Singapore & Regional Market News Update

CITI Singapore Morning Pack

Headlines

*Singapore Strategy: Recovery More V than U: Raising STI Target to 2700, Recession May Be Over by 3Q <https://www.citigroupgeo.com/pdf/SAP28349.pdf>

*Singapore Exchange (SGXL.SI): Buy: Raising Target to S$9.50 on STI Target 2700 <https://www.citigroupgeo.com/pdf/SAP28348.pdf>

*Singapore Drill Bits: Prefer Keppel for O&M Exposure <https://www.citigroupgeo.com/pdf/SAP28342.pdf> Singapore Macro Flash: Improvement in

*May NODX Signals Recovery from Bottom Remains on Course <https://www.citigroupgeo.com/pdf/SAP28341.pdf>

*Asia ex-Japan Strategy: Lightening Up on Taiwan, Raising China <https://www.citigroupgeo.com/pdf/SAP28343.pdf>

*Asia Macro View: Rates Sell-Off, Inflation and Monetary Policy <https://www.citigroupgeo.com/pdf/SAP28337.pdf>

*Singapore Strategy: Recovery More V than U: Raising STI Target to 2700, Recession May Be Over by 3Q <https://www.citigroupgeo.com/pdf/SAP28349.pdf>

Upgrading STI target to 2700 (from 2400), PBV mean (1.62x) - This recession may be over by 3Q rather than 4Q, in line with durations of past recessions. With a more normal V-shaped recovery, we have removed the 0.5 standard deviation discount from the PBV mean. Ample liquidity raises the risk of an overshoot, as governments and central banks worldwide will likely maintain policy stimulus at least until early 2010.
Recovery looks more like a normal V rather than U - Industrial production contracted only 0.5% in April. PMI is back above 50 in May. Job losses and loan activities have turned out better than past recessions. Economist Kit is forecasting GDP growth of -5% in 2009 and +6.2% in 2010, with risk now on the upside.
Pullbacks during recovery cycles are few, short and limited - This pullback may bring the STI down to about 2,150, in line with average pullbacks in past cycles (-10% over 5 weeks), which is about one standard deviation below the PBV mean. We view this market pullback as a buying window for the next leg up.
In past recovery cycles, STI reverts to P/B mean in less than a year - 1998 Asian crisis (32 weeks), 2001 tech recession (15 weeks) and 2003 SARS recession (45 weeks). These past recovery cycles also saw the STI overshoot the P/B mean by at least +0.5 standard deviation. This STI recovery rally is still in its early stage, at 13 weeks, well short of the average 101 weeks seen in past recoveries.
Local banks are biggest beneficiaries in post-crisis world - Banks are benefiting from wider interest margins, re-intermediation (from corporate bond market) and retreat by foreign banks from corporate lending. The impact is significant in Singapore, as foreign banks account for a large 40% share of total lending. This NPL cycle moreover looks benign compared to past recessions.
Outperformers vs. underperforms - Banks are typically outperformers at every phase of recovery cycle, while developers tend to overshoot in early stage and underperform or even fall in late recovery phase. Even defensive laggards tend to catch up, with sector variations in beta converging as STI approaches P/B mean.
Top Buys & Sells - Top Buys: DBS, UOB, SGX, Keppel, ST Eng., Singtel, NOL and Parkway. Top Sells: SIA, Capitaland and Keppel Land. Overweight financials & commodity-related names, underweight property developers and land transport, and neutral on telcos. Prefer playing also the laggards in this phase of recovery.

*Singapore Exchange (SGXL.SI): Buy: Raising Target to S$9.50 on STI Target 2700 <https://www.citigroupgeo.com/pdf/SAP28348.pdf>
Singapore Exchange (SGXL.SI -1L -S$7.10) Market Cap S$M 7,591.13 Target: S$9.50 Assumes 2010E ADT S$2.1bn, 23x PER

We raise our target price on SGX to S$9.50 (from S$8.00) based on a new 12-month STI target of 2700 (from 2400). We raise forecasts 7-19% on FY10E average daily turnover (ADT) of S$2.1bn. The recent STI rally, up 65% in 14 weeks, saw ADT triple from Feb lows to S$2.1bn/day in May, suggesting a forecast 61%qoq jump in 4Q09E (June 2009) profit. Our revised FY10 forecast of S$444m is 28% above consensus. Key risk is after a nearly 100% price jump SGX is vulnerable to price corrections.
Citi 12m-STI target 2700: Citi Singapore Strategist Hak Bin Chua has raised his STI target to 2700 (mid-cycle STI P/B of 1.62x), citing upside risk to our above consensus 2009E GDP of minus 5%yoy and Singapore being out of recession possibly as early as 3Q09. Past market cycles suggest that the STI "normalizes" toward mean P/B levels as expectations of recovery set in, and may even overshoot the mean during periods of ample liquidity.
How far could the STI rally eventually go? It is important to note that we are just 14 weeks into this new recovery cycle. Our study of past STI cycles shows that with one exception (post Sept-01) every STI bull market recovered at least 90% of the prior bear market points lost, which in the current cycle implies returning to 3590 on the STI.
Investment risks: Having already rallied c.100% in 14 weeks from its S$4 trough, SGX is susceptible to near-term price volatility and market corrections. A fundamental medium-term risk would be the entry of a competitor exchange, which could materially affect SGX's equity pricing structure.

*Singapore Drill Bits: Prefer Keppel for O&M Exposure <https://www.citigroupgeo.com/pdf/SAP28342.pdf>

Sector view - After a sharp rally, profit taking risks suggest a near term correction could be likely; however recovery prospects will start to gain attention as fundamentals gradually improve. A bottom in drilling activities by 2H09, oil supply crunch re-emerging and Petrobras orders are catalysts. Credit lines - a key industry overhang - have also improved with spreads narrowing significantly.
Deepwater strength - Contrary to market concerns, strength in deepwater assets remained far more resilient. Distressed sale of Petrorig 1 attracted 5 bidders, suggest interest and optimism in this segment. CIR oilfield services analyst, Robin Shoemaker believes Petrorig 1could secure rates in the region of US$500k/day (vs 2005 earlier contracted price of US$390k/day) at operating costs of US$100k/day.
Valuation analysis - During the recent sell-down, sector average reached ~2x P/B vs ~8x peak multiple. A closer look at current valuations reveals upside potential, particularly for Keppel as it has room to re-rate towards mid cycle average P/B multiples. Keppel also posses the highest sector ROE.
Petrobras prognosis - Ability to secure a win-win outcome with Petrobras is important. Petrobras capex vs rest of the world implies a huge disparity and bargaining power for rig builders maybe compromised. Fulfillment for local content requirement raises execution risks, and margin concerns.
Top pick - Keppel is our top sector pick. Strategic M&A angle, improving Infrastructure and among the best positioned yards to secure Petrobras contracts.

*Singapore Macro Flash: Improvement in May NODX Signals Recovery from Bottom Remains on Course <https://www.citigroupgeo.com/pdf/SAP28341.pdf>

More moderate pace of yoy decline, and sizeable mom jump in May NODX - NODX fell by 12.1% from a year ago, in line with consensus expectations for a 11.7% drop, and improving from April's 19.2 decline. On a 3MMA YoY basis, NODX fell 16% in May, vs the 20% decline in April. Notably, on a month-on-month seasonally adjusted basis, NODX rose 5.6% in May, reversing the 1.4% decline in April.
Electronics exports contracted at slower pace than Apr - Electronics exports declined for the 26th consecutive month from a year ago, but at slower pace in May (May: -21.8%, Apr: -25.6%). Within electronics, while Parts of IC (May: -32.7%, Apr: -26.2%) and Diodes & Transistors (May: -20.1%, Apr: +1.3%) recorded sharper declines, ICs (May: -3.3%, Apr: -18.5%), Parts of PCs (May: -27.3%, Apr: -33.5%) and Disc Drives (May: -28.2%, Apr: -35.9%) saw more moderate declines. Based on X-12 seasonal adjustments, electronics exports fell by 0.4% mom, after a 4% jump in April. On a 3MMA basis however, electronics continued to rise in mom terms.
YoY decline in non-electronic products moderate sharply on Pharmaceuticals - A hefty 40.2%yoy jump in Pharmaceuticals in May (Apr: +41.6%), coupled with slower decline in Petrochemicals (May: -37.1%, Apr: -39.3%), saw a more moderate decline in non-electronics exports to 5.6% (April: -14.8%).
Strong performance in exports to emerging markets partially offset decline in exports to developed markets - Exports to emerging markets jumped 30.8%yoy in May (Apr: 18.0%), providing support to weak performance in exports to developed markets. Exports to US (May: -35.2%, Apr: -34.9%), Malaysia (May: -22.9%, Apr: -22.5%) and China (May: -17.8%, Apr: -14.8%) continued to fall at similar or slightly faster pace as Apr. But this was offset by improvements in exports to EU (May: -9.6%, Apr: -30.8%), Hong Kong (May: -0.3%, Apr: -8.4%), Indonesia (May: -20.6%, Apr: -33.0%), Japan (May: -29.2%, Apr: -34.2%), Thailand (May: -20.0%, Apr: -27.8%), Taiwan (May: +3.5%, Apr: -3.4%) and Korea (May: +0.4%, Apr: -19.5%).
NODX likely to continue improving from hereon - Overall, the export recovery remains broadly on course, in line with our expectations. New export orders, as indicated in the domestic PMI, have moved to expansionary territory in recent months, including for electronics. Nonetheless, improvements unlikely to take place in a straight line, with likely fluctuations in the monthly data. Depending on the May IP numbers to be released in two weeks time, we see some upside risks to our current 2Q09 GDP forecast of around -6% yoy.

*Asia ex-Japan Strategy: Lightening Up on Taiwan, Raising China <https://www.citigroupgeo.com/pdf/SAP28343.pdf>

Reducing Taiwan weighting by 300 bps; now our #3 overweight - We are removing both Taishin (1%) and Chinatrust (2%) from our regional model portfolio and putting the funds into China Construction Bank (3%). China remains an underweight, but less so.
Earnings upside risk for Chinese banks vs. Taiwanese banks - A combination of high valuations, regulatory uncertainty and a tough operating environment led Brad Ti, our Taiwan banks analyst, to downgrade Chinatrust to a Sell rating. Simon Ho, our regional head of banks research, earlier this week reiterated his Buy rating on CCB and further increased his earnings forecasts.
HK now replaces Taiwan as our top overweight - Hong Kong is now our top overweight among regional markets, followed by Korea. Overall, we remain overweight banks as: i) by and large, valuations still make sense; ii) no recovery will happen without the banks; and iii) the consensus is still very underweight. All of which should be a good combination for banks outperformance.

*Asia Macro View: Rates Sell-Off, Inflation and Monetary Policy <https://www.citigroupgeo.com/pdf/SAP28337.pdf>

We believe recent sharp sell-off in rates and bear flattening is largely driven by positioning - we find relatively weak fundamental underpinnings for the move. We think implied rate hikes in Asia now overdone given inflation and growth outlook and expect curves to re-steepen. Long end rates may remain vulnerable to upward risk to inflation expectations (especially if commodity prices continue to rise), economic momentum picking up (QoQ Saar to peak in 2Q09) and fiscal deficits remain persistently large.
Inflation momentum in Asia has turned slightly positive on average. Biggest seasonally adjusted pick-up inflation in the last two months has been in India, Indonesia and China, though still at relatively benign levels, while weakest inflation momentum has been in Singapore and Thailand.
With lingering sizeable negative output gaps keeping demand pull inflation muted, while base effect remaining favorable for most (especially Malaysia and Indonesia), the biggest risk to Asia's inflation path is commodity prices. Food prices (relatively benign so far) are generally far more important than oil prices in impacting inflation - India's inflation looks the most vulnerable to higher oil prices in Asia, followed by Thailand and Philippines.
We see limited risk that Asian central banks will hike this year... Headline inflation will likely remain very low in the coming months, output gaps should remain significant, and risk that tech-driven export restocking momentum weakens in 2H09 (particularly for Korea) is likely material enough risk to keep policymakers at bay.
...but we expect some Asian central banks will tighten next year (ahead of the Fed in the 4Q10F). We think Korea will lead the region in the policy tightening as early as 1Q10F, but China (by 1H10F), India (by 2Q10F) and Indonesia (by mid-2010F) will eventually follow. We expect Malaysia, Philippines, Taiwan and Thailand to lag the region (though Philippines and Thailand will be vulnerable to commodity price shocks). BNM likely to be at least risk of turning hawkish in the region given administrative controls on fuel prices and BNM's demonstrated pro-growth bias.

Singapore Technologies Engineering (STEG.SI): Buy: Strength Amid Adversity

Singapore Technologies Engineering (STEG.SI -1L -S$2.39) Market Cap S$M 7,174.15 Target: S$2.55 Maintain Buy - Share price outperformance has reversed (-20% vs. STI) post 1Q09 results and buying opportunities exist; earnings look poised to improve, with concerns, particularly MRO biz and margins, appearing overdone. ~6% dividend yield, record high orderbook and new orders in the pipeline - despite uncertain macro environment - strengthen the investment merits. We reiterate our confidence in mgmt execution and see > 10% upside from current levels.
Key highlights - Chat with mgmt suggests infrastructure projects in the region have picked up; therefore Electronics (~20% of EPS) has potential to surprise. We also remain confident in the PTF conversion programs; delay risks should abate with recent cargo yields stabilizing. In the longer term, executing pipeline of MRO initiatives (e.g. GE and CFM engines; new capabilities) will be a key focus. ST Eng needs to translate outsourcing potential to stable revenue baseload and margins. We believe earnings from 2010 should reflect this.
M&A strategy - Recent acquisition of Precision Products, a casting and tooling manufacturer, suggest ongoing efforts to selectively use M&A to plug technical capabilities gaps and enlarge scope of services. We think more M&A deals may follow as valuations are now at more reasonable levels.
Encouraging new orders profile - The > S$200mn new orders secured in 2Q09 to date reflects: 1) diversification - greater proportion of orders from public sector, 2) repeat contracts, e.g. Guangzhou Metro for systems work, 3) secure new customers, e.g. Chittagong Port Authority contract for MIS system and Swedish Defense order for 40mm ammunition.

*Singapore Airlines (SIAL.SI): May 2009 Operating Data-Weakest Since SARS

Singapore Airlines (SIAL.SI -3L -S$12.72) Market Cap S$M 15,092.89 Target: S$8.50
Passenger traffic fell 23%yoy in May as load factor fell to 67%, the lowest since SARS in 2003 (vs. 4Q09 breakeven 77%). Cargo fell 21%yoy, a 61% load factor (4Q09 breakeven 75%). The data suggests SIA may post operating losses in its June-09 quarter results. It takes time to cut excess fleet capacity, and a recovery in premium passenger demand seems some way off. Pressure on yields, uncertainties from the H1N1 flu virus and rising jet fuel prices could see downside risk to FY10E consensus. We concede that the "SATS dividend" (worth S$1.42/SIA share) may give near-term support, but post-Aug distribution SIA loses an annualized c.S$118m from group earnings.
Passenger. Passengers carried fell 23.7%yoy to 1.21m, while passenger traffic measured in RPKs fell 23.7%yoy. Despite aggressive capacity reduction (down 22.8%yoy), load factor fell 7.8ppt to 66.9% with all regions reporting weaker load factors (Americas: -12.4ppt, East Asia: -8.9ppt, Europe: -6.7ppt).
Cargo. Cargo volumes fell by 17.7%yoy while traffic measured in FTKs fell by 20.7%yoy (Mar-09: -21.6%yoy). Load factor, however, rose slightly by 0.5ppt yoy to 61.2% on better capacity management as FATKs fell by 21.4%yoy, with East Asia, Americas and Aus/NZ showing improved load factors.
"SATS dividend": SIA's proposed distribution in specie of its 81% stake in SATS amounts to a "dividend" of S$1.42/SIA share at SATS' share price of S$1.95. The EGM to approve this is on 31 July 2009, with the distribution likely made by end-August. Pro-forma data released by SIA showed that SATS contributed S$118m (EPS S$0.10) of SIA's FY09 S$1.06bn group profit (EPS: S$0.896), but the distribution would reduce group borrowings from S$1.7bn to S$1.45bn.

*Singapore Macro Flash: April Retail Sales Fell More than Expected on Motor Vehicle Sales

April Nominal Retail Sales Worsened on Motor Vehicle Sales - The YoY decline in nominal retail sales worsened in Apr from Mar (Apr: -11.7%yoy, Mar: -7.2%yoy), dragged mainly by the sharp fall in motor vehicle sales (Apr: -28.1%yoy, Mar: -8.2%yoy) likely a result of the 25% COE quota reduction starting Apr. The overall retail sales number was worse than consensus and our expectation of a -8.1% and -7.0% fall respectively. On a month-on-month seasonally adjusted basis, overall retail sales declined at a slower pace relative to Mar (Apr: -3.1%, Mar: -5.0%). Excluding motor vehicle sales, retail sales continued to register month-on-month (seasonally adjusted) improvement (Apr: +1.1%, Mar: +3.5%)
Improvement in Discretionary Spending Suggests Greater Consumer Confidence - Excluding motor vehicle sales, nominal retail sales improved from Mar, falling 4.0%yoy from the 6.8%yoy drop in Mar. The YoY improvement was largely led by improvement in discretionary spending, including Wearing Apparel & Footwear (Apr: -6.1%, Mar: -14.5%), Furniture & Household Equipment (Apr: -11.2%, Mar -23.7%), Watches & Jewellery (Apr: -5.5%, Mar: -25.3%) and Recreational Goods (Apr: -0.3%, Mar: -2.7%). Adjusted for prices, these categories continued to show significant YoY improvement over Mar. Nominal spending on Food & Beverages (Apr: +5.4%, Mar: -3.3%) and Optical Goods & Books (Apr: -0.9%, Mar: -8.2%) also registered an improvement in YoY terms while Sales at Departmental Stores (Apr: +2.2%, Mar: +3.8%), Supermarkets (Apr: +4.1%, Mar: +6.8%), Provision & Sundry Shops (Apr: +1.9%, Mar: +5.5%), Petrol Service Stations (Apr: -20.8%, Mar: -19.4%), Medical Goods & Toiletries (Apr: +6.4%, Mar: +9.4%), Telecommunications Apparatus & Computers (Apr: -4.4%, Mar: +0.0%) and Others (Apr: -12.6%, Mar: -4.6%) worsened from Mar.
Improvement in Spending on Discretionary Items likely Result of Bottoming out in Tourist Arrivals, Greater Consumer Confidence from Resilient Labour Market and Signs of Recovery in the Economy - While the front loading of motor vehicle sales in Q1 and decrease in COE quota posed a large drag to overall retail sales index, we continue to see improvement in retail sales ex-motor vehicles on a MoM SA basis. The moderation in decline of tourist arrivals (Apr: -6.1%yoy, Mar:-13.3%yoy) likely provided support for discretionary small ticket spending. Spending may have also been cushioned by the relative resilience of the labour market vs past recessions, as indicated by the remarkably small net job loss number of just 1K in 1Q09. Overall, despite a gradual improvement in overall economic conditions from here, we suspect retail sales volume will likely muddle along and remain in the red over the next few months, also dragged down by a less favourable base of comparison from 2008. Moreover, with CPI inflation expected to be negative in 2009, YoY nominal retail sales could take a further hit for the rest of the year.

*Singapore Macro Weekly: Thoughts on National Wage Council Guidelines*

NWC published wage guidelines for 2009/2010 - In preparation for a prolonged downturn, the NWC recommends measures in 4 broad areas to cut costs, save jobs and enhance long term competitiveness. The 4 areas are: 1) Wage freeze or cut; 2) Implementation of other cost cutting measure and initiatives to cope with downturn; 3) Enhancement of wage flexibility and 4) Improvement in productivity.
Structural decline in labour productivity may reflect a shift between industries, and not just within industries - Recent years have seen a restructuring of the economy away from manufacturing towards services, where productivity has been naturally lower. This may suggest a less severe overhang of excess labour than indicated by the headline productivity figures.
Over-emphasis on wage restraint hurts living standards, widens income gap, with ripple down effects on the rest of the economy - Wage restraint may disproportionately hurt lower income groups, reversing the recent narrowing of the income gap. Wage restraint could exacerbate the structural decline in private consumption as a share of GDP seen over the past 30 years. The collateral damage from wage restraint or CPF cuts could be significant, as it could hurt housing prices, with knock on effects on household wealth and consumption.
Labour market already nearing an inflection point? - The NWC's cautious tone, while prudent, may be belated, coming at a point when the labour market conditions could be improving. Latest survey results by Manpower Inc suggest that employers may be starting to turn more positive. Out of 697 employers interviewed, a net 5% expect to increase headcount in 3Q09, from a net 43% expected to reduce headcount in 2Q09.
Turning less negative on the labour market - We revise down our 2009 unemployment rate forecast to 4% (from 4.8%). With only 1K net job losses at the trough of an unprecedented decline in GDP (vs 5-12 K jobs lost in past recessions) we now expect that job losses for 2009 could average under 25K, with the possibility of small positive net job creation number in 2010 and now expect that net job losses for 2009 will probably average under 25K.
Markets Fixed Income Market - The bond and swap curves ended the week higher, on the back of the sell-off in US Treasuries the previous week. SGS yields rose 5-35bps across the curve, with the 2s-10s spread closing 19bps wider at 235bps. IRS curve however flattened, with 2s-10s spread 9bps narrower at 119bps.
Currencies - USD-SGD closed the week lower at 1.4512 vs. 1.4566 the week before. SGD NEER closed the week approximately 135bps above the mid point of the policy band, vs 114bps the week before.

*Asia ex-Japan Strategy: Large Cap Laggards

Small caps have outperformed large caps since March - Yet, the large cap universe was the cheapest it has been since 1990 on P/BV. Even now, the relative P/BV or P/E gap remains in favour of large caps. We look for large cap laggards with upside to 10-year average P/BV; should the mean be reached, the median equal-weighted return of our sample is 46%.
We look for large-caps that have lagged and benefit from US$ strength/weakness and those that are under-owned - Among the many names that come up are Samsung Elec, TSMC, SingTel, Hutch, Cheung Kong, and China Construction Bank.

*Fun With Flows: Party Getting Crowed But Less Fun

Another week of strong inflows - New money going to all Asian equity funds tracked by EPFR continued running above US$1.5b for a second week in June. Yet, Asian equity markets have been flat with MXASJ hovering around 400 so far this month. As valuations are now at historical averages following the robust market rally, Asian equities have become less attractive to some investors hence, despite continuous strong inflows, there are heavy sellers out there.
14 weeks of inflows bring back half the outflows over 16 months - If the current strength of inflows to Asian funds sustains, it will take eight more weeks in order to see all the money that had been withdrawn between Nov '07 and early Mar '09 return. Sixteen months of outflows offset by six months of inflows! This has happened before at the SARS low but PBV at that point of time moved from 1.2x to 1.4x in three months' time, not 1.2x to 1.8x in the current case.
Foreigners turn net sellers in Taiwan - While regional Asian funds and China country funds continue to be the first two in the league table in terms of net cash taken in last week, inflows to Taiwan funds have dropped sharply, from an average of US$195m/week in May to just US$38m last week. The turnover data from TaiEx also confirms that foreigners are losing interest in Taiwan equities: net sell totaled US$650m in the week ended last Wednesday, which was the biggest since February.

*Yanlord Land (YNLG.SI): Buy: Strong Sales Volume and Firm ASP Drive Powerful Growth

Yanlord Land (YNLG.SI -1M -S$2.28) Market Cap S$M 4,175.44 Target: S$2.91
Reiterate Buy, lower risk rating to Medium - With its focus on prime city-center locations and premium quality offerings, Yanlord should be able to take better advantage of the recent recovery in the China property market to return to growth after the earnings pullback in 2008. Current valuations remain attractive with a 30% NAV discount and with its quality portfolio. Reflecting continued strong contracted sales and higher ASP assumptions we raise our 2009E-11E earnings 16%-58%, increase our target price to S$2.91, and lower the risk rating to Medium (from Speculative). We reiterate our Buy rating.
Strong contracted sales YTD - In May, Yanlord achieved another RMB1.42bn of contracted sales, pushing total contracted sales in the first five months of 2009 to RMB5.3bn. It continues to benefit from the strong Shanghai market, and sales at Riverside City contributed about 50% of total sales in 2009 YTD.
High earnings visibility - Taking into account RMB1.15bn of presales made in 2008 but not yet booked at end-2008, Yanlord had already secured over 90% of our estimated property sales revenue for the financial year 2009 by end-May 2009 (assuming 80% of contracted sales YTD are booked in FY09). The promising sales also accounted for 62% of Yanlord's full-year sales guidance, and we believe the company is on the right track to accomplish its sales target.
More resilient margins - Yanlord's focus on prime-location, high-end, mixed-use multi-product developments presents a unique product offering versus its peers, and helps it achieve more resilient margins in our view. Despite a tough year in 2008, the company was able to record improvements in overall margins. With continued recovery of the China property market, Yanlord should see strong earnings growth powered by higher volume and ASPs.

*Rickmers Maritime (RIMT.SI): Sell: Not Mission Impossible, But Too Much Uncertainty

Rickmers Maritime (RIMT.SI -3S -S$.60) Market Cap S$M 288.50 Target: S$.23
Challenging, but not Mission Impossible - Following the easing of credit crunch and a strong 86% rally of Rickmers' (RM) share price from its low in Apr-09, we conduct a hypothetical scenario analysis to assess the possibility of a capital raising exercise to meet RM's funding gaps on a sustainable basis.
Theoretical solution 1 - Based on our analysis, a sustainable solution could be to raise US$300m in 2Q10 at S$0.60/share and implementing a US¢1/qtr dividend policy. This would provide an attractive dividend yield of 9-10% for unit holders, meet RM's financing needs, and still set aside sufficient reserves to repay debt. Clear communication of RM's dividend policy may be necessary to restore investor confidence before the capital raising exercise in 2Q10.
Theoretical solution 2 - An alternative solution could be the issuance of a debt-equity hybrid instrument such as non-participating preference shares in 2H09, with conversion into ordinary shares when the assets are delivered in July 2010. This solution would have the added immediate advantage of removing the overhang surrounding the unfunded capex commitments.
Caveat emptor applies - We caution that the above are hypothetically possible scenarios to meet RM's funding needs on a sustainable basis. The challenges facing RM are not impossible to surmount; however, there exists tremendous uncertainty on the exact terms of any capital raising exercise, as well as on RM's operating environment. As a result, we maintain our Sell/Speculative Risk rating; the "safety floor" share price is equal to our target price of S$0.23, based on NTA/share with 25% discount to vessel book values.

*Asia Macro Flash: Asia to Lead EM in Net Private Capital Flows

IIF recently released its latest report on Capital Flows to Emerging Markets - they forecast private capital flows in EM will be down 64% yoy in 2009F... They forecast net private capital flows will drop to US$140.5bn in 2009 from US$293.2bn in 2008, and rebound strongly to US$373bn in 2010F, with the main turnaround expected to come from debt-related flows. Not surprisingly, the sharpest deterioration in net private capital flows to EM came from the banking sector (see Figure 1).
... but they expect Emerging Asia to stand out as being the only EM region where private capital flows are forecast to rise in 2009F versus 2008 (see Figure 2). They attribute this mainly to the turnaround in net flows to both Korea and India, primarily by a rebound in portfolio equity. While Asia has been adversely impacted by the sharp collapse in cross-border bank flows, it has been cushioned by healthier local banking systems and high official FX reserves. IIF's latest assessment is very sharp reversal to their Capital Flows report in January, where they were estimating 69% drop in private capital flows to Asia.
We think IIF's forecast on Emerging Asia's external financing picture is slightly optimistic. In the seven countries they cover (China, India Indonesia, Malaysia, Philippines, South Korea and Thailand), they estimate that net direct investment flows will fall by about 11.8% in 2009F (to $105.3bn), while we estimate that slower growth and global excess capacity will lead to a bigger drop in net FDI this year - down by about 25.7% in 2009F, before rebounding by 13.3% yoy in 2010F. Moreover, IIF is forecasting the region's current account (CA) surplus to be virtually unchanged in 2009F, while we estimate a 6.6% decline for the 7 countries IIF covers, led by China (except for China and Malaysia, the CA of other countries should improve).
Nonetheless, though Asia's private capital flows may not increase as much as IIF is forecasting, Asia should outperform other EM regions. In contrast to our smaller 25.7% drop in net FDI in Asia in 2009F, we are forecasting net FDI in Latam and Emerging Europe to decline by 44.1% and 55.4% yoy, respectively. Meanwhile, IIF forecast of much larger positive swing in net portfolio flows into Asia is consistent with emerging market (equity) fund flows data year-to-date, as well as the region leading in global bond issuance this year, helped by Korea.
In a nutshell, we agree with IIF's relatively more positive assessment of private capital flows into Asia vis-à-vis other regions, particularly in 2009F, and should be seen as both a cause and consequence of the region's continued growth outperformance.

CITI: Per Sq Ft Portable - Singapore Property News

*P-Reit downgraded by Fitch Ratings — In the downgrade, P-Reit's long-term issuer default rating (IDR) and its S$500 million MTN programme were downgraded to 'BBB' from 'BBB+'. While P-Reit has good interest coverage, low cost of debt, low refinancing risk, stable rental mechanism, a diversified source of patients and strong position in the healthcare industry, it has a weak sponsor in Parkway Holdings (PHL), the owner of Parkway Hospital Singapore Pte Ltd (PHSPL), the operator of P-Reit's three Singapore hospitals, Fitch said. This has a negative impact on the credit profile of P-Reit, given that it still relies heavily on lease payments from PHSPL.

*S$404.5m debt maturity extension for FCOT — The maturity date for S$404.5 million of Frasers Commercial Trust's (FCOT's) existing debt has been extended from July 31 to Dec 31, manager Frasers Centrepoint Asset Management (Commercial) Ltd said yesterday. The extension involves a loan note facility arranged by CBA Asia Ltd and Commonwealth Bank of Australia and a revolving loan facility granted by Commonwealth Bank of Australia.
Low Keng Huat posts Q1 net of S$11.2m — Revenue for the construction, property development and hotel group more than trebled to S$84 million from S$26.8 million a year ago. This was mainly due to its construction business, which registered a more than six-fold jump in revenue to S$71.6 million from S$11.3 million a year ago.
(Full Note: https://www.citigroupgeo.com/pdf/SAP28253.pdf)

Spore Property - Not The Start Of A Cyclical Upswing?

*Strong resales, patchy new sales, weak rentals - While there has been strong genuine home demand in the resale market from HDB upgraders and buyers whoare currently renting apartments, new sales in the upper mid-segment appear more speculative. Demand is patchy: lower priced and smallerunits are selling better than traditional family-sized units. However, rental demand remains weak. Short-term spike in property prices possible but unsustainable. Anecdotally, resale prices of selected projects are up 10% from their lows and developers are reducing discounts. With strong liquidity and the widening gap between Singapore and Hong Kong properties, the spike could extend to the luxury segment. But it appears unsustainable given that supply scheduled for completion will reach a 5- year high of more than 10,000 units in 2009 and will exceed 10,000 pa through to 2011. Fundamentals will come back into focus when the euphoria wanes. We have raised our RNAVs for developers to reflect higher selling prices for 'launch ready' projects. However, we caution against over-optimism, because fundamentally the market is not ready for a sustained price recovery. Stocks are pricing in sustained 20% recovery, we think the current strength is a 'window' in a weak market, rather than the beginning of a cyclical upturn. Developers with 'launch ready' projects are in a better position to capitalise on current market conditions. We are downgrading Wing Tai to Hold (2L) andAllgreen to Sell (3L). CityDev and Capitaland remain Sells. We recently downgraded Keppel Land to Sell (3L) from Buy.
(Full Note: https://www.citigroupgeo.com/pdf/SAP28204.pdf)