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.