China Aviation Oil: A rebirth to stability? (NEUTRAL\S$0.655\Target S$0.705)

Post-restructuring story. China Aviation Oil (CAO) was brought to its knees by rogue trading of
jet fuel derivatives that amounted to more than US$550m in losses in 2005, but was given a new
lease of life in 2006 through restructuring and a subsequent re-listing. Since then, it had totally
done away with its trading arm and focused on its core business activities, which are mainly the
jet fuel procurement business and investments in complementary businesses.
A gradual swing towards synergistic strategies. As time passed after its re-listing and
subsequent stability in its operations, management realised the importance of streamlining the
business towards more value-adding activities by cutting out irrelevant or non-related investments
and concentrating on business targets that would complement its business-chain, be it going
upstream or downstream. This is evident when the Group disposed of its 5% stake in Compania
Logistica de Hidrocarburos, S.A (a Spanish logistics company) during 1H07, and purchased a
49% stake in the Beijing – Tianjin oil pipeline that should be completed by Jan 09.
Re-visiting trading and hedging activities. The Group announced about six weeks ago that it
will resume its petrochemicals trading business from 4Q08 onwards. Products traded will be
substances such as Benzene, Styrene and Toluene through the inheritance of BP’s Asian
petrochemicals and trading team. The Group also recorded a gain of S$4.8m on a close-out of a
swap deal backed by underlying physical cargo (jet fuel) with a customer in 2Q08. Management
has stressed that such activities are all carried out with the strictest supervision of its newly
established risk-management committee.
Overall business direction. Any expansion of its current operations will revolve around its three
main business segments: 1) Jet fuel supply & trading. 2) Oil-related assets. 3) Trading of other oil
products.
Valuation. We derive a 12-month fair-value target price of S$0.705 using our DCF model,
applying a WACC of 14.8%, a beta of 1.2 and a terminal growth rate of 1%. At the last traded
price, the stock is trading at 6.8x FY08 and 7.9x FY09 P/E, offering a yield of 4.8% and 1.1x P/B.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

SGX: S$4.73 SELL (TP: S$3.95) - Sharp decline in Nov stockmarket turnover value

source:DMG

Nov stockmarket turnover value is down sharply. Average daily stockmarket turnover value was S$1.06b for the first 12 trading days of Nov 08 – a sharp 20% plunge from the S$1.40b for Oct 08. Concerns on global economic weakness and lack of investor interest have contributed to this trend. The average value per share traded has also fallen sharply from S$1.24 in Sep 08 to only S$0.78 in the first part of Nov 08 – we attribute this to the recent sharp fall in share prices which lowered market capitalization from end-Sep 08’s S$506b to end-Oct 08’s S$383b. We expect stockmarket turnover value to remain weak over the next few months, and have therefore cut both our FY09 and FY10 ADT assumptions by 11% to S$1.19b and S$1.24b respectively.

Futures turnover remain robust. Oct 08 futures trading volume of 6.84m is 86% higher YoY, driven by the Nikkei 225 Index & the CNX Nifty Index futures trading. We believe this strength can persist and have raised our assumption of FY09 & FY10 futures turnover volume both by 7% to 72m & 75m respectively.

Earnings forecasts reduced. Factoring in the above two developments, we are lowering our FY09 and FY10 net profit forecasts by 7% and 8% to S$315.7m and S$323.9m respectively. We believe more market players will cut their earnings forecasts and therefore expect the current consensus expectations of S$335.3m and S$382.5m (for FY09 and FY10 respectively) to fall closer to our forecasts over the next few weeks.

Target price cut from S$5.20 to S$3.95. Given the recent P/E compression across all sectors, we have reviewed our assumptions for SGX target price. Our new target price of S$3.95 is pegged to 13x FY10 P/E – lower than the 16x P/E which we adopted earlier. This target P/E rating is close to the level recorded in FY05, when ADT fell 14.5% YoY. Our sensitivity analysis shows that market players are assuming an ADT exceeding S$1.62b based on the current share price of SGX – a level which we feel is unachievable over the next few quarters.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

MobileOne: S$1.25 BUY (TP: S$1.58) - Value emerges

source:DMG

Stock slides. Since our last note on M1 on 20 Oct 08, the stock has dived 26% on the back of weak sentiments in the market, as well as negative newsflow from the telecommunications industry. The other two telcos, particularly SingTel, painted a bleak outlook for the next few quarters. Consequently, despite the fact that the industry is largely seen to be defensive, the telco index FSTTC fell by 8% in the past month. Before the recent slump, M1 has been one of the most resilient stocks. It only fell 4% for the first nine months of the year, far outperforming the STI’s 32% slump.

Recapping results. While M1’s revenue fell a mere 1.7% to S$196.7m in 3Q08, earnings took a bigger 21.1% knock to S$34.4m due to higher acquisition and retention costs, following the introduction of mobile number portability in Jun 08. EBITDA margin came in at 42.5%, down from last year’s 45.2%. Gearing, at 128.2%, is seemingly high for M1. But this is not very much of an issue, considering that it has strong operating cash flows that will enable it to comfortably pay off its debts and reward shareholders. It has a Net debt/EBITDA of 0.8x (SingTel 1.1x, StarHub 1.2x), while its EBITDA/Interest stands at 40.6, an improvement over the previous year’s 33.1.

Recession’s not the main curse. Looking back at the past recessions, management revealed that the bad debts are quite insignificant – less than 0.5% of revenue. What investors need to be more worried about is competition. The aggressive marketing by all three telcos have led to surging subscriber acquisition and retention costs, and consequently margins being driven down. Our recent discussions with the telcos suggest that this intense competition will be dying down, at least for now.

Churn rate eased. In 3Q08, M1 was hit with a high churn rate of 1.8%, a jump from 1.2% in the previous corresponding period due primarily to SingTel’s launch of the iPhone. This should be reduced to the 1.5% level as competition tames.

Target price down, but value emerges. We have left our earnings estimates at S$160.1m for FY08 (-6.8% YoY) and S$149.1m for FY09 (-6.9% YoY). At S$1.25, it is trading at 7.0x FY08 and 7.5x FY09 P/E, which compares favourably against the industry average of 9.4x. The yields, at 12.2% for FY08 and 11.4% for FY09, are also the best among the three telcos. We have downgraded our target price for M1 from S$1.89 to S$1.58, based on our revised DDM model. We are upgrading the stock to a BUY despite cutting the target price, as it is looking attractive after the recent fall with a potential upside of 26% from current levels.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Swiber Holdings: S$0.55, Downgrade to NEUTRAL (TP: S$0.62) - Margins decline paint a difficult operating environment

Growth in topline, but decline in bottomline. Swiber Holdings (Swiber) announced its 3Q08 results last Friday. 3Q08 revenue grew 186.5% YoY (4.5% QoQ) to US$130.1m buoyed by increased activities in the offshore construction projects in Malaysia, Brunei, Indonesia and India. However, as a result of higher administrative expenses & finance costs, Swiber’s 3Q08 PATMI declined 7.4% YoY (-18.1% QoQ) to US$16.0m. On a 9M08 basis, Swiber’s revenue turned in US$325.5m, representing 91% of our FY08 estimates, while core PATMI, excluding exceptional gains from disposal of assets, was approximately US$44m, accounting for 74% of our FY08 forecast.
Compression in profit margins faced. Gross profit margin declined by 13.8 ppt YoY (-6.1 ppt QoQ) to 21.6% as a result of the increased usage of third party vessels. Core operating profit margin, excluding gains from disposal of property, plant and equipment and assets held for sale, slid 17.5 ppt YoY (-9.5 ppt QoQ) to 11.9% primarily due to higher administrative expenses of US$10.1m (+85.9% YoY, 46.7% QoQ) as well as finance cost of US$2.9m from bond and bank loans (+215.7% YoY, -7.2% QoQ).
Financing concerns still valid. Swiber’s net debt to equity ratio increased from 0.53x as at 31 Dec 07 to 1.05x as at 30 Sept 08 mainly due to the increase in borrowings (comprising of bank borrowing and issuance of Multi-currency Term Notes bonds). The management assured that it has adequate funding for total committed outstanding capex of US$336m. The management also added that Swiber is exploring other strategies such as asset transfer to further lighten the balance sheet.

Decline in margins reflected difficult operating environment. We have left our FY08 estimates unchanged, but lowered our FY09 revenue by 21% on the back of slowing new contract orders. Consequently, our FY09 net profit is reduced by 29% with further considerations from expected higher administrative and finance expenses. We have also cut our valuation parameter from 8.7x to 3x in line with its peers owing to P/E compression. We have rolled over our valuation based of 3x FY09 recurring earnings. In view of Swiber’s high gearing, we opine Swiber may not pay dividends for the next two years in a bid to preserve cash. Our target price is reduced to S$0.62 (from S$2.17 previously). Downgrade to NEUTRAL.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Sembcorp Marine: S$2.05, BUY (TP: S$2.49) - Don't underestimate its value

We valued SCM from another angle and concluded that SCM’s intrinsic value could possibly exceed S$2.90.
S$2.18 from repair and conversion projects - We performed a simple calculation on the net cash flow generated from the repair and conversion projects (assuming debt-free, capex equals depreciation and conservative operating profit margin (OPM) of 22%) and discounted at the rate of 8%. Our simple arithmetic calculation shows that if this counter-cyclical business division is to generate S$2b of revenue per year (to perpetuity), the net present value (NPV) would be S$2.18 (or 88% of our TP).
S$0.72 from rigbuilding division - We ran an analysis of this scenario in a similar fashion, assuming one semi-submersible and one jack-up to be delivered per year. We took both as individual annuity of net cash flow at OPM of 8-10% and discounted rate of 8%, deriving a combined NPV of S$0.72 per share. We believe our assumptions are not unreasonable, given that the management’s mid-term strategy is to deliver 2 semi-submersibles and 2 units of jack-ups/floating production units per year.

We believe the stretched-test for SCM’s worst case scenario would imply business activity constricted to only repair and conversion projects (assuming no new contracts secured – which we believe to be unrealistic) at an intrinsic fundamental value of S$2.18 (and this is still 6% higher than Friday's closing price of S$2.05). However, we believe this is unlikely to be so, as SCM has progressed into an internationally-renowned rig-builder, just second to Keppel Corp.

We chose the conservative S$2.49 as target price, which is based on to sum-of-the-parts valuation:
P/E of 12x FY09 blended earnings for SCM’s rigbuilding, repair and conversion sectors;
Implied value of SCM’s 30% stake in Cosco Shipyard Group (with reference to the implied P/E of 3x FY09 EPS of our valuation in Cosco Corp)
4.98% equity interest of Cosco Corp at Cosco’s TP of S$0.68

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

ComfortDelgro: S$1.30 BUY (TP: S$1.63) -Fuel price strength dampened earnings, but 2010

CD recorded 3Q08 net profit of S$48.3m, down 18.1% YoY, despite a 5.2% YoY increase in turnover. 9M08 net profit of S$155.3m represents 78% of our raised 2008 forecast.

Global bus turnover fell a marginal 1.2% YoY to S$397m, but high fuel prices led to a more severe 36.1% YoY decline in bus operating profit.
Singapore bus turnover expanded 8.7% YoY to S$156m, due to a 6.1% YoY ridership increase to 2,375k rides/day. But high diesel prices led to operating profit (inclusive of advertisement and rental income) falling 32% YoY to S$5.9m.
UK Metroline recorded a 13% YoY turnover contraction due to the weaker Sterling Pound. The 64% YoY plunge in operating profit to S$8.5m was due to higher fuel costs and the benefit of a write-back of pension provision in 3Q07.
Australia bus turnover grew 11.7% YoY to S$54.4m due to indexation of contract revenues, higher mileages operated and more charter work but was partly offset by the weaker Australian Dollar. Its operating profit of S$8.8m is up 3.5% YoY.

Mild growth for global taxi operations. Global taxi turnover was up 2.7% YoY to S$238m, though operating profit fell 16% YoY.
Singapore taxi operating profit fell 29% YoY due to higher provision for accident insurance claims and higher diesel subsidies paid to taxi drivers.
China taxi turnover rose 13% YoY to S$28.6m due to higher rentals on the newer fleet in Beijing and increases in fleets in Chengdu, Jilin and Nanning.

2010 earnings could jump on the back of lower fuel costs. High WTI crude oil price in 3Q08 contributed to the weakness in CD earnings. However, WTI prices has since fallen from Aug 08 monthly average of US$116.70/barrel to 1H Nov 08 average of US$61.70. This is positive for CD earnings going ahead. However, as CD has already partially hedged its fuel price till Jun 09, the expense reduction will be muted until 2H09. We are assuming WTI crude oil price of US$70/barrel for 2009 and US$63/barrel for 2010. However, given the price hedge, the effective price for CD is estimated at US$88/barrel for 2009 and US$63/barrel for 2010. We see this contributing to a S$75m YoY fall in energy and fuel costs for 2010, which is 22% of our forecast 2009 PBT.

Earnings forecasts have been adjusted. We raise our 2008 net profit forecast by 4% to reflect the recent declines in WTI crude oil price. Our 2009 net profit forecast remains unchanged.

Maintain BUY on CD. Our S$1.63 target price is derived from sum-of-the-parts valuation. CD also offers an attractive 2009 dividend yield of 7%. We believe further falls in WTI prices will be the catalyst for investors to relook at investing in CD.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Li Heng Chemical Fibre: S$0.295 BUY (TP: S$0.685) - 4Q08 will be a clearer gauge of conditions

3Q08 numbers in-line. Li Heng clocked RMB1.02b worth of revenue for 3Q08, up 53.7% versus 3Q07 of RMB666.7m. The stronger revenue YoY was achieved despite lower ASPs across all product segments, as it was more than compensated by higher production capacity due to its capacity expansion. As a result of weaker ASPs, gross margin was down from 34.2% in 3Q07 to 31.0% in 3Q08. NPAT grew 19.2% YoY for 3Q08 from RMB217.1m to RMB258.7m, a much lower quantum than its top line growth mainly due to inclusion of income tax after enjoying a tax-free status due to its WOFE status in the previous two years.

Our prognosis. In our recent company update report, we highlighted that the textile industry would be severely hit due to slowing Chinese exports and a relatively stronger RMB. This would impact Li Heng directly in terms of its ability to continue to secure future sales and also put further pressure on its ASPs and gross margins. Hence, especially in the next two quarters, we expect to see margins come under even more pressure alongside price drops in PA chips and nylon yarns, albeit at a slowing rate of decline. This will inadvertently result in quarterly financial performances taking further dips in light of the current crisis.

Management key takeaways 1: ASPs. Management concurs with our view that the global economic slowdown has posed very challenging times ahead for the company. Hence they expect ASPs of nylon products to continue their downward slide for 4Q08 and possibly into 1Q09.

Management key takeaways 2: Dividend policy. The dividend of 1.5 S¢ for 3Q08 represents a 45% payout of NPAT. Management mentioned that they will seriously consider maintaining this payout ratio going forward after carefully accounting for business conditions going forward. If this actually gets implemented, based on Li Heng’s last traded price of S$0.295, the dividend yield would jump from 10.8% to 19.4% for FY08 and from 11.4% to 20.5% for FY09. We have earlier based our assumption on a payout of 25%.

Management key takeaways 3: Phase III expansion. Management has been prudent enough in our view, to acknowledge the slowdown in its operating environment, and has hence recognised the point that it can afford putting off its target of expanding nylon yarn capacity by 3Q09. This possible move will allow them to cut back on capex (reduced from RMB600m to RMB 200m for FY09), increase working capital, and improve overall cash flow.

Valuation and recommendation. Li Heng has done quite well in terms of meeting the investment community’s expectations so far in terms of its financial performance. However, 4Q08 and beyond is proving to be an uphill battle for management due to the worldwide economic slowdown. Hence, we are cautiously optimistic of the Group’s ability to deliver on our already reduced FY09 estimates. We will wait till the Group announces its 4Q08 to see if further adjustments to our FY09 forecasts are necessary. For now, we maintain our BUY call with a 12-month price target of S$0.685, which is an undemanding 5.2x our FY09 EPS forecast. The stock currently trades at 2.5x FY08 P/E and 2.2x FY09 P/E, giving an attractive yield of 11.4%.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

City Developments: S$6.09 NEUTRAL (TP: S$5.53) - A Subdued 3Q08

City Developments Limited (CDL) registered an 11.0% YoY dip in 3Q08 PATMI to S$150.8m. On a 9-month basis, PATMI came to S$481.0m, which was slightly under expectations, accounting for 64.5 – 68.0% of our projections and the Street’s. Development plans for South Beach have been deferred. Aside from the expectation of softening construction costs, we surmise it could also be attributable to capital preservation being top of the participating companies’ agenda given the ongoing tight credit conditions. Despite delaying the launch of The Arte and The Quayside Collection, their constructions are set to continue due to the low building costs secured and land costs of under S$400 psf ppr. As such, we believe CDL could launch them at attractive prices when sentiments improve, and book in a relatively higher amount of cashflow. Only a third of CDL’s pre-sold DPS-qualifiable projects were sold under the scheme, while a bulk of CDL’s projects under development would only be completed in 2010 and 2011, which should allow buyers to have a reasonable amount of time to secure bank loans especially with interest rates expected to remain soft. From our view, CDL’s share price in the near-term would be weighed down by an ongoing global slowdown within the hospitality sector, as well as weak sentiments in the domestic property sphere. However, its portfolio of more mass-mid market residential landbank and current/future projects suggests that it is in a better position to ride on any remaining interest from genuine owner-occupiers, and any potential spillover from the still-buoyant activity within the HDB segment. For the next two years, we estimate that CDL should be able to book in approximately S$400 – 500m worth of PBT from previously sold units. Further, with a cash position of S$813.3m and net gearing of 0.47x, its balance sheet remains healthy. Nonetheless, in view of the anticipated residential slowdown, we have delayed our sale & launch schedules for CDL’s domestic residential projects, as well as assumed price declines of 3 – 8% for the remaining 2008 and 10 – 20% for 2009, with a slight 1 – 5% improvement in 2010. Additionally, we have accounted for a higher cap rates (+25 – 50bps) for its investment properties, as well as pegging the target prices of its two listed entities to current market prices. As such, earnings estimates for FY08F and FY09F are trimmed by 9.4 – 22.1% to S$640.5m and S$600.2m respectively. Discounting our new base case end-09 base case RNAV of S$11.05 by trough metrics of 50%, we trim our fair value for CDL to S$5.53 (previously S$11.25). Maintain NEUTRAL.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Obama Says Paulson May Be Disappointed by Parts of Rescue Plan

Nov. 15 (Bloomberg) -- President-elect Barack Obama said Treasury Secretary Henry Paulson may be disappointed with some aspects of the federal government's $700 billion bailout of the banking industry.

``Hank Paulson has worked tirelessly under some very difficult circumstances,'' Obama said in an hourlong interview to be aired on ``60 Minutes'' tomorrow night, according to excerpts released by CBS News. ``I think Hank would be the first one to acknowledge that probably not everything that's been done has worked the way he had hoped it would work.''

Obama said he has assigned someone on his presidential transition team who ``interacts'' with Paulson daily.

``We are getting the information that's required, and we're making suggestions in some circumstances about how we think they might approach some of these problems,'' Obama said.

Obama also said the government must do more to help distressed homeowners.

``We have not focused on foreclosures and what's happening to homeowners as much as I would like,'' Obama said, according to the excerpts. He called for setting up ``a negotiation between banks and borrowers so that people can stay in their homes.''

CBS also reported that Obama said during the interview that he would name a Republican to his Cabinet.

A number of influential congressional Democrats and the military favor the idea of asking Defense Secretary Robert Gates to remain for an interim period. As the new president focuses on the financial crisis, they argue, this would offer continuity.

``He's done an extraordinary job,'' Senator Jack Reed, a Rhode Island Democrat, said of Gates earlier this month. ``I would hope that in some capacity he could continue to serve.''

source: bloomberg

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Asian Stocks Fall, Extend Global Rout, on U.S. Treasury, Intel

Nov. 13 (Bloomberg) -- Asian stocks and U.S. futures fell, extending a global rout, as the U.S. Treasury scrapped plans to buy mortgage assets, Intel Corp. cut its sales forecast and Best Buy Co. warned of a slowdown in spending.

Mitsubishi UFJ Financial Group Inc. dropped 4.4 percent as Treasury Secretary Henry Paulson shifted the focus of the government’s $700 billion bailout plan to consumer credit. Citigroup Inc. and the Standard & Poor’s 500 Financials Index slid to 12-year lows yesterday. Toshiba Corp., Japan’s largest semiconductor maker, dropped 4.8 percent after Intel lowered its fourth-quarter sales prediction by about $1 billion. Best Buy, the largest U.S. electronics retailer, lost 8 percent in New York after saying profit will decrease.

“With Paulson’s plan change, investors think the initial $700 billion won’t be enough,” Mitsushige Akino, who oversees about $468 million at Ichiyoshi Investment Management Co., said in an interview with Bloomberg Television. “Best Buy’s forecast illustrates the dimming spending climate in the U.S.”

The MSCI Asia Pacific Index fell 3.9 percent to 83.12 at 9:28 a.m. in Tokyo. All Asian markets open for trading slumped. Japan’s Nikkei 225 Stock Average dropped 5.2 percent to 8,246.22. Australia’s S&P/ASX 200 Index declined 4.3 percent.

Futures on the Standard & Poor’s 500 Index lost 0.6 percent. Financial stocks led the gauge down 5.2 percent yesterday, leaving it less than 0.5 percent above its lowest close in five years. Europe’s Dow Jones Stoxx 600 Index sank 3.3 percent.

BHP Billiton Ltd., the world’s largest mining company, dropped 7.5 percent after oil sank to $55.43 a barrel and metals prices slumped. Exxon Mobil Corp., the biggest oil company, fell 5.1 percent in New York.

New Facility

The collapse of the U.S. mortgage market sparked $950 billion in losses and writedowns at financial companies and now threatens a global economic recession. Central banks in the U.S., U.K. and Japan are among those that have lowered benchmark interest rates to stimulate spending and growth as consumer confidence wanes.

Treasury and Federal Reserve officials are exploring a new “facility” to bolster the market for securities backed by assets, Paulson said. Officials are considering using a portion of the $700 billion financial bailout money to “encourage private investors to come back to this troubled market,” he said.

Mitsubishi UFJ, Japan’s biggest bank, lost 4.6 percent to 587 yen. Commonwealth Bank of Australia, the nation’s biggest mortgage lender, fell 5.2 percent to A$33.29 after saying bad debts may double this year.

Citigroup, Bank of America Corp., and Goldman Sachs Group Inc. dropped more than 9 percent each in U.S. trading yesterday.

“It’s hard to get away from the drumbeat of negatives,” said Liam Dalton, who oversees $1.3 billion as New York-based chief executive officer of Axiom Capital Management.

‘Significantly Weaker’

Best Buy, the largest U.S. electronics retailer, yesterday slashed its earnings forecast for the year through February, citing a “seismic” slowdown in consumer spending. The report preceded Intel’s announcement that its fourth-quarter sales will be lower than its earlier estimate by about $1 billion amid “significantly weaker” demand.

Toshiba slumped 4.8 percent to 337 yen in Tokyo. Sony Corp., the world’s second-largest consumer electronics maker, dropped 7.3 percent to 2,030 yen. Samsung Electronics Co. lost 2.8 percent to 467,000 won.

Japan’s exports to the U.S., which accounted for about a fifth of the total, fell 11 percent in September, while companies from Sony to Toyota Motor Corp. cut earnings forecasts in the past month.

Commodity Prices Slump

Energy companies on the MSCI Asia Pacific Index lost 1.4 percent as a group, while raw-material producers declined 4.4 percent collectively. Melbourne-based BHP tumbled 8.5 percent to A$25.89, while Rio Tinto Group dropped 5.1 percent to A$71.37.

Oil sank 5.3 percent to $56.16 a barrel at the close of New York trading on forecasts that tomorrow’s Energy Department report will show U.S. crude inventories grew last week amid decreased energy demand. Nickel, gasoline and crude led declines in the Reuters/Jefferies CRB Index of 19 raw materials.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

CapitaLand: S$2.76 BUY (TP: S$0.3.05) - Capitalising on Capitulation

source:DMG

CapitaLand recently posted a 25.6% YoY slide in 3Q08 PATMI to S$419.4m, boosted by gains of S$317.4m from asset divestments. While we recognise CapitaLand’s proven track record of seeking out new residential geographies, we note that a majority of its current projects and landbank (80% of total residential GFA) are situated in Singapore and China. As such, it is not immune from current negative sentiments from these two regions. Although we take heart from recent country and sector-specific policies, we reckon that sentiments would remain soured as long as the global macroeconomic climate does not improve. For CapitaLand, this implies further dampeners on core earnings. In view of the anticipated residential slowdown, we have delayed our sale & launch schedules, as well as assumed price declines of 13 – 28% and 13 – 21% from 2H08 through 2H09 for Singapore and China respectively, with a slight recovery beginning 1H10. Since its listing, CapitaLand has moulded a productive capital recycling model, exemplified today by S$24.8b worth of five REITs and 17 PE funds. While we acknowledge that their contributions would not be as significant as its residential business units, we believe that their recurring and stable nature would help to mitigate the uncertainty and present weakness of the cyclical and lumpy-earnings residential sector. Despite the credit squeeze, recent successful asset divestments suggest that CapitaLand is still able to tap on its private funds and other third parties. Further, with a low net gearing of 0.51x and a cash coffer of S$4.2b, CapitaLand is well-poised to seize any upcoming business opportunities in the different regions which it is operating in. At current levels, CapitaLand is trading at 23% discount to its end-3Q08 NAV of S$3.60. Historically during the past few crises, CapitaLand has been trading at 40 – 60% discount to its NAV. Taking the view that CapitaLand is now of a different stead compared to then, we have thus pegged our RNAV base-case value of S$5.05 to the lower end of that range at 40% discount, implying end-FY09 fair value of S$3.05. Maintain BUY.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Sarin Technologies: S$0.16 (NOT RATED) - Limited impact from current economic crisis

As pre-warned. In-line with the profit guidance that the company had issued prior to releasing its financials, 3Q08 net earnings fell 49% to US$1m while turnover declined 6.9% to US$8.8m. Due to the global financial crisis and the tight credit market, Sarin had seen an overall slowdown in demand from diamond manufacturers. However, 3Q08 gross margins as seen in Figure 1, were higher at 65.7% due to a change in product mix although the company was badly hit on the operating front due to higher R&D and SG&A expenses while the weakening US$ was also a factor.

Robust balance sheet and cash flows. Sarin continued to be debt-free in 3Q08 while its current ratio stood at a very healthy 3.4x. Presently in a net cash position of US$11.1m, this equates to US$0.043/share and 39.9% of its current price. The company also continued to be operationally positive as it generated free cash flows of US$4.0m during the quarter.

Macro outlook is not positive. Management has mentioned that the global economic slowdown has affected its business. Consumers in the US – the world’s single largest market for polished diamonds – have cut back on their purchase of luxury items, such as diamonds, during the current financial crisis. Should this downturn continue to linger, we believe that the company may be further affected.

Valuation & Recommendation. At S$0.16, it is currently trading at 3.4x FY07 P/E. We presently do not have a rating on Sarin although we will be initiating coverage on the stock. To the best of our knowledge, there are currently no consensus forecasts on Sarin while all of its main competitors are unlisted companies.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

HL Asia: S$0.67 BUY (TP: S$1.00) - One-time items key to 3Q08 earnings plunge, although core earnings softness is also evident

HLA reported 3Q08 net profit of S$3.7m, down 85% YoY, way below our expectations. Excluding one-time items of 1) warranty provisions of S$9m, 2) professional fees of S$2m and 3) part-time employees insurance of S$3m, net profit would have been closer to S$15m. 3Q07 net profit of S$25.3m included one-time gains from sale of CDL shares of S$3.8m. Hence, core net profit would have fallen a smaller 30% YoY.

Revenue rose 7% YoY to S$838m. Xinfei unit sales of 766k white goods (comprising refrigerators, freezer and air-cons) was close to 3Q07’s 777k. For Yuchai, diesel engine unit sales was 76.7k units, marginally lower than 3Q07’s 81.1k units. However, ASP for diesel engines was higher YoY due to higher raw material prices, and this contributed to the revenue expansion. For the building materials group (BMG), lower selling prices were recorded on an essentially flat sales volume in ready-mix concrete.

Expect soft earnings going ahead. Management indicated that BMG has a backlog of orders till end-2009, but margins may come under pressure from lower selling prices. In addition, some developers are postponing completion dates of projects and this could adversely affect BMG revenues going ahead. Management also said that 4Q08 earnings would be impacted by another S$3m one-time expenses for employees’ insurance for part-time staff (similar to that for 3Q08).

We cut our 2008 and 2009 net profit by 41% & 56% to S$66m & S$55m respectively. This factors in slowing demand for its China operations, lower margin for its BMG business and the one-time expenses expected for 4Q08.

Lower target price but remains a BUY. We use sum-of-the parts valuation methodology, which gives us a S$1.00 target price. This is lower than our previous S$2.70 target price primarily due to our lower earnings forecast for 2009, as well as P/E compression for its peers (which we factor into the valuation). We believe the future earnings weakness has already been largely factored into HLA share price. Even with our lower earnings forecast, HLA trades at a 2009 P/E of 4.6x, which is relatively low. Though there could be temporary share price weakness following this set of results, we believe any softness offers investors to BUY into a company with good potential for long term growth in China.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

SingTel: S$2.42 NEUTRAL (TP: S$2.67) - Earnings drag

Below expectations. In the second quarter to 30 Sep 08, revenue increased 5.3% to S$3.89b while underlying net profit slid 12.3% to S$801m. The bottom line came in below our expectations due to a confluence of negative factors – high acquisition and marketing costs for the iPhone 3G initiative, weaker regional currencies, lower earnings from Indonesia’s Telekomsel resulting from price competition and post-tax loss from Pakistan-based Warid Telecom. Taking away the impact of the depreciation in Australia and regional currencies, SingTel would have registered a fall of 5% in earnings, which would still have been lower than our estimates.

No more clear blue skies. SingTel expects its core markets in Singapore and Optus to grow its revenue and EBITDA. But the weaker A$ will have an adverse impact on the earnings for the Group. What will hit it further is the lacklustre performance of its regional associates. Telekomsel, in particular, saw pre-tax profit slump 40% (in S$ terms) to S$113m. In our recent note where we downgraded SingTel, we had anticipated the associates’ to grow 3% in FY09, down from our earlier target of 9% growth. However, we are now expecting the associates’ contribution to be 15% lower compared to a year ago.

Earnings downgraded. As a result of the revised outlook, we have lowered our earnings by 9.5% from S$3.81b to S$3.45b (-12.3% YoY) in FY09 and 9.9% from S$4.12b to S$3.71b (+7.6% YoY) in FY10. We have also reduced our sum-of-the-parts valuation from S$2.80 to S$2.67, mainly due to the bleaker forecast for its associates. Maintain NEUTRAL.

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

U.S. Stocks Drop on Concern Over Worsening Economy; GM Slumps

Nov. 11 (Bloomberg) -- U.S. stocks dropped for a second day as a deteriorating outlook for American industry and oil's decline below $60 a barrel signaled the recession may deepen.
General Motors Corp. tumbled to the lowest price since 1942 as the automaker crept closer to bankruptcy, while Tyco International Ltd., the world's largest maker of security systems, sank the most in six years on a profit forecast that trailed analysts' estimates. Prudential Financial Inc. slid 10 percent after Goldman Sachs Group Inc. said investment losses may force insurers to raise more capital and threaten credit ratings. Exxon Mobil Corp. slumped as much as 3.3 percent as crude declined on speculation demand will slow.
``We're going to see a lot of corporate grief,'' Harvey Pitt, former chairman of the Securities and Exchange Commission and chief executive officer of Kalorama Partners, said in an interview on Bloomberg Radio. ``We'll see companies laying off a lot of people and the market reflecting a lack of confidence in a lot of companies' values.''
The Standard & Poor's 500 Index dropped 2.9 percent to 892.17 at 11:27 a.m. in New York. The Dow Jones Industrial Average lost 249.7 points, or 2.8 percent, to 8,620.84, with 29 of its 30 companies retreating. The Nasdaq Composite Index fell 2.7 percent to 1,573.48. More than five stocks declined for each that rose on the New York Stock Exchange.
Financials and raw material producers led the S&P 500 to a 39 percent retreat this year as profits for the world's biggest banks slumped and commodities tumbled. Credit Suisse AG lowered its mid-2009 target for the S&P 500 to 1,050 from 1,200 today.
Europe's Dow Jones Stoxx 600 Index lost 3.7 percent and the MSCI Asia Pacific Index declined 3.6 percent.
Profit Erosion
The S&P 500 dropped yesterday on a worsening profit outlook for companies, including Goldman Sachs and Google Inc. Third- quarter earnings shrank 17 percent for S&P 500 companies that reported results, according to Bloomberg data. Profits for 2008 will decrease an average 8.5 percent and rise 12 percent next year, based on a survey of analysts' estimates.
``No one is really willing to stick their neck out in this market,'' said Craig Hodges, a fund manager at Dallas-based Hodges Capital Management Inc., which oversees $1 billion. ``If you listen to the company forecasts and the news going on, there's no overwhelming reason to do so.''
GM dropped for a fifth straight day, losing as much as 18 percent to $2.75, the lowest price since December 1942, according to Global Financial Data in Los Angeles. The largest U.S. automaker, burning cash as U.S. sales slide, is being pushed closer to bankruptcy as it waits to learn whether the auto industry will win a new round of government loans.
`Huge Deal'
``If GM disappears or goes into bankruptcy, I think politically and psychologically it's a huge deal,'' said Stephen Wood, who helps manage $181 billion as a senior portfolio strategist at Russell Investments in New York. ``Worrying about earnings is a luxury right now. We're worried about survivorship.''
Tyco lost 15 percent to $21.54, its steepest intraday tumble since July 2002. The company said fiscal 2009 and first- quarter profit will trail analysts' estimates, hurt by a higher U.S. dollar and slowing global economies.
Financial stocks in the S&P 500 slumped 3.8 percent after Goldman Sachs reduced its rating on the life-insurance industry to ``cautious'' from ``neutral.'' The analysts advised selling shares of Prudential, Lincoln National Corp., Principal Financial Group Inc. and Hartford Financial Services Group Inc. on concern the companies will need to raise more capital and their credit ratings may get cut.
Prudential slid $3 to $27.95 and the S&P 500 Insurance Index declined 5.6 percent.
Credit Losses
American Express Co. lost 5.4 percent to $22.68. The company won U.S. Federal Reserve approval to become a commercial bank, which may give it access to the Treasury's $250 billion bank rescue program. Worsening credit losses will continue to plague the largest U.S. credit-card company by purchases, said Oppenheimer & Co. analyst Meredith Whitney.
Yesterday's revised bailout of American International Group Inc. marked the first time cash from the rescue fund Congress created last month has been committed to a failing company. Banks around the world lost more than $900 billion since the middle of last year as forecloses reached record highs and complex, illiquid securities backed by mortgage loans plunged in value.
Energy Slump
Energy companies and raw-material producers in the S&P 500 fell 4.4 percent and 5.4 percent respectively.
Exxon Mobil declined 3.1 percent to $71.75. Chevron Corp. slumped 3.4 percent to $71.82. Peabody Energy Corp., the largest U.S. coal producer, retreated 11 percent as the S&P 500 Energy Index lost 4.3 percent.
Crude oil fell below $59 a barrel in New York amid speculation the International Energy Agency will lower its 2009 demand forecast as slowing economic growth cuts fuel consumption.
Tyson Foods Inc. slumped 25 percent to $5.01. The second- largest U.S. chicken producer was downgraded to ``underweight'' from ``overweight'' at JPMorgan Chase & Co., which said the stock may drop 40 percent as losses next year put the company in danger of violating debt agreements.
Toll Brothers Inc. lost 3.3 percent to $18.32. The largest U.S. luxury homebuilder reported its 10th straight quarterly revenue decline as home prices plunged and consumer confidence fell. Homebuilding revenue dropped to about $691 million in the fiscal fourth quarter from $1.17 billion a year earlier.
Fannie Mae, Freddie Mac and housing industry officials plan a new mortgage modification program designed to cut payments for hundreds of thousands of homeowners facing foreclosure, according to people briefed on the matter.
Under the proposal, mortgage servicers will work with borrowers to reduce monthly payments to 38 percent of their income, a level considered a threshold for affordability, using a combination of lower principals, interest-rate reductions and extensions, the people said.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

GRP Limited: S$0.14 Initiating Coverage-NEUTRAL (TP: S$0.13) - A cash-rich company facing headwind

GRP Limited (GRP) engages in several diverse autonomous business units, namely 1) Hose and Marine, 2) Measuring Instruments/Metrology, 3) uPVC Pipes and Fittings and 4) Industrial Property Management.

Cash-loaded, no debt financial position. As of Jun 08, GRP holds cash of S$12.3m, and has neither short-term nor long-term debt in its balance sheet. While we acknowledge GRP’s healthy balance sheet position to a prudent management team who is mindful of the tight credit situation and high refinancing costs, we believe GRP’s strong financial position is attributed largely to GRP’s lacklustre growth strategies, even in boom years. Undoubtedly, GRP has no immediate plans for M&A activities or extensive capital spending. We believe GRP is likely to return capital to its shareholders through dividends. We have assumed dividend payout of 60% for both FY09 and FY10, translating to dividend yields of 13.1% and 10.6% respectively.

Nonetheless, business would be hit by both offshore marine and global economy outlook. GRP’s core business drivers stem from Hose and Marine as well as Measuring Instruments/Metrology. GRP liaises directly with the shipyards to provide customized hoses and fittings. Its measuring instruments division is dependent on the global economy. In the face of a looming outlook for both offshore marine and the global economy, we are expecting declining net profit for both FY09 and FY10.

Initiating coverage with a NEUTRAL rating. GRP is currently trading at 4.6x FY09 and 5.6x FY10 P/E. We value GRP based on 0.7x FY09 P/B (pegging to post-crisis levels) to derive a target price of S$0.13. We initiate coverage of GRP with a NEUTRAL rating

source:DMG

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

First Resources: S$0.37 NEUTRAL (TP: S$0.36) - To Face Headwinds

Robust 3Q08 results. First Resources (FR) released a decent set of 3Q08 results. YoY revenue growth was up 50.8%, bringing its 3Q08’s revenue to IDR636b from IDR422b. This can be attributed to an increase in sales volume as well as average selling prices of CPO and PK. Gross profit margin improved from 57.5% in 3Q07 to 67.6% in 3Q08, reflecting the sensitivity of CPO price increases on FR's profitability. PATMI also improved 117% YoY from IDR93.5b to IDR202.9b in 3Q08.

Large proportion of debt are non current in nature. We are comforted by the fact that 99% of borrowings/ debt securities repayable (about IDR1.9t) are non current in nature. This allows management some time before repayment is due, to pay extra attention to financial liquidity and cost management issues.

Low cash cost of production. Not all is gloom and doom – FR has managed to maintain a relatively low cash cost of production of US$200/tonne (for nucleus) for 9M08, in spite of a rising cost environment. This low cash cost of production would put them in good stead to weather the upcoming headwinds of low CPO prices, tight credit conditions amid a slowing economic environment.

CPO price assumption revised down, new fair value of S$0.36. Current CPO futures’ prices (Nov delivery) is RM1,625/tonne. However, it has hovered in the RM1,400–1,500/tonne range prior to the recent rebound. With the deteriorating global economic front and crude oil prices currently hovering the US$60-70/bbl range (versus its peak of US$147/bbl in July), we opt to be cautious and revise our CPO price assumption to RM1,500/tonne, down from
RM2,600/tonne previously.

Reflecting the change in our CPO price assumption, our FY09F revenue has been adjusted to IDR1.6t (from IDR2.4t, -32.9%). In addition, earnings for FY09F has also been adjusted to IDR501b (from IDR856b, -41.5%). We have also projected a conservative 5% YoY growth of CPO production in FY09, against FY08’s 10% YoY growth from FY07. This is due to management‘s disclosure that they had observed some form of biological tree stress in 3Q08 – the YoY FFB growth in 3Q08 was only approximately 4%, as compared to prior quarters’ double-digit YoY growth. This is attributable to the high output in the last 12 months. As it is uncertain at this point in time whether this significant reduction in FFB growth rate is short term or longer term in nature, we have decided to err on the side of caution and cut our YoY growth rate by 5 ppt.

At this point in time, we are maintaining our P/E valuation matrix of 7x our FY09F earnings (7x being the average of 10-year historical low P/E valuation for Indonesian and Singapore listed plantation companies). Taking into account the above revisions, we derive a new fair value of S$0.36 for FR (from S$1.00 previously). We downgrade the stock from buy to neutral.

source:dmg

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Sembcorp boosts Q3 net profit by 24.8% to $144.9m

SembCorp Industries has boosted third-quarter profit 24.8 per cent to $144.9 million on an 11.7
per cent increase in revenue to $2.5 billion. For the first nine months, the main profit contributors
continued to be marine and utilities, which accounted for 96 per cent of group profit. Overall,
turnover rose 18.8 per cent to $7.2 billion, while profit increased 8.5 per cent to $406.2 million.
The utilities business continues to do well. Turnover increased 30 per cent to $1.3 billion in Q3
and by 33 per cent to $3.5 billion in the first nine months. Nine-month profit fell to $170.4 million
from $179.4 million previously, although in the previous corresponding period the UK's
performance was boosted by a profit on the sale of land. Singapore and UK operations
contributed $118.6 million and $52.9 million respectively. Q3 profit rose by a third to $66.3
million, but this was primarily due to gains from the transfer of transmission and distribution
pipeline assets to PowerGas.
Turnover for the marine business increased 8 per cent to $3.4 billion in the first nine months on
better performance by Sembcorp's rig-building, offshore, conversion and repair businesses. But
Q3 revenue was flat at $1.1 billion. Profit, however, continued to be strong, rising 68 per cent in
Q3 to $86.1 million and 48 per cent for the first nine months to $220.5 million. This was due to
higher operating margins from rig-building and shiprepair work and better contributions from
associates. While contributing only a small part to Sembcorp's overall profit, the environment,
industrial parks and others/corporate businesses performed badly. Industrial parks profit fell 37
per cent to $7.2 million, mainly due to lower contributions from parks in Indonesia and Vietnam,
which was partly offset by a higher contribution from an industrial park in China.
The environment and others/corporate businesses turned in losses of $4.1 million and $10.6
million respectively. The environment's loss ballooned from $460,000 in the previous Q3 as
business was hit by impairment charges for plant and machinery. The others/corporate segment
turned to a loss from a $3.9 million profit previously, mainly due to the weak performance of an
offshore engineering associate in China.

Source: Business Times

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Venture Corporation: CDO losses remain a dragV

Hit by CDOs. 3Q08 revenue inched up 3.2% to S$965.6m although the increase would have
been greater at 13.8% should turnover had been measured in US$. Net profit, however, fell
47.8% to S$40.1m as Venture was hit by a S$29.8m non-cash charge on its CDOs in 3Q08.
Management also noted that EBITDA would have stood at S$84.6m and S$263.1m for 3Q08 and
9M08 respectively should the CDO charges were to be excluded.
Lacklustre results even if CDO charges were excluded. We note that bottomline in 3Q08 and
9M08 excluding the mark-to-market adjustments came up to S$69.9m and S$219m respectively
– still lower than the year ago period at S$76.3m and S$225.7m. With several of the major CMs
reporting lower earnings for their latest quarterly results due to the global economic slowdown,
we believe that Venture may not be spared from this trend either.
Full recovery of the CDOs? While we had previously expected Venture to fully recover the
S$167.8m host value on its CDO when it matures in Dec 09, we had not foreseen such a drastic
downturn in the global credit market. According to Venture, the spread for its CDOs had widened
from 138 basis points in end-Jun 08 to 168 during end-Sep 08.





The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Emerging Economies Pledge New Stimulus to Tackle Global Slump

Nov. 9 (Bloomberg) -- Finance ministers from emerging economies said they'd take new measures to tackle the global economic slowdown at a meeting of finance officials from the Group of 20 nations meeting in Sao Paulo yesterday.
Brazil, Russia, India and China, the so-called BRIC nations, plan coordinated measures to increase trade and capital flows between their economies, Russian Finance Minister Alexei Kudrin said in an interview. Mexican Deputy Finance Minister Alejandro Werner said slower economic growth and lower food and commodity prices justify cutting interest rates.
The ministers are meeting amid evidence the financial crisis that is pushing the world's biggest industrialized economies into recession is dragging down growth in Asia and Latin America. India, Russia and Brazil have already injected funds into commercial banks and South Korea last week unveiled a 14 trillion won ($10.8 billion) fiscal stimulus plan.
``This is a global crisis and demands global solutions,'' Brazilian President Luiz Inacio Lula da Silva told delegates. ``The participation of the developing world is essential.''
Finance ministers and central bankers from the G-20 are meeting in Sao Paulo to lay the groundwork for a Nov. 15 heads of state summit in Washington. The meeting concludes today.
``Finance ministers of BRIC countries have worked out measures for the near future,'' Kudrin said yesterday. ``We have agreed that we can jointly increase trade and capital flows. The major thing is that we are prepared to coordinate.''
International Monetary Fund
The International Monetary Fund is forecasting that the U.K., Japan, the euro region and the U.K. economies will all contract next year, their first simultaneous recessions since the Second World War. With slower growth damping inflationary pressures, central banks are likely to cut borrowing costs further, Canadian Finance Minister Jim Flaherty said.
``There are ongoing conversations about who plans to do what when'' on interest rates, Flaherty said. ``I expect that these discussions will lead to some degree of coordinated action.''
Canada's central bank joined the Fed, the European Central Bank and the Bank of England in an unprecedented coordinated interest rate cut on Oct. 8 after the collapse of Lehman Brothers Holdings Inc. sent credit markets into seizure. The Reserve Bank of India on Nov. 1 lowered its main interest rate for the second time in two weeks while China cut its key interest rate for the third time in two months on Oct. 29.
``We are closely watching the development of the financial crisis and the situation regarding global activity,'' Zhou Xiaochuan, governor of the People's Bank of China, said yesterday. ``If China can maintain domestic demand, it's helpful for global stability.''
Government Spending
Calls from the IMF and U.K. Prime Minister Gordon Brown for coordinated fiscal stimulus will probably fail to win backing from the group because some countries are concerned about increasing public spending, Flaherty said.
``Ideally that would be so -- it's just not likely to happen,'' Flaherty said. ``Some countries feel that they are more constrained than others.''
China's willingness to stimulate its economy may play an important role in supporting world growth, Flaherty said. China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned.
``Chinese authorities talked about having a strong fiscal expansion,'' World Bank President Robert Zoellick said in a briefing yesterday. ``China is in a very good position.''
Companies from Paris to Mexico City are feeling the heat as credit dries up. PSA Peugeot Citroen is cutting staff in China, Mexican homebuilder Consorcio Ara SAB's middle-class clients are struggling to raise home-loans and Brazilian aircraft maker, Empresa Brasileira de Aeronautica SA, slashed its 2009 forecast for deliveries by a quarter.
``Clearly, a lower interest rate would be very favorable to stimulate aggregate demand and to lessen the impact of the international crisis,'' said Mexico's Werner, a former central bank economist.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

OCBC earnings release

Results review OCBC reported a decline in core net earnings to S$396mil (-6.8%
yoy, +3.9% qoq, 2Q08: S$381mil) due to higher operating profits but negated by
higher allowances.
Net interest income grew to S$684mil (+20.9% yoy, +1.0% qoq) attributable to 20.2%
growth in loans and improved NIM of 13bps to 2.18% due to lower cost of funds and
higher spreads. Non-interest income was 4.0% lower at S$462mil from lower fee
income, lower foreign exchange income and net losses of S$26mil on disposal of
investment securities. Expenses increased to S$492mil (+15.5% yoy, +4.0% qoq)
due to increased salaries and headcount, overseas investment, business-volume
related costs and consolidation of PacificMas Berhad’s expenses. Cost to income
was higher at 43.0%.
Gross loans expanded to S$81.4bil (+19.6% yoy, +3.8% qoq), driven by corporate
and SME loans in Singapore. Building and construction loans grew 38.9% to
S$16.5bil while housing loans increased 5.6% to S$19.7bil.
The Bank took a S$156mil allowance for loans and other assets comprising of S$
30mil for specific allowances, S$9mil for portfolio allowances, S$4.0mil for corporate
CDOs and S$113mil for debt securities.
NPLs fell 19.0% over the year to S$1.20bil while the NPL ratio improved to 1.3% from
2.1% last year. Total cumulative allowances amounted to 128% of NPLs as
compared to 107% last year. CAR ratio increased to 14.7% with Tier 1 higher at
14.4% after the issuance of S$2.5bil of Tier 1 preference shares.
Revise earnings estimate From history, OCBC recorded higher impairment charge
of 291bps of loans in 1998 as Singapore went through a recession during the Asian
Financial Crisis. Similarly in the Dotcom bust, OCBC charge off 108bps of loans as
impairment both in 2001 and 2002 following the contraction of the Singapore
economy in 2001.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Delong Holdings: In the red

Margins hit heavily. Despite posting a 59.7% gain in revenue YoY for 3Q08 from S$399.3m to S$637.5m due to higher sales volume from expanded production capacities and higher ASPs, Delong’s gross profit fell a hefty 85.4% from S$39.7m to S$5.8m during the same period. This also meant that gross profit margins plummeted YoY from 10.0% to 0.9% for 3Q08. Consequently, it slumped into net losses of S$11.9m for 3Q08, against profits of S$24.7m.

Comparison of exceptional gains. Almost 73% of the S$11.2m exceptional gains comprised of a foreign exchange gain of S$8.2m, which resulted from a revaluation of bank borrowings denominated in USD as it weakened against the RMB during the third quarter. This was against a foreign exchange loss of S$2.7m in 3Q07. Therefore, stripping out these differences, the Group’s slump would have been more pronounced - a net loss of S$20.1m in 3Q08 versus NPAT of S$27.4m in the previous corresponding period.

Increase in finance costs. Total debt (interest-bearing only, hence the convertible zero-coupon bonds are excluded) as of 9M08 stood at S$340.2m versus S$188.0m a year ago, which represents an 81.0% increase YoY. As a consequence of taking on more debt, finance costs surged by 140.7%, from S$6.9m in 3Q07 to S$16.6m in 3Q08. The huge increase in borrowings brings the Group’s gearing to 77.7%, and provided another drag to its bottom line for 3Q08.

Our synopsis. The Group sold 650k tonnes of HRCs and 32k tonnes of steel billets in 3Q08, versus 601k HRCs and 10k tonnes of steel billets in 3Q07, representing a small gain in tonnage sold of 11.7%. This was an underachievement on the back of production capacity having increased from 2.4m tonnes in Jan 07 to 3.0m tonnes in Jan 08. There has been a considerable slowdown in the Chinese steel industry, exemplified by the shutting down of production by as much as 20% by the largest players, lower raw material prices, and battered prices of steel products.

Another obvious reading of a deteriorating operating environment is the Group’s gross profit margin, which slumped from 10.0% to 0.9% in the third quarter. This boiled down to higher input costs locked-in or procured earlier in the year versus falling ASPs of steel products as prices started coming off from late Jul 08 onwards

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Olam: risk management system in place

Prices of most inventories are hedged. Olam’s business model is to earn a margin from providing the supply chain management service to its clients, and Olam does not speculate on soft commodity prices to get its margin. Olam typically hedges 80-85% of its inventories with futures contracts (futures contract exist for cotton, coffee, cocoa and sugar) and forward agreements. Price volatility for these hedged commodities will therefore not impact on Olam’s profitability. However, there remains a 15-20% of its inventory which is unhedged, and this is estimated at S$269-358m (based on Jun 08 inventories of S$1.79b). Management indicated that the price volatility of these unhedged commodities is typically less than that for commodities with futures contracts. If the prices of these unhedged positions were to hypothetically fall 10%, then PBT could fall S$27-36m. However, we note that the impact is only one-time and the situation will normalize when commodity prices stabilize.

Olam controls its customer exposure according to some grading system. For the larger customers, Olam deals with them on a cash-against-documents basis. For the next level of customers (which are the smaller ones), the price exposure is limited to 3-6 months and not more than US$200k per invoice. Lastly, for some African customers, sales is done on the spot. This management system helps Olam control its counter-party risk.

Balance sheet strength remains comfortable. Olam has a net debt to equity ratio of 3.17x. After adjustments for stocks and debtors (which are liquid and cash-like in nature), the ratio falls to 0.74x. As of Jun 08, Olam has S$1.86b of working capital loans repayable by Jun 09. Management sees continued support from banks for its working capital financing, as these are rolling in nature (upon delivery of commodities to customers, Olam receives payment and pays off the working capital loans, and takes another loan when customers give new orders). Besides these working capital loans, Olam’s next refinancing obligation is US$200m at the end of FY10.

Olam has guided volume growth of 16-20% pa for FY09 and FY10. However, we have cut our revenue forecasts to factor in lower commodity prices. We have also cut our FY09 and FY10 net profit forecasts by 9% and 6% respectively to factor in losses from unhedged positions and slower demand growth given the global economic downturn.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

U.S. Stocks Drop, Dow Average Posts Worst 2-Day Loss Since '87

Nov. 6 (Bloomberg) -- U.S. stocks slid and the Dow Jones Industrial Average posted its worst two-day loss since 1987 after jobless claims jumped and the shrinking economy decimated earnings at companies from Blackstone Group Inc. to News Corp.

Exxon Mobil Corp. dropped 4.3 percent, leading energy companies to the biggest declines in the Standard & Poor's 500 Index, as oil slid to a 19-month low below $61 a barrel. News Corp. sank 16 percent after the media company controlled by Rupert Murdoch said ad sales decreased. Blackstone, the world's largest private-equity firm, lost 9.5 percent after posting the biggest quarterly loss in its 18 months as a public company.

``We're a long way from the end of the economic challenges,'' said Mike Morcos, who helps manage $1 billion at Old Second Wealth Management in Aurora, Illinois. ``Earnings next year are going to be significantly lower and estimates are going to continue to come down.''

The Standard & Poor's 500 Index fell 4.8 percent to 907.52 at 3:22 p.m. in New York. The Dow Jones Industrial Average retreated 411.86 points, or 4.5 percent, to 8,727.41, extending its two-day loss to almost 10 percent. The Russell 2000 Index of small U.S. companies declined 2.6 percent to 501.06. The MSCI World Index of 23 developed markets lost 5.8 percent to 925.71.

The two-day tumble wiped out more than half of the S&P 500's rebound from a five-year low on Oct. 27. An industry report showing an unexpected decline in sales at chain stores in October also weighed on stocks as 23 of 27 companies in the S&P 500 Retailing Index slumped.

Europe Slides

BP Plc led a 5.6 percent retreat in Europe's benchmark index even after the Bank of England unexpectedly cut its benchmark interest rate by 1.5 percentage points to 3 percent to contain damage from a recession. Switzerland's central bank and the European Central Bank reduced their main lending rates by 50 basis points.

The S&P 500 is down almost 38 percent this year, the steepest annual retreat since 1937. The benchmark for U.S. equities has plunged 41 percent since its record in October 2007 as the U.S. economy shrunk in two of the last four quarters.

``It's just been a steady, steady sell,'' said Alan Gayle, the Richmond, Virginia-based senior strategist at Ridgeworth Investments, which oversees about $70 billion. ``The pain and frustration and anxiety of these volatile moves from one day to the next has discouraged a lot of investors to move to the sidelines.''

The VIX, as the Chicago Board Options Exchange Volatility Index is known, climbed 16 percent to 63.24. The measure tracks the cost of using options as insurance against declines in the S&P 500.

About 481,000 workers filed initial jobless claims last week, the Labor Department said today in Washington, exceeding the 477,000 projected by economists surveyed by Bloomberg News. The number of people staying on benefit rolls was the most since February 1983.

A report tomorrow will probably show U.S. employers eliminated jobs in October for a 10th consecutive month, based on economists' estimates.

Earnings Watch

Earnings at companies in the S&P 500 that have reported third-quarter results fell 7.2 percent on average, Bloomberg data show. Analysts expect full-year profits to drop 7.7 percent, according to estimates compiled by Bloomberg.

S&P 500 energy companies lost 4.7 percent as a group, as oil declined for the third time this week. Crude for December delivery retreated 7 percent to $60.71 a barrel.

Exxon Mobil, the world's largest oil company, slipped $2.43 to $71.26, while Chevron Corp. slid 4.9 percent to $71.25.

Cisco declined 26 cents to $17.13 after earlier dipping as low as $16.67. Chief Executive Officer John Chambers said sales will drop as much as 10 percent in the second quarter because of the financial crisis. In August, Chambers predicted an advance of 8.5 percent from a year earlier.

Advanced Micro Devices Inc. tumbled 11 percent to $3.18. The second-largest maker of personal-computer processors plans to cut 500 jobs, about 3 percent of the workforce, as part of its effort to return to profitability.

Technology companies in the S&P 500 lost 4 percent collectively. Dell Inc., Intel Corp. and Hewlett-Packard Co. fell more than 4 percent.

`Macro Concerns'

Amazon.com Inc. slid 7.3 percent to $48.18. The largest Internet retailer was cut to ``hold'' from ``buy'' at Citigroup, which noted the shares' surge of as much as 36 percent since third-quarter results and ``heightened macro concerns'' including slower consumer spending.

Tyco Electronics Ltd. tumbled 10 percent to $17.03. Fiscal fourth-quarter profit fell 55 percent on restructuring costs and the company forecast a ``significant'' drop in sales and earnings this period.

News Corp.'s Class A shares tumbled $1.43 to $8.36. Fiscal 2009 profit will drop in the ``low to mid teens'' in percentage terms, the company said after previously forecasting a gain of 4 percent to 6 percent.

Financial stocks in the S&P 500 fell 5 percent as a group, dragged down by Bank of America Corp. and Wells Fargo & Co. The group is down 52 percent in 2008 as the slowing economy raises concern banks will be hit by more bad loans after the subprime mortgage market's collapse led to $690 billion in credit losses worldwide.

Blackstone's Loss

Blackstone Group LP tumbled 8.8 percent to $7.84. The world's largest private-equity firm posted the biggest quarterly loss in 18 months as a public company as the financial crisis eroded the value of the businesses and real estate it has acquired. Blackstone had been expected to break even, based on the average estimate of seven analysts in a Bloomberg survey.

Wells Fargo declined 9.3 percent to $28.74 after the biggest bank on the U.S. West Coast said it plans to sell stock to fund the purchase of Wachovia Corp. The bank also said losses from the acquisition will be less than previously expected.

The bank, which disclosed the share offering yesterday in a statement, had said it would raise as much as $20 billion to fund the deal. That was before the Treasury said it was buying $25 billion of Wells Fargo's preferred shares.

Big Lots Inc. plunged 24 percent to $17.67 for the steepest decline in the S&P 500. The largest U.S. seller of overstocked and discontinued items said third-quarter profit may be below its prediction.

Retail Slump

October same-store sales fell 0.9 percent at U.S. chain stores, the first drop in seven months, and declined 4.2 percent excluding Wal-Mart, the International Council of Shopping Centers said. Economists surveyed by Bloomberg had projected a 0.7 percent increase.

Excluding the effect of the shifting Easter holiday, it's the first decline since at least 2000, according to research firm Retail Metrics LLC.

Wal-Mart Stores Inc., the world's largest retailer, increased as much as 4.1 percent before surrendering its gain as the market extended its retreat. October sales climbed more than the company projected after consumers, battered by job losses and shrinking credit, bought discounted groceries and Halloween costumes.

Analysts are lowering fourth quarter and 2009 profit forecasts for U.S. companies as third-period results miss projections at the highest rate in almost 11 years.

Companies in the S&P 500 may see fourth-quarter earnings advance 15 percent, down from 42 percent projected at the end of August, according to a Bloomberg survey of analysts. Profits in 2009 may grow 13 percent, analysts say, compared with the 24 percent predicted two months ago. Yahoo! Inc. climbed 3.1 percent to $14.35. Chief Executive Officer Jerry Yang, coping with the cancellation of an advertising agreement with Google Inc., said at a conference in San Francisco that he's open-minded about forging other deals.

The London interbank offered rate, or Libor, for three-month loans in dollars dropped 12 basis points to 2.39 percent today, the lowest level since November 2004, according to the British Bankers' Association.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Jadason Enterprises:Outlook has not improved

Topline up, bottomline down. PCB driller Jadason saw a 72% increase in its 3Q08 revenue to S$58.5m although net profit was 58% lower at S$2.1m. This was mainly due to growth in the company’s lower-margined Equipment and Supplies (ES) division outstripping that of the Manufacturing and Support Services (MSS) segment.

Higher demand from the PCB manufacturers had boosted Jadason’s ES business, although the improved numbers from the company’s PCB drilling factory in Dongguan failed to shore up the whole MSS division. Additionally, FX losses of S$0.5m as compared to a S$1m gain in 3Q07 also impacted bottomline during 3Q08.

Plunge in margins. As seen in Figure 1, overall margins were drastically lower. While revenue for Jadason’s ES business had jumped 140% to S$40.2m in 3Q08 as shown in Figure 2, operating margins dived from 11.7% to 3.8% due to an unfavourable change in sales mix. Additionally, the company’s MSS segment also saw operating profit tumble 67.4% to S$1.3m despite the 6.1% increase in turnover as dismal performances from the PCB drilling facilities in Suzhou and Malaysia proved to be a drag.

Balance sheet concerns linger. Net gearing remained high at 61% although it was slightly better from 65% in 2Q08 while current ratio remained relatively flat at 1.3x. The company was also unable to generate a positive operating cash flow in 3Q08. In light of the current credit conditions, we note that Jadason may risk incurring higher borrowing costs should it continue to fail to generate cash to repay its debt which mainly consists of short-term loans. Earnings may therefore be hit as a result.

Murky outlook. Revenue from the company’s ES division is expected to stay healthy in 4Q08 although visibility for its MSS segment is clouded due to the on-going financial crisis. As management looks to focus on cash and cost management rather than capital expenditure going forward, we believe that bottomline growth in the company, if any, will be limited.

The North American PCB book-to-bill ratio currently stands at 0.95 which has been below the parity mark since May 08. Although Jadason is currently trading at 0.4x FY08F P/B which is in-line with the industry average, we are maintaining our SELL recommendation and slashing our price target to S$0.05 (from S$0.075 previously) due to its bearish prospects. We also note that save for Elec & Eltek, the other two SGX-listed PCB drillers (Multi-Chem and Eucon) are also expected to see dismal results for at least the rest of the year

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Election Day Boosts Markets After Steepest Declines Since 1970s

Nov. 5 (Bloomberg) -- Election Day in the U.S. is proving a haven for investors around the world contending with the worst stock, bond and commodity markets in more than three decades.

Japan’s Nikkei 225 Index added 2.8 percent at 11:32 a.m. in Tokyo, while the MSCI Asia Pacific Index climbed 3.8 percent. The Standard & Poor’s 500 Index gained 4.1 percent to a three-week high of 1,005.75 after plunging faster over the past year than any time since 1974. Oil, copper and gold surged, the dollar dropped, and the cost of protecting corporate bonds from default through 2013 fell to the lowest in two weeks.

The election of Democrat Barack Obama or Republican John McCain may help cement the government’s strategy for overcoming a recession, investors said. Whoever wins will face a U.S. economy battered by declining corporate profits and the highest unemployment in five years. Concern that $680 billion in bank writedowns will halt growth pushed the S&P 500 down 17 percent last month, the most since 1987, and sent corporate bonds to their worst return in 32 years.

“We’re finally getting all this uncertainty surrounding the election behind us,” said Jeffrey Kleintop, chief market strategist at LPL Financial, which has $274 billion under management. “The market is feeling like there’s finally an outcome. We’re finally putting behind us a lot of the worries that have plagued the market.”

The S&P 500’s rally, its biggest during a presidential vote since the New York Exchange first opened for Election Day in 1984, brought its gain since reaching a five-year low on Oct. 27 to 18 percent. Money-market rates fell for a 17th day, helping push Europe’s Dow Jones Stoxx 600 Index up 4.5 percent.

Early Returns

Obama won at least 195 electoral votes, including those of Pennsylvania and Ohio, while McCain claimed 90, networks projected. A candidate needs 270 electoral votes to win.

The energy-weighted Standard & Poor’s GSCI Index of 24 commodities jumped 7.5 percent to 467.26, the biggest one-day gain since it was created in 1970. The Reuters/Jefferies CRB Index gained 5.3 percent. Crude oil jumped as much as 12 percent, gold rose the most in six weeks and corn hit a three-week high.

Stocks and commodities plunged globally since last year as a nationwide decline in U.S. home prices spurred record foreclosures and saddled banks with bad mortgage loans. Money markets seized up, sending the so-called TED spread, a gauge of credit-market stress, to 4.64 percentage points Oct. 10, the highest level on record.

Steepest Drop

The S&P 500’s drop since its peak is the steepest for a comparable period since it declined 43 percent in the 13 months ended in October 1974, according to data compiled by Bloomberg. The MSCI World Index’s 37 percent retreat is its worst since the measure began in 1970.

Investment grade corporate bonds lost 7.4 percent in October, their worst month as measured by Merrill Lynch & Co.‘s bond indexes since the firm began compiling monthly data on the debt in 1976. The spread between investment grade company bonds and Treasury debt of similar maturity is the widest since 1932, according to Moody’s Investors Service.

S&P 500 companies are on pace for their fifth straight quarter of declining profits, with companies from Texas Instruments Inc. to Freeport-McMoRan Copper & Gold Inc. reporting earnings and revenue that failed to meet analysts’ estimates.

Earnings are down 10.4 percent for the 392 companies that have reported third-quarter results so far. The U.S. economy contracted 0.3 percent in the July-September period, and growth is expected to slow to 1.15 percent in 2009 from 1.6 percent this year, economists’ estimates compiled by Bloomberg show.

‘Slow-Motion Crash’

“October was a slow-motion crash,” said Joseph Keating, chief investment officer at RBC Private Asset Management in Birmingham, Alabama, who oversees $3 billion.

Credit markets started to loosen up as Treasury Secretary Henry Paulson began deploying $700 billion to recapitalize banks and purchase mortgage-related securities.

The London interbank offered rate, or Libor, that banks charge each other for three-month loans in dollars slid 15 basis points to 2.71 percent today, the lowest level in almost five months, data from the British Bankers’ Association showed.

“You’re starting to work off a lot of the risk parameters,” said Andrew Brenner, co-head of structured products in New York at MF Global Inc. “Having this election behind us, I think the country will be much more optimistic.”

After pulling ahead of Obama in some polls following the Republican National Convention in the first week of September, McCain’s support slid as the financial crisis deepened, with voters considering Obama better able to manage the economy.

Democratic Edge?

Should either party have an edge in reviving the stock market, history suggests it is the Democrats.

Since 1928, the S&P 500 climbed 9.3 percent in the 12 months after the Democratic Party captured the White House, based on the median change following the election of six Democrats from Franklin D. Roosevelt to Bill Clinton.

Only once did the benchmark for American equities decline, after Jimmy Carter‘s victory in 1976.

Among the six newly elected Republicans, five -- including Herbert Hoover, Richard Nixon and George W. Bush -- preceded stock-market declines, with a median retreat of 4.3 percent for the group, data compiled by Bloomberg show. The data excludes incumbents that won re-election.

Overall, the S&P 500 generated a median 62 percent advance from the time a Democrat is elected in November or elevated from the vice presidency until the next president is chosen. For Republicans, the gain is 28 percent.

History may not be an accurate indicator this time.

“In a normal year, you would expect some kind of relief rally after the election is over with, just because we won’t be talking about this anymore,” said Brian Barish, the Denver-based president of Cambiar Investors LLC, which oversees about $6 billion. “But I would throw in that there’s been nothing normal about 2008.”

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

ST Engineering: Performing within expectations

Higher top and bottomline. 3Q08 revenue rose 11.8% to S$1,382.4m as STE recorded higher
turnover from all sectors except its Marine division while net profit inched up 2.7% to S$128.9m
due to lower taxes. The decrease in profit before tax (PBT) was mainly due to the weakening
US$ which continued to take its toll on the company and higher Passenger-to-Freighter (PTF)
prototyping costs, although higher depreciation expenses within the Aerospace business was
also a factor.
The Aerospace segment continued to be the mainstay of STE as it contributed 36.3% and 47.8%
to top and bottomline respectively for 3Q08.
Margins hit across the board. PBT margin in 3Q08 was lower at 10.4% as STE was dragged
down by its Aerospace and Electronics sectors which had recorded lower margins. While the
Land Systems division continued to depict a 5% PBT margin, a better showing from the Marine
segment that was attributed to a favourable sales mix had failed to improve the overall picture.
Remains in net cash position. STE’s cash balance decreased from S$1.2b to S$935.8m in
3Q08 YoY mainly due to higher capex and the payment of dividends. STE’s current cash hoard
is still higher than its total borrowings of S$886m.
Outlook has not turned bearish. Notwithstanding the currently weak global economic
environment, STE’s order book increased from S$9.29b in 2Q08 to S$9.54b in 3Q08, where
S$1.25b is expected to be delivered in 4Q08. Management also stressed that despite several
airliners presently operating under bearish conditions and a potential further weakening of the
US$, it remains confident of riding through this rough patch given its capabilities.

Aerospace. This segment should continue to determine the overall profitability of STE.
Management highlighted that despite its drop in operating profit for 9M08, it remains one of the
most profitable entities among the various aviation MRO companies. Of note, although STE’s
capex for its PTF prototyping capabilities had dragged down the company’s performance in
3Q08, this sub-segment is expected to provide a lift to its overall business in the near future.
According to aviation consulting firm TeamSAI, the global MRO market is expected to reach
US$45.1b in 2008 and is forecasted to hit US$56b by 2013 while projected to grow at a 4%
CAGR from 2008 – 2018. Given that revenue from STE’s MRO business has only been
US$904m for the year so far, we believe that there are further opportunities that the company
can tap into.
Electronics. With earnings coming in almost flat during 3Q08 although revenue had increased
26%, management is expecting a comparable PBT for the current year. However, it is
noteworthy that profitability in FY07 had included some divestment gains – stripping that off, the 5 November 2008
company believes that PBT would actually be higher for FY08. Turnover recognition from several
of the ongoing projects are to be expected going forward.
Land Systems. Due to the higher taxes paid, net profitability for this division saw the biggest
decline percentage-wise as it fell 19.8% to S$13m in 3Q08. As the company continues with its
pursuit of defence programmes and the contractual deliveries of its munitions & weapon
products and specialty vehicles, FY08 PBT is forecasted to be higher.
Marine. Net earnings for this sector rose 6.6% to S$16.5m in 3Q08. According to management,
the higher profitability in its Shipbuilding sub-division was largely offset by the lower earnings in
the Shiprepair and Engineering sub-segments. Going forward, due to the one-off S$10m gain
seen in 4Q07, management is guiding for a lower PBT in 2008.


The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

SingTel: Downbeat Update

SingTel issued an update on its performance yesterday, a week before it is due to release its
second quarter financial results. It touched on a few areas, including the impact of iPhone and the
strengthening S$.
iPhone 3G update. The Group first launched the iPhone 3G in Australia on 11 Jul 08, before
rolling out in Singapore, India and the Philippines on 22 Aug 08. All in, there were more than
170,000 iPhone activations for the Group and its associates. It managed to win over new
subscribers with its new service. Some 30% of the subscribers who signed up with SingTel were
new customers. For Optus, new sign-ons were as high as 55% of total activations.
Given that mobile subscriber acquisition and retention costs are expensed immediately upon
activation, the telco warns that iPhone initiative will actually have a "dilutive impact on earnings
and margins in the near term" despite a successful launch. Thus, the launch of iPhone is expected
to hit EBITDA by S$27m in Singapore and A$44m in Australia.
Telekomsel lowers guidance. Its Indonesia business Telekomsel is also facing some challenges,
with operating revenue expected to grow at low single digit and margins to decline around 5%.
This is largely within expectations.
Strengthening S$ a drag. SingTel derives two-thirds of its income from overseas and hence a
strengthening S$ has an adverse impact on the company’s bottom line. This is particularly true for the A$, which has fallen from 1.3 in Jul 08 to 0.99 currently against the S$. Based on
sensitivity analysis, a 1% fall in A$ vis-à-vis the S$ will result in a 0.2% fall in Group earnings.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Sembcorp Marine: Strong margins in 3Q08

3Q08 net profit better than expectations. Sembcorp Marine (SCM) announced its 3Q08
results last evening. 3Q08 topline fell 2.3% YoY (and -17.4% QoQ) to S$1.1b as there was no
major initial revenue recognition, other than one unit of jack-up rig during the quarter. Gross
profit margin increased significantly from 9.4% in 3Q07 to 15.5% in 3Q08 (vs. 11.2% in 2Q08).
Excluding S$12.5m net gain in foreign exchange due to the revaluation of US dollar monetary
items, core profit before tax (PBT) achieved S$168.4m, surpassing our estimates by 23% due to
higher margins as well as increased contributions from SCM’s associated company, Cosco
Shipyard Group.
On track for record year. On a 9M period basis, SCM’s turnover increased 8.5% to S$3.4b
from S$3.2b in 9M07. PATMI surged 50.0% to S$360.5m from S$240.2m in the same
corresponding period.
However, outlook remains cautious as tight credit market has put on hold big ticket
purchases. The Offshore Marine sector is capital intensive in nature. With tightening of the
capital markets and easing oil price, we opine that our earlier beliefs of possible contract inflows
such as the Petrobras’ new production platform, P62, a repetition of P-54, (approximately valued
at more than US$1.0b) and other piecemeal Floating Production Units (FPU) contracts may be
shelved and/or not be materialized. This point may be illustrated from Atwood Oceanic’s recent
press announcement on its choice not to exercise the option to build a third semi-submersible at
SCM.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Another set of dismal results for chartered semiconductor

Losses inline with guidance. Chartered saw 3Q08 topline (excluding Silicon Manufacturing
Partners) come in 30.7% higher at US$463.6m which was below its guidance of US$469 – 481m
but exceeded market consensus at US$455.4m. Net losses in 3Q08 meanwhile stood at
US$26.9m, within the company’s guidance of US$24 – 34m but beating market consensus of
US$29.1m although it was way lower than the US$112.3m profit seen in 3Q07 when it was
boosted by a US$118.5m tax benefit. Margins were generally lower as the company experienced
lower selling prices and higher costs per wafer although shipments had increased 31.2% to
0.51m wafers YoY.
A litany of woes. Chartered’s dismal results were attributed to lower demand which was
worsened by the economic outlook. The company had also noted a decline in orders from mid-
Aug and customer requests to delay inventories. More importantly, management has also
mentioned that it is not certain as to when the bottom might occur and is forecasting for more
losses in 4Q08.
Outlook remains lacklustre. Chartered is expecting contracting demand in the foundry industry
going forward. This is inline with the macro outlook, as even the world’s largest chip contractor TSMC is forecasting declining 4Q sales and profit as the global economic downturn reduces
demand for wafers. Meanwhile, Chartered has guided for 4Q08 sales and net losses to be
around US$368m and US$57m respectively.




The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

Hong Leong Finance results

HLF reported 3Q08 net profit of S$30.9m, down 16.2% YoY. This is stronger than our expectations, as net interest income came in above our forecasts. Net interest income rose a marginal 1.4% YoY to S$51.9m, which led to a resilient pre-provisioning operating profit (down 1.3% YoY). However, 3Q08 provisions was S$1.7m, versus the S$7.7m writeback for 3Q07, which led to the weakness in net profit.

HLF is one of the distributors of the Lehman Minibond series of products. On 22 Oct 08, HLF announced a proposal to purchase Lehman Minibond notes from its most vulnerable customers. HLF said this proposal is not expected to have a material adverse effect on the current year results.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

UOB: Weakness in non-interest income

UOB reported 3Q08 net profit of S$475m, down 5.1% YoY and 20.9% QoQ.
Net interest margin widened 28bps YoY. Net interest income performed well, expanding 25.1%
YoY to S$893m, though the QoQ growth was a milder 2.3%. This was driven by 1) a 9.7% YoY rise
in average interest bearing assets to S$160.8b, and 2) net interest margin widening 28bps YoY to
2.21%, due to improved asset mix and lower funding costs.


Non-interest income performed badly, recording a 18.6% YoY decline and and a 41.9% QoQ
contraction to S$319m. Fee & commission recorded a 14.1% YoY decline, and accounted for
85.9% share of non-interest income. The weakness was due to fund management and investment
related income. The sequential collapse in non-interest income was mainly due to a net loss of
S$49m from non-trading activities versus 2Q08’s S$193m gain.
Asset quality remained high, with a 3Q08 NPL ratio of 1.5%, similar to 2Q08’s 1.5% and lower
than 3Q07’s 2.3%. However, UOB’s 3Q08 impairment charges of S$158m is significantly higher
than 3Q07’s S$4m (though close to 2Q08’s S$180m), due to collective impairment provisions.
Loans still expanding. Gross global loans expanded 17.6% YoY and 3.2% QoQ to S$102.5b.
Manufacturing loans expanded 8.4% QoQ to S$11b whilst general commerce loans was up 7.7%
QoQ to S$14.7b.
Capital adequacy ratio remains strong at 11.2% for Tier 1 and 15.5% for Total CAR. This
remains much higher than regulatory requirement of 6% and 10% respectively. The high capital
ratios are a positive in the current environment of slowing economic growth.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

First Resources: Well supported

Share price of First Resources (FR SP) may have bottomed out earlier during late-Oct as
suggested by the various technical indicators. The 14-day ADX has been on a decline since mid-
Sep, implying that the downtrend has been losing steam. Also, the MACD chart has produced a
bullish moving average crossover, an indication that price action may make further gains.
Support is seen at the 0.185 – 0.19 area as depicted by the all-time lows attained during 28 & 29
Oct. On the other hand, any potential bullish price action should meet with resistance at the 0.265– 0.27 range, courtesy of the 21-day moving average and the daily high on 20 Oct.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

CapitaLand: Boosted By Divestment Gains

CapitaLand Limited (CapLand) posted a 25.6% YoY drop (-18.6% QoQ) in 3Q08 PATMI to
S$419.4m, which accounts for 38.2 - 38.6% of our FY08 estimates and the Street’s. Stripping
away divestment gains, namely from the sale of Capital Tower Beijing, Raffles City China
portfolio and 1 George Street, 3Q08 PATMI would have been S$102.0m.
3Q08 Topline was down 33.3% YoY to S$597.2m, on the back of lower sales from development
projects as fewer projects were launched for sale in China. On the bright side, this was mitigated
by new malls in Malaysia and, as well as better performance from REITs and investment
properties.

The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned

India, China Attempt to Cushion Economies From Global Crisis

Nov. 3 (Bloomberg) -- India and China are accelerating efforts to prop up growth as a global slump threatens the world's fastest-expanding major economies.

The Reserve Bank of India on Nov. 1 lowered its benchmark repurchase rate for the second time in two weeks, and for the first time in 11 years reduced the amount of money lenders are required to keep in government bonds. The People's Bank of China on Oct. 29 cut its key rate, three days before a weekend report showed manufacturing shrank in October.

``The gathering crisis in more advanced economies is forcing Asian policy makers to jettison assumptions about the health of export sectors,'' said Mark Williams, an international economist at Capital Economics Ltd. in London. ``Interest rates will tumble.''

Emerging Asian economies that account for one-fifth of world growth are being dragged down as their main markets in the U.S. and Europe contract, increasing the likelihood of a global recession. Policy makers in India and China are also boosting spending to prevent their economies from going under.

India's Finance Minister Palaniappan Chidambaram is planning to spend an extra 2.4 trillion rupees ($49 billion) this year, telling parliament last month that now was ``the right time'' to stimulate the economy.

China's Premier Wen Jiabao says sustaining economic growth is the government's ``first priority.'' China has already raised export incentives, cut costs for home buyers and pledged infrastructure spending.

`Extremely Aggressively'

India and China need to move fast to implement their stimulus plans, with growth already slowing in Asia's second-and third-largest economies amid weaker foreign demand.

Asian policy makers understand the importance of ``reacting extremely quickly and extremely aggressively to try to stimulate growth and prevent the worst-case scenario,'' said David Mann, senior strategist at Standard Chartered Plc in Hong Kong.

China's $3.3 trillion economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned. The expansion cooled for a fifth straight quarter, to a 9 percent gain from a year earlier.

The Purchasing Managers' Index prepared by China Federation of Logistics and Purchasing fell to a seasonally adjusted 44.6 in October, the lowest reading since the gauge was launched in July 2005, according to a Nov. 1 statement. A reading below 50 reflects a contraction in manufacturing.

Slowing Growth

India's central bank said last month that growth in that $1.2 trillion economy may be as little as 7.5 percent in the year to March 31, compared with 9 percent in the previous 12 months. That would be the weakest pace since 2005.

The People's Bank of China and India's central bank, along with the U.S. Federal Reserve and the Bank of Japan, are already moving to lower borrowing costs and stimulate consumer spending and investment.

Over the weekend, India cut its repurchase rate to 7.5 percent from 8 percent, reduced the amount of deposits that lenders need to set aside as reserves to 5.5 percent from 6.5 percent, and lowered the amount of money lenders are required to keep in government bonds to 24 percent from 25 percent.

India's decision was taken ``to address concerns relating to the moderation in the growth momentum,'' the central bank said in a statement in Mumbai. ``Global financial conditions continue to remain uncertain and unsettled, and early signs of a global recession are becoming evident.''

Coordinated Action

The Chinese central bank reduced its key one-year lending rate to 6.66 percent from 6.93 percent on Oct. 29.

China cut borrowing costs for the first time in six years on Sept. 15, the day U.S. investment bank Lehman Brothers Holdings Inc. filed for bankruptcy. It followed up with another reduction on Oct. 8 as the Fed and five other central banks made emergency coordinated reductions to counter the financial crisis.

The Bank of Japan reduced its key overnight lending rate by 20 basis points to 0.3 percent on Oct. 31 after the Fed last week lowered its target rate for overnight loans to 1 percent, matching a half-century low. South Korea, Taiwan and Hong Kong also trimmed their benchmark rates last week.

Officials are signaling more cuts are likely and the European Central Bank and Bank of England both set policy on Nov. 6. Australia's central bank may also cut rates on Nov. 4, after lowering them by 1 percentage point to 6 percent last month, the biggest reduction since 1992.

``A global dislocation in economic activity is forcing policy makers to take more remedial action,'' said Mark Cliffe, global head of financial markets research at ING Groep NV in London. ``More policy easing is likely.''


The Material provided above is for information only and does not constitute an offer or solicitation to purchase or sell the shares mentioned