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.

China’s passenger car sales in Aug ’09 surged 90.18% yoy and 3.1% qoq to 858,300, underpinned by the government’s stimulus measures such as aggressive cuts in sales tax and rebates for buyers in rural areas.

Overall vehicle sales also surged 81.7% yoy to 1.14mln units, much faster than July ’09’s 63.6% growth rate.

What is more significant is that even demand for larger vehicles which do not benefit from government stimulus measures has recovered, signalling real demand returning.

GM’s Aug ’09 sales surged a better than expected 113% yoy resulting in the President and MD for its China operations to raise his previous forecast made in July ’09 from 20% growth in 2009 to 40% currently.

GM is a major customer of Armstrong in China and the above positive news will continue to underpin Armstrong’s automotive business in China. This suggests upside surprises for Armstrong’s automotive business in 3Q ‘09. We maintain BUY on Armstrong.

Petrobras likely to kick start the first phase of rig tendering later this month: Petrobras directors have approved on Friday the first phase of Brazilian rig building program calling for a total of 28 deepwater rigs to be built in Brazil for exploring and developing the pre-salt reserves with delivery scheduled over period of 2013 to 2017.

First round of tendering drill-ship biased; but scale, “made in Brazil" requirement should put Singaporean and Korean rig builders on equal footing: While some quarters may view the drill-ship bias as negative for Singaporean rig builders given that (a) Both SMM and KEP have highlighted their interest and willingness to undertake drill-ship projects in Brazil, (b) Tender of nine rigs should provide necessary scale to own and expand shipyard in Brazil and (c) Made in Brazil requirement does neutralize the Korean competitive edge (to some extent) in drill-ships in our view.

Potential doubling of existing order book for KEP / SMM; rig building likely to be concentrated to 3-5 shipyards: Given the rig tender structure, this will likely result in better than expected rig new order impact of 7 rigs for Singaporeans (4 for Keppel and 3 for SMM in our estimates) currently implied in our estimates. We believe PBR is likely to keep the rig building process to handful of 3-5 yards with 6-9 rigs per shipyard. Moreover this contract could potentially double the existing order books of Singapore rig builders with US$4.5-5.4 billion worth of orders up for grabs in first phase. We retain OW on KEP and SMM with a slight bias in favor of Keppel in near term given (a) potential new orders in pipeline namely P-61, Chevron TLP and semisub from PV drilling, (b) existing yard presence in Brazil.

O&M sector remains underweight — We recently met with investors in Europe and sense clients are much more cautious on the sector as compared to Asian based investors. Most remain underweight on the sector. The concerns are the duration of the current rig building downturn, and whether orderbook wins can resume. Investors opined the sector will de-rate further and want to see evidence of orderbook returning first to the sector before considering the investment merits.

Our key arguments — i) contrary to investors' perception, the rig supply response during recent cycle is far more muted than thought ii) orderbook will be a lagging indicator during a recovery phase, iii) do not ignore strength of the FPSO market rebounding in 2010 onwards iv) unless Petrobras is willing to compromise on its E&P ambitions, KEP/SMM appear best positioned to capitalise.

Margin direction — Questions were also raised as to whether recent O&M margin strength could be repeated in 2010 given further productivity gains and repeated deliveries. We believe this is possible since other cost items like raw materials are already locked in. However, deliveries from 2012 onwards (via new orderbook) should see margin diluting back to 2006-07 levels given the competitive landscape, but not a sharp margin collapse as some may fear.

Financing, not rig supply is a bigger threat — Our earlier concerns on funding risks have now turned consensus. We reiterate the credit crunch, not rig supply remains a bigger threat to rig building orderbook since funding source for both ship and rig building emerge from similar group of European banks. Although credit spreads have narrowed, counter party risks have yet to abate and (eg. collapse in ships collateral values) have negative implications for rig financing.

Valuation — Investors were surprised the sector is not trading above its historical average mean after sharp YTD rally. Although both KEP/SMM has outperformed STI, both stocks, particularly Keppel O&M is trading below the recent cycle P/B average. We highlight potential upside surprise to our EPS forecasts on further margin accretion, and orderbook returning could be re-rating catalysts.

Other stocks in focus; ST Eng — Investors are divided on ST Eng. Some opined 2010 consensus forecast remains conservative considering the strength of the recent margin recovery for the MRO business, continued strength in Electronics and M&A catalysts. However, others are concerned on prospects of orderbook wins and believe a DPS cut is highly likely.

Saizen REIT was listed in November 2007 and it invests in residential properties across 13 regional cities in Japan. The properties are leased out typically to the working singles and small families. Demand for rental housing is strong in Japan as home ownership is relatively low at 60% compared to about 91% in Singapore and 76% in Hong Kong and 69% in the United States.

Saizen REIT’s income stream is steady and reliable as its portfolio is well-diversified with 6000 apartment units. Residential rent in Japan has been stable over the last 20 years, growing at an average of 1% p.a. The rental rates of Saizen REIT’s properties have been consistent at around S$2 psf/mth and occupancy rates maintained at about 90%. Yet the property values appear distressed (few real estate transactions due to lack of financing and sellers are in distressed state). With refinancing issues pending to be resolved, the stock is trading at even more distressed level of 0.4x P/NAV.

However, with proceeds from the rights issue, cash-on-hand, operating cash flow conserved and short-term bridging facilities, Saizen REIT expects to repay five out of six CMBS loans maturing in end 2009 and early 2010. The management is likely to default on the YK Shintoku CMBS loan (S$121m loan on assets ring-fenced of $375.5m) due in Nov 2009. This is the best option as Saizen REIT will still be able to operate as a going-concern and the reduction in Group NAV is only 10% or S$37.6m. Repayment of these CMBS would remove the encumbrance for half of its property portfolio (S$340m).

The manager has targeted to resume distribution by the middle of 2010 and this should encourage the exercise of warrants. The 3-year warrants came free (exercise price of 9 cts) with every right subscribed for. Proceeds from the warrants (S$41.1m in the event all the warrants are exercised) could be used for debt repayment. Assuming constant asset values, Group gearing could decline to 33% by 2012.

As operations are expected to be stable, we estimate post-rights DPU to be in the range of 2.0-2.5 cts (yield 12.5-15.6% yield), based on a payout ratio of 90%. Assuming all warrants are exercised, the stock still yields 8% (est. fully diluted DPU 1.3 cts). With this, we also believe that the market is pricing in the possibility of the REIT having difficulty in securing loans on favourable terms in future due to their history of default.

Some positive surprises from 2Q CY09 results. Not withstanding one-off fair value losses, three of the property developers under our coverage - CapitaLand, Keppel Land and UOL Group, reported 2Q CY09 results that were within our expectations while two, City Developments and Soilbuild Group, came in above our expectations. Key sources of the upside surprise came from the revenue from new projects launched in 1H09 and fasterthan- expected construction schedule of existing projects. Developers share the consensus view that the worst is over for the Singapore property market.

Strong recovery in the residential property sector had even caught some of the developers by surprise but most of them had been well-prepared in their planning of new project launches to capture the upturn. Office market, which had the worst outlook among the different property sectors, had also seen a slower rate of decline in rents in 2Q09.

What can we expect in 2H09? Based on the latest URA data, developers sold a record 2,649 non-landed property units in July. In particular, sales in the Outside Central Region, which had seen four consecutive months of decline since February, jumped sharply by 70.7% MoM to 2,750 units, surpassing that achieved in February. This strong demand for mass market properties had exceeded our expectations and is likely to continue for the rest of the year, as we see the recent increase in cash-over-valuation in the HDB resale market as a catalyst for HDB home owners to upgrade to private properties. We now see prices of mass market properties stabilizing at S$700psf-S$800psf, which appears to be the comfortable price that HDB upgraders are willing to pay in recent mass market launches and this is above the S$600psf-S$650psf range seen earlier this year. Further upside will depend on any recovery in the economy that leads to increase in wages.

Advocating a cautious strategy for developers. Despite the recovery in the property market, we prefer to stick to a more cautious strategy when selecting our top picks for property developers. We prefer developers thathad already locked in profits for their land during recent upturn in the property market, which can provide earnings visibility for the next 2-3 years. We also favor developers that are trading at relatively larger discounts to their NAV/RNAV as this can protect against further downside from revaluation losses of investment properties going forward. Our preferred pick among the large-cap developers is UOL Group (BUY, FV: S$4.07). We also have a BUY rating on Soilbuild Group (FV: S$1.36).

Final dividend was reduced from 2 cents last year to 1.5 cents this year, below our expectations by 0.5 cents, due to 4Q ended June ’09 bottom-line coming in marginally below our expectations ($2.677mln versus $3.4mln a year ago and $3.3mln a quarter ago) reflecting higher than expected raw material costs, lower forex gain, partially offset by tax writeback. Despite this, the final div of 1.5 cents plus the interim div of 1 cent is still higher than last year’s 2 cents a share, which provides a yield of 10% at its current share price.

Payout ratio is 96.8% against last year’s 89%, but historically, the company has been able to payout almost all or even more of its earnings, reflecting little need to reinvest in capex, strong and consistent operating cash flows as well as huge cash reserves.

Financial position as usual remains robust with cash of $48.54mln against debts of only $1.245mln, giving a net cash position of $47.295mln. However, with the 32% rise in share price since our upgrade to BUY on 22 July ’09, net cash now represents 32% of market cap, down from 40% then.

We understand from management that 4Q ended June ’09 raw materials as a % of sales rose to close to 37%, up from their usual 30-32% due to one time expensing of raw materials purchased in preparation for the year-end seasonal ramp and should normalize back to the usual 30-32% range going forward.

Depreciation charge in 4Q also rose to $2.1mln, above their usual $1.6mln quarterly run-rate due to one-time write-down of their Taiwan machineries and should revert back of the usual $1.6mln going forward.

Looking ahead, as usual, management maintains a cautiously optimistic stance, warning about the uncertain business outlook due to the lingering effects of the global economic downturn and rising raw material costs.

However they admit for the first time that business activities are stabilizing, which we believe reflects the upcoming launch of the new Microsoft Windows 7 in Oct ’09 as well as a new Microsoft Office in early 2010, which coincides with the much anticipated PC upgrade cycle.

Being a key partner of Microsoft, the company has historically benefitted from all previous new software launches hence we expect this time to be no different.

Providing a yield of 10% while we await for earnings to kick in from Microsoft’s new software launches, the stock remains attractive. And this year being their 30th anniversary, hopefully there will be some goodies installed for shareholders as well. Maintain BUY.

An established property developer in Chongqing. We recently paid a visit to Ying Li International Real Estate in Chongqing, PRC and visited several of its investment properties and ongoing development projects. Ying Li is a Chongqing-based property developer that primary engages in commercial property development. The company is also one of the major landlords in the Jiefangbei area (prime CBD of Chongqing), holding ~30% of the commercial space in the area.

Potential catalysts from IFC and San Ya Wan projects. Construction work for the International Financial Centre (IFC) is progressing well. The retail portion of IFC is expected to be completed in 2H10 and the office tower will be completed in 2011. Upon completion, this project will have 108,388 sqm of office space and 36,920 sqm of retail space. Given the shortage of Grade A office space in Chongqing, we expect strong demand for the office space in IFC and Ying Li plans to retain the office portion of this development for investment purposes. For the San Ya Wan project, it is strategically located within the special economic zone and the development plan for the remaining land of this site (GFA of ~129,116 sqm) could be enhanced when the government releases the development plan for the area near the end of the year.

Opportunities for new projects. The Jiefangbei area is going through an urban renewal process and we understand that there are at least 7 sites in the Jiefangbei area that have been planned for commercial redevelopment. With Ying Li's good track record in urban renewal and strong working relationship with the Chongqing government, we believe that Ying Li could be one of the key players in this urban renewal process.

More funds may be needed. Ying Li has strengthened its capital base through a private placement of 107.1m shares at S$0.28, raising gross proceeds of S$30m. Proceeds will be used for the development of IFC, repayment of loans and working capital. With 4 projects already in the pipeline, we think that more fund raising exercises may be required for Ying Li to take on new projects.

Better outlook for FY10. Financial performance is likely to remain weak in FY09 but we expect Ying Li to turn in better results in FY10 and FY11, upon the completion of the retail and office portions of the IFC respectively. Ying Li's NAV is also expected to be boosted upon the revaluation of IFC when completed. This project is currently valued at RMB 6,290 psm. In comparison, the completed office space at New York New York is currently valued at RMB 12,892 psm. We do not have a rating on Ying Li.

Industry data indicates that day-rates and utilization rates for rigs have been declining. Besides dampening demand, this also raises the risk of more customers defaulting on their rig orders. SMM has already faced two defaults, but will likely avoid a loss by selling the rigs in the open market. However, if rig prices soften in tandem with day-rates, this may no longer be sufficient in order to protect itself fully against default risk.

Recent developments at Petrobras may cause further delays in its awarding of tenders. Brazilian President Lula de Silva has proposed new oil regulations to grant the government greater control over new deep water fields, and that oil revenues have to be spent on domestic social programs. These proposals are likely to be a political hot-button topic ahead of elections in October 2010. Petrobras is also planning to an estimated at US$25-50bn, in support of its US$175bn investment plans.

These two developments are likely to strengthen Petrobras’ position in the long term; however, the uncertainty generated in the near term may delay the awarding of tenders for equipment. Petrobras has a planned equipment capex budget of US$30bn, making them the single largest potential customer in the current soft offshore market. This position of strength and a more competitive environment also gives Petrobras more leverage in negotiating down prices, to the detriment of shipyard margins.


Both Keppel Corp’s Offshore & Marine and Sembcorp Marine have done well from the offshore up-cycle in the last 3 years. However, they are currently running down its current orderbook, and we expect earnings to decline from 2011 onwards, barring renewed order flow. We prefer Keppel Corp over SMM due to its more diversified earnings base, but maintain both stocks at Hold.

We had previously included Cosco as a potential offshore play, due to its low cost base, strong ambitions and growing technical expertise in the area. However, we believe that Cosco has missed the offshore cycle completely. We retain our Sell recommendation to target of S$0.81, due to shipbuilding execution issues, and a soft bulk carrier rates impacting both demand for newbuilds and charter rates for its fleet of 12 bulkers.


We recently initiated coverage of Ezion. We like the fact that Ezion identifies and capitalises on niche opportunities in the offshore space, and its projected 3-yr earnings CAGR of 109% pa is testament of this. We maintain our Buy recommendation to a target price of S$0.99.

Fuelled by globalisation. Growth of the shipping industry has been fuelled by globalisation and international trade. The global trade boom over the past 15 years has led to a 55.6% growth in wet cargo throughput, and a 105.2% surge in dry cargo volumes. Shipping has been, and still is, one of the most cost efficient modes of long haul transport. Demand for shippingrelated services is strongly correlated to global trade and outsourcing. Earnings of operators are therefore exposed to volatility arising from economic cycles.

The China force. China's industrialisation played an important role in the international trade boom. The widespread popularity of low-cost Chinese exports led to strong demand for container trade, while the country's heavy imports of industrial raw materials helped to support demand for bulk shipping. China's active role in international trade elevated demand for the Trans-pacific trade route, which at over 17% of total volume, forms the world's largest container trade.

Trapped with low freight rates and volumes. While thriving economic growth over the past decade fuelled the shipping industry's growth, the recent global economic downturn has conversely brought about a swift and sharp turn in fortunes. Weak consumer demand, slowing manufacturing activities and tight credit markets have crimped demand for shipping-related services. The industry now faces excess capacity, and in the absence of end demand, this has driven freight rates down to precariously low levels. Coupled with the slide in volumes, the shipping industry today is struggling with many even facing losses.

Outlook hinges on economic recovery. The shipping industry needs to see a sustained recovery in real demand before it can stage a resurgence. Freight rates need to be restored to profitable levels, and for this to happen, the problem of overcapacity must be resolved. We are seeing increasing signs of delays in deliveries of new builds and scrapping of old vessels. These may mitigate the anticipated overhang from new capacity coming onboard. However, weak near-term demand signals the likelihood of a prolonged and arduous recovery process for the shipping industry. Among the locally-listed shipping stocks, we have a HOLD rating on NOL (fair value estimate S$1.68).

Sees a slower 2H09. This is because RIM’s existing programmes are winding down faster than new models can ramp up in Q3. Prices and margins of matured products are also diminishing towards end of the products’ life cycles. Despite the slight pick up in Sep for new smartphones and shipments to new customers Dell, Microsoft and HTC, volumes are still low and consumer electronics recovery remains very slow. We also expect residual asset impairment charges on top of start up losses(c. S$1-2m) for the flexible printed circuit operation commencing in Q4.

More meaningful recovery only in FY10. This would be driven by full ramp up of new products/ customers and the resulting operating leverage. Hi-P is deepening relationships with existing blue chip clientele, particularly in the smartphone area, where Hi-P has an early mover advantage with RIM and Palm. Hi-P is also involved with Motorola’s latest suite of smartphones, which if successful would give Hi-P a further boost.

Sees 5-10% cut in consensus estimates. Hi-P has guided for 3Q to decline y-o-y and q-o-q. This forecast is intact from our recent corporate update. On the contrary, we see room for consensus downgrade on net profit forecast of S$80m for FY09. If Q3 is down q-o-q, it is challenging for Hi-P to clock S$20m each for 3Q/4Q. We expect earnings to be S$15m (-6% q-o-q) and S$20m (+38% q-o-q) for 3Q & 4Q respectively.

Downgrade to Hold with unchanged TP of S$0.76. Hi-P has more than doubled YTD compared to STI’s 50% rise. More importantly, we expect weak results to cap share price performance near term. Downgrade to HOLD.

Much has been discussed about abalone farming since our initiation report on Oceanus whereas restaurant and food processing segments were just briefly mentioned as both were still in the very early development stage. About one year since the RTO, Oceanus has made enormous progress and many changes have taken place. We have witnessed impressive achievements made by the management team. Some among them are strategic partnership with Ah Yat, restaurants in Shanghai taking off very well, accomplishment in canning processing techniques and so on.

The processing plant will be officially commenced in October this year and the segment's sales contribution is insignificant as of now. On the other hand, restaurant business has taken off successfully in Shanghai and more outlet openings are in the pipeline. Therefore, our focus in this report will be on restaurant business, and its prospect, financial forecast and relevant matters will be discussed in detail.

Reminiscent of Ajisen China: We believe Oceanus has an appealing story. Its aggressive network expansion plans for its "Ah Yat Tian Xia" abalone chain restaurant is reminiscent of the renowned Ajisen (China) Holdings Ltd, which was listed in 30 March 2007 in the Hong Kong Exchange. Similar success could be seen for Oceanus, but at a much shorter timeframe compared to its peer.

A distinctive advantage over peers: What makes Oceanus outstanding among its peers in the F&B sector lies in its complete presence along the value chain. From abalone farming, processing, to food chain operator, Oceanus basically has full control over its supply and demand for its abalone, which is one of the key raw materials of its restaurants. As the world largest land-based abalone farmer, Oceanus's interest in ensuring sufficient supply of abalone for its restaurant business is well safeguarded. Such a unique positioning in F&B industry has not only created a synergy in the company, but also strengthened its competitiveness in the industry.

Maintain BUY; Raise target price to S$0.53: In view of greater contribution from restaurant business in coming years, we prefer Sum of The Parts (SOTP) valuation methodology which allows us to evaluate each division of the company separately. Farming and food restaurant divisions are valued at 6x and 10x FY10 EV/EBITDA respectively. Net debt is then netted off to derive a target price of S$0.53 (previous S$0.44). We believe there is potentially significant upside for our target price, if the restaurant business could achieve better turnover and operating efficiency.

Ezra and ASL as favourites. Ezra Holdings (Ezra) and ASL Marine Holdings (ASL) remain as our favourites for the sector. Ezra has relatively defensive earnings, and coupled with the low base earnings accretion effect from its fledgling Subsea business, valuations will inevitably be driven upwards if executed well. Its fleet management business will lower reliance on spot charters and possibly boost earnings. ASL Marine's diversified business model (shipbuilding, repair and chartering) is expected to provide earnings support and its Batam yard expansion should translate to higher earnings with more repair work required from an enlarged global fleet. We maintain our BUY rating for Ezra [Fair value: S$2.00], and BUY rating for ASL Marine [Fair Value: S$1.18].

Swiber - lower debt, now waiting for contract wins. Swiber has a declining order book with recent contract wins comprising mainly of smaller ones compared to its previous major contracts, partly illustrating the slow down in the momentum of awarding projects by oil companies. However there seems to be increased hopes of bigger contract wins towards the end 09, though we would prefer to see this buzz translated to concrete wins. The group's debt level has also historically been relatively high, but net gearing is likely to improve further with proceeds from the sale and leaseback of vessels. Swiber's recent capital raising activities (incl. placement exercise) are important since it has two MTNs maturing in Aug 2010 and another two in Mar 2011 with quantum of US$71.2m and US$72m respectively. Swiber recently proposed a convertible bond issue to raise up to US$100m and the additional cash flow should ease its balance sheet. We maintain our HOLD rating for Swiber [Fair Value: S$0.94].

Wins small contract. SIA Engineering Company (SIAEC) has won a 10- year Maintenance Service Agreement with Panasonic Avionics Corporation, a leading supplier of aircraft in-flight entertainment (IFE) systems. SIAEC will maintain the eX2 IFE system which is installed on SIA's latest fleet of aircraft. The contract covers mainly line maintenance work on the eX2 IFE, including trouble-shooting, rectification and functionality checks to ensure a high level of operational reliability. We believe the earnings impact is negligible in view of the long attribution time frame and low revenue intensity as compared to its key airframe maintenance business.

SIA still critical to SIAEC's future. Although SIAEC's parent company has displayed improving operational performance in the latest month, this might be due to the summer travel spike. We believe that reinstatement of grounded aircraft might only occur in 2010 as SIA fights to contain rising fuel costs. Moreover, SIA has also rescheduled its delivery of eight A380s by 6-12 months, postponing maintenance work for SIAEC. With SIA's fleet size in status quo, we think SIAEC's airframe business activity will still be crimped. In the previous quarter, management presented a dim picture of business outlook "until there is sustained recovery of demand". We are iterating that recovery to previous year's record performance could occur only in 2012 or 2011 if demand experiences a V-shaped recovery.

Silver lining: Cost cutting. SIAEC has reached agreement with its three unions- this for staff to take half or 2 days no-pay leave in each month from July 09. To further manage the surplus personnel capacity, staff will be sent for training under government subsidised initiatives. The total savings from the no-pay leave, wage reduction and government subsidised training is expected to amount to about S$1m/month from July 09. Last quarter showed some cost management in its staff costs but we are hoping that more will be evident as it flows through past Jul 09.

Lowering fair value, Maintain HOLD. We have retained our estimates. Despite the recent run up in equities, MRO industry valuations have trended lower, signalling ill confidence in the aerospace industry. Consequently, we have lowered our PER peg to 12x (prev. 14x) and our SOTP valuation drops to S$2.76 (prev. S$2.95). We view the recent sustained price downtrend coupled with poor liquidity may stall any significant price ascension. Maintain HOLD. The current price yields about 5.6% for FY10F dividends.

Improving industry prospects. Our scan of the Drug Eluting Stent (DES) industry has yielded encouraging results. DES usage has risen to the mid-70% range (vs ~65% year ago). While there are still proponents and opponents to DES usage, rising clinical usage indicate that practitioners are more comfortable with the significant research put in for the last three years. Even less sanguine opponents of DES usage like Dr Edoardo Camenzind* said to "resist short-term (marketing) distractions and stick with (products with good) medical evidence". Biosensors possesses positive "medical evidence" and we expect its next update in end Sep 09 at a clinical conference to be encouraging.

Peer group scan. Abbott's Xience V DES is now the key product that has been gaining market share. Along with Boston Scientifics' Promus DES (sub-licensed Abbott DES platform), market watchers estimate that the Xience V platform has >50% market share in the US. JnJ continues to lose market share with its older Cypher DES but is hoping to roar back with its Nevo DES (but likely only in 2010). Medtronic's Endeavour DES platform is estimated to command market share in the mid-teens. The battle continues to be intense but the trend for technological superiority is sustained. We believe that the current iteration for clinicians to stick to products with strong clinical data will bode well for Biosensors' BioMatrix DES which is authenticated by strong clinical data.

Pricing pressure not for premium products. Abbott's and JnJ's 2Q webcasts indicate that ASP pricing pressures for DES have come more from hospitals vs. peers engaging in a price undercutting war. Abbott's management indicated that its newer generation Xience V DES have been sustaining ASPs. Our previous checks with Biosensors indicate that ASPs have been holding up in the EU markets.

M&A exit. We still believe a key exit for long-term investors will be an M&A situation. Adequate intellectual property protection, superior technology and a well-executed product launch has catapulted Biosensors onto the radar screens of the big boys. However, we think the company may need significantly more cash and people bandwidth to sustain its growth trajectory past FY11F. Our bets for future acquirers are Medtronic (lagging technology pipeline) and Terumo (Asian based powerhouse and current Biosensors' licensee). Maintain BUY at S$0.74 fair value.

Plant expansion and commencement of the new plant face further delays. Given weak demand, Synear continues to defer its expansion plans and suspend construction of new plants and cold warehouses. Synear has delayed the construction of its new Zhengzhou plant by another two years and now plans to complete it by 2012. Synear has also deferred the commencement of its new plant in Guangzhou. At the margin, sales trend(julaug) has been stable yoy on a relatively low seasonal quarter but costs could be on the upside.

The utilization rate remains low. Utilization at the Zhengzhou plant dropped to about 50% in 1H09 (vs 80% in 1H08) while utilization rates at the two plants in Chengdu and Huzhou remained at less than 20% in 1H09. We remain concerned about the intense competition in the sector and management's lack of strategy to tackle rising competition.

Margin pressures persist. Synear could continue to see margin pressure on the back of management's initiative to broaden the range of mass market products and increase commercial sales in 2H09. Synear has launched 20-30 new products to focus on the mass market and plans to increase commercial sales to 7% in FY09E from 5% in FY08.

Inflationary pressures have resulted in short-term headwinds; Sell. Our China Economist, Jun Ma, believes that inflation (CPI of 4% yoy) in China could rise faster in 2010, and this could compress margins for F&B companies.

We believe that the impact of El Niño could continue to push up agricultural prices (pork has increased by +20% on higher animal feed prices over the past two months) in 2H09. This could be partially offset by the 5% discount to spot prices that Synear has secured for its key raw materials (~80% of COGS).

Significant non-cash financial gain on mark-to-market on cross currency swap of Rp132b in 2Q09 vs a loss of Rp25b in 1Q09 due to appreciation of Rupiah vs. US Dollars. Higher CPO sales volume (+19% qoq) and higher CPO ASP (+11% qoq) Revenue increased by 31% qoq

Gross margin improvement in 2Q09 due to strong CPO prices. 1H09 net profit, however, declined by 28% yoy. 1H09 net profit represented 59% of our forecast.

The company is expected new planting of 8,000 ? 12,000ha in 2009, with majority of new planting will be on West Kalimantan province. As of 1H09, the company managed to increase new planting by 5,059ha.

On the back of seasonality patterns, the company is expected higher 2H09 CPO production compared to 1H09. We expect margin to sustain as the company is expecting cash cost of production for nucleus CPO of about US$200/tonnes in 2009. Maintain HOLD on First Resources and reviewing our target price.

The Group's 1Q10 revenue declined 38.2% to $8.8 million, mainly due to the lower engineering income for the current period. However, the recurring treatment revenue increased 20% to $3.0 million in 1Q10.

Material purchased, consumables used and subcontractors' fees decreased 52.7% to $5.4 million, in line with the 50.6% decline in revenue from engineering segment.

The decrease in other operating expenses of 32.1% as compared to the last corresponding period was attributable to lower engineering related expenses.

We raised FY11 sales estimate for treatment business by 10% while cut FY10-11 raw material cost estimate by 6-7%.

The sluggish performance by engineering segment was largely within our expectation. As a matter of fact, the contribution of this segment is gradually sidelined by the water treatment segment which has shown improving operating results over the past few quarters. The revenue for treatment was lifted by increasing minimum off-take volume and more treatment plants acquired.

Given that the industry outlook remains bright and the concession for treatment plant is not easy to come by these days, we believe United Envirotech is well poised to reap the benefits. On top of that, the management commentary in its recent results announcement turned more bullish. They are expecting better operating environment in the next two quarters. On the back of favorable backdrop, we increase valuation multiple to 1.25x FY10 NTA per share from 0.7x FY10 NTA, deriving a target price of S$0.28, representing 55% upside potential. Maintain BUY.