CitySpring’s share price has moved up 28% since its respectable set of FY09 results in late-May and is one of the few good Temasek-linked companies which underperformed the STI. 1QFY10 results is due on 11 Aug. DPU of 1.75 cts for 1QFY10, in our view, is secured, promising a quarterly yield of 2.5%.

CitySpring should deliver lower revenue on a yoy and qoq basis due to tariff reduction at CityGas from Feb-09, though sales volume of town gas is relatively stable despite the recession. Quarterly earnings fluctuations should not affect cash distributions given its cash buffer of around $46m for distribution.

CityGas will continue to benefit from both the public and private residential property launches. All new HDB flats and most new large condominium projects come with gas pipes built-in. Typically, about 90% of new flat owners would sign up for its town gas. In the hospitality segment, CityGas has successfully introduced piped gas usage for central hot water heating systems at 13 new hotels. There are 40 known new supplies of hotels from 2Q09 to 2014 and integrated resorts, which are potential targets.

Basslink’s telecoms network was officially launched on 16 Jul. One of the customers utilizing the network is Internode (ISP), which signed a three-year contract for an initial data capacity of 622megabits/sec, with plans to increase data capacity within a year. Revenue from a new pool of customers will more than compensate for the A$2m p.a. foregone in the telecoms agreement; upside has yet to be factored in our revenue model.

The Group’s share register shows that 98% the units are held in the hands of Singapore-based investors, implying an under-appreciation of this counter by other Asian investors and pension funds. Forward yield of 9.9% remains attractive. We reiterate our Buy recommendation ahead of the upcoming results, with a target price of $0.86.