ASCENDAS INDIA TRUST, citi maintain BUY with target price $1.11($1.75)

ASIA ENVIRONMENT, csfb maintain OUTPERFORM with target price
$0.6($0.75)

COSCO, citi maintain BUY with target price $4.15
COSCO, dbs maintain BUY with target price $4
COSCO, dmg maintain BUY with target price $3.82

HL FINANCE, dmg maintain BUY with target price $5.18

LIZHONG WHEEL, uob maintain BUY with target price $0.89($1.07)

OCBC, cl maintain BUY with target price $10.10

SIA, citi maintain SELL with target price $13
SIA, uob maintain SELL with target price $14.30

SPH, csfb maintain OUTPERFORM with target price $5.11

ST ENGINEERING, uob maintain HOLD with target price $2.83

SYNEAR, db downgrade to SELL with target price $0.35($0.45)

THAIBEV, csfb upgrade to NEUTRAL with target price $0.23

UNISTEEL by ocbc

[ SECTOR ]

BANK by dbs

PROPERTY by csfb
PROPERTY by dmg
PROPERTY by ocbc
PROPERTY by uob

WATER by csfb

************************************

-ASCENDAS INDIA TRUST, citi maintain BUY with target price $1.11($1.75)
-Reiterate Buy, with lower TP of S$1.11 ?In current volatile times, we
see
aiTrust as a defensive play ?while the stock is down 26% it has
outperformed Indian property stocks by 12% over last 3-mnths. With
healthy
yields of 9.4% for FY09E, strong 12% DPU CAGR, it is our preferred play
in
commercial asset space, even as we lower TP to S$1.11 based on DDM, due
to
higher cost of equity of 10.6% (vs.7.8% earlier) on higher rates,
currency
risks and volatility.
-Sustained high occupancy, pick-up in new leases; encouraging
?Occupancy
for original portfolio remains strong at 98%, with retention rate high
at
92%. Occupancy for newly constructed space of 1.1m sq ft is also 90%+.
-High visibility on asset injections ?a-itrust’s right of first refusal
over: 1) 0.25m sqft of leased IT SEZ in Cybervale, Chennai with
potential
to increase to 0.81m sqft; and 2) 9.7m sqft of IT SEZs at Gurgaon, Pune
&
Coimbatore provides high visibility for asset injection. Further to
debt
tied-up for construction it has headroom to raise debt of S$150m-180m
for
acquisition.
-Potential upsides to DPU Growth ?Development of ~2.7m sq ft SEZ in
Bangalore and asset acquisition opportunities, could potentially lead
to
upside of 9%\ 34% to our DPU estimates by FY13E. However, given limited
details, we have still not built this into our estimates.
- Key risks 1) Marked slowdown in IT sector; 2) potential supply risks
given large pipeline of IT Park assets; 3) execution delays for
upcoming
1.5m sq ft.

ASIA ENVIRONMENT, csfb maintain OUTPERFORM with target price
$0.6($0.75)
-On 15 July, AEH entered into a prelim agreement with Dayang govt.
(Jiangsu) to undertake a new BOT to build six WWTPs (with 140,000
m3/day
total capacity) and install a 48 km piping network.
-Also, it has withdrawn from the Bangladesh project owing to rising
material prices/decline in USD-based contract value. Though this
affects
est., the move shows management.s discipline, in our view
-On its tie-up with YTL in China, we understand from our recent company
visit that this would help address AEH.s funding needs to meet its
growth
ambitions and propel YTL.s expansion there.
-YTD, total project wins is ~Rmb235 mn. With slower-thanexpected order
flow
largely owing to financing issues and less Bangladesh, we scale back
our
FY08E order book to Rmb 524 n.
-We reduced our forecasts by 4-11% over 2008-10 to reflect lower est.
order
book/recurring income, and higher int. exp from higher assumed int.
rate.
Also, adj. EPS for 11% dilution from the new shares placement. Our
target
price is S$0.60 (from S$0.75) based on 11.7% WACC. Maintain OUTPERFORM,
46%
potential upside.

COSCO, citi maintain BUY with target price $4.15
-Options exercised ?Cosco has signed a LOI with Sevan to exercise its
earlier option to build the 2nd and 3rd Sevan 650 drilling units. Based
on
the 1st rig contract value (US$170m), subsequent projects should be
worth
more than US$200m each, after factoring higher raw material prices.
Currently, a deposit of US$7m is paid for the LOI.
-Key catalyst ?The scope of work Cosco is able to garner in subsequent
Sevan contracts is an important indicator. Expanding its work beyond
hull
fabrication is a key catalyst for the stock, as it demonstrates its
technical strength and entrenches its value-add further in the supply
chain.
-Contract value ?Cosco recently garnered options to build 6 additional
semisubs for Sevan, thus more projects could be in the pipeline. The
potential contract value could range from US$1.6-4bn for 8 semi-subs
(assuming remaining 6 options are converted).
-Strong progress with Sevan ?Cosco’s progress with Sevan should enable
it
to ride with its success. Success in semi-sub new build represents a
diversification from previously shipbuilding-dominated activities,
which
are less vulnerable to steel price volatility.
-Maintain Buy (1L) ?Cosco is one of our top picks in the offshore and
marine sector, and we believe the stock has potential to re-rate as it
captures the semi-sub new build cycle. We maintain Buy (1L) and target
price of S$4.15, based on 14-15x FY09E P/E.

COSCO, dbs maintain BUY with target price $4
-Cosco Corp announced that it has signed a Letter of Intent with Sevan
to
build two Sevan 650 drilling units. While no deposit has been paid yet,
a
prepayment of US$7m has been received to secure the steel materials
procurement for the two drilling units. In addition, Sevan has signed
separate agreements that provide further options for six more Sevan
platforms to be built by Cosco Corp.
-While the contract has not been finalized yet, we estimate it is worth
between US$170m to US$200m for the construction of the hull for the
first
two drilling units. The first Sevan unit was secured back in March 2007
at
US$170m. The prepayment of US$7m translates into 2% of total contract
value.
-The formalisation of this LOI at a later stage will provide a head
start
to receiving more contracts from Sevan. We are not amending our
forecasts
as these potential contract wins have been factored in our new order
assumptions of US$4bn for the year vs US$1bn won to-date(excluding
Sevan’s
contracts).
-Maintain Buy, target price at S$4.00, the stock is trading at PE of
14.5x(FY08F) and 12.3x(FY09F). The news is unlikely to be of
significant
boost to Cosco Corp’s share price as we have highlighted this contract
potential last month, from Rigzone. Cosco Corp has been lagging behind
in
new contract wins vs Keppel Corp (S$4.1bn or 68% of our contract win
assumptions) and SembCorp Marine at S$4.2bn(76% of our contract win
assumptions). While we believe downside risks for Cosco Corp’s share
price
is limited, a re-rating of its share price will need a) the group to
secure
stronger contract wins from the offshore sector ?currently, offshore
contracts account for only 10% of total order book b) steel prices to
correct, and c) M&A deal to raise its stake in Cosco Shipyard Group.

COSCO, dmg maintain BUY with target price $3.82
-Sevan Marine exercised option. Cosco Corporation (Cosco) announced
last
evening that it has signed a Letter of Intent with Sevan Marine (Sevan)
to
exercise the option attached to the Sevan Driller rig contract awarded
in
1Q07. This option entails the hull construction (Phase 1) as well as
assembly and outfitting (Phase 2) of two additional Sevan drilling
units,
based on Sevan’s proprietary Sevan 650 design. However, we understand
that
the exact terms of this option contract have not been finalised as
Sevan is
intending to pursue beyond the option given; that is for Cosco to build
the
entire semisubmersible on a turnkey project basis instead of merely
constructing the hull.
-What’s for Cosco? Phase 1 of the first Sevan drilling unit (Sevan
Driller)
would be taking approximately 11 months, with expected completion in
Sep
08. Should Sevan solely award Cosco with the construction of the hull,
we
note that Cosco would be able to construct it in less than 11 months.
We
estimate the contract for each newbuild to be US$200m (20% more than
Sevan
Driller). Separately, Cosco would be providing Sevan with six more
similar
options, which could potentially add US$1.6b to Cosco’s orderbook if
all
options are exercised.
-Turnkey projects pose significantly higher risks. We understand that
Sevan
is negotiating with Cosco with regard to building the drilling units on
a
turnkey basis, which may include procuring the drilling package. While
turnkey projects are larger in contract value (approximately US$600m),
such
projects do involve significantly higher risks with much onus on Cosco.
Key
risks to this turnkey project include yard execution risk and
competitive
delivery dates. We note that Sevan has secured two drilling contracts,
a
6-year Petrobras contract with start up by 2012 and a 3-year ONGC
contract
with drilling commencement in early 2011. We believe the tight delivery
deadlines are too stretched for a relatively young yard like Cosco to
take
on. However, should Cosco agree on the turnkey projects, Cosco would
offer
Sevan six further options on turnkey basis which could possibly bring
Cosco’s orderbook to US$4.8b when all options are exercised.
-Maintaining our earnings forecast and target price at S$3.82 for now.
Pending the finalisation of the terms in this contract, we are
maintaining
our earnings forecast and target price at S$3.82, based on
sum-of-the-partsvaluation.

HL FINANCE, dmg maintain BUY with target price $5.18
-We had a teleconference with HLF management recently, and came out of
it
optimistic on its earnings prospects going ahead.
-Cost of funds has fallen. With the softness in SIBOR, time deposit
rates
have also fallen. HLF derives 98% of its deposits from time deposits
and
this translates to lower cost of funds, albeit with a time lag.
Previously,
a large amount of HLF time deposits mature close to the Chinese New
Year
period, but recent efforts to raise deposits have led to a more even
spread
of maturity across the 12 months of the year. However, a significant
amount
still mature close to the Chinese New Year period.
-Lending yields have also fallen, but to a lesser extent. 20% of HLF
loans
have interest rates pegged to SIBOR, and the yields of these loans have
fallen in line with SIBOR. The other 80% of loans have rates that are
fixed
eg hire purchase loans or are pegged to some other indicators eg board
rates for housing loans. The yields for this category of loans is less
sensitive to the weakness in SIBOR.
-Expect 2Q08 net interest margin to be wider QoQ. In 1Q08, SIBOR-based
lending yields fell as SIBOR declined. However, cost of funds did not
fall
as fast as deposits were repriced at a slower pace. Hence, HLF recorded
a
11% QoQ decline in 1Q08 net interest income. With more deposits having
been
repriced downwards since then, we are optimistic that 2Q08 net interest
margin will be wider.
-Slowdown in loans to property developers, but housing loans could pick
up
with more TOP of residential properties. Property developers have
turned
more cautious, given the slowdown in property sales. Consequently, this
has
translated to slower growth in systemic finance company loans in the
first
five months of 2008 ?only up 0.1% YTD. In the case of HLF, the TOP of
residential property development “Sail?could have led to some drawdown
of
housing loan. More can be expected over the next few quarters. This
could
help drive the housing loan portfolio of HLF.
-Attractive valuation. With an NTA of S$3.24/share, HLF is trading at a
P/NTA of 1.1x, which is low relative to the 3 banks?average of 1.5x.
Our
HLF target price of S$5.18 is pegged to 16x 2008 earnings ?HLF traded
at a
5-yr average historical P/E rating of 16x.

LIZHONG WHEEL, uob maintain BUY with target price $0.89($1.07)
-3QFY08 business might be hurt by Olympics. Recently, we held a
conference
call with management, during which we were informed that the company’s
business will be affected by some restrictive regulations as the
Olympics
draws near. Since Lizhong Wheel’s (Lizhong) Baoding and Tianjin plants
are
only 150km away from Beijing, the company has already encountered
difficulties, such as transport constraints. As the Olympics draws
near,
management expects more restrictions to be introduced, which will
affect
Lizhong or its suppliers and customers. In the worst-case scenario,
Lizhong
might have to cease operation during the Olympics. Though it is hard to
gauge the exact impact such restrictions will have on the company,
management expects business in the third quarter to be hurt to some
extent.

-Gross margin under moderate pressure as aluminum prices are set to
rise.
Unlike international aluminum prices, which are surging, domestic
prices
have been quite stable over the past few months. However, China’s
aluminum
smelters have recently agreed to reduce production by 5-10% to ensure
there
will be power supply for the Olympics. We believe the output reduction
will
support higher domestic aluminum prices. On the other hand, China’s
aluminum industry is still suffering from overcapacity, so a sharp
rally in
aluminum prices is unlikely, and Lizhong’s gross margin will come under
moderate pressure.
-Demand to dip on high oil prices. Owing to the sharp rally in oil
prices,
the government has recently announced that it will raise the retail
prices
of gasoline and diesel by an average of 18%. We expect more price hikes
for
oil products as the Consumer Price Index (CPI) settles down in a
reasonable
range. This will likely dampen domestic automobile sales and in turn
weaken
the demand for Lizhong’s products. However, we also do not expect a
severe
drop in domestic automobile sales for the following reasons: a)
Spending on
gasoline still insignificant compared with automobile prices. Assuming
gasoline price reaches Rmb10/litre, which is about 65% upside from the
current level, annual spending on gasoline per car would be about
Rmb10,000. This is about 6.5% the price of an automobile, a proportion
that
is unlikely to scare off potential buyers. b) Number of motor vehicles
per
capita way below world average. As of 2007, 920m automobiles were owned
by
the world population. Based on the world population of 6.6b, 1,000
people
owned about 140 automobiles on average. However, among all the
provinces
and big cities in China, only Beijing has managed to beat the world
average, with 170 units owned by 1,000 people. Even in first-tier
cities
such as Shanghai and Tianjin, the numbers are 64 and 85 respectively,
far
below the world average.

OCBC, cl maintain BUY with target price $10.10
-We believe OCBC is best leveraged to benefit from the Singapore
domestic
demand story. Their re-branding campaign should translate to market
share
gains. In a widening credit spreads environment there may be upside to
our
net interest margin expectations. Great Eastern’s performance should
see a
turnaround going forward as the life-insurance business reverts to its
historical mean. We believe credit risks are adequately captured.
Lagging
UOB and regional peer valuations, we are BUYers of OCBC ahead of 2Q08
results.
-Best leveraged to domestic demand. OCBC’s recent re-branding efforts
have
involved the deployment of a number of innovative products; notably for
SMEs. The domestic infrastructure story should allow OCBC a front row
seat
to tap in to SME credit demand and a chance to grab market share- in a
backdrop of widening credit spreads. We expect similar trends in the
resilient HDB housing segment as well where the Group enjoys a dominant
market position. Recall OCBC was amongst the first off the mark raising
mortgage rates displaying their aggressive pricing strategy. While all
three banks should benefit from the structural domestic demand story,
we
believe OCBC is the best leveraged to its key drivers. Part of this
should
be reflected in improving loan yields. A 5bps improvement in loan
yields
should add 2% to our base case FY08 earnings.
-Great Eastern should see a turnaround in 2Q08. Great Eastern’s life
insurance earnings contracted 93% YoY in 1Q08. At 6bps of total assets
this
is well below the 87bps 10-year average level. With oneoff actuarial
liability adjustments behind them and corporate credit spreads running
at
more normalised levels we expect 2Q08 life-earnings to revert to
~S$100m
vs. S$7m in 1Q08 (-18% YoY).
-NPLs and credit charges adequately captured. We believe falling real
income and tougher business conditions should spur NPL growth. As such,
we
have assumed 10% and 25% YoY NPL growth for FY08 and FY09 respectively.
Similarly, we expect credit charges to increase to 31bps and 39bps in
FY08-09 compared to a CDO related 5bps last year. Nevertheless, we
believe
these risks are manageable given low LTV ratios for mortgages, a strong
infrastructure pipeline and 115% provisioning cover.
-BUY ahead of 2Q08 results. Although a strong outperformer against the
STI,
OCBC is at its cheapest level in five months at 1.5x FY08 PB. The Group
is
best leveraged to the domestic demand story, yet is trailing behind UOB
(1.6x FY08 PB) and regional peer valuations. Add to this a quality
balance
sheet with no material exposure to Freddie Mac and Fannie Mae. We are
BUYer
ahead of 2Q08 earnings.

SIA, citi maintain SELL with target price $13
-Lower load factors may pressure yields: We maintain our bottom of
consensus estimates and S$13 target price for SIA. Passenger load
factors
(Jun ‘08 qtr: 76.7%) are declining while IATA data likely implies that
the
contribution of higher yield first/business (vs. economy) passengers is
falling. Weak cargo load factors (Jun ‘08 qtr: 61.3%) are within 3ppt
of
breakeven. June qtr avg. jet kerosene price was US$154/bbl while SIA
has
hiked fuel surcharges 37% since end March. While hedging and fuel
surcharges may “shield” earnings for the Jun-08 qtr, fuel cost will
likely
weigh on earnings later in the year.
-June passenger load factors decline 3.2% yoy: The decline in load
factors
came as passenger demand (+5.2% yoy) failed to keep pace with capacity
(+9.5%) following the deployment of the A380s, and additional
frequencies
to various locations. Decline in load factors was seen across all
regions,
with Americas and Europe showing the greatest fall of 3.8%, while
Aus/NZ
fell by 3.7%.
-Cargo remains weak: Cargo traffic fell by 1.9% yoy while capacity
remained
flat, resulting in cargo load factor falling by 1.1ppt to 61.6%. In
particular, Auz/NZ registered a sharp fall in load factor (-10.4ppt
yoy) as
traffic failed to keep up with additional bellyhold capacity from
increased
passenger frequencies.
-Jet fuel (July 15) US$175/bbl: The Jun-qtr average realized spot jet
kerosene price of US$154/bbl is above our assumed FY09E into plane cost
of
US$145.9/bbl. For every 1% rise in our jet fuel assumption, FY09E
earnings
fall 4.5%, all else equal. SIA has hiked fuel surcharges an average 37%
since March (our FY09E: +17%). We estimate a US$1 increase in fuel
surcharge raises earnings by c.1.7%, all else equal.

SIA, uob maintain SELL with target price $14.30
-June passenger traffic, or revenue passenger kilometres (RPK), grew
5.2%,
while capacity grew 9.5%. Passenger load factor as such dropped to
79.2%.
The number of passengers carried rose 2.8% to 1.617m. Load factors fell
across all segments, with the Americas and Europe showing the largest
decline. West Asia and Africa, which include the Middle East, fell
marginally by 1.8%.
-The key number to focus on is the increase in RPK and passenger load.
Both
showed decent gains, again highlighting the fact that travel demand has
not
receded despite fare and surcharge increases as well as rocky equity
markets.

SPH, csfb maintain OUTPERFORM with target price $5.11
-CS hosted a post 3Q results investor luncheon for SPH on Tuesday. In
general, investors take the view that SPH remains an attractive
defensive
play with its above-average dividend yield and strong balance sheet,
especially in the current difficult markets.
-Management takes the view that newspaper ad revenue growth would track
the
domestic economy rather than overall GDP.
-Wages are expected to continue rising mainly due to higher headcount
as
the company expands its new media business further. In addition, market
price for newsprint has risen above US$800/tonne largely due to strong
demand.
-Majority of the construction costs for Sky@eleven have been locked-in
with
a small balance adjustable (on a 50:50 basis with the contractor) for
material cost escalation.
-Our sum-of-the-parts target price of S$5.11 represents 25% potential
upside from current levels. Also, the stock has a projected dividend
yield
of 7%. We maintain an OUTPERFORM rating, especially given the difficult
equity markets.

ST ENGINEERING, uob maintain HOLD with target price $2.83
-The Business Times has reportedthat the Seletar runway at Seletar
Aerospace Park will be redeveloped in November for 18 months. The
runway
will be closed for 14 hours a day and there will be flight restrictions
during this period. The move is part of redevelopment plans to extend
the
runway to allow for wide aircraft types to access the Seletar Aerospace
Park.
-Impact. ST Aerospace operates a hangar at Seletar Aerospace Park with
a
capacity for 13 narrow body aircraft and performs Boeing 757
conversions
and other aircraft maintenance works. The company has clarified that
some
of the conversion and maintenance works will be shifted to the Paya
Lebar
and Changi hangars, while C130 military transport-related works could
be
moved to Seletar. Even so, we believe the utilisation rate at Seletar
could
fall in FY09 and that the other bases might not be able to fully take
up
the slack.
-We estimate that Singapore operations accounted for $600m-650m in
revenue
in FY07. Given that works on the runway will only commence in November,
there would be limited impact on FY08 results. However, FY09 could see
at
least a 10% decline in revenue from Singapore operations. We have
adjusted
our FY09 net profit estimate downwards by S$9m to reflect that but
maintain
our HOLD recommendation for now.

SYNEAR, db downgrade to SELL with target price $0.35($0.45)
-We cut FY08-10E earnings by 10-20% on lower earningsvisibility Synear
faces the prospects of declining sales, intensifying raw material cost
pressures and a weak ramp up in production capacity for its new plants.
We
cut our FY08-10E earnings by 10-20% on lower earnings visibility for
the
company. We downgrade the stock to Sell from Hold and cut our TP from
S$0.45 to S$0.35 based on our DCF valuation (12.2% WACC and 1% terminal
growth rate).
-Synear is facing increasing costs pressures in our view. We visited
Synear’s Chengdu and Huzhou plants last week. The company continues to
see
costs pressures intensifying with labour turnover as high as 50% in its
Huzhou plant. Labour costs are up 20% YoY due to sharp YoY increases in
raw
materials such as flour, pork and packaging.
-We cut our earnings estimate on higher costs pressures. We have cut
our
net profit estimate by 20% to RMB289m for FY08E as we factor in a
decline
in sales of 14.6% and cost increases of 15%. Our FY08-09E estimates are
below consensus by 22% and 26% respectively. Synear has lost market
share
in 1Q08 when revenue declined by 6%.
-Downside support with cash per share of S$0.22. Based on our revised
earnings, Synear is trading at 11.2x and 9.4x FY08-09E PE. It now has
c.60%
valuation discount to China’s brand F&B plays. We forecast a 7.9%
decline
in EPS CAGR over FY08-10E. At our TP of S$0.35, this translates to 8.5x
FY08E PE. Upside risks: falling raw material prices and ASP increase.
(See
page 6 for valuation and risks).

THAIBEV, csfb upgrade to NEUTRAL with target price $0.23
-ThaiBev shares corrected 14% over 1M and appear to factor in worsening
market share loss, high CPI, and weak consumption; hence we upgrade our
rating from Underperform to NEUTRAL.
-With the annual rice harvest in 4Q08, the rural income boom from high
rice
price should boost 4Q08 sales volume. We expect consumers continue to
trade
down to smaller-sized bottles, lowerpriced brands, and illegal spirits,
given high inflation has dampen consumer spending.
-We remain cautious. Our FY09 EPS estimate is 12% below consensus, as
we
believe ThaiBev has not addressed the structural decline of its most
profitable products, white spirit.
-We trim our FY08 EPS estimate by 7% from Bt0.42/share to Bt0.39/share
to
factor in higher labour costs and other cost inflation. Our DCF-based
target price of S$0.23 remains unchanged and we believe ThaiBev.s share
price is fairly valued. ThaiBev is trading at 14.4x FY08 P/E compared
with
its regional spirit peers at 21.7x and brewery peers at 19.2x FY08 P/E.

UNISTEEL by ocbc
-Despatch of scheme document. Unisteel Technology Limited (UTL)
announced
that it has dispatched the scheme of arrangement document (dated 11
July
2008) to shareholders. Besides containing the full details of the
scheme
(including the recommendation of the directors and the advice of the
independent financial adviser), the document also includes the notice
of a
meeting of shareholders to be held on 30 July 2008 at 10am at Raffles
Town
Club for the purpose of seeking shareholders?approval for the scheme.
UTL
has earlier obtained the necessary court order for the meeting as well
as
approval from the SGX-ST for the proposed delisting.
-Needs 75% shareholders?approval. As a recap, Latch Holdings, a unit of
Kohlberg Kravis Roberts & Co (KKR) has made a bid to acquire and
privatize
UTL via a scheme of arrangement by offering S$1.95/share. For the
scheme to
be successful, it would need 75% approval from shareholders. So far, we
understand that some UTL shareholders including chairman Bernard Toh,
MD
George Poh among others ?collectively representing nearly 20.5% of its
issued share capital – have given their irrevocable undertaking to vote
in
favour of the scheme. In addition, ANZ ?the independent financial
advisor
appointed by UTL ?has reviewed the scheme and is of the opinion that
directors can recommend UTL shareholders to vote in favour of the
scheme.
-Accept the attractive offer. As mentioned in our earlier report, we
also
recommended that investors accept the offer as we do not expect to see
a
competing bid or KKR raising the offer as it already prices UTL at a
historical EV/EBITDA of 10.7x, which is very close to KKR’s 10.8x offer
for
MMI. This is also much higher than the 7.3x normalized EV/EBITDA mean
of
some of the takeover offers made for HDD-related manufacturing
companies
over the past two years, according to findings by ANZ. We also
mentioned
that without the privatization possibility, our fair value for UTL
would
have fallen to just S$1.39, following its dismal 1Q08 performance and a
likely muted 2Q08 showing. While we remain Overweight on the HDD
industry,
given the seasonal stronger 2H outlook, we remain concerned about the
increasingly uncertain macro economic picture and the negative
percussions.
As such, we see the offer as a means for shareholders to cash out ahead
of
any potential downgrade of the sector. We reiterate our call for
shareholders to accept the offer.

[ SECTOR ]

BANK by dbs
-Story: Issues linked to Freddie Mac and Fannie Mae have to some extent
spooked Singapore banks, similar to the scenario we saw back in Aug-07
when
CDO issues plagued the financial sector. Freddie Mac or Federal Home
Loan
Mortgage Corp is secured by a pool of conventional home mortgages,
while
Fannie Mae or Federal National Mortgage Association is secured by a
pool of
federally insured and conventional mortgages. The US government is the
ultimate guarantor of these bonds.
-Point: We spoke to the banks yesterday and gathered that their
respective
exposure to Freddie Mac and Fannie Mae is immaterial. We understand
that
such exposures should be within the exposure of each banks?total CDO
exposure, particularly within the Corporate CDO exposure. We believe
the
classification and treatment of these investments are similar to that
of
CDOs.
-Of the three Singapore banks, only OCBC has made an official statement
stating that it does not hold any debt issued by, or shares in, the
Freddie
Mac and Fannie Mae, but has immaterial and indirect exposure to the two
companies through its investment in corporate CDOs. Within the
Corporate
CDO exposure of the bank of S$344m (as at end 1Q08), which comprise
diversified portfolios of corporate credits in the US, Europe, Asia,
and
elsewhere, US$49mn of the CDOs contain 3% exposure to Fannie Mae and
Freddie Mac. All in all, OCBC Group’s (including GEH) exposure to
Freddie
Mac and Fannie Mae is immaterial, amounting only to S$2m, through its
corporate CDO investments, S$8m in GEH’s shareholders?funds and S$29m
in
GEH’s insurance funds of S$42bn.
-From our conversations with UOB, similarly, we understand that they do
have immaterial and indirect exposures to Freddie Mac and Fannie Mae.
Similar to its CDO exposures, we understand that these issues are
classified under available-for-sale securities, which means, any
unrealised
mark-to-market losses would be offset against reserves unless these
unrealised losses are deemed permanent. No specific details or amount
of
these exposures were disclosed.
-DBS has not made any official announcements regarding such issues so
far.
To recap, the three banks have made the relevant and necessary
provisions
for its total CDO exposures. As at end 1Q08, DBS has a total of S$1.4bn
total CDOs of which S$259m in ABS CDOs and S$1,178m in Corporate CDOs;
UOB
has a total of S$618m in total CDOs, of which S$86m are in ABS CDOs and
S$182m in Corporate CDOs; and OCBC has total CDOs of S$618m, of which
S$250m in ABS CDOs and S$344m in Corporate CDOs. Please see the table
on
the next page for further details.
-Relevance: We think that concerns on Singapore banks arising from its
exposure to Freddie Mac and Fannie Mae may be similar to that in the
case
of CDOs before. We believe share prices may over-react and in these
instances, we recommend investors to Buy on weakness. We are not
changing
our recommendations or target prices: OCBC (Buy, TP S$9.70) and UOB
(Hold,
TP S$21.00). Maintain Neutral on Singapore Banks.

PROPERTY by csfb
-Given the recent slew of mass market launches and pent-up demand, it
is
not surprising that the June developer sales jumped 82% to 801 units,
the
highest since August 2007.s 1,731 units.
-The take-up was boosted mainly by new launches in non-prime locations
(RCR
and OCR), e.g., major mass market launches . Dakota Residences, Clover
by
the Park in Bishan, Kovan Residences, The Amery, and projects that
feature
.shoe-box.-sized apartments . Citigate Residence, Parc Sophia, and
Suites
123.
-Some projects have seen median prices decline 3-16% MoM, e.g., Blu
Coral
(-4% to S$768/sq ft) to move inventory, while some rebounded, e.g.,
Mass
market The Lakeshore (+7% to S$896/sq ft) on the remaking of Lakeside
District.
-Developers and property agents generally reported strong turnouts at
show
flats last weekend, but take-ups are tapering off as supply keeps
coming
amid economic uncertainties. We believe the volumes we witness in June
and
July are as good as they get.

PROPERTY by dmg
-Surge in launched and sold units. URA came out with June’s prices and
take-up of private residential projects. The weakened sentiments
notwithstanding, the number of launched units surged 124.6% from 476 in
May
to 1,069. Although this was a 6.0% YoY fall, we note that this is the
first
time it breached the 1,000 mark since Aug 07. The much-improved launch
schedule was met with a reasonable level of appetite, as the quantum of
transacted units jumped 76.8% MoM to 801, which also represented the
best
performance since August last year. Overall, a healthy take-up rate of
74.9% wasattained.
-Mass market seizes the limelight.The mass-mid segment market continues
to
generate the most amount of activity among developers and buyers. 56.8
57.2% and 22.1 – 22.6% of the total units were launched and sold in
Rest of
Central Region (RCR) and Outside Central Region (OCR) respectively. To
portray a clearer picture, 68.7% of the total transacted units were
sold at
below S$1,000 psf. We believe the higher amount of buying activity
within
this segment is mainly attributable to genuine home-occupiers, enbloc
sellers and expatriates looking to reside in Singapore for the medium
term,
who are being priced out of the mid-high end segment. Speculation also
appears to have subsided considerably, from our view.
-Prices softened in Central Region, but OCR remains firm. Following an
improvement the previous month, prices veered towards the opposite
direction in Jun 08 across the Central Region. The high end segment
experienced the biggest fall, as transacted median prices in the Core
Central Region (CCR) fell 20.8% MoM to S$1,728 psf. Notable
transactions
include 36 units of Guocoland’s Goodwood Residences, sold at S$2,800
psf to
Kuwait Finance House. Prices in RCR softened as well, sliding 12.1% to
S$1,023 psf. On the bright side, median prices within OCR held up
rather
firm, edging up 1.3% to S$783 psf.

PROPERTY by ocbc
-Surge in launches and transaction volumes in June. URA released its
June
transaction data for private residential properties yesterday. Launches
of
non-landed properties (NLP) jumped 149.3% MoM to 1,057 units in June,
buoyed by the surge in mass-market property projects in Rest of Central
Region (RCR). NLP transaction volume also surged 90.4% MoM in June and
reached a new high since September 2007. Although the take-up rate for
units in Outside Central Region (OCR) fell to 65.4% in June, the
take-up
rate in RCR soared to 74.3%.
-Take-up rate healthy for mass market projects. Significant mass-market
projects launched in June include Clover by the Park (308 units in
RCR),
Dakota Residences (210 units in RCR) and Kovan Residences (100 units in
OCR); they achieved take-up rates of 64.0%, 68.4% and 29.0%,
respectively.
We believe that such take-up rates are commendable under the current
challenging market condition. This shows underlying strength in the
mass-market segment.
-Resilient pricing in mid market properties amidst thin volume. Other
than
Parc Sophia, there were no significant new launches in the mid- and
high-end segments; take-up rate for Parc Sophia was also comparatively
lower at 40.1%, possibly due to greater caution exercised by buyers for
pricier projects. Other mid-market projects like Mount Sophia Suites
and
Parc Centennial are still seeing resilient pricing albeit amidst thin
volume. In the luxury segment, Nassim Park Residence sold another 15
units
in June and achieved a take-up rate of 77.1% for the 70 units launched
so
far.
-Look out for building up of unsold inventories. We note that 72.8% of
the
June transactions came from eight new launches while older launches saw
fewer transactions. We estimate that there is still some 2,720 of
launched
but unsold units from older projects and do not dismiss the possibility
of
developers lowering their selling prices if unsold inventories continue
to
build up. Also, developers may launch more projects ahead of the
Chinese
Lunar Seventh Month and also to take advantage of the improving
sentiment
and this may dampen pricing going forward.
-Revisiting our recommendations. While the data points towards an
improvement in the property market, underlying strength still largely
lies
in the mass-market segment. We reiterate our BUY recommendations for
UOL
with fair value of S$4.94 and Soilbuild with fair value of S$1.20 as
the
remaining of their residential development projects fall into the mid-
to
mass-market segment, which is still seeing resilient pricing and
healthy
take-ups so far.

PROPERTY by uob
-Highest sales volume registered in 10 months. According to the Urban
Redevelopment Authority’s (URA) data on uncompleted homes in June, the
number of units launched registered a 125% mom increase to 1,069 units
and
the number of units sold increased 77% mom to 801 units. The number of
units sold in June was the highest in the last 10 months.
-Mid-tier segment launches pay off. The units sold in the mid-tier
segment
(Rest of Core Region) noted a 364% increase to 455 units; the mass
market
segment (outside central region) saw a 3.2% fall to 181 units. The
units
sold in the high-end segment (Core Central Region) increased 5% to 165
units. Developers have shifted their focus to the mid-tier market, with
three of the top five projects by sales volume in June being mid-tier
projects. Sales in the mid-tier segment was boosted by sales of 197
units
at Clover by the Park at a median price of S$765 psf, 144 units at
Dakota
Residences at a median price of S$978 psf, and 37 units at Suites 123
at a
median price of S$1,049 psf.
-Continued sales momentum expected to boost home buying sentiment. July
sales thus far are on track to maintain the sales momentum that has
gathered pace over the last two months, boosted by the successful
launch of
the Livia project whereby 80% of the 320 units launched achieved an
average
selling price (ASP) of S$650 psf. A good sales performance again next
month
could act as a catalyst to revive the overall home buying sentiment. We
maintain our OVERWEIGHT call on Singapore property developers. City
Developments (Target: S$14.05) is our top pick among large-cap stocks
and
Ho Bee (Target: S$1.50) is our top pick among small/mid-cap stocks.

WATER by csfb
-We attended SCI.s water strategy lunch presentation on 15 July.
-With its track record, especially in industrial waste water projects,
SCI
aims to leverage on its process/technology competency and operational
expertise to be a total solutions provider/operator. Other than SCI,
Bio-Treat also predominantly uses biological treatment whilst other
Sing
water plays use a variety of methods. þ? With current capacity of 3.5
mn
tpd, SCI aims to reach 6 mn tpd by 2012, and sees opportunities in
China,
India, and MENA. While most have significant exposure to China, few
Sing
water plays have been successful in India to date. On MENA, SCI.s focus
is
in desalination using membrane and thermal.
-Against SCI.s expected IRR of at least 10%, this is in-line with the
Sing
water plays, with average IRR range of 10-15%.
-SCI is targeting a PATMI of S$40-50 mn in five years. At current
levels,
the implied P/E valuation for its utilities business is highly
attractive,
in our view). Currently, SCI is trading at very low implied P/E for its
utilities business.

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