SGX remains a good proxy for the rebound in capital market conditions, in our view, and although the share price has performed well in recent months we see scope for further upside. We raise EPS estimates by 8-9% on higher trading income and, in our view, revision risks are still skewed to the upside, particularly from IPOs and derivatives should the economic recovery continue. Buy, TP raised to $9.50/share.

SGX FY09 NPAT of $306m was well ahead of our $281m forecast and 3% above consensus $298m while the 15.5cps final DPS compared to our 13.3cps. Though the result is well down on FY08, given the recent recovery in capital markets the outlook is much improved. Revenues rebounded strongly in 4Q09 to be broadly in line with pcp, an excellent outcome given the turmoil in equity markets over the past twelve months. To reflect improved market conditions we upgrade EPS by 8- 9%. Key driver of revisions is cash market turnover which rose 84% QoQ in 4Q09, with average market cap. +32% QoQ and capital velocity at 88%.

Although derivatives volumes grew 18% QoQ in the June quarter, with open interest largely unchanged for the third quarter in a row at half the 2007 peak we think there is still some way to go before the derivative market properly recovers. IPO’s were non-existent in the June quarter, clearly well down from peak levels which equated to roughly 175bps of total market capitalization. As the economic recovery takes hold we see scope for further improvement in both derivatives and IPOs which we believe should support further medium term earnings upside.

We use a COE of 9.3%, ‘g’ of 4.8% and dividend payout ratio of 90-91% in our three-stage 10-year DDM, which gives a 12-month TP of SGD9.50. We have increased our long term growth rate forecast from 3.6% to 4.8% to better reflect our view of the company’s earnings prospects which are robust, in our view, given operating leverage and relatively high barriers to entry. Key downside risks are a longer-than-expected global/regional economic slowdown and volatility in transaction turnover. See pp5-6 for more details of valuation and risks.

NOL has released its monthly operational update for period 7 (27th June 2009 to 24th July 2009). Volumes declined 11% year-on-year while average revenue per FEU declined 28% to $US2,219. The improvements in the volume second derivative has been the most stark (it was down 22% in period 4) and it is now down 22% year-to-date. However, as expected, the rate recovery has been insipid as we enter the peak season. Average rates were up just 1% month-on-month and the absolute rates remain roughly in-line with 2002 levels.

We expect the volume recovery to continue In our view, the volume declines across the cargo industry have been accentuated over the past year by de-stocking in North America and Europe. This appears to be coming to an end. Therefore, as end-demand becomes satisfied from production rather than inventories, we expect this to lead to an ongoing recovery in volumes.

Rates are likely to be trapped at just above EBITDA of zero However, we think the scale of the over-capacity (order-book + idle fleet) in the container industry will trap rates at just above industry EBITDA of zero. We estimate that approximately 10% of the global fleet is currently idle and we expect this capacity to return to service if cash returns become available. This leads us to think that accounting profits for the industry are unlikely until 2012 at the earliest.

Valuation: price target implies a 2010E price/book of 0.7x Our price target is DCF based, explicitly forecasting key valuation drivers using the UBS VCAM tool.

2Q09 results mostly below expectations due to one-off items. Four out of eight (50%) of the tech companies under our coverage had reported their 2Q09 results. Of these four companies, all registered sequential growth in both their revenue and bottom line, driven by seasonality and an improvement in business conditions. However, most of the results we observewere also dragged down by one-off items. Valuetronics (VHL), for example, had suffered a significant HK$9.5m allowance for doubtful debts, hence resulting in a 74.3% YoY drop in its net profit. As for WesTech Electronics (WTE), it was hit by restructuring charges. As a result, while the normalized earnings (which excluded these one-off items) of these companies fell largely within our expectations, we note that only one company, Chartered Semiconductor, reported earnings that exceeded our estimates; the rest of them all produced lower-than-expected results. We have eased our fullyear earnings estimates accordingly to account for these one-off items and, in some, for weaker-than-expected sales.

Sentiments in most market segments remain cautious. Despite the pickup in demand and positive indicators of a probable sustainable recovery in the electronics industry over the past few months, sentiments in most market segments have remained predominantly cautious. Most companies now agree that 2H09 would continue to be challenging, and that a sequentialgrowth in the coming half-year, as anticipated by them, is likely to be mild. In addition, they also expect to contend with issues such as demand pattern uncertainty, currency exchange rate fluctuations, price pressures and possible unwanted liabilities from major customers. As such, they are stepping up their vigilance on all fronts and keeping a close watch on any developments in the electronics sector that may negatively affect them.

Upside looks capped; maintain UNDERWEIGHT. In spite of the cautious tone set by the companies, tech stocks have made a dramatic recovery since the March 2009, far outpacing their expected earnings growth and bringing their valuations close to, if not, back at pre-crisis levels. While we think that most of these companies have the capacity and financial strength to ride on further market uncertain (with fundamentals and cash position still healthy), any further upsides in their share prices seem to be capped. As such, we maintain our UNDERWEIGHT rating on the technology sector. Separately, we reiterate our BUY rating on VHL (FV: S$0.17), HOLD rating for Z-OBEE (FV: S$0.07) and SELL rating for Chartered (FV: S$1.46) and WTE (FV: NA).

1QFY10 results showed sequential growth. Z-OBEE Holdings reported its 1QFY10 results, with revenue dipping 54.8% YoY to US$16.8m. The YoY decline in revenue was due to weakness within its Trading and Solutions business segments, which more than offset an increase in sales in its Assembly segment. While gross margin improved 1.1ppt over the quarter to 9.2% from 8.0% in 1QFY09 (4QFY09: 8.4%) due to a favorable segmental mix (lower contribution from Trading segment, which typically garners the lowest margin), administrative expenses did not keep pace with the decline in topline. As such, net profit fell by a larger 67.8% YoY to US$0.6m. On a sequential basis, we note that the results showed an improvement in business conditions, albeit below our expectations.

Specifically, revenue rose 22.6% QoQ and net profit reversed the US$5k loss in 4QFY09, while EBITDA margin rose to 7.4% from 5.0% in 4QFY09 (1QFY09: 5.7%). The quarterly sales and net income made up 19.1% and 14.2% of our FY10F sales and earnings respectively.

Swell in balance sheet items. Over the quarter, the trade receivables and prepayments had also increased 35.3% QoQ and 227.1% QoQ, hence resulting in unexpectedly lower receivables turnover. However, according to management, ~33% of the trade receivables were subsequently settled, and ~53% of the prepayments used to secure bulk purchasing of inventories were received as inventories. As such, we should not expect these balance sheet items to persist at such levels in the upcoming quarter.

Slightly more upbeat on prospects. As for outlook, Z-OBEE has generally become more upbeat on the China mobile handset market, citing positive news that the industry is showing signs of recovery and that it is expected to register mild growth in 2H09, driven mainly by 3G opportunities and China's economic policies. Nonetheless, the group notes that it will keep a close watch on the latest developments in the global and handset industry, and exercise due care in pursuing its business and development plans.

Maintain HOLD. We are revising down our FY10 forecasts by 9.9-20.4% to factor in the softer-than-expected 1QFY10 results. Despite that, we still see potential in the group to capture more sales and enhance its financial position in the upcoming peak season. In anticipation of such a recovery and a re-rating in mobile handset sector, we bump up our fair value from S$0.05 to S$0.07, based on 7x FY10F EPS (4x previously). We maintain our HOLD rating on Z-OBEE.

Revenue decreased 20.5% yoy to $97.0m in 1H09, attributable to lower sales from subsidiaries and no progressive recognition of shipbuilding revenue during the period.

Gross profit margin increased 5.3 ppts to 23.8% in 1H09 from previous year due to absence of shipbuilding projects with low margins. EBIT achieved a stunning 28.3% increase to $6.1m as a result of cost reduction measures, outstripping 2.5% growth in gross profit.

Nevertheless, the bottom line was negatively affected by dreadful performance of its associate, SSH. SSH results were dragged down by a provision for inventory write-down, which was brought about by a softening of steel prices globally.

Trim FY09-10 sales estimates by 15% as contribution from shipbuilding projects tumbled and fewer vessels will be delivered during the period.

Increase GPM estimate by 1.5-2.0 ppts due to the decline in sales from loss making shipbuilding business.

Reduce other operating expenses by 30% in FY09-10 as no significant inventory obsolescence is expected to incur.

Cut share of profit contribution from SSH further to $0.5m in FY09 and $2.0m in FY10.

Improving operating results and stronger second half: ATS made progressive improvement in its operating results over the past few quarters. Despite the decline in sales due to fewer deliveries of vessels, gross profit margin has increased from 16.1% in 2Q08 to 24.2% in 2Q09 while operating margin improved from 4.1% in 2Q09 to 6.9%. We believe ATS will rake in higher profit in second half as second half is seasonally stronger than the first half for ATS business. Worst is over for SSH, Joint Venture taking off steadily: Notwithstanding that its bottom line is heavily affected by SSH, we believe the worst is over for its associate.

The provision for inventories write-down, which dragged down SSH's profit, should not be significant in coming quarters. In addition, the effort to venture into Middle East market has borne fruit. ATS's joint venture in Qatar has been awarded a contract of about S$21m for the civil works of seven dried sludge storage warehouses in Qatar. Bulk of the revenue will be recognized by this year and the profit margin is expected to be in the high single digit range. Maintain BUY recommendation with price target of $0.30: We continue to like ATS for its solid business as it has weathered the global financial turmoil and emerged unscathed from the worst recession in decades. Following the uplift in oil and gas industry valuation, we increased our earning multiples from 3.5x PER FY09 to 8x PER FY10, thus deriving a target price of S$0.30. Downside will be limited by sustainable dividend payout.

Results in line. CitySpring Infrastructure Trust (CitySpring) posted S$82.8m in 1Q revenue, down 16.6% YoY and down 15% QoQ. Cash earnings also fell 22% YoY and 36% QoQ to S$13.9m. Results were in line with expectations, barring a larger than expected tax credit for the quarter. CitySpring will distribute 1.75 S cents per unit to unitholders for 1Q10, flat QoQ and YoY. The trust maintains its guidance of a FY10 payout of 7 S cents or a yield of 9.1% on the current price.

Business as usual at City Gas. The top-line shortfall was primarily due to lower tariffs charged by City Gas. The larger decline in cash earnings reflects the short-term volatility in the City Gas business as there is a time lag in adjusting tariffs, which are reviewed every three months, to reflect actual fuel costs. Town gas volumes were actually flat YoY according to the manager while overall volumes rose slightly. City Gas has since raised its tariff by 7.5% effective 1 Aug. Over time, City Gas should be net neutral to fluctuations in fuel costs.

Basslink's telecoms network is live. The transition between an old and new revenue model for Basslink's telecoms network also impacted 1Q10 earnings. Recall the previous telecoms agreement was terminated in Apr. This enabled the commercialization of Basslink's fiber optic cables without the constraint of the prior revenue-sharing agreement. The network is now live and has been carrying customer traffic since 3 Jul. We expect telecoms revenue to contribute positively to 2Q10 earnings.

Price hits viability point. We understand asset valuations are still not compelling but the manager does see opportunity for some downward pressure as asset owners potentially run into refinancing difficulties. We have always believed that the S$370m loan at the trust level has been the biggest roadblock to CitySpring's future growth. Our concern was overhang from a significantly dilutive equity issue. The trust's unit price has increased 63% YTD. Exhibit 3 shows that an equity issue is a lot less prohibitive at the current price than it was eight months ago. We estimate that a cash call at this price level would be DPU neutral. As such, we believe a growth or acquisition scenario finally looks more realistic on a 12 to 18 months time horizon. We have adjusted our cost of capital assumptions for CitySpring, and revise our fair value estimate to S$0.84 (versus S$0.57 previously). Upgrade to BUY (total return 18.2%).

HLA reported 2Q09 net profit of S$25.8m, up 9% YoY, better than our expectations. Gross profit margin rose from 21.8% in 2Q08 to 23.0% in 2Q09, on higher revenue and proportionately lower raw material costs vis-à-vis ASP for Xinfei. Hence, we raised our 2009 net profit forecasts by 18% to S$92m. HLA target price is raised to S$1.90, from S$1.20, based on sum-of-the-parts valuation. BUY maintained.

Revenue rose a robust 17% YoY, due to the strength of the RMB, increased sales of diesel engines at higher ASP and inclusion of Tasek as a subsidiary effective Jan 09 (Tasek was an associate in 2008). The Chinese government’s program to encourage ownership of electrical appliances in the rural provinces has increased Xinfei’s domestic sales of white goods by 2.4% YoY to 983k units.

Yuchai sold more engines. Yuchai sold 130k units of diesel engines, up from 2Q08’s 116k units, and 1Q09’s 122k units. Yuchai gross margin of 13.9% was wider than 1Q09’s 13.1%, due to unit sales growth and higher proportion of more profitable heavy duty engines sold. Management will target more on heavy-duty engines, which command wider margins than light-duty ones. However, due to increased staff costs (accruals basis) and higher variable costs, Yuchai profits were lower relative to 2Q08.

There was increased spending in sales and marketing activities to protect market share. Discounts were given to encourage early payment of trade debts and higher warranty expenses (due to sharply higher diesel engine sales) collectively account for a large part of the higher selling and distribution costs.

HLA declared an interim dividend of 3S¢/share.

Returned to profitability in 2Q09. Food Empire Holdings Ltd's (FEH) 2Q09 results came in below expectations. Revenue fell 56.3% YoY to US$26.9m while net profit plunged 99.1% to US$41k. Sequentially, revenue slipped by 6.3%, but bottom line improved from a US$2.2m loss in 1Q09, reaffirming our view that the worst is over. Nevertheless, its 2Q09 earnings were insufficient to offset 1Q09 losses, leaving the group with 1H09 net losses of US$2.2m. No dividends were declared.

Poorer sales across all markets. Weaker sales were recorded across all its key segments in 2Q09. Russia reported a 64.1% YoY slide in revenue to US$12.5m, while Eastern Europe & Central Asia turned in a 55.2% contraction in sales to US$10.0m. FEH blamed its poor showing on the challenging business environment as well as the depreciation of local currencies in the group's key markets against the USD. On a brighter note, the operating environment showed signs of stabilisation in 2Q09. Going forward, a revival of consumer demand, inventory restocking among its distributors, as well as forex stabilisation could bolster the group's performance.

Financial prudence pays off. FEH's efforts to reduce inventories and receivables led to an improvement in operating cash inflow to US$31.9m from US$4.8m a year ago, with the group remaining in a net cash position. The group disclosed that it is in technical breach of certain financial covenants in relation to its US$14.0m borrowings owing to poor profitability. It is in the midst of negotiating for waivers. Nevertheless, given its strong US$42.8m cash position, it will have no problems repaying the loan even in the worst case scenario that immediate repayments are required. The group's strong financial position also equips it with the financial muscle for acquisitions of distressed assets should opportunities arise.

The worst is over. Maintain HOLD. We have lowered our FY09 and FY10 earnings estimates by 43% and 39% respectively following FEH's poor 1H09 performance. We expect the group to remain profitable for the full year as the worst appears to be over and global economies are showing signs of recovery. While we forecast a 10% dividend payout ratio, any payouts remain uncertain given management's cash conservation priorities. We roll over our valuations to blended FY09/10 NTA, deriving an unchanged fair value estimate of S$0.305. Given that FEH trades close to its NTA and is expected to benefit from an improving outlook, we maintain our HOLD rating on the stock.

Sales decreased 59.1% to S$15.5m in 1H09 compared to 1H08 as demand for the company's products fell in both EMS and OEM segments. Revenue from its principal customer declined by S$11.9m or 61.8% as compared to previous year. On top of that, Kinergy was not able to meet the projected sales from its new customer, Veeco Investment Inc., due to depressed economic condition.

Gross profit was barely at breakeven level due to severe shortfall in sales volume. Marketing and General Admin expenses were much lower by S$1.3m as compared to corresponding period last year. This was achieved by austerity measures such as lay-off of excess workers, pay cut ranging between 5-15%, shorter work week and strict budgetary control.

S$0.3m capex was expended in the setting up of a new manufacturing facility in Ang Mo Kio TechPlace II. The new project is expected to commence in August 2009.

The company has obtained a Bridging Loan of S$5m from UOB Bank as part of the Special Risk-Sharing Initiative programme from Singapore government. The installment period of the loan is 48-month.

Cut sales by 34% for FY09 and 15% for FY10 on account of potential S$20m contribution from new project in FY10. Trim GPM by 3 ppts in FY09. Reduce both admin cost and marketing cost by 23-25% for FY09-10.

Better customer base: Kinergy has been under enormous pressure of sluggish global demand for semiconductor equipment. The order book for capital equipment remains weak although the worst seems to be over for global economy. In addition, Kinergy's heavy reliance on one key customer, K&S, has also taken tolls on its sales volume significantly. Notwithstanding that, effort by management to diversify customer base has borne fruit, as evidenced by the recent announcement citing the agreement signed with a leading US based semiconductor company to produce next generation machines. Kinergy expects the production of machines to commence in 4Q09 with potential revenue of S$20m for year 2010. Upgrade to HOLD recommendation with price target of S$0.12: Given the recent upward revision of semiconductor manufacturing valuation, we increased our NTA multiples from 0.4x FY09 NTA to 0.6x FY10. Therefore, we derive a target price of S$0.12.

Semiconductor segment likely to drive growth in 4QFY09. Micro- Mechanics (MMH) is due to report its FY09 results towards the end of August. Having registered a 40.4% YoY decline (-39.0% QoQ) in revenue amid a dismal 3QFY09, we now expect the group to post a slight recovery in its revenue and narrower loss in the upcoming 4QFY09 results. We believe this improvement is likely to be driven by an upturn in demand in the semiconductor industry, which has over the past few months showed relatively positive results. Worldwide semiconductor revenue, for example, had reached US$17.2b in June 2009, a growth of 3.7% from May, making it the fourth consecutive month of sales growth, according to the Semiconductor Industry Association (SIA). As such, we are expecting the positive news to flow through to its semiconductor tooling segment as well.

CMA segment expected to be soft still. The surge in semiconductor demand, however, is likely to be partially offset by continued weakness in its Custom Machining and Assembly (CMA) segment, based on our channel checks within the capital equipment industry. For FY09, we expect MMH to post a 16.6% decline in revenue to S$31.9m and to swing into a net loss of S$0.4m (S$8.9m profit in FY08). This represents an expected 41.1% YoY decline (+5.5% QoQ) in its 4Q09 revenue to S$5.9m and a loss of S$1.3m (4QFY08: S$1.7m, 3QFY09: S$1.4m).

Sustainable recovery may be in sight. Looking ahead, while an annual decline in sales is inevitable for the current fiscal year, we think that a sustainable recovery may be in sight for MMH. According to SIA, the recent global semiconductor sales suggest that the industry is seeing a gradual recovery in demand and that it is returning to normal seasonal growth patterns. For 2010, industry watchers have almost unanimously projected resumption in growth for the semiconductor industry (e.g. 13.1% growth by iSuppli). Within the semiconductor equipment market, SEMI is also expecting it to rebound in 2010, with an annual growth of 47%.

Maintain HOLD. Pending the full year results, we are keeping our forecasts intact. However, we now raise our fair value from S$0.19 to S$0.35 based on a higher valuation metric of 1.5x FY10F NTA (0.8x previously), in line with the re-rating of the semiconductor industry. At current price, maintain HOLD.

Lacklustre 2Q09 results as guided. Foreland Fabrictech posted a lackluster 2Q09 results as guided; revenue tumbled 25.9% YoY to RMB81.7m, while net profit tumbled 48.6% to RMB12.7m. According to management, its 2Q performance was still weighed by muted demand for its functional fabrics, especially products with higher grade, thus resulting in an accompanying slide in ASPs from RMB13.2/yard in 2Q08 to RMB11.7/ yard. For the first half, revenue slipped 35.0% to RMB136.4m, meeting about 37.2% of our full year estimate, while net profit tumbled 57.6% to RMB21.0m, or around 32.9% of FY09 forecast.

Sequential improvement from tough 1Q09. But we see good sequential improvement - with revenue up by a good 49.3% and net profit up by a larger 54.4% - following the extremely difficult 1Q09 quarter. But due to the higher sale of lower grade products, gross margin eased further from 27.5% in 1Q09 (37.5% in 2Q08) to 26.1%; but on a positive note, we understand that Foreland has been partially successfully in passing on the higher raw material prices to its customers. And thanks to its ongoing cost reduction measures, Foreland improved its net margin from 15.1% in 1Q09 to 15.6% in 2Q09, though still some way off the 22.4% seen in 2Q08.

Expansion on track but may delay operations. Construction of its new factory is on track for completion in 2H09; Foreland has since made prepayments amounting to RMB74.0m for land, piling work and new equipment. But the new factory will probably commence operations closer to the end of the year. This effectively means no increase in its production capacity this year - we have already articulated in our earlier reports that the capacity increase of 40% is likely to be very measured in light of the uncertain economic environment to maximize utilization.

Upgrade to BUY. Foreland remains in a strong financial position with a net cash of RMB216.1m, and has further reduced its cash conversion cycle to around 25 days from 55 days in 1Q09, mainly due to better AR collection. And with the global economic recovery picking up steam, we believe that Foreland's 2H performance will continue to be seasonally stronger, hence we are leaving our FY09 estimates unchanged. We have also raised our valuation from 3x FY09 EPS to 4x blended FY09/FY10 EPS, resulting a higher fair value of S$0.135 (previous: S$0.10). Upgrade to BUY.

The Company was incorporated as a private company limited by shares on 23 February 1983 under the name of Twinbull Investments Pte. Ltd.. On 30 June 1983, the Company changed its name to L & M Group Investments Pte. Ltd.. On 27 September 1983, the Company was converted to a public company limited by shares and changed its name to L & M Group Investments Limited. The Company was subsequently listed on the SGX Main Board on 16 January 1984.

The Company had filed a request to the SGX-ST to suspend the trading of its Shares on 10 November 2005 in view of a winding-up petition by its creditors. The Company's Shares were then suspended from trading on the SGX Mainboard on 10 November 2005, and its last traded price was S$0.005.

Subsequent to the trading suspension, the Company was placed under judicial management on 11 January 2006 under an order of Court whereby Mr Bob Low Siew Sie of Bob Low & Co was appointed as the Judicial Manager.

In view of the substantial amount of debts of the Group which amounted to approximately S$70.3 million as at 11 January 2006, the Judicial Manager undertook the disposal of certain assets to reduce the Group's indebtedness as well as the negotiation of a scheme of arrangement to restructure the Group's total liabilities. The Judicial Manager also actively sourced for potential investors to enter into restructuring and/or investment proposals with the Company to revive the Group with the injection of new and viable businesses.

Seroja Investments Limited is a result of Reverse Take Over (RTO) of L & M Group Investments Pte Ltd.

The Group are principally engaged in the provision of chartering services of tugboats and barges to transport dry bulk freight, mainly thermal coal, sand and other quarry materials. Its transport thermal coal from coal mines in Kalimantan, Indonesia, to thermal power stations as well as cement companies which operate their own thermal power plants in Java,Indonesia.

The Group generally enter into freight and time charters which range from a period of one to five years. Depending on the prevailing market conditions and the utilisation rates of the fleet, the Group may deploy available tugboats and barges on the spot market under freight charters to take advantage of periods of higher spot market pricing.

The Group's freight charters are typically involved domestic routes in Indonesia from Kalimantan to various ports in Java and Sulawesi while their time charters have generally involved international routes from Vietnam to Singapore as well as domestic routes around the Sumatra Island.

1Q09 earnings as expected. Net profit of S$9.5m, was up 68% y-o-y and in line with our forecast of S$10m. Gross margin of 27.4% was lower than 37.8% in the year ago period because of competitive pressure and unfavourable exchange rates in the quarter. Sales grew 49% y-o-y to S$118.9m, mainly driven by a 242% surge in industrial real estate, which completed several landmark industrial projects and more than 20% completion of the Libyan's township project.

Balance sheet remained healthy. Net cash dipped slightly to S$145m from S$151m at end of 4Q09 but Boustead expects cash inflow amounting to S$40m from sale of development property before fiscal year end.

More from Energy & Water, less of Real Estate. As of now, FY10 revenue is currently backed by S$525m of net order backlog. Management noted slow recovery in business conditions, but remains optimistic of further negotiations for Energy related contracts as well as increased contribution from Water & Wastewater. However, Real Estate is expected to remain challenging amid curtailed infrastructure spending in the private sector. The absence of gains (FY09: c. S$30m) from sale of industrial properties would also affect earnings adversely.

FY10 cut by 20%, Downgrade to HOLD. In view of the subdued new order win - S$42m YTD compared to our previous forecast of S$280m - and the absence of property divestments, we have cut FY10 earnings by 20%. Accordingly, our SOTP target price was revised to S$0.77. Considering the limited upside, we are downgrading Boustead from Buy to HOLD.

Doubtful debt provisions dragged down earnings. Valuetronics Holdings Limited (VHL) reported its 1QFY10 results last Tuesday. Revenue fell 7.0% YoY (+37.3% QoQ) to HK$218.6m due mainly to a decrease in sales within the OEM segment. Net income, on the other hand, fell 74.3% YoY to HK$5.4m (but better than the 4Q09 loss of HK$2.7m) due to slightly largerthan- expected operating costs and a significant allowance for doubtful debts of HK$9.5m. This allowance relates to a customer who has been experiencing working capital distress since the economic turmoil hit in2008 and represents full provision for the customer. We also understand that VHL had previously provided a similar HK$8.7m provision for this customer in FY09. As a result of this provision, the quarterly revenue made up 27.5% of our FY10 sales estimate, while bottom line only made up 10.7% of our earnings forecast. Excluding this one-off charge, however, we note that earnings would be well within our expectation.

Coming quarter expected to remain challenging. Looking ahead, VHL expects FY10 to remain challenging and the sentiment among its customers to remain largely cautious, given the current economic climate. For 2QFY10, the group also expects to contend with issues such as demand pattern uncertainty, price pressures from customers, deteriorating credit conditions and currency exchange rate fluctuations. However, VHL reiterated that it will step up its vigilance on its working capital management, business fundamentals and its customers' financial health to mitigate any risks of inventory over-stocking and other unwanted risks from its customers (possibly again). On the demand front, it will also continue its existing business development strategies to capture new business opportunities and further expand into the US and European market.

Fundamentals still healthy; maintain BUY. We have revised our FY10 forecasts to incorporate the better-than-expected turnover and doubtful debt provisions. Accordingly, our sales estimate is now raised by 6.3% to HK$843.8m, while our earnings projection is decreased by 20.6% to HK$40.1m. Despite the softer earnings, we think that VHL's fundamentals have by far remained healthy, and that it is well-positioned to take on more orders when the global economy recovers. Applying an 8x (6x previously) FY10F EPS in anticipation of a seasonally stronger 2QFY10, our fair value is again maintained at S$0.17. Looking at an upside potential of 36%, we maintain our BUY rating on VHL.

2Q09 results mostly in line. Wilmar reported its 2Q09 results last Friday; revenue was down 27.0% YoY at US$5,712.3m, but net profit rose 22.7% to US$407.2m. According to management, the fall in revenue was due to lower commodities prices vs. the same period last year. But favourable margins in its Palm & Laurics and Consumer Products, together with better performance by Plantation & Palm Oil Mills, contributed to the strong results.

On a sequential basis, revenue rose 15.2%, which was 9.9% ahead of our estimate, while earnings rose 7.2%, about 0.5% below our forecast. One reason for the earnings shortfall was the decline in gross margin from 16.5% in 1Q09 to 12.3% in 2Q09, although still above the 11.6% seen in 2Q08; Wilmar is probably still facing some lag in passing on rising raw material prices to customers. For the half year, revenue fell 28.7% to US$10,670.4m, meeting 42.0% of our FY09 estimate, while net profit gained 16.6% to US$787.1m, or nearly 60.8% of our full-year number. Management remains upbeat about its 2H09 prospects.

Segmental breakdown shows mixed performance. Due to the improving CPO prices, its Plantation and Palm Oil Mills put in a credible performance, up 32.2% QoQ, though still down 26.2% YoY. Its Palm and Laurics Merchandising business also grew 33.6% QoQ (down 34.8% YoY). But Consumer Products business fell 8.1% QoQ and 27.0% YoY; sale volume was down 4.1% QoQ and pre-tax profit/ton fell 17.5% QoQ, suggesting consumer demand remains anemic.

Mum on HK listing for China Ops. As Wilmar has just submitted the listing application to the HKSE for approval, it is understandably mum on the issue. As a recap, Wilmar plans to issue up to 30% of its China operations and retain Wilmar China as a subsidiary; media reports pegged the IPO at around US$3.0b for a listing late this year or early next year. In our earlier report, we noted that based on its estimated US$500m bottomline contribution, the US$3b flotation size is not an issue, assuming a valuation of 20x and a divestment of 30%. As of FY08, assets in China amounted to US$6.5b, or nearly 40% of its total assets.

Raising fair value to S$7.28. We are raising our FY09 and FY10 earnings estimates by 18.9% and 14.4%, respectively, to reflect its better profitability. This in turn improves our fair value from S$5.78 to S$7.28, still based on 20x blended FY09/FY10 PER. Maintain BUY.

Reports strong quarter. Midas Holding (Midas) posted 2Q09 revenue of S$37.8m (-2% YoY, +20% QoQ) and bottomline of S$9.4m (+10% YoY, +11% QoQ). Utilisation came in at maximum (we estimate ~90%) for the quarter for heavy products, driving the company's revenue. Midas also was finishing up the tail end of favourable contracts that had cost-plus covenants. While this translated to better margins, we believe that the recently won contracts are on a fixed cost basis. Thus, gross margin for its Aluminium division should tail back down to the mid-thirties over the next few quarters.

Extending value chain, protecting margins. Midas have/will be spending up to S$45m for the construction of three downstream fabrication lines that will be able to process about 1000 train cars/yr. The first line is already operational while the second is slated to contribute in 1Q10. The final line is tentatively targeted for 2H10. The three lines are part of Midas' strategy to cement its dominance and sustain margins in the domestic railway industry as it transforms into a one-stop shop for aluminium train profiles and components. Competitors are still embarking on the profile extrusion business.

Order book status. Midas has about RMB1.4b in its order book that will keep its extrusion lines busy till 2011. China's Ministry of Railways has closed its 2nd tender for the production of 4150 train cars (double of previous tender). Midas expects the awards to be announced Sep-Nov 09 to China Northern and Southern Railway (CNR and CSR). Contract flows for the profiles should be awarded shortly after and we expect Midas to reap a bountiful harvest with its expanded production capabilities. Nanjing Puzhen Railway Transport (NPRT) delivered only two train sets this quarter and has to ramp up its delivery in 2H09 to fulfil its 768 train car backlog that will last till 2011.

Non speculative, backed by orderbook. The case for its sovereign backed JV with Chinalco, North East Light Alloy (NELA), drove P/E parameters up to the mid-70s in 2007 as investors speculated on exponential earnings growth. The financial crisis, failed NELA JV and bad press on its chairman brought valuations back down. Today, Midas' firm order book of RMB1.4b, more anticipated contract wins in Sep-Nov 09 for both NPRT and itself will serve to under-gird valuations. We have pegged Midas at 20x (prev. 18x) FY10F PER and our fair value is S$1.05 (prev. S$0.93). Maintain BUY.

MIIF reports its 2Q result on Thursday 13 August. Focus will likely be on the asset review, not specifically the asset performance. Management will also clarify the extent of the dividend cut, which we expect to be S$0.02 in 1H.

In the past six months, MIIF’s manager, Macquarie Bank, has been reviewing its portfolio of managed funds. MCG has been the subject of a takeover bid (completed on 28 June) by CPPIB and two of Macquarie’s funds proposing internalisation. For MIIF, internalisation is unattractive at the current share price (because the cost of management is higher than fees paid), thus we anticipate MIIF will seek an orderly asset realisation instead. Clarity on how management is progressing will be the major driver.

At this stage, we believe the improved credit markets do help, but MIIF is still challenged by the fact that it is selling minority interests. MIIF is currently trading at a 54% discount to NAV, which is too large in our view relative to the implied discount by MAp (40%) and MIG (45%) share prices and the recent takeover of MCG (estimated 42% discount to NAV). Asset realisation, given MIIF’s recent cut in NAV, should generate at least S$0.54 and our valuation is higher at S$0.68, as the Asian assets like Changshu Port and Hua Nan Expressway are not heavily geared.

Operationally, we believe the positives should come from Changshu port with any significant rebound in volumes, TBC as it accelerates the rollout of digital television, and Arqiva which we believe is ahead of budget as integration is occurring faster than scheduled. Leisureworld’s quarterly performance was flat, which was a little disappointing to us. Hua Nan Expressway will likely continue to find growth difficult as truck traffic is negatively affected by the economy, and MEIF, while lacking transparency in our view, is suffering from the European downswing on over-leveraged balance sheets.

12-month price target: S$0.59 based on a DCF methodology. We maintain our Outperform recommendation. The upside potential is based on asset realisation. However, even if it takes longer than expected, MIIF has a running yield of ~10%, which we think is supportable despite lower dividend income from MEIF and Arqiva.

DBS 2Q09 net profits came in at S$552mn (+27% q/q), ahead of our (S$395mn) and street (S$455mn) estimates, driven by strong fee/trading income and resilient margins. The bank used the higher earnings cushion to continue to make significant provisions, especially GP.

Margins remain resilient: In-line with expectations, NIMs increased 2bps q/q, with HK NIMs likely driving the uptick. NII at S$1112mn was in-line with estimates. The only disappointing note here was a 2% sequential decline in the loan book.

Non-interest income strong: A healthy revival in flow-based businesses led to a 26% y/y increase in non-interest income. Fee based and trading businesses both trended upwards, and were largely responsible for the above-expectation result.

Provisioning remains high: Provisioning remained elevated at 35bps (not annualized – vs. 31bps last quarter), as the bank used the buffer provided by fee/trading gains to build loan loss reserves, with GP of S$183mn accounting for 40% of total quarterly provisions.

NPL ratio moves higher: A disappointing factor for DBS was an 80bps q/q increase in NPL ratio, which now stands at 2.8%. While provisioning remained high, total NPA coverage slipped to 81% (from 97%) last quarter, leading us to believe that provisions are likely to remain elevated through the year.

Cost control good: DBS CIR for the quarter came in at 35.2%, down 320bps sequentially, helped by positive jaws. Expenses declined 1% q/q, as operating profits rose 27% y/y and 13% q/q.

Capitalization remains strong: DBS tier 1 ratio came in at 12.6%, rising 100bps sequentially, but more meaningfully, up from 10% of last year.

Our stance: Overall, a strong set of numbers, though while ahead of estimates, were not entirely unexpected. Strong margins, and a revival in fee/trading income bodes well, while provisioning worries linger. As such, the stock may consolidate given its YTD outperformance of both STI and OCBC/UOB. We would buy on any dip.

FY09 profit S$306m inline. FY09 net profit S$306m (-31%yoy) was inline wth Citi FY09E (S$304m) estimates (Consensus S$298m). 4Q09 net profit S$91m, +65%qoq (3Q: S$55m), was driven by a near doubling of equities turnover, and with the STI recovery since Mar-09 SGX looks to have passed the earnings trough for this cycle. Maintain Buy, TP S$9.50. Our target price is based on S$2.1bn/day for FY10, based on our strategist's STI target of 2700.

Equities. For equities, 4Q09 average daily turnover of S$1.7bn, +91%qoq, while 4Q share volumes yoy to 1.68bn shares per day (3Q: 0.9bn). Uncapped trades (4bps of contract value) accounted for 64% of total contracts (3Q: 62%), with an average (2-way) clearing fee of 6.1bps per S$ traded.

Derivatives. Clearing revenue +15%qoq to S$35.8m on higher futures contracts (4Q: 13.9m, 18%qoq), and a recovery in structured warrants turnover (4Q: S$3.7bn, +37%qoq). Key drivers of growth in futures contracts came from Nikkei (+15%yoy) and Nifty index (+34%yoy).
FY2009 DPS S$0.26 (S$0.14 base + S$0.12 variable), base DPS raised to S$0.15 for FY10: 4Q09 DPS of 15.5 cents declared, bringing total DPS for FY09 to 26 cents (90% payout). Mgmt also added that the base dividend will be increased from 14 to 15 cents from FY10.

New CEO from Dec 1: SGX recently announced that Mr. Magnus Bocker will assume the CEO position from current CEO Hsieh Fu Hua on Dec 1, for an initial term of 3 years. Mr. Bocker, 47, is leaving his position as President of Nasdaq OMX to assume the SGX CEO role and has over 20 years of leadership experience in the Exchange Industry.

We have downgraded our sector rating to Negative from Positive and our rating for DBS Group Holdings (DBS) to 4 (Underperform) from 3 (Hold). We maintain our 3 (Hold) ratings for United Overseas Bank (UOB) and Oversea-Chinese Banking Corporation (OCBC).

We have revised down our recurrent (cash) EPS forecasts by an average of 5.3% for FY10 and 1.8% for FY11, after lowering our loan-growth and NIM assumptions slightly and raising our provision assumptions. We have also revised up our non-interest income forecasts.

We have adjusted down our Gordon Growth model valuations, the basis for our six-month target prices, by 11.5% to S$10.90 for DBS and 6.3% to S$16.99 for UOB. For OCBC, we have raised our target price by 1.8% to S$8.03. These changes are relative to our pre-2Q09 announcement forecasts.

We expect UOB and OCBC to outperform DBS, as we expect DBS to experience weaker recurrent cash-EPS growth for FY09 and FY10 as the company grapples with building up its provision coverage. The short-term differentiator is provision coverage, in our view, with UOB having the highest NPL coverage (100%) and DBS the lowest (67.6%) as at 30 June 2009.

We prefer OCBC slightly to UOB, from a Gordon Growth model valuation perspective. Fundamentally, UOB enjoys a higher overall provision coverage, but this could change from quarter to quarter. Over the current downturn, OCBC’s NPL and provision recognition has been more consistent, in our opinion, but the implementation of its scrip dividend scheme could prove to be ROE-dilutive.

We believe investors should accumulate UOB shares if they correct below S$14.0 and OCBC shares if they fall below S$6.50.

Kingsmen reported a 2Q09 net profit of $3.5m (+8.3% yoy, +50.9% qoq), that is in line with our expectations. Overall, gross profit margin declined due to the larger scale projects undertaken at Universal Studio Singapore. Sequentially, earnings momentum accelerated along with rising margins. The group proposed an interim dividend of 1.5 cents.

Demand visibility remains strong underpinned by the IRs, the Orchard road revamp, the Singapore Formula 1 and repeat orders from well- known global brands. Its order book grew, up 25% to $208m during the quarter, of which $188m will be recognized in FY09. With a strong order book, the group is upbeat to deliver a stronger 2H09.

By end 2009, the group would have completed some $76m worth of contracts relating to the Universal Studios Singapore (USS). Phase 2 will commence in 2010. The non-mechanical works on the IR, which Kingsmen and other contractors can provide, can potentially exceed $300m. Besides, the MICE activities within the IRs will offer continuity to the group’s growth momentum in the long haul.

The group’s experience and track record in high-profile projects such as the F1s and the USS will be increasingly sought after in the global arena. This opens doors to boundless opportunities in the areas of F1s and themes parks worldwide. Growth is equally interesting on its interiors front. The group has been securing repeat orders from well-known global brands, most notably Polo Ralph Lauren, to provide fixtures for their shops in Europe.

Our earnings estimates and SOTP target price remain largely intact. Besides boundless growth potential, the company offers steady dividends. Positive catalysts will come from project wins relating to the IRs, the upcoming 6-month long Shanghai World Expo in 2010, and the Youth Olympics. Reiterate BUY.

A-REIT announced it will raise approximately S$300 mn (10% market cap) via private placement at S$1.63–S$1.70/unit, which is at a 4-8% discount to its VWAP of S$1.7674.

This had come after January 2009’s S$400 mn fund raising (at S$1.16) where the proceeds were mainly used to pay down debt. This time, about 60% will be used to fund the Singtel development announced in May 2009 (11-12% yield-on-cost), while the rest is to fund future acquisitions. Proforma gearing will improve to 29.3% from 35.7%.

Though it seems slightly dilutive, we believe this is a pre-emptive fundraising for an acquisition pipeline at an accretive 8% yield. It is the strongest positioned among its peers, in terms of balance sheet and market share, to reignite the acquisition growth cycle. Acquisition growth is the most prevalent for industrial REITs.

Raise FY11-12E DPU forecasts by 1-5% as we assume the accretive acquisitions in FY11-12. We raise target price to S$1.86 from S$1.76. We continue to prefer AREIT as it is still trading at 7.2-7.7% forward yields, versus other big cap S-REIT 5.8-7.8%.

SGX today announced a 50:50 JV with Chi-X to launch a region wide Dark Pool by 1HFY10. We view this initiative very favorably as it pre-empts competition in Asia-Pacific, where alternative trading platforms are in nascent stages as of now. The proposed dark pool aims to provide liquidity for block trades in Singapore and offshore crossing facilities for HK, Australia and Japan. Please click on this link for details on dark pools in context of Asian exchanges, a note we did last year.

We expect this dark pool to have a neutral revenue impact on SGX to begin with, as clearing will still be done by CDP (100% owned by SGX). The exchange cash securities revenues are about 1:4 split between order-matching and clearing. And with SGX having a 50% share in the JV, the effective split comes to almost 1:9 between ordermatching and clearing. Hence, we expect revenues from higher clearing volumes to offset revenue losses from order matching business. Overall, as long as clearing revenues increase by 1%, order-matching revenue impact from almost 10% market share loss to the JV would likely be offset.

The broader intent of JV to match regional trades, if successful, would prove to be a revenue driver in the medium term but we do not expect that to take place for at least next two-three years. The success of the regional platform would depend on depth of liquidity in the pool, degree of neutrality, compliance/regulatory issues and ease of settlement for the Singapore blocks.

We view this JV as a step towards development of a ‘two tier’ structure for exchanges in the long term – one for price discovery and one for size discovery. The former would involve trades close to the average ticket size and smaller, which determines the price and the second market that takes price from the first and discovers size by aggregating all the blocks. It is the second type of market that does not exist in a formal / efficient way and dark pools are filling the gap.

Overall, a step in the right direction from SGX, though revenue impact should not be very apparent in the near term. We continue to maintain our structural positive view on SGX on expectations of market leading initiatives on product suites and trading infrastructure. Near term, we expect the stock to be driven by higher trading volumes. Maintain OW.

Falling loan loss coverage the consequence of lower-than-expected provisioning. Recent 2Q09 banks’ earnings were generally above our expectations, with lower-than-expected provisioning being a critical contributing factor. However, with NPLs on the rise, this has led to the three banks registering sharply lower loan loss coverage ratios – DBS fell the most to 80.5%, from 114.2% at Dec 08. Whilst the improving economy will be positive for banks’ earnings going ahead, we remain cautious that a slow economic recovery could lead to banks having to make more provisions ahead to maintain their loan loss coverage. We are NEUTRAL the banking sector. For investors keen on Singapore banks, UOB (NEUTRAL) is our preferred as its asset quality is seen to be the best amongst its peers.

DBS’ NIM remains narrower than peers. DBS was the outperformer in net interest income, as it recorded a 3.3% sequential growth. The other two players had lower gapping income during the quarter. However, DBS’ NIM of 2.01% remains sharply lower than OCBC’s 2.29% and UOB’s 2.35%, due to its low loan-deposit ratio in the current low SIBOR environment. We expect this difference in NIM to persist through 2H09.

Trading and investment gains contributed to non-interest income growth. The strength of noninterest income was mainly due to trading and investment gains, on the back of the rise in equity markets. We do not believe this is sustainable in subsequent quarters, and have assumed lower gains for 2H09.

All three banks had higher NPL ratios, with the 0.8 ppt QoQ rise for DBS being the highest. Manufacturing loans’ asset quality deteriorated more during the quarter, and all three banks cut their manufacturing loans, ranging from 7.6% decline for UOB to 11.4% cut for OCBC. We believe manufacturing loans have the highest risk. DBS has been most aggressive growing its manufacturing loans over the past few years, and manufacturing loans also account for a larger share of DBS loan than its peers. Hence, we will watch DBS asset quality more closely. Following the results, we raised the target price for all three banks – we peg the target price to 2010 book. We believe the P/B discount for DBS versus peers will be wider than the historical norm of 0.2x given the risk for manufacturing loans and DBS’ lower loan loss coverage. Amongst the banks, UOB (NEUTRAL) is our best pick.

The Hour Glass (THG) posted a net profit of S$4.9m (-2.1% yoy) on revenue of S$104.6m (-6.0% yoy) in 1QFY10. Net profit exceeded our expectation, accounting for 27.2% of our full-year estimate. Weaker sales, compared against the same period last year, came as no surprise as consumers cut back on discretionary spending, particularly for items in the luxury segment, as a result of the economic downturn. The bright spot came from the 6.9% qoq growth in revenue, which we believe points to a stabilisation of business conditions. Gross margin fell to 18.3%, a level not seen since 1HFY08, and net margin fell from 6.4% in 4QFY09 to 4.5% (last observed in FY07). Thinner margins were caused by competitors’ destocking exercises driving competition intensity.

Gross margin should start to recover. Although margins contracted yoy and qoq, we expect gross margin to play catch-up in the remaining quarters. We view the sequential growth in revenue as a sure improvement in consumer confidence that can pave the way for margin expansion at the gross profit level. Management has confirmed, on this front, that activity is starting to pick up on the ground.

Adding three new stores in Singapore. THG has added two new boutiques in ION Orchard, and will be adding a third at the Marina Bay Sands integrated resort. As such, higher operating expenses from the opening of these new stores are expected to continue eating away at net earnings. This should surface in the form of higher rental and depreciation expenses. Note that boutique fittings are depreciated over the life of individual leases, which run for an average of three years.

In view of the improvement in consumer confidence, the opening of new boutiques in the prime retail district, and a recovery in margins, we have raised our profit forecasts for FY10-12F by between 23% and 48%.

Maintain HOLD; fair price raised to S$0.70. We continue to value THG at 0.8x P/B, and raise our fair price for the stock to S$0.70 (previously S$0.65). Our new fair price implies an upside of 8% from the last closing price of S$0.65. Maintain HOLD.

CitySpring will pay DPU 1.75 cts for 1Q10, in line with the target distribution guidance. The units will trade ex-distribution on 24th Aug. Total cash earnings for 1Q10 was S$13.9m compared to S$17.7m in 1Q09 mainly due to the tariff adjustment at CityGas to reflect actual fuel cost.

The performances of CitySpring’s all three businesses of CitySpring have performed to expectations in 2Q09. The demand for CityGas’s town gas and natural gas remained stable despite the recession. Cash earnings at CityGas declined 10% to S$7.2m in 2Q09 as a result of the tariff adjustment.

Basslink delivered a strong operating performance in 2Q09. Cash earnings of S$5.5m no longer include the telecoms revenue from the State of Tasmania. The management is highly confident about signing more telecoms customers and offering greater transmission capacity with its fibre optic cable due to the launch of the National Broadband Network initiative by the Australian government.

Group NAV increased to $0.43 from $0.28 in Mar-09 as the fair value of derivative financial instruments increased significantly over that as at 31st Mar 09 and the AUD strengthened against the SGD by abut 11% since the previous quarter. Group NAV, excluding hedging and translation reserves, increased to $0.61.

CitySpring is approaching our target price of $0.86, with a price upside of just 12%. With the management walking away from expensive acquisition targets, new investments in the next 12 months seem unlikely. We downgrade the stock to a Hold and maintain our target price at $0.86. Forward yield of 9.1% remains attractive.

Reported earnings rebounded strongly QoQ to $60.9m in 2Q09 from depressed 1Q levels, although it did benefit from a $25m fair value gain from financial derivatives. Adjusted for this and a $4m forex loss, core earnings was $40.3m, up 29% QoQ but still down 43% YoY. Lower tax rates in Singapore and Malaysia also added a $1.5m boost to the bottomline. No interim dividend was declared.

Customers replenished their exhausted channel inventory during the quarter, leading to the strong rebound. But margins stayed weak - up slightly from 4.3% in 1Q09 to 4.8% but still down sharply from 7.3% in 2Q08 - due to a poor sales mix. Despite a 37% QoQ jump in Printing & Imaging revenue, higher margin businesses such as Test & Measurement and Retail Store Solutions remained weak.

Despite the weak margins however, Venture maintained an AAA-rated balance sheet. In 2Q09, it added >$180m in cash vs 2Q08 as both inventory and receivables fell from a year ago. Since the start of the credit crunch, Venture has been tightening its working capital management to build up cash. We expect its annual dividend of $0.50 a share to be sustained.

Talk of HP revamping its printer supply chain in favour of Hon Hai earlier this year has gained credibility with the recent news that the two companies will build a US$3b plant in Chongqing to make laptops. We estimate that HP’s OEM business accounts for some 30% of Venture’s Printing & Imaging revenue, which of late has accounted for above 40% of total revenue. If true, this could lop about 10% off FY10 revenue.

We downgrade Venture to Hold as its FY09-10 valuations are no longer cheap compared to its global EMS peers. Excluding an obvious outlier (Foxconn at 44x current year earnings), the sector average is about 15x this year and 12x next year. On our forecasts, Venture trades at 14.5x FY09 and 13.5x FY10 numbers. Our price target of $8.84 is pegged to 14x current year forecast.

Armstrong reported net profit of $3m in 2Q09 (+347% QoQ, -38% YoY), as earnings staged a strong rebound from the very depressed level of 1Q09, led by a reflation in hard disk drive shipment volumes during the quarter while its automotive business in China continued to benefit from the PRC government’s industry stimulus measures. No interim dividend was announced. The results are within market expectations.

Revenue grew 27% QoQ to $42m. All segments reported positive QoQ growth but only HDD reported positive YoY growth (+16%) as Seagate and WD shipments rebounded smartly in 2Q09. The other segments fell 11-23% YoY. The 11% decline in automotive sales was the smallest as it benefited from strong domestic demand in China, although this was not enough to offset weak Auto sales in Thailand and Singapore.

The 2Q09 results also included an abnormally large forex loss of $3.4m (normally less than $0.5m in past quarters) which was mitigated by a $3m writeback of past mark-to-market provisions. This loss is related to the unwinding of the US$ cashflow hedging contract entered into last year and does not mean it made less than the reported profit. 3Q09 will still show a forex loss, albeit smaller, as the contract is fully unwound.

While sales in other segments still fell YoY in 2Q09, we understand monthly sales are closing the gap and YoY growth should return in 2H09. Other than continued strength in HDD, Automotive should get a fillip from pent-up demand in China where vehicle buyers now have to wait several months for delivery. Even Peugeot, which was hit by political problems in 1H09, have started to order more from Armstrong.

We have raised FY09 forecast by 23% on a stronger Auto assumption. FY10-11 forecasts have upside potential as a new high-value car seat part for VW has been approved for production but we have not yet factored this into our forecasts. At 12x FY09 earnings, valuations have risen with the market but appetite for good quality manufacturing stocks has also risen. Look to any pullback to build a long position.

Orchard Parade (OPH) registered a 2Q09 net loss of $9.6m, dragged down mainly by its share of its associated company, Yeo Hiap Seng’s loss. Excluding this, OPH would have made a net profit of $3.7m,largely in-line with expectations.

The Group’s hotel revenue slumped by 42% yoy as a result of lower average room rates and occupancy rates. Operating margins are also lower for the same reasons. The management however believes that the environment will be more stable in the second half, and will continue to exercise prudence and cost management.

OPH’s losses this quarter are largely a consequence of YHS making an impairment loss on its quoted share investments (to the tune of $33.7m at YHS level). At the operational level, YHS has shown signs of margin-improvement, due to cost management particularly for the F&B division.

OPH has stepped up its marketing efforts for the 336-unit Floridian, and as a result, a further 34 units were sold in June at a median price of $1,261 psf. This brings the number of units sold to-date to 79. The progress of sales at Jardin is less encouraging, with only one unit sold in June at $1501 psf.

OPH’s hospitality business is likely to remain lackluster as long as the tourism industry remains soft in Singapore. YHS continues to be a drag on OPH’s group earnings. Maintain HOLD, at a target price of$0.93 pegged to a 30%-discount to its RNAV of $1.32.

DBS posted a 2Q09 net profit of $552m (+21%qoq, -15%yoy), above market expectations. The earnings out-performance was mainly due to cost discipline (expense ratio at its best levels of 35%), better net interest margins, as well as strong trading and investment gains. A dividend of 14 cents/share was declared, unchanged from the previous quarter.

While loans growth declined 2% in pace with the industry, the group is seeing a strong loans pipeline. While it has been competitive in consumer lending, the group assured that it will exercise discipline to ensure meaningful returns. Net interest margin benefited from improved credit spreads and is expected to be sustainable at the current interest rate environment.

NPLs spiked up by 25% primarily due to lumpy accounts from shipping and the Middle East. Unlike its peers, specific allowances were still rising, up 21% qoq to $273m. However, based on stringent assessment, the management is comfortable with their coverage ratios, at 81% on NPAs and 119% on unsecured NPAs. With rising business confidence, they observed improving NPL trend in core markets.

Its Hong Kong earnings have reversed up from a loss of $35m in 1H08 to a profit of $193m due to margin improvement, cost reduction and lower allowances. With buoyant activities in financial markets regionally and easing provision charges, we expect good earnings potential from Hong Kong and its other fast growing markets in China and Indonesia.

We have raised our earnings estimates by 2% on the good results. Our target price is increased to $15.30, rolled forward to 1.3x FY10 PBV. We applied a discounted PBV multiple to DBS on the back of lingering concerns on its NPLs. However, valuation is still attractive along with an improved economic outlook. Near-term catalysts could arise from the utilisation of its $4bn rights issue proceeds for strategic investment for future growth. Maintain BUY.

Swissco’s 2Q09 revenue surged 68% y-o-y to S$19.9m, beating our forecast of S$16.4m, due to earlier than expected vessel deliveries. Headline net profit of S$9.4m (+64% y-o-y) included one-off items such as disposal gains of S$4.9m from available-for-sale financial assets and PPE, and a forex loss of S$0.4m. Excluding these, Swissco’s 2Q09 recurring net profit would be c. S$5.0m (+27% y-o-y), in line with our projection. Gross margin of 49.5%, while down c. 6ppt y-o-y and q-o-q, is still within historical range of 48-56%. However, operating margin dipped >10ppt on a y-o-y and q-o-q basis mainly due to 1) higher accrual of performance bonus, and 2) a S$1.9m impairment of receivables – we understand this is due to management’s more conservative stance.

Net gearing as of end June 2009 stood at 0.15x vs. 0.23x at end 1Q09 as cash of S$6.5m was raised during the quarter from disposal of PPE and 8m shares in Swiber Holdings. These proceeds as well as secured bank loans are expected to be sufficient to cover the group’s funding requirements for its outstanding capex program.

We are keeping our FY09/10 recurring net profit forecasts and our fair value for Swissco of S$0.84 unchanged. This is based on 7x recurring FY09 PE for its core business, and its 5.3% stake in Swiber, pegged to DBS Vickers’ fair value of S$0.60 per Swiber share. Maintain BUY on Swissco.

Our six-month target price of S$0.75 for Biosensors International Group (Biosensors) is based on a forward peer- average PER of about 11x on our FY12 EPS forecast. We expect positive news flow from the company’s ongoing clinical trials, product development, and improving profitability to lift the share price over the next six-to-12 months.

In our view, Biosensors has the potential to become a global leader in the DES market with its flagship product, BioMatrix. Studies have shown that BioMatrix is comparable, if not superior, to existing products in the market. BioMatrix was awarded the CE Mark in January 2008, which gave it access to the huge market of the European Union and countries that recognise the CE Mark.

We expect the company to turn profitable in the current financial year, backed mainly by increases in sales of BioMatrix in Europe and Asia, and the continued strong performance of its joint venture in China. We forecast Biosensors to record a net profit of US$19.7m for FY10, rising to US$51.9m for FY12.

Results in line with expectations. Q2 bottomline came in at minus $251.8m despite a 23% improvement in revenue to $271.5m due to a $526.1m revaluation deficit take on its investment properties. Otherwise, earnings would have been a positive $63.1m, up 33% yoy.

Lifted by higher rental and residential contributions. The group continued to enjoy the positive earnings momentum from the progressive billings from residential projects such as Park Natura, One Amber and Sixth Avenue Residences (+41% yoy) as well as higher rental income, largely from Singland’s office portfolio (+20% yoy). These two segments accounted for c90% of UIC’s gross profit. This helped to offset poorer hotel contributions from Pan Pacific Singapore.

As with Singland, the bulk of UIC’s asset backing is exposed to the office segment. While the pace of deceleration in office rentals has slowed, there does not appear to be any near term catalyst. Underpinning earnings over the next two years would be residential contributions and a resumption of a positive Revpar growth trend for the group’s hotel operations.

UIC is currently trading above our RNAV and target price estimates, after marking the value of Singland to its target price and imputing a redevelopment surplus for UIC Building. At the current price, we believe Singland offers a cheaper exposure for investors. Maintain fully valued with TP of $1.50.

Like its local peers, DBS’ Q2 net profit of $552 mln beat analysts’ expectations: Bloomberg survey showed median estimate of $425 mln for DBS. Sequential profit growth, which we believe is far more important than y-o-y comparison in today’s context (coming out of the crisis), is 21.1% for DBS, the strongest of the 3.

DBS’ 2% drop in loans & advances seems disappointing, but that’s because of currency translation effects, eg lending in Hong Kong rose 2% in HK$ terms. (Neither OCBC nor UOB gave this reason for their respective decline, so we assume there was bona fide drop in lending.)

Provisions (and Non-Performing Loans), which we believe are lagging indicators much as unemployment rate, “surged” to $466 mln, with the largest being specific provisions for loans booked in Singapore.

As we had commented previously, we would not rule out the troubled Jurong Tech being one of the main reasons for the sharp increase. (DBS has understandably withheld more details on this.) Provisions had also risen sharply at UOB. (Standard & Chartered Bank and HSBC recently said they expected provisions / NPLs to continue to rise in the near term.)

DBS’ results presentation slides once again demonstrate why western banks are eager to do business in our part of the world. Consider these nuggets: DBS’ housing delinquencies in Singapore and HK stand at 0.14% and 0.02% in Q2; while credit card delinquency rate stands at 0.9% and 0.3% respectively.

The key question today is how are DBS, OCBC and UOB positioning themselves to take advantage of the end of the financial crisis. The CEO of StanChart earlier said the 1 bln pounds share placement was an opportunistic move so it can “support its corporate customers in Asia as they come out of the downturn”. Only DBS raised S$4 bln last December via a rights issue.

And as we commented yesterday, high Tier 1 may be a liability today. OCBC’s is the highest among the 3 local banks. (StanChart’s is 8.4x after the placement.) We maintain our preference as follows: DBS, UOB and OCBC.

UOB and DBS surprised with larger-than-expected provisions Though DBS and UOB’s 2QFY2009 earnings were higher than expected, the bulk was driven by lower-quality income (i.e., investment gains, trading income). While the lackluster core banking franchise including OCBC’s was within our expectations, the key negative surprise was UOB and DBS’s larger-than-expected provisions. We are less concerned about UOB, as a lot of the provisions were not loan-related, and we think were made largely to offset significant one-off gains in 2Q. However, for DBS, while asset quality in core markets remains well within our expectations of an NPL-lite cycle panning out, provisions in 2Q were driven by NPL formation outside of core markets, relating to Middle Eastern corporates, and shipping loans. Visibility on these loans continues to be weak, but we believe DBS has been prudent in recognizing the NPLs early. Its loan loss coverage at 66% is low vs. UOB’s 100% and OCBC’s 97%. OCBC had better- than-expected results, largely on lower-than-expected credit costs.

Market starting to price in benign credit cost outlook With the exception of DBS, despite relatively resilient asset quality trends at UOB and OCBC, higher but not substantial NPL hikes, lower loan credit costs in 2Q vs.1Q, vs. the Street’s elevated credit costs expectations, there was not much positive reaction by the market. We think it may be starting to price in a more benign credit cost environment, in line with an improving macro outlook, and we expect the strong 2QFY2009 results to trigger positive earnings revisions by the Street. However, following a detailed review of 2QFY09 results, we revise our FY09-11E core EPS estimates by -18% to +3% for all three Singapore banks on largely on higher provisions made year to date and moderating corporate loan spread expansion, and also roll over our TPs to end-2010.

Downgrade DBS to Neutral, OCBC is our only Buy in the sector We continue to see an NPL-lite cycle for Singapore banks. But for DBS, we remain concerned on NPLs outside of the Singapore/Hong Kong core market, the limited visibility of which will likely pose an overhang on the shares. Following our price target revision, we remove DBS from our Conviction Buy list and downgrade to Neutral on limited upside. OCBC is our only Buy in the sector, given risk-reward we view as attractive, resilient loan book asset quality, and strong insurance income. Sector downside risks: Double-dip economy, larger-than-expected NPL/credit costs.

Revenue grew 4.7% YoY and 14.9% QoQ to S$43.7m on the back of progressive recognition of development properties. Of the 9 development properties which contributed to 2Q09's revenue, The Medley has obtained TOP status in May 2009.

As expected, performance of Grand Mercure Roxy Hotel deteriorated, which is in line with the overall hotel industry in Singapore. ARR continue its decline, from S$167.2 in 1Q09 to S$143.5 in 2Q09, lower than our forecast of S$157.3. However, we do see comfort in occupancy rate which dropped only slightly from 82.4% in 1Q09 to 81.6% in 2Q09. This is significantly higher than our estimate of 72%. Consequently, RevPar for 2Q09 fell 15% QoQ to S$117.1, slightly outperforming our forecast of S$113.1.

Operating expenses declined across the board, lifting Roxy's operating margin from 22.5% in 1Q09 to 26.2% in 2Q09. Management accredited result to lower hotel payroll costs including saving from job credit scheme; lower management fees payable to hotel operator; and decrease in other miscellaneous expenses. On top of that, finance cost was also lower in 2Q09 at S$0.95m due to lower bank borrowings and interest rate.

Net profit reported improved 4.8% YoY and 47.4% QoQ. Roxy's effective tax rate was lower in 2Q09 at 11.3% as compared to 19% in 1Q09 due to utilization of capital allowances and adjustment of overprovision from prior periods.

As noted in our 1Q09 report, an upward revision is likely. In the first half of FY09, Roxy managed to sell 193 residential units with total sale value of S$177.9m, more than the 151 units sold with value of S$170.1m in FY08. As of 2Q09, Roxy successfully sold 99.5% of all its projects (424 units in total). Roxy achieved total pre-sale revenue of S$417.2m, of which only S$76.5m has been recognized. The remaining S$340.7m will be progressively recognized from 3Q09 to FY11.

In view of Roxy's stellar sales performance in 1H09, we have revised earnings forecast upwards for FY09E and FY10E. Our new RNAV now stands at S$0.60. Given a revived interest in property market and stocks in recent quarters, we applied a reduced illiquidity discount of 35% to Roxy. We maintain our positive view on Roxy's business prospect and management strength and reiterate BUY with a target price of S$0.39.

DBS posted 2Q09 net earnings of S$552m, down 15% YoY or +27% QoQ, and above the median estimate in a Bloomberg survey of S$425m.As expected, impairment charges remained high. This surged from $90m in 2Q08 to $437m in 1Q09 and $466m by 2Q09 (OCBC of S$104m and UOB of S$465m for 2Q09).

Net Interest Margin (NIM) was better QoQ, but down YoY. It improved from 1.99% in 1Q09 to 2.01% in 2Q09.The group declared a dividend of 14 cents for this quarter.While economic outlook is still uncertain, prospects are improving and to reflect this, we are expecting lower impairment charges for 2H09, and raising FY09 earnings from S$1572m to S$2128m.

We are also raising our valuation peg from 1.2x to 1.4x book, increasing our fair value estimate from S$12.40 to S$14.65.Maintain BUY. Annual yield is decent at 4.4% based no quarterly payout of 14 cents.

CSM reported 2Q09 sales of US$349mn (+43% q-q) in line with our estimates. The net loss was US$42mn, marginally better than our estimates, on the back of gross margin at 8.9% (our estimate: 8.3%; see Exhibit 1) as 65nm made up 29% of sales in 2Q09, up from 24% in 1Q09. For 3Q09, CSM expects sales to grow 9 to 13% q-q, with the portion from 65nm and below expanding to 33% of sales. CSM raised its FY09F capex to US$500mn (earlier: US$375mn) citing the need to expand capacities at leading edge (Fab 7). With this capex, Fab 7 capacity will rise to 29K wpm (12” equivalent) by end-4Q09 and 31K wpm by end-1Q10 (earlier: 27K wpm).
Demand in 2Q09 was owing to inventory correction winding to an end; in 2H09 the baton has passed on to end-demand. While no one can claim visibility on demand, we are encouraged looking at results from chipmakers so far with common themes emerging: 1) orders strengthening throughout 2Q09, resulting in healthy backlogs in July; 2) further declines in inventories at chipmakers in 2Q09 from the already low levels at end-1Q09; 3) channel inventory of finished products remains flat q-q; and 4) more regions are participating in the upside with the US showing signs of stability.

The latest signs come from Broadcom (CSM’s largest customer), which expects sales to grow 7 to 14% q-q in 3Q09 post 22% q-q growth in 2Q09. The key surprise was that it expects inventories to fall further in 3Q09 after the 5 day q-q decline to 49 days in 2Q09 (target inventory of ~46 days); citing capacity shortages at the leading edge.

On our revised assumptions as shown in Exhibit 2, we now expect CSM to report normalised net losses US$202mn and US$92mn in FY09F and FY10F, respectively (earlier: normalised net losses of US$230mn and US$99mn). While we largely maintain our utilisation assumptions, we have raised our sales forecast for FY10F by 6% to US$1.52bn (earlier: US$1.44bn) given the increase in Fab 7 capacity.

While we do not see another leg-down in demand, we maintain our NEUTRAL on CSM on concerns of increased funding requirements as capex spending resumes. We now see our price target at S$2.30 (earlier: S$2.21) which is pegged to an FY09F P/BV of UMC of 1.0x (method unchanged). Upside risks to our price target comes from: 1) stronger than seasonal demand growth in 2H09; and 2) faster than expected cost reductions. A key downside risks to our price target is if the credit situation worsens, which could see CSM being unable to meet its debt obligations.

Mary Chia is one of Singapore’s leading lifestyle and wellness service providers, and operates under the “Mary Chia” (for women) and “Urban Homme” (for men) brands in both Singapore and Malaysia. The company offers beauty, facial, slimming and spa and massage services through its 15 lifestyle and wellness centres in Singapore, and three such centres in Malaysia. Most of these centres are located in shopping malls in both prime and regional commercial districts.

Mary Chia employs trained therapists to customise services for its three distinct segments: beauty and facial services, slimming services, and spa and massage services. Beauty and facial services: A wide range of services are offered, incorporating the use of advanced equipment and treatment products, with the aim of improving skin condition.

Slimming services: The emphasis is on weight management and body sculpting through massage techniques, treatment essences, and/or advanced equipment to assist in weight management. Spa and massage services: These services aim to soothe and revitalise customers by incorporating the use of aromatherapy and treatment essences.

Net profit of $91.17 mln for Q4 ended Jun ’09 (up marginally from a year ago, and 65% from Q3 ended Mar ’09) is in line with our estimate made when the quarter ended.

The securities trading value recovered strongly in the June ’09 quarter to $106 bln after hitting a low of $55.8 bln the preceding quarter, albeit well below the record Sept’08 quarter’s (SGX’s Q1 of fiscal 07/08) $165.7 bln.

Full year profit of $305.67 mln compares with the preceding fiscal year’s $444.3 mln, excluding the $34 mln one-off distribution from a fund.

Variable dividend of 12 cents is however 1 cent higher than we expected. With the quarterly base rate of 3.5 cents, or total payout of 26 cents, yield at $8.59 is 3%. The payout ratio in FY 08/09 is 90.5%, consistent with management’s dividend policy (91% the year before).
The current fiscal year ending Jun 2010 has started promisingly, with value of stocks traded in July up 22% from a year ago to $36.2 bln, albeit only marginally higher than June’s $35.9 bln.

However, with its market cap ($9.184 bln or 30x historic PE) almost the same as NY Stock Exchange (US$7.24 bln / S$10.4 bln) and 50% higher than Nasdaq OMX’s, SGX shares are hardly a bargain, unless trading volume were to surge in the coming months on the back of the world’s fascination with Asia. But with the market sentiment turning cautious, at least for now, we believe SELL is appropriate.

(HKSE has the highest market cap among listed exchanges in the world at HK$153.86 bln / S$28.48 bln.)

Group revenue, which came in below our estimates, declined 33.1% in 1H09 to S$9.4m, mainly attributable to the weak market conditions affecting the semiconductor equipment and other related industries. Gross profit margin declined 9ppts to 14% in 1H09 mainly due to unfavorable sales mix.

Selling & distribution expenses and administrative expenses declined 35.3% and 17.3% respectively, in line with lower revenue base and slower business activities as well as an instituted 10~20% pay cut for its senior management since July 2008.

We trimmed FY09-10 sales estimate for manufacturing segment by 35-38% while maintained the estimate for distribution segment. On top of that, gross profit margins in FY09-10 were reduced to 14% and 20% respectively. Selling and distribution expenses were cut by about 40-42% in accordance to the decline in sales. Lastly, admin costs in FY09-10 were reduced by 31-32% on the back of pay cut as well as job credit by government.

We continue to be conservative on valuation grounds by applying discount to 0.6x FY10 NTA (previous 0.4x FY09 NTA), deriving a target price of 9.0 Sg cts. The current price of 9.5 Sg cts has limited downside risk given its 7.5 Sg cts cash per share and healthy balance sheet. Maintain HOLD.

Revenue for 1Q10 decreased 7.0% to HK$218.6 million, mainly due to lower sales from some major customers in the OEM segment but offset by increased in ODM segment on the back of increased sales from one of the major customers in the consumer electronics segment.

The Group's gross profit decreased 20.4% to HK$36.0 million in 1Q10 with gross profit margins edged down by 2.7ppt to 16.5% due to a change in sales mix and a depreciation charge and operating costs of the new Daya Bay facilities.

The Group made a provision for doubtful debt of HK$9.5 million, which came on top of a HK$8.7 million provision in FY09, for a customer who has experienced working capital distress. As of 1Q10, full provision has been made for this customer.

Cash decreased by HK$43.8 million, mainly due to the deposits and payments for the construction of staff dormitory, increase in inventories and increase in trade receivables. The Group's trade receivables increased by HK$63.6 million to HK$166.1 million as at 30 June 2009, resulting from increased purchase orders from customers in line with the increased sales and also partially due to longer payment terms for one of the Group's major MNC customers.

We continue to value Valuetronics at 6x PER FY10F (previous 5x PER FY10F), deriving our target price of S$0.18. With an upside potential of 44%, we maintain our BUY recommendation.

Revenues were flat at S$533mn (y-y and q-q). Mobile revenues grew 1%, but both pay-TV and broadband was down 2-3% y-y. Adjusting for advertising revenues in 2Q08 from the Euro Cup, pay-TV revenues were flat y-y. Underlying NPAT of S$76mn was up 2% y-y, but some 3% below consensus. EBITDA of S$161mn was broadly in-line and 31.4% margin was impacted by a 510bps drop in pay-TV margins. Year-to-date, free cashflow is up 55% to S$264mn.

There is clearly an element of customers choosing to downgrade to lower pay-TV/ broadband packages given the economic slowdown, instead of switching off entirely — net adds were positive in all three segments. But the company is being cautious/ prudent in not passing on some of the higher content/traffic costs to manage churn rates. NBN impact is not transparent yet, and we remain concerned about further ARPU dilution risk.

Although jokingly, CEO Terry Clontz’s commented during the conference call that “he may retire early if StarHub doesn’t win EPL (English Premier League)” — we think this does highlight: 1) the company’s confidence in retaining these rights, and; 2) the importance of these rights to the business. Pay-TV is around 20% of total revenues and 15% of EBITDA (and not all of this is EPL related) — but the sentiment impact of losing EPL could be significant as this is a key part to their “hubbing” strategy. Mr Clontz also stated that the company understands the value of these rights and can model these with precision, suggesting that it will not unnecessarily enter price wars.

We have raised our FY09F and FY10F EPS by 1-3%. There is no change to our EBITDA forecasts (lower revenues offset by lower costs), but we have reduced our capex/sales forecasts from 14% next year to 13%. Our revised price target is S$2.35 per share.

Further margin expansion & cash generation in 2Q. Core net profit, excluding impairment charges and forex losses, came in at S$21m (-28% yoy, +7%qoq), better than our S$18m projection. Sales of S$178m was below our S$200m forecast but gross margin improved to 22.8%(1Q09: 20%; 2Q08: 18%), benefiting from a better product mix, more value-added processes and effective cost control. Hi-P generated S$70m FCF in Q2 as cash cycle shortened to 40 days from 56 in 1Q09. Net cash increased to S$251m, c. 40% of market cap.

3Q09 expected to be weaker y-o-y & q-o-q. We expect S$15m net profit in 3Q09, a decline of 41% y-o-y and 6% q-o-q. In view of the delay in ramp up of new programs (smartphones, notebooks and MP3 players) to 4Q09, we have cut our full year sales forecast by 13% but raised gross margin assumptions by 1%pt to19% due to stronger margins in 2Q09.

S$56m flexible printed circuit acquisition. This acquisition (max flex capacity: 300k sqf) is in line with the group¨s integrated strategy and customers are positive on this new expansion. However, FPC will not contribute till FY10 and management expects start up expenses to be incurred in 4Q09/1Q10.

Maintain Buy, only 4.5x FY09 PE if net of cash. Valuations remain compelling at 6x FY09 earnings vs historical average of 9x PE multiple. If net of cash, stock is even cheaper at 4.5x PER with 3-4% yield. Maintain Buy, with slightly lower target price of S$0.76,still pegged at 9x blended FY09/10 earnings.

Beats expectations, yet again. Suntec REIT reported 2Q distributable income of S$47.7m, up 2.9% QoQ. Gross revenue ex-One Raffles Quay slipped 0.6% QoQ. The results exceeded our expectations with outperformance both on the revenue and interest expense (average all-in cost of 2.8% in 2Q) fronts. Suntec will pay out 2.977 S cents for the quarter, up 2% QoQ. The manager proclaimed that it has delivered 18 straight quarters of DPU growth right since listing.

Occupancy falls at Suntec Office. Occupancy at Suntec City Office Towers fell from 96.3% as of March-end to 92.5% as of June-end as two tenants redelivered part of previously-leased space. Average achieved rents of S$8.24 per square foot per month are 45% below the peak S$15 psf pm guidance given for rents renewed a year ago. The manager did not care to express a view on rents beyond 2009 saying that the "crystal ball is murky". We tend to concur here - there are still a lot of unknowns about the shape and path of the overall economic recovery and how this flows down to the demand side of the office equation. If the market continues to be sickly, Suntec's 'under-rented' cushion will diminish as leases fixed close to the peak of the cycle expire.

Retail portfolio shows resiliency. Suntec's retail portfolio was more stable with 98.1% of Suntec City Mall occupied versus 98.6% three months ago. We note average passing rents slipped QoQ at Suntec City and Chijmes, but performed better than expected. Suntec is gearing up for the Circle Line opening next year and revealed plans to improve connectivity and create retail units linking the mall to Promenade MRT station. Expected capex spend is minimal. We have bumped up our estimates for Suntec's retail portfolio through adjustments on vacancy and rent decline assumptions as well as cap rates used.

Headwinds to future DPU growth. We continue to like the positioning and potential for Suntec's assets. We estimate that the current unit price implies a S$1200-1250 psf value for Suntec City. We see headwinds to future DPU growth however, especially stemming from the office assets. Secondary challenges to DPU stability include increased interest expense on refinanced funds and the enlarged unit base as deferred units kick in biannually. We have adjusted our earnings estimates to reflect our revised retail expectations and also to incorporate 1H results. 2H09F distributable income constitutes 45.5% of our full-year estimate. Our revised fair value estimate is S$1.00. Maintain HOLD.

PEC is a specialist engineering group servicing the oil and gas, petrochemical, oil and chemical terminal, and pharmaceutical industries. The company’s two core business activities are project works and maintenance services. Its project works are currently mainly in Singapore, Malaysia, Thailand, Indonesia, Vietnam, the PRC and the Middle East, and its maintenance services are currently carried out in Singapore and the PRC. The company has established fabrication facilities in Singapore, Malaysia, Indonesia, Thailand and the PRC to support its business activities.

PEC’s scope of project work ranges from EPCm and EPC in respect of a terminal or a section of plant or terminal and project management consultancy, to the construction of a certain part of a plant terminal. In any project work, the company provides engineering, procurement and/or construction/construction management services. Engineering services include conceptual design, front-end engineering design, and detailed engineering. Procurement services entail material equipment purchasing and material management. Construction services include fabrication and installation of piping, structures and pressure vessels, installation of mechanical equipment, electrical, instrumentation and control systems, and provision of scaffolding, painting, insulation and fireproof services.

The company’s maintenance service business segment covers both plant maintenance works as well as related services work, and ranges from maintenance carried out on plant equipment to single-source maintenance services for a production plant. The maintenance work typically includes tankage maintenance, static equipment maintenance, rotating equipment maintenance, electrical equipment maintenance, and instrument and control equipment maintenance. PEC also provides other related services such as plant turnaround, plant debottlenecking and plant upgrading services.

Strategic investor pumps in S$65m. Tat Hong Holdings Ltd (Tat Hong) has entered into an agreement with a strategic investor, AIF Capital, to raise net proceeds of S$63.5m (gross proceeds: S$65m). Under the terms of the agreement, which is still pending regulatory approvals, Tat Hong will issue 65m convertible redeemable preference shares (CRPS) at an issue price of S$1.00 each. Each CRPS is convertible into one ordinary share, potentially enlarging the group's issued share capital by 12.8%. CRPS holders will only be entitled to ordinary dividends till 2014. Thereafter, holders will be entitled to preference dividends of 25 S cents/yr in the event that the CRPS are not converted and if Tat Hong does not exercise its right of redemption, which is unlikely, in our view.

M&A in the works? 80% of the net proceeds, or approximately S$50.8m, will be used to fund the group's expansion plans in Australia and China, while the remainder will be used for working capital purposes. Tat Hong had previously articulated its plans to grow inorganically. This latest fund-raising exercise will boost its financial muscle, bringing it another step closer to its M&A ambitions. Any acquisitions are likely to be within its core business activities of crane or general equipment rental. Management expects its acquisition targets to be earnings accretive.

Boosts financial position and cross-border expertise. AIF Capital's investment will not only strengthen Tat Hong's balance sheet health, it could also boost the group's long term growth prospects by introducing new growth opportunities which were previously unavailable. We estimate that Tat Hong's FY10 gearing could drop from 36.7% to just 20.0% with the additional capital. AIF will be given a non-executive representation on Tat Hong's Board, reaffirming its long term commitment to Tat Hong. With its deep insight into Asian markets, we believe that AIF Capital can contribute positively to Tat Hong's future expansion plans.

Maintain HOLD ahead of 1Q10 results. We are keeping our earnings estimates intact pending the release of the group's 1Q10 results on 14 Aug 2009. Our fair value estimate, however, has been raised to S$1.15 from S$0.99 to reflect the increase in NTA arising from the fund-raising exercise. While the group's long term growth prospects have been given an additional boost, near term concerns regarding weak equipment sales and rental rate compression may continue to weigh on near term earnings. As such, we maintain our HOLD rating on the stock.

Singapore Telecommunications 1Q10 net profit attributable to shareholders rose by 7.7% yoy to S$ 945m in line with our expectations representing 25.3% of our full year forecast. The results reflect strength in the Singapore and Australian businesses, and the return to earnings growth by the major regional mobile associates.

The Group's revenue for the quarter stood at S$ 3,848m(+1.9% yoy). Data and Internet revenue gained 5.9% to S$392m. Revenue from data services increased 8.6% yoy. Managed Services revenue expanded 11% yoy as SingTel successfully pursued new revenue streams.

Mobile revenue grew 7.1% to S$372m as a result of a larger customer base. SingTel gained 15,000 net new customers, bringing its total mobile customer base to 2.9m or 45.9% of the total Singapore market.

IT and Engineering revenue in the quarter grew 50% to S$271m, and revenue from Revenue from IT and Engineering accounted for 20% of total operating revenue, an increase of 6 percentage points from a year ago.

Optus delivered strong first quarter results with a 12% increase in operating revenue to A$2.20b and continued its strong growth in mobile revenue from a growing customer base of more than 8m.

Pretax ordinary contribution from its regional mobile associates in the quarter rose 12% to S$624m from S$557m a year ago, on improved performance from Telkomsel and mark-to-market gains on foreign currency liabilities for Telkomsel and Bharti.

Retain Underweight to differentiate our preferences amongst the Singapore banks (our order of preference – UOB, DBS, OCBC). However, we upgrade our industry view to “In-Line” to reflect the impact on global economies and the credit cycle from the vast liquidity injections and the huge directed lending surge in China. Just not compelling: The first decade of this century is shaping up to be a “lost one” for Singaporean banks.

They exited the 97/98 Asian Crisis in relatively good shape but have since failed to leverage that position by increasing their presence meaningfully in the higher return, higher growth markets (for example, Indonesia). With a normalized RoE assessed at 10%, OCBC is our least preferred bank exposure in Singapore. Moreover, the cloud of lending into a Singapore property bubble continues to hang over the stock. On our FY09e estimates, OCBC is trading on 13.4x EPS and 1.6x book, which is fair value at best, if the recovery is V-shaped, and expensive if the recovery is shallow and troubled which is our macro team’s base case.

2Q09 result of S$466m (no one-offs), up 26% QoQ, up 23% YoY and a 20% beat: Revenues increased 5% QoQ with a better investment markets. Net interest income fell 4% with 13bps of net interest margin contraction and 2% loan declines. Non-interest income was up 22% QoQ with strong investment related lines. Opex was up 9% QoQ with higher insurance costs.

Impairment charges fell 47% QoQ – SP declined 50% QoQ but NPLs increased 9% QoQ. Core tier one was 11.3%. Fair value reserves up S$595m (S$748m YTD). Interim dividend of S$0.14ps was declared. Book value increased 4% QoQ to S$4.94.

Solid 2Q09: Headline and clean EPS came in 5% and 10% ahead of our estimates. We believe we could see a high-single digit upgrade to consensus on these results.

New order: Small, but total is adding up. SMM has secured a $S160 million conversion job with Modec. While small, SMM has now covered 41% of our 2009 order intake expectation, versus only 9% for Keppel.

Preparing for Brazil: SMM’s positioning for upcoming Petrobras tenders dominated Q&A. SMM highlighted its partnership with Mac Laren, a medium sized yard in Rio, and referred to its own experience with projects in Brazil.

In terms of local experience, SMM is second only to Keppel in our view. SMM indicated that they would try to participate in the second phase of the 8 FPSO tender.

SMM would not specify the exact levels of revenue share between itself and Mac Laren, who can get up to 49%, although it depends on the project type (we pencil in a 25% share for them, on average). But, SMM did indicate that they are not precluded from seeking other/additional capacity in Brazil. Indeed, the merits of a “multi-pronged” presence are being investigated today.

In terms of competition, management felt the pie in Brazil was big enough to accommodate many players. It would not directly comment on whether a 15-20% cut in rig prices (mentioned on NOV’s recent 2Q09 comments) would impact shipyard margins, which we think is a risk. It did say that margins for 2009 would be up YoY.

All eyes to SCI: With this solid quarter reported, we look forward to parent Sembcorp Industries’ (SCIL.SI, OW, S$3.27) numbers on Thursday. We think that the stub utilities business is set to turn around. At 8.8x P/E, we believe the stub’s valuation is cheap versus its 12.6x historical average. It’s our top pick.