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.