We see value in CDL HT emerging given that (i) it currently trades at 0.35x P/BV, which implies a valuation per room of S$239k, below our estimated replacement cost, and (ii) offers a FY09-10F DPU yield of 12%, of which 40% is fixed. In addition, we view that refinancing issues should not be a worry given the trust’s superior financial metrics. Positive catalyst in the near term will hinge on the re-financing of its ST debt. As such, we upgrade CDL HT to BUY, TP $0.65 based on DDM.

Trading below replacement cost. CDL HT is currently trading at 0.3x P/BV or an implied valuation per room of S$239k, which is below our estimated replacement cost of S$347k. Current valuation for its CDL HT’s hotel portfolio is unjustified given its positioning as Singapore’s largest hotel owner with more centrally located hotels which performance will pick up when the two IRs open.

Re-financing of ST debt should be completed. CDL HT’s short term refinancing requirement of S$290m loan should not be a major concern given that (i) the trusts’ low gearing of 19%, placing the trust in a relatively safe zone in the face of possible further write-downs, (ii) high interest cover in excess of 4.0x in FY09-10F, and (iii) strong sponsorship (M&C Holdings) backing.

Weak earnings should have already been priced in. Latest statistics from STB in Feb’09 showed hotel RevPAR declining 30% yoy but was higher m-o-m driven by higher occupancies. For CDL HT, we are revising RevPAR to decline by 25% in FY09-10 (15% previously) on the back of lower occupancy assumptions to 70%, resulting in a FY09-10 DPU estimate of 6.3-6.2 cts.

DPU yield of 12%. We believe that current price is an attractive entry point for investors to leverage on the positive medium term outlook for Singapore’s tourism sector. Investors of CDL HT will be rewarded with an attractive 12% DPU yield for their patience.

Even the US Postal Service, the third largest employer in the USA, has not been immune from the recession, as it has seen sharp hits to mail volume since the slowdown started. The US Postmaster General warned that the recession could slash mail volume by 15% this year from 212b pieces in 2008 to 197b, compared to a decline of less than 5% in 2008. Among cost-cutting steps proposed is a delivery service cutback from six to five days a week.

We had highlighted previously that SingPost will also not be immune to the recession, and estimated that 21% of revenue will be vulnerable, namely international and business mail, incoming Speedpost, non-remittance financial services and retail products. Our forecast already assumes a sequentially weaker 2H09 as SingPost started to feel the recessionary wind in 3Q09.

With 4Q09 likely to soften further, we would not rule out the likelihood that results could be weaker than expected. At the same time, we also understand that budget benefits will start to flow through in 4Q09. To be conservative however, our latest forecast more appropriately captures the sequentially weaker operating conditions but not the budget benefits yet. As for FY10-11, we expect topline to fall at this point but bottomline to improve mainly on operational and budget-related savings.

Nevertheless, SingPost should still be able to maintain its minimum dividend of $0.05 a share. We forecast $170-180m free cashflow annually in FY09-FY11, easily covering capex of $10-15m a year (2-3% of sales) and dividend of $100m. It has already paid $0.0375 a share in 9M09. However, we note that its $300m fixed-rate bond is maturing in 2013. As management may want to conserve more cash to finance this, we have lowered our dividend expectations ahead of this need.

Fair value has been trimmed to $0.92 (from $0.94). However, we still appreciate the relative defensiveness of SingPost’s business model against the likes of US Mail or even other so-called defensive companies such as SingTel. Its diversified revenue streams and innovation in coming up with new revenue streams (eg distribution of UOB HDB loans) should stand it in good stead. Even though lowered, dividend yield is still decent at 6-7%.

Guiding for lower bottomline. Cheung Woh recently announced a profit guidance for its upcoming 2HFY09 financials as it experienced a marked reduction in orders for most of its business segments. Attributed to the global economic slowdown, the company saw revenue for the 3-mth period from Nov 08 to Jan 09 decrease 37% YoY although it still expects to be profitable for FY09.

Major customers not doing well. Cheung Woh is to reduce its manufacturing working hours while senior executives would take a 15 – 25% pay cut in a bid to slash costs. Nevertheless, we caution that such measures may not provide a significant boost to the company as the macro outlook for the HDD industry is forecasted to be lacklustre in 2009 while its major customers Seagate and Western Digital are both expecting demand for HDDs to be muted for the current year.

Drop in PC shipments to affect demand for HDDs. Technology research group Gartner reported of late that the global PC industry would experience its sharpest decline in history during 2009 as the global economy continues to weaken. It is forecasting an 11.9% YoY cut in PC shipments to 257m units, although market rival IDC had struck a less bearish tone. IDC had recently announced that worldwide PC shipments had dipped 1.9% in 4Q08 and projected an 8% drop for 1H09, although it does not expect this downturn to be as bad for the PC makers as the dot-com bubble in 2001.

These developments in turn bode ill for the HDD industry, as rough estimates suggest that around 79% of HDDs are used in mobile and desktop computers.

Valuation & Recommendation. We currently do not have a rating on Cheung Woh although we will be initiating coverage on the stock. Based on consensus estimates, the company is currently trading at 3.2x FY09 P/E as compared against the industry average of 3.3x.

1. SIA Engineering secured a 3 year fleet management contract worth roughly USS$80m from Gulf Air. Under ther terms of the contract, SIAEC will work with Gulf Air to in house MRO services involving "A" checks and "C" checks, fleet management and other engineering services for 29 Airbus aircraft, half of which are narrow bodied aircraft, which typically has lower value maintenance content. This award complements an earlier award of US$21m, bring the total maintenance contract value to roughly US$100m.

2. Net Profit should rise by S$8m to S$215.6m in FY10 and $13m to $254.4m in FY11. We estimate that this contract by Gulf Air will offset about half of the SIAEC loss(-$15.6m in FY10) from the grounding of SIA's 17 aircraft. The discrepancy can be attributed to the fact that all of SIA's aricraft are larger longer haul aircraft with higher maintenance content. Even so, this is an extremeley positive development and shows SIAEC ability to diversify away from SIA.

3. Faith restored. The market has priced SIAEC at PE levels below the SARS period, which is unjustified, given that SIAEC ahs diversified substantially away from SIA. This contract is an added testament to the fact. Our previous price target of S$2.45 on the stock was based on 12x PE multiple, based on historical 8 year average. We maintain our price target given the ample 43% upside to our target price. Recommend BUY.

A rapid deterioration in the external sector and the economic outlook is likely to crimp demand for industrial/warehouse space amid rising new supply. We expect yields to soften by 150bp from June 2008, placing downward pressure on capital values.

Rental reversions/lease structures are likely to underpin REIT cashflows. That said, growing concerns over their ability to refinance debt have seen REITs trade below book. In such conditions, investors need to focus on underlying asset value/quality, while REITs with well-located assets should benefit from potential M&A activity.

Amid a marked contraction in both GDP (4Q08: -4.2%) and GDP expectations for FY09 (-6.3%), Ascendas REIT (AREIT) has fallen 12.9% since our downgrade (see 3 December Selected value after elective surgery) to quickly test our revised price target (it was S$1.25/unit pre rights / S$1.23post rights), compared to the STI’s index loss of 2.7% during the same period. At this point in time, the dilemma remains on whether to upgrade our call or revisit our bearish industrial property assumptions. In our view, we believe the latter is more prudent, as we expect the contraction in real demand (manufacturing job losses in 4Q08 were 6,200, the first decline in manufacturing employment since June 2003) to accelerate, with the contraction in demand likely to be manifested in worse-than-expected rental declines in 1H09.

We now look for rents to decline 31.7% over the cycle, from 23.9% previously (see below: weaker outlook for demand) and maintain our view that rising risk premiums and lower growth expectations will be reflected in a 150bp increase in industrial yields. While deferral of new supply, specifically in the warehouse market, is likely to temper the rise in vacancy, vacancy is nevertheless expected to broach 10%, with landlords bargaining position, in our view, significantly eroded. We have marginally raised our distributable income for FY10 and FY11 by 6.9% and 6.2%, respectively, with our more hawkish rental outlook offset by lower interest expenses as a consequence of the recent S$408mn capital raising. Notwithstanding the placement, we still envisage the possibility of AREIT looking to raise more equity over our forecast period to check gearing, given the probability of more asset write-downs. Our revised post-placement sum-of-the-parts (SOTP) NAV is S$1.13/unit (versus S$1.23/unit post place pro-rated), with our FY10 DPU now at 12.6S¢/unit (from 14.9 S¢/unit pre placement/offering). We reaffirm our bearish call on AREIT and envisage broad-based cuts to market target prices, as the market increasingly moves away from income based valuations (DDM) towards asset based valuations and appropriate market-based capitalisation rates are adopted. We maintain our REDUCE rating.

Share price has slid more than 10% since our last downgrade and we believe that downside to our bear case target price of S$1.50 is now limited. Moreover, we feel that the counter's continued presence in the FSSTI basket, resilient performance in 4Q09, and solid final dividend prospects (FY09 gross yield of 12%) will lead to improved investor sentiment in the near term. Upgrade to BUY, unchanged target price of S$2.10.

Valuations now more compelling. Share price retreated to a low of S$1.51, and has underperformed the STI index by about 18%, since our last downgrade. The stock is now trading close to historic lows of 8x forward earnings, compared to HK-listed peer HAECO, which is trading at 11x FY09 earnings. Hence, we believe that the decline in next year's earnings is more than fairly priced in now, and the stock is well poised for a rebound.

Continued presence in the FSSTI index. Contrary to market concerns regarding its liquidity, SIA Engineering maintained its "blue chip" status and continued to be one of the 30 constituent stocks of the FSSTI index, following this month's review. To recap, battered real estate counters Yanlord and Keppel Land were replaced by defensive transport stocks SMRT and Comfort Delgro in the annual review conducted by SGX. This should remove any short-term sentiment overhang for SIE.

4Q09 performance should still be resilient, healthy final dividends expected. We expect that the fall off in maintenance demand caused by SIA's capacity cuts will mainly come in from 1QFY10 onwards and total dividend payout in FY09 should still be similar to FY08 levels of 20Scts. Owing to its strong free cash flows, SIE has been able to pay out record dividends in the worst of years ? even declaring special dividends in SARS-hit FY04, when earnings had declined by a whopping 32%. Hence, we upgrade our call to BUY, given the attractive ~9% yield solely from final dividends and limited downside potential at current prices. Target price is maintained at S$2.10.

The rapidly deterioration in the external sector and the economic outlook is likely to crimp demand for industrial/ warehouse space amid growing new supply. Softening yields (+150bp from June 2008) should weigh on asset values.

Rental reversions/lease structures are likely to underpin REIT cashflows. That said, growing concerns over their ability to refinance debt have seen REITs trade below book. In such conditions, investors need to focus on underlying asset value/quality, while REITs with well-located assets should benefit from potential M&A activity.

Given the slowdown in the economy, supply in the industrial sector (according to the Urban Redevelopment Authority [URA]) remains broadly fixed for factories, although deferrals have emerged in the warehouse/logistics sector. While the outlook for vacancy remains broadly the same — we expect vacancy to broach 10% in the factory and warehouse sectors over the course of the next two years — the outlook for demand has weakened significantly. Quarterly data from the URA highlights that 4Q demand has nearly halved over demand achieved in 3Q08. Given the deterioration in the economy and the weaker outlook for demand (notwithstanding a marginally better vacancy prognosis for the warehouse sector given supply deferral) we have adjusted our peak-to-trough decline in industrial rents to 31.7% versus 23.9% previously. We now expect average industrial rents to slip back to S$1.33/psf per month.

Recent Budget 2009 has announced about S$6.4b of infrastructure expenditure. Mega spending of about 66% will go to LTA for on-going Circle Line, Downtown Line and road network expansion in Marina Coastal Expressway and widening of Central Expressway. Prior to the Budget 2009 in mid January, BCA announced that average annual construction demand for 2010 and 2011 to be around the range of S$20b to S$27b. Although private construction demand is deemed to grow slow, we expect total construction output beyond 2009 to be strongly visible from government's commitment.

Koh Brothers has been awarded the contract for Downtown Line 1 Bugis Station (DTL1) in December 2008. On top of that, Koh Brothers was also awarded the construction in Punggol Waterway and related engineering work in Jan 2009, bringing total order book to about S$690m as at end Jan 2009. We expect Koh Brothers to return higher top and bottom line in FY09E. Revenue in FY09E should increase circa 46.0% YoY to S$315.1m while Patmi to come in at S$10.8m.

We value Koh Brothers using sum-of-the-parts (SOTP) valuation due to the multiple business segments with each affected by different business fundamental and environment. Koh Brothers' Real Estate business continues to drag its overall valuation. We derive a SOTP fair value of S$0.215 and with a 30% discount due to trading illiquidity, we initiate BUY at target price of S$0.15.

Defaults from residential projects. Worse-than-expected occupancy rates of investment properties and hotel

High-end value trap; Downgrade Wheelock Properties, Wing Tai and Ho Bee to HOLD. The demand-supply dynamics are most favourable in the mass market segment and least favourable in the high-end segment. Also, the lower transaction quantum commitment requirement in the mass market segment appeals to opportunistic buyers. As a result, the rising likelihood of a prolonged economic slowdown further diminishes the visibility of a recovery in the high-end segment to a much greater extent compared to the mass market segment. Even though high-end property stocks are trading at attractive discounts to their respective RNAVs, these stocks could continue to trade at deep discounts for a prolonged period. The lower liquidity adds to the concerns. Consequently, we downgrade the high-end stocks: Wheelock Properties (Fair/S$1.00), Wing Tai (Fair/S$0.75) and Ho Bee (Fair/S$0.35) from BUY to HOLD, applying steeper discounts to their respective RNAVs.

Downgrade SC Global and GuocoLand to SELL. We view SC Global and GuocoLand as having a moderate/high risk profile due to their high gearing levels compared to other developers. The risk for next year remains although SC Global is able to meet its interest servicing and refinancing requirements this year. While GuocoLand has a strong parent, the litigation involvement over the Beijing Dong Zhi Men site is expected to be a drag on its share price.

Consequently, we downgrade SC Global (Fair/S$0.30) and GuocoLand (Fair/S$0.80) from HOLD to SELL, applying steeper discounts to their respective RNAVs.

Prefer exposure to quality, deep-value and diversified stocks. Property stocks are deep in value with implied physical property prices at 2004 levels while the strong take-up rates for recent project launches suggest base formation at the 2006 levels. More such launches could potentially act as a re-rating catalyst for the sector. We believe the best way to benefit from the anticipated revival in property stock prices is via exposure to quality, deep-value and diversified property stocks.

Raffles Medical is the largest private group practice in Singapore. Through its large network of 65 clinics located across Singapore, it provides primary medical services. It also provides specialist and tertiary care services through its flagship Raffles Hospital in North Bridge Road. On the regional front, it also operates three clinics in Hong Kong, including the airport clinic at Chek Lap Kok. We believe their earnings profile make them one of the most diversified healthcare groups listed on SGX.

Even amidst a global recession, the demand for healthcare services is likely to be undulated, especially that of essential healthcare. About 60% of its Group revenue and 70% of its profits are derived from its hospital services (tertiary and specialist) with the rest contributed mainly by primary healthcare (clinics). We believe Raffles has an invaluable network with corporate clients, which provides about 2/3 of its clinic patients.

For healthcare Groups, staff remuneration is typically a major cost component and is a critical factor when analyzing profitability profile. In this aspect, Raffles Medical is one of our preferred business model, with staff costs constituting about 50% of revenue and a lower-than peers variable remuneration factor. In this model, when top-line earnings grow, the Group is better able to extract profitability as the spread between revenue and staff costs widen, enriching shareholders’ returns.

On expansion plans, the Group has targeted a well-balanced growth, which includes 1) The expansion of its primary care network via more Raffles Medical clinics. 2) Growing its specialists and hospital businesses via opening sub-specialty clinics such as Raffles Fertility Centre and expand international market efforts. 3) Growing its healthcare insurance business. In terms of regional expansion, management has also indicated they will be interested in setting up medical centres and clinic chains in gateway cities and looking for opportunities in large markets such as China and India.

The Group has an unblemished record of profitability every year on the back of increasing revenue since 1994. Revenue and profit after tax grew 17% and 27% CAGR during this period respectively. Since 2002, profitability has increased exponentially from S$4.51m to S$31.66m on the back of its strong expansion. Hospital occupancy is currently running at 50-60% against the peak of 80%, with further room to expand. During our discussion, management indicated that they are very optimistic of further growth even in this economic climate.

Singapore Airlines (SIA) has released Feb. traffic statistics. Year-on-year comparisons (yoy) have been distorted by the timing of Chinese New Year and the 2008 leap year. Passenger traffic (RPKs) was down 17% yoy on an 8.5% capacity reduction; load factor was down 7.1 percentage points (pp). All route regions saw material load factor declines (Europe, West Asia & Americas the worst). SIA’s closest peer, Cathay Pacific, recorded a 5% traffic fall in Feb. (load factor ↓ 1.0pp).

SIA also underperformed the Asian results of European peers: British Airways saw a 19% decline in traffic (load factor ↓ 2.4pp); Lufthansa’s traffic was down 8% (load factor↓ 3.2pp) while Air France saw an 8% traffic decline. The weak SIA performance may reflect an attempt to hold fares above ‘market levels’ and goes someway to explain the aggressive capacity reduction announced last month.

Cargo traffic was down 15% (yoy) which was similar to the declines in January (-14%) and slightly better than December (-19%). This adds further weight to the view that cargo volumes (not revenue) have found ‘a floor’ following the unprecedented deterioration during Q408 and early Q109.

These results are likely to intensify short-term concerns but our estimates already assume yield pressure intensifies (yields ↓10% in FY10). In our view, the strength of SIA’s balance sheet, network & product ensure SIA is well positioned long-run. Our S$14 PT is based on VCAM.

As banks in China begin to lend again, we believe the water sector would soon be splashing with new order announcements after a prolonged nine-month drought. And this does not take into account China’s stimulus efforts, the full impact of which we believe could still be a quarter or two away. We remain Positive on the long term sector outlook - given firm environmental directives globally - and see easing credit in China as the key catalyst propelling sentiment and pushing water stocks higher in the near term. Focus on companies with good track record and well positioned to benefit from the impending order deluge. Our top buys remain Hyflux and Epure.

Easing credit in China provides the much-needed financial resources for companies to go after new contracts and start BOT projects, which were threatened by credit crunch at one point in time. Companies under our coverage have secured RMB707m of new loans year to date and there are as much as RMB1.6b more of BOT backlog to be financed in FY09.

Stimulus effects & tariffs hikes are longer-term positives. Water treatment industry is a key beneficiary of China's RMB 4tr stimulus plan. But, it will be two more quarter before the RMB350b of investments forenvironmental protection works its way into the sector. Meanwhile, Chinese officials are always reviewing tariff hikes to address growing water shortage in the country. China’s water tariffs rose by an average of 3.4% in 2008 compared to 6.7% rise globally, implying ample room for tariff hikes. Moreover, official surveys have indicated that average water expenditure as a percentage of household income in Beijing is about 2%, much lower than the 5% guideline set by the World Bank.

Singapore water stocks still cheapest in the region. On the average, SGX listed water companies are trading at 7x FY09 PER compared to 13.5x for HK/China and 12x globally. We like Epure (TP: S$0.32) and Hyflux (TP: S$1.96) for their clearer earnings visibility, relatively better credit access and strategic positioning to benefit from China’s focused investment in environmental protection.

Residential Projects — Revenue in 09E will continue to come from Cairnhill Residence (Expected TOP: 4Q09), Cascadia (TOP: end-10) and Pavilion Park. While Allgreen acknowledges the recent trend of selling smaller units and/or lower absolute quantum, there are no plans to alter the design/layout of its proposed projects yet. This is partly due to the GFA ruling on bay windows and balcony space. Most of its projects have already secured planning approvals prior to Oct-08 and hence any re-submission would mean forgoing the extra GFA.

Construction to be held back — Ongoing construction will be held back for several (un-launched) projects in the hope that construction costs will drop. Allgreen will be looking to selectively launch various projects (RV Residence, One Devonshire, Mar Thoma site). Regent Garden (en-bloc site at West Coast) will be put back on the rental market.
Provisions — Management guided that the S$24.6m provision made in 4Q08 is largely attributed to its sites at Enggor St and Handy Rd. While revaluation of investment properties only takes place at the end of the FY, provisions for its residential sites could come in any quarter, pending market movements.

Investment properties — Office: Passing rents at Great World City about S$6 psf, asking rentals at about $8psf. Retail: Passing rents - Tanglin S$8.50, Great World - S$7.20. Traders Hotel: 65% occupancy at S$210 ARR, vs 85% and $250 ARR last yr (implied RevPar fall of ~35%); SVC apartment occupancy: >80%.

China — Allgreen will continue to enter the China market, largely in mixed developments, and as part of a consortium. We estimate that the total attributed investments for the sites bought since 2007 amounts to S$1.4b, of which S$500m to S$600m would be paid in equity. About S$450m has already been paid for as at Dec-08.

Maintain Buy/Low Risk — Allgreen remains our only Buy in the developers’ space, purely on valuation grounds. While we expect net debt to equity to rise to about 0.8x in 2011E, it is still within management’s guidance of below 0.9x. Allgreen’s outperformance since the start of the year has been wiped out of late. Allgreen is at a 73% discount to its 2008 book value of S$1.41 and 70% discount to its 2009E RNAV.

With Ezra Holdings' (Ezra) two Multi Functional Support Vessel (MFSVs) at Karmsund yard cancelled without penalties (OIR originally expected one cancellation), we are refining our revenue estimates. FY09 will have accretion from one Anchor Handling Tug Supply (AHTS) vessel while FY10 will have accretions from two MFSVs. We maintain our initial stance that the MFSV at Keppel Singmarine will also be cancelled. In total, Ezra will add 72,000BHP (prev OIR est. 99,000BHP) over the next two years. Netting the effect of better charter rates from its MFSVs and the loss of accretion of one more MFSVs from our previous estimates, our FY10F recurring revenue estimates fall by ~7%.

Hard to replace a "Rolls-Royce". Ezra would be one of the first companiesto obtain its MFSVs in 2010, creating a new class of support vessel for the industry. Ezra's on-site managers have indicated that the building progress is on-schedule. We understand that Ezra could sign contracts now but are wisely choosing not to in view of the long lead time to vessel delivery in 2010. Even with a 1-2 month delivery delay, Ezra will have to incur high costs to replace such technically advanced vessels on spot rates. Swiber was an apt example when it incurred heightened costs due to vessel delivery delays in 4Q08.

Charter rates holding firm. From its last contract that Ezra renegotiated, we believe that charter rates are still holding firm for deep water capable vessels (Ezra's fleet is 77% deep water capable). With only 10-15% of charters up for renewal annually, we are encouraged by charter rates still holding relatively steady. We do note that offshore charter rates can lag in changes (up or down) as vessels have long term contracts in place. With oil prices finding a floor, we think that FY10 rates can still be renewed at current levels or maybe better.

EOC updates. EOC's FPSO in Thailand has still yet to commence gas extraction and we are expecting it to become accretive in May 09 (5 months delay). Once online, the US$228k/day rate it charges would help boost EOC's earnings.

Steady business. The lower income from its core chartering business is buffered by better visibility of EOC's business. Our fair value is tweaked to S$1.01 (prev: S$1.09) based on SOTP valuation. Maintain BUY.

Following a series of equity cash calls undertaken by Temasek-linked companies over the past few months, rumours are rife that CitySpring is one of those likely to undertake one soon, given its debt/equity ratio. However, its relatively deferred debt maturity and quietness in the M&A scene makes speculations about an equity raising rather premature.

CitySpring has no refinancing needs until 2011, when S$370m in term loan expires. The loan was taken to refinance the equity bridge loan used to fund 25% of the acquisition cost of Basslink, making Basslink 100% financed by debt. The management expressed comfort with the additional funding costs related to the loan given the stable cash flow support from the underlying businesses, but does not rule out raising equity in future.

Indeed, we believe that its deferred refinancing needs makes an equity cash call in the near term unjustifiable, especially if there is currently no attractive proposals for acquisitions and interest rates stay low. The ever-changing impact of huge non-cash hedging and translation losses on the NAV also make determination of rights or placement issue prices a complicated task.

The stable cash flows generated by the underlying businesses can more than meet its financing cost requirements and the management had indicated that the interest cover, adjusted for non-cash items, are way above all its loan and bond covenants. The Group also has S$98m cash in its coffers.

Concerns about equity raising and weakness of the AUD/SGD may curtail upside. Nonetheless, cash payout is relatively secured, implying a yield of 13.7%. We have adjusted our earnings estimates to reflect recent AUD forecasts and slower growth of its town gas business given the economic challenges faced by its commercial customers. We maintain our Buy recommendation with a lower Free Cash Flow to Equity (FCFE) target price of $0.62 (from $0.84), based on terminal growth rate of 1% and cost of equity of 10.8%.

Contrary to the perception among investors that Keppel Land’s overseas land bank is at a high impairment risk, a glance at its land bank shows otherwise. Bulk of its land bank was acquired some 5-10 years ago. Some of it has existed since Straits Steamship Land period (renamed to Keppel Land in 1996). So we believe the carrying costs of its land bank stays low. Furthermore, Keppel Land wrote down land bank carrying costs in the past cycle, i.e. SGD438m in 1998 and SGD484m in 2001. In Singapore, its land bank was purchased at a low cost: Marina Bay Suites (SGD437/sqft) and Keppel Bay (SGD300/sqft), hence impairment is unlikely.

Keppel Land has been prudent in acquisition in recent years. During the property market boom between 2006 and 2007, Keppel Land has only added a few land parcels to its portfolio, i.e. one site in Shanghai, one in Shenyang, one site in India, one site in Saudi Arabia and seven sites in Vietnam.

Although we believe Keppel Land’s aggresiveness in Vietnam JVs in 2007 was untimely, the risk is low. This is due to the fact that these JVs have yet to commence works. Furthermore, the land parcels are not recorded in the company’s book. So, the JV partners who contribute the land parcels will bear the impairment risk, if any. Keppel Land does not need to commence the developments if they are money-losing.

Keppel Land’s net gearing ratio is at a healthy level of 0.5x. As its total cash of SGD663m exceeds short-term (ST) debt of SGD246m, the ST refinancing risk is minimal. Using history as a guide, KPLD tends to adopt a more defensive strategy during an economic recession. Hence, we think a cash call is unlikely. As evidence, the last rights issue was done in 1996. Reiterate BUY with a TP of SGD1.90, based on a 40% discount to our SGD3.17 RNAV estimates. Keppel Land trades at a depressed 60% discount to our RNAV estimates, which is comparable to the discount observed in big developers during the Asian financial crisis.

Inline with expectations. 4Q08 revenue fell 15.7% to S$41.9m while net profit decreased 75.9% to S$1.5m although it would have slightly exceeded our S$3.2m forecast should the S$1.9m FX loss be excluded. Save for Armstrong’s Consumer Electronics business, all three other segments had posted negative growth in 4Q08 owing to the unabated economic crisis.

Effective cash management. Notwithstanding the deteriorating macro picture, Armstrong’s balance sheet remained relatively healthy although slower sales had translated to a 39% jump in inventories in FY08. However, its trade receivables and payables were efficiently managed as Armstrong continued to generate positive free cash flows even during the protracted downturn in 4Q08.

Negative bottomline growth anticipated in FY09. With Armstrong continuing to leverage on the HDD theme and with several of its major customers expected to report lower profitability for the current year, we reckon that Armstrong would not fare any differently. Nevertheless, we continue to like the company’s exposure to the rubber business (which commands higher margins) and we also gather that more of Armstrong’s HDD customers are switching from the usage of plastic to rubber.

FX issues – our main concern. As mentioned in our previous report, we had highlighted currency fluctuations as one of our key concerns. The strengthening of the JPY and the US$ against the S$ during 4Q08 had impacted Armstrong negatively. Should these trends remain, we believe it is inevitable that the company’s bottomline would continue to be affected.

Valuation & Recommendation. We continue to like Armstrong for its ability to stay operationally healthy despite the weak macro outlook. Currently priced at 5.3x FY09 P/E and assuming it trades up to its 2-yr historical average of 7x, we cut our target price to S$0.145 from S$0.17. Prospective dividend yield of 9.1% is also reasonable – maintain BUY.

Below our expectations. Net losses of US$4.6m in 4Q08 was much worse than market consensus and our forecasts while turnover also tanked 72.6% to US$2.5m as Sarin saw a dramatic drop in demand for diamonds due to the ongoing financial crisis. Coupled with the US$1.8m write-down from its investment in IDEX Online, net profit eventually fell 80.1% in FY08.

FY09 to experience lower opex. While operating expenses in FY08 were higher as compared to FY07, management has highlighted that most of them are non-recurring and that it aims to reduce opex by 15%. Nevertheless, we believe that the commercial launch of Sarin’s Galatea system scheduled to take place during late-2Q09 would require additional SG&A expenses – we therefore have assumed only a 6% decline in opex for FY09 YoY.

Macro outlook has not turned positive. The fortunes of the diamond industry continue to be tied to the health of the US market which accounts for over 40% of the polished diamonds produced globally. Nevertheless, through our discussions with management, we understand that the market share in India and China are expected to equal the US market by 2010.

Valuation & Recommendation. We have slashed our forecasts for FY09 although we note that bottomline is still expected to more than double YoY due to the absence of exceptionals. While the macro picture may not have improved, we are maintaining our NEUTRAL recommendation on valuation grounds while prospective dividend yield of 12% is also palatable.

Currently trading at 5.5x FY09 P/E and assuming that it trades up to the 12-mth historical average of 6.5x P/E, we arrive at a target price of S$0.135. However, we also caution that Sarin has been a highly illiquid stock for at least the past six months.

Our recent meeting with KEP suggests that the O&M operations remain relatively steady. Apart from the announced cancellations and delays so far, the bulk of the remaining orders appear to be generally intact. With regards to the four jackup rig orders from Rowan for US$780m (announced in 2007), construction of the first three rigs will continue but the fourth is still under negotiation - we think for a possible deferral. The FPSO market is showing some signs of life and the group is hoping for some orders in this space. Petrobras' investment plans should lead to some major orders within the sector and we think KEP should stand a chance to win considering their track record and reputation.

Our discussion with SPC recently suggests that refining margins YTD have recovered towards the mid-single digit range, up from the 2H08 average of US$1/bbl (SPC has a relatively low breakeven level). However, outlook for refining margins remain uncertain considering the volatile conditions. Gas oil has performed well from Indonesian and Chinese demand but jet fuel is weak. A risk could come from Reliance's new refinery which should come onstream in Apr-09, although its current target markets of Europe, Africa and the US seem to suggest that impact to Asian margins may be limited.

The Infrastructure division's projects are ongoing and progressing well but coming from a relatively small base. While sentiment in the property sector is poor, it is of no surprise and is already reflected in the weak share price. Overall, KEP is showing some resilience to negative news flow, suggesting that much has been discounted. The long term industry prospects are pos-itive and we believe they are well positioned to benefit as weaker peers fall on the wayside amidst the global slowdown.

Stronger 2Q09 outlook, but cautious beyond that: CHRT’s Fab 7 appears to be enjoying >85% utilization due to demand from CDMA handsets and China TVs, among others. As utilization for other fabs has also improved, we expect very strong shipments in April. CHRT is likely to enjoy full utilization of its 65nm line but, mindful of the end- demand picture, we do not expect to see follow-through orders in 2H09.

Revised 1Q09 guidance: CHRT increased its 1Q09 gross profit guidance from –US$64MM to –US$44MM at the mid-point of the guidance. The main reason for the revision is improving allocation of fixed costs, which we believe to be due to better-than-expected wafer starts in 12" Fab 7 and 8" Fab 6 in March.

Rights offering, forced dilution: CHRT's choice of price for the rights offering was a clear signal to shareholders that they must participate in the rights issue or face a huge dilution. The market has responded with the stock dropping close to the rights issue price. Because CHRT’s major shareholder, ST Semiconductors, a wholly owned subsidiary of Temasek Holdings, has agreed to be on stand-by to subscribe to 90% of the issue, we can view the issue as done deal and factor the impact into our earnings model. We assume that much of the proceeds will be used to pay back debt worth US$158MM maturing in 2009.

We maintain UW with a new Dec-09 PT of US$0.85: Apart from US$158MM debt maturing in 2009, there is additional debt of US$542MM maturing in 2010. That raises further risk of dilution should CHRT be unable to refinance such debt. However, the valuation is now quite low, following the recent fall; on a post-rights basis, CHRT is now trading at 0.19x 2009E book and 0.23x 2010E book. With the Singapore government willing to back CHRT, the company is likely to stay in business for a while. Our PT is based on 0.2x FTM book, a big discount to book due to continuous losses and what we believe to be an unhealthy financial structure. A key risk: a dramatic change in the global economy.

Singpost may lower its annual dividends to 5 cents per share, which is below consensus expectations of 6 cents, to (i) conserve cash to upgrade or replace its processing machine in 2013-14, and (ii) refinance its corporate bonds that will mature in 2013. Singpost has outperformed STI by 9.6% year to date. Downgrade to HOLD with target price of S$0.82 based on 6% target yield.

Additional S$100m-S$150m capex. Singpost had installed its mail-processingsystem in 1997-98, with a 15-year depreciation cycle. Bought for about S$100m, the system will reach its lifespan in 2013-14 and would need to be upgraded or replaced. Including customization efforts, we estimate additional capex of S$100m-S$150m, depending on the machine condition. Regular annual capex averages S$10m.

Refinancing of bonds in 2013. Singpost’s S$300m corporate bonds that pay interest rate of about 3% will mature in 2013. While Singpost has AA- credit rating, a notch better than A+ at the time of issuing the bonds, it is prudent to back up the bond issue with more cash in hand.

Need to prepare for the future. Our analysis indicates that SingPost can comfortably fund its capex requirements by reducing dividend per share to 5 cents. It is expected to generate about S$150m free cash flow every year, out of which S$100m could be paid out as dividends, and S$50m retained for future commitments. By 2013, it would have generated an additional S$200m from operations.

Downgrade to HOLD with reduced S$0.82 target price. Our revised target price is based on 6% target yield, in line with its average historical yield trend. At the current price, Singpost offers 6.5% dividend yield annually, which is still better than the market’s 5% yield.

Industrial P/BV at 0.37x; appears resilient. The industrial sector looks attractive at an average P/BV of 0.37x, close to the REIT sector average of 0.34x. Resilience is underpinned by a historical time lag between changes in leading industrial indicators (including NODX, sea and air cargo throughput) and occupancy levels that could exceed 12 months.

Expect further support from government for industrial users. The government traditionally supports industrial users by reducing industrial land and building rents, and dishing out rental and property tax rebates. We anticipate this assistance to continue as the manufacturing sector remains the single largest driver of Singapore’s GDP. We expect industrial REITs to benefit three ways from this: 1) reduced land rent payments for industrial REITs; 2) increased sustainability for REIT tenants paying land rent directly to JTC; and 3) increased sustainability of the other industrial property users, on which industrial REITs’ tenants are inter-dependent.

Low tenant default risks. Within the industrial REIT space, we prefer REITs with low tenant default risks. These would be represented by large and diversified asset and tenant bases, limited concentration on single tenants and significant MNC representation.

Good capital management. All three industrial REITs are comfortably geared at below 40% with no major refinancing needs over the next two years. Cash calls for MLT and CREIT are not likely in the current year. In terms of capital management, all three industrial REITs look well-positioned to weather the storm

Maintain Overweight; A-REIT our top pick. Among industrial REITs, we favour A-REIT for its least tenant default risk, attributable to its large and diversified asset base, and large and quality tenant base. We also like MLT for its geographical diversification which moderates its risk of asset concentration. CREIT is our least preferred stock for its smaller asset base and higher tenant-concentration risks.

Worse than expected. 4Q08 revenue dropped 28.3% while losses ballooned to HK$89.4m as lower utilisation rates due to the reduced demand from Anwell’s customers (that was in turn attributed to the economic downturn) hit home. While higher finance costs and admin expenses had also affected Anwell’s bottomline, the increase seen in the latter is expected to be non- recurring as its initial investment into the solar business had already been accounted for.

Solar remains its only option. As we have mentioned in our previous report, the only way for Anwell to stage a turnaround would be through its solar business as they have invested far too many resources in it and is now highly leveraged on this venture. Given the high expenses that have been incurred due to its solar foray, we are highly doubtful that Anwell’s current OLED and optical media businesses are sufficient to pull itself out of the rut.

Net earnings expected to improve due to exceptionals. Anwell has received a very substantial RMB200m monetary grant from the PRC government as a form of support for its venture into the solar and OLED industries while another RMB100m would be forthcoming. We have ramped up our FY09 earnings in light of this development although we have once again chosen to exclude any potential contributions from its solar business on the basis of being conservative. Stripping out these exceptionals, we expect Anwell to stay in the red for the next two years.

Valuation & Recommendation. Initial contributions from Anwell’s solar business are expected to commence by 2Q09. Until then, we maintain our NEUTRAL recommendation due to its suppressed valuations but deteriorating fundamentals. Currently trading at 0.14x FY09 P/B, we arrive at a target price of S$0.18 (from S$0.16 previously) assuming it trades up to the 50% discount of the industry average of 0.3x P/B.

We brought a group of investors to meet up with Mr Tan Kwi Kin, Group President and CEO, and also visited SembCorp Marine’s (SMM) yards last Friday. The key takeaways are reaffirmation on the quality of SMM’s order book and the group’s ability to secure other types of new orders despite the credit crunch. We believe that the share price (at 6.7x FY09 PE) is attractive, and retain the BUY rating on SMM. Fair value is S$1.88.

New orders for conversions to remain healthy. While acknowledging that the pickup in new rig orders is dependent on the lifting of credit crunch, SMM is confident that 2009 is unlikely to be a barren year for new orders. The group is still getting good enquiries on offshore conversion jobs, and is exploring the possibility of getting contracts on uncompleted units from clients.

Likelihood of more cash payment re-scheduling is low. We believe that cash payment re-scheduling risks are now lower than previous expectation; after SMM updates that its work progress for all rigs is on-schedule, with high cash payment collected to date. The two jackup rigs payment rescheduling with Seadrill should be seen as a one-off event, due to unusually lower cash payment collected, vs. corresponding work-in-progress.

Lower cancellation risks. SMM reaffirms that there is no customer asking for cancellations y-t-d. This reaffirms the elimination process (as per our report dated 25 Feb), based on cash collection to-date for each contract (>50%) and the leveraged position of clients, which suggests orders cancellation risk may be less than our current view.

A favorable risk/reward investment. We like SMM for three reasons: 1) Upside potential to our earnings forecast, which is one of the lowest in the market, due to our in-house methodology that argues for possible 15% orders cancellation risk, 2) Undemanding low 6.7x FY09 PE at current price, and 3) Ability to improve on project execution with better profit margins. Maintain BUY.

In 2008, the majority of Singapore and Malaysian banks saw their marked-to-market (MTM) reserves (in the balance sheet) for available- for-sale (AFS) securities dipping into the red. Within the Singapore and Malaysian banks, UOB has the largest AFS deficit (Exhibit 1), while Maybank was the only bank that recorded a sharp turnaround in AFS reserve – from a deficit in 2007 to a positive number in 2008. OCBC, Bumiputra-Commerce, RHB Capital and Maybank have a positive AFS reserve as of December.

We are concerned with the balance sheet impact if all these MTM losses materialised. In this report, we assess the impact on tier-1 and capital adequacy ratio (CAR) assuming the worst-case scenario of all paper losses turning into real losses. For the sake of being conservative, we assume that all paper gains will disappear.

Under our worst-case scenario, UOB will be the most affected, given its outsized AFS deficit. We estimate UOB’s tier-1 ratio could decline to 9.3% (from 10.9%) which is slightly above their internal comfort level of 9%, making its capital ratio the weakest within Singapore banking universe. As discussed in our sector note entitled “Unlocking the AFS mystery” dated 6 March, we believe UOB’s outsized AFS deficit lies in its larger exposure to riskier corporate papers and papers issued by financial institutions. At 9.3%, UOB’s tier-1 ratio is still higher than that of most Malaysian banks. Exhibits 3 and 4 show that the impact on the rest of Singapore and Malaysian banks is marginal.

We prefer Singapore to Malaysian banks given the former’s cheaper valuation, stronger management and better asset quality. For Singapore, our top pick is DBS whose valuation gap has widened to levels we consider as unwarranted. For Malaysia, Public Bank is our top pick due to the lack of credible investment banking alternative.

Malaysian palm oil exports up. According to independent surveyor SGS yesterday, Malaysia’s palm oil exports rose 19.8% MoM in the first 15 days of March, from 494,170 tonnes to 592,07 tonnes. However, during a recent palm oil conference held in Malaysia, some industry experts expect CPO futures prices to come under pressure in 2H09 due to an increase in FFB production, weaker soybean oil prices and weakening demand from countries like India (due to slowing economic growth).

Rising soybean oil stock could be price dampener. According to a USDA report released over the weekend, US inventories of soybean oil are already piling up due to weakening demand. Soybean oil stocks as at end Jan was 2.9b pounds, up around 9% from Dec’s 2.65b pounds. One factor that can cause further weakening in demand is the European Commission imposing anti- dumping and countervailing duties on US firms that export biodiesel (commencing 13 Mar). Thus, US production and exports of biodiesel are likely to contract substantially. Should a build-up in stock continues, it could be a dampener on soy oil prices.

OPEC holds off cuts, caused easing of crude oil price. OPEC held their meeting last Sunday, with some industry analysts expecting them to slash production in an attempt to push up crude oil prices. However, the cartel (which pumps approximately 40% of the world’s crude oil), have decided to put on hold any further cuts and hold output steady at the current level of 25.5m bbl/day until the next meeting on 28 May. This was in view of the G20 leaders meeting on 2 April to discuss measures on how to tackle the world economic slowdown. At the last OPEC meeting in Dec 08, OPEC cut a record 2.2m bbl/day, bringing total cuts over three meetings to 4.2m bbl/day. We maintain our CPO price assumption of RM1,500/tonne for FY09 and RM1,900/tonne for FY10 (versus current CPO futures of RM2,011/tonne for April delivery). Based on this, Indofood Agri Resources (IFAR) remains a NEUTRAL with target price S$0.51 and First Resources (FR) is a SELL with target price S$0.21.

We initiate coverage on Parkway Life REIT (Plife) with a fair value estimate of $0.95. The unique revenue model of Plife ensures rental income is inflation protected and provides unitholders with stable and growing dividend payout. Plife is currently trading at 0.54 times price/book and we have a forecasted FY09F 10.4% yield. Although not the highest among the S-REIT, but resiliency of earnings give it an edge over the rest.

The initial portfolio of Plife consists of three private hospitals in Singapore. It has expanded its portfolio to include one pharmaceutical products distribution facility and 9 nursing homes in Japan. Total asset value increased 35% from S$774.6 million to S$1047.8 million. Revenue contribution is approximately 80% Singapore based and 20% Japanese based.

Plife has a revenue model that ensures rental revenue will not erode with rising inflation. The Singapore properties are under a master lease agreement with an inflation-linked formula to calculate rental. For the Japanese properties, part of the rental is also inflation-linked to Japan’s inflation. As such, unitholders are assured that dividend distributions are stable and not subjected to the cyclical economic cycle.

We believe Plife’s low gearing is a reflection of the management prudence. Current gearing is 24% and it has no near term financing requirement. Total debt is $250 million and the next round of refinancing is estimated to be in 2011. In 2008, Plife made $216 million of acquisitions of properties in Japan. We do not think Plife is aggressive in its growth strategy although we believe it is a tough balance in managing overseas acquisitions and ensuring the objective of stable distribution to unitholders as there are inherent foreign exchange risks. Plife strategy is to divest into mature countries with good legal framework and healthcare system while keeping its core focus in Singapore.

Books closure date for determining entitlements to Share Rights 5:00 p.m. on March 18, 2009

Trading in Share Rights on the SGX-ST commences 9:00 a.m. on March 23, 2009

Dispatch of Singapore Offer Information Statement and application forms and letters to eligible shareholders On or about March 23, 2009

Rights Shares subscription period commences March 23, 2009

Last date for exchanging Share Rights for ADS Rights to be traded in the U.S. March 25, 2009

Last date for exchanging Share Rights for ADS Rights to be exercised in the U.S. March 30, 2009

Last date and time for splitting provisional allotment letters for Entitled Scripholders 5:00 p.m. on March 31, 2009

Last date and time for trading in Share Rights on the SGX-ST 5:00 p.m. on March 31, 2009

Last date and time for Entitled Scripholders to exercise Share Rights and accept and pay for Rights Shares 5:00 p.m. (9:30 p.m. for electronicapplications*) on April 6, 2009

Last date and time for renunciation of rights and payment for Rights Shares pursuant to the exercise of Share Rights by Entitled Scripholders 5:00 p.m. on April 6, 2009

Last date and time to subscribe and pay for excess Rights Shares 5:00 p.m. (9:30 p.m. for electronicapplications*) on April 6, 2009

Expected date for issuance of Rights Shares and delivery of Rights Shares On or about April 15, 2009 certificates to CDP

SIA announced very poor February operating statistics yesterday. Passengers carried fell 20.2% yoy, and demand fell more rapidly than the 8.5% reduction in capacity, leading to a 7.1%-pts fall in passenger load factor. The cargo business also saw load factor compression. The numbers are worse than our expectations and may expose our 4QFY09 and FY10 numbers to further downward revision. In February, the PLF actually dipped below 70%. The 20% yoy decline in passengers carried was also very sharp by historical standards, and exceeded only by the 2003 SARS crisis. SIA may have to make additional capacity cuts on top of the 11% already planned for FY10, if the situation does not improve. Maintain TRADING SELL and target price of S$7.60 (0.6x P/NTA); maintain forecasts for now. Our FY10 EPS forecast is 64% below consensus.

The proportion of aircraft seats filled by Singapore Airlines last month fell to its lowest level in recent times, despite aggressive capacity cuts. The February load factor was just 69.7 per cent - down 7.1 percentage points from 76.8 per cent a year earlier. Passenger carriage in revenue passenger kilometre terms fell 17 per cent during the month, outpacing a capacity reduction of 8.5 per cent in available seat kilometre terms. The number of passengers carried sank a painful 20.2 per cent from a year ago, to 1.18 million.

The latest passenger load factor is significantly below SIA's last-declared breakeven level of 72.7 per cent for the October-November 2008 period. If that number still holds true, SIA would have suffered a loss on its passenger side last month. Aggressive capacity cuts have not been sufficient to offset a sharp downturn in business.

In recent months, SIA has scrapped some routes (Los Angeles via Taipei, Osaka via Bangkok, and Amritsar) and reduced frequency or introduced smaller planes (B777s for B747s) on others to try to match capacity to demand. In the new financial year, it is set to cut up to 11 per cent of capacity by grounding 17 planes or about 15 per cent of its fleet, cutting routes and consolidating services.

'All route regions recorded declines in passenger load factors,' SIA said yesterday. 'The economic crisis has significantly dampened travel demand, translating to weaker uplifts. This is in contrast to the performance in February 2008, which was supported by Chinese New Year, Changi Airshow and an additional Leap Year day.'

The airline's cargo side also did badly in February, with the load factor falling to 62.1 per cent from 68.2 per cent a year earlier, as a 15.2 per cent drop in traffic in freight tonne kilometre terms outpaced capacity cuts. The cargo breakeven load during SIA's October-December 2008 fiscal third quarter came to 63.4 per cent.

Besides parking planes, the airline has been negotiating with unions to get staff - especially pilots and cabin crew - to take no-pay leave during the current slowdown. Twenty-five of its 300 cargo pilots have volunteered to take no-pay leave for up to 30 months. And more could take up the option in the coming months. This is the first time in more than five years that the airline is asking aircrew to take extended time off.

Street expectations from Bharti are too high and likely to disappoint in the wake of heightened competition in India. We cut our SingTel’s FY10 earnings forecast by 5% and our revised numbers are 9% below consensus, suggesting that earnings may decline for another year. Maintain FULLY VALUED with lower target price of S$2.25. 4Q09 results are likely to be lower than street expectations. Another risk is dividend cut due to high capex for National broadband Network in Australia.

Where we differ? (i) Street is feeding 28-30% YoY net earnings growth (INR) from Bharti into SingTel FY10 numbers, despite Bharti’s consensus numbers suggesting only 18% growth, which is again higher than our 13% forecast. Weak share price of Bharti also suggests that consensus could be behind the curve (ii) Street may have ignored the worsening outlook for Indian rupee (iii) Street expects single-digit growth for Telkomsel, compared to our forecast of slight decline.

Lowered FY10 pre-tax profit for associates by 3.3%. Our new forecast for SGD/INR is 35 (prev 32) due to high fiscal deficit of India and credit rating downgrade by rating agencies. Besides, we project AIS to register 3% YoY decline from 5% growth earlier.

Reduced FY10 EBITDA estimates for Optus by 11%. We have adjusted AUD/SGD exchange rate to 1.00 from 1.12, as AUD may not rebound back due to weaker than expected Aussie economy.

Lowered FY10 EBITDA estimates for Singapore by 3.5%. We forecast it to be flat YoY as potential decline in roaming revenues and prepaid subscriber base may offset benefits from lower competition and higher data revenue due to iPhone launch.

Maintain FULLY VALUED, with lower SOTP-based target price of S$2.25. In 4Q09, we expect net underlying profit of S$826m (3Q09 was S$838m) versus consensus’ S$887m, as (i) Bharti faces headwinds due to tariff wars from Rcom & Vodafone (ii) INR & IDR have deteriorated further. Another risk is that SingTel could limit its payout to 45% of earnings, in case of winning NBN award in Australia, implying 4% yield.

A number of companies (mainly Temasek-linked) have made cash calls over the past few months, including DBS, Capitaland, CapitaMall Trust, CSM and Ascendas REIT. This has raised the Tier 1 CAR for DBS and lowered the gearing ratios for the others. The current recession will have an adverse impact on profitability and cash-flow generation for most companies and we expect more of them to make cash calls to beef up their balance sheets. These can include Temasek-linked and non Temasek-linked companies.

We scanned through the list of stocks under our coverage and identified these stocks which we feel are worthy of mention with respect to this cash call issue:

• UOB (BUY, TP:S$11.60) has the lowest Tier 1 CAR of 10.9%, after DBS completed its S$4b right issue and now achieved a proforma Tier 1 CAR of 12.2%. There has been market talk that UOB may beef up its capital closer to its peers.

• Suntec (NEUTRAL, TP:S$0.75) has a S$700m CMBS due in Dec 09. Its current gearing of 0.34x is higher than the sector average of 0.29x. We believe the probability of a cash call is relatively higher than its peers.

• Swiber (SELL, TP:S$0.23) has a net debt to equity ratio of 1.0x. We are also concerned with its ability to repay the S$109m bond maturing late FY09/early FY10. We believe a cash call will help strengthen its balance sheet.

• China Fishery (BUY, TP:S$0.86) has lowered its net gearing to 0.87x (from Sep 08’s 0.93x). To conserve cash, the company is giving out script dividends. We do not rule out the possibility of a cash call to strengthen its balance sheet.

There are other companies which we feel are less likely to raise cash now (although we do not completely rule out the possibility). These include Parkway, Indofood and Keppel Land.
A number of Temasek-linked companies have made cash calls over the past few months. These include:

• DBS (NEUTRAL, TP: S$8.50), which raised S$4b through a 1-for-2 rights issue at S$5.42/share, thereby raising its Tier 1 CAR from actual Dec 08’s 10.1% to a proforma 12.2%.

• Capitaland (BUY, TP: S$2.60), which raised S$1.84b through a 1-for-2 rights issue at S$1.30/share, thereby lowering its net gearing to 0.31x and expanding its cash position to S$5.6b (post taking up CMT's pro- rata rights issue).

• CapitaMall Trust (BUY, TP: S$1.26), which raised S$1.23b through a 9- for-10 rights issue at S$0.82/share, thereby repaying all its outstanding loans for 2009 and funding of asset enhancement plans, as well as lowering its gearing to a comfortable 0.29x.

• CSM (SELL, TP: S$0.11), which raised S$464m through a 27-for-10 rights issue at S$0.07/share. Ex-rights was on 16 Mar 09. The exercise will lower net gearing from Dec 08’s 1.04x to a proforma 0.69x.

• Ascendas REIT (BUY, TP: S$1.41), which raised S$408m through a private placement and preferential offering (1-for-15) at S$1.16/share, thereby aiding in the repayment of outstanding debts and funding of development projects, as well as lowering its gearing to 0.33 – 0.36x.

Going into an economic downcycle, we believe more companies will do cash calls to beef up their balance sheet. Temasek-linked companies have started the ball rolling, but we believe non Temasek-linked companies may soon be coming out more aggressively to raise capital as well.

Following the FY08 reporting season for the Singapore banks, we have rolled over our forecasts, taking a conservative view on the outlook. Despite this, we find the banks offering a relatively strong shelter during the current downturn.

All three Singapore banks have strong capital ratios, with Tier 1 capital of 10.9–14.9%. In addition, their loan-to-deposit ratios of 79–86% are backed well by strong retail deposit franchises, providing ample liquidity. On the investment securities, we note that the three Singapore banks’ AFS securities amounted to 11–15% of total assets. Of this, non-government securities accounted for 5–9% of total assets. We believe that while the risk of further mark-to-market losses is possible, it is not expected to result in significant tangible losses for the banks.

Our estimates indicate that in order for FY09 net profits to be wiped out by additional loan loss provisions, the banks will need to run NPL ratios of between 5.8% and 7.0%. This is almost double our current assumptions of 3.7–4.4%. Rather than expecting NPLs to peak this year, we believe they will do so in FY10, on the assumption that there is a lag in the rise of NPLs.

The sector is currently trading at FY09E PER, P/UP and P/BV of 13.6x, 5.3x and 0.8x, respectively. Compared with their historical trading range, we note that both P/UP and P/BV are lower than two standard deviations below their historical mean. Even on a P/NTA, the sector’s FY09E multiple of 1.1x is close to the historical mean P/BV, which in our view is attractive.

We maintain our top pick of DBS Group (DBS SP, S$6.90, Outperform, TP: S$10.74), followed by OCBC (OCBC SP, S$4.11, Outperform, TP: S$5.66) and UOB (UOB SP, S$8.27, Outperform, TP: S$11.92). Near-term catalysts for the sector include potential earnings resilience from better margins and lower-than-expected NPLs.

As a result of tightening industrial demand and personal consumption globally most of Noble’s business divisions will be under pressure going forward. Consequently we expect FY09CL earnings to fall 64% YoY with the risk on the negative for Street downgrades. Trading at 13.7x FY09 earnings compared to 10x for peers, our DCF and peer valuation based target price of S$0.70 implies 33% downside. Maintain SELL.

Demand contraction in the West and the resultant cut back in production in Asia spells significant headwinds for Noble’s metals, mining and energy divisions. While long term demand drivers for Noble’s higher margin agribusiness remains intact, near term pullback on discretionary commodity consumption is a concern. Separately, we do not believe the announced pump-priming efforts globally will be sufficient to offset falls in private consumption. Expect FY09 Group volumes to fall 16% YoY and earning 64%.

Noble has been pursuing an asset medium strategy over the past few years resulting in a transformation from a supplier to a producer especially in the energy and mining space. We believe this is a necessary step to ensure security of supply, especially in a backdrop of strong global mining M&A activity in 2006 and 2007. But this exposes Noble to higher price volatility. Similarly, we argue the departure from a pure supply chain manager to a producer must be adequately reflected in valuations.

Historically, the Group’s logistics sector’s gross profit has not been correlated to the BDI. Management claims that it is the movements in the sub-indices especially for charter-out rates for Panamax and Capesize that drive profit. In addition, the Group also profits from pricing anomalies in the freight futures market, further weakening correlation with the BDI. As a result, we believe positive movements in the BDI should not be seen as a catalyst for the stock.

Noble is trading at 13.7x FY09 earnings vs. 10x for peers. This is also a 62% premium to its long term average PE. Assuming Noble is not a cyclical play and FY09 earnings contract in-line with the Singapore market (-36% YoY), this implies a PE of 8x; expensive considering a 1.8% yield. Our DCF and peer valuations based target price of S$0.70 implies 33% downside. SELL.

Crossing the 1,000 mark for the first time since Aug 07. A staggering 1,323 private homes (+1125.0% MoM, +600.0% YoY) were snapped up in Feb 09, exceeding our forecast of ~ 1,000 units. We estimate 90% of the sold units were below S$1,000 psf, with a bulk of them from mass-mid market projects, e.g. Caspian, Alexis and The Quartz. As per our predictions, prices in the mass and mid market remained flat at S$700 and S$800 psf respectively. While activity within the prime region was comparatively subdued, the 102 transacted units represented a notable MoM improvement (13 units in Jan 09), mainly helped by old projects being re-launched at 10 – 25% price discounts, namely D’Chateau, RV Suites, Parc Sophia and Lucida. As such, average prices ended 11% MoM lower at S$1,400 psf. A total of 1,069 units were launched, with a healthy take-up of over 100%.

Absolute pricing the clincher. While it is true that mass market projects typically perform better during recessions, low absolute pricing is the present key sales driver, with buyers lured by low lump sums of S$500 – 900k. Interest Absorption Scheme’s introduction also helped, as buyers were only required to fork out a reasonably affordable upfront payment and service the mortgages upon TOP. Other secondary drivers include convenience level, i.e. accessibility to public transport (esp. MRT) and basic amenities, as well as pent-up demand from enbloc sellers and HDB upgraders who were priced out during the previous property upcycle.

More launches – new and old. We expect additional mass market launches ahead as more developers take the cue from the success of Caspian’s and Alexis’s pricing strategies to move their inventories. Other incentives include starker price discounts, rental guarantees and free renovation packages. Aside from new projects, we think there would be more re-launched (at deeper discounts) ones in order to generate cash flow, especially for smallish and niche developers. Looking forward, we reckon the 1,000 units/mth quantum is not sustainable. Within the next 3 – 6 months, except for Double Bay Residences, Arte and Ascentia Sky, most new projects are small-midsized. As such, we predict 500 – 600 units/mth for the next quarter. Subsequently, it would revert back to a normalized 200 – 300 units as the economy worsens and the HDB resale market softens. Any upside surprises would come from more price cuts (to clear stock) from already-launched big projects, i.e. Livia, Clover by the Park, Waterfront Waves and Kovan Residences.

Selected prime regions normalising. While the upcoming launches should be dominated by those from the mass market, we think there could be a gradual increase in mid-prime market projects. More notably, prices in selected prime locations appear to be nearing the levels last seen in previous crises and pre-2007 run-up. Our conjectures stem from recent visits to showflats, specifically projects within the River Valley enclave - RV Suites and The Mercury. The former was re-launched at S$1,150 – 1,300 while S$950 – S$1,100 was the asking range for the latter. Both quoted price ranges represent a far cry from the S$1,600 – S$2,800 range we witnessed during 2007 and 1H08 as well for selected projects. Other notable points include the 100% take-up for Kembangan Suites within a day, at average prices of S$900 – 1,000 psf. Maintain NEUTRAL rating for Property sector. While the swift 100% take-up of Alexis does signify a watershed change in preference towards smaller units, we believe the residential property market is still in the correction process, especially for prime projects. Buying sentiments here remain stifled, with specuvestors yet to make any tangible entrance, as evidenced from the tepid volume within the subsales market (under 100 units in Feb 09 vs. monthly average of ~ 400 units in 2H07). Most of the current buyers are either Singaporeans or PRs purchasing for genuine owning-occupying purposes. Coupled with the continued weakening economic environment, we do not see any concrete reasons to upgrade our current NEUTRAL rating for the property sector. CapitaLand (BUY TP: S$2.60) remains our sole BUY call among the three major developers under our coverage.

On Thursday Mar 12th, Haw Par’s share price was back to the $3.30 low first reached on Oct 28 ’08, ie before Mr Wee’s open market purchases led to a scramble to pile into the stock. (Mr Wee first bought 691,000 shares on Dec 5th, but reported only a week ago, at $3.38, and by Dec 31st, had bought another 429,000 shares at up to $3.60 each.)

Haw Par’s share price hit a high of $4.09 (+24%) 2 months ago, and has since fallen 19%.

Haw Par, whose biggest investment is its estimated 4% stake in UOB (about 62.88 mln shares), has NAV of $6.69 as at end ’08. This varies much according to share price movements of UOB shares, eg between end ’08 and end ’07, Haw Par’s NAV fell 35% vs 31% decline in UOB’s share price between the 2 points. $12.92 vs $19.90. With UOB at $8.95, Haw Par’s NAV would have fallen about 30% to the $4.60 - $4.70 level.

(Haw Par has investments, Available For Sale Financial Assets, carried in the books at end ‘08 totaling $1009.88 mln: $758.22 mln under Non-Current Assets, and $251.66 mln under Current Assets.)

Treat Haw Par therefore as no more than a “value” stock (the UOB shares are however unlikely ever to be sold), and not because Mr Wee is about to privatize it, as it can be a long wait.

Haw Par rebounded to $3.36 on Friday. UOB, on the other hand, has rebounded 9% to $8.95, after hitting a multi-year low of $8.20 last Monday Mar 9th.

New office asset value reality is already priced in. The Business Times reported on Friday that the entire 32nd floor of Suntec City Tower 1 has been sold for about S$1300 per square foot of strata area. This is about 40% lower than previous strata floor transactions completed about seven months ago (above the S$2000 psf level). We believe this new deal is important as it gives an indication of the current market value for office space. However, Suntec REIT's current market value already reflects an implied asset value of S$885 psf for Suntec City Office (our estimate) - or a 32% discount to this latest transaction. Our valuation prices Suntec City Office at about S$1106 psf.

Potential risk of cash call. In our opinion, the refinancing of the S$825m in debt due this year is less of a problem than the potential need for an equity issue. In 4Q CY08, Suntec REIT saw property values fall 7% against its 3Q CY08 revaluation. We believe cap rates used by independent valuers still do not fully reflect downward trends in S-REIT capital values. For example, we understand that Suntec City Office was valued at S$1900 psf, or 46% higher than this latest transaction. This scepticism towards the accuracy of these valuations is creating downward pressure on share prices - Suntec's current share price of S$0.505 is at a 75% discount to reported NAV. As capital values fall, we estimate that Suntec could eventually need up to S$480m in fresh equity to maintain gearing at 40% levels. In the current environment, rights issues may need to be underwritten in order to succeed. As a non-sponsored REIT, any rights issue by Suntec could require the backing of investment banks or sub-underwriting arrangements with substantial shareholders.

Focus on cash flows. There are inherent strengths in Suntec's portfolio and we continue to believe in the merit of our BUY call on Suntec. The biggest concern today is how deeply earnings - and consequently distributions - will be affected by deteriorating economic conditions. We have adjusted our earnings and valuation assumptions, with a fairly conservative assessment of rents and occupancy levels. Our new DPU estimates for FY09-10 are 6-10% below consensus. This still translates to reasonable distribution yields of 18.6% and 16.1% in FY09F and FY10F respectively. Our SOTP value for Suntec falls 10% to S$0.95. Maintaining the 15% discount to SOTP, our fair value estimate falls from S$0.90 to S$0.80.

The addition of Foxconn to HP’s supplier base spells bad news to existing suppliers but it will not be a complete loss for Venture because low value consumer printers, which are non-ODM, is not a major part of HP business for Venture. In fact, in giving away non-ODM, which we estimate to be c. 10% FY09 operating profits of lesser if the relocation is phased out through FY10, Venture will see improvement in its working capital and profitability in the long run. Venture will continue to maintain a stronghold on HP’s ODM business and has seen new ODM projects from HP parked with them. We believe recent share price weakness has factored in this piece of news. We believe downside is supported by NTA of S$4.10 and 12% dividend yield. Maintain Buy with TP of S$6.

There had been rumours of HP dropping Venture from its vendor list for a couple of months now. And we have commented in email before Venture's 4Q08 results that HP was indeed consolidating vendor base. But, we believe it is unlikely that HP will drop this long-term vendor altogether. Rather, Venture could lose lower value consumer printers (non-ODM) to Foxconn but will retain ODM, which is currently the bulk of HP's business for them. Actually, Venture has been paring down non-ODM since 2006 and today, HP's business is predominantly ODM.

With respect to this impending change in HP's supply chain on Venture:

1) When it happens, we see a greater falloff on topline than bottomline as this business is largely high volume but lower value-add. Apparently, Venture has not been informed of the timeline but we believe the shift in non-ODM business would occur from Q2 onwards.

For now, our forecast is for a further 5% qoq decline in Q2 revenue after a 20% dropoff in Q1. We believe the phase out could be gradual as Foxconn would need time to build up competency. Nevertheless, there could be slight downside to our FY09 earnings forecast should the relocation to Foxconn happens much faster than expected.

2) Venture will continue to preserve their stronghold ODM business, which will benefit their working capital and profitability in the long run. In fact, our checks indicate that HP has parked new ODM projects with Venture to be rolled out in the future. Would Foxconn encroach this segment of the business too?

We believe the chances are low because Foxconn's business model is made for mass volume production. As such, configurations of its factories and production teams are also set up for mass volume manufacturing - not adaptive to the frequent line changes and more varied components management made for low volume, high mix ODM businesses. Hence, ODM may not appeal to Foxconn's model because it will take time to reconfigure production lines and retrain the mindset of sales and production personnel to undertake this form of business.

Technology wise, Venture continues to outrank its competitors with proven R&D/engineering capability. eg Venture redesigned and remade HP's mobile printer to help client reclaim leading position in mobile printer market from Canon. Today, we suspect Venture is still one of the very few, if not only, source for HP's mobile printers. In addition, Venture is a valuable partner, not just supplier. eg. Venture's self-branding printer VIPColor is selling well in the USA for SMEs. In pushing sales of these printers, Venture is also creating demand for HP's print head and ink cartridges. Hence, actually, Venture is as much a customer to HP as it is a supplier.

We acknowledged that this piece of news will affect sentiment on all HP's suppliers including Venture. However, we believe the actual impact on Venture may not be as material. Venture has never disclosed the actual % of sales from HP but we estimated it to be 23% of operating profits and these are predominantly ODM. Hence, the actual impact arising from the withdrawal of non-ODM business, could be c.10% of FY09 earnings or even less if the divestment is phased out through FY10.

Venture's share price has weakened 17% since it hit high of S$5 post Q1 results, we believe price weakness is partly due to this concern over HP's business and the magnitude of price decline would have factored in this piece of news.

Venture's book value is S$6.10 and its NTA (net of all GES' goodwill & DMX investment) is S$4.10. We believe price downside should be limited by its NTA and S$0.50 DPS, translating to12% dividend yield. Stock currently trades at 6.2x FY09 PER with net cash per share of S$0.70.

Maintain Buy with TP of S$6, 9x FY09 PER.

Initiate with BUY; E&P for free. We initiate SPC with a BUY rating and target price of S$2.95. Based on our free cash flow valuations, the current share price is close to the implied value for SPC's refining business segment alone. This implies that SPC's E&P business unit can theoretically be obtained for free. Buy on SPC's attractive valuation, healthy balance sheet, and potential upsides from new oil and gas discoveries.

Refining margins to average US$3.10/bbl in FY09. The Asian economic crisis resulted in weak Asian refining margins that averaged US$1.06/bbl over a sustained period in 1998-2001. We think this situation is unlikely to repeat. Refining margins have rebounded sharply to an average of US$6.60/bbl YTD from US$1/bbl in 2H08, due to refinery outages. We are not overly concerned with overcapacity, as start-ups have been pushed back and the breakeven costs of the new refineries are high. Hence, we are comfortable with our refining assumption of US$3.10/bbl in FY09.

Strong balance sheet can take more E&P acquisitions. SPC's Dec 08 balance sheet is clean with only short-term debts of S$574m (net gearing: 0.1x), for working capital. As E&P asset valuations become inexpensive, we believe SPC is well-positioned to acquire assets around the region. According to the management, SPC's comfortable capital structure is at 1x, which implies the capability to acquire assets valued up to S$1b. We are optimistic that SPC's E&P healthy operating cashflow at an average of S$350m/year is able to support the increased debt profile, if arises.

Attractive valuation. SPC is trading at 8.3x FY09F P/E, compared to refiners' peers of 8.4x and E&P players of 13.5x. While SPC's implied refining value of US$983/bopd is merely 3% lower than the average of US$1,013/bopd, SPC's E&P's implied EV/boe of US$7.80/boe is deeply undervalued, at a discount of 52% to its peers' US$16.30/boe. Hence, we think that the current share price has priced in weakening products demand amid this downturn, but has completely ignored E&P's potential.

Downside risks include 1.Worse-than-expected refining margins, 2.No new discoveries, 3.Slower-than-expected economic recovery.

Creative Technology has carried out a retrenchment exercise that will slash about 300 jobs worldwide, with majority of the cuts from Europe and the US. In a short two-paragraph statement to the Singapore Exchange yesterday, Creative said that it will incur restructuring charges of about US$10 million for its fiscal third quarter ending March 31, 2009. The restructuring charges 'are related to severance payments and costs associated with headcount reductions, primarily in the company's global field organisations and facilities costs from consolidation of certain international offices'. The MP3 player and PC soundcard maker did not say how much money its restructuring will help save. Cost-cutting measures have been earlier hinted at by the company. In its Q2 earnings announcement in January, president and chief operating officer Craig McHugh said that Creative was 'evaluating' the structure of its field organisations to reduce operating expenses. This is the second headcount reduction at Creative reported in recent months.

Falling revenue… Our checks in the industry have indicated that Singapore Press Holding's (SPH) print advertising took a heavy hit in Nov/ Dec period despite the last ditch advertising efforts by retailers to bring the year end to a less dismal sales closing. The lack of major events in Singapore in the first two months along with the dismal job market in the private sector did not help. As such, we expect adex and classified revenues to be negatively impacted. We initially expected print revenue to register a 3.6% YoY fall for FY09F but now knock it down to a 6.7% YoY drop to factor in the cratering economy. Circulation numbers should remain flattish for FY09 as we do not expect heavy subscription cancellations.

…But controlling costs. As shown from its historical operating data, SPH has three consecutive quarters of falling newsprint consumption while charge out prices (Exhibit 2 & 3) have been going up. With the volumous usage for the US presidential elections over, charge prices have thankfully started to tail off since the start of the year. Unfortunately, as SPH historically buys its raw materials on a 6 months forward basis, we are expecting high newsprint costs from Jan - Jun 2009. On the staffing front, SPH's forge into new media businesses have been moderated by aggressive wage cuts announced yesterday.

Mark-To-Market losses might continue. We believe that SPH has not changed its equity and bond portfolios with its external fund managers since the last quarter. With the volatile equity and bond market, our initialassumptions of a return to a positive accretion from its investments are likely invalid in view of potential MTM losses overwhelming dividend income that it will receive from its investments.

Silver lining: Paragon and Sky@Eleven. Thankfully, SPH's two property plays keep its head above water against a drowning property market. Paragon continues to sustain almost full occupancy even after its S$45m upgrade to add 29,000 sqft of space and Sky@Eleven's progressive contribution will buffer its earnings.

Attractive valuation. SPH fell 23% since the downgrade in our last report. While we have lowered our SOTP fair value to S$2.84 (prev: S$3.13) as we align its valuation peg with its peers, we are upgrading SPH to BUY based on attractive valuations with dividend yield at ~9%. We are also impressed by the swift action taken to contain staffing cost, its highest expense component.

No material catalysts either way for now. The stock has been tightly range-bound around S$2.50 levels since Oct-08. We think stock sustains relative outperformance in down markets but lags market rallies. Associates (59% of SOP) afford most leverage (within local telco peers) to market recovery though.

Entering ASX100 effective close of trade on March 20. Likely prompts higher interest from investors down under. SingTel is our preferred pick within the telco group down under comprising Telstra, SingTel and TCNZ.

Longer-term kickers emerging. Low FY09E base sets up (assoc.-driven) 10% EPS growth for FY10E – great in these markets, but modest on absolute basis. Wireless industry consolidation and (NBN-driven) value shifts from Telstra bode longer-term earnings upside at Optus; the NBN transition in Singapore could free up surplus cash – all longer-term options not in the price today.

Dividends – upside surprise unlikely. M&A (to boost growth) and NBN (larger for Australia than Singapore) are both funding uncertainties; we do not see SingTel going beyond normal dividends. We see 60% payout driving 5% annual yield (in line with STI yielding 6.7% but below local peers StarHub and M1).

Valuations – not too hot, not too cold. (1) 11.4x P/E; EV/EBITDA of 5.7x not cheap relative to Asian integrated telco peer group (9.4x, 4.4x); (2) Stub valuations (stripping out listed associates): trough valuations would imply S$2.15 on the stock currently; (3) Sum-of-parts at associate target prices at S$2.70; at spot associate prices at S$2.30.

Domestic developers may write off about S$3.2bn in residential landbank acquired via en-bloc transactions in 2007-08. This number can inflate to S$6.6bn if residential prices drop 25% from the current base. There will be limited impact on large developers due to their large book value, but some mid-small players will suffer - Guoco Land, SC Global, SoilBuild, Lian Beng, Heeton and Hiap Hoe. While current share prices already reflect a lot of the negativity, newsflow may keep stock performance suppressed.

Writedowns at about S$3.2bn. We track all en-bloc deals in 2007-08 by each developer and compare the cost of developing these acquired landbank (land cost paid and our estimate on construction cost) to the current endmarket home prices in the area where these landbanks are located. As a result, we estimate that S$3.2bn in landbank value has to be written down. Only 12 of the 62 site sold still provides a surplus to buyers.

Conservative estimates. Should home prices lower by another 25-30% from the current base (our base-case expectation), the potential writeoff amount can reach more than S$6.6bn. Overall, these estimates are conservative as they are based on the developer looking to break even on the landbank. Typically, developers will write down more than required so as to report profits in the future, as evidenced by MCL Land’s (MCL SP - S$0.75 - N-R) US$180m writeoff in 4Q08.

Big trouble for small balance sheets. In absolute term, the highest writedowns will be at GuocoLand, UOL and CapitaLand (CAPL SP - S$1.87 - BUY). However, the impact will be more felt at the mid-small developers given their smaller book size and higher gearing. Companies that will see a bigger impact include GuocoLand, SC Global, SoilBuild, Heeton, Hiap Hoe, and Lian Beng. We highlight in the table at the bottom the potential asset-value writedowns for some of the larger developers, such as CapitaLand, City Developments (CIT SP - S$4.20 - U-PF), Singapore Land (SL SP - S$3.11 - N-R) and Allgreen (AG SP - S$0.37 - N-R), which will be 1-3% of their book. UOL should be an exception, for which we estimate up to 7% of the book may have to be written down.

Remain cautious. Singapore developers’ share prices have fallen more than 70% from their peak, reflecting asset writedowns. However, history suggests that share prices tend to remain depressed on writeoff news. We maintain our cautious view on the sector, with CapitaLand being the only relatively positive call, thanks to its exposure to China and a stronger balance sheet.

Although the mail business is ultimately linked to the economy and will not escape unscathed from the downturn, the bulk of SingPost’s business should be quite resilient, with the core mail business (which accounts for almost 80% of revenue and profit) likely limited to a decline of less than 8% over FY2010-11. In the past recession, mail revenue fell only 2-4% a year, with the greatest weakness seen in international mail.

We estimate only 21% of revenue is truly vulnerable, namely incoming international mail, international Speedpost, non-remittance financial services and retail products. Overall, we have assumed an 8% decline in Logistics and Retail revenue over FY10-11 although certain segments, such as SpeedPost and distribution of financial services such as unit trusts and life insurance policies are likely to post deeper declines.

On balance, we have tweaked our FY10-11 forecasts down by 3-4% to account for a more conservative view on the growth outlook for the logistics and retail businesses. Our forecasts now call for a slower but still positive 3.5% growth in FY10 despite a 3.5% decline in revenue, as we expect SingPost to be a beneficiary of the 2009 Budget measures, specifically the Jobs Credit scheme and the lower tax rate.

Despite lower revenue, we expect margins to stay resilient as 80% of operating costs are readily adjustable with 25% of labour costs (temporary and contract workers) highly variable. In the last few quarters, labour cost increases have slowed from the double-digit levels of 2008 to just 4.9% in 3Q09. Volume-related costs are also expected to slow, especially as international mail volumes come down.

Despite the slowing economy’s likely impact on top and bottomline growth, SingPost remains extremely attractive as a dividend play. Management has committed to paying a minimum dividend of 5 cents a share. We suspect it can do better, given its strong cashflow and lack of investment needs, hence our forecast of 6.6-6.9 cents for FY09-10 (based on its historical 80-85% payout), leading to a yield of almost 9%.

On Wednesday, Keppel Land fell to 99.5 cents, down 20% since the start of the week. The property company, 52% owned by Keppel Corp, has earlier been subject to talk of privatization. But lately, in the face of the strengthened balance sheet at CapitaLand with its rights call, Keppel Land looks comparatively weak. City Developments is in a similar position. It fell sharply on Monday, to a low of $4.07 before rebounding. Its gearing ratio would be 0.32 should its assets be revalued at current prices but it also looks pallid compared with the more robust CapitaLand.

The latest to join the queue is Neptune Orient Lines (NOL) which was sold down to 86.5 cents on Wed, down 16% on the week. Reuters had reported that the local shipping giant planned to raise US$250 million through a rights issue. NOL, 67% owned by Temasek Holdings, has released a statement to the exchange that it has not done any agreement which would require disclosure.

Companies can be divided into three categories. First, those with weak balance sheets that need to raise capital but the major shareholder may be reluctant to put in additional cash. Smaller property companies fall into this category, and could include counters such as Roxy-Pacific, Sim Lian Group, Hiap Hoe, and SC Global Developments.

Then there are companies which do not really need to raise capital but as similarly healthy peers in their sector do so, they may feel pressure to follow. Oversea-Chinese Banking Corporation, UOB and City Developments fall into this category. Fraser & Neave and WBL Corp are also companies that may be considering rights issues. Fraser & Neave is in a net debt position and needs to recapitalize one of its Reits.

Third, companies who need to raise capital because of stressed balance sheets and with a strong shareholder are probably likely to do so. On Wed, some says the probable candidates are Keppel Land, NOL, City Spring Infrastructure Trust and Mapletree Logistics Trust. "Cyclical companies that have a high net debt-to-equity ratio and a deteriorating earnings outlook have the highest risk of a cash call," states the report. These companies include Keppel Land (net gearing: 61%) and NOL (net gearing:33% currently, but is forecast to deteriorate to 55% by 2010). "While Keppel Land's management recently denied a planned rights issue, the risk of a cash call still exists. NOL will likely see a sharp deterioration in its balance sheet because of losses in 2009 and 2010 in a poor shipping market," the report points out.

Not all Temasek-linked companies need cash. Some like Singapore Airlines, SIA Engineering, ST Engineering and Sembcorp Marine are in net cash positions. Unfortunately, companies that do require new capital are likely to meet increasingly glacial reception from shareholders. The adverse market reaction to Chartered Semiconductor's US$300 million cash call is an example.

We believe the fraud issue at Oriental Century is isolated and the drop in REC’s market cap has more than reflected this. P&L impact is minimal at 2%. Worst-case potential write-off is $34.6m (1.5cents/share). Fundamentals of REC remains firm and valuation is attractive, being close to the 5.5x PER, a level not seen since its listing.

Cash misappropriation in Oriental Century. The CEO of Oriental Century (ORIC), 29.9% owned by Raffles Ed, has allegedly misappropriated cash. He is said to have also inflated sales and cash balances over the years and diverted unspecified sums to an interested party.

P&L impact on Raffles Ed minimal (2%). Raffles Ed (REC) has no management control and board seat. The profit impact is minimal at c.2% on our forecasts. The worst-case scenario is the impairment of this investment ($34.6m or 1.5cents/share) if ORIC ceases to be a going concern.

REC’s operations unaffected. Management maintained that its own operations are still robust. Except for ORIC, they have management control in their recently acquired entities (Oriental University City, Shanghai Zhongfa, Tianjin Boustead, Shaanxi Electronic Information Institute and Wanbo College).

Drop in market cap > potential write-off. REC’s market cap has eroded by over $200m arising from this, far exceeding the potential $34.6m write-off. We think it has more than compensated for the investment.

Maintain recommendation. There is no doubt that sentiment is affected by the recent spate of governance issues on S-shares. But, we believe the current situation is confined to ORIC and the market has priced that in. Management has, so far, delivered growth and valuation is at a significant discount to peers trading at an average pe of 22x. TP: S$0.78.

SPH, SGX and FTSE have announced results of the latest Straits Times Index review. ComfortDelgro and SMRT have been added and Keppel Land and Yanlord Land (moved to the mid-cap index) are removed.

● Overall, ComfortDelgro is the largest winner with a weighting increase of 2.3 p.p. SMRT is next with +1 p.p. Biggest losers are SingTel (-0.43 p.p.) and Yanlord Land (-0.35 p.p.). This followed by Keppel Land (-0.32 p.p.) and DBS (-0.26 p.p.).

● Separately, a reserve list with five names has been introduced. In the event of corporate actions or mergers, companies in the list will replace any STI names that might be removed. These are AREIT, STXP, Yangzijiang, SingPost and SingLand. YZJ was removed after the previous review.

● All changes from this review will take effect from 23 March (Monday). The next review is scheduled for 10 September 2009.

● We estimate that index representation of the revised STI would increase to 64% from the 63% currently. This is still much higher than MSCI.s 53% and FTSE.s 60%.

Post the change in shareholding of Starhill Global REIT (SGREIT) and its management early this year, we revise our estimates in light of the weaker economic outlook in 2009. Our DCF valuation and target price is now S$0.58 (from S$1.56 pre the strategic review) and we maintain our Outperform recommendation.

Given the significant increase in new Orchard Road supply of 1.2m sq ft within this year (660k sq ft from ION Orchard, 250k sq ft from Orchard Central, and 294k sq ft from 313 sq ft at Orchard), we expect prime retail rents to fall ~10−13% this year. We have assumed that SGREIT’s retail occupancy falls to 88−90% from 96−99% by 2010.

As the bulk of the revenue from Ngee Ann City is secured under the Toshin master lease, the focus will be on maintaining performance of Wisma Atria basement retailers. The potential uplift in basement traffic once ION Orchard opens by June 2009 could boost sales and may provide some support for renewal rents.

Gearing is one of the lowest in the sector at 31% and the company has healthy interest cover of 4.3x. The majority of borrowings of S$671m is to be refinanced only in September 2010. As its S$380m CMBS was collateralised against its Orchard Road assets, which were valued at S$1.8bn as of December 2008, we see little refinancing risk given the low 20% LTV. Management is looking to refinance this at the end of 2009/early 2010. The 2009 budget provided for 40% commercial property tax rebates, which SGREIT will pass through to tenants, though possibly not across the board. The group is considering rebating loyal tenants but details are still being deliberated at the board level.

FY09−11 DPU estimates were lowered by 22−30% on lower retail rents and occupancy, as well as higher interest rates upon refinancing.

12-month price target: S$0.58 based on a DCF methodology. Catalyst: Potential uplift in basement traffic once ION Orchard opens in June 2009. Better than expected renewal rents.

Maintain Outperform. The stock has no refinancing requirements this year, is trading at a 70% discount to NAV/unit of S$1.44 and offers an attractive 14.6% FY09 yield. In the retail space, our preference is for CapitaMall Trust (CT SP, S$1.07, OP, TP: S$1.45) as we believe suburban retail rents will be more resilient than prime in a downturn.