DS has successfully transformed itself from a local furniture manufacturer to a global product specialist with in-house brands. It is poised for a quantum leap given the strong demand for hotel fit-outs, growing overseas traction and potential mega contract wins. Despite its robust growth momentum, valuation is a steal, at just 3.9x (ex-cash) FY10 PER, a sharp discount to its peers!

DS outshines its peers with the successful creation of in-house products and exclusive distributorship of renowned international brands. Besides achieving better margins, its in-house brands offer customisation and competitive pricing that are well sought after globally. With leading developers such as City Dev and SC Global as repeat customers, DS is poised to benefit from the recent pick up in private residential launches.

To prepare for the debut of the IRs, many existing hotels are rushing to refurbish their rooms to capture rising demand and premium room rates. With a decade of experience in fitting out hotel rooms, DS will be a prime beneficiary of this immediate demand surge. Earnings from hotel fit-outs, which have yet to be factored into our forecast, could potentially double DS’s earnings over the next 12 months.

The recent 45:55 joint-venture (DDS) with Depa from the Middle east will accelerate DS’s global expansion. By combining the group’s expertise in Asia with the strong financial and manpower resources of Depa, the JV has garnered big orders worth $137m within a year. This JV offers tremendous earnings upside, as it acts as a springboard for the group to clinch mega projects potentially worth many times of its market capitalisation.

While valuation is a steal, the stock offers good exposure to the IRs, buoyant residential property sales and fast-growing overseas markets like the Middle East. Moreover, attractive dividend yield of above 5% adds to its appeal. With a 59% price upside potential to our target price of 78 cents, we are initiating coverage on Design Studio with a BUY.

Leading economic indicators. Global economic data have been pointing to concrete evidence of an economic recovery with PMIs rebounding, unemployment generally easing and consumer confidence recovering from their lows. Increased confidence of an economic recovery has enhanced investors' preference for cyclical stocks such as commodities. Indeed, increased economic activity and flow-through effects of pump-priming initiatives will strengthen demand for commodities. The impact is likely to be more pronounced on economically-sensitive commodities such as metals and energy, and less significant for agriculture. We expect companies with exposure to hard commodities or with extensive downstream operations to be the main beneficiaries of the economic recovery.

Multiple growth drivers. China's insatiable appetite for commodities, fuelled by its massive infrastructure-related fiscal package and reconstruction following the Sichuan earthquake, has supported organic growth over the last few quarters. Going forward, besides enjoying a more conducive environment for organic growth, the emergence of distressed assets may provide opportunities for inorganic growth. For instance, Olam Int'l (Olam) and Noble Group Ltd (Noble) recently purchased distressed assets as part of their expansion strategies, while Wilmar Int'l (Wilmar) has proposed to list its China unit as part of its long-term growth plans. We favour companies that are well capitalized with healthy balance sheets and strong cash positions necessary for the execution of inorganic growth plans.

Preferred picks: Noble and Wilmar. Commodities-related stocks have outperformed the STI by 56% on average YTD. Further upside potential exists for stocks that are trading below their peers' valuations while offering sustained growth prospects. We highlight Noble [BUY, fair value S$2.50] as our top pick because (i) it is best positioned to ride the economic recovery given its diverse product portfolio, (ii) valuations are undemanding at 13.6x PER vs. its closet peer Olam's 22.7x PER, and (iii) balance sheet offers superior flexibility. We also like Wilmar [BUY, fair value S$7.28] due to (i) the potential listing of its China unit, (ii) its strong balance sheet and (iii) the geographical diversity of its businesses. We upgrade the commodities sector to OVERWEIGHT from NEUTRAL on improving outlook. Key risks include the de-stocking of inventory build-up and a slower than expected economic recovery.

We still like the sector because of its resilient earnings ? we see the potential of earnings disappointment for the market as a whole if the expected V-shaped recovery does not materialize.

With the market looking slightly toppish around 2600-2700, the risk of suffering a sharp pullback is less for the telcos given that they have generally lagged the market in terms of YTD gains.

Another talking point is the BPL broadcast rights for 2010-2012 ? we think that StarHub is still in the pole position to win it. We don't think SingTel would want to win it now (especially at a high price) given its limited distribution capability.

Things are likely to change when the NBN comes fully on-stream by 2012.

Not only for SingTel but potentially be good for M1 ? they will be able to offer a more integrated package and also branch into the more lucrative corporate broadband space.

M1 has highlighted its intention with the recent acquisition of Qala.

Again, we think that defensive stocks like the telcos remain relevant in today's context and their almost certain dividend payouts are attractive. In the longer term, the NBN could also bring new growth opportunities for the sector. Maintain OVERWEIGHT.