTel cellular revenue and EBITDA forecasts by 3.1% and 3.6%, and our fixed line forecasts by 2.5% and 3.0%.

However, SingTel continues to enjoy geographical diversification. While our Singapore cellular DCF declines by 4.1%, and our fixed- line DCF declines by 3.7%, our consolidated DCF-based sum-of- the-parts valuation declines by only 0.8%, from S$3.55 to S$3.52.

Thus we continue to view SingTel as a defensive alternative to domestic Singapore stocks. OUTPERFORM rating maintained.

Starhub

M1’s 4Q08 earnings figures, released on Friday, 16 Jan after market, suggested that the brief intensification of competition in 2Q08-3Q08 surrounding the launch of MNP and the iPhone is already winding down. M1 reported falling acquisition and retention costs, and rising EBITDA margins.

While we continue to see competitive/regulatory factors as the key drivers of telco earnings, the industry does not operate in a vacuum. Our economist’s recent downward revision in GDP forecasts, to a contraction of 2.8% in FY09, leads us to revise down our FY09 revenue, EBITDA and net profit forecasts by 4.2%, 3.5% and 5.6%. We have cut our DCF-based target price by 4.6% from S$2.38 to S$2.27.

We continue to highlight that StarHub is most vulnerable telco on medium-term secular factors (such as the impact of the NGN on legacy cashflows, and the prospect of SingTel as a new bidder for Pay TV content). However, earnings stability relative to other sectors warrants a NEUTRAL rating.

According to a summons issued by Petromena, the company is facing a US$300 mn funding gap on its three semi-subs, Petrorig 1-3, currently under construction at SMM’s Jurong shipyard. Against a total outstanding of US$946 mn, the company can access only US$600 mn (US$200 mn for each rig) in undrawn facilities with Lloyds and US$41 mn in cash (Fig. 1). If Petromena cannot raise an incremental US$100 mn to take delivery of Petrorig 1 by 30 April, it would trigger a default.

The company has asked Lloyds to increase the undrawn facilities of US$200 mn for Petrorig 1 to US$300 mn. In return, the bank is asking for to be released from its obligation on the other two rigs leaving a US$600 mn hole to be plugged by Sept 2009. Given Petromena’s high leverage, assets sales may be inevitable.

We estimate Petromena and a related company, LOG Rig, jointly owe over US$1.2 bn to SMM (20% of net order book). We are cutting our target price for SMM to our trough value estimate of S$0.95 (from S$2.15) and lowering our rating from Neutral to UNDERPERFORM on increased customer distress.

Petromena ASA (PMENA NO, NOK1.52) is facing a US$300 mn funding gap on its three semi-subs, Petrorig 1-3, currently under construction at SMM’s Jurong shipyard. It needs to plug US$100 mn gap by 30 April 2009 (delivery date for its first rig, Petrorig 1) or otherwise it would trigger an event of default for both the yard (SMM) and Petromena’s bondholders. Refer to Fig 1 for payment details.

At present, Petromena has US$200 mn undrawn facility for each of the three rigs from Lloyds TSB (LLOY.L, 98.40p, N, TP 125.00p) but that is not sufficient to cover the increased project cost. Because of the looming payment for Petrorig 1, the company has asked Lloyds to increase its facility for Petrorig 1 to US$300 mn. In return the bank has asked for additional security (which requires bondholders’ approval) and to be released from its obligations towards the other two rigs. Should this agreement be executed, Petromena will be able to take delivery of Petrorig 1 and avoid defaulting in April 2009 but will have a US$600 mn funding gap on the other two rigs.

On 16 January, bondholders approved additional security for bank loan conditional upon the company meeting the following objectives by 30 January: 1) detail a process, controlled by the bondholders, to sell all three rigs under construction; 2) provide a mechanism for bondholders to approve any new financing facility; and 3) written approval of the revised bondholder agreement by certain percentage. At this stage, both bondholders’ final approval and the bank’s ability or willingness to lend on the indicative term sheet of early/mid-Dec. 2008 is uncertain.

If this exercise is approved then Petromena may have bought time till September 2009 to sell assets. Given outstanding bonds of over US$850 mn plus a possible US$300 mn bank loan against its present market capitalisation US$32 mn, the chances for the company to secure an additional US$600 mn in debt or equity financing appear remote.

We estimate Petromena and a related company, LOG Rig Ltd. (unlisted), jointly have over US$1.2 bn outstanding towards SMM, or approx 20% of SMM’s net order book. Until Petromena’s workout is successfully completed, potential threat of a major customer default may overshadow SMM’s share price performance.

Passenger demand continues to soften: Traffic fell 4% y/y in December, slightly weaker than November’s trend and much worse than its Jan-Dec 08 growth rate of 3%. Demand weakened across all route regions with shorter- haul flights faring worse than long-haul. System-wide load factor slid further, down 4ppts y/y to 79.9% versus November’s 3ppts decline. Load factors fell in all route regions (N and SE Asia -6ppts y/y, W Asia and Africa -7ppts, US -6ppts, Europe -4ppts) with the exception of Australia/New Zealand where loads were maintained at a high of 89.8% (flat y/y), helped by the weaker A$.

More capacity reduction needed: We believe SIA will need to lower its <1% capacity growth plan for FY10 to support loads and limit pressure on fares. The positive impact of lower fuel prices is partially offset by hedging losses. Fortunately, SIA’s cost structure tends to be relatively less sticky than that of peers, and its balance sheet is also stronger today than in previous crises. We still expect SIA to be one of the few airlines to remain profitable in FY09-10 unless demand falls more sharply than expected.

Cargo dropped a lot: Traffic fell 19% y/y in December, the largest decline in history in a single month and much worse than November’s 13% decline, in line with the industry trend. Although SIA cut capacity more substantially by 9% y/y during the month, this was not enough to prevent a further slide in cargo load factors. Consequently, system-wide load factor fell 7ppts y/y versus November’s 4ppts decline. North and SE Asian routes were worst affected, with loads down 13ppts y/y to a record low of 50%. Australia/NZ routes also outperformed on the cargo side as weaker currencies helped fuel outbound trade, with loads down 3ppts y/y. Loads fell 7ppts y/y on W Asia & Africa and EU routes while US loads fell 5ppts.

PT, key risks: We think it is too early to turn positive on the stock as we believe risks are on the downside in the near term. Our Dec-09 PT of S$10 is based on 0.85x P/BV, SIA’s trough valuation in the past 10 years, although it could de-rate further as the industry outlook worsens. Key risks: earlier demand recovery, declining competition as peers are worse off, and M&A.

We maintain Osim / Ron Sim is running out of options and time, a stance taken since Osim raised $12 mln in Jun ’08 via a rights issue of 136.6 mln warrants at 9 cents each, and exercisable at 35 cents each. The warrants are worthless today.

The latest 2-for-9 rights issue of ordinary shares at 5.5 cents each to raise a meager $6.6 mln for working capital reaffirms the difficulties facing the group, which includes Brookstone, the retailer in the US, whose accounts are not consolidated in Osim’s as it is classified a “Joint Venture”.

(As at end Sept ’08, Osim has borrowings of $79.7 mln, of which $56.54 mln is due within 12 months. 72% of Current Assets consists of Inventories and Trade Receivables.)

The rights issue is not being underwritten, which is hardly surprisingly.

Think about it, this is January, and retailers make money (if at all) in only one-to-two months of the year, and which is 10-11 months away.

Ascendas REIT (A-REIT) announced that its 3QFY08/09 distribution per unit increased 13.8% yoy to 4.05 Singapore cents on the back of additional rental income from new developments and higher renewal rentals. Net property income of S$74.2m is 20.9% higher yoy, of which 38.2% is contributed organically through rental rate increases across all sectors. DPU was in line with market expectation and the REIT expressed that the net property income for 4QFY08/09 should be on par with its recent performance, as only 1.6% of its lettable area up for renewal for the rest of the financial year. The ex-date will fall on 21st January and date of distribution date is on 27th February, 2009.

In a separate announcement, the manager of A-REIT is proposing an equity fundraising exercise to raise approximately S$400m by way of a private placement of 258m new units to institutional investors and preferential offering of up to 95.9m new units on the basis of one new unit for every 15 existing units. The issue price range of between S$1.13 and S$1.16 are at a discount of 7.0- 9.4% to the VWAP of S$1.2469. Proceeds from the exercise will be used to partly refinance its S$300m in debt due Aug’09 and partly fund its committed development projects. Upon completion of the exercise, the gearing is expected to decline from 42.2% to 33%.

We believe that an anticipation of a possible decline in capital values does not bode well for A- REIT, which had a relatively high gearing of 42%; hence the need for an equity fundraising. The exercise, when completed, will bring gearing down to be in line with its peers in the Industrial REITs sector. The strengthening of the capital base now will give A-REIT a first mover advantage when the need for more refinancing comes in the later years. We anticipate more equity fundraising activities in the S-REITs universe in the near term, but also noting that it will be an uphill task for the smaller REITs. A-REIT is in a better position for equity fundraising as it has always been trading at a premium over its peers, at just 30% discount to NAV. (Refer to S-REITs table below for comparison).

SGX recorded a 38.9% y-o-y decline in net profit (excluding the $34m distribution from SGX-DT compensation fund in the previous period) to $74.7m in 2Q09. Earning weakness deepened during the quarter as reflected in the 12% q-o-q drop in earnings underpinned by weaker revenues from all business segments.

Despite a surge in volume (+22% q-o-q), securities market revenue tumbled 6.5% q-o-q to $1.03bn as a result of steep decline in securities prices. The ADT trend is in line with our $1.1bn ADT estimate for the full year 2009. Stable revenue fell 20% y-o-y led by reduced corporate action and lower initial listing fees with only 2 IPOs listed during the quarter.

SGX was not spared from the global reduction in derivatives trading activity. Its derivatives revenue slide 7% q-o-q led by a 12.4% decline in futures volume and a 34% drop in structured warrants volume. In particular, the Nifty futures contract dip 47% due to declining foreign institutional investor interest in India. Despite the set back, the management sees encouraging signs from the healthy year-end open interest for the Nifty contract at 25% market share and escalating trading value of structured warrants on foreign underlying securities.

The adverse market conditions did not hinder SGX’s commitment to strengthen its monopolistic status. They plan to launch the extended settlement contracts to attract more retail investors and intend to launch options on the MSCI Singapore by 3Q09. Its new OTC clearing business – Asia Clear has successfully attracted 260 counterparty accounts. Recent measures to facilitate secondary fund raising by listed companies are also a timely move to bolster trading activities.

We believe the share price underperformance in FY08 (-62% versus a 50% dip in STI) justifies its earnings vulnerability in the current downturn. SGX’s commitment to pay an annual base dividend of 14 cents, coupled with strengthening fundamentals as an Asian gateway will mitigate price downside. As the stock approaches our fair valuation of S$4.90, we are upgrading it to a HOLD.

The improvement in US airlines load factor is positive for STE’s aerospace division, which accounts for 50% of the Group’s top-line revenue and about a quarter of this is derived from exposure to US airlines. Delta, Northwest Airlines and US Airways are ST Aerospace’s long-term customers. With the improvement in load factors, the risk of airline bankruptcies has now eased, a key factor that had weighed down share price performance.

ST Aerospace announces 20-year engine maintenance aqreement with GE Aviation. This agreement is highly significant as it effectively provides long-term earnings continuity. Under the deal, ST Aerospace is to provide on wing support for two new engines, Genx-1B and Genx-2b. These engines will power the Boeing B747-8 and B787 aircraft that will be in service from late-09 and early-10 respectively. Both engines are GE’s fastest-selling engines with more than 1,100 engines sold to date.

ST Aerospace will see scheduled work on these engines from late-2010 onwards in both Singapore- and US-based hangars. Meanwhile, ST Aerospace will have to invest in machinery and acquire technical certification. No numbers were provided by STE, but engine maintenance is the most lucrative part of aircraft maintenance, accounting for 42% of total maintenance, repair and overhaul (MRO) expenditure, and Singapore is the largest MRO hub in Asia, controlling 25% of the Asian market. Asia is also the region with the largest orders for new aircraft.

Data on the number of aircraft under storage showed brief respite for two consecutive months. This is a positive sign, and given that it is coinciding with improved load factors in the US, suggests greater confidence among US airlines. This is a leading indicator as aircraft taken out of storage would typically require a three-month lead time before they are certified air worthy. As more aircraft are taken out of storage, this would translate into higher MRO revenue, a trend that will benefit ST Aerospace, which operates at a significant cost advantage in the US. Its MRO rates are 30-40% lower than that of competitors in the US.

We have not adjusted our 2010 numbers but have accorded a higher PE rating to the stock. The agreement with GE Aviation will provide long-term earnings continuity and cements STE’s position as a key MRO player with strong OEM links. Meanwhile, signs of improved load factor in the US along with a fall in the number of airlines under storage suggest that operational risk has eased. The company's orderbook now stands at $10.5b, the highest level in 10 years, but the stock is trading at a mere 0.72x price to orderbook, implying severe margin compression. This is unlikely to be the case as material costs have declined and MRO rates will stabilise given improving load factors. We believe a higher PE rating is justified and accord the stock a 16.5x rating, a slightly higher band than the historical low of 14.5x. We raise our 12-month price target to $2.83 from $2.40.

S’pore government bringing back deferred projects. We predicted in our Nov 08 report that the government would be releasing some of the S$4.7b deferred projects in an effort to stimulate the economy. True to our expectations, Minister for National Development Mah Bow Tan said that the government would be bringing back some of the smaller projects, of up to S$50m in value. In addition, the government would be bringing forward other suitable new projects in the pipeline, on top of the projects originally planned for 2009. Details would be announced during the 2009 Budget Statement.

BBR is expected to benefit from this as it’s exposure to the public sector is approximately 76% (based on 11 Nov 08’s order books). Given BBR’s strong track record in government infrastructure projects, it has a good chance at securing some of those projects that are rolled out, thereby beefing up its order books.
Credit assistance measures in place. Financial institutions these days are more prudent in lending and are looking to reduce loan amounts to companies or increase collaterals. To ease the credit squeeze that companies are facing, Spring Singapore has enhanced its business credit assistance schemes during this period. The assistance rendered include extending the qualifying criteria to allow more construction firms to tap on such schemes and lowering the interest rates for bridging loans to reduce the cost of credit to companies.

In our opinion, these measures by the government act as a safety net for the smaller construction firms which are likely to be experiencing significantly higher cost of borrowings or even having difficulties obtaining funding for their working capital and asset enhancement needs. Indirectly, BBR may benefit as it sub- contracts out certain works to other contractors. Should these sub-contractors fold due to difficulties in securing working capital or cashflow issues, there is a possibility that those BBR’s projects’ completion may be delayed or have their margins eroded when hiring another sub-contractor on an urgent basis.

Public sector agencies to make payments promptly. Mr. Mah has also said that public sector agencies would be making more frequent, prompt and full progress payments to firms for completed and certified construction work done. We believe this would help in companies’ cashflow management.

Lowering security deposits. The public sector agencies would also be lowering the quanta of security deposits required for their construction projects. The current 5% deposit would be reduced to a range of between 0% to 2.5%, where possible. This would help in freeing up cash for companies, enabling the cash previously tied up in deposits to be utilised in other operating activities. Less rosy macro economic conditions in 2009. According to Mr. Mah, the total value of contracts awarded in 2008 was S$34.6b. BCA’s projection for value of contracts awarded in 2009 is between S$22b and $28b, or -19.1% to - 36.4% YoY. In view of a more muted macro economic environment, we are maintaining our NEUTRAL stance and fair value of S$0.045 for BBR, based on 3x forward earnings.

Core operations performs well. Ezra Holdings (Ezra) reported its 1Q09 results with revenue leaping 1.5x YoY to US$113m but PATMI registered a 93% decline due to a one-off divestment gain recorded in the previous quarter. Stripping the divestment gain, Ezra gave a laudable performance with PATMI rising 2.6x to US$9.3m. Along with bettering our forecasted charter rates, the strong performance was boosted by lumpy contributions from its Marine Services and new Energy Services divisions.

Explaining the slimming margins. But the good topline performance came with a slimmer overall gross margin. Its main chartering business saw a fall in margins as new vessels were taken on its books as compared to previous sale-and-lease back arrangements, translating to an accelerated depreciation. Marine Services registered slimmer margins due to milestone payments of less lucrative non-turn key projects. We expect this division's margins to average 18% on an annual basis.

EOC disappoints. We initially had strong hopes that this business will serve to lift Ezra with its good margin construction/maintenance business. However, EOC's thin asset base of four large vessels was in transition between contracts, resulting in lower charter revenue. Exhibits 1 & 2 show the changes in charter contracts and it is reflective of a challenging landscape where contracts are not as abundant and charters terms are not as long. Therefore, we have softened EOC's contribution to Ezra by 26% for both FY09F and FY10F. While EOC will take delivery of another barge in 4Q09, we hold our forecasts as we take pensive stance for clarity in charter terms.

Swing factors for earnings. While visibility for its offshore support vessel business is slowly crystallising for 2009, Ezra's contribution from its lumpy Energy Services division and EOC could cause Ezra's earnings magnitude to vacillate. We have maintained a conservative stance on both these divisions and will tweak our estimates as we gain better clarity. Forex risks can also contribute heavily to the swing (See exhibit 3).

Maintain BUY. We have tweaked our earnings model and raised the PER valuation for Ezra's core business to 6x (prev. 5x) FY10F EPS as it demonstrates resilience in charter rates. Conversely, we lowered EOC's valuation to 4x (prev. 5x) FY10F EPS as we remain pensive on its long term contracts. We maintain BUY with SOTP fair value of S$1.09 (prev. S$1.16).

Sector news a positive… The recent news of two successful S-REIT refinancings bodes well for Suntec REIT (Suntec). Office-focused CapitaCommercial Trust has secured a 3-year term loan facility to refinance some S$580m due in March '09, while Cambridge Industrial Trust has refinanced S$390.1m of loans. Some S$3.4b of S-REIT debt is still due for refinancing in the next 9 months but the news is overall a positive signal - especially that of Cambridge, a smaller and non-sponsored S-REIT, which was perceived as relatively higher risk. Please see our sector report out today for more details.

Waiting for the same from Suntec. Suntec has about S$825m of debt, or about 40% of its total borrowings, up for refinancing in the next 12 months. This is a lengthy process - we understand Suntec began talking to lenders late last year - and both the S-REITs mentioned here only announced done deals about two months prior to debt expiry. However, the sooner Suntec can clear this overhang, which is weighing down valuations, the better. Its cost of debt is likely to increase from the last reported all-in cost of 3.2%. The REIT is currently leveraged at 0.32x debt- to-assets.

Income outlook still bleak. Recent news reports suggest office rents fell 15-20% in 4Q CY081 . Suntec REIT, which will likely release FY08 results next week, should also register a decline in achieved rentals, in our view. The REIT will see almost 70% of its office portfolio ex One Raffles Quay up for renewal in the next two years. We are projecting Suntec City office rental rates to tumble down to single digits this year. We also expect vacancy rates to be on the rise. We estimate the average passing rent at Suntec City Office is currently in the S$6.50 ballpark, comfortably below our fairly bleak reversionary rent expectations for the next two years. On the retail side, we have priced in a conservative 8-10% per annum decline in Suntec City Mall rentals over the next two years.

Maintaining BUY. Our RNAV estimate of S$1.05 prices in a 38% decline in asset values. Our fair value estimate for Suntec is S$0.90, at a 15% discount to our RNAV estimate. We expect (non-cash) revaluation losses going forward, which could potentially stress the REIT's tolerance for gearing. We believe our valuation reflects the risk of an equity recapitalization (which is not necessary, but possible). Suntec has seen a 21.5% increase in share price since our last report. Maintain BUY.

Records improved 1QFY09 results. Thomson Medical Centre (TMC) recorded a 5.9% YoY growth in 1QFY09 net profit to S$2.9m, as revenue expanded 9.9% YoY to S$16.4m, boosted by strong performance in all business segments. The results were in line with our expectations. TMC achieved higher baby deliveries in 1Q09, over the same period a year ago. It also handled an increased number of ancillary services (e.g. diagnostic imaging) and saw a larger number of patient referrals and higher inpatient admissions.

Hospital projects in Vietnam progressing well. Its 260-bed hospital project in Bing Duong Province is on track to be completed in 3Q CY09 (contribution from FY10). TMC is also is the process of finalising the business plan for its other hospital consultancy project in Hanoi. This could increase the contribution from its consultancy business, going forward.

Taking steps to grow. Its Thomson Women Cancer Centre (TWCC) is expected to commence operations in 3Q09. The establishment of the cancer centre is in line with its strategy to grow organically. As a leading provider in women’s and children’s healthcare services, the establishment of TWCC would further strengthen TMC’s position as a specialist in women’s healthcare services.

Maintain BUY. We are estimate earnings of S$13.0m (EPS: 4.4 S¢) for FY09 and S$14.6m (EPS: 5.0 S¢) for FY10. Although the economic downturn could result in fewer inpatient admissions, we believe TMC is less vulnerable as it is in a niche segment. We ascribe a PE of 12x for TMC. Applying to its blended FY09/10 earnings, we arrive at a fair value of S$0.55 for the stock. We maintain our BUY recommendation.

Jurong Tech (JT) has received statutory demand from OCBC for full repayment of S$21,895,125.25 and US$23,253,681.18 within 3 weeks, otherwise OCBC shall be entitled to commence winding up proceedings against the company.

Management and their financial advisors have met up with their creditor banks and financial institutions on 13 Jan ’09 and after the meeting, management said that they will continue to negotiate with the creditor banks in respect of their outstanding liabilities and are currently seeking to achieve a favorable response.

1. OCBC’s statutory demand has opened the pandora box for other creditors (other banks and trade creditors) to demand payment from Jurong Tech as well.

2. As at Sept ’08, the company has short term unsecured loans of $282,337,000, short term secured loans of $364,000, long term unsecured loans of $35,766,000 and trade and other payables of $120,504,000.

3. We had long maintained that Jurong Tech’s weak financial position is a major concern, especially so in the current global financial crisis, justifying our avoid recommendation despite its bombed-out valuations.

4. And this is especially magnified with demand falling off drastically in recent times. Bellwether tech companies have all warned that demand have fallen off significantly since late 2008 and the weakness is extending into 2009.

5. Since 12 Dec ’08, Lin Li Fang the company’s Chairwoman has seen her shares being forced sold by financial institutions, reducing her stake from 13.61% to 7.31% on 2Jan 2009. With the stock down another 50% this morning on the back of the statutory demand from OCBC, we would not rule out further force sales of her shares.

6. With its financially distressed position, further force sale of shares by financial institutions and weak demand conditions, we continue to recommend investors avoid the stock.

7. Other tech stocks with weak financial position and low interest coverage to watch out for include Innovalues (short term debts of $43.14mln and long term debts of $13.61mln versus cash of $13.3mln and interest cover is a low 2x while gearing is 71%), Huan Hsin (short term debts of $151.84mln and long term debts of $154.58mln versus cash of $70.37mln and interest cover is a low 3x while gearing is 63%) and Broadway (short term debts of $55.7mln and long term debts of $75.85mln versus cash of $24mln and interest cover is 5x while gearing is 64%).

Golden Agri’s productivity is expected to be higher than initially expected. The company’s investments in seed technology are expected to boost the CPO yield from 22.5% to 24% in FY09- 10 . According to Golden Agri, it has access to proprietary seed technology, which drives its superior productivity. Golden Agri has exclusive use of the ‘Dami’ seed. The seeds’ productivity is independently estimated by agricultural experts to be 20% higher than conventional seeds. This increased productivity raises our FY09F and FY10F net profit by 26% and 22%.

We expect a steady recovery in CPO prices in 2009. As stated in our sector piece ‘There may be trouble ahead’, dated 17 November 2008, we expect CPO prices to average US$520/t in 2009, compared to the average price of US$490/t in 4Q08. The recent 18% spike in CPO prices has led to a 37% rise in Golden Agri’s price since 1 December 2008. Golden Agri has also outperformed the STI’s 10% rise in this period. This demonstrates Golden Agri’s status as a liquid and deeply undervalued counter, benefiting from its significant exposure to the increasing CPO prices.

We recommend a Buy and raise our DCF-based target price to S$0.37, implying 23% upside potential. We value Golden Agri at 3.8x FY09F PE, compared to a sector average of 11x. Its EV/hectare of US$7,180 is roughly equal to the replacement cost. We value Golden Agri’s biological assets at US$3.1bn, which is 54% higher than its market capitalisation. We value its biological assets at a conservative average price assumption of US$504/t and a discount rate of 11%. We are 18% above Bloomberg consensus on FY09 net profit expectations.

The retail outlook looks set to worsen as consumers brace for higher unemployment and wage cuts. Prime Orchard Road rents were down 1.9% qoq in 4Q08 to S$36.10 psf and prime suburban rents fell 1% qoq to S$29 psf. Retail rents proved resilient during previous downturns, but the decline may be sharper this time as 5.1m sq ft of retail space is due for completion in 2009-10 vs pa demand of 270,000 sq ft in the past decade. We assume retail rents decline 20% (from 15%) in FY09 and 15% (from 10%) in FY10. This reduces our net profit forecast 7% for FY09 to S$193m and 11% for FY10 to S$180m.

We believe CMT may need to raise capital, given its high gearing of 43%. The company risks a rating downgrade if gearing exceeds its target of 45%. Higher gearing could result from asset devaluation, due to sliding retail rents and cap rate expansion, albeit by a mild 25-50bp on our estimates. Recapitalisation, possibly through equity raising, would be negative in our view as CMT is trading at a significant 28% discount to its September 2008 NAV of S$2.39.

We see low refinancing risk for CMT as it enjoys a Moody’s rating of A2, the highest among S-REITs. S$150m of debt that matured in December 2008 was refinanced at 3-4%. Refinancing terms for S$754m of debt (24% of total) maturing mostly in August will be in place by early 2009, according to management. We predict CMT's average funding cost will increase slightly, from 3.4% to 3.8%, assuming a refinancing spread of 250-300bp. We estimate DPU will dip only 5.1% in this scenario.

We cut our TP to S$1.85 (from S$2.00) on our profit downgrade, but upgrade to Hold (from Sell) due to the stock price correction. We forecast yields of 7% in both FY09 and FY10. The stock trades at a 28% discount to its NAV of S$2.39 as of September 2008.

A-REIT has obtained S$200m in credit facilities to refinance part of its S$300m commercial mortgage-backed securities (16% of total debt) due in August 2009 at a low credit spread of 120bp (vs the current 250-300bp). We estimate this translates to a borrowing rate of 3-3.5% for the new loan. We forecast an average funding cost of 3.8% in FY10, from 3.25% previously, which would erode DPU by 5.5%, assuming its S$524m revolving term loan is refinanced at 5%.

We lower net income 13% for FY10F to S$173.7m and 16% for FY11F to S$173.8m as we see a sharp decline in spot rents. The business parks outlook has turned bleak, with rents down 4.4% qoq to S$4.30psf in 4Q08 on slower demand. Net leasable area from the manufacturing sector (21% of A-REIT’s portfolio) fell for three consecutive quarters to 4Q08. However, potential terminations for A-REIT’s multi-tenant logistics and light industrial buildings should be mitigated by its high security deposits (10-month average for sale-and-leaseback properties).

While A-REIT’s 41.4% gearing is near its 45% target, we don’t expect the company to be compelled to raise equity, as industrial-property devaluations, with their long lease expiry profiles of 5.5 years, tend to take longer than commercial ones. Management expects the cap rate to rise more than 50bp (from the current 6.75%) before hitting the 45% target.

We cut our TP to S$1.90 (from S$2.40) on our profit downgrade but keep our Buy rating as the stock still looks undervalued. We forecast yields of 9% in both FY09 in FY10. A-REIT trades at a 17% discount to its September 2008 NAV.

Most of CDREIT’s debt (S$297m) matures in July 2009, but we see little refinancing risk as it is backed by sponsor Millenium & Copthorne, whose gearing is also low at 14%. Successful refinancing of this debt would be a strong catalyst for the stock, in our view, as refinancing risk would then be completely eliminated. We assume higher average cost of funds of 5.5% (from 3.2%) for CDREIT in 2009 as credit spreads widen, which will erode 2009 DPU by 9% on our estimates.

CDREIT’s relatively low gearing of 19% implies low recapitalisation risk. We estimate that even if RevPar falls 20% yoy in each of FY09 and FY10, leading to similar declines in valuation, gearing would reach only 22% in FY09 and 28% in FY10, well below the company’s target of 45%.

We estimate CDREIT’s lease structure with master lessees guarantees it a turnover of at least S$40m pa, translating to what we believe is a decent DPU of 2.6 cents or a yield of 3.6% pa. RevPar would need to decline 70% yoy in 2009 for the minimum rent floor to be triggered, which is highly unlikely, in our view. We project RevPar will decline 20% in each of FY09 and FY10, due to a slowdown in tourist arrivals and new supply of hotel rooms.

CDREIT’s yields of 11% in FY09F and 8% in FY10F are attractive vs the current 10-year government bond yield of 2.2%, despite our assumption of low RevPar and rising interest costs. The stock trades at a steep 54% discount to its September 2008 NAV of S$1.56. Upgrade to Buy.

CCT’s successful refinancing of S$580m of CMBS debt (28% of total debt; 88% of debt expiring in 2009) in early January has removed any refinancing risk for the company at least for this year. We anticipate a refinancing rate of 5.0-5.5% for its new three-year term loan, assuming a 250-300bp credit spread. This brings its weighted average cost of debt to 4%, up from the current 3.6%. Further, the term loan has been secured by only one building (Capital Tower) vs seven buildings for the CMBS, which is another positive for the stock.

CCT is unlikely to require recapitalisation despite a likely drop in office rents. Historically, revaluations had been significantly milder than spot rent changes, which we believe could be due to its staggered lease expiry of about three years. We further estimate 19% of CCT's portfolio by NLA has fixed long-term rents that are 50-60% below market rates (eg, HSBC Building, Capital Towers). This should buffer the impact of spot rent declines on CCT's property valuations. Assuming a 30% drop in office spot rents in 2009, CCT's portfolio would see only a 15% decline in property valuations. We estimate CCT can afford a 17% drop in valuation before its 45% gearing target is reached and a 38% drop before the 60% regulatory limit is reached.

Despite having one of the strongest sponsors among office REITs and owning quality assets, CCT's yields at 11% in both FY09F and FY10F are similar to Bloomberg estimates for KREIT and Suntec REIT of 11-12%. These high yields include our estimated 30% yoy decline in office spot rents in both FY09 and FY10 as well as higher interest costs. We upgrade CCT to Buy from Hold with a DCF-based target price of S$1.60. The stock trades at a steep 65% discount to its September 2008 RNAV of S$2.94.

KepLand is expected to report its FY08 results on 21 Jan 09. The street expects KepLand to post a net profit of $212.1m, while we have slightly reduced our expectation to $219.0m. This represents a 72% Y/Y fall in earnings. Stripping out one-off gains of $500.2m in FY07, core earnings are still expected to fall by about 24% Y/Y.

We expect earnings to be underpinned by the progressive recognition of profits mainly from the Singapore residential projects, namely the Suites at Central, Marina Bay Residences, the Sixth Avenue Residences and Reflections at Keppel Bay. Profits will also be recognised from the Arcadia in Tianjin and Elita Promenade in Bengalore, India.

In the previous downturn of 2001, KepLand wrote down its landbank by $455.1m, resulting in a net loss of $366.5m for FY01. After re-evaluating KepLand’s current landbank, we are of the belief that similar writedowns are unlikely this time round due to the low historical cost of its landbank. In fact, sites like Madison Court and the Promont were already written down in 2001.

In Singapore, KepLand’s exposure is mainly in the mid-to-high end segments, where demand is really weak. The regional markets China and Vietnam are also experiencing slow sales. While the Chinese have stimulus packages to spur the property market, the Vietnamese government has not followed suit. We expect fewer launches in 2009.

We are lowering our FY08 and FY09 forecasts by 2.4% and 13.8% respectively, deferring most of its Singapore project launches to 2010 and beyond. We have trimmed our target price to $2.68 based on a 50%-discount to RNAV. While lacking in near-term catalysts, we think that too much pessimism has been priced into the share price. Reiterating our BUY recommendation.

We highlight some of Chartered’s key debt covenants as stated in its last annual report. We believe these are key watch points in light of the currently difficult operating conditions. Underperform rating maintained.

There are two items worth highlighting: first, Chartered needs to maintain a net worth above US$1bn with net gearing less than 180%; and second Temasek (a 59.4% shareholder) needs to maintain a certain percentage of ownership or remain the single largest shareholder of the company.

30-40% utilisation is bad news: Our scenario analysis indicates that if Chartered’s overall utilisation stays in the 30–40% range for the rest of the year, it could report a net loss in the region of US$700m (with a cash loss of about US$200m). This could bring down its net worth to just above US$1b and its net gearing would be very close to breaching 180%.

Looking at both debt and equity: Chartered's EV of about US$1.9bn is about 75% debt and 25% equity. Thus, the sharp move in recent days is really the amplification of the smaller part of it EV makeup. While Chartered’s valuation at a historical low P/BV of 0.3x (which would be attractive for a potential acquirer), under current conditions, the potential acquirer’s consideration could be the entire EV rather than just Chartered’s market capitalisation. A change in control could also bring about changes to its credit rating or availability.

Strategic investor the best bet: With the other foundries also struggling with excess capacity, a strategic investor would be our best guess should Chartered need to consider a meaningful equity issuance. Most interesting to us would be a link to the Mudabala Development Company, which acquired AMD’s fabs last year. More details in our ’Abu Dhabi’ joins the foundry party note, dated 7 Oct 2008.

12-month price target: S$0.20 based on an EV/EBITDA methodology. Catalyst: A wider net loss beyond the US$116m we currently expect for FY09. Our target price of S$0.20 implies valuation ratios of FY09E EV/EBITDA of 3.0x and P/BV of 0.2x. Underperform rating maintained.

Target price of S$1.60 (3.4x P/B, 23% ROAE) — Over the past year, SMRT's largely domestic earnings and consistent ROE have strongly outperformed Singapore's STI. However, rail (71% of 1HFY09 operating profit) is now showing moderating ridership growth and 2H09 could be impacted by a small bus diesel hedging loss (struck at US$110/bbl, spot US$61/bbl). SMRT looks fairly valued.

December 2008 rail MRT ridership +6.7% yoy — While still on track with our FY09 forecast, MRT December ridership of 1.4m/day has moderated from more than 14% yoy growth in September, in part due to base effects. We also believe SMRT has fully optimized train frequencies for peak hours. Falls in job numbers may temper passenger growth as the economy slows. November 2008 bus ridership was 770k/day, +5.0% yoy.

Retail rental and advertising — While contributing just 9% to group revenues the retail and advertising businesses contribute 28% of operating profit, the result of high margins (retail 75%, advertising 64%). Management are on track for a rental revenue target of S$52m in FY09 (1H: S$28m), having boosted renovated retail stations to 28, with 26,592 sqm of lettable space at 99.3% occupancy. 1HFY09 advertising revenue increased 15% yoy to S$11.6m.

Electricity and diesel — In October 2008 SMRT began a six-month electricity contract at a 30% price increase, in-line with then higher oil prices. Given the sharp fall since, SMRT has renegotiated for lower April-September 2009 pricing (we estimate in the range of 40% lower). For buses, SMRT hedged about half its FY09 diesel needs at US$110/bbl, with spot rate at US$61/bbl, so there may be a small hedging loss in 2HFY09 09 but overall fuel costs should fall.