After a short rally since mid-Jan, refining margin eventually fell back from US$7-9/bbl to US$4-5/bbl currently, a level we believe would be close to this year's average. We foresee no near term share price catalyst for SPC. As SPC share's price has exceeded our sum-of-parts target price of S$2.11 by 11%, we are downgrading the counter to Fully Valued.

Short term rally ends. Temporary refining capacity cutback and recovered gasoline demand had driven gasoline crack spread to an exceptionally strong level (peaked at US$20), while middle distillate (jet fuel and diesel) crack spread fell to alarming levels (below US$10), caused by the weak economy. These led the Singapore refining margin to peak at US$10 in mid-Feb, but it recently fell back to US$4-5 as gasoline crack spread weakened to US$10 and middle distillate
remained weak.

1Q09 earnings turnaround q-o-q but weak y-o-y. FY09 earnings may peak in 1Q09, accounting for 27-36% of our full year forecast. We expect earnings to turn around strongly q-o-q, due to a rebound in refining margin. But earnings would be lower y-o-y. We are maintaining our forecasts, expecting FY09F net profit to fall 10% to S$207m.

No near term catalyst. SPC share price has strongly outperformed the STI, rising 4% YTD and 26% from last year's bottom. After the pullback in refining margin, we foresee no near term share price catalyst and the weak global economy remains a major threat to refining margin. Hence, we recommend taking profit and downgrade SPC to Fully Valued.