Singapore Stock Summary - 10 Dec 09

Singapore Economy (UPDATE) According to a median forecast in a quarterly survey of economists by the Monetary Authority of Singapore, Singapore's GDP is forecasted to expand 5.5 per cent next year. This will be mainly driven by manufacturing and private consumption. This compares with September forecast of 4.5 per cent growth next year and the government's estimate of between 3 and 5 per cent.

Commodities and Plantations (MAINTAIN OVERWEIGHT) OCBC expects continued Outperformance in 2010 for both commodities and plantations citing the global economic recovery with demand on commodities to rise. They maintain their Overweight on the commodities sector and highlight a Buy on Noble and Wilmar.

Wilmar International (MAINTAIN BUY) OCBC maintains its Buy Call on Wilmar International with fair value rmaining at S$8.23. It cited Wilmar's expressed interest to further invest in Asia with expansion likely to bring about better valuations.

Noble Group Ltd (MAINTAIN BUY) OCBC reiterated Buy rating on Noble and raised their fair value estimate to S$3.73 based on higher earnings projection. They cited that the group has performed consistently through both peaks and troughs of commodity cycles and expect contributions from its recent investments to drive volume growth and increase the group's profit.

Olam International (MAINTAIN BUY) OCBC maintained its Buy on Olam but cautions that key risks still include acquisition risk and poorer than expected performance from acquisition targets. With Temasek as its strategic partner, it should benefit from increased financial flexibility and that should help fuel its inorganic growth.

Golden Agri-Resources Ltd ( BUY) OCBC upgraded GAR to a Buy due to CPO prices that are believed to be well supported due to the potential smaller supply in 2010. The market has also re-rated CPO stocks positively due to the more upbeat outlook. Fair value of S$0.58 estimated for GAR.

Straits Asia Resources (HOLD) OCBC advocated caution on SAR due to its recent sharp appreciation since their upgrade a month ago. They remain cautious on the medium term outlook and suggest re-entry at S$1.09 and below with a fair value estimate of S$2.11 (increased from S$2.07).

Singapore Stock Summary - 9 Dec 09

STI Index The STI closed at 2,797.21 down 8.29 points on a volume of 2.1 billion shares worth S$1.74 billion. Losers led gainers 250 to 237.

SembCorp Marine (MAINTAIN BUY) AmResearch reitereated a Buy call on SembCorp Marine after it announced that it had signed a contract to sell its West Elara jack-up rig to the Vietsopetro. The impact on the group's order book will be insignificant. SembMarine is however likely to see more upside with improving prospects of a global recovery in the oil & gas sector.

CapitaCommerical Trust (DOWNGRADE TO SELL) Kim Eng recommended a downgrade to sell rating on CCT based on valuation stating that the share price has run ahead of fundamentals and it is a great opportunity to take profit now. It has a target price of S$0.99 for CCT with a preferred entry at S$0.93 for 15% total returns.

KS Energy (MAINTAIN HOLD) OCBC Securities maintained its Hold rating on KS Energy with a fair value price of S$1.20. KS Energy reported that it would be acquiring Aqua Terra Supply and SSH Corporation through its newly form subsidiary KS Distribution. The rationale is to build an integrated Oil and Gas and Marine distribution business that is better placed to penetrating markets such as China, Indonesia and the Middle East. The proposed acquisition requires consent from majority of the shareholders before it can be materialised.

Plantations (MAINTAIN OVERWEIGHT) CIMB-GK Securities maintained its Overweight position on plantations with key picks being Golden Agri, Indofood Agri, Wilmar, Astra Agro, Sampoerna Agro, London Sumatra and Sime Darby. This is because of the higher Crude Palm Oil price, better than expected earnings and M&A activities. Earning prospects for 2010 also look brighter with probably higher selling prices and lower operating cost due to the drop in price of fertilisers.

S-REITs (MAINTAIN NEUTRAL) OCBC Securities maintained its Neutral rating on SREITs stating that valuations in the sector are currently trading at 0.78x book compared to 2006 average of 0.89x. The limited upside coupled with book value risk gives an unexciting risk-reward ratio. Within their coverage universe, OCBC however has Buy ratings on Mapletree Logistics Trusts (FV:S$0.78), Ascott Residence Trust (FV:S$1.25) and Suntec REIT (FV:S$1.40). They have also downgraded Frasers Centrepoint Trust to Hold due to limited upside, acretion uncertainty over pending acquisitions and unexciting risk-reward ratio.

Singapore Stock Summary - 8 Dec 09

STI Faces Downside Risk based on Technicals Phillip Securities Research reported that STI faces downside risk due to RSI divergence with market setting up for weakness in the short term.

China XLX Fertiliser (UPDATE) Due to the dual stock listing in HKSE on 8 Dec 2009, China XLX Fertiliser has surged to S$0.77. The surge is probably due to its conservative valuation in comparison to its peers that are listed in the HKSE which are listed at higher PERs than China XLX Fertiliser.

First Ship Lease Trust (UPDATE) Due to the Dubai World credit crisis, FSL Trust has decided not to issue up to US$200 million senior notes due 2016. The notes issue will be revisited when market circumstances change. This update will likely drag down the other two shipping trusts: Pacific Shipping Trust and Rickers Maritime Trust.

Singapore Telecom Sector (MAINTAIN UNDERWEIGHT) CIMB maintained its underweight on the Singapore Telecom Sector with M1 as the top pick, followed by Starhub and finally by SingTel. Among the risks cited are ARPU (Average Revnue per User) erosion in broadband for SingTel and StarHub, and the risk of losing more compelling content at StarHub.

SIA Engineering (MAINTAIN BUY) Kim Eng re-rated SIA Engineering to a target price of $3.75. Reasons for the re-rating was the increase in global air traffic and the soon to be completed integrated resorts early next year.

Soilbuild Group (MAINTAIN BUY) OCBC maintained its Buy call on Soilbuild Group Holdings Ltd after it announced about its S$51.7m new business space development project with a subsidiary of CSC Holdings. This is estimated to increase RNAV by 3 cents and fair value has been increased to S$1.36.

Yongnam Holdings Ltd (MAINTAIN OUTPERFORM) CIMB maintained its Outperform rating on Yongnam citing that it expects 2010 to be an even better year with Yongnam bidding for more than S$1b worth of contracts. It expects Yongnam to breach the S$600m mark in 2010 for its order books. While it expects Yongnam gross margins to dip due to intensifying competition in the industry, this would be mitigated by a stronger competitive position.

SREITs expected to pursue more acquisition in 2010 - OCBC

Singapore REITs are expected to pursue more acquisitions in 2010 to drive growth, with deals likely to be funded by private placements, says OCBC Investment Research.

“Opportunistic acquisitions will be very much in vogue in 2010 as some REITs shore up declining earnings and others exploit favourable market conditions,” it says in a research note although funding sources may be limited as REIT managers unlikely to increase their aggregate gearing level to make new purchases.

OCBC adds that raising equity through rights issues may also be challenging as REIT sponsors, institutional investors are already over-leveraged. Steep discounts to ensure successful rights issues may also obstruct earnings-accretive acquisitions.

“As a result, private placements are likely the most promising source of funds in 2010 in our view.”

Pacific Andes Resource Development - Buy by OCBC (20 Nov 09)

Lafayette - a great enhancement in South Pacific. We visited Pacific Andes Resources Development's (PARD, formerly known as Pacific Andes Holdings) latest addition - China Fishery Group's (CFGL) key flagship factory vessel christened as the Lafayette. The 228-metre long Lafayette can freeze up to 1,500 tonnes of fish per day and will be deployed to the South Pacific before the end of this year. This vessel will play a strategic role as the group positions itself for future fishing opportunities in the South Pacific. With the addition of the Lafayette, this brings CFGL's total fleet tonnage to 85,000 tons in the South Pacific. This could potentially mean a future 20- 25% market share of the Chilean Jack Mackerel market as the group gears up to participate in more fishing activities in the region before the implementation of the quota system (which is likely to be based on historical catch volume and gross tonnage).

Chilean Jack Mackerel likely to see wider human consumption. This could provide substantial organic growth for the group, which will filter up to PARD. Currently, demand for Chilean Jack Mackerel is mainly in the West African countries, but management is of the view that there will be increasing human consumption of this fish, and this will enhance the value of this fish, which has grown from less than US$600 per ton in 2001 to about US$1000 per ton (CIF) currently. Presently, the Chilean Jack Mackerel is the seventh most harvested fish species.

Fish is still a popular source of protein. According to the FAO, global demand for seafood will exceed supply from 2001 to 2015. Supply is estimated at 172m tons versus demand of 183m tons by 2015. The consumption of fish per capita in China is also expected to rise, increasing from 25.6kg in 2003 to an estimated 34kg by 2030. With the global movement towards healthier food choices, we expect fish demand to remain healthy.

Still a BUY. The group has changed its financial year end to 28 Sep (for both PCRD and CFGL). With this change, the next set of results is due out on 27 Nov 2009 which will cover the six-month period till 28 Sep 2009. We have made some changes to reflect the change in year-end, but our forecasts remain fairly unchanged pending the release of its results next week. We are also maintaining our BUY rating and fair value estimate of S$0.31.

MacarthurCook Industrial REIT and Cambridge Industrial Trust Update

MacarthurCook Industrial REIT (MIREIT) recapitalization exercise took a twist with Cambridge Industrial Trust (CIT) taking a 9.76% stake in MIREIT.

�� 6 Nov 2009 – MIREIT announced a series of recapitalization measure
�� 10 Nov 2009 – MIREIT announced CIT has become a substantial shareholder with a 9.76% stake
�� 16 Nov 2009 – CIT announced it will be voting against the resolutions during MIREIT EGM to be held on 23 Nov 2009 and is proposing to replace the current MIREIT manager, then appoint CITM, the trust manager of CIT as the manager.

CIT rationale to vote against the resolutions stems from the inherent value it deems in MIREIT units and states that the proposed recapitalize exercise is “massively value destructive” to the NAV of $0.94 per unit. CIT has internally valued MIREIT at $0.479 per unit.

Possible Outcomes

Scenario 1: Unitholders vote in favour of resolutions during EGM MIREIT will proceed with the recapitalization exercise. The management of CIT mentions that they have the resources to subscribe for their pro-rata share of rights units. The total stake of 26 million units cost CIT $10.3 million which was funded from the private placement which raised $28 million. The subscription of the rights units will require a further $8.26 million.

Scenario 2: Unitholders vote against resolutions during EGM CIT will proceed to convene another EGM to replace the current REIT manager and appoint itself as the manager. In the event that this is the outcome, it leaves CIT with very little time to put together a refinancing package to address MIREIT pending debt maturity as well as funding needs. MIREIT debt comes due in Dec 2009. CIT has revealed little details about its plan, citing regulatory restrictions. We believe that CIT already has a refinance package on hand for it to suggest voting down the resolutions. Even if it does not, its deemed value of $0.479 per unit of MIREIT gives an indication of the residual value that unitholders can expect to receive in the event that CIT winds down the REIT.

Synopsis

On the overall, the surprise turn of events provided an alternative course of action for MIREIT unitholders. In a way, the move by CIT opens up the possibility that MIREIT unitholders will not be subjected to the heavy dilution. Either way the EGM turns out, the risk is more on the part of CIT unitholders rather than MIREIT unitholders. CIT management has not revealed much details of its plan and therefore MIREIT unitholders can only hope that they are in good hands should they vote against the resolutions. CIT unitholders on the other hand faces the same degree of dilution risk as existing MIREIT unitholders.

We currently have a Hold rating for CIT and a Sell rating for MIREIT.

Ascott REIT DPU 1.92 Cents (28 Oct 2009)

Below is the report by Ascott Residence Trust on their 3Q results. From the looks of it, QoQ, the revenue, gross profit and DPU has increased. Compared to 3Q 2008, the yield has actually dropped significantly.

Singapore, 28 October 2009 – Ascott Residence Trust (Ascott Reit) achieved a unitholders’ distribution1 of S$11.8 million and DPU of 1.92 cents for the quarter ended 30 September 2009. Ascott Reit’s annualised distribution yield is 6.7 percent2 based on the closing price of S$1.09 per unit on 27 October 2009.

Mr Lim Jit Poh, Ascott Residence Trust Management Limited’s (ARTML) Chairman, said: “The severe challenges posed by the global economic downturn to the hospitality industry have eased. Our 3Q operating performance has shown further signs of stabilisation in hospitality demand. While we remain cautious over the pace and extent of recovery, we are confident of the longer-term growth in the markets in which we operate.”

Mr Chong Kee Hiong, ARTML’s Chief Executive Officer, said, “Ascott Reit’s portfolio operating performance continued to improve in the third quarter of 2009. The better performance was led by revenue per available unit (RevPAU) growth in Japan, Singapore and China of 24 percent, 15 percent and 7 percent respectively in 3Q 2009 compared to 2Q 2009. To ride on the expected upturn in demand as the economy recovers, we have accelerated our asset enhancement initiatives for selected properties. We will also continue to seek yield accretive acquisitions.”

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