CIMB-GK Securities: Ascendas Reit - 16 Apr 2008

Ascending the ranks

• Portfolio reaches S$4.1bn, record occupancy levels of 98.7%. Revaluation gains of S$483.6m and additions from acquisitions, completed development projects and asset enhancements valued at S$290.6m expanded A-REIT’s portfolio to S$4.1bn in FY08. Record occupancy levels of 98.7% were achieved as at 31 Dec 07.

• Large supply in the pipeline; 59% pre-committed. Industrial supply in the pipeline is significant over 2008-09. However, with 59% of the pipeline already pre-committed, demand from the manufacturing sector and office users is likely to be sufficient to absorb the remaining supply. The outlook for industrial rents is positive, with rents likely to rise by up to 15% yoy in 2008.

• Upgrading DPU forecasts; target price raised to S$2.99 from S$2.60. We raise our FY08-10 DPU forecasts by 0.3-11.8% on higher yield assumptions for development projects and higher rental growth assumptions. Following this, our DDM-based target price for A-REIT (discount 6.7%) rises to S$2.99. Maintain Outperform.

Update

Increased asset portfolio with revaluation gains and property additions. In FY08, A-REIT’s asset base grew to 84 industrial properties for a total value of S$4.1bn via revaluation gains of S$483.6m and S$290.6m worth of acquisitions, development and asset enhancements. HansaPoint at Changi Business Park, which was completed in Jan 08, was valued at S$69.3m, 142% above its development cost of S$28.6m. HansaPoint was 100% pre-committed by the time of its completion.

Post-revaluation gains, asset leverage has been lowered to about 38%, increasing AREIT’s debt headroom and development capacity. At a cap of 10% of its total assets of S$4.1bn, A-REIT has about S$110.5m of development potential, after deducting its S$309.5m projects currently under development. A-REIT is also on track to achieve its S$5bn target asset size by end-2010.

Record high occupancy and double-digit rental growth. A-REIT’s overall occupancy touched a record high of 98.7% as at 31 Dec 07, up 2.6% pts from 96.1% one year ago. Renewal rates for its business and science park, and hi-tech segments grew 46.1% and 71.5% respectively over previous transacted rates.

Impending large supply in the pipeline... About 3.03m sq m GFA of uncompleted industrial projects had received approval for development as at end 4Q07. Potential industrial space in the two years could reach 1.2m sq m in 2008 and 1m sq m in 2009. This would be about 27% and 7% higher than the net new supply of 0.9m sq m in 2007, respectively. Of the new supply, 48% would be single-user industrial space and 52% multi-user space. Business and science parks form a significant 38% or 602,128 sq m of the upcoming multi-user developments over the next four years. This translates to an annual supply of 150,532 sq m, or 2.4x the average net new supply from 2005 to 2007.

..but demand from industrial end-users and office users should be able to digest supply. Notwithstanding the significant supply, 59% of the 3.03m sq m is estimated to have been pre-committed for occupancy upon completion. These pre-commitments are related to single-user developments (48%), which are typically developed by industrialists for their own use, and business and science park space (11%).

Tight office supply and growing R&D industries to drive rental growth. Although there is still an estimated 41% in the pipeline yet to be committed, demand from the growing R&D and knowledge-based industries in Singapore as well as spillover demand from the office sector is anticipated to be sufficient to absorb the supply.

Colliers International reported that occupancy of Grade A offices in most micro-markets had risen above 99% as at Dec 07. Moreover, office rents in all the micro-markets had risen by 55.7-94.9%. Average monthly gross rents in the Central Region (including Raffles Place, Shenton Way, City Hall, Orchard Road and Beach Road) ranged from S$9.81 to S$16.64 psf in the same period. In comparison, average monthly gross rents for hi-specification space ranged from S$2.79 to S$3.43 psf, only a third or less. Tight supply and rocketing office rents should continue to be strong push factors that would ultimately benefit A-REIT’s business and science parks as well as hi-tech space over 2008-09.

Positive outlook for industrial rents. Driven by strong demand, industrial rents had leapt in 2007. The hi-specification segment rose the most, by 39.5-55.9% yoy. Industrial rents are expected to grow further, supported by S$16.1bn of manufacturing investment commitments. Colliers International forecasts that industrial rents would rise by up to 15% yoy in 2008, auguring well for A-REIT’s portfolio.

Valuation and recommendation

Upgrading DPU forecasts; target price raised to S$2.99 from S$2.60. We are increasing our FY08-10 DPU forecasts by 0.3-11.8%, to reflect: 1) higher yield assumptions of 9% (up from 7%) for development projects; 2) adjustments for the delayed effect of income contributions from these projects; and 3) higher rental growth assumptions of up to 15% for the business and science park segment and up to 10% for the hi-tech segment, in view of potential strong rental reversions in FY09. Following this, our DDM target price for A-REIT (discount 6.7%) rises to S$2.99.

A-REIT is trading at an implied yield of 5.8%, below the valuations of its peers, Mapletree Logistics Trust and Cambridge Industrial Trust. However, this also implies greater ease for A-REIT to acquire assets with higher property yields than its trading yields, and to achieve its target size of S$5bn by end-2010.

We continue to like A-REIT for 1) its development capabilities that would render higher yields of 8% to 10%, compared to acquisition yields that range from 6% to 7%; 2) conservative capital management (88% of its debt is on fixed interest rates at a weighted average cost of 3.39% and weighted average term of 3.9 years); 3) low asset gearing of 38%; 4) stable income streams with long weighted average lease periods of 6.3 years; and 5) the absence of forex risks as it does not have overseas assets. Potential price upside of 29% and yield returns of 5.9% imply prospective total returns of 34.9%.

Major Shareholders: Citibank Noms S'pore Pte Ltd 22.5%, Ascendas Land (Singapore) Pte Ltd 19.2%.

Citigroup: Sembcorp Industries - 15 Apr 2008

Buy: Long-term Growth Story Stays Intact

* Headwinds in the UK — SembCorp Utilities will renegotiate its UK supply contracts that expired on 31 March 2008. Replacement contracts are likely to be signed at higher costs. Management has guided to a S$20m-30m downward impact on the FY08 bottom line, equivalent to 19-28% of FY07 Utilities PATMI contribution from the UK.

* Lower utilities margins — We have cut our margin assumptions for Utilities, and now expect the division to post a ~3% decline in PATMI as lower UK earnings are partly offset by stronger contributions from Singapore and, to a smaller extent, China and Vietnam.

* Cautious guidance — Management is cautious on FY08 and expects to “maintain” its FY07 PATMI before exceptional items excluding the one-off tax write-back, with growth in other divisions offsetting the possible underperformance in the UK. Management appears more optimistic about longer term performance, citing contributions from new markets (e.g. China, Vietnam) and new projects (e.g. Wilton 10, strong Marine order book).

* 2% FY08E PATMI growth — We incorporate our SembCorp Marine earnings estimates into our model, and together with lower Utilities contributions, revise downwards our overall net profit estimates by 5-12% over FY08-09E. Our new FY08E net profit implies about 2% FY08E PATMI growth, in line with management guidance.

* Maintain Buy/Low Risk — We incorporate our SMM target price of S$3.82 into our SOTP valuation, and incorporate a 10% discount to our utilities sector EV/EBITDA peer valuation to factor in the short-term margin headwinds faced by UK Utilities. Our new target price of S$4.85 implies a total return of 25%.

Quant view: Contrarian

SembCorp Ind lies in the contrarian quadrant of our value-momentum map, with strong relative valuation but weak momentum scores. The stock’s migration from Glamor to Contrarian could be attributable to the fall in the stock price.

On momentum, SembCorp Ind ranks higher than peers in the Singapore market but lags behind in Industrials. However, on valuation, the stock lags behind peers in the Singapore market but ranks higher in the industrials sector.

From a systematic macro exposure analysis, SembCorp Ind, being a low-beta stock, should hold its own in falling markets. It also benefits from falling yields in emerging markets.

Company description

Sembcorp Industries (SCI) is a leading utilities and marine group in Asia. It provides integrated utilities and energy to industrial customers in Singapore, the UK and the region. It is also a leading global marine and offshore engineering group. Its main businesses are: integrated Utilities and Energy, Environmental Management, and Marine Engineering. SCI is a world pioneer in providing centralized multi-utility facilities, offering a full spectrum of third-party utilities; the leading provider of integrated environmental solutions in Asia Pacific; and one of the largest ship repair and conversion operations in Asia.

Investment strategy

We have a Buy/Low Risk (1L) rating on SembCorp Industries for its attractive valuations and exposure to robust industry fundamentals. SCI is an industrial conglomerate with three businesses: Utilities, Marine Engineering, and Environmental Engineering. Its Marine activities are undertaken by listed subsidiary SembCorp Marine. One of the key earnings drivers of the group is Utilities, which should see strong contributions from its facilities on Jurong Island, Vietnam and the UK. Marine Engineering is well supported by a robust order book and healthy industry fundamentals. Environmental Engineering is still small, but the group intends to expand it.

Valuation

Our target price of S$4.85 is pegged at a 5% holding-company discount to the group's estimated break-up value of S$5.13 per share. We prefer to use RNAV as our primary valuation method for conglomerates, given the group's different business activities. Our target price equates to 15.2x 2008E P/E, which is about a 7% premium to the Singapore market multiple of 14.3x and we think justified by the stock's stronger performance vs. the market and the potential for forward valuations to improve following any possible M&A activities within the utilities business.

Risks

In accordance with our quantitative risk-rating system, which tracks 260-day historical share-price volatility, we rate SCI shares Low Risk. Downside risks that could impede the shares from reaching our target price include: provisions for divestment of non-core assets; delays in contracts; a sharp decline in oil prices, which could adversely affect demand for the group's marine engineering business; and operational risks from its exposure to diversified markets.

OCBC Research: Singapore Press Holdings - 15 Apr 2008

Still a Stalwart

Top strong, bottom weak. SPH reported its 2Q08 results yesterday with topline rising 19% YoY to S$301.8m, but net profit declined 6.3% YoY to S$99.6m. Lower than expected recognition from the Sky@Eleven project due to work delays and weaker investment income (-83.7% YoY) due to the volatile financial markets caused SPH to miss our net profit forecasts by about 9.5%. On an YTD basis, its bottomline performance was flattish at S$211.5m.

Necessary costs to secure future. The need to remain relevant towards its increasingly online inclined readers is one of SPH’s priorities. About S$150m has been committed for investment into new media businesses over a 5-year period which we anticipate is currently loss making. Along with yearly annual increments, this expansion has caused staff costs to rise 12% YoY to S$159m at half time.

Singapore’s newspapers do better than US. While US print advertising sales is in continuous decline coupled with slowing online revenue growth, SPH continues to move in tandem with the growing Singapore economy. A poll of economists projected Singapore to grow around 5.6% in 2008 despite the US slow down. We expect SPH to ride its advantageous monopolistic position in Singapore to turn in consistent net profits. We believe SPH’s largely local operations will continue to be relatively insulated from the slowing economies in the west.

Paragon still doing well. Paragon continues to attract top luxury brands and management indicated that renewals typically yield rent increments of 5-9%. Paragon’s makeover with 2 new floors for medical suites/offices and increased commercial NLA by 11,600 sqft will be finished in Oct 08 and should act as a strong pylon to support SPH’s income.

Still a stalwart in shaky markets. Despite mitigating our expectations on investment returns, we believe that SPH’s core business will continue to match Singapore’s economy growth pace and are mindful that bottomline will be supported by recognition from its Sky@Eleven project. Assuming a similar payout ratio as previous years, we estimate that the stock’s dividend yield could be 5.7% in FY08, making SPH an attractive defensive play for a shaky market. Using SOTP, we raise our fair value slightly to S$5.15 (vs. S$5.14) as SPH pays down its debt for paragon. Maintain BUY.

DBS Vickers: Singapore Telecommunications - 15 Apr 2008

Associate setback but potential special dividends

Story: SingTel’s upcoming 4QFY08 results will be clouded by a strong Singapore dollar and not-so strong performance of Indonesian associate Telkomsel. We expect SingTel to complement its regular dividend with a special dividend to be announced with 4QFY08 results.

Point: Three issues surrounding SingTel are (i) concerns of strong appreciation of SGD against the Indian rupee that could impact earnings and valuation contribution of its Indian associate - Bharti in terms of SGD; (ii) significant reduction in tariff of Indonesian associate Telkomsel that
could lower its earnings contribution; and (iii) SingTel potentially paying 8-10 cents in special dividends on top of the 6.5 cents regular dividend with 4QFY08 results.

Relevance: We trimmed our pre-exceptional estimates for FY08F and FY09F by 1.4% and 3.7%, respectively. Overall, net profit for FY08F is unchanged due to S$155m exceptional income (evident in 9M08 results) compared to our assumption of S$100m. SingTel remains a BUY with a new sum-of-parts (SOP) based valuation of S$4.35 (prev. S$4.50) due to lower contribution from Telkomsel and Bharti.

Highlights
Stronger SGD could have adverse impact. The SGD has appreciated 7% against INR in the last three months to 1 SGD:29.4 INR, which would lower earnings and valuation of Bharti in SGD terms. Similarly, the SGD has appreciated by about 2% against the AUD in the last 3 months to 1 SGD:0.79 AUD. Due to Singapore’s focus on containing inflation, we expect the SGD to remain strong in the foreseeable future. However, the SGD had not appreciated meaningfully against the strong Indonesian, Philippines and Thailand currencies. Overall, we lowered SingTel’s FY08F and FY09F earnings by 0.6% and 1.3%, respectively, due to exchange rate movements.

Strong price competition in Indonesia will impact Telkomsel's earnings. Our checks indicate that Telkomsel has reduced its tarrifs by over 15% on average in the last quarter, which led us to trim its contribution to SingTels FY09F (Mar year end) earnings by 9%, keeping in mind elasticity due to higher subscriber growth. Now we expect Telkomsel’s contribution to grow by 10% in FY09F instead of 20%. While the largest impact will be on FY09F earnings, some of it could also be captured in SingTel’s 4QFY08 results. On the other hand, AIS (booking of interconnection fee) and Globe (strong subscriber growth) should offset some of the weakness. Overall, we lowered SingTel’s FY08F and FY09F earnings by 0.8% and 2.4%, respectively, due to lower associate contribution.

Potential special dividends of 8-10 cents with FY08F results. SingTel has utilized some of its cash in the acquisition of Warid Telecom (c. S$1.1 b). The company also benefited from higher dividend payout by its associates of S$1.0b (+72% yoy) in 9M08. We estimate FY08F net debt/EBITDA ratio at 1.1x, which is still below the target ratio of 1.5x. As such, we expect management to declare a special dividend of 8-10 cents per share on top of the final dividend of 6.5 cents. Our projection for special dividend is based on last year’s special dividend of 9.5 cents.

In terms of post-tax earnings contribution, Telkomsel and Bharti contributed about 23% and 20% of total group earnings in 9MFY08, with regional associates accounting for about 53% of total earnings. On the other hand, Singapore and Australia contributed about 30% and 17% of total group earnings respectively.

Bharti (due to exchange rate) and Telkomsel (due to lower growth) contribute less to SingTel’s valuation now than previously, while SingTel & Optus contributed slightly more as valuation is rolled over to FY09F. We used 5% holdings company discount here. However, if we use current price (instead of target price) of Bharti (Rs 805), Globe (PHP 1455), AIS (THB 98) and Telkomsel (16x FY08) in our SOP valuation, SingTel would be worth S$3.72.

CIMB-GK Securities: Singapore Press Holdings - 15 Apr 2008

Still going strong

• In line. 2QFY08 earnings of S$99.6m (-6.2% yoy) were led by strong advertising revenues (+11.4% yoy) and a S$17m earnings contribution from sky@eleven. The strong core performance was partially eclipsed by weaker-than-expected investment income (-48% qoq) due to weaker financial markets. 1HFY08 earnings have now met 40% of our full-year forecast and consensus (SPH’s second half is typically stronger). An interim dividend of 8.0 Scts/share (+1.0 Sct yoy) was announced.

• Robust 18.9% yoy revenue growth. 2QFY08 core revenue (excluding sky@eleven’s S$24.2m contribution) grew 9.3% yoy, driven by strong advertising revenue (+11.4% yoy). This marked the fourth consecutive quarter of double-digit adex growth as SPH rode the tailwinds of a strong domestic economy. Property rental revenue grew 10% yoy as Paragon enjoyed rental reversions. Circulation revenue was flat (-1.1% yoy).

• 2QFY08 EBITDA margin expanded to 44.1% (+350bp yoy), benefiting from operating leverage at core operations and contributions from the higher-margin sky@eleven project. Robust topline growth helped SPH stay ahead of staff costs which rose 9.7% yoy on headcount increases and salary increments. SPH also benefited from weaker newsprint costs (US$575/tonne, -5% yoy) during the quarter.

• No signs of weakness yet. The impact of slowing global growth has yet to bite into adex demand. SPH continues to benefit from a tight labour market, as can be seen in its strong classifieds performance (+15% yoy). We believe Singapore’s economy remains well-supported by an immigration boom, the rollout of two integrated resorts and Singapore’s rise as a key global destination for business and leisure travellers.

• Reducing earnings estimate. Our FY08 earnings estimate has been trimmed by 5.5% to account for lower investment returns amid weakness in the financial markets and an intentional shift towards a more conservative portfolio.

• Maintain Outperform and sum-of-the-parts target price of S$5.20. In view of heightened market risk aversion, we continue to expect SPH to outperform the index on reliable earnings from its print-media monopoly, revenue recognition of sky@eleven, exposure to Singapore’s adex growth and a solid CY08 dividend yield of over 7%.

Kim Eng: Singapore Press Holdings - 15 Apr 2008

2Q08 results

Previous Day Closing price: S$4.43
Recommendation: BUY (maintained)
Target price: S$6.18 (Previous: $5.84)

♦ Another quarter of strong growth
SPH’s recurring earnings increased 36% in 2Q08 on revenue growth of 18.9%. Besides contribution from Sky@eleven, growth was also derived from the print advertisement business and increased rental income from Paragon. Year-to-date, SPH’s recurring earnings and revenue increased by 26.9% and 16.7% respectively. Interim dividend of 8cts/share (1H07: 7cts/share) was declared.

♦ Still the advertisers’ darling
Print advertisement revenue grew 11.3% y/y in 2Q08, continuing the double-digit growth momentum in the previous 3 quarters (Figure 1). Year-to-date, print advertisement revenue growth of 10.9% was ahead of our full-year forecast of 8%. Bearing in mind that advertising activity would decline if the current global economic woes persist, we are maintaining our 8% forecast. Upcoming events like Mobile Number Portability (MNP), Great Singapore Sale and F1 would lend support to our forecasts.

♦ Recognition schedule for Sky@eleven adjusted
Manpower shortage and inclement weather have delayed the construction of Sky@eleven. We are thus adjusting our recognition schedule, reallocating a larger proportion into FY09-10. SPH does not expect the delay to have any significant impact on costs and remain confident of achieving Temporary Occupation Permit (TOP) in FY2010.

♦ Newsprint prices poised to rise significantly
Newsprint prices are expected to trend up significantly due to a recent supply crunch in Asia and higher prices for raw materials and energy. While this threatens the operating margin of SPH’s newspaper and magazine segment, we reckon that a continual pursuit of operational efficiency and a growing property segment (of higher operating margin) would help offset the impact.

♦ TP raised to $6.18
From adjusting our recognition schedule for Sky@eleven, we have reduced our dividend forecast in FY08 from 32.1cts/share to 29.5cts/share, but have correspondingly raised our forecast in FY09-10. We have assumed a payout ratio of 95% on recurring income. Rolling forward our valuation into FY09, we derived a target price of $6.18 (implied FY09 divided yield of 5.5%).

Citigroup: Noble Group - 11 Apr 2008

Buy: Confidence Corroborated in Call

* Follow-up from our investor call with Noble Group - Our confidence in Noble's ability to manage financial market conditions and capture the upside from the positive demand environment in hard and soft commodities remains unabated.

* Financing in place to deliver growth; no constraint - Noble management remain highly focused on working capital (the lifeblood) requirements for their growing business. Despite rising commodity prices, the cash conversion cycle has been reduced from 21 to 19 days with growth very much in place.

* Higher turnover of products and low inventory holdings add to flexibility - Noble has little necessity to hold more that 20-25 days inventory in its major commodities: iron ore, coking coal, coal and grain. Higher turnover in these markets enables greater flexibility and lower risk, in our opinion.

* Mixing the sources of finance is essential and to be expected - Noble will continue to optimize the balance sheet and the market to their advantage. Currently the debt capital market is a closed window, however bank facilities are available. Investors should expect the use of continued equity financing as part of a balance capital structure where deemed conservative and prudent.

* Higher margin calls and credit constraints are forcing greater rigor - CFO Steve Marzo commented that there are positives from the markets constraints in that the company is applying its talents more rigorously to ensure the most efficient use of funds is employed within the trading operations.

* Inelastic demand observed generically across end-markets - Feedback from management on whether price inflation could impact demand was reliant on the supply and demand dynamics of each industry. However, in the past two years, demand had proven to be inelastic to prices, and this trends continues.

* Thesis intact, no change to Buy recommendation - With markets tight, 2008 continues to look to be a strong year for earnings. The valuations of the hard assets within the business structure continue to increase, highlighting the value that we believe lies within Noble Group.

Company description

Noble Group operates a global supply chain supporting agricultural products (coffee, cocoa, sugar, soybeans and other grains), industrial materials (iron ore) and energy products (ethanol, clean oils, coal and coke). Founded in 1990, the company is headquartered in Hong Kong and has 70 offices in 35 countries serving over 4,000 customers. Major competitors include Cargill, Glencore and Bunge.

Investment strategy

We have a Buy / High Risk rating (1H) and S$2.39 target price on Noble Group shares. Noble is completing the build-out of its supply chain for agricultural grains from South America to China, including sourcing, loading, transportation, discharge, crushing (three plants in China, three in India) and distribution. The full-year impact of this strategic move will be seen in 2007. Furthermore, by 2007/08, Noble is likely to control over 1bn gallons of ethanol for US distribution (~14% market share). Our valuation inputs incorporate the relatively high risk nature of Noble's underlying businesses. Compared with supply chain managers that handle more stable, visible products, Noble's fair value price-to-book multiple is significantly lower. Nevertheless, this is already more than discounted by the market, in our view. Intrinsic visibility at the company level is improving significantly.

Valuation

Our S$2.39 price target is derived from our two-stage (high-growth and stable growth) Gordon Growth Model, which we believe should be used as the benchmark model for valuing regional supply chain managers (SCMs). Our high-growth period assumptions include: payout ratio of 25%, ROE of 19.7%; our stable-growth assumptions are: payout ratio of 80% and ROE of 12%. Our model uses cost of equity of 10.5%, risk-free rate of 4.5% and beta of 1.50. We use the output of our two-stage model to arrive at a valuation of FY07E 3.0x P/B, which gives a valuation of S$2.15. In addition to this we are adding the incremental value of the iron ore asset at S$0.12 and the coal assets at S$0.13. While Noble Group is inherently a relatively high risk stock, owing to poor industry visibility, our analysis implies that the market has overestimated the risks inherent in the underlying business. VaR is indicated by management to be around 2% of book equity.

Risks

We rate Noble Group shares as High Risk owing to poor industry visibility and the inherent risk in its trading business, although our quantitative risk model, which tracks 260-day share price volatility, would imply Low Risk. Noble Group's business model is exposed to a multitude of risks
including market, credit, liquidity, operational, legal and execution risks. Noble has incorporated a comprehensive risk framework to capture and minimize its exposure. However, it is inevitable that some residual price, credit and execution risk will remain, in our view. Investors must understand the inherent risks of the business and consider these against the underlying market valuations of the stock. Any of these risks could impede the shares from reaching our target price.

OCBC Research: Noble Group - 9 Apr 2008

Sell-down on dilution fears overdone

Shares overly battered on dilution woes. Noble Group Ltd (Noble) made the headlines recently as its shares tumbled following the announcement of a share placement. The new shares, priced at S$2.09 each, will enlarge Noble’s share capital by around 3.83%. However, dilution fears were exaggerated amid a jittery market, driving the stock down by over 6% intraday. We met up with management recently, and were reassured of its financing position as well as its business outlook. It remains optimistic on the outlook for commodities, and is confident that it will not need to conduct any more equity fund raising activities in the near term.

Commodities rally spells a strong 1Q08. In essence, 1Q08 saw strong demand for hard commodities, setting the stage for Noble’s buoyant operating environment. Robust demand for commodities such as coal and iron ore propelled the group’s revenue growth in 1Q08, and management is confident that its rapid growth momentum witnessed last year will continue to power ahead. Present high commodities prices bear testimony to the world’s insatiable appetite for commodities. For instance, spot prices of China’s iron ore imports more than doubled from a year ago and peaked at its record high in March 2008.

Improved margins from willowing competition? The current situation of sky-high commodities prices presents a double-edged sword. On one hand, Noble will need more working capital to fund its business operations, but on the other hand, this could potentially eliminate competition from the smaller players with limited funding capabilities. While we do not expect Noble to acquire any such ailing companies, easing competition among commodities supply chain players could lift its profit margins.

A note of caution. As the commodities party continues, we note a potential stumbling block brought about by political risks. Some governments have already stepped in with measures to dampen exports in light of the reported shortage of food supplies. Argentina, for instance, has increased its export taxes on certain agricultural products, leading farmers there to go on strike.
Such uncertainties could pose inherent risks to global supply chain managers, and Noble will not be spared. Nevertheless, we believe that its geographically diversified operations could mitigate some of this risk. We retain our BUY rating on Noble, but lower our fair value estimate to S$2.54 to account for post-placement dilution.

BNP Paribas: Keppel Corporation - 9 Apr 2008

A steady ship

Keppel Offshore & Marine still powering the group

Keppel O&M’s order book now stands at a record SGD12.2b, with earnings visibility stretching to 2011. We are comfortable with our neworder estimates of SGD6b-6.5b in 2008, taking reference from 2006-07 when orders started coming in from 2Q onward after a quiet 1Q. We expect the enquiry/order mix to gradually shift toward production equipment. We also believe cost concerns are overdone. Steel content in a rig-build contract is 10% compared with up to 20% in shipbuilding, limiting Keppel’s exposure. The type of steel used in rig building is also different from generic steel plates used for shipbuilding and believed to not have appreciated as quickly as the latter. Keppel also tries to procure steel in bulk by amalgamating steel requirements across various contracts. The bottom line is we believe that Keppel O&M’s high single-digit operating margins are defendable. Keppel O&M still accounts for 66% of RNAV and 60% of PATMI.

Infrastructure: more niche than integrated utilities
We now expect that Keppel is less likely to participate in the sale of the two remaining Temasek power-generation companies on the back of Tuas Power’s transacted price and Keppel’s niche focus on environmental engineering and “green” waste-to-energy solutions as opposed to mainstream power generation. We estimate the infrastructure division will provide low- teens contribution as a proportion of group earnings and constitute the defensive utility-type earnings that should reduce Keppel’s overall earnings volatility. The USD1.7b Qatar domestic solid-waste-management facility just came on stream in 4Q07, while the USD1.1b Doha North wastewater-treatment facility is expected to be completed in early 2009.

Current price offers value
Keppel Corp paid out almost 100% of FY07 PATMI to celebrate its 40th anniversary. We expect the payout to normalise at between 50% and 60%. Its implied O&M multiple of 13.2x 2008E P/E compares favourably against its blended P/E of 14.2x, suggesting deeper embedded value at current prices with downside support in its 3.1% dividend yield. Reiterate BUY.

Target Price: $14.12

Lim & Tan Securities: Noble Group - 7 Apr 2008

Annual Report Review

• We are confident, after reviewing Noble’s 2007 annual report, that its share price will likely test its 2007 peak of $2.50 in the not-too-distant future, and then surpass it.


• In the Q&A with senior management (including Vice Chairman Harindarpal Banga), we learned that the 2006 target to “double top and bottom line within 5 years” has been restated with 2007 as the base line, since net profit had already surged 92% and revenue by 71% in 2007.
  


• It was also good to refresh oneself on the strengths of the company:
  - Noble has 33 financiers, including all the top names in world banking (BoA, BoC, Citigroup, JP Morgan, DBS, HSBC, StanChart, Bank of Tokyo Mitsubishi, Credit Suisse, Deutsche Bank etc);
  - an impressive board of directors, with the latest addition being Prof Kenneth Courtis, who was MD and Vice Chairman of Goldman Sachs Asia from 1999-2006. And before him, David Eldon, who retired as Chairman of HK & Shanghai Banking Corp in 2005 after 37 years with the HSBC Group.
  - Dividend policy of a cash payout of 25% of net earnings. This is significant for a high-growth company like Noble. See Exhibit 1.
  - Management’s guiding principle of “only interested in being highly competitive throughout a cycle, and not bet on a permanent commodity super-cycle washing away sloppy mistakes or pricey acquisitions”.


• Two other points are also worth reiterating:
  i. Noble raised S$209 mln last week to invest in the business. Given 2007’s 20.6% ROE, that should generate additional $40 mln profit. Olam, on the other hand raised S$307 mln to pay down its borrowings. Assuming 6% interest cost, that will save $18 mln in interest expense.
  ii. Institutional investors were eager to invest in 100 mln new shares at a price ($2.09) that was close to what 3 directors paid for nearly 6 mln shares ($1.7755 to $2.05 for $1.97 average) on the open market.


• We therefore continue to prefer Noble over Olam.
  

NRA Capital: Sembcorp Industries - 3 Apr 2008

Competence in water treatment further strengthened

· SCI has just announced a new joint venture agreement with Zhangbao Industries to build, own and operate (BOO) an industrial water recycling facility in the Zhangjiagang Free Trade Zone in Jiangsu Province, China. SCI will hold an 80% stake in Zhangjiagang Free Trade Zone Sembcorp Water Recycling Co, with the remaining 20% under Zhangbao, an investment arm of the Zhangjiagang city government.

· The agreement plans for a 40,000 cubic metres per day industrial water recycling facility in the first phase. The plant will recycle industrial effluent from the used water treatment facility into recycled water and demineralised water.

· Investment cost is estimated at $22.4m (RMB 112.2m) and the j-v will have exclusive rights to supply recycled water including demineralised water to industries in the Zhangjiagang Free Trade Zone. It will complete in 1H:09.

· SCI currently has some 4m cubic metres per day of water under management worldwide. The group is also building and operating Singapore’s newest and largest NEWater plant (capacity of 228,000 cubic metres per day) and this is expected to come onstream only in 2010.

· We reiterate that it is the increasing percentage of recurrent income that makes us more comfortable with SCI’s business model in these volatile times, and maintain our Buy recommendation.

· Our forecast for this year and FY09 remain unchanged, fair value is $5.82. At yesterday’s closing price of $4.10, there is a 42 per cent upside to our fair value. Stock is also trading cum dividend, which is 3.7 per cent for FY07 and projected to rise to 3.9 per cent for the current year.

SCI’s water capabilities – in China

· The new plant just announced was chosen as a showcase project by the Governments of China and Singapore. It will be the group’s third water management project in Zhangjiagang, and will be expanded later as demand increases. It will be the first water sector project to be deemed as having “zero-discharge”, as part of continued efforts to fight increasing pollution of the water resources in the Yangtze River Delta.

· The first project in the free trade zone is a 20,000 cubic metres per day wastewater treatment facility serving industrial customers in the free trade zone and surrounding industrial parks. The 2nd 15,000 cubic metres per day high concentration industrial wastewater facility currently being built, will be able to treat high concentration wastewater with an average 4,000 mg per litre influent chemical oxygen demand.

· Both the high concentration industrial wastewater treatment facility and the third new industrial water recycling project will be part of the demonstration project under the MOU between China’s Ministry of Construction and Singapore’s Ministry of the Environment and Water Resources to showcase Singapore’s expertise in water management.

· The group also has other projects in Shanghai, Nanjing, Tianjin and Shenyang.

SCI’s water capabilities – in the Middle East

· SCI also recently signed an MOU with the Higher Corporation For Specialised Zones (ZonesCorp) of Abu Dhabi to jointly establish a worldclass utility services company. The new Company is expected to provide efficient utility services to ZonesCorp's specialised economic zones.

· The model appears to be based on what SCI is already doing on Jurong Island ie provide efficient, centralized utility services, facilities management and one-stop customer relationship management to all of ZonesCorp's industrial and commercial tenants, including those in the Industrial City of Abu Dhabi (ICAD), the Al Ain Industrial City and the numerous Worker Residential Cities currently under development.

· Amongst services proposed include the integrated supply of district cooling chilled water, electricity, wastewater treatment & recycling, high grade industrial water, natural gas, industrial gases and solid waste management.

UOB Kay Hian: CapitaMall Trust - 1 Apr 2008

Proactive Enhancements

CapitaMall Trust (CMT) invests in quality income-producing real estate used for retail purposes. It owns 13 retail malls strategically located in suburban areas and downtown core. CMT is the largest retail REIT in Singapore with a market share of 13% for private retail stock. It also has a
20% stake in CapitaRetail China Trust (CRCT), a China-based retail REIT listed on Singapore Exchange. CMT was assigned a corporate rating of A2 with a stable outlook by Moody's Investor Services.

Creating office blocks at Funan DigitaLife and Tampines Mall. CMT has received provisional permission to utilise unused gross floor area (GFA) of 385,500sf for Funan DigitaLife, which has only utilised 3.8 of its allowable plot ratio of 7.0. The unused GFA will be utilised to build a four-storey office block with an estimated net lettable area (NLA) of 277,630sf on top of the existing mall. NLA for retail will also increase 14% from 296,601sf to an estimated 338,360sf. In addition, CMT has been granted an increase in plot ratio for Tampines Mall from 3.5 to 4.2. The additional GFA of 95,000sf will be utilised to build an office block on top of the existing mall. We expect construction to be completed by 2H10 and have factored in contributions from the two office blocks starting 1Q11.

CMT provides 2008 distribution yield of 4.51%, a healthy spread of 2.35% over 10-year Singapore government bond yield of 2.16%. Our target price is S$3.83 based on the two-stage dividend discount model.

Major Shareholders: Capitaland Ltd 31.2%, Pyramex Investments Pte Ltd 18.1%.

DBS Vickers: Yangzijiang - 29 Mar 2008

Raised stake in new yard

Story: Yangzijiang (YZJ) announced that it has entered into a conditional S&P agreement to acquire the remaining 24.81% stake in its new yard, raising its stake to 100%. Of the total consideration of RMB2626.9m (c. S$517.7m), 42% would be funded through the IPO proceeds obtained in April 2007 and the remaining 58% via the issuance of new shares to minority shareholders. These new shares were priced at c. S$0.85 and will be locked for 3 years.

Point: In our view, the acquisition cost is fairly priced at a discount of 33.84% to its DCF-based valuation by independent valuer, Sallmanns. YZJ’s new yard is valued at RMB16bn (by Sallmanns), which works out to 16x on our FY09 earnings for the new yard. The discounted purchase price pegs the acquisition at 10x FY09earnings, close to YZJ’s current valuation at 10x (FY09) and at a marginal discount to China shipyards which are currently trading at 11.8x on FY09 earnings. As such, the acquisition is only marginally accretive to YZJ.

Nevertheless, we are optimistic that the acquisition would be earnings accretive in the long run if the group is able to extract efficiency gains to boost the growth potential of the new yard. In addition, the timely acquisition also allows YZJ to take full advantage of the tax holiday enjoyed by the new yard from 2008- 2009.

Relevance: We have raised our FY08 and FY09 net earnings estimates by about 13%-16% to account for the additional 24.81% stake in the new yard. However, after imputing the 10.68% increase in share capital, the impact on our diluted FY09 EPS is marginal. As such, we are keeping our TP at S$1.45, still pegged to 16x FY09 diluted EPS. Although share price has been beaten down by more than 20% since our downgrade in Feb08, we believe the potential negative newsflow on steel price increase in 2Q08 is likely to cap share price performance in the near term. Given that YZJ’s earnings are the most exposed to steel and currency risks among the SGX-listed yards, we maintain our HOLD call on the counter.

CIMB-GK Securities: Ascendas Reit - 14 Mar 2008

Taking over the helm

Ascendas acquires Goodman’s stakes in A-REIT

A-REIT announced that its parent Ascendas Pte Ltd, through its wholly-owned subsidiaries, had made a double acquisition, by:
1) Purchasing the Goodman Group’s 40% equity stake in Ascendas-MGM Funds Management Limited, the manager of A-REIT, for an undisclosed cash consideration on a willing-buyer willing-seller basis.
2) Purchasing Goodman’s 6.28% direct stake of 83,241,801 units in A-REIT for about S$158.16m on a willing-buyer willing-seller basis.
The acquisition of the shares and units is expected to be completed within 10 business days from the signing of the agreements.

The impact

Goodbye, Goodman! Upon the completion of the share and unit sales, Goodman will fully relinquish its co-manager role in Ascendas-MGM Funds Management Limited and holdings in A-REIT. Ascendas would then have a 26.77% holding in A-REIT. A-REIT's manager, Ascendas-MGM Funds Management, would become a wholly-owned subsidiary of Ascendas and will be renamed Ascendas Funds Management (S) Limited.

May open doors to overseas acquisitions. This is a long-awaited move which will leave Ascendas with full control of A-REIT. We see this as positive for A-REIT, potentially opening doors to acquisitions out of Singapore from its parent, Ascendas. Ascendas has at least two overseas funds that may form part of the acquisition pipeline. They are the Ascendas ASEAN Business Space Fund, and the China Industrial and Business Park Fund, both of which acquire and develop industrial properties in their respective regions. However, any acquisition is more likely to happen in the medium to long term, as A-REIT has committed to some S$338m worth of development projects and has already signed MOUs to acquire S$201m worth of properties over 2008-10.

Valuation and recommendation

Upgrade to Outperform from Neutral; but lowered target price to S$2.60 (from S$2.83). Our target price has been reduced to S$2.60 from S$2.83, in line with a higher cost of equity assumption used in-house. The discount rate in our DDM valuation has been raised to 6.7% from 6.2%.

We are, however, upgrading A-REIT to Outperform after the 15% decline in its share price since late January, vs. the market’s 3% drop. We also like Ascendas’s positive move to take full control of the helm. A-REIT has several things going for it, including: 1) conservative capital management (88% of its debt is on fixed interest rates at a weighted average cost of 3.39% and weighted average term of 3.9 years); 2) low asset leverage of 38.9%, well below the regulatory limit of 60%; 3) venture into development projects which offer property yields higher than the 6-7% yields for completed industrial buildings; 4) high rental reversions for its business park as a result of demand spilling over from the office sector; and 5) strong income streams secured on long leases averaging 6.2 years.

Phillip Securities: Noble Group - 11 Mar 2008

Results synopsis. Noble Group Limited (“Noble” or the “Group”) posted a sterling full year results for FY07 (financial year ended 31 Dec 2007) with a record revenues of US$23.5 billion (up 71% YoY) and a net profit of US$258.5 million (up 92% YoY). The strong results came on the back of a record tonnage volume of 128.3 million tons, up by 37% YoY. A return on average shareholders’ equity of 20.6% was achieved for FY07 and Noble declared a final dividend of 2.48 US cents per share, representing a FY07 payout ratio of about 25%.

All four of Noble’s main business segments performed remarkably well in FY07. This is especially true for the Logistics segment, which saw its revenue up by 148% YoY to reach US$1.3 billion and gross profit up by 414% YoY to reach US$241 million in FY07. The three commodity segments: Agriculture, Energy, and Metals, Minerals & Ores (“MMO”), also did extremely well. Revenue for the Agriculture segment was up 76% YoY, Energy business segment saw its revenue up by 60% YoY, and MMO segment’s revenue improved by 60% YoY.

Our view on Noble for FY08 … We do not think the perceived slow down to the US economy will have much adverse effect on Noble’s profitability. Although we agree that Noble’s topline growth may slow in FY08 (but definitely not negative growth) should the US enter into a recession, we still think that the Group will do better in FY08 as compared to FY07. The growing Asia-Pacific region, with its growing demand for industrial/energy commodities (such as coal and iron ore) and agricultural commodities (such as grains: soybean, wheat, etc), should lend substantial support in driving growth, albeit slower, to Noble’s FY08 results.

… and beyond. We expect Noble to further acquire more value-accretive, marginenhancing assets along the existing supply chain that it is already participating in. We also do not rule out Noble entering into the supply chain businesses of new commodities/products other than those it is already in. Noble’s core businesses have seen tremendous transformation since 1995 – it has successfully added new business lines to its income stream, from fleet management, to agricultural products like sugar, cocoa, cotton, and soybean, and to energy products such as coal, carbon credits, and ethanol. As such, Noble’s topline grew from US$595 million in 1995 to US$23.5 billion in 2007.

Reiterate BUY. We think Noble looks very attractive. In terms of price swings we agree that Noble is volatile. However, it remains fundamentally sound due to its integrated business model, diverse income streams, strong balance sheet, and its wide reach on a global scale in bringing the supplies (much needed commodities) to where strong demand is. Our fair value estimate of S$2.60 is derived from our dividend discount model (“DDM”) which translates to a FY09 P/E of 14.5x and P/B of 2.4x.

We think that Noble’s global presence in key sources of important commodities such as coal, soybean, iron ore, and ethanol enables it to be sufficiently nimble in bringing the supplies to where the demand is or to where the price environment is attractive. Its strong balance sheet also affords it to be able to raise sufficient funds to invest in infrastructures such as ports, vessels, storage facilities, and processing plants – assets that are essentially margin-enhancing. We rate Noble a definite BUY and investors with an appetite for volatility may accumulate this counter should the price level becomes relatively attractive due to technical weaknesses.

Segmental Details

Strong results from all business segments. Noble’s commodity business segments: agriculture, Energy, and MMO posted strong full year results in FY07. On average, all three segments saw their revenue grew by more than 60% YoY. Gross profit was up for Agriculture and MMO segments by 66% YoY and 210% YoY respectively. The Energy segments saw its gross profit down by 28% YoY despite the jump in revenue and tonnage volume. The lower results were due to lesser contribution from the Clean Fuels and Carbon Credits divisions. However, this was offset by better results from the Coal and Coke division.

The Logistics segment saw the strongest growth in both revenue and gross profit. In particular, the segment’s gross margin improved to 19% (from 9% in FY06) due mainly to its Chartering division, which saw increased tonnage volumes as a result of increased commodity shipments for Noble’s internal needs and for third party clients. Higher freight prices also led to better profitability and margins for the division.

Overall margins remain low, reflective of Noble’s conservative business model in not taking directional positions on commodity prices. Although we saw strong revenue growth across all business segments, Noble’s gross and net margins remain low, at 3.5% and 1.1% respectively. This is typical of any commodity supply chain company and it goes to show that Noble does not take on risky directional bets on commodity prices. Noble business model is simple: to source (diverse commodities) from low cost production regions and market them to where demands are high. In between, Noble will seek to extract values along various segments of the supply chain. It aims to generate income through the following strategy: one-third from fixed assets, one-third from fee income, and one-third from trading arbitrage.

Outlook and Forecast

It is not just about demands. It is also about infrastructures and access to supplies. Although Noble’s business model is to bring the supplies where the demand is, we do not think that Noble’s growth is driven purely by demand. The supply side of the equation is equally important; one cannot ignore the fact that to have access to supplies, basic infrastructures and the means to transport commodities to their desired destinations are vital.

Noble’s success hinges on it being extensively integrated and having margin-enhancing assets at key points of the supply chain on a global scale. Beside the advantage of having strong origination presence in many parts of the world, Noble has, over time, invested in many earnings-accretive assets at various points along the supply chain – such as mines, ports, bulk vessels, warehousing facilities, and processing plants. It is one thing to have access to supplies, it is yet another to be able to bring the supplies to where demand is and along the way, extract values from these raw materials. As such, these assets, coupled with strong sourcing capabilities globally, enable Noble to be sufficiently nimble in bringing supplies where demand is. Finally, we also like Noble’s relatively low gearing (net debt-to-equity of 1.2x) in its balance sheet and hence, lower financial costs.

Outlook for Noble’s Agriculture segment – long term bullish. We expect demand for grains (especially soybean) to remain strong, with China and India as the main growth drivers. The appetite for soy products from both countries will continue to be strong over the next few years. In China, due to extensive investments in soybean crushing facilities in recent years, especially along coastal cities, we see demand for imported soybean to remain firm. Noble, which incidentally controls about 10% of the soybean crushing plants in China (it owns 4 soybean crushing facilities in China), should see another good year in 2008. In India, projected demand for protein meal and vegetable oil should also see Noble doing well there (Noble runs 3 soybean crushing plants in India).

Noble’s US$140 million acquisition of the UNP sugar mill in Brazil in 2007 spells another milestone in securing earnings enhancing assets along the agricultural supply chain. Brazil accounts for 40% of world sugar exports and is a low cost producer. Noble’s entry into this largely fragmented Brazilian sugar industry will not only improve its position as a major player in sugar processing, it also provides Noble with a unique arbitrage opportunity: exporting physical sugar when the price environment is buoyant; convert to ethanol (margin-enhancing) and sell in domestic market when sugar price is low.

Overall, with the various earnings accretive assets in place, we are optimistic about this segment in general over the long term.

Outlook for MMO segment – 2008 should be a good year, but demand for industrial commodities expects to soften gradually by 2009. Demand for industrial commodities, especially iron ore, will remain buoyant in 2008. Growing demand for steel due to a construction boom in China and India should keep the iron ore market buoyant. China will continue to be one of the major importers of iron ore for its steel industry. Noble, being one of the largest suppliers of iron ore to China, stands to benefit from the strong demand. However, we expect Chinese steel output to drop gradually beyond 2008 as the exports of steel products decline. The export of steel products from China in January this year fell 5.4% YoY, and we are anticipating relatively flat steel exports this year. Domestic steel consumption will be the main driver for the import of iron ore in FY08 and should lend support in terms of growth in tonnage volume for Noble’s Iron Ore division (part of MMO segment).

Overall, we expect Noble’s MMO segment to perform well in FY08, with FY09 and beyond seeing gradual decline in terms of tonnage growth.

Outlook for Energy segment – thermal coal the main driver for growth. We expect Noble’s Clean Fuel and Carbon Credits divisions to register relatively flat growth in FY08. The main growth driver will come from the Coal and Coke division with demand for energy in the Asia Pacific region driving imports for thermal coal. Noble’s investments in coal assets in 2007, such as the expansion of Donaldson coal operations and the increased investment in Gloucester Coal, will enable it to be well positioned to gain on the region (Asia Pacific) long term demand for coal.

Outlook for Logistics segment – freight rates to remain firm in 2008 but we expect softer pricing environment towards the end of the year. Tonnage growth will remain firm, reflecting the overall strong demand for commodities. We also expect developing countries to source supplies from further distance due to disruptive weather conditions at nearby sources as well as tightening of exports at the origin markets (such as India’s tightening of iron ore export through the increase of export duty). These factors should lend support to the freight rates in the near term and as such, we expect freight prices to remain firm. Although we see softer freight prices beyond 2008, we do not think that the rates will fall to the low level of 2005/06 (as indicated by the Baltic Dry Index).

Valuation and Recommendation

Conviction BUY, fair value at S$2.60. The fair value estimate of S$2.60 is derived at using the three-stage DDM model and translates to a FY09 P/E of 14.5x and a FY09 P/B of 2.4x. We have also adjusted our assumptions to reflect the generally weaker market sentiment. We believe that Noble’s fundamentals are sound despite the current tumultuous market condition and investors with an appetite for volatility may want to accumulate on this counter upon price weaknesses.

NRA Capital: Sembcorp Industries - 6 Mar 2008

Price correction presents an opportunity

· SCI announced a 49 percent drop in full-year earnings, after exceptional items, to $526m. But at the operating level, earnings were up 46 per cent to $557.2m, in line with our expectations. The group took a hit in the exceptional items section, due to its share of SembCorp Marine’s derivatives trading losses.

· Part of the reason for the strong performance was also due to a $48m tax write-back on the profits from the sale of its Pacific Internet stake. Taking this out, operating net profit would have been $509m, slightly below our forecast.

· There’s been a selldown in SCI since the results were announced and partly in line with the market fall. We think the selldown is also due to some fund redemptions, and consider the correction has brought the stock back to an attractive entry level and upgrade our recommendation to Buy.

· Our forecast for this year and FY09 remain unchanged, fair value is $5.82. At yesterday’s closing price of $4.24, there is a 37 per cent upside to our fair value. Stock is also trading cum dividend, which is 3.5 per cent for FY07 and projected to rise to 3.8 per cent for the current year.

· While the guidance for the utilities division apparently disappointed some, the slack will likely be covered by the marine division, which is seeing a record order book and likely to post improving margins for the current year.

Divisonal review

1. Utilities. Earnings growth of 19 per cent to $230m was slightly below expectations due to a weaker performance from the UK operations and also higher costs due to new ventures and potential M&A. Management guided that contribution from UK would continue to be under pressure this year due to uncertainty of the cost renewal of coal supply. Also, overseas projects such as that in Shanghai Caojing, would be subject to higher costs due to regulatory price hikes in natural gas and there will be a lag period before this can be passed on to customers. While the outlook for Singapore operations is still stable, growth will not be exciting.

2. Marine division had a good FY07 and was marred only by the forex hit of $308m, with another US$50.7m reported as a contingent liability. Despite the charge, SembCorp Marine (SCM) still managed to post earnings for 4Q:07. The group’s order book has risen to a new all-time high of $7.4bn and earnings growth is likely to continue these two years, barring any more write offs for foreign exchange losses.

3. Enviro turned around from a disappointing FY06 loss to turn on profits of $14m. This was attributed partly to a good performance from its Australian JVs. The Australian entities have also made some new waste-to-alternative energy acquisitions which should be well received. In Singapore, the solid waste treatment and recycling facility has commenced operations.

4. Parks. This is another smallish part of the group’s business that should be able to maintain its performance this year. But the group has guided that if the US does enter into a prolonged recession arising from the sub-prime crisis, it could cause a slowdown in the manufacturing sector, affecting the industrial parks business under them.

Earnings outlook

Note that the Group has cautiously guided to “maintain its FY2007 PATMI before exceptional items and the one-off tax write-back”. This would imply a flattish FY2008 performance. We expect Marine to surprise on the upside and are also optimistic that the utilities division should perform well.

CIMB-GK Securities: Rotary Engineering - 27 Feb 2008

Exceptional margins; Exxon Mobil contract in the bag

• Below expectations. 4Q07 net profit of S$12.4m (+54% yoy) was 23% below our expectations but in line with market consensus (S$13.1m). FY07 net profit of S$52.8m (+50% yoy) was 7% below our full-year estimate but in line with consensus (S$53.7m). The shortfall was due to lower-than-expected order-book recognition, which has likely been pushed out to this year.
• 4Q07 sales declined 16% yoy to S$98.9m, as fewer projects reached peak recognition threshold than in 4Q06, when major milestones were reached for the Universal Terminal project.
• Exceptional margins. 4Q07 gross margins grew 200bp yoy to 41% while EBITDA margins jumped 800bp yoy to 20%. The leap came from back-end loading of final profit recognition for Universal Terminal. However, to be conservative, we are retaining our gross margin assumption of 21% and EBITDA margin of about 14% for FY08.
• Exxon Mobil expansion project finally awarded. YTD order book is at a record S$640m. Management indicated that the long-awaited Exxon Mobil project has been partially awarded but not disclosed due to commercial terms. We estimate the value of the contract at S$120m and expect more piecemeal awards to continue in the coming months.
• Middle East and Singapore growth markets. Rotary is eyeing at least two sizeable projects (above US$500m each) in the Middle East and a few storage tank contracts in Singapore. Our order assumption for 2008 remains at S$485m.
• Maintain Outperform and target price of S$1.44, still based on 12x CY09 EPS. Rotary proposed a final dividend of 2.3 Scts, bringing the total dividend to 4.6 Scts for a yield of 5%. We see positive newsflow from contract wins as catalysts for the stock. Upside potential could come from higher-than-expected margins. Valuations remain undemanding at 9x CY08 and 8x CY09 EPS, still at huge discounts to regional peers.

OCBC Research: Noble Group - 27 Feb 2008

Truly ahead of the growth curve

Strong FY07 results. Noble Group Ltd (Noble) fired on all fronts and impressed with its FY07 results. Net profit surged 91.9% to US$258.1m on the back of a 70.7% growth in revenue to US$23.5b. Revenue grew across all its business segments (namely, Agriculture, Energy, Metals,
Minerals and Ores (MMO), Logistics and Corporate), led by higher commodity prices. Gross profit per metric ton of its commodities rose from US$5.2 per metric ton in 2006 to US$6.4 per metric ton in 2007. Fully diluted EPS climbed 83% to 9.96 US cents from 5.43 US cents in FY06.
To top it off, Noble has proposed a cash dividend of 2.48 US cents per ordinary share, as well as a 1-for-5 bonus issue.

Higher tonnage reflects strong demand for commodities. Noble’s growth was supported by robust demand for commodities globally. Its tonnage for its commodities businesses (Agriculture, Energy and MMO) rose 45%, while its logistics segment handled 24% more goods as compared to FY06. We expect the demand for soft commodities, especially from China and India, to sustain in 2008, and this will translate to a healthy operating environment for Noble in FY08.

Impact of a slowdown led by US recession. While the demand for soft commodities should remain firm in FY08, we are less bullish on the demand for hard commodities following fears of a US-led recession and its dampening effect on the global economy. We believe that the US could see a slowdown in construction activity in the event of a recession, while production activity in China may see slower growth post-Olympics in August 2008. These factors may dampen the demand for commodities like iron ore and steel. As such, we have forecast slower growth from the MMO segment to as compared to the Agriculture segment.

Still a sound investment. Nevertheless, Noble remains a sound investment with fundamentally sound prospects, and we are confident that its business model should be sustainable even in the event of an economic downturn due to its well-diversified earnings streams. Its strategy of vertical integration will allow it to extract higher profits in the longer term. We roll forward our valuation to FY08, but trim our valuation parameter to 15x (from 17x) to align it with the general de-rating of the market, leading us to derive a fair value estimate of S$2.64. Maintain BUY.

OCBC Research: Rotary Engineering - 27 Feb 2008

Still waiting more contract wins

Record FY07 results. Rotary Engineering (Rotary) posted a 16% drop in 4Q07 revenue to S$98.9m as a result of the completion of several major projects in 4Q06. At the net level, earnings rose 54% YoY to S$12.4m. This led to full year net earnings of S$52.8m, up 50%. Its overall performance was underpinned by buoyant demand for oil and gas downstream activities
in FY07, where revenue rose 17% to a record S$510.2m in FY07. However, as a prudent measure, Rotary made a provision for impairment loss of S$10.4m for its investments in two loss-making associated companies in China and Indonesia. Excluding these one-time provisions, Rotary's preprofit would have been S$81.9m, which is marginally higher than our expectations.

No surprises on the dividend payout. Rotary is proposing a one-tier final dividend of 2.3 cents per share, bringing a total dividend to 4.6 cents per share for the year. This translates to a dividend payout ratio of 49%. This is within the range of Rotary's dividend payout ratio of 38% to 50% historically. At yesterday's closing price of S$0.98, dividend yield works out to be 4.7%.

Review of contracts secured. We note that the sizeable contract order flow had not been as visible as earlier guided by the management. Based on our calculations, Rotary's contracts secured were S$203m in FY05, S$833m (including the S$535m Universal Terminal project) in FY06, and S$400m (our estimates) in FY07. Additionally, Rotary has clinched S$205m worth of contracts to date, bringing its order book to S$640m currently.

Lowering FY08 earnings forecast. Until we see further flow of orders in the coming months, we are paring back our revenue estimates for FY08 by 12.9% as order flow has been fairly slow for the last quarter of 2007. However, contract wins can be very lumpy for this industry and we do not discount the possibility of major contract wins in the coming months and this could trigger earnings and share price re-rating. We are increasing our PER multiple from 12x to 14x to take into account affirmation of Rotary's capability following completion of the Universal Terminal project. Pegged at 14x FY08 forecasted earnings, our fair value estimate is lowered to S$1.34 (from S$1.48 previously). As this represents an upside of 36.7%, we maintain our BUY rating.

NRA Capital: Sembcorp Industries - 25 Feb 2008

Uncertainty over SCM removed

· SCI subsidiary, SembCorp Marine (SCM) announced a credible set of results last Friday. FY07 net profit was ahead of consensus expectations, with 4Q reporting a net profit of $0.8m despite a forex hit of $308m has been with another US$50.7m reported as a contingent liability.

· SCM’s performance was due to improved operating margins which rose 2.8ppt to 9.4% for 4Q07. This was partly attributed to the onset of contribution from better priced rigbuilding contracts. There was a 44% increase in rig building turnover to $2.5bn. Shiprepair also turned in
better margins as the group was able to select from higher value added projects. The group’s order book has risen to a new all-time high of $7.4bn underpinned by $5.4bn of wins in 2007 and another $403m for the year to date. We think continuing this momentum will not be a problem given oil prices are now near US$100 per barrel.

· Management has also stated that the bulk of costs would have been locked in at the time the contract is signed. The main fluid factors are labour cost and overheads, which account for some 20% of costs within the rig building division.

· More importantly, further uncertainty has been removed over SCM’s liability over the alleged unauthorized forex transactions. The group announced on February 14 that it has reduced the forex losses to $258.7m, had with 9 of the 11 banks involved in the dispute and would account $208 million as expense in the 4Q numbers.

· We maintain our Hold recommendation on the company. SCI is scheduled to announce its FY2007 results after the close of market on Feb 29. We don’t expect any negative surprises once the SCM write off has been factored in. Otherwise, the group’s other business divisions will show sustained growth while prospects remain positive despite the sluggish US economy.

DBOO PUB’s latest NEWater project

· SCI also announced last month that it has been awarded the fifth and largest NEWater project from PUB, following an open tender. The plant, under PUB’s Design-Build-Own-Operate scheme, will have an initial capacity of 15m gallons per day in 2009 and will ramp up to 50m gallons per day by 2010.

· When fully operational, it will be one of the largest water recycling plants in the world, producing 50m gallons per day of NEWater over a term of 25 years. The investment of $180m, will be funded through a mix of bank borrowings and internal sources.

· Though the project will enhance the group’s stream of long term recurrent earnings, it will not have any impact in the short term.