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.