SG:Sticking with Singapore ’s Stalwarts- STE and SPH

Summary: With the see-saw vacillation of the market expected over the next 1-3 quarters, following the domino effect from the subprime fallout, there is a de-rating of the market due to slowing growth. The increased risk premium will mean investors are less willing to pay higher multiples for uncertain growth stories. Investors are shifting into defensive stocks with high dividends, high earnings visibility and cash flow stability. We like tried-and-proven Singapore stalwarts such as ST Engineering and SPH as these have strong cash flow and an anticipated high dividend yield of >5% to ride out the choppy market. STE has historically returned all of its net profits to shareholders while SPH has historically paid out all of its recurring earnings from its print business. We upgrade our call to BUY as valuations now look attractive for STE (fair value: S$3.92) and maintain our BUY call for SPH (fair value: S$4.87).

Olam- preferential share offering

Olam has announced that it will be undertaking a non-renounceable, non-transferable preferential offering of 155.6m new shares on the basis of one new share for every ten existing ordinary shares in the capital of Olam held on 8 April 2008 (Books closure date). The preferential offering issue price is S$1.97.

The net proceeds of the offering are expected to be approximately S$302.6m (if fully subscribed). Olam intends to use the proceeds to finance investments, joint ventures, mergers and acquisitions, discharge, reduce or retire certain bank borrowings and for general working capital and corporate purposes.

In connection with and to demonstrate support for the preferential offering, Kewalram Singapore Limited (KSL) and Sunny George Verghese have jointly and severally irrevocably undertaken to the company not to transfer, dispose of or otherwise reduce any of their respective interests between now and the books closure date and to subscribe and pay in full for such number of new shares representing 100% of their new share entitlements under the preferential offering.

KSL has also irrevocably and unconditionally undertaken to apply by way of excess application for the maximum number of additional new shares that, when aggregated with its current shareholdings and its entitlements under the preferential offering will not exceed such number of share representing not more than 29.99% of t he resultant enlarged issued share capital of Olam.

Sunny George Verghese, Olam's CEO and Managing director who currently owns 5.17% of Olam has also irrevocably and unconditionally undertaken to apply by way of excess application for a maximum number of 18.343m new shares, that when aggregated with his current shareholdings and entitlements under the preferential offering, amounts to 26.395m new shares.

Assuming that only the undertaking shareholders subscribe, the aggregate number of new shares which they will subscribe for will be 110.095m new shares, representing approximately 70.7% of the total number of new shares offered to entitled shareholders

We currently have a HOLD recommendation on Olam with a target price of S$2.88. Our target price and earnings forecasts are currently under review.

Li Heng Chemical Fibre Technologies Limited ("LHCF")

We recently visited LHCF's plant and witnessed the production of its high-end nylon yarn products at Jinfeng and Binhai Industrial zone, PRC. LHCF, based in PRC, is principally engaged in the manufacture and sale of high-end nylon yarn products. Its two production facilities in Changle City, Fujian Province are strategically located amongst clusters of textile and garment manufacturing industries and related supporting service industries.
The Group's revenue grew at CAGR of 54% from FY04~06 and achieved gross profit margin of above 34%.

Sales and GPM Breakdown
Breakdown (%) FY05 FY06 1H07
Revenue RMB 'm % RMB 'm % RMB 'm %
HOY/POY 978.7 100.0 1,540.1 90.8 1,100.3 76.2
FDY - 0.0 55.5 3.3 161.4 11.2
DTY - 0.0 101.0 6.0 182.4 12.6
Total 978.7 100.0 1,696.6 100 1,444.1 100
GPM (%) % % %
HOY/POY 34.1 34.8 33.0
FDY - 38.4 38.2
DTY - 36.9 39.9
Total 34.1 35.0 34.4

Source: Prospectus

Production Capacity and Utilization – LHCF's maximum annual capacity increased 81% to 167,000 mt in 1Q08 from 92,400 mt in FY07. The group intends to further increase its capacity to 257,000 mt by 3Q09. The Group consistently achieved utilization rate of above 90% for FY04~06, as shown in the table below.
We understand from management that LHCF supplies between 20~50% of the each customer's demand and with each customer accounting for less than 5% of the Group's total revenue, we believe LHCF will be able to maintain a reasonably high utilization rate in FY08~09.

Year 2004 2005 2006 2007E 2008E 2009E
Maximum Annual Capacity (mt) 20,300 40,500 92,400 92,400 167,000 257,000
Utilization Rate (%) 91.2 93.7 95.8 - - -

Source: Prospectus

Upward integration - Polyamide Chip Plant with capacity of 80,000 mt by 3Q09. The Group plans to construct a polyamide chip plant, an essential feedstock for the production of nylon yarn, to reduce reliance on external suppliers of polyamide chips. We believe this will allow LHCF to have better control over the quality of polyamide chips used for the production of LHCF's nylon yarn products, leading to overall costs efficiency as well as better quality of LHCF nylon yarn products.

Valuation – LHCF, intends to pay dividend of at least 20% out of FY08~09 net profits, has the largest market capitalization and production capacity, which we believe LHCF should command a premium over its peers. We do not have a rating for this counter.

Swiber Holdings (S$2.63) - Extends visibility

Swiber has raised S$100m from the domestic bond market. We believe the
funds could be used to finance part of the
equipment for its new deepwater drilling barge. A recent contract worth
a total of US$250m from CUEL Thailand for
offshore installation and engineering work has increased Swiber's
earnings visibility till 2013 and bringing its
order book to about US$760m, compared to only US$176m at end-1Q07. With
plans to expand its fleet to six vessels by
end-08, we believe Swiber could be grooming its 30% Indonesian-based
associate, OBT Holdings to tap into the strong
coal transhipment sector. Maintain Outperform. Our earnings estimates
remained intact and our target price of S$5.05
is still based on 15x CY09 earnings on the back of 59% 3-year CAGR
through to 2010.


Quick Takes

* Olam International (S$2.07) - Preferential offering at
S$1.97 per share
* Land Transport Sector - Cash for scrapping cars being
studied


News of the Day

* MAS likely to retain $ policy, or tighten it

* US Treasury to call for broad overhaul of financial
regulation
* Singapore sees small flow of QDII funds

* Swissport finds the going tough at Changi

* Cosco may quote contracts in yuan

* K-Reit may raise more funds after its rights issue

* Cash exit offer for ICIL 'not reasonable': Omega

Technical Trading Ideas

* STI Weekly Outlook, China Hongxing Sports and C&G Industrial
Holdings

Singapore Banking Sector

The Monthly statistics bulletin released by the Monetary Authority of Singapore revealed the loan and deposit numbers ending February 2007.
‧ Total loans amounted to S$241.8 billion (+21.9% YoY, +2.1% MoM)
‧ Manufacturing loans grew to S$11.1 billion (+3.1% YoY, +6.7% MoM)
‧ Construction loans boosted to S$41.0 billion (+48.7% YoY, +4.3% MoM)
‧ Housing loans increased to S$74.0 billion (+16.0% YoY, +0.2% MoM)
‧ Deposit from non-bank customers swelled to S$323.7 billion (+14.0% YoY, +2.6% MoM). LDR ratio increased to 74.7%

Tee International: Order book explosion

Summary: TEE recently announced a very large contract win from the Marina Bay Sands Integrated Resorts Development for electrical installation for the North and South Podiums worth S$109m, bringing TEE's total order book to approximately S$182m. As a pre-qualified contractor for this project, TEE has an edge over the other contenders for future contract works with Sands. TEE intends to launch the Rambai Road development on 12 April 08 and has indicated they plan to hold off all further launches till 2H08 based on the developments in the local property market. TEE has proposed a bonus issue of 3 bonus shares for every 20 shares together with a proposed warrants issue of 1 warrant for every 5 shares held. However, management has not fixed a date for book closure. We are raising our net profit projection for FY08 to S$4.2m taking into account the new contact win from Marina Bay Sands. The bulk of the earnings from the new contract would come in during FY09. We are also raising our fair value estimate from S$0.51 to S$0.525 based on blended 13x earnings. This presents an estimated 13% upside from current price, and hence we are upgrading TEE to a BUY. (Ritesh Menon)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Soilbuild Group Holdings Ltd: Building up for more growth

Summary: Soilbuild Group Holdings Ltd (Soilbuild) put up a record performance in FY07, with earnings surging 634% to S$52.4m. The good performance was partly due to its choice of target market. By targeting the premium residential market, Soilbuild lifted its gross profit margin by 20.6ppt to 33.1% in FY07. We remain positive on this market segment, and believe that the relatively lower price elasticity of the buyers in this segment should allow Soilbuild to pass on its rising construction costs. Soilbuild's pipeline of pre-sold projects amounted to approximately S$511m, to be recognised in FY08 and FY09. This suggests that its FY08 sales could more than double that of FY07 even without factoring in revenues from its business space and new projects. Management is building up its recurring income stream from rental of business spaces, and is confident that demand for business space properties will be buoyed by strong foreign investment commitments into Singapore. We do not have a rating on the stock. (Lee Wen Ching)

For more information on the above, visit www.ocbcresearch.com for detailed report.

Eu Yan Sang International Ltd: Another step towards quality assurance

Summary: Eu Yan Sang International Ltd (EYS), together with Agrifood Technologies, an arm of the Agri-Food and Veterinary Authority (AVA) of Singapore, have come together to introduce a certification standard for Traditional Chinese Medicine (TCM) herbs. The purpose of this certification is for consumers to obtain independently-verified assurance of the quality of herbs that they are purchasing. While this latest development will not have a material financial impact on EYS, the company will enjoy intangible benefits in the form of brand awareness, and will be able to justify any price increments it may be planning. It may also capture a larger market share as consumers turn to safer and better quality products in light of food-safety concerns. We maintain our HOLD rating on EYS, with a fair value estimate of S$0.535. (Lee Wen Ching)

NEWS HEADLINES

- Keppel Corp has won a S$74.8m turnkey contract to design and build a waste-to-energy cogeneration plant for a paper-mill in Sweden.

- Banyan Tree hopes to close a fund aimed at raising up to US$400m for investments in Indochina by the end of this year.

- Neptune Orient Lines carried 10% more containers on its ships in the four weeks to March 7 compared with the same period a year ago.

- The past three months have seen S$105b or 13.2% wiped off the stock market value of Singapore-listed companies.

- The S$162.8m collective sale of Makeway View in the Newton area has been rescinded due to higher than expected development charges.

- Total loans made by Singapore banks hit S$241.8b at the end of February, up 21.9% YoY – the fastest pace of expansion since May 1995.

- The Urban Redevelopment Authority has put a 1.77ha hotel site in Balestier Road on the market.

- Vega Co, a wholly-owned subsidiary of The HSBC Private Equity Fund 6, is offering to buy Sing Lun Holdings for S$119.6m or S$0.46 per share. Its stake is now 71.32%.

- Pokka Corp posted a more than seven-fold jump in full-year net profit to S$7m thanks to better profit margins and double-digit revenue growth.

Parkway Holdings (S$3.59) - Rights issue at S$2.18 per share

Parkway has proposed a renounceable underwritten rights issue of up to
360.4m new shares at S$2.18 per share, on the
basis of seven rights shares for every 15 existing shares, to raise net
proceeds of S$760.1m. Assuming that all the
new shares pursuant to the rights issue are subscribed, the company
will have an enlarged issued and paid-up share
capital of 1131.6m shares. The joint financial advisers and
underwriters have agreed to underwrite the rights issue,
while TPG Asia, who currently has aggregate shareholding interest of
24% in Parkway, has agreed to purchase and/or
procure of such number of rights shares not successfully applied for
under the rights issue.
We recommend accepting the offer as: 1) the offer price is at a 24%
discount to our target price of S$2.85; 2) the
offer P/E is below the lower-end of its 6-month historical forward P/E
range of 28.7 ? 45.1x; and 3) fundamentals
remain strong with population growth, aging population, rising
affluence and increase in medical tourism leading to
greater demand for quality healthcare in Singapore and the region.

Quick Takes

* Global Equity Technicals - Can Asia lead the way?

News of the Day

* Lehman to issue US$3 billion convertible preferred shares

* US$2 billion hedge fund Pardus suspends withdrawals

* Keppel wins 34m euro co-gen plant deal

* Pokka earnings soar seven-fold

* Letters shed light on why two Swissco independent directors
quit
* Vega's stake in Sing Lun now at 71.32%

* Banyan Tree to close Viet fund by end 2008

Technical Trading Ideas

* Luzhou Bio-Chem Technology

S-Chips Sector : The Calm After The Storm

l We have upgraded S-chips from MARKET WEIGHT to OVERWEIGHT primarily on
attractive valuations. Compared with China domestic A-shares and
H-shares, S-chips have been trading at deep discounts after a severe
correction in 2H07. We believe investors' concerns over China's economic
slowdown have been overdone. It is time for smart money to move around.

l Beijing is finding it challenging to strike a balance between raging
inflation and an economic slowdown. The weak US dollar and skyrocketing
commodity prices add fuel to the fire. Thanks to its closed financial
system and strong domestic consumption, China will be able to ride out
this difficult period. We still believe China could achieve 10% GDP
growth and CPI growth of below 5.5%. A hard landing and hyperinflation
are unlikely to take place in China.

l We like two themes at this juncture, both of which are defensive in
nature and supported by the government. The first theme is consumer
plays and the other is agriculture-related companies. Companies in these
industries are likely to achieve fast-paced growth.

l For S-chips Corporate Day, we present you with nine companies that
are leaders in their respective industries. Though they undergo cyclical
growth, they have solid fundamentals and are growing rapidly. There is
no doubt a few of them will eventually become respectable global
enterprises.



Forward Target
Price PE Price
(S$) (x) (S$)

China Animal
Healthcare 0.16 n.a. n.a.
China Energy 0.38 n.a. n.a.
China XLX Fertiliser 0.505 6.9 1.84
China Sky 0.825 4.6 2.16
COSCO Corp (S) 2.97 14.8 7.00
China Hongxing 0.425 12.5 1.07
Li Heng Chemical 0.52 n.a. n.a.
Synear Food 0.395 5.8 1.20
Yangzijiang
Shipbuilding 0.785 n.a. n.a.

Interra Resources Limited

Interra Resources Limited announced a full year net profit after tax of US$2.26m, recovering from a net loss of US$1.74m in FY2006. Revenue showed a 16% growth from US$13.1m to US$15.2m, a 16% increase. Gross profit showed a 42% increase from US$4.48m to US$6.37m. The favorable year on year results was due to higher oil prices and shareable production. The weighted average oil price in FY06 was US$64.41 per barrel compared with US$73.70 per barrel in FY07. Interra's share of shareable production increased by 4751 barrels from 276,423 barrels of oil in FY06 to 281,174 barrels of oil in FY2007