Stable performance. Starhill Global REIT (SGREIT) reported 1Q09 results in line with our expectations. Gross revenues and NPI grew by 13% and 17% to S$34.3m and S$27.1m respectively. NPI margins improved to 80% from 76% due to (i) higher revenues post its Toshin rent review in July'08, (ii) positive rental reversions for certain office space (+110% from preceding rents), (iii) aided by savings from property rebates enjoyed during the quarter. Distributable income came in at 7% higher yoy, translating to DPU of 1.87 Scts. For 1Q09, SGREIT is retaining c.5% of income available for distribution for working capital purposes.

Strong financial metrics. Gearing remained relatively low at 30%, interest cover at 4.9x. while NAV stands at S$1.43.

39% of space up for renewal in FY09-10. Looking ahead, SGREIT has c. 15%(FY09) and 24%(FY10) of its income up for renewal in an increasingly tough operating climate. We estimate asking rents for its office and retail space to decline by 10-50% over the next 2 years. Vacancy levels is also estimated to increase by 5 -10%.

Maintain HOLD, TP maintained at S$0.60. SGREIT currently trades at 0.3x P/BV, below peers average of 0.4x P/BV. Newsflow from discretionary shopping is expected to continue remain lackluster, capping re-rating opportunities. As such, maintain HOLD, TP $0.60. Currently, SGREIT offers FY09-10 yield of 14-15%.

Steel prices continue to fall. Global steel prices have more than halved since peaking in Jul 08 due to a dramatic decline in demand. Producers such as ArcelorMittal and mills in China have cut back on production, hoping for de-stocking to run its path and waiting for recovery. Indeed, China's iron ore and carbon steel imports experienced a month-on-month increase for the first time in February this year since July last year. As China is a major player in the steel industry, its recovery is likely to boost steel prices. However with the still-murky global economic outlook and languishing US market whose auto industry is on the edge, having high expectations on the steel industry is asking too much from China.

Support from industry diversification. SSH services the oil and gas, marine and petrochemical industries. The industry diversification will help cushion underperformance in any one sector, such as shipbuilding which has seen minimal new order flow. Shiprepair, though not immune in a recession, is likely to be less affected given that ships typically have to come in for repairs every 2.5 years. On the oil and gas front, though the EIA forecasts lower oil demand this year, there are still companies such as PT Perusahaan Gas Negara (Persero) Tbk that expect to raise capital expenditure by 33% to US$200m this year. Finally, if SSH is able to increase its exposure to the infrastructure industry (one of the few sectors left in Singapore that is enjoying robust growth), the more support it will have during this recession.

Waiting for signs of a sustained recovery. Market sentiment has improved, but we note that economic indicators are pointing otherwise. As such, the recent rally in smaller-cap stocks is unlikely to be fundamentally driven, and signs of a sustained recovery have to be present before we turn more bullish on the stock.

Maintain HOLD. SSH has a good business model and its tripartite relationship with KS Energy and Aqua-Terra Supply should result in synergies and increased business opportunities compared to a stand-alone stockist. Though there are early signs that demand in China may be picking up, SSH's main industries still require a sustained recovery in other parts of the world. We maintain our HOLD rating and fair value estimate of S$0.11.

No major surprises from FSLT in 1Q09. As per guidance, FSLT announced a DPU of 2.45 UScts, which amounts to a payout ratio of 73%. While this is lower than DPU of 3.08 UScts in 4Q08 (100% payout), actual operating cash generation in 1Q09 of US$16.9m was better than 4Q08 cash generation of US$15.4m, highlighting that the business model is still holding up well. The residual cash was utilized to prepay US$4m of loans. Meanwhile, the DIstribution Reinvestment Scheme will apply for 1Q09, and unitholders may choose to receive part or all of their distributions in the form of new units. Any reinvested income will again largely be used for loan prepayments. Maintain HOLD, TP revised to S$0.48.

Results look solid enough. While revenue was down slightly (3%) q-o-q to US$24.8m, lower interest expenses meant that net profit was up from US$0.5m in 4Q08 to US$1.5m in 1Q09. EBITDA margin also came in at a healthy 93.3%.

And FSLT keeps lenders happy. Of the US$16.9m cash generated, DPU payout amounted to US$12.3m and the residual cash of US$4.6m was used towards a voluntary loan prepayment of US$4m in 1Q09. We view this move as positive, as it signals strong cash position to lenders and enables FSLT to negotiate better terms, in case any loan covenants are breached going forward.

But we stay cautious for now. Management updated that all 8 lessees have been making full and prompt payments and no renegotiation attempts have been made till now. For 2Q09, the DPU guidance was maintained at 2.45 UScts. However, we still lack visibility about charterers’ finances, and CSAV’s recent restructuring efforts show that ship operators are not out of the woods yet. As such, we retain our HOLD call, while our DDM-based TP is revised down to S$0.48.

Raffles Medical (RMG) post 1Q09 net profit growth of 28% y-y, beating our full-year forecast of 12.6% and consensus of 2%. Net profit in 1Q09 reached 23% of our full-year forecast, which is laudable considering the Lunar New Year holiday. Historically, RMG’s 1Q net profit makes up 18-19% of its full-year earnings.

Despite slower revenue growth of 7.6% y-y, we believe RMG demonstrated its ability to control costs and grow earnings with operating leverage. In particular, inventories and consumables used (as a % of revenue) continued to trend downwards (Exhibit 3), reaffirming the benefits of the group practice model in controlling variable costs. The group also contained its staff costs in line with revenue, despite having increased its headcount by 50.

Revenue growth has visibly slowed from 17-29% y-y in the past four quarters, to 7.6% y-y in 1Q09. The healthcare services segment (including its primary care network and insurance arm) grew by 10.8% y-y, we think confirming its defensiveness. Foreign patient volume grew by 8% y-y, while local patient volume was flat. Management remains cautiously optimistic on the outlook, and emphasised that 1Q is usually the weakest quarter of the year.

The 1Q09 results support our above-consensus view that: 1) RMG is a defensive healthcare player, which should continue to grow in the recession, albeit at a slower rate; and 2) the group enjoys cost efficiencies as a group practice and can use its operating leverage to drive earnings growth. The strong 1Q09 results signal potential upside to our full-year forecasts. We conservatively peg our DDM-derived price target of S$1.07 to actual cashflows to investors. The main risks to our price target is the group’s ability to contain its staff costs.

CapitaLand’s 1Q09 net profit of S$42.8mn undershot our expectations, falling by 82.7% y-y from S$247.5mn in 1Q08. Excluding divestment gains (CapitaLand booked S$137mn in divestment gains in 1Q08), net profit fell by 61.5% y-y. Broad weakness was evident across mostoperating divisions, with residential in Singapore hit by lower pre-sales and smaller staged completion booking of development profits, and Australand and Ascott on our analysis reporting weaker operating numbers. As a result, we lower our forecast contributions from the group’s major subsidiaries. We cut FY09F and FY10F EBIT + associates by 10.6% and 10.5% for Australand, and by 24.3% and7.1% for Ascott, on expectations of lower revenue per available room(REVPar). While our core property price assumptions are unchanged, the adjustments to profit booking pare our residential contribution forecast for FY09F by 2.6%. The net impact of the above adjustments is a cut in earnings of 11.2% for FY09F and 7.9% for FY10F.

The rights issue in 1Q09 saw gross debt shrink by S$2.3bn y-y, cutting the group’s net debt/equity to 0.32x (from 0.59x at end-1Q08). The group has a cash balance of S$5.5bn. Its net interest expense in 1Q09F was S$85.6mn (in line with our full-year forecast). Note: CapitaLand did not book any revaluation deficits in 1Q09 as “it is the practice of the group to revalue its investment properties half yearly”, with the group warning of “downside risks to capital values”.

Following the adjustment to our earnings estimates, our intrinsic SOTP NAV falls marginally to S$2.91/share (from S$2.94/share). We see inherent value in CapitaLand in the medium term, as evident in our intrinsic fair value. That said, and not withstanding the market’s recent appetite for risk, we maintain our trough valuation methodology to derive our intrinsic SOTP NAV, as we see continued downside risks to earnings given our expectations of further weakness in the Singapore residential market and for subsidiaries Australand and Ascott.

Given these risks we have applied discounts to our intrinsic fair value based on historical trading patterns to derive our FY09F price target. While we see the outlook for asset prices as potentially being worse than during the 2001-03 Sars-induced recession, CapitaLand on comparable credit matrices appears to be in better shape. Our FY09F price target is set at a 52.5% discount to NAV (ex-associates), which equates to S$1.71/share (previously S$1.72/share).

2Q09 guidance implies 50% QoQ volume growth: We had written about strong QoQ growth momentum but we had vastly over-estimated the volume rebound. It appears that 8-inch fabs will continue to operate at much lower utilization than we expected but 12-inch fabs are fully loaded as we expected. With 2Q09 utilization at around 65%, CHRT should continue to report a large operating loss in 2Q09. CHRT commented that much of its 65nm volume recovery is coming from new product ramp rather than inventory restocking.

Operating breakeven can improve to high sixties but when? CHRT commented that because of reduced depreciation and cost cutting effort,it can bring down its operating breakeven to below 70%. Only question for us is when CHRT can get to 70% utilization. With very strong volume recovery in 2Q09, we believe that risk is for flat-to-down 3Q09 and hence it may take a while for CHRT to reach that breakeven point.

Adoption of FASB No 160 allows CHRT to finally book its portion of CSP loss as positive item on Minority interest: Over last five years, because of large accumulated losses on CSP's balance sheet, CHRT was unable to book positive minority interest due to ongoing losses in CSP. CHRT started to adopt FASB No.160 for its non-controlling shares in CSP from 1Q09. As such, 49% of CSP’s 1Q09 net loss of US$31.5 million could be excluded from CHRT’s income statement and result a positive US$15.5 million impact.

Maintain Neutral, add to AVOID side: CHRT's financial condition has improved though company requires refinancing of its debt in 2010. The stock now trades at relatively expensive 0.9x price/book and hence could face downward pressure based on earnings profile. As such we add CHRT to the AVOID side of AP tech trading portfolio. We believe downside could be as much as 25%

Downgrade to Cautious Industry View: The 4-30% relative outperformance of the Singapore property stocks since March 2009, despite a backdrop of deteriorating macro conditions, has made it fundamentally difficult for us to justify being invested in this space, particularly given downside risk to our base case NAVs of as much as 37%. On the back of less compelling valuations, we are downgrading CapitaLand and Keppel Land to Underweight from Equal-weight but maintaining our Underweight rating on City Developments and Wing Tai. We are upgrading Allgreen, our new sector top pick, to an Overweight rating from Equal-weight as the stock offers 17% potential upside from current levels, while maintaining our Equal-weight rating on Wheelock Properties. CapitaLand offers the least downside risk to our base and bear cases among the large-cap stocks, followed by City Developments ahead of Keppel Land.

Maintaining Base Case NAVs Despite Downside Risks. Morgan Stanley’s recent 2009e Singapore GDP downgrade to -10% suggests that our base case officevaluations could trade toward our bear case. Despite that, we maintain our base case NAVs except for a slight adjustment to CapitaLand’s NAV to S$2.02 from S$1.98. At current levels, City Developments and CapitaLand are trading 12% and 4% above our bull case NAVs, respectively, pricing in upcycle office and residential market valuations, which we believe are unjustified at this stage of the property cycle.

Better Entry Prices at Bear Case NAVs: We believe the property stocks could trade downwards on realization of revaluation losses from investment properties and write-downs of residential land banks impacting net earnings, with the downward pressure particularly evident in 2H2009. For the rest of 2009, we would look to switch into higher yielding S-REITs, with CapitaCommercial Trust (CACT.SI, S$0.86, EW) as our sector top pick.

Swine flu could turn into another SARS. The WHO (World Health Organization) has just raised the influenza pandemic alert from 3 to 4 and warned that the swine flu outbreak in America (Mexico, US and now spreading to Canada) could develop into another pandemic like the SARS outbreak we saw in 2002-2003. During that period, the STI dropped nearly 38% over a one-year period. However, in the aftermath of SARS, we also saw the index staging a remarkable recovery of 58% in the 10 months following the incident.

Stocks likely to be affected. During the last SARS outbreak, businesses that were affected included food stocks (especially those which dealt with pork-related products), travel-related companies, as well as retail-related companies (shoppers stayed home as the virus was easily spread through close contact). This time around, we believe that the same businesses will also be affected, although the extent of the impact may be lessened by the fact that many of these companies have already been sold down sharply due to the economic downturn. In fact, current valuations are already relatively close to the valuations seen during the height of the SARS scare.

Stocks that could benefit. On the other hand, we also saw that some businesses benefited indirectly from the SARS incident. Some of these businesses included telcos (as corporates curbed their air travel and relied on teleconferencing and video calls to conduct their meetings). Other businesses that offered an alternative source of food (such as fish) also performed admirably during the SARS period. On the valuation front, most of these stocks have fallen sharply due to the economic crisis and we believe there may be room for capital appreciation.

More time needed to assess impact on economy. Given that the outbreak is still in its early stage and health experts are themselves learning more about the virus, more time will be needed to ascertain the extent of impact on the global economy. If the virus turns out to be less virulent than expected, investor sentiment may recover quickly, supporting share prices. As it is, we have already seen the earlier signs of market reaction yesterday, and this is a situation that warrants close monitoring to ascertain the impact and extend of the spread in the coming days.

SPC reported a 43.5% drop in 1Q09 net profit to $55.6m from 1Q08, with revenue falling a similar 46.8% to $1.4bn. However, the numbers were much better than expected, reversing a loss of S$50.0m in 4Q08. SPC also recorded impairment charges of $43.3m for drilling costs incurred from 2003 to 2006 at its Indonesian Jeruk field, as the sharp slide in crude oil prices makes the project potentially unviable. Excluding this, gross profit was down just 13% versus 1Q08 to S$133.2m.

Weak crude oil prices led to an operating loss of S$18.2m on the upstream E&P business, withturnover for the sector declining 34% to S$35.1m. Earnings therefore came from the downstream refining business. Despite turnover declining 22% sequentially from lower headline crude prices, operating profit turned around from a S$56.4m loss in 4Q08 to record operating profit of S$118.6m in 1Q09, as gross refining margins (GRM) turned positive to US$4.50 a barrel, but is still down from the US$7 in 1Q08, and an average of US$5.50 per barrel for FY08.

However, SPC warned that margins could be unsustainable, as the boost came fromimprovements in demand from regional economies such as Indonesia and Vietnam and was coupled with the shutdown of several refineries for maintenance which constrained supply. SPC also said that its prospects for 2009 remain uncertain, with demand for oil products likely to stay weak. It also expects pressure on refining margins to resume as new capacity in India, Vietnam and China comes on stream in the next few quarters.

In line with guidance, we view this strong performance in 1Q09 to be a one-off, and expect refining margins to decline to around US$2-3 per barrel, going forward. We also expect its E&P business to remain in the red as crude oil prices remain soft. The sharp run-up in SPC’s share price (up 18% in the last 2 weeks) ahead of its 1Q09 reporting could therefore unravel very quickly.

Similarly, while SPC’s strong quarter will have a positive impact on consolidation to Keppel Corp’s 1Q09 earnings, we are not adjusting our full year contribution, as earnings from this associate remain volatile. We are forecasting a yoy 60% reduction in associate contributions for Keppel, primarily on the back of an anticipated weak showing from SPC. Keppel reports 1Q09 earnings on the 23rd of April.

Results better than expected, thanks to deferred income tax writeback following a 1% point reduction in corporate tax rate. Otherwise, earnings were largely in line. The 30% jump in topline to $195.8m came from higher rental, residential and IT operations. This helped fill the slack from hotel activities.

UIC earnings a reflection of Singland performance. The latter accounts for 80% of UIC’s total rental revenue. Billings from One Amber, Park Natura, Northwood and Grand Duchess lifted residential EBIT. This more than offset the decline from hotel operations, which were affected by economic slowdown. IT segment saw a 17% decline in EBIT to $1.9m.

Core earnings drivers to remain weak in the next 2 years. Continued pressure on office rents would likely erode the gap in rental reversions while hotel activities are likely to be dampened by the dip in tourist arrivals and reduced corporate travel. Absence of new launches in the past 6 months would mean little visibility from this earnings segment beyond the current locked-in presales.

Maintain HOLD, TP $1.10. UIC’s RNAV is raised to $1.30 after marking to market Singland’s share price. While having a more diversified earnings base, most divisions are likely to remain weak in coming years. The stock is currently trading at par with TP of $1.10, based on a 15% discount to asset backing.

1Q ‘09 sales rose a robust 31% yoy underpinned by 41% yoy increase in demand for telco equipment (higher demand for satellite terminals and catch up in delayed orders of microwave radio equipment) and 16% yoy increase in demand for infocomm equipment (higher sales of network equipment to service providers and point of sale terminals to the financial services and retail market), in line with management’s guidance.

Unfortunately, net profit only grew 8.6% yoy, below our expectation of double digit growth and way below sales growth of 31% due to gross margin pressure (fell from 23% to 19.5%), 225% increase in warranty provisions and forex loss of $1.05mln due to the surging US$.

Looking ahead, due to the current global economic slowdown, management has turned cautious and expects some of their telco customers to delay or defer projects in line with potentially lower revenues, while competition remains intense and some equipment vendors have positioned aggressively in the market and customers are also demanding for lower costs and better terms.

The infocomm business will also be negatively impacted by the global economic slowdown as a result of the slower retail environment and financial institutions are cautious in their capex plans due to the global financial crisis. Media and broadcasting customers are also seeing reduced advertising revenues which will delay migration of analogue TV to digital TV system in some countries. One bright spot is government spending which is seeing higher orders due to pump priming efforts.

In Feb ’09 when the company reported full year 2008 results, management said that the global economic downturn has created many uncertainties but did not provide more specific details. They are now seeing customers in both market segments realigning their capex plans which means delay or deferring projects in line with potentially lower revenues.

Fortunately, the company’s financial position remains as strong as ever with cash holdings rising $10.3mln qoq to $31.146mln versus debts of only $108,000, giving a net cash position of $31.038mln representing 28.6% of its current market cap. This will help them sustain their usual 3 cents div per share (going ex on 29 Apr ’09).

However, with the stock having recovered a strong 67% since hitting its all time low in Oct ’08 & 54% since our last BUY recommendation and with management turning cautious in their outlook statement we are downgrading our recommendation to HOLD (expecting some support from its still decent 10% yield).

Keppel Land (KPLD) reported a 38.8% y-y decline in net profit to SGD36.9m for 1Q09, which is line with our estimates. 1Q09 profit was largely derived from the progressive recognition of Marina Bay Residence (SGD15.6m), The Sixth Avenue (SGD7m), Reflections at Keppel Bay (SGD3.7m) and The Arcadia in Tianjin (SGD3m). Property development comprised 86% of the group net profit.

KPLD’s balance sheet remains healthy, with net debt/equity ratio unchanged at 0.54x (4Q08: 0.54x). Management does not expect its net gearing ratio to exceed 1.0x in the next two years due to the deferment of various overseas and local projects to conserve cash. Despite this, the group has a gross cash of SGD627m, which is slightly below the short-term debt of SGD674m. Although its average debt maturity is only 1.32 years, 7% of its total borrowings will only be due in 2009.

KPLD’s projects are benefiting from the recent revived market sentiment with strong home purchases in Singapore and China. In Singapore, YTD, 15 units each were sold at Park Infinia at Wee Nam and The Tresor at about SGD1,200 psf and SGD1,300 psf, respectively. In China, KPLD sold 420 units YTD (i.e. The Botanica, 264 units; Central Park Wuxi, 97, Summer Ville, 37; and Serenity Cove, 22).

Although investors believe that KPLD’s overseas land bank is at a high impairment risk, our study shows otherwise (see our KPLD note dated 23 March). Besides, using history as a guide, KPLD tends to adopt a more defensive strategy during an economic recession. Hence, we believe a cash call is also unlikely. Note, the last rights issue took place in 1996. Maintain BUY with a TP of SGD1.90, based on a 40% discount to our SGD3.17 RNAV estimates. Keppel Land trades at a 45% discount to our RNAV estimates.

We expect the dissipation of order cancellation risk for rig builders to gain momentum after mid-2009, and have made symbolic cuts to the assumptions used in our earnings models by 15-20%. We are also re-rating the rig builders' various businesses to that used in a normalized early recovery cycle, vs. trough valuation previously. Our top pick is SembCorp Marine (SMM), with fair value at S$2.57. SembCorp Industries (SCI) is upgraded to BUY, with fair value at S$3.13. We retain FULLY VALUED on Keppel Corp (KEP), despite raising its fair value to S$4.45. We see the implied 17.1x FY10 PE for KEP's O&M as expensive, vs. 18-20x peak cycle PE.

We have raised fair value for SMM ? Our top pick. We are re-rating the valuation metrics used for the rig builders' various businesses to that used in a normalized early cycle, vs. trough valuation previously. This is in line with DBS Vickers' regional research view that the worst for the equity market is over, and the equity risk premiums for various regional equity markets would normalize upwards. We retain our BUY rating on SMM, with an upward revised fair value of S$2.57. This result in the upgrade of our rating for SCI, SMM's parent company, to a BUY, with fair value at S$3.13.

The optimism is also due to symbolic cuts in order cancellation assumption. We expect the overhang of order cancellation news flow on the rig builders to slowly dissipate after mid-2009, due to: 1) Full cash payments being collected as more rigs are delivered, and 2) Higher cash collections for rigs under construction. We assume a slightly lower 10% order cancellation probability for KEP's offshore and marine (O&M) order book (vs. 12% previously) and 12% for SMM (vs. 15% previously), and may reduce them further in the months ahead.

But, we retain FULLY VALUED on KEP, as the implied FY10 PE for its O&M is near to peak cycle valuation. We prefer SMM to KEP for investment exposure to rig builders, as it can sustain revenue growth till FY10, while KEP's peak revenue may have occurred in 2H08. We estimate that KEP needs to win S$6-7b new orders in 2009 before its revenue in FY10 is able to match the O&M's peak revenue in FY08, due to its high base effect and the faster drawdown in order book. We retain FULLY VALUED on KEP, despite raising its fair value to S$4.45. We believe that the 17.1x implied FY10 PE for KEP's O&M is expensive, vs. 18-20x peak cycle PE for rig building. We advise investors who want property exposure to switch from KEP to Keppel Land [BUY, S$2.17].

Buoyed by the strongest quarterly residential sale volumes since 3Q07 and expectations of a bottoming out in macroeconomic indicators, we are advocating an Overweight position in the property sector. While asset price deflation is within our projected correction levels, equity risk premium has moved to more normalised levels. In view of this, we retain our RNAVs but take mid-cycle RNAV discounts as a more appropriate valuation metric. We prefer residential over office given better newsflow coming from the former. We favour big-caps like City Dev (TP $7.20) and stronger developers more exposed to the residential sector like Wing Tai (TP $0.96) and Wheelock (TP $1.27). We upgrade Keppel Land (TP $2.17), Allgreen (TP $0.67) and Ho Bee (TP $0.51) to BUY.

Light at the end of the tunnel? Sentiment in the physical property market appears to have improved in anticipation of a recovery in the residential market. 1Q09 residential sale volumes came in at its highest since 3Q07 while expectations of a bottoming out in macroeconomic indicators in the next few quarters and cushioning effect of government policy measures support the argument that a clearing level may have been reached and a sustained demand-led push could materialize later this year.

Reverting RNAV discounts to mid cycle level. We are currently midway through the asset price deflation cycle with residential prices and office rents retracing c.15-30% and 20-25% from the peak, still well within our projected peak-trough correction of 20- 50% for mass to high-end residential prices and 50% decline in office rents. At this point, we see little room for RNAV upgrades as yet. However, with the shift in equity risk premium back to normalized levels, we see mid cycle RNAV discounts as a more appropriate valuation metric for a 12-month price target compared to our current trough valuation basis. We expect macro sentiment and confidence to improve going forward, even if newsflow continues to remain bleak.

Prefer residential over office. The key to a re-rating for residential developers lies in a sustained recovery in sale volumes amidst stabilising prices while that for office landlords rests more with economic fundamentals. Since office space take-up usually lags economic recovery, we prefer residential plays for now. Property stock prices tend to precede a bottoming in physical prices by 2-3 quarters. Downside risk to our view is a longer than anticipated macro recovery or if the absorption of excess supply in the residential and office segments remains patchy.

No foundry left behind: 2Q09 utilization near 80%, 300mm fab fully booked. We believe CHRT will see 2Q09 utilization of 75-80% in terms of wafer shipments, on the basis of over-booked 12" Fab 7 and more than 70% utilization in 8" fabs. The main drivers of 12" wafer orders are CDMA handsets, WLAN and China TVs, and the booking across other 8" fabs has also improved with handset power management IC and consumer IC.

Not likely to expand 12" fab capacity so soon, but will probably convert more 90nm/0.13um capacity into 65nm capacity by the end of 2Q09: We believe CHRT will not expand top-line 12" fab capacity due to financial concerns. However, we do believe that CHRT will, as planned, convert its 0.13um and 90nm fabs with probably as high as 70% of the total 25-28K 12" wafers per month by the end of 2Q09.

Profitable at 75% utilization in 2Q09? Possibly: CHRT’s depreciation will be $20MM lower in 2Q09 than in 3Q08, the last quarter in which it generated similar revenues. That translates into almost a five-percentage-point improvement in margin. Indeed, it is possible for CHRT to bring its operating breakeven to 75% in 2Q09, ahead of management’s guidance of doing so by the end of 2009. While 75% operating breakeven is nowherenear enough to create a self-sustaining business model, it is still an improvement as a result of capex reduction.

Upgrade to Neutral, rights issue done, next capital overhang in 2010: We upgrade CHRT to Neutral with a raised Dec-09 price target of S$0.15 (CSM SP)/US$1.0 (CHRT US), based on 0.6x FTM book. CHRT is relatively cheap, so there could be upside if the market starts to believe CHRT can refinance its $542MM maturing debt in 2010. We estimate that CHRT will have around $660MM in cash by the end of 2009 despite the US$157.5MM debt payback in 2009, thanks to the US$300MM rights issue. While rights issues might have left a sour taste for previous investors, a few new investors might consider taking the plunge.

CPO price increase — CPO prices recently rallied above US$600/t following lower-than-expected end-inventory levels in Malaysia. Soybean production /export issues in Argentina, a weaker dollar, and CPO discount to key vegetable oil substitutes are also supportive of prices. We accordingly raise our 09E CPO price assumption to US$610/t from US$550/t.

Low-cost producer with focus on cost management — FR is a low-cost producer with US$200/ton cash cost (nucleus). Management also continues to express its commitment to remaining prudent in cash management. New plantings of 8-12k Ha are planned. US$60m is earmarked for overall 09 capex.

Clearer growth prospects — With plantation age averaging 7.5 years (early phase for optimum yield), an enhanced yield from maturing trees provides favourable growth prospects. We expect FR to deliver 4.7% 3-year volume CAGR through 2011E. This, along with FR's expressed commitment to managing costs, should provide downside protection.

Earnings revision — As a CPO play, FR is set to benefit from any increase in CPO prices. In this regard, our CPO price increase and lower tax rate assumptions lead to a 17-38% increase in NP for FY09E-11E.

Maintain Buy (TP: S$0.59) — Given the above positives, we continue to see value in FR. We maintain our Buy rating and raise our target to S$0.59 (was S$0.57). We revise our risk rating from Speculative to High given an improved CPO outlook for 09E. As a CPO play, FR in our view should benefit.

Ridership remains resilient. Mar09 average daily rail ridership rose 7.8% YoY to 0.36m while bus ridership declined 1.4% YoY to 2.2m. YTD, rail rid- ership increased 8.2% YoY, inline with our estimate (+8.0% YoY for FY09E). However, bus ridership declined 0.6% YoY, below our estimate (+4.0% YoYfor FY09E).

Impact of lower ridership could be offset by lower oil price. We estimate every 1% change in rail and bus ridership could affect earnings by 0.4% and 2.0%, respectively. YTD, average WTI oil price is down 47.3% YoY to US $48.3/bbl, 8% below our assumption. Lower oil prices could negate the lower ridership and provide further upside to our earnings. Our sensitivity analysis reveals that every 1% decline in oil could lead to a 0.6% increase in CD's earnings.

Maintain our earnings and Buy recommendation. We forecast 37% EPS growth in FY09E due to resilient ridership and moderating costs on lower oil prices. Our TP of S$1.75 implies 15.2x FY09E PE. Our DCF-derived TP for CD is based on a COE of 8.0% (3.1% RFR, 4.0% ERP, 1.2 beta) and a TGR rate of 1.0% (in line with the population growth in S'pore). Downside risks include: 1) a hike in oil prices, 2) regulatory/forex risks, and 3) a drop in ridership.

Outlier 1Q09. Keppel Corporation's (KepCorp) topline grew 34.7% YoY to S$2.98b while PATMI rose 9% YoY to S$285m. The results exceeded our expectations in view of a strong show from the Offshore and Marine business. The other divisions performed largely in line with our expectations. A key highlight for KepCorp was an improvement in margins in all the divisions. These came in higher than our estimates.

Property, still a concern. Revenue declined to S$222m (-26% YoY) largely due to the completion of trading projects in FY08. Although the 33% YoY decline in bottom-line was faster than its revenue, it would have been worse if it was not mitigated by the increase in contributions from Marina Bay Residences and Reflections at Keppel Bay in 1Q09. Our property analyst has lowered our FY09 revenue and shareholders' profit forecasts to S$720.3m and S$222.7m respectively. Keppel Land has also declared a rights issue where KepCorp is committed to putting in up to S$678m.

Infrastructure: provides some silver lining. This division delivered a strong quarter as it recognised lump sum revenue from its Doha North project and its Keppel Merlimau Cogen plant obtained better market share in Singapore. On an annual basis, we think that the Doha project's lumpy contribution will be smoothened out. We are factoring its Cogen plant to sustain its market share.

Unfounded enthusiasm. We remain cautious on the enthusiastic 50% share price run since its recent low on 4 Mar 09 as fundamental positive changes in the industry have yet to be seen. Oil price continues to hover at sub-50s range while the group has seen a dearth of rig orders despite repeated assurances that the Oil Majors' and National Oil companies' E&P spending "will continue despite the slowdown in the world economy". We also caution investors on expecting similar quantums of dividend payouts as the group hunkers down to conserve cash and remain in a well capitalised position for acquisition opportunities. Our interim dividend is forecasted at 11 S cents, significantly below consensus of 17 S cents. We have shaved our revenue due to weaker property performance but PATMI improves due to upward revision of margins.

Downgrade to SELL. Our SOTP valuation has been bumped up to S$4.90 (prev. S$4.40) due to the run up market value of its associates plus an improvement in margins leading to better earnings. The 19% downside to our fair value is underpinned by weak industry fundamentals.

Likely steady results from SingTel and StarHub. Based on the relatively steady results from MobileOne (M1) last week, we are also looking forward to similar showing from SingTel and StarHub when these companies report quarterly results over the next few weeks. As a recap, M1's 1Q09 results were mostly within expectations; topline slipped 8.6% YoY and 4.3% QoQ to S$186.4m, but net profit jumped 10.4% YoY and 14.5% QoQ to S$41.9m, albeit due to one-off accounting adjustment for the 1%-point corporate tax rate reduction; EBITDA service margin was steady at 44.6%, despite suffering a near-12k drop in subscribers.

Associates - main concern for SingTel. On 14 May 2009, SingTel will announce its 4Q09 results. We expect revenue to show a modest QoQ decline (<5%) as we expect the economic slowdown to exert a slight toil on its business; the weaker AUD is also expected to negatively impact its consolidated revenue. But the biggest concern will still be its regional mobile associates - SingTel had earlier guided for lower overall pre-tax contributions. As such, we are looking for a slightly larger fall (<10% QoQ) in 4Q09 earnings, buffered by the inclusion of contributions from recently-acquired Singapore Computer Systems (SCS).

OpCo - medium-term positive for StarHub. On 7 May 2009, StarHub will announce its 1Q09 results - we are pencilling in a modest QoQ (<5%) drop in both revenue and earnings due to the impact of the economic slowdown. And we do not expect any changes to its stated S$0.045/quarter dividend policy, despite StarHub landing the OpCo bid for the NBN; based on our estimates, its strong operating cashflow should be sufficient to fund most of its higher capex requirements (likely to kick in from next year onwards). In any case, we see the OpCo win as a medium-term positive for StarHub and have adjusted our numbers recently.

Keeping sector as Overweight. Despite the recent rally in the overall market, where there has been a shift towards higher beta stocks in the belief that the worst of economic/financial crisis is behind us, we are not convinced that there will be a rapid recovery. We believe that investors should continue to hold on to some defensive stocks such as telcos for their less vulnerable earnings and stable dividend payouts as a means of portfolio diversification. As such, we maintain our OVERWEIGHT rating on the sector.

In this report, we review the status of the ongoing construction of Singapore's S$14.4bn integrated resorts (IRs), investigate market concerns over Las Vegas Sands (LVS) financial position, gauge the impact that the IRs would have on the economy as well as the impact on the banks, hoteliers and retailers. We argue that the Genting Group will be the biggest winner and reiterate our Buy recommendation.

Despite the overhanging cloud of worries, we believe LVS will be able to declare the IR open by January 2010, albeit not fully completing the GFA. We believe the group has raised enough capital to ensure that its incremental S$675mn equity contribution to the project is met. Our concern lies in 2010 where we think its earnings targets are optimistic and meeting debt covenants may be a challenge.

However, we are not unduly worried about the impact on the Singapore banks. Even in the unlikely event that LVS fails to make incremental capital injections in2009-2010, we believe a “white knight” will emerge to pick up this national strategic asset and there is sufficient equity buffer before banks take a hair cut. We estimate that UOB has the highest exposure (9% of its Tier 1 capital) to the IRs, while DBS and OCBC are at 5% and 7%, respectively.

We expect the IRs to increase visitation to Singapore by 2.5mn arrivals pa, or about 25% increase from the 9mn forecast in 2009. This will cushion the supply increase and help the likes of CDL Hospitality Trust. On the retail front, the two IRs represent 17% of new supply coming on-stream but we think the likes of suburban retailers such as CapitaMall Trust will hold up better.

We believe Genting will emerge as the biggest winner from the opening of the IRs. The contribution through its subsidiary GIL should increase exponentially from 2010 especially with the group’s ability to leverage its powerful customer network to cross-market. Meanwhile, contribution from Malaysia remains a cash cow and the group has strong balance to take advantage of distressed assets globally. Valuations remain appealing to us at 12x 2009E P/E and a 48% discount to RNAV.

Revenue slipped 6.7% to S$7.7m in 1Q09 ? In line with expectations ? mainly due to downward pressure on average selling prices ("ASP") of marine cables and accessories as a result of lower copper prices. Revenue from marine cables and accessories, the largest revenue contributor for the Group, declined 22.9% to S$14.1m which was partially offset by an 11.7% increased in revenue contribution from the marine lighting equipments and accessories of S$4.5m.

Gross profit decreased 18.2% to S$7.7m in 1Q09 due to the lower ASP from marine cables and accessories as a result of lower copper prices and the consolidation of new marine switchboards and services segment which carries a lower gross profit margin. Overall gross profit margin declined 4.7ppt to 33.7% in 1Q09.

Net profit decline 31.3% to S$3.4m in 1Q09, achieving 23.9% of our FY09F estimates ? due to the relatively inelastic operating expense which rose 1.8% and 4.0% to S$3.5m in 4Q08 and 1Q09 respectively. Overall net profit margin declined 5.4ppt to 15.4% in 1Q09, in line with our FY09F forecast of 14.1%.

Downgrade to Sell; target price raise to S$0.18. We believe product pricing is likely to stabilize going forward with crude oil and copper price bouncing off from their respective Feb 09 and Dec 08 low. We increase our target price to S$0.18 after raising our valuation parameter to 1.0x FY09F P/B (previously 0.9x FY09F P/B), still pegged at a premium to its small cap peer's average P/B valuation of 0.7x. While we continue to like BH Global for its superior margins and ROE, we believe BH Global, trading at 6.9x FY09F P/E and 1.5x FY08 P/B, is fully valued at current price given that its peers in mid and big cap stocks category are trading at 4~8x FY09F P/E and 0.8~2.3x FY08 P/B. Stock outperformed STI index in the past 1 month, having surged 38% as compared to 19% respectively. Downgrade to Sell on valuation grounds.

Keppel Land's listed trust K-Reit Asia says distribution per unit (DPU) fell to 2.38 cents in the first quarter of this year, down 48 per cent from 4.6 cents a year earlier, on an enlarged share base after a rights issue. K-Reit issued 396.9 million new units - more than doubling the total number of units - in the May 2008 issue.

The fall in DPU was despite a 37 per cent surge in distributable income as the office trust achieved higher rents from new and renewed leases. Distributable income for Q1 March 31, 2009 rose to $15.7 million, from $11.4 million a year earlier. Besides better rental income, K-Reit benefited from lower borrowing costs and lower income tax due to a reduction in the tax rate. Net property income of $10.8 million was 18 per cent higher than $9.1 million in Q1 2008. The growth was underpinned by higher gross rental income from K-Reit's properties - Keppel Towers, GE Tower, Prudential Tower and Bugis Junction Towers. Gross rental income rose 29 per cent year- on-year to $14.5 million. The trust had borrowings of $577.6 million at end-March. None of the amount is repayable in a year or less.

'It has no immediate refinancing concerns as its existing loans will mature in 2011. 'The trust set up a $1 billion medium-term note programme recently to provide it with greater funding flexibility. K-Reit Asia acknowledged that the office sector softened in Q1. Average prime and Grade A monthly rents fell 34.4 per cent and 34 per cent year-on-year to $10.50 per sq ft (psf) and $12.30 psf respectively, according to data from CB Richard Ellis.

But the trust said its portfolio still enjoys positive rental reversions and has a diverse tenant business mix. Income from its one- third interest in One Raffles Quay also remains sustainable, with income support lasting until end-2011, K-Reit said. Given the uncertainties ahead, the trust will emphasise tenant retention and is looking to achieve greater operational and cost efficiency. It will also make selective asset acquisitions should opportunities arise. K-Reit units lost 0.5 cent to close at 68 cents yesterday.

GuocoLand announced 3Q09 results, reported profit of S$4.9million. Core profit, after mark-to-market gain on derivative financial instruments, unrealized foreign exchange loss and adjustment for over provisioning, was in line with our estimates. The View @ Meyer, one of the group's residential development projects in Singapore, obtained Temporary Occupation Permit (TOP) during the quarter.

Re-launch of The Quartz a success. The 182 units in The Quartz was re-launched during the quarter and is almost sold at an average price of about S$600 psf. With the pick up in property sales in Singapore in general, we think the group is likely to launch Sophia Residences at Dhoby Ghaut in calendar year 2009. That said, large development projects such as Leedon Heights redevelopment would be further deferred in our view.

Gearing remains at an elevated level. Net debt to equity for the group stood at 124% as of 31 Mar 2009 with S$980mil debt to be refinanced in the next 12 months. With property sales still at a slow phase in both Singapore and China and the lack of resolution of the legal title for the DZM project, we expect the group's gearing to remain at an elevated level for the next 2 -3 year.

Legal issues on DZM project yet to be resolved. The group is currently still awaiting the decision on the group's 90% interest in the DZM project from Beijing Intermediate Court and Hainan High Court. While we continue to hold our view that the resolution on the DZM legal issues in favor of GuocoLand would act as a positive share price catalyst for the stock, we see potential risks of these legal proceeding dragging on for another year which would stretch the company's balance sheet further in the near term.

Pacific Shipping Trust announced that it might have to renegotiate charter rates down by about 30% for CSAV, which charters 2 of its fleet of 12 vessels. To note, we had highlighted in our last report that the key risk for PST's distributions would be in the form of counterparty risk with respect to CSAV. We estimate this will impact DPU by at least 13-15% in FY09 & FY10, and downgrade PST to FULLY VALUED at a reduced target price of US$0.15. Further risks stem from PST’s lenders invoking penalty clauses owing to the resulting material changes in charter contracts.

CSAV feels the heat. After a couple of downgrades by rating agencies earlier in April, Chilean container ship operator CSAV has decided to strengthen its balance sheet by US$750m – through a US$220m rights issue, as well as capitalising commitments with ship-owners and banks to the tune of US$400m. The re-negotiation with PST is thus, part of a broader co-operation and assistance framework to bail CSAV out of a difficult situation arising from huge operating losses.

And PST will be forced to cut DPU. Currently, CSAV's two charters account for about 30% of PST's revenue stream. Hence, we estimate revenue will be affected by about 10% in FY09-10, and lower our DPU estimates for FY09-10 by 14-16%. This translates to a DPU of about 3.2 UScts in FY09 and 3.4 UScts in FY10, down from 4.1 UScts in FY08.

Clouding sentiment for the shipping trust sector. While part of the reduction in charter hire may be capitalized in the form of shares to motivate ship owners, we feel the risks to DPU is heightened by reduced cash flows backing up the US$80m outstanding loan for the 2 CSAV ships. Diversion of cash flows to meet lender’s penal requirements cannot be ruled out. In line with lower DPUs, our DDM-based TP is also reduced to US$0.15. Downgrade to FULLY VALUED.

First Ship Lease Trust (FSLT) reported a lower 1Q09 net profit of US$1.5m (1Q08: US$1.7m) but higher than that in 4Q08 (US$0.5m). Earnings came in higher than our expectations. The lower net profit was due to periodic interest expense and depreciation charges relating to the acquired vessels exceed lease rentals received.

Distribution per unit (DPU) for 1Q09 of 2.45 US cents will be distributed to unitholders. This represents 73% of total distributable cashflow. The retained cash has been applied towards a voluntary loan prepayment of US$4.0m. FSLT has also guided the same DPU amount for 2Q09.

FSLT has decided to apply the distribution reinvestment scheme (DRS) for 1Q09 in order to increase its scope of voluntary debt repayment. The issue price of the new units will be announced after the Book Closure Date of 29 April 2009, 5pm.

In view of the heightened risks arising from a prolonged credit crunch and an illiquid shipping asset market in 2009, we are maintaining HOLD recommendation on FSLT and our fair price of S$0.60 is currently under review.

CRCT’s 1Q09 distributable income grew by 46% to S$3.3 m (DPU of 2.12 Scts), in line with expectations. On a sequential basis, portfolio occupancy declined 1% to 97%, on the back of continued tenant remixing and the loss of a major tenant at Qibao & Xizhimen. Maintain HOLD, TP $0.90 based on DCF. CRCT currently offers a FY09-10 DPU yield of 8.6-9.6%.

Results in line. CRCT’s 1Q09 results are within expectations. Gross revenues and NPI increased by 32.7% and 33.5% respectively to S$30.4m and S$19.1m respectively. This growth was brought about by a full quarter contribution from Xizhimen Mall acquired in 1Q08. Distributable income grew by c. 51% to 13.3m, translating to a DPU of 2.14 Scts.

Weaker sequential performance. Results as compared to 4Q08 revealed a mixed operational performance, brought about by a 1% decrease in portfolio occupancy to c96.7%. This was due a major tenant that gave up its lease in 2 of its malls (Qibao & Xizhimen) owing to poor business performance. We understand that the asset managers are actively looking to lease out these spaces. Rental reversions also moderated to an average 1.8% in 1Q09, but noted that Wangjing and Xizhimen mall recorded small declines in signing rents. This is in line with our projections of a flattish renewal cycle in FY09 coupled with an increase in vacancy of 5-10% at its malls.

Appreciating RMB beneficial for CRCT. We adjust our earnings estimates in line with our currency strategist outlook on the S$-RMB exchange, leading to a higher estimate of 7.9cts and 8.9 cts respectively.

Maintain HOLD, TP $0.90. We maintain our HOLD call on CRCT, TP raised to $0.90 based on DCF, after (i) adjusting our earnings upwards due to the positive impact from an appreciating RMB against the S$ and (ii) raising our terminal growth assumption.

Part of a strong franchise. We are re-initiating coverage on Ascott Residence Trust (ART). ART owns a portfolio of serviced residence and rental housing properties in the pan-Asian region. The REIT's properties are managed by The Ascott Group (Ascott), the serviced residence arm of 47.2% stakeholder CapitaLand. Ascott is the world's largest international serviced residence owner-operator and has a 25-year industry track record. Its serviced residence brands enjoy world-wide recognition and strong award-winning reputations. ART's highly diversified portfolio spans 11 cities in seven countries with no country contributing more than 25% of total FY08 revenue. ART trades at one of the highest forward yields within the S-REIT sector. It is also trading at a 68% discount to last reported NAV.

Near-term yield volatility. RevPAU is the key metric driving ART's earnings and distributions performance. 4Q08 RevPAU showed the first impact of global economic events. ART's China properties saw a 43% drop in 4Q RevPAU to S$127, as rates and occupancy fell post-Olympics. ART's Singapore properties saw a 12% decline in 4Q08 RevPAU to S$230. We expect RevPAU to remain volatile (and on a downtrend) with demand for corporate travel impacted by the current macroeconomic turmoil. We are estimating DPU of 6.6 S cents for FY09F (down 24% YoY) and 6.2 S cents for FY10F (down 7% YoY). These figures are roughly 6-7% below consensus.
A viable investment option. While we agree that yields will decline in FY09-10F, ART's current valuation seems to be pricing in a perpetual bearcase. In our view, current share prices reflect a belief that business conditions deteriorate to a certain extent and then stay that way. The investment question then breaks down into two components: 1) A volatile (but still comfortable) yield over the next two years, and 2) A very low "floor" valuation that leaves ample room on the upside. We believe ART is a viable investment option for investors who can accept the near-term yield volatility and judge ART on the basis of its long-term prospects (which we think are sound).

Re-initiating with BUY rating. Our SOTP value of the trust is S$0.76. This incorporates our assumption of an equity issue of S$160m at the S$0.45 price level. Our fair value estimate for ART is S$0.57, at a 25% discount to our SOTP value. Key risks to our estimates include a worse- than-expected deterioration in the economic outlook in ART's operating markets, a larger-than-expected cash call or more-than-expected dilution, and higher debt costs.

DTAC is scheduled to release its 1Q09 results after market close on 29 Apr. 1Q09 results should regain momentum from a weak seasonal 4Q08, with a core profit ofTHB1.3bn-1.4bn expected, up 7-10% qoq. Results should also rebound after four quarters of consecutive declines. We expect a 1.5% qoq increase but 6% yoy drop at the topline from receding industry competition, improving tourist arrivals and continuing growth in data revenue.

With the industry shifting its focus to customer retention from new acquisitions, subscriber growth is likely to slow down to single digits from double digits over the years. Nevertheless, DTAC should still see growth in rural areas with some churns in cities where users tend to be multiple SIM holders.

Solid outlook but exciting news has been put on hold. DTAC’s outlook for the rest of the year should be subdued along with the economy, but it should still benefit from the defensiveness of its business and receding competition. The long-awaited award of 3G licences seems to have been put on hold once again by political strife, but we believe that progress will resume when political conditions improve.

Cost-savings to take effect in 2H09. A decline in profit margin, from 13.5% in 1Q08 to 7.5% in 4Q08 (Figure 1), could be blamed on a weakening interconnection balance and higher S&GA expenses (legal and marketing expenses) on top of slow sales growth. However, receding competition should ease marketing expenses and other discretionary expenses. The positive impact is likely to be marginal in 1Q09, with more effects from the company’s cost-cutting programme to be felt in 2H09, in our opinion.

Maintain Outperform and DCF-based target price. DTAC’s share price has been dragged down more than ADVANC’s, as risk-averse investors preferred the latter’s superior balance sheet, dividend yields and quality earnings. At 6.6x CY10 P/E, DTAC trades at a 43% discount to ADVANC, but down from the 80%+ discount in March. DTAC appears cheap given investors’ improving risk appetite.

We keep our Outperform rating and target price of THB36.00, based on DCF valuation (12.6% WACC and 2% terminal growth). Our target price implies 8.9x CY10 P/E.

With inventory distortion now behind us, we raise our utilisation assumptions for CSM. Still, two concerns remain: 1) recovery of orders from IDMs will take time, since internal capacity is still available; and 2) despite its rights issue, CSM needs to raise more funds. We remain NEUTRAL as we await clarity on funding.

Mounting design costs for finer process nodes have seen some IDMs discontinue in-house R&D in favour of alliances. The IBM-CSM alliance is seeing increased acceptance, having proven its platform as a viable alternative to TSMC. AMD, Freescale, Infineon, ST Micro, and now Toshiba are adopting the IBM platform.

High transition costs to 65nm have effectively delayed the 65nm ramp at CSM’s new wireless customers. Limited transactions with these customers on older nodes and continued demand woes exert downward pressure at CSM.

We are seeing a recovery in orders from the fabless chipmakers as the channel inventory correction comes to an end. Exhibit 1 shows the sales and inventory of the top 30 fabless customers, which together account for about 70% of Asian foundry demand. Our forecast is for 1Q09F sales to fall US$11bn — off 70% from the peak of US$17bn in 3Q08. We believe this decline is distorted by inventory correction in the channel. On our estimates, end-product demand fell 9% q-q in 4Q08 and 20% q-q in 1Q09 — with the difference (vs the 70% sales decline) driven by channel inventories being worked down. The dotted line shows our reconstruction of sales, had inventory correction not had an impact. We expect normalisation of channel inventory to be complete by end-1Q09F. Intel’s comment in its results call yesterday that channel inventory in the PC segment was back to normal levels reinforces our view that inventory correction has run its course.

For 2Q09F, we see global utilisations recovering to 65-70%, from 45-50% in 1Q09, as inventory distortion washes out. However, we think order growth at foundries is likely to come only from fabless makers, since IDMs first have to fill in-house fabs. For 2H09F, we see further improvement in foundry utilisations being driven by: 1) seasonal demand growth in 2H09F; and 2) partial recovery of orders from IDMs. We forecast CSM’s utilisations at 54%, 60.4% and 59.8% in 2Q09F, 3Q09F and 4Q09F (earlier: 39%, 51% and 49%, respectively).

Given the better outlook for utilisations, we reduce our net loss forecasts — for FY09F, we now forecast a loss of US$299mn ex one-offs (previously: loss of US$336mn); for FY10F, we bring down our net loss expectation to US$172mn (ex one-offs), from US$203mn earlier. Upside risks to our expectations: 1) faster-than-expected reduction in breakeven utilisations at CSM (note: CSM currently expects a reduction in breakeven utilisation to 75% by end-4Q09F, from the mid-80s in 4Q08); and 2) faster-than-expected 65nm ramp.

We maintain our NEUTRAL view of CSM, since we remain concerned about the need to raise further capital in FY10F. On the new equity base post completion of the rights issue, we set a price target of S$0.14 (method unchanged; earlier: S$0.22, before adjusting for rights issue). We derive our price target by applying our FY09F BV forecast to the average forward P/BV of CSM’s closest peers, UMC and SMIC.

We visited six of CREIT’s industrial properties recently, accompanied by members of its asset and property management teams, followed by a meeting with its new CEO, Mr Chris Calvert.

Concerns we have include the fact that only 30% of its master tenants are endusers of its industrial space and CREIT’s heavy reliance on its top 10 tenants for its gross revenue.

Short-term performance looks stable. We take comfort that management is managing its tenants and sub-tenants much more tightly, and taking steps to ensure tenant sustainability. Limited lease expiries of only 5.4% over the next four years add some certainty to occupancy sustainability.

Maintain Outperform at S$0.53. Although there remain issues in CREIT’s portfolio, we are fairly confident that CREIT is not likely to face too much distress in the short to medium term. At 0.37x P/BV, CREIT remains more attractive than its two larger competitors AREIT (0.79x) and MLT (0.52x). Potential price upside of 89% and above-average yields of 17.5% make CREIT attractive despite uncertainties in the manufacturing sector. We maintain our Outperform and target price of S$0.53 (discount 9.6%), still based on DDM valuation.

Revenue fell 8.6% to $186.5m due to a continued fall in postpaid revenue and lower handset sales, exacerbated by the fact that 1Q is seasonally a weak quarter due to Chinese New Year in February and a one-week school holiday in March. While reported net profit rose 10% YoY to $42m (due to a lower corporate tax rate), we estimate core net profit at $36.5m (flat QoQ, down 3.7% YoY), in-line with our full year forecast of $147m.

Postpaid mobile revenue fell YoY as market share continued to slip while ARPU fell on the impact of promotions and to a less extent, lesser roaming and more IDD traffic on value rates. Nevertheless, EBITDA margin still improved YoY and QoQ due to lower subscriber and retention costs (in part due to the new Take3 promotion which allows M1 to amortise handset costs rather than expense them immediately).

According to management, the negative effect on postpaid ARPU in 1Q09 was due more to the impact of two promotions (Multi-Line Saver and Per Second Billing, which were both launched in Mar 2008) rather than factors related to the economic downturn, such as a hollowing-out of the foreign worker subscriber base, which so far has not happened as the construction industry remained buoyant.

M1 has started to address its shrinking postpaid market share with the Take3 promotion (contracts that come with free handset and option to exchange for a new one in nine months), which is aimed at capturing niche segments it believes will help it reverse the trend, with the promise of more promotions to come. In addition, management hinted that a new CEO has been found and an announcement will be made “very soon”.

Management is guiding for a stable bottomline in 2009 although revenue is likely to dip. In the longer term, we reckon M1 will be the biggest beneficiary of the NGNBN, which will allow it to build up a multi-play platform and help grow the topline again. M1 is still the cheapest telco, with receding risks now that the OpCo overhang is over and still-healthy cashflow that will ensure a sustained dividend.

• Tough outlook for steel players. Many steel firms in Asia are bracing up for a tough second quarter with lower profit guidance and output cuts. However there is still a glimmer of hope that demand, might improve in the second half of 2009 should the global economy recover.

• Oversupply of steel. Steel markets are starting to look oversupplied as inventories in China, the world’s largest steel consumer, have reached record high levels. Steelmakers around the world have been cutting production to curb with the sharp fall in demand triggered by the global recession. So far worldwide steel output has dwindled by a whopping 24% this year, indicating overproduction.

• Falling steel prices. Asian steel prices have fallen by more than 50% to below US$500 a tonne, from 2008-highs and are still set to slide further due to sharp falls in demand and the slumping price of iron ore, which is a key ingredient in steel making.

• Diminishing demand for structural steel. Structural steel products, particularly steel plates continue to be badly hit by the steel slump with sharp falls in demand being increasingly apparent.

• Financing matters. As of 31-Dec-08, the Group has about S$57m worth of debt borrowings that are due within 12 months. Should HupSteel be able to collect its outstanding receivables promptly, refinancing is not likely to be required. Total receivables amount to about S$85m as of 31-Dec-08.

• Effort to improve cash position remains to be seen. Management previously mentioned that they intend to improve HupSteel’s cash position going forward via stricter debt monitoring and an inventory reduction strategy aimed to reduce total bank borrowings. The result from the effort remains to be seen in the Group’s 3Q09 results which will be out in May-09. As of 31-Dec-08, the Group has about S$21m worth of cash and its equivalent.

• Order flow. We expect the flow of new orders to slow in 3Q09 from the Group’s customers due to the negative effects of this recession. However HupSteel usually operates on a spot sale basis, so there is no worry of order cancellations.

• Further provisions may be made. In light of weaker selling prices, we feel that HupSteel may have to made additional provisions for inventory, causing a drop in overall profitability.

• Weak 3Q09 earnings expected. Though we have not gotten guidance from management, we expect lacklustre earnings for 3Q09 due to the continuation of the global steel slump.

• Cash conservation likely suggests lower dividends. Dividend payout is likely to fall under FY2008’s as the Group conserves cash to pay off its outstanding liabilities and to sustain its operations throughout the tough macroeconomic environment.

• Maintain SELL. We maintain our Sell recommendation and earnings forecasts for now. Our target price stands at S$0.10 based on 2.5x P/E which is the industry average as we factor in the ongoing steel slump and lower dividends for FY2009.

Buying momentum continued in March. After a month of strong property sales in February, developers' sales remained firm in March. According to URA data, a total of 1,162 non-landed property (NLP) units were sold in March. Breaking down by per square foot pricing of these projects, 1,017 NLP sold units (~87.5% of total units sold) were priced at S$1,000 psf and below, implying that mass market properties continue to dominate sales.

136 NLP sold units were priced between S$1,001 psf and S$1,500 psf and only 9 NLP sold units were priced above S$1,500 psf. Although the number of NLP units launched declined MoM to 823 in March (1,059 units in Feb), more new projects were launched in March (8 projects in March vs. 4 projects in Feb). The decline in the number of NLP units launched could be due to developers holding back units in their new launches and this is a positive move to control the supply of new units in the market. Some of the major launches in March included Double Bay Residences (320 units launched), Mi Casa (123 units) and The Arte (120 units).

Weak macro newsflow continues. The recent rally in the stock market could have provided an additional boost to buying sentiment in the propertymarket. However, economic data remains weak as Singapore had just reported a record GDP contraction of 19.7% QoQ in 1Q09. On the jobs front, we continue to see negative newsflow on retrenchments coming from the finance and manufacturing sectors. While we doubt the sustainability of the current demand for properties, we reckon that the current situation provides a good opportunity for developers to lighten up their landbank and capture new sales to extend their earnings visibility, after enduring months of slow sales earlier.

New sales for UOL and CDL in March. Among the developers under our coverage, UOL Group and City Developments (CDL) have benefited the most from the improvement in buying sentiments. UOL Group's Double Bay Residences sold 264 units out of the total 646 units (41% sold) and CDL's The Arte sold 90 units out of the total 336 units (26.8% sold). As the construction for The Arte had already started last year, CDL will recognize a higher percentage of revenue upon sales, based on the % of completion of the project. We have BUY rating for UOL Group (FV: S$2.58) and HOLD for CDL (FV: S$5.53).

4Q09 results were in line with estimates. For the quarter, Ascendas REIT (A-REIT) reported a DPU of 3.2 Scts and 15.2 Scts for the FY09. In terms of valuation, A-REIT is starting to look rich at 0.9x P/BV vis-à-vis peers at 0.5x P/BV. Current price, which has risen 32% since our last report, has only 6% upside to our TP of S$1.56. We downgrade the stock to a HOLD. A-REIT currently offers a FY10-11 DPU yield of 8%.

Results in line. A-REIT reported 4Q09 results in line with our expectations. Gross revenues and net property income grew 24% and 25% to S$104.3 and S$80.1 respectively. This was largely due to a stable source of income stream from its portfolio, coupled with contribution from new additions in its portfolio. Distributable income grew by a smaller 6% to S$51.8m, largely due to management taking performance fees in cash instead of units. DPU for 4Q09 was 3.2 cts, -12% lower yoy due to a larger unit base. For FY09, A-REIT delivered a DPU of 15.2 Scts. Looking ahead, management has indicated to maintain a payout at 100%.

Gearing was at 35% as at March’09 but is estimated to rise to c38% with the completion of its development projects. Interest cover is expected to remain healthy at 4.2x.

Occupancy levels remained healthy. As of 4Q09, portfolio occupancy remains healthy at 98% (Multi-tenanted buildings 95%, Sales and Lease back 100%), which has remained stable for most of FY09. Looking ahead, we estimate vacancy levels at its multi-tenanted buildings portfolio to increase to 15%.

Downgrade to HOLD, TP S$1.56, based on DCF. We downgrade A-REIT to a HOLD, largely on valuation grounds given the limited price upside to our target price. A-REIT is also trading at a premium to peers 0.9x P/BV vs 0.5x P/BV, offers a FY10-11F yields of 8%.

Following weaker-than-expected 1Q09 GDP and higher 1Q09 office vacancy, we revised our peak-to-trough rental decline estimate to 57.0% (from 47.1%). Nonetheless, on an implied EV basis, Suntec’s prime assets remain undervalued, in our view. Maintain BUY, but price target cut to S$0.82 from S$0.90.

Weaker demand is likely to see office rents fall 56.8% from peak to trough. Retail and industrial properties, in our view, are not immune, given higher supply/lower demand with rents likely to fall 17.0% and 31.7% over the cycle.

Weak macros have reinforced expectations of lower rents and rising vacancy while REITs are grappling with refinancing and the spectre of revaluation deficits raising gearing. The market appears to have priced these concerns in the office sector, but looks complacent in its assessment of the retail and industrial REIT sector.

Rapidly deteriorating macro conditions (Singapore 1Q09 GDP falling at a faster-than-expected 11.5% y-y) will further undermine office occupancy and rents beyond what we had previously anticipated. We now expect a peak-to-trough rental correction of 57% for the Singapore office market, compared to our earlier assumption of a 47% correction. Adjusting for our revised office rental outlook, we are lowering our Suntec’s asset valuation to S$3.35bn from S$3.54bn (-5.4%) and consequently paring our core NAV estimate for the stock to S$0.85/unit from S$0.96/unit (-11.5%).

Our gross asset valuation of S$3.35bn is S$2.06bn less than the latest value of Suntec’s portfolio, and the projected revaluation deficit could boost the company’s gearing from our FY09F forecast of 0.35x to 0.58x. For valuation purposes, we have consistently assumed Suntec would need to raise additional equity of about S$536.1mn at the current share price to ensure gearing remains below 0.40, which reduces our intrinsic value of S$0.85/unit by S$0.03/unit. As a result, we cut our price target to S$0.82 from S$0.90.

According to DTZ, tenant demand weakened considerably in 1Q09 “as companies continued to focus on consolidation of space and held back expansion plans”. The real estate consultancy estimates that Island-wide average vacancy rose 2.1pp to 6.4% (up from 4.3% at end-4Q08). Similar trends were seen in the city, as average vacancy in the Raffles Place precinct (Singapore CBD) rose to 7.1% (from 4.4% at end 4Q08). In the city fringe locations of Anson Road/Tanjong Pagar, vacancy rose to 6.3% (from 2.7% at end-4Q08).

Given the deterioration in demand and rising vacancy, office rents have slipped faster than expected in 1Q09. According to CBRE, Singapore Grade A office rents declined 18.0% q-q in 1Q09. Rents according to the real estate consultancy fell from S$15.00/psf pm at the end of 4Q08 to S$12.30/psf pm at end of 1Q09. Rents according to CBRE peaked in 3Q08 at S$18.00/psf pm. Jones Lang LaSalle estimates steeper falls in the Grade A market, suggesting rents in 1Q09 were down 28.1% q-q to S$10.75/psf pm versus S$14.95/psf pm in 4Q08 and down 41.6% since the 2Q08 peak rent of S$18.40/psf pm.

Our distribution projection takes into account a peak-to-trough correction of 57% in office rents, as well as overall cost of debt of 3.4% in FY09F and 3.6% from FY10F. A sharper-than-expected rental decline and increase in borrowing cost would result in our distribution forecast not being met. In addition, a wider-than-expected cap rate expansion would also result in our NAV forecast not being met, with implications for our price target.

Results preview. Tat Hong Holdings Ltd (Tat Hong) is expected to post its 4Q09 results on 28 May 09. We are anticipating a 28.9% YoY decline in net profit to S$20.2m on lower revenue, slightly below the street's estimate. Sluggish equipment sales will likely be the group's weakest link, while rental income is expected to provide stability to the group's overall earnings. Key areas worth noting in its 4Q09 results include fleet utilisation and rental rates, where we anticipate signs of softening, as well as the impact of forex on earnings. To recap, Tat Hong suffered forex losses, both realised and unrealised, which amounted to S$23.4m in 3Q09 as a result of the Yen's sharp appreciation. With the Yen having tapered off since, the group could reverse part of its unrealised losses in the coming quarters. However, we do not expect forex loss reversals to have a significant impact on 4Q09 earnings.

Tapping growth opportunities in China. Pockets of growth opportunities continue to exist in China despite the overall gloom in private spending. This has been reflected in the healthy growth recorded by Tat Hong's new tower crane segment, which posted a 158% YoY surge in 3Q09 revenue despite the overall softening experienced by the other segments. To further strengthen its market share in this resilient segment, Tat Hong has formed a new joint venture (JV) to leverage on growing demand for tower crane rental in the PRC. This JV, which will be funded by internal resources, is in line with its strategy of expanding its presence in China.

Adopt a cautious stance ahead of 4Q09 earnings. Tat Hong has done well since our upgrade, having appreciated 38% to S$0.82. Sentiment for construction stocks has improved after the sector proved its resilience with a 25.6% YoY growth despite Singapore's 11.6% GDP contraction. However, we caution that while strong demand from Singapore could pick up some of the slack, it will not be able to completely offset the slump in global demand, given Tat Hong's diverse exposure in Australia and the rest of ASEAN. We prefer to adopt a cautious stance ahead of the group's 4Q09 earnings, and are keeping our S$0.72 fair value estimate intact. In view of the recent rally, we downgrade our rating to HOLD.

YTD private hospital admissions declined 1.8% YoY. The decline in admissions reflects a slowdown in private healthcare and a migration toward public healthcare. RMG's patient base has shown resilience in 1Q09 with growth in its foreign patient base. However, continued economic slowdown could put pressure on the private healthcare sector. The stock has a yield of 2.8% and trades at a PE of 14.6x FY09E, a slight premium to its regional peers which trade at 13.2x. Hold.

1Q09 results showed that growth came from an increase in volumes at its healthcare (+11% YoY) and hospital divisions (+5% YoY). Outperformance came from the increase in the number of foreign patients, which rose 8% YoY, and recent key measures in the government budget through savings from Job Credit.

Management continues to see an increase in foreign patients helped by a diverse mix of foreign patients and higher operating margins due to increased operating leverage, savings from Job Credit and improved bulk purchasing. We raise our earnings estimates by 6-9% in FY09-11E to factor in higher patient volumes (from a 5.5% decline to flat) and margin assumptions.

Based on our revised earnings forecasts, we have raised our TP to S$0.68 from S$0.62 based on our DCF valuation using a discount rate of 9.0% with a terminal growth rate of 1.0%. Upside risks are greater operating leverage, an accretive acquisition, and a rebound of regional economies. Downside risks are higher operating costs and a drop in the number of foreign patients.

SGX reported 3Q FY6/09 net profit of S$53.3 mn (-26% QoQ/-46% YoY), posting the lowest profit since 1Q FY6/07, pulled down by weakness in all revenue streams and an increase in IT costs.

Equity daily average turnover fell to S$0.9 bn (-20%/-57%) due to falls in markets as well as velocity (60% vs 67% in 2Q09). Futures turnover, which had been holding up relatively better, also fell 24% in 3Q09 pulled down by weakness in all contracts.

Not surprisingly, 3Q09 was the worst quarter for IPOs in recent history œ with two IPOs raising only S$83 mn. But SGX is seeing increased interest in fund raising through rights issues.

SGX cut variable staff bonus (-35% QoQ) which remains the only avenue to cut costs as SGX continues to build its technology infrastructure resulting in increased IT-related costs.

SGX will focus on domestic derivatives, commodity trading related products and OTC clearing to support near-term growth.

We cut FY10-11E estimates by 10-11% assuming a lower S$1.2-1.5 bn (from S$1.3-1.7 bn) daily trading average in FY10-11E.

Operating income in 2Q09 declined 16% yoy and 27% qoq to S$93.8m as falling print ad sales affected the profits from the core media business. Net profit declined 13% yoy to $87m and was within our expectations. The Group booked a net investment loss of $32m in 1H09. A lower than expected interim dividend of $0.07/shr was declared (1H08: $0.08/shr).

Print ad revenue declined 19% yoy to S$145.9m due to falling display ad (-16% yoy) and classified ad (-26% yoy) revenues. The visibility of display ad revenue remains low as the lead time for advanced booking stayed at one week. However, the average newsprint charge-out price is following the downtrend in commodity prices and our FY09-10F earnings have been raised by 3% partly due to lower newsprint cost assumption.

Sky@Eleven remains on track for TOP in CY2010. To date, 46% of the project’s revenue has been recognized. According to data from URA, resale units below the average launch price of $960psf represent less than 2% of total units in the project. Retail space at Paragon is fully occupied but office vacancy lowered overall occupancy rate to 98%. Further downward pressure in office and retail rental revenue is expected.

Group investible fund dipped to $0.9b mainly due to the dividend distribution in Dec-08 and a $33.8m net loss from externally managed fund. 80% of the fund is now internally managed, compared to 50% previously. Effectively, the cut in interim divided dampened hopes of bumper dividends for the 25th anniversary this year, but the Group’s policy of paying out the bulk of recurring income remains unchanged. Our FY09F DPS estimate has been revised up to 22.3 cts following our earnings revision.

Our SOTP target price is lowered from $3.25 mainly due to a smaller unrecognized development profit. Driven by out-performance in the recent weeks, the implied valuation of its media business is at its ten-year trough of 11x PER, compared to 8x in early March. Adjusted P/NTA is still below historical low of 2x, even as we assume a 20% drop in revaluation surplus. We maintain Buy, based on yield of 8.0% and potential capital appreciation of 10%.

SGX’s 3Q09 earnings of S$55.3m came ahead of CLSA expectations as market volumes remained robust underpinned by the recent rally. With current equity volumes continuing to display resilience we raise our FY09 average daily volume assumptions by 52% to S$1.07bn and our FY09-11 earnings by 44-78%. Nevertheless, trading at 25x FY09 earnings vs. 19x for global peers our new target price of S$3.80 (up from S$1.80) implies 39% downside. Maintain SELL.

Average daily traded value for 3Q09 fell 52% YoY and 12% QoQ. But the rate of the QoQ fall slowed as volumes picked up from the market rally over the past two months. Indeed, March 2009 volumes expanded 18% MoM. Market velocity improved to 69% in March from 56% a month earlier. So far in April, average daily value traded runs at S$1.3bn. As a result, we raise our FY09 average daily value assumptions to S$1.07bn from S$0.7bn. We remain less sanguine on the medium term especially as fundamental macro pressures remain unresolved. Hence we expect FY10 volumes to contract 11% YoY to S$0.95bn. This is a velocity of 63%; similar to the average velocity since January 2008- the start of the bear market.

3Q09 derivative clearing revenues fell 20% YoY and 27% QoQ, mostly on the back of falling futures contract volumes (-20.5% YoY). Almost all major contracts including the MSCI Taiwan (-21% YoY), MSCI Singapore (-28% YoY), Nifty (-51% YoY) saw significant volume declines. Rising redemptions along with falling AUMs and higher volatility should see many market participants in this space remain sidelined. Similarly, structured warrant turnover fell 62% YoY and 33% QoQ. While Management has seen a positive take-up of single stock derivatives since their launch in February 2009, this will have no material impact in the medium term, we believe.

Fee income for 3Q09 contracted 12% YoY as account maintenance and corporate actions diminished (-25% YoY). Similarly, with just 2 IPOs (vs. 9 in 3Q08) listing and membership fees fell 20% YoY. However, the Group’s shift towards adding value for price information services show positive results with fees here increasing 12% YoY. Nevertheless, this alone will not be enough to arrest the decline in SGX’s other fee sources as macro conditions deteriorate. We expect total fee income to fall 10% YoY in FY09.

Management claims the new derivatives clearing system is on-track to be launched by December 2009. Together with the recently launched equity clearing system, overall depreciation costs should increase ~50% YoY in FY09. However, overall opex should fall 11% YoY as bonus provisioning declines in FY09.

In light of our upgrades to average daily value assumptions we increase our FY09-11 earnings by 44-78%. As a result, we raise our DCF-based target price from S$1.80 to S$3.80. Nevertheless, trading at 25x FY09 earnings vs. 19x for peers, SGX remains expensive. Similarly, compare 7.8x FY09 PB vs. 4.1x for peers. Our target price implies 39% downside. Maintain SELL.

SMM has rallied 50% over the past month, outperforming the STI by 29%. While we continue to view SMM as one of Singapore’s long-term gems, we see valuations as fully priced (2.9x P/B vs. trough of 1.0x). We highlight that the oil price is unlikely to lend support to the stock in the near term and potential upside from Petrobras wins is already reflected in share price. We increase our PO to S$2.10 (from S$2.00) but downgrade our rating from Buy to Underperform.

SMM trades with a high correlation to the price of oil. Banc of America Securities- Merrill Lynch commodities analysts forecast that oil will average US$49/bbl in 2Q09 and $US56/bbl in 3Q09. Since the February lows, oil has rebounded by over 50% to today’s price of $50/bbl. While, arguably, oil could still rally another 10% before meeting our 3Q09 forecasts, we believe that the share price already reflects the medium-term upside to oil.

Given the accelerated pace of E&P spending by Petrobras, we have increased our order win assumptions in 2009/10 to S$3.8bn (from S$2.3bn). However, at today’s price, the market is implying the net addition of S$6.7bn of wins in 2009/10, which we believe is too optimistic. We also highlight that unless SMM can secure in excess of S$9.5bn of new orders in 2009/10, the net order book will be on a declining trend.

We recommend switching from SMM to SembCorp Industries (SCI), where we expect the earnings stability created via the utilities division (45% earnings contribution) will see the stock outperform relative to peers. After we strip out the value of SMM and other business from the valuation of SCI, we derive an implied utilities P/E of 9x (vs. the historical implied P/E of 13x); hence, we believe the market is discounting the true value of SCI’s utilities business.

Ending the quarter on a high. Mar 09 saw 1,220 homes snapped up (-8.4% QoQ, +278.9% YoY), putting 1Q09’s sold units to an impressive 2,660, representing the highest quarterly sales quantum since 3Q07 (3,450 units sold). Take-up exceeded 100%, helped by respectable demand in newly-launched projects (i.e. Double Bay Residences, Mi Casa, The Arte, Kembangan Suites and The Mercury), as well as re-launched projects at discounts of 10 – 20% (i.e. Kovan Residences, Parc Sophia, The Lucent and Palmera Residence). Mass market projects continued to be the order of the day, as we estimate > 85% of total sold units in Mar 09 were priced below S$1,000 psf, and located in the Outside Central Region (OCR) and Rest of Central Region (RCR). Overall, our estimates revealed prices in the mass and mid market were unchanged at S$700 and S$800 psf respectively. As for prime properties, The Mercury accounted for ~ half of the 133 homes sold here, with prices staying flat at S$1,400 psf. We also surmise that several units in Alexis (10 units) and Caspian (20 units) were returned between Feb and Mar 09. We reckon buyers remain HDB upgraders, middle-class Singaporeans, young couples and en-bloc sellers who were priced out of the run-up in 2007, with foreigners still few and far between.

Questionable sustainability of volumes. While we do not rule out pent-up demand (Oct 08 – Jan 09: monthly average of only 138 units sold) as one of the factors driving sales, we would also attribute it to developers’ introduction of heftier price cuts, low absolute pricing strategy and the Interest Absorption Scheme. Nonetheless, we continue to doubt the sustainability of the buoyancy in sales volumes, on the back of a weakening economy, further job cuts and softening within the HDB resale market. While we are aware of the healthy take-ups in a handful of prime projects in Apr 09, we believe their small scale does not portray a tangible return of confidence in prime properties – one of our key re-rating catalysts. More importantly, it does not warrant us to re-calibrate our initial prognosis of a bottoming of the property cycle in 1H10.

Downgrade CapitaLand to NEUTRAL on valuations. We observe that Feb – Mar 09’s buoyant sales activity coincided with the recent rally in property stocks. Despite the monthly gain of 29.0%, Singapore-centric niche and established developers continue to trade at trough valuations of 48.8% to book values. We believe this shows that the recent spike was more due to property stocks being oversold previously, at the same time reflecting little change in the fundamentals of the still-weak current domestic property market. This is further evidenced by no tangible improvements in any of our three key indicators – economy, confidence and interest in prime properties. While our preference towards diversified and well-capitalised developers remains intact, their average valuations of 29.0% discount to NAV now appear rich upon the recent rally. While we find this premium to other developers justified, we do not find any compelling reasons to upgrade any of our covered developers. As such we are downgrading CapitaLand to NEUTRAL from BUY on valuations (S$3.00 TP: S$2.60), while maintaining our NEUTRAL calls on City Developments (S$6.27 TP: S$5.08) and KepLand (S$1.75 TP: S$1.80), as well as the wider property sector.

S$60m MTN redeemed, financed by loan facility by SCB ? Chip Eng Seng has fully redeemed and cancelled in full the MTN on 9 April 2009, financed by a S$60m loan facility granted by Standard Chartered Bank. Given that this loan is short term in nature, we believe the interest cost will be slightly higher than MTN. As we expect Chip Eng Seng to pay off the loan with proceeds from Devonshire Suites@Central project which has obtained TOP in Feb 09, we are keeping our forecast for now. We understand from management that the 157 units will be handed over to buyers in phases.


Maintain BUY recommendation with price target of S$0.29. We maintain our earnings forecast and continue to use sum-of-the-parts valuation methodology to value its property development and construction business. We have revalued all of the Group's unsold development projects at lower than recently transacted price to assume 100% sales in current market and continued to value construction business at 3x FY09F construction earnings. We maintain our 40% discount factor to SOTP valuation, deriving our target price of S$0.29. Based on last transacted price of S$0.185, Chip Eng Seng is currently trading at 0.5x FY09F P/B.

KepLand’s shareprice has rebounded by about 76% from a low of $0.995 in March, well ahead of its peers (CDL +51%; CapitaLand +61%). At its low in March, we believed that KepLand was at trough valuation, trading at 0.3x P/B ratio.

The Singapore property market has recently been experiencing a stir of activity, with interest seen in mass market projects and studio-sized mid-end projects. The key factor for the attraction of these units is affordability, which we think brings little cheer to KepLand, whose projects are predominantly mid- to high-end and larger-sized.

KepLand has announced that it is deferring the construction of Madison Residences. We also think that sales progress of the remaining 494 units at Reflections @ Keppel Bay will remain slow in 2009. Anecdotally, the median price of projects in the vicinity is 33% lower than KepLand’s median selling price of Reflections. KepLand is likely to withhold new sales of units at Reflections, rather than drastically slash prices. However, we have lowered our ASP assumptions to $1500 psf for the remaining units and $1350 psf for the remaining Keppel Bay sites.

Concerns over KepLand’s exposure to the office sector remain, as prime Grade A office rents slid to an average of $10.75 psf in 1Q09. However, we believe that no impairment is necessary for MBFC, even at a capital value assumption of $1,700 psf, due to the low land costs of $381 psf and $485 psf for the two phases. The breakeven is estimated at $1,050 psf. Its Singapore office portfolio make up 33% of our RNAV estimate.

We still like KepLand’s long-term strategy in emerging markets, which is based on sustainable growth factors and it will likely be a beneficiary of recoveries in China and Vietnam. We have further pushed back our launch assumptions for its projects, reducing our FY09 and FY10 forecasts by 28.3% and 38.1%, respectively. Maintaining our BUY recommendation at the target price of $2.62, pegged at a 50%-discount to its RNAV.

We paid a visit to Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) properties located in Singapore's major industrial and business parks. We went away pleased with the respective landlords 'hands on' management of the properties and having a good grasp of tenants' requests and needs. Maintain BUY for AREIT (S$1.56) and MLT (S$0.44), which are trading at FY10-11DPU yields of c. 9% and 14% respectively.

A tour of selected MLT and AREIT properties. We visited a total of 8 selected industrial properties in Ascendas REIT (A-REIT) and Mapletree Logistics Trust (MLT) portfolio located in Singapore's major industrial and business parks. These properties ranged from business parks, hi-tech industrial buildings to logistics & warehouses (L%W).

Well maintained with stable occupancies. We are pleased to say that the properties we visited are well maintained and managed with on-site representatives to cater to tenants' needs and requests. As such, occupancy levels at A-REIT and MLT's portfolio have remained stable at around 99% over the past year, with strong retention rates of over 80% in FY08. Looking ahead, strong rapport with tenants and proactive leasing strategies established by MLT and A-REIT will likely sway tenants' decisions toward continuing staying put at their properties.

Asking rentals are easing but within expectations. In our discussions with the various asset managers, we understand that asking rents have eased generally. For business parks space and Hi-tech industrial space, asking rents have dipped slightly, since the peak, to S$2.80 ?S$3.50 psf pm. However, this is still above their respective average passing rents of c. S$2.55 psf pm and S$2.09 psf pm (as of reported in 3Q09). For L&W properties, we do not expect rates to fall significantly as it has remained relatively stable over the years.

TP for A-REIT raised to S$1.56, Maintain BUY on MLT, TP S$0.44. We continue to like an exposure to industrial space given its longer lease profile, will ensure more resilient earnings moving forward. Both A-REIT and MLT has 40% and 50% of its earnings locked in through long term sales and leaseback contracts. We roll forward our valuations for A-REIT to FY10, resulting in our adjusted target price of S$1.56.

2HFY09 may sink into red. Willas-Array Electronics (WAE) recently updated that the group had encountered a very soft 2HFY09 amid a fall-off in the global electronics demand. The worst was seen in Jan-Feb 2009, where the group suffered not only from a seasonally weak quarter but also from long holidays during Chinese New Year. Among the components, theindustrial segment had held up the best. However, WAE is not expected to withstand the broad-based downturn in other segments. Consequently, WAE warns that 2HFY09 may not be profitable.

Outlook remains uncertain. Like many industry players, WAE has been aggressively cutting its inventory to a low level by selling excess inventory at lower ASPs. This reduction process had recently stabilized, and thegroup is starting to see orders returning after months of capacity reduction among its principals. While the group hopes that demand would pick up from April, it notes that the improvement in orders may not be sustainable and that the outlook remains uncertain. In addition, it believes that the recovery, if it occurs in FY10, is likely to be slow and gradual.

Financial position still healthy. On a brighter note, WAE assures that its financial position is still healthy. Thanks to its specialized team for credit checks, the amount of bad debts WAE incurred over the period is not expected to exceed that of last year (~47% of receivables are insured). To keep its costs down, the group is also embarking on a four-day week and other cost-cutting measures such as salary reduction and no pay leave. In the near-term, WAE is looking to benefit from the economic stimulus package rolled out by the Chinese government (for example, 3G telecommunications), and a strong, major customer who is taking the opportunity to expand its market share in China amid the downturn.

Upgrade to HOLD. We have adjusted our FY09F earnings to reflect a possible loss for the fiscal year. Due to the uncertain outlook, we now deem it inappropriate to base our fair value on earnings forecasts. As such, we adopt a price multiples based on NTA and peg it to 0.25x FY10F BV, near to its lowest-ever 0.24x P/BV since listing. This in turn yields a fair value of S$0.06 (S$0.04 on 4x blended FY09/10F EPS previously). As the share price has maintained around its current level lately, we believe the bulk of negatives have been priced in. Hence, we upgrade WAE from SELL to HOLD.

No outcome from much anticipated Australian NBN announcements. Optus’ (and all other) proposal(s) have been rejected by the Australian Government. The government’s new and upscaled NBN vision discusses regulatory reform in tandem with network-rollout, a longer term positive for competition (i.e. Optus) but will take time to materialise in any specifics.

New and upscaled NBN vision. FTTP build in partnership with private sector to deliver 100Mbps downlink to 90% of population. Total cost seen at A$43bn over eight years with govt. as major SH (initial funding of A$4.7bn as well). Private sector invited to invest (up to 49%) - invitation to all including Telstra.

Regulatory reform. Govt has promised significant regulatory reforms, however at this stage only a discussion paper with submissions by 3rd June. Reform options include: (i) functional separation; (ii) cross media controls or disposal of HFC network; and (iii) stronger ACCC powers. All imply tougher regulations for Telstra, by consequence longer term positives for competition (incl Optus).

What happens next? (i) Regulatory submissions (June 09); (ii) legislative changes (c.2H09); (iii) implementation study to determine operating arrangements for FTTP (Dec 09); and (iv) network build (early 2010e).

In conclusion. (1) Stake in a consortium (as envisaged by govt now) always SingTel’s preferred option, in our view – we think SingTel will be a participant if terms and conditions are right. (2) Market concerns around additional funding into Optus (as part of NBN) should abate for now.

New bilateral loan facility to be closed soon. CDLHT has S$274m of debt due this July, from lenders, DBS and RBS. Negotiations for refinancing with a local lender are underway and could be completed by early May. The new facility will be a bilateral loan in excess of S$300m, with an estimated all-in cost of debt of 4.5-5%. Management estimates that asset leverage will climb from 18.3% to 20% after the refinancing. There is no urgency to switch to the new facility immediately since the existing facility offers an attractive margin.

Support from parent in refinancing. A question was raised on whether management would seek the support of CDLHT’s parent to lower its cost of debt in the form of direct loans or corporate guarantees. Management replied that seeking approval for relatedparty transactions is a lengthy and tedious process, and it is not taking this route for current refinancing. However, having the backing of a strong sponsor and the lowest gearing among S-REITs (of 18.3%) have opened more doors in the form of more lenders willing talk to CDLHT.

Maintaining REVPAR. Management intends to maintain revenue per available room (REVPAR), a function of occupancy and average daily rates, and control expenses. On the revenue front, maintaining REVPAR is more of a concern to management than slashing rates to hold up occupancy. With many corporates trading down from 5 and 6-star hotels to 4-star hotels, CDLHT has begun to receive more enquiries, particularly for its M Hotel which serves mainly business travellers. Revenue visibility remains low as forward bookings become shorter. Nonetheless, management expects an improved 2H09 from events such as F1. Additionally, a sharp rise in hotel demand is expected in 2H09 as consultants and professionals working for the launch of the Marina Bay Sands IR will be coming in then.

Cost-control. Cost-cutting measures including labour deployment and renegotiation of contracts with existing suppliers have been successful thus far. Additionally, as the largest hotel landlord in Singapore, CDLHT has enjoyed much economies of scale. Management is confident of maintaining gross operating margins at 50%.

Acquisitions to stay opportunistic. Any acquisitions are likely to remain highly opportunistic. Key considerations for potential acquisitions include: 1) whether the deal is yield-accretive; 2) how the absolute purchase price benchmarks against replacement costs; 3) lease structures; and 4) tax implications, among others.

Maintain Outperform and target price of S$0.68, still based on DDM valuation. We came away from the road show with more clarity on operations and confidence that management remains very much in control. We hold the view that CDLHT’s welllocated 4-star hotels are in a good position to outperform the market in terms of occupancy, as they had consistently done in the last two years.

At 0.4x P/BV and with downside yield protection of up to 6.2% that comes just from the fixed rent component alone, we believe CDLHT remains very much under-valued among the S-REITs. We maintain our Outperform rating and target price of S$0.68 (discount 10.8%), based on DDM valuation.