OCBC - S'pore Strategy-20101215

8/7/2019 OCBC - S'pore Strategy-20101215

http://slidepdf.com/reader/full/ocbc-spore-strategy-20101215 1/82

Please refer to the important disclosures at the back of this document.

More upside ahead

Strategy

SINGAPORE Company Update Results MITA No. 010/06/2009

15 December 2010

SINGAPORE Strategy Update MITA No. 007/06/2010

Several positives for the Singapore market. We remainpositive on the Singapore market supported by severalfavourable indicators including good inflow of funds, currentlow interest rate environment which will continue to favourequities, undemanding valuations, quality earnings for the bluechips of at least 10% in 2011, and the possibility of moremergers and acquisitions ahead.

Corporate earnings growth of at least 10% in 2011 . Forthe near to medium term, the market focus is still likely toconcentrate on Europe's sovereign debt situation, but we believethat Singapore's healthy outlook will attract buying interest in2011. The STI is one of the better performing indices in 2010,and we expect the momentum to continue into 2011, buoyedby healthy fundamentals and good economic growth, which islikely to hit the high end of the government's official forecast of4-6%. In addition, the recent property cooling measures havealready taken roots, and we believe that a modest and gradualincrease in residential property prices is more sustainableand healthy for the local property market.

Stocks are cheap. 3Q corporate earnings were good, followingthe positive strength in 2Q. Together with the projected 10%rise in 2011 earnings, valuations for the market are notexpensive. The STI is currently trading at 15.5x this year'searnings and 14.1x next year's earnings. We expect some ofthe "laggards" in 2010 to be re-rated in 2011, and this is likelyto include some of the property and banking stocks.

Eurozone concerns linger on. However, risks remain, eventhough risk appetite has recovered significantly from the lowsin 2008. Still, the geopolitical tensions between North andSouth Korea, China's tightening measures and the debt crisisin the Eurozone area will continue to rein in optimism. Inaddition, there is persistent worry of another recession in theUS. In this environment, interest rate is likely to remain low,and this could be another positive factor that will favour equitiesover other asset classes.

Stock picks for 2011. We continue to have an OVERWEIGHTon the Oil & Gas and Commodities sectors. This year, wehave also placed a maiden OVERWEIGHT on the Healthcaresector, but have downgraded our long-standing OVERWEIGHTon the Telecommunications sector to a NEUTRAL. Our 2010stock picks have done well, ending the year with an averagegain of 21.1% compared to the STI's average gain of 13.8%for the same period. As such, we are maintaining most of ourstock picks in 2010 into 2011. Our picks for 2011 are Ascott Residence Trust (ART), Biosensors International Group,CapitaLand Ltd, DBS Group Holdings Ltd, Ezra Holdings Ltd, Genting Singapore, Hyflux Ltd, Pacific Andes Resources Development, Keppel Corporation Ltd (KepCorp), Mapletree Logistics Trust (MLT), Noble Group Ltd, Olam International Ltd, Sembcorp Marine Ltd

(SembMarine), StarHub Ltd, United Overseas Bank Ltd (UOB), United Overseas Land Ltd (UOL) and Venture Corp

Ltd.

Research Team

Carmen LEE, Head of Research

[email protected]

6531 9802

Carey WONG, Research Manager

[email protected] 9808

LEE Wen Ching, Investment Analyst


LOW Pei Han, Investment Analyst

[email protected]

6531 9813

ONG Kian Lin, Investment Analyst

[email protected]

6531 9810

Kevin TAN, Investment Analyst


Philip TEO, Investment Analyst


Andy WONG, Investment Analyst

[email protected]

6531 9817



Page 2 15 December 2010

Strategy Update

Table of Contents

Section A Investment Summary & Stock Picks 2011 3

Section B Investment Highlights 5

Section C Singapore Economy 21

Section D Banking Sector 26

Section E Sector Outlook & Comments 35

Section F Stock Picks & Company Profiles 39

Ascott Residence Trust (ART)

Biosensors International Group

CapitaLand Ltd

DBS Group Holdings Ltd

Ezra Holdings Ltd

Genting Singapore

Hyflux Ltd

Keppel Corporation Ltd (KepCorp)

Mapletree Logistics Trust (MLT)

Noble Group LtdOlam International Ltd

Pacific Andes Resources Development

Sembcorp Marine Ltd (SembMarine)

StarHub Ltd

United Overseas Bank Ltd (UOB)

United Overseas Land Ltd (UOL)

Venture Corp Ltd

Section G Disclaimer 82




Strategy Update

SECTION A: INVESTMENT SUMMARY & STOCK PICKS 2011

Singapore remains an interesting proposition… Despite the gains in

2010, we remain positive on the outlook for the Singapore market in 2011.

We believe that the momentum going into 2011 will remain healthy,

supported by several positive indicators including good inflow of funds,

current low interest rate environment which will continue to favour equities,

undemanding valuations, quality earnings for the blue chips of at least

10% in 2011, and the possibility of more mergers and acquisitions ahead.

The drivers in 2011 will come from good economic fundamentals as

Singapore's economic growth is likely to hit the high end of the government's

official forecast of 4-6%. In addition, the recent property cooling measures

have already taken roots, and we believe that a modest and gradual increase

is more sustainable and healthy for the local residential property market.

With a projected 10% rise in 2011 corporate earnings, valuations for the

market are not expensive. The STI is currently trading at 15.5x this year's

earnings and 14.1x next year's earnings. We expect some of the "laggards"

in 2010 to be re-rated in 2011, and this is likely to include some of the

property and banking stocks.

But several regional and global issues remain. Uncertainty, and in

turn market volatility, is likely to remain for a while even though risk appetite

has recovered significantly from the lows in 2008. This includes the

geopolitical tensions between North and South Korea, China's tightening

measures and the debt crisis in the Eurozone area, and these will continue

to rein in optimism. In addition, there is persistent worry of another recession

in the US.

Stock picks for 2011. Our 2010 stock picks have done well, ending the

year with an average gain of 21.1% compared to the STI's average gain of

13.8% for the same period (from 15 Dec 2009 to 10 Dec 2010). As such,

we are maintaining most of our stock picks in 2010 into 2011. Our picks for

2011 are Ascott Residence Trust (ART), Biosensors International Group,

CapitaLand Ltd, DBS Group Holdings Ltd, Ezra Holdings Ltd, Genting

Singapore, Hyflux Ltd, Pacific Andes Resources Development, Keppel

Corporation Ltd (KepCorp), Mapletree Logistics Trust (MLT), Noble

Group Ltd, Olam International Ltd, Sembcorp Marine Ltd

(SembMarine), StarHub Ltd, United Overseas Bank Ltd (UOB), United

Overseas Land Ltd (UOL) and Venture Corp Ltd.




Strategy Update

Exhibit 1: Stock Picks 2011

Source: OIR

Price Fair Net10-Dec Value Upside PER 1 PER 2 Yield Rating

(S$) (S$) (x) (x) (%)

Ascott Residence Trust SGD 1.220 1.380 13% 19.7 16.9 5.9 BUY

Biosensors Int'l Group SGD 1.200 1.350 13% 23.3 13.6 0.0 BUY

CapitaLand SGD 3.670 4.540 24% 13.3 22.3 1.5 BUY

DBS Group Hldgs SGD 14.020 16.000 14% 20.2 11.2 4.0 BUY

Ezra Hldgs SGD 1.660 2.270 37% 10.4 9.6 1.5 BUY

Genting Spore PLC SGD 2.170 2.530 17% 24.5 13.8 0.0 BUY

Hyflux SGD 3.270 3.660 12% 24.8 21.4 1.8 BUY

Keppel Corp SGD 10.860 12.500 15% 12.7 14.2 3.6 BUY

Mapletree Logistics Trust SGD 0.925 1.000 8% 14.7 14.7 6.7 BUY

Noble Group SGD 2.120 2.590 22% 21.6 13.9 1.3 BUY

Olam Int'l SGD 3.100 3.530 14% 21.2 17.8 1.2 BUY

Pacific Andes Resources Devpt SGD 0.340 0.400 18% 6.6 5.0 4.1 BUY

Sembcorp Marine SGD 5.120 5.700 11% 13.2 16.3 2.1 BUY

StarHub SGD 2.680 3.020 13% 17.0 13.4 7.5 BUY

United Overseas Bank SGD 18.140 19.700 9% 10.6 10.1 3.3 BUY

UOL Group SGD 4.680 5.420 16% 7.5 9.6 2.1 BUY

Venture Corp SGD 9.160 12.100 32% 13.4 11.4 5.5 BUY




Strategy Update

SECTION B: INVESTMENT HIGHLIGHTS

An eventful year. Global equities have had an interesting ride this year,

falling in Feb and May and recovering strongly in Nov after the US government

announced another round of Quantitative Easing (QE II), and the latest

round involved an amount of US$600 billion. This buoyed Asian equities,

which were largely deemed to be beneficiaries of the increase in fund flow

into the region.

Despite the potential flow of funds into the region, the underlying tone

remained cautious as the Eurozone sovereign debt situation continues to

rein in optimism. The most recent being Ireland, which asked for a 85

billion euro rescue package to bail out its banks, and market fears are that

this will spread to Spain and Portugal.

Volatility in the market remains. As seen from the trading patterns in

2010, markets were generally very volatile. For example, Singapore's Straits

Times Index (STI) traded within the band from 2648 in May 2010 to 3314 in

Nov, or a differential of 665 points or 25% (year-to-date till 10 Dec 2010).

For the S&P 500, the range was from 1011 to 1227 or a difference of 216

points or 21%. This was similarly seen for China stocks, which were among

the worst performers in the region. The CSI 300 Index, traded within a wide

band from a high of 3598 to as low as 2462, or a difference of 1136 points

or 46%. The top performing markets in Asia this year were Thailand and

Indonesia.

Medium-term outlook is good. Based on economic growth projections,

the medium to longer term outlook for the region and the rest of the world

looks healthy (see Exhibit 2). This has fuelled the buying momentum in

equities as most indices are up for the year, with several at near the year's

highs.




Strategy Update

Date of Reports: In Oct 2010 In Oct 2010 In Oct 2010 In Oct 2010 Diff fr Jul10 Diff fr Jul10

2008 2009 2010 2011 2010 2011

World Output 2.8 -0.6 4.8 4.2 0.2 -0.1

Advanced economies 0.2 -3.2 2.7 2.2 0.1 -0.2

- United States 0.0 -2.6 2.6 2.3 -0.7 -0.6

- Euro area 0.5 -4.1 1.7 1.5 0.7 0.2

Japan -1.2 -5.2 2.8 1.5 0.4 -0.3

UK -0.1 -4.9 1.7 2.0 0.5 -0.1

Other Advanced economies 1.7 -1.2 5.4 3.7 0.8 0.0

Newly Industrialised Asian economies 1.8 -0.9 7.8 4.5 1.1 -0.2

Emerging & developing economies 6.0 2.5 7.1 6.4 0.3 0.0

Developing Asia 7.7 6.9 9.4 8.4 0.2 -0.1

- China 9.6 9.1 10.5 9.6 0.0 0.0

- India 6.4 5.7 9.7 8.4 0.3 0.0

ASEAN-5 4.7 1.7 6.6 5.4 0.2 -0.1

Exhibit 2: IMF Economic Projections (Oct 2010)

Source: IMF, Oct 2010

Exhibit 3: Performance of Key Indices

Source: Bloomberg (Last as of 10 Dec 2010)

Last YTD (%) End 2009

Straits Times Index 3,185.42 9.93 2,897.62

Dow Jones Index 11,410.32 9.42 10,428.05

S&P 500 Index 1,240.40 11.24 1,115.10

Nasdaq Composite 2,637.54 16.23 2,269.15CSI 300 3,161.98 -11.57 3,575.68

Hang Seng 23,162.91 5.90 21,872.50

KLCI 1,507.28 18.42 1,272.78

Nikkei 10,206.98 -3.22 10,546.44

TAIEX 8,718.83 6.48 8,188.11

KOSPI 1,986.14 18.03 1,682.77




Strategy Update

While the economic numbers look good, the International Monetary Fund

(IMF) has also moderated its projections for 2011 for world output, down

from 4.3% in its Jul 2010 forecast to 4.2% in its Oct 2010 forecast. Foradvanced economies, the growth forecast was reduced from 2.4% to 2.2%;

even Developing Asia was also shaded down from 8.5% to 8.4%. Fortunately,

there was no change to its projections for China and India, which are still

key economies in the region, and growth rates are projected at 9.6% and

8.4%, respectively. Despite market concern of asset bubbles, growth rates

are projected to remain fairly healthy, albeit slower than in 2010.

Exhibit 4: Consensus GDP Growth Projections for the Region

Source: Consensus Economics Inc, November 8, 2010

Consensus GDP growth projections for the region

GDP 2005 2006 2007 2008 2009 2010 2011

Australia 2.8% 2.6% 4.8% 2.2% 1.2% 3.3% 3.5%

China 10.4% 11.6% 13.0% 9.0% 9.1% 10.1% 9.1%

HongKong 7.1% 7.0% 6.4% 2.2% -2.8% 6.0% 4.6%

India 9.5% 9.7% 9.0% 6.7% 7.4% 8.4% 8.5%

Indonesia 5.7% 5.5% 6.3% 6.0% 4.5% 6.0% 6.1%

Japan 1.9% 2.0% 2.3% -1.2% -5.2% 3.0% 1.2%

Malaysia 5.3% 5.8% 6.5% 4.7% -1.7% 7.1% 5.0%

New Zealand 2.8% 1.0% 2.8% -0.2% -1.7% 2.1% 3.2%

Singapore 7.3% 8.6% 8.5% 1.8% -1.3% 14.4% 4.7%

South Korea 4.0% 5.2% 5.1% 2.3% 0.2% 6.0% 4.2%Taiwan 4.2% 5.4% 6.0% 0.7% -1.9% 8.4% 4.1%

Thailand 4.6% 5.1% 4.9% 2.5% -2.2% 7.5% 4.3%




Strategy Update

Official growth for Singapore in 2011 is 4-6%. In Singapore, the official

growth projection for 2011 is within 4-6%. However, we have seen an increase

from economists, with some projecting GDP growth of as high as 7%.

Recent measures to curb property prices have moderated property price

spikes and this gradual and progressive increase in property prices is a

more well-suited strategy for the Singapore economy. For the coming year,

services will be a key component, especially with the higher contributions

from the two integrated resorts. For more on the Singapore Economy, refer

to Section C.

Policy makers continue to dictate trends and affect trading activities .

Of key concern this year is the policies and decisions of the key policy

makers. For example, China raised interest rates several times in 2010 to

curb inflation and also introduced measures to rein in runaway property

prices. This dampened market sentiment, and it was one of the worst

performers in the region in 2010. The CSI Index fell 11.6% YTD.

The Chinese government announced the increase in bank reserve

requirements several times in 2010 in an effort to drain liquidity from the

system. In Oct, it also raised lending and deposit rates for the first time

since 2007. These moves have restricted loans growth and also led to the

underperformance of China stocks.

Euro remains a concern, especially Irish debts. Despite a generally

optimistic global outlook for 2011, lingering concerns over the Eurozone

area remain, especially worries that Spain and Portugal will go the way of

Ireland. Although a mega crisis has been averted with the recent IMF

financing, the market is still generally concerned about the affected Eurozone

countries' ability to pay off debts. As long as structural issues remain,

there will always be the possibility of defaults and this could rein in optimism

and also tempered expectations of better global economic growth projections.

In Asia, the geopolitical tension between North and South Korea is another

worrying factor. While this tension has since subsided, there are on-going

worries that it may re-emerge again as this is a long-standing issue.

QE2, QE3, QE4? The US Federal Reserve announced in early Nov 2010

plans to buy US$600 billion of Treasuries through June 2011. This forms

part of its Quantitative Easing (QE) program, and is widely seen as an

effort to pump more cash into the economy, and it gave equities a short-

lived rally.

A recent FOMC statement cited that " the pace of recovery in output and

employment continues to be slow", "longer-term inflation expectations have

remained stable, but measures of underlying inflation have trended lower in

recent quarters", and "progress toward its objectives has been

disappointingly slow".




Strategy Update

Therefore, the FOMC decided "to expand its holdings of securities" and

purchase a further $600 billion of LT Treasury securities, while keeping its

Fed Funds Target rate at 0-0.25%.

In addition, the FOMC will "regularly review the pace of its securities

purchases and the overall size of the asset-purchase program in light of

incoming information and will adjust the program as needed to best foster

maximum employment and price stability".

This seems to indicate that the FOMC is concerned with increasing

unemployment level and the market read it as a possible sign of further QE

measures if this number does not improve.

Better US economic numbers. Based on Bloomberg estimates (as of 7Dec 2010), economists are expecting the US economy to grow 2.7% in

2010 and 2.5% in 2011, this after the 2.6% decline in 2009. (Note: The

National Bureau of Economic Research (NBER) said the recent US

recession ended in June 2009.) This trend is very much in line with the IMF

forecasts, which is projecting growth of 2.6% for 2010 and 2.3% for 2011 in

its Oct 2010 report.

With the improving economic numbers in 2010 and 2011, this has translated

into better corporate earnings. Based on the numbers from Bloomberg,

S&P 500 companies are slated to report earnings of $85.26 in 2010 and

$96.63 in 2011 (as of 7 Dec 2010). This is an increase of 7% and 13%,respectively.

Sentiment is improving. Overall, market sentiment has improved and

risk aversion has also declined. This is effectively captured in both business

and consumer sentiment. First, businesses are generally more optimistic

about business prospects. Corporate earnings have shown good growth

momentum in the past few quarters. Secondly, confidence among US CEOs

has also improved. The index was at 86.3 in Aug, 87.4 in Sep, but rose

sharply to 102.1 in Oct. Finally, US consumer sentiment is also improving,

albeit slowly, as seen from the chart below with a slight uptick in the most

recent month.




Strategy Update

Exhibit 5: US Consumer Sentiment

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

J a n - 9 0

J a n - 9 1

J a n - 9 2

J a n - 9 3

J a n - 9 4

J a n - 9 5

J a n - 9 6

J a n - 9 7

J a n - 9 8

J a n - 9 9

J a n - 0 0

J a n - 0 1

J a n - 0 2

J a n - 0 3

J a n - 0 4

J a n - 0 5

J a n - 0 6

J a n - 0 7

J a n - 0 8

J a n - 0 9

J a n - 1 0

Consumer Confidence Consumer Exp 6-mth ahead

Source: Bloomberg

Exhibit 6: US CEO Confidence

30.0

50.0

70.0

90.0

110.0

130.0

150.0

170.0

190.0

210.0

O c t - 0 2

J a n - 0 3

A p r - 0 3

J u l - 0 3

O c t - 0 3

J a n - 0 4

A p r - 0 4

J u l - 0 4

O c t - 0 4

J a n - 0 5

A p r - 0 5

J u l - 0 5

O c t - 0 5

J a n - 0 6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0 7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

CEO Confidence

Source: Bloomberg




Strategy Update

US corporate earnings. According to Bloomberg estimates, earnings for

S&P 500 companies for 2011 profit is likely to grow 13% to $96.63 in 2011

and record growth of 14% to $109.69 in 2012. This project is culled frommore than 8,500 analyst forecasts. At current level, this reflects still healthy

earnings growth of 13-14%, albeit down from an earnings growth of as high

as 20% in Mar 2010, partly to reflect the slowing global growth, high

unemployment in US and the issues in Europe.

Still, at this level, this means that the S&P 500 is only trading at 12.7

times projected 2011 income - the cheapest level since 1988, excluding

the period of the Lehman's bankruptcy (Oct 2008 to Mar 2009). In addition,

it is noteworthy that the recent last two quarters saw companies bettering

market estimates - pointing to a likelihood of companies delivering better-

than-expected results in the final quarter of 2010.

Better Singapore corporate earnings. Over in the US, 2Q and 3Q

earnings came in better than expected and US companies raised their

profit outlook. Most are expecting to benefit from the Fed's effort aimed at

reducing unemployment as well as the potential boost from the US$600

billion Treasury purchase. In Singapore, it was similarly the case with several

companies reporting better-than-expected 2Q and 3Q results. This was

especially the case for the banking stocks, with most banks delivering

higher-than-expected earnings.

Singapore business sentiment. The manufacturing business sentimentshas moderated in the Q4 survey - only a net 3% expect improved business

conditions for the next six months, compared to 18% in the Q3 survey. Of

the respondents, the most upbeat is the transport engineering cluster (net

22%), in anticipation of more repair and off-shore conversion activities in

the marine and offshore engineering segment and higher export orders in

the aerospace and land segments in the months ahead, followed by the

general manufacturing industry cluster (net 9%), in anticipation of higher

festive demand (e.g. Christmas and Chinese New Year) over the next six

months.

The majority of firms in the biomedical manufacturing and chemicals clustersexpect business conditions in the next six months to remain similar to a

quarter ago. A net 7% of the electronics firms foresee a less favourable

business situation in the next six months, reflecting expectations of lower

orders, resulting from seasonal factors and uncertainties in overseas

markets such as US and Europe. The precision engineering cluster is also

concerned about machinery orders for the next six months.




Strategy Update

Exhibit 7: Singapore Business Sentiment

-80

-60

-40

-20

0

20

40

60

J u n

8 1

M

a r

D

e c

S e p

J u n

8 8

M

a r

D

e c

S e p

J u n

9 5

M

a r

D

e c

S e p

J u n

0 2

M

a r

D

e c

S e p

J u n

0 9

Source: CEIC

Labour market has tightened in Singapore . According to MAS'

Macroeconomic Review, it highlighted that the "labour market has tightened

significantly, especially in the services sectors, where job vacancy rates

are at near-record highs" and "although external sources of price inflation

have been benign, domestic inflationary pressures have increased in the

first three quarters of this year, particularly the prices of non-traded items,

such as accommodation and services".

As a result of this, Q3 unemployment rate dipped from a revised 2.2% in

Q2 to 2.1%, the lowest in 2.5 years, as employers boosted 24.1k jobs in

Q3 (Q2: 24.9k), with the bulk of employment creation primarily from services

(+24.1k), while construction employment rose marginally (+100 jobs) due

to the completion of major building projects earlier in the year, whereas the

manufacturing industry cut 400 jobs.

OCBC Treasury Research is expecting the unemployment rate to hold at

around 2% for the rest of 2010.

Banking to see slower loan growth. Loans growth was strong throughout

most of 2010, supported by housing and construction loans. However, with

the introduction of property measures in late Aug, this led to a subsequent

slowdown in property transactions. Sep bank loans growth has already

reflected the lower housing loans growth, +22.7% YoY (but lower than

+23.4% in Aug), and this continued into Oct with growth of 22.5% YoY.

Still, the overall loan growth was a good growth of 13.8% YoY in Oct (versus

only 10.4% in Aug), and this was driven by business loans (+10.1% YoY)

and consumer loans (+18.1% YoY).




Strategy Update

With the implementation of the most recent round of property curbs, we

believe this will result in more moderate loan growth going forward. For

more on the banking sector, refer to Section D.

STI is one of the better performing indices. Despite the roller-coaster

ride, the STI still managed to post gains for the year - making it one of the

better performing markets in the region. Japan's Nikkei and China's CSI

Index are both down so far this year. In the region, Thailand and Indonesian

stocks shone brightly this year, greatly outperforming most of the other

bourses.

An in-depth look at the STI revealed that only several sectors and stocks

have outperformed. As such, gains were not broad-based and were confined

to the Jardine Group of companies, Oil & Gas stocks, F&N, Genting, NOL,etc. In particular, several stocks have underperformed the STI's year-to-

date (YTD) gains of 9.9%. These included CapitaLand (-11.5%), CapitaMalls

Asia (-22.4%), DBS (-9.0%), Noble (+0.8%), Singapore Exchange (+1.7%),

ST Engineering (+2.9%), SingTel (+1.0%), SMRT (+5.2%), UOB (-7.9%)

and Wilmar (-7.5%).

A re-rating is likely for laggard stocks, as the underperformance is not

warranted in our views. For example, DBS is down 9.0% YTD and UOB is

down 7.9% YTD. DBS has to-date posted 9-mth earnings of S$1972m, up

27% (excluding goodwill impairment charge in 2Q 2010). UOB has delivered

9-mth earnings of S$1990m, up 44% (as a comparison, OCBC also didwell with 9-mth earnings of S$1749m, +20%). While global concerns over

banking stocks' performances and the stricter regime under Basel III remain,

local banks are more prudent and have continued to deliver good earnings

with strong asset backing, good ROEs and decent dividend yields. As

such, the discounts appear to be unwarranted at current price levels.




Strategy Update

Exhibit 8: STI Chart

1000

1500

2000

2500

3000

3500

J a n -

0 9

F e b -

0 9

M

a r -

0 9

A p r -

0 9

M

a y -

0 9

J u n -

0 9

J u l - 0 9

A u g -

0 9

S e p -

0 9

O c t - 0 9

N o v -

0 9

D e c -

0 9

J a n -

1 0

F e b -

1 0

M

a r -

1 0

A p r -

1 0

M

a y -

1 0

J u n -

1 0

J u l - 1 0

A u g -

1 0

S e p -

1 0

O c t - 1 0

N o v -

1 0

D e c -

1 0

Source: Bloomberg




Strategy Update

Exhibit 9: STI - Top Gainers and Losers

Source: Bloomberg

31-Dec-09 10-Dec-10

%Change

CapitaLand Ltd SGD 4.146 3.670 -11.5CapitaMall Trust SGD 1.800 1.940 7.8CapitaMalls Asia Ltd SGD 2.540 1.970 -22.4City Developments Ltd SGD 11.560 12.800 10.7ComfortDelGro Corp Ltd SGD 1.640 1.540 -6.1DBS Group Holdings Ltd SGD 15.400 14.020 -9.0Fraser and Neave Ltd SGD 4.200 6.260 49.0Genting Singapore PLC SGD 1.300 2.170 66.9Golden Agri-Resources Ltd USD 0.510 0.770 51.0Hongkong Land Holdings Ltd USD 4.950 7.050 42.4Jardine Cycle & Carriage Ltd USD 27.000 37.140 37.6Jardine Matheson Holdings Ltd USD 30.180 44.500 47.4Jardine Strategic Holdings Ltd USD 17.600 26.660 51.5Keppel Corp Ltd SGD 8.011 10.860 35.6Neptune Orient Lines Ltd/Singapore USD 1.650 2.200 33.3Noble Group Ltd USD 2.103 2.120 0.8Olam International Ltd SGD 2.660 3.100 16.5Oversea-Chinese Banking Corp Ltd SGD 9.100 9.850 8.2SembCorp Industries Ltd SGD 3.700 5.010 35.4SembCorp Marine Ltd SGD 3.666 5.120 39.7SIA Engineering Co Ltd SGD 3.340 4.270 27.8Singapore Airlines Ltd SGD 14.940 15.700 5.1Singapore Exchange Ltd SGD 8.330 8.470 1.7Singapore Press Holdings Ltd SGD 3.573 3.990 11.7Singapore Technologies Engineering Ltd SGD 3.188 3.280 2.9Singapore Telecommunications Ltd SGD 3.110 3.140 1.0SMRT Corp Ltd SGD 1.910 2.010 5.2StarHub Ltd SGD 2.150 2.680 24.7United Overseas Bank Ltd SGD 19.700 18.140 -7.9Wilmar International Ltd USD 6.430 5.950 -7.5




Strategy Update

Average Daily Traded Volume on the SGX (million units)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Jan

07

M M J S N Jan

08

M M J S N Jan

09

M M J S N Jan

10

M M J S N

Exhibit 10: Volume on the SGX

Source: Bloomberg




Strategy Update

Dividend stocks remain attractive. 2011 could remain another attractive

year for dividend stocks. In 2010, high dividend stocks did well (including

StarHub, and M1), and we believe this trend will continue into 2011. Apartfrom the more conservative investors who prefer defensive stocks, we believe

that good yielding stocks also offer investors the potential to participate in

potential capital upside (for example, StarHub gained +22% from Jan to

Nov 2010 and M1 appreciated 17%). In addition, in the current extremely

low interest rate environment and together with low bond yields, this makes

for a compelling investment case in good dividend yielding stocks.

Market is still flushed with liquidity; equities will benefit. With the

increase in fund flow, there is huge amount of liquidity in the market, which

has been buoying asset prices in Asia (essentially property prices in all

the key cities in Asia including Singapore) and also spilling over to equitiesin 2010. This liquidity will need to look for good yielding assets and apart

from high dividend stocks, it will also look for stocks offering potential

capital appreciations. We believe that this will favour companies that will

continue to deliver good revenue and profit growth as output rises. In this

space, Singapore's blue chips will continue to dominate as most have

emerged from the 2008 crisis relatively unscathed and are poised to deliver

good growth in 2011. Based on consensus estimates from Bloomberg, STI

component stocks are projected to grow 10% per year in 2011 and 2012.

Coupled with a Price/Book (P/B) of 1.8x, STI stocks are not expensive.

Possible headwinds - The US. There are still uncertainties in the marketand while the current focus is on Europe, the other big concern in the

market is the possibility of yet another US recession. The US economy is

projected to grow at a 2.5% pace (according to the consensus forecast

from Bloomberg). However, there is now worry that the world's largest

economy will slip into recession again. On the other hand, the optimist

sees this as being positive as it will then ensure that interest rates stay

low, averting another crisis. In addition, the US unemployment rate remains

near the highest level in 27 years at close to 10% (9.8% in Nov 2010). At

this level, there is the possibility that the US government will need to continue

to pump funds into the economy to improve the unemployment rate and to

stoke the economic recovery. Already US Federal Reserve Chairman BenBernanke has indicated that the Fed may expand bond purchases beyond

the US$600 billion announced in Nov.

Possible headwinds - China. Singapore is still dependent on the key

economies. According to a Fitch report, Asia accounted for 58% of China's

imports in 2009. As such, any slowdown in China would impact Asian's

trade volume growth and GDP growth. In the Fitch report, it identified China's

key trading partners as Hong Kong SAR, Taiwan, Singapore, Korea, Malaysia

and Australia. These countries are heavily reliance on China as an export

destination. With China still mulling more measures to tighten excess

liquidity, this could spill over to Asian economies.




Strategy Update

Low interest rate environment remains a plus for equities. With the

present low interest rate environment, it has underpinned demand for

residential properties in Singapore. In addition, equities also benefited. Withthe 9.9% YTD gain for the STI, equities offer a good total return (potential

capital gains + a more than 3% dividend yield from the STI component

stocks). Based on indications from the US, interest rates are likely to stay

low, at least for the medium term.

Back to the fundamentals, valuations are not excessive. While the

economic issues (in the US and Eurozone) will weigh on investment

decisions despite the Quantitative Easing measures, we believe if we

exclude these issues, Asia's fundamentals remain sound, especially in

Singapore. The re-inventing of Singapore has taken place successfully and

the government is likely to dish out more measures and incentives to growits population and develop hubs for key activities to attract visitors and

more migrants.

One of the key barometers will be valuation. At current levels, valuations

are not excessive in Singapore (refer to exhibit below). Singapore's STI is

among the lowest in the region and this level is also low vis-à-vis the historical

average. In terms of Price/Earning (P/E) ratio, it is below the historical

average of close to 18x (stripping out abnormal years) and yet supported

by 2-year forward earnings growth of 10% per annum.

Singapore is still enjoying good growth; M&As likely to continue. Inyet another sign that it will be a good year for Singapore, despite the uncertain

outlook, hiring is set to continue in 1Q 2011. According to the US-based

recruitment firm Manpower's Employment Outlook poll, most employers

indicated that they would increase staff numbers. About one-third of the

686 employers polled said they would increase staff numbers, up 5

percentage points from 4Q 2010. This is indicative of the still healthy growth

environment here.

2010 was a good year for M&A and we saw some high-profile deals including

the privatisation of Parkway Holdings as well as the change of ownership at

Thomson Medical. With current valuations at undemanding levels andtogether with the availability of funding at low cost, we expect M&A to

remain a dominant theme in 2011.




Strategy Update

Exhibit 11: Global Indices - P/B and PER

Source: Bloomberg as of 10 Dec 2010

2010 stock picks have done well. A review of our stock picks in our

Strategy 2010 showed that most stocks have done well. On average, these

stocks are up 21.1% compared to 13.8% for the STI for the same period.

We affirmed our belief and stayed in these quality companies throughout

most of the year, largely supported by good orders, earnings and still healthy

valuations.

Exhibit 12: Stock Picks 2010

Source: OIR

Indices Price/Book (x) PER (x) PER 1 (x) PER 2 (x)

Dow Jones 2.6 13.9 13.4 12.0

S&P500 2.2 15.5 14.5 12.8

Nasdaq 2.9 34.5 19.5 15.8

Nikkei 1.3 19.8 17.9 15.7

TAIEX 2.0 15.4 14.7 13.1

KOSPI 1.4 14.1 11.3 10.0

CSI 300 2.8 18.7 17.4 14.2

Hang Seng 1.9 14.3 14.6 12.6

KLCI 2.4 17.2 16.0 14.3

STI 1.8 12.6 15.5 14.1

Price Price

15-Dec-09 10-Dec-10 % Gain

(S$) (S$)

Ezra Holdings SGD 2.081 1.660 -20.2

Genting Singapore PLC SGD 1.090 2.170 99.1

Hyflux SGD 3.250 3.270 0.6

Keppel Corp SGD 8.001 10.860 35.7

Keppel Land SGD 3.300 4.710 42.7

Midas Holdings SGD 0.870 0.935 7.5

M1 Ltd/Singapore SGD 1.840 2.310 25.5Noble Group SGD 2.006 2.120 5.7

Olam International SGD 2.630 3.100 17.9

SembCorp Marine SGD 3.606 5.120 42.0

Singapore Telecoms SGD 3.020 3.140 4.0

SMRT Corp * SGD 1.830 2.010 9.8

StarHub SGD 2.060 2.680 30.1

UOL Group SGD 3.830 4.680 22.2

Wilmar International SGD 6.340 5.950 -6.2

Average % Gain 21.1

* SMRT: Price as at 16-Dec-2009




Strategy Update

Laggard plays likely to see a re-rating. While the STI posted gains this

year, the gains were not broad-based. This implies that gains were generated

by a handful of stocks including the Jardine group of companies, the oil &

gas stocks and Genting. We see a possible re-rating for some of the

underperformers including certain property and banking stocks.

Although equities were generally up in 2010, we believe that the uptrend is

likely to continue into 2011, partly brought on by a re-rating for the laggards.

These are laggards in terms of share price performances and not in terms

of earnings. In addition, valuations for stocks are not excessive at current

levels.

We are OVERWEIGHT Oil & Gas, Commodities & Banks. In terms of

sectors, we continue have an OVERWEIGHT on the Oil & Gas and

Commodities sectors. However, we have downgraded Telecomminications,

which has been a consistent Overweight to NEUTRAL for next year, largely

as we see little positive price catalysts. With the increasing and aging

population; rising affluence; booming medical tourism business; and ongoing

initiatives to consolidate Singapore's reputation as a leading medical hub,

we see several positive catalysts to drive the Singapore healthcare sector

for the coming year. While we stay NEUTRAL for most other sectors, we

are upgrading the Singapore banks to OVERWEIGHT, largely as their

underperformance is not warranted for the quality of earnings and assets.

Please refer to Section D for more information and details.

Stock picks 2011. We remain positive on the Singapore market supported

by several favourable indicators including good flow of funds, current low

interest rate environment which will continue to favour equities, undemanding

valuations, earnings for blue chips of at least 10% in 2011, and more mergers

and acquisitions. For the near to medium term, market focus is still likely

to concentrate on Europe's sovereign debt situation. We expect some of

the "laggards" in 2010 to be re-rated in 2011, and this is likely to include

some of the property and banking stocks. Our picks for 2011 are Ascott

Residence Trust (ART), Biosensors International Group, CapitaLand

Ltd, DBS Group Holdings Ltd, Ezra Holdings Ltd, Genting Singapore,

Hyflux Ltd, Pacific Andes Resources Development, Keppel Corporation

Ltd (KepCorp), Mapletree Logistics Trust (MLT), Noble Group Ltd, Olam

International Ltd, Sembcorp Marine Ltd (SembMarine), Starhub Ltd,

United Overseas Bank Ltd (UOB), United Overseas Land Ltd (UOL) and

Venture Corp Ltd (VMS). See Section F for more details.




Strategy Update

SECTION C: SINGAPORE ECONOMY

What a year! What a year it has been for the Singapore economy. 2Q10

saw record on-year growth of 19.5%, which will likely propel 2010 real

GDP expansion to as high as 15%, based on the official Ministry of Trade

and Industry (MTI) forecast. Given Singapore's small and open economy, it

was one of the worst hit in Asia during the financial crisis, and the low base

effect contributed to the significant growth we saw in the past year. Of

course, factors such as 1) robust expansion in the biomedical manufacturing

and electronics clusters, 2) opening of the two Integrated Resorts and 3)

recovery in the financial services sector were essential to the rebound as

well.

-15

-10

-5

0

5

10

15

20

25

0 1 / 0 3 / 9 2

0 1 / 0 3 / 9 3

0 1 / 0 3 / 9 4

0 1 / 0 3 / 9 5

0 1 / 0 3 / 9 6

0 1 / 0 3 / 9 7

0 1 / 0 3 / 9 8

0 1 / 0 3 / 9 9

0 1 / 0 3 / 0 0

0 1 / 0 3 / 0 1

0 1 / 0 3 / 0 2

0 1 / 0 3 / 0 3

0 1 / 0 3 / 0 4

0 1 / 0 3 / 0 5

0 1 / 0 3 / 0 6

0 1 / 0 3 / 0 7

0 1 / 0 3 / 0 8

0 1 / 0 3 / 0 9

0 1 / 0 3 / 1 0

%

CLI YoY

Real GDP YoY

Record 19.5% YoY

growth in 2Q10

Exhibit 13: Singapore's Real GDP Growth and Composite Leading Index

Source: Bloomberg, OIR




Strategy Update

Drivers in 2011. Given such a strong rebound from 2009's 1.3% contraction,

it is reasonable to expect an easing in the growth momentum in 2011 - the

MTI estimates it to be 4-6% while OCBC Treasury Research & Strategy is

looking at a narrower range of 4-5%. External macroeconomic conditions

are likely to remain supportive of growth next year, driven by 1) a gradual

recovery in the advanced economies, bolstered by expansionary monetary

policies and 2) strong domestic consumption in Asia due to wage increases

and healthy fundamentals. As a major trading hub, Singapore is likely to

benefit from more intra-regional trade flows. Meanwhile, new capacity

additions in the manufacturing sector and progressive openings of

recreational facilities in the tourism-related services industries should

contribute to growth as well, according to the MTI.

Exhibit 14: Singapore's GDP Projection and Key Statistics

Source: OCBC

2008 2009 2010F 2011F

Real GDP growth 1.8% -1.3% 14.0% 4.5%

- Manufacturing -4.2% -4.1% 27.4% 5.6%

- Construction 20.1% 16.2% 8.6% 4.4%

- Services 4.8% -1.4% 10.6% 4.6%

CPI Inflation 6.5% 0.6% 3.0% 2.6%

Unemployment rate 2.3% 2.1% 2.1% 2.0%

USD SGD 1.41 1.45 1.29 1.27

Inflationary risks and potential impact. Though final demand in advanced

economies should eventually increase as a result of expansionary policies,

capital leakage to certain emerging nations and Asian countries mean that

coupled with a low interest rate environment, inflationary risks could be a

key feature in 2011, fueling higher asset prices (Exhibit 15). As such, likely

beneficiaries include property-related stocks. Higher wage growth also means

that discretionary spending should continue to stay strong1 , which is positive

for hospitality and consumer-related stocks. However, the impact on these

two sectors may not be substantial since core inflation (which excludes

accommodation and private road transport) is expected to be stable around2-3% in 2011, comparable to about 2% in 20102 . Possible losers include

companies that are unable to pass on higher costs to consumers due to

low pricing power.

1 OCBC Treasury & Research believes that the domestic labour market is likely to remain

tight in the near term, especially for selected services industries like financial services. In

particular, the overall unemployment rate should remain anchored around 2% in 2011.

2 MAS monetary policy statement. 14 Oct 2010.




Strategy Update

Exhibit 15: Future Key Drivers of Inflation include Housing and Transport

Source: OCBC Treasury & Research, Nov 2010.

Lower interest rates with stronger SGD. To pre-empt imported inflation,

the MAS re-centered the SGD NEER upwards and shifted to a policy of

modest and gradual appreciation in Apr. The slope of the policy band was

also subsequently increased in Oct. Due to the trilemma that any economy

can only control two out of the three variables (exchange rate, interest

rates and openness of capital account), the 3-month SIBOR has trended

down after both monetary statements were released at different times this

year (Exhibit 16)3 . Hence going forward, should the SGD NEER continue

to stay strong and the Fed continue with its low interest rate policy, the

upside for the 3-month SIBOR should be capped, assuming MAS'

sterilization operations are not substantial. Along with a backdrop of flush

liquidity, we could be in a prolonged period of easy financing for property

buyers, hence supporting property sales (barring additional tightening

measures from the government). This is a positive factor for property-related

stocks.

3 Such that total returns (currency and carry) would remain the same to the investor, other

things being equal.




Strategy Update

0

0.5

1

1.5

2

2.5

3

3.5

4

0 3 / 0

1 / 0 0

0 3 / 0

7 / 0 0

0 3 / 0

1 / 0 1

0 3 / 0

7 / 0 1

0 3 / 0

1 / 0 2

0 3 / 0

7 / 0 2

0 3 / 0

1 / 0 3

0 3 / 0

7 / 0 3

0 3 / 0

1 / 0 4

0 3 / 0

7 / 0 4

0 3 / 0

1 / 0 5

0 3 / 0

7 / 0 5

0 3 / 0

1 / 0 6

0 3 / 0

7 / 0 6

0 3 / 0

1 / 0 7

0 3 / 0

7 / 0 7

0 3 / 0

1 / 0 8

0 3 / 0

7 / 0 8

0 3 / 0

1 / 0 9

0 3 / 0

7 / 0 9

0 3 / 0

1 / 1 0

0 3 / 0

7 / 1 0

%

3mth SIBOR

Falls after release of monetary policy statem ents

Exhibit 16: 3mth SIBOR at Historical Lows


Exhibit 17: Business Loans Growth Recover as Companies Return to

Expansion Mode

-10

-5

0

5

10

15

20

25

30

35

40

0 1 / 0 1 / 0 6

0 1 / 0 4 / 0 6

0 1 / 0 7 / 0 6

0 1 / 1 0 / 0 6

0 1 / 0 1 / 0 7

0 1 / 0 4 / 0 7

0 1 / 0 7 / 0 7

0 1 / 1 0 / 0 7

0 1 / 0 1 / 0 8

0 1 / 0 4 / 0 8

0 1 / 0 7 / 0 8

0 1 / 1 0 / 0 8

0 1 / 0 1 / 0 9

0 1 / 0 4 / 0 9

0 1 / 0 7 / 0 9

0 1 / 1 0 / 0 9

0 1 / 0 1 / 1 0

0 1 / 0 4 / 1 0

0 1 / 0 7 / 1 0

% Y

o Y

Loans to businesses

Loans to consumers





Strategy Update

Beneficiaries of buoyant tourism industry. Visitor arrivals to Singapore

registered 18.4% growth in Sep this year, marking the 10 th consecutive

month of record visitor arrivals. The country saw a new record in Jul (Exhibit

18), which was the first time that visitor arrivals have exceeded 1m in a

single month. This can be largely attributed to improved consumer sentiment,

the draw of the Integrated Resorts, the Great Singapore Sale, and initiatives

by the Singapore Tourism Board and retailers. As more recreational facilities

and tourist attractions roll out, the services sector is likely to remain supported

by buoyant tourist arrivals, provided the global macroeconomic environment

continues to be stable. Direct beneficiaries should include companies in

the hospitality sector and the retail industry.

Exhibit 18: Tourist arrivals hit a new record in July


Growth in 2011, but fraught with risks. As a small and open economy,

Singapore has always strived to ride on global economic recoveries whilst

using policies to cushion the debilitating effects of global recessions. Asusual, we expect the country to reap the benefits of improving global

consumer sentiment and trade, and at the same time keep a watchful eye

on capital flows throughout the region. With the experience of the 1997

Asian Financial Crisis and healthier balance sheets compared to more

than 10 years ago, Asian countries should stand more ready to handle

impending waves of liquidity.

-80%

-60%

-40%

-20%

0%

20%

40%

0 1 / 0 1 / 0 5

0 1 / 0 4 / 0 5

0 1 / 0 7 / 0 5

0 1 / 1 0 / 0 5

0 1 / 0 1 / 0 6

0 1 / 0 4 / 0 6

0 1 / 0 7 / 0 6

0 1 / 1 0 / 0 6

0 1 / 0 1 / 0 7

0 1 / 0 4 / 0 7

0 1 / 0 7 / 0 7

0 1 / 1 0 / 0 7

0 1 / 0 1 / 0 8

0 1 / 0 4 / 0 8

0 1 / 0 7 / 0 8

0 1 / 1 0 / 0 8

0 1 / 0 1 / 0 9

0 1 / 0 4 / 0 9

0 1 / 0 7 / 0 9

0 1 / 1 0 / 0 9

0 1 / 0 1 / 1 0

0 1 / 0 4 / 1 0

0 1 / 0 7 / 1 0

G r o w t h

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

V i s i t o r s

Total arrivals to SG% YoY% MoM

Hit new record in July




Strategy Update

SECTION D: SINGAPORE BANKING SECTOR

Banks have surprised on the upside. The local banks delivered another

quarter of good earnings in 3Q 2010, following the better-than-expected

performance in 2Q - making it two quarters in a row that the banks have

exceeded street estimates. The key highlights included still healthy loan

growth, albeit lower than the rates seen in 2Q, and as expectations of

future moderating rates have already been built-in by the market, especially

following recent property cooling measures.

Net Interest Margin (NIM) also eased off, as the banks saw YoY and QoQ

declines in margin (except OCBC, which saw a slight QoQ increase in NIM

in 3Q). While Net Interest Income (NII) saw a slight QoQ improvement formost, the key driver came from Non-interest Income (NI), which accounted

on average for about 42% of total combined earnings - and this trend has

been gradually rising in the past few years.

Exhibit 19: Comparison of Net Profits (S$m)

Source: Banks' financial statements/results

0

200

400

600

800

1000

1200

1400

1600

1800

2000

4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10

DBS OCBC UOB




Strategy Update

Margins will continue to be under pressure. In recent quarters, we

have seen margins coming under pressure. In general, rates have been

coming off since 4Q 2008. As an indication, the average NIM for the three

banks has eased from slightly above 2.3% in 4Q 2008 to about 1.95% by

3Q FY10, making it seven quarters of QoQ decline. Going forward, with the

present rock-bottom interest rate environment, this is likely to squeeze

margins for the banks, as the gap narrows between borrowing and lending

rates. In addition, rates look set to stay low for a long while, especially with

the recent US government move to buy US$600 billion worth of bonds.

Exhibit 20: Comparison of Net Interest Margin (%)


1.60%

1.70%

1.80%

1.90%

2.00%

2.10%

2.20%

2.30%

2.40%

2.50%

2.60%

4QFY08 1QFY09 2QFY09 3QFY09 4QFY09 1QFY10 2QFY10 3QFY10

DBS OCBC UOB




Strategy Update

Headwinds remain. While we are generally positive on the outlook for the

local banks, buoyed by domestic 2011 economic growth of 4-6% and

Developing Asia's growth of 8.4% in 2011 (according to International

Monetary Fund), there remains key risks in the market. These include the

Eurozone debt issue, a slowdown for the US economy; China's tightening

measures and other geopolitical factors that will hurt the growth in Asia.

This will translate into slower loans growth as well as a tougher operating

environment and could impact both Net Interest Income (NII) and Non-

interest Income (NI). If a US recession takes place, this will also result in

deterioration in asset quality, and could also lead to higher impairments

and provisions.

Higher Non-interest Income. From earlier indications, the pipeline for

the capital markets looks good for 1H 2011 and we expect more deals and

IPOs to come into the market. In addition, with the present low interest

rate environment, this provides the impetus for more mergers and

acquisitions (M&A). As valuations are not excessive, it is an opportune

time for corporates to embark on growth via acquisitions and we expect

Non-interest Income to continue to lead operating income growth.

2010 was a good year for funding raising exercises and there were several

high-profile takeovers (including Parkway Holdings). We expect this trend

to remain very much in play in 2011 and this could buoy earnings.

Exhibit 21: Net Interest Income (S$m)


600

700

800

900

1,000

1,100

1,200

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

OCBC DBS UOB




Strategy Update

Exhibit 22: Non-interest Income (S$m)


Good demand for loans in 2010. Based on data from the Monetary

Authority of Singapore (MAS), Oct's banking sector loan growth remained

strong at +13.8% YoY, up from +12.1% YoY in Sep and +10.4% YoY in

Aug. This was largely driven by business loans which accelerated 10.1%

in Oct, up from +7.4% in Sep, as well as consumer loans, which grew

18.1% in Oct. Business loans accounted for about 53% of total loans and

the balance came from consumer loans. The key segments are housing

and bridging loans, which accounted for about 35% of loans, and building

and construction which accounted for another 16%.

Reflective of the recent property cooling measures and the government's

land sales program, housing loans eased off and this came as no surprise.

Growth of housing/bridging loans eased off to +22.5% YoY in Oct, down

from Aug's +23.4% (before the measures were introduced). With the recent

round of property measures, we expect the strong growth rate for the housing/

bridging loan segment to moderate in the coming months, but the slack

could be taken up by growth in other segments such as the business

sector. However, we do not expect the double-digit growth seen in 2010 to

be repeated in 2011 and are projecting a mid single-digit growth for 2011.

250

350

450

550

650

750

850

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

OCBC DBS UOB




Strategy Update

Exhibit 23: Loans and Advances (S$m)

Source: MAS

Sep 2010 Oct 2010

Total loans and advances 309,371 313,264

- YoY (%) 12.1% 13.8%

Total loans to business 164,653 165,985

- YoY (%) 7.4% 10.1%

Agriculture, mining & quarrying 521 408

Manufacturing 11,356 11,246

Building and construction 51,054 51,507

General commerce 28,106 28,566

Transport, storage and communication 8,855 9,006

Business services 6,006 4,877

Financial institutions 36,044 35,842

Professional and private individuals - business 3,036 3,183

Others 19,674 21,351

Total consumer loans 144,718 147,279

- YoY (%) 18.0% 18.1%

Housing and bridging loans 106,874 109,127

- YoY (%) 22.7% 22.5%

Professional & private individuals - Car loans 11,725 11,700

Professional & private individuals - Credit cards 6,306 6,355

Professional & private individuals - Share financing 1,134 1,217

Professional & private individuals - Others 18,679 18,880




Strategy Update

Exhibit 24: Comparison of Loans Growth (%)


Lower allowances in 2010, and downtrend likely to continue into

2011. Allowances for credit and other loans tapered off in 2Q and 3Q in

2010, and as long as global market conditions do not deteriorate too

drastically, we expect this to ease off further in 2011. As a re-cap,

allowances fell about 56% on average for the three banks from a combined

S$2598m in 9-month FY09 to S$1134m in 9-month FY10. DBS reported

total allowances of S$754m for the 9-month ended Sep 2010, down 35%.UOB saw a decline of 73% to S$294m. For 2011, we are projecting lower

levels for both DBS and UOB in 2011 at S$433m and S$250m, respectively.

Cost is kept within reasonable levels. Despite the volatility seen

throughout 2010, the banks reported earnings that were fairly healthy.

This was in part due to good cost management. Overall, all three banks

saw cost-to-income ratios of between 39% and 41% for the first nine

months of 2010, marginally higher than 37-38% for the same period in

2009, due to the lower job credits. However, going forward, we expect the

cost ratios to stay close to the 40% level as employment remains tight in

the financial sector and banks have to compete to retain and recruitemployees. In addition, we expect technology to remain a key investment,

especially with growing regional operations and the integration and cross-

selling within these businesses.

Banks remain good investment ideas. Besides economic headwinds,

there are also concerns about regulators' policies and the potential impact

on the global banking business, not helped by the failure of several smaller

banks in Europe. This will result in fluctuations in the share prices of

banking stocks. For the Singapore banks, we do not expect this to translate

into higher non-performing loans or in deterioration in asset quality as we

believe that the local banks remain prudent in their business activities.

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Mar 10 Jun 10 Sep 10

DBS OCBC UOB




Strategy Update

While the outlook is still muted, largely due to uncertainties in the region

and globally, we believe that valuations are attractive. Banks have beenlaggards in 2010, underperforming the broader STI as well as the FTSE

Financial Index (see exhibit). However, earnings remain healthy with 9-

month earnings of S$1972m for DBS (+27%, excluding goodwill impairment

charge), S$1749m for OCBC (+20%) and S$1990m for UOB (+44%). This

means a combined profit improvement of 30%.

Exhibit 25: Share Price Performance

Source: Bloomberg

Exhibit 26: FTSE Financial Index

Source: Bloomberg

200

300

400500

600

700

800

900

J a n - 0 9

F e b - 0 9

M a r - 0 9

A p r - 0 9

M a y - 0 9

J u n - 0 9

J u l - 0 9

A u g - 0 9

S e p - 0 9

O c t - 0 9

N o v - 0 9

D e c - 0 9

J a n - 1 0

F e b - 1 0

M a r - 1 0

A p r - 1 0

M a y - 1 0

J u n - 1 0

J u l - 1 0

A u g - 1 0

S e p - 1 0

O c t - 1 0

N o v - 1 0

D e c - 1 0

Share price on

10 Dec 2010 YTD Mkt Cap (S$ bn) P/B (x)

DBS 14.06 -8.7% 32.46 1.23

OCBC 9.87 8.5% 32.98 1.61

UOB 18.16 -7.8% 28.33 1.34

Average -2.7% 1.39




Strategy Update

Exhibit 27: Tier-1 Capital


Exhibit 28: ROE (%)

-

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

4Q07 1Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10

OCBC DBS UOB


7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

16.0%

17.0%

1 Q0 8 2 Q0 8 3 Q0 8 4 Q0 8 1 Q0 9 2 Q0 9 3 Q0 9 4 Q0 9 1 Q1 0 2 Q1 0 3 Q1 0

OCBC DBS UOB




Strategy Update

Overweight the banking sector. We are increasing our rating for the

banking sector from Neutral to OVERWEIGHT. While the broader STI

components have appreciated in 2010, the banks have underperformed.

The FTSE Financial Index is up 1.5% YTD versus +9.9% for the STI. In

addition, the three banks on average fell 2.9%. OCBC outperformed with a

gain of 8.2% (from Jan to 10 Dec 2010), while DBS and UOB saw declines

of 9.0% and 7.9%, respectively. We are of the view that banking stocks are

likely to be re-rated in 2011 as investors look for value. We have a BUY for

both DBS [fair value of S$16.00] and UOB [fair value of S$19.60].

Exhibit 29: Comparison of Key Information

Source: OIR, Bloomberg

Share price on 10

Dec 2010 (S$)

PER1

(x)

PER2

(x)P/Book (x)

Div Yield

(%)Rating

Fair Value

(S$)

Upside

DBS 14.06 20.2 11.2 1.2 4.0 BUY 16.00 13.8%

OCBC 9.87 14.7 13.9 1.9 3.0 NR 10.66 8.0%

UOB 18.16 10.6 10.1 1.5 3.3 BUY 19.40 6.8%

Note: OCBC is NR (Not-Rated); and the figures for OCBC are taken from Bloomberg




Strategy Update

SECTION E: SECTOR OUTLOOK AND COMMENTS

Telecommunications Sector - NEUTRAL

The Singapore mobile services market is still expected to perform reasonably

well in 2011; but any boost from the NBN (Next Generation National

Broadband Network) is likely to be low, given the slow roll-out as well as

the low take-up rate of NBN packages; the Pay TV arena is also expected

to see some big changes, namely with the implementation of the cross-

carriage mandate for "exclusive content" from 1H11, making it another mixed

bag for the telcos. As such, we see very little positive catalysts going for

them in 2011, besides just attractive dividend yields (M1 and StarHub), and

hence we downgrade the sector to NEUTRAL from Overweight. Please

refer to our report titled "Telecom: Yields still good" dated 29 Nov 2010

for more details

Oil & Gas - OVERWEIGHT

The FTSE Oil and Gas index is now back in positive territory after a divergence

with the STI emerged in late Apr, mainly due to the Gulf of Mexico oil spill.

The sector has outperformed the broader market in the past few months,

helped by improving sentiment on the rigbuilders, which have outperformed

the rest of the oil and gas stocks under our coverage YTD. Both rigbuilders

are likely to see more orders for high-spec jackups. The push for even

more technical assets is also likely to continue, benefiting companies that

do not scrimp on R&D. The outlook for the smaller and lower-spec offshore

support vessels remains dim. Going into 2011, we maintain our

OVERWEIGHT rating on the sector though different stages of the value

chain experience different demand and supply dynamics. As the global

economy continues its recovery, oil prices are likely to remain high enough

to sustain capital expenditure. Our preferred picks are Keppel Corporation

[BUY, FV: S$12.50] and SembCorp Marine [BUY, FV: S$5.70] as likely

beneficiaries based on underlying trends. Please refer to our report titled

"Oil & Gas: Diverse growth trajectories" dated 2 Dec 2010 for more

details.




Strategy Update

Healthcare - OVERWEIGHT

The FTSE ST Health Care Index has recorded an impressive 67.8% return

YTD and this has far surpassed the 9.5% gain on the broader market. This

has been partly ignited by the acquisition buzz surrounding Parkway

Holdings and Thomson Medical Centre at relatively high valuations. We are

positive about the outlook of the healthcare sector moving forward. This is

driven by an increasing and aging population; rising affluence; booming

medical tourism business; and ongoing initiatives to consolidate Singapore's

reputation as a leading medical hub. The medical device industry also has

growth potential because of increasing demand for technologically advanced

and efficient equipment. Within this space, the drug-eluting stent (DES)

market looks bright, given its potential in the treatment of coronary artery

diseases. We are sanguine about the prospects of the healthcare sector

given its robust fundamentals. We also like the sector as it is generally

defensive in nature and hence have an OVERWEIGHT rating on it. Under

our coverage, we have a BUY rating and S$1.35 fair value estimate on

Biosensors International Group and a HOLD rating and S$2.35 fair value

estimate on Raffles Medical Group. Please refer to our report titled

"Healthcare: Strong fundamentals to drive growth ahead " dated 6 Dec

2010 for more details.

Technology - NEUTRAL

2010 is turning out to be an exceptional year for the technology sector. The

semiconductor industry, in particular, has staged a steady recovery in sales

since the lows in Jan-Feb 2009. Going into 2011, we hold our view that

normal seasonal pattern would resume and growth would continue, albeit

at a more modest pace. The overall economic picture for the IT space,

however, is not likely to be as vibrant as that of the semiconductor industry,

due to disproportionate performances in different geographical regions and

business sectors. As such, we maintain our NEUTRAL view on the broader

technology sector. Nonetheless, we expect Asia-Pacific IT services and

solutions providers to outperform, due to still healthy growth in the region.

We are more optimistic on the prospects of the EMS/ODM segment as we

anticipate EMS/ODM players to directly gain from increased purchases of

electronic products by both consumers and corporations amid improvements

in the global economy and business sentiment. Hence, we should see

EMS/ODM companies rake up meaningful growth in 2011 sales. Our

preferred picks are Valuetronics [BUY, S$0.44 FV] and Venture

Corporation [BUY, S$12.10 FV] as both companies present good growth

opportunities, boast healthy financial position and excellent management,

and provide attractive dividend yields. Please refer to our report titled

"Technology: Entering into phase of moderate growth " dated 7 Dec

2010 for more details.




Strategy Update

Residential Property - NEUTRAL

The Singapore residential property sector is being pulled in opposing

directions by broader macro-economic forces. Positive drivers include a

high liquidity environment; strong capital flows into Asia; the availability of

cheap housing loans; and strong long-term fundamentals. But policymakers

may soon take the punchbowl away from the market. In our view, further

policy measures are likely to be implemented in 1H2011, particularly to

address the risk that borrowers overextend themselves due to the availability

of cheap debt. The market may choose to "dance until the music stops",

but in our opinion, it is time to recognize the risks of direct investment in

residential property. As such, we advocate a cautious and nimble approach

to investing in the sector and stay NEUTRAL on Singapore residential

property developers. Still, we do see value in select property developers at

current price levels. We prefer developers with strong balance sheets and

those with balanced exposure to the property sector, which should buttress

earnings and performance in a year of fairly high uncertainty for residential

property. Keeping these factors in mind, our top pick for the property sector

in 2011 is UOL Group. Please refer to our report titled "Residential Property:

A year of opposing forces " dated 8 Dec 2010 for more details.

S-REIT - OVERWEIGHT

Going into 2011, we upgrade our rating for the S-REITs from Neutral to

OVERWEIGHT. The persistently low interest rate environment is expected

to stimulate the property market and continue to drive prices higher. Together

with "hot capital inflows" pouring into Asia, it is likely that spot rental rates

and asset prices will continue to be inflated. At the same time, many REITs

managers are capitalizing on the recovery cycle for further asset

enhancements initiatives and acquisitions. Being an inflation hedge, we

think investors' interest in S-REITs is likely to remain piqued in 2011. However,

we noted that different sectors may experience different rates of recovery.

In our opinion, the recovery is likely to be more pronounced for the office

sector, followed by the industrial sector as the catch-up potential is greatest

for these two sectors. The retail sector is likely to remain subdued next

year in view of new retail supply (additional 612k sq ft of lease-able retail

space in 2011), moderate rental escalation as well as lesser spending power

from foreign visitors affected by the appreciating SGD. Within our coverage

universe, our preferred picks are MLT [BUY, FV: S$1.00], ART [BUY, FV:

S$1.38] for large-caps and FCOT [BUY, FV: S$0.18], Starhill Global [BUY,

FV: S$0.66] for small-caps. Please refer to our report titled "S-REITs:

Different strokes for different sectors" dated 10 Dec 2010 for more details.




Strategy Update

Commodity & Plantations - OVERWEIGHT

Global economic recovery in 2010 has boosted the operating landscape

for commodity-related companies under our coverage universe, which

delivered an average 12% gain year-to-date. We expect continued

outperformance in 2011 to be driven by organic and inorganic growth as

recent investments approach maturity. Industry consolidation has been a

recurring theme in 2010 and will continue in 2011. In addition, commodity

price inflation and volatility are likely to persist. As such, strong balance

sheets, ready access to capital and agility in seizing opportunistic

investments will be key differentiating factors that enable larger players to

extend their dominance against this landscape. We remain OVERWEIGHT

on commodities, with a preference for Noble Group [BUY, fair value

S$2.59] and Olam International [BUY, fair value S$3.53]. Please refer

to our report titled "Commodity: Seizing opportunities amid industry

consolidation" dated 14 Dec 2010 for more details.

Singapore banks have delivered good earnings in the last two quarters,

and while headwinds remain globally, we believe that local banks' prudent

business approach and good asset quality are just some of the key

differentiating factors. Margins will come under pressure due to present

low interest rate environment, but we expect Non-interest Income to become

more significant in the coming years. Cost-to-income ratios are at

manageable level, and we expect impairment allowances to come off in

2011. The banking sector has underperformed the broader STI, and the

discount is not warranted as banks have delivered good earnings in 2010.

We expect this gap to narrow in 2011 and banks are likely to be re-rated.

Overall, we are raising our rating from Neutral to OVERWEIGHT and have

a BUY for both DBS and UOB.

Banking - OVERWEIGHT




Strategy Update

SECTION F: STOCK PICKS & COMPANY PROFILES

Ascott Residence Trust (ART): Big is beautiful

We reiterate our BUY rating on ART with a fair value estimate of S$1.38.

With the acquisition of 28 properties from its sponsor, The Ascott Limited

(ART) will transform from a Pan-Asian to an International REIT, doubling its

total asset size to almost S$2.85b. It will also move from 12th to the 6th

largest S-REIT in terms of total asset value. Its enlarged portfolio now

constitutes 55% Pan-Asian and 45% European assets. We view ART's

massive scale-up positively, but have some lingering concerns over its

existing foreign-exchange management given the forthcoming influx of

European currencies into the portfolio. Nonetheless, we are positive on the

outlook for the tourism and hospitality sector and believe that the demand

should spill over to the service apartments. Our investment thesis on ART

is intact and we believe the manager will continue to work hard to extract

value from ART's expanded portfolio for unitholders.

Biosensors International Group: Growth momentum expected to

continue

Biosensors International Group (BIG) has shown that it has put its past

losses behind it and looks set to continue its turnaround story moving

forward. It has demonstrated its resilience by increasing its drug-eluting

stent (DES) market share in addressable markets to close to 15%, which

has exceeded its 10% target. Traditionally, BIG's product revenues for 2H

have been stronger and we do not expect FY11 to be any different. This

would be driven largely by its BioMatrix DES, which engages cutting-edge

technology. BIG has also highlighted that it will enlarge its product portfolio

and we are sanguine about the increased capabilities that could possibly

arise. Part of this has come from inorganic growth, with the acquisitions of

CardioMind and Devax recently. Internally, BioFreedom represents BIG's

next generation DES and initial First-in-Man trial results have been positive.

We continue to like BIG for its technological superiority to its peers and

execution capabilities. Hence we reiterate our BUY rating and DCF-based

fair value estimate of S$1.35. Key risks include the roll-out of disruptive

innovative products by competitors; failure to gain license approval in key

markets; and clinical trial results that turn out to be unsatisfactory.




Strategy Update

CapitaLand Ltd: Valuation seems attractive

CapitaLand (CapLand) launched the 1715-unit d'Leedon (formerly Farrer

Court ) at Farrer Road late last month. As of 06 Dec, some 82% of the 250

units released for the initial launch have been sold. CapLand announced

earlier this month that it will sell 163 units at The Adelphi for a total

S$218.1m, with an expected after-tax profit of about S$15.7m on the

transaction. CapLand said the sale was in line with its "strategy to unlock

the value of non-core assets and recycle assets". With sustained conditions

of high liquidity and cheap debt, we believe it is very likely that policymakers

will implement further measures to regulate the Singapore residential market

in 1H2011. We prefer developers with strong balance sheets and those

with balanced exposure to the property sector, which should buttressearnings and performance in a year of fairly high uncertainty for residential

property. While UOL Group is our top pick for the sector, we think CapLand's

valuations are attractive at the current price level. We maintain our BUY

call on the stock with an unchanged S$4.54 fair value estimate, at parity to

RNAV.

DBS: Looking attractive at current level

DBS has posted two quarters of better-than-market estimates earnings.

Moving forward, the outlook for interest income is likely to be softer due tocurrent low interest rates and recent measures to cool the Singapore property

market. We expect this situation to persist for a few more quarters. However,

we expect Non-interest Income to remain healthy as DBS is a leading

player in the capital market and the IPO pipeline for the 1H of 2011 looks

healthy and this will benefit DBS which has a lion share of the local IPO

market. DBS has underperformed in 2010 and is down 9.0% YTD (till 10

Dec 2010). We view this discount as being excessive and unwarranted. It

is likely to end the year with good earnings of about S$2622m (based on

our estimates) and grow 10.6% in FY11 to S$2899m. We are reiterating

our BUY rating for DBS and our fair value estimate of S$16.00.




Strategy Update

Genting Singapore: Bountiful 4Q10 Likely

Genting Singapore (GS) is likely to perform well in the final quarter of 2010,

the traditional holiday period. RWS has the correct offering to do well, given

that it is pitched towards the family and vacation crowd. A positive

development is that the Casino Regulatory Authority (CRA) has received

licence applications from junket operators endorsed by Resorts World

Sentosa (RWS), where industry watchers believe that some of these

operators could get their licences by early next year. As before, we estimate

that the Singapore gaming market should stabilize around S$7b in 2011,

with RWS maintaining a slightly more dominant share of around 55%.

Depending on how many licenses are issued, we do see room to revise up

our gaming market estimates. We are maintaining our FY10 and FY11

estimates. Our DCF-based fair value also remains at S$2.53, offering a

potential upside of 16.6% from here. Maintain BUY.

Ezra Holdings: Focusing on the integration of AMC

Demand for specialised construction vessels such as multi-purpose support

vessels and high-spec pipelay barges in the region continues to be strong,

and we are positive on the outlook of the marine construction market.

Meanwhile, though AHTS charter rates have been facing downward pressure

for the most of last year as newbuilds continue to be delivered, we are not

expecting a significant decline in rates for Ezra's young and generally higher-

spec vessels. We understand that Aker Marine Contractors is bidding for

about US$1.5b worth of work in the Gulf of Mexico and the North Sea, and

the clinching of deals should improve the performance of the group

subsequently, but it is unclear when this will take place. However, we remain

positive about the group's execution and long-term growth strategy. Wemaintain our BUY rating and S$2.27 fair value estimate.




Strategy Update

Hyflux Ltd: Good Prospects for Further Growth

The shortage of water around the globe is getting worse, as climate change

disrupts rainfall patterns and result in more severe droughts; the issue is

further compounded by a growing world population and rapid urbanization.

The lack of water will also put pressure on food prices, restrict developing

countries' efforts to reduce poverty and also hamper economic growth.

However, it will create opportunities in the water and wastewater industry.

We believe Hyflux Ltd is in a sweet spot to capture these opportunities,

given its substantial presence in both China and MENA. The company is

also sitting on a sizable order book of S$1715m (estimated), and could

see it tagging on another S$1.3-1.5b if it finally inks the deal for two mega

desalination projects in Libya (essentially a mid-2011 story). In between,we also expect Hyflux to announce smaller contract wins, mostly from

China. Maintain BUY with an unchanged fair value of S$3.66 (25x FY11F

EPS), or S$2.44 (adjusted for bonus issue).

Keppel Corporation: New order flow gaining momentum

Demand for premium jack-up rigs has returned, illustrated by recent new

orders. Keppel's O&M arm has also secured about S$2.6b worth of new

orders YTD vs. our full year estimate of S$2.5b. Order flows are gaining

momentum and we should see additional new orders that will benefit the

entire sector with renewed capex rollouts. The results of Petrobras' 28-rig

tender may also be out by the end of the year, though we conservatively

expect the final outcome by 1Q11 to factor in administrative issues and

possible delays. Currently we still see good value in Keppel Corp's stock,

and should the group secure its fair share of orders in the coming quarter,

there is further room for better stock performance. As such, we maintain

our BUY rating and fair value estimate of S$12.50.




Strategy Update

Mapletree Logistics Trust (MLT): Most prolific Industrial REIT

acquirer

In 2010, Mapletree Logistics Trust (MLT) has been the most prolific acquirer

among the Industrial S-REITs. Given the pick-up in industrial space demand

and the strengthening of industrial rents, we think MLT looks set to capitalize

on the recovery cycle in Asia. The full effect of the recently-announced

acquisitions should also improve its top-line and DPU contributions by

2011. We are positive on MLT's track record in undertaking accretive

acquisitions that boost distributable income. Sponsor, Mapletree

Investments, and Itochu also plan to develop logistics built-to-suit (BTS)

projects of approximately US$300-500m over the next 3-5 years, which

will be offered to MLT on a right-of-first refusal basis. This further provides

MLT with a pipeline of potential assets for future acquisitions. Reiterate

BUY with a RNAV-derived fair value of S$1.00 (14.9% estimated total return).

Noble Group Ltd: Earnings to take flight in 2011

We reiterate our BUY rating on Noble Group (Noble) with S$2.59 fair value

estimate in anticipation of earnings acceleration in FY11, as the group

begins to reap the fruits of its recent pipeline investments. To recap, Noble's

3Q10 results exceeded expectations, reversing sharply from its weak 2Q10,

with revenue of US$14.9b (+78.7% YoY; +15.6% QoQ) and core net profit

of US$131.1m (flat YoY; +178% QoQ). Going forward, we expect earnings

to be buoyed by strong underlying fundamentals for commodities such as

energy and agriculture. Several of the group's pipeline investments are

nearing maturity and these should lend a further boost to earnings from

4Q10. Management targets to achieve US$1b in earnings over the next

three years, implying a 24% CAGR between FY09 and FY13. With its

robust balance sheet, the group is well-positioned to capture investment

opportunities that may arise.




Strategy Update

Olam International: Strategically positioned amid industry

consolidation

Olam International (Olam) kicked off its FY11 on a strong note and remains

poised for sustained medium-term growth, driven by robust underlying

fundamentals for agricultural commodities, coupled with volume and margin

growth on the back of the group's ongoing expansion initiatives. The group

recently delivered a 30.6% YoY growth in 1Q11 revenue to S$2.5b, while

net profit jumped 56.2% YoY to S$29.7m. Volumes grew 21.1% as it gained

market share amid industry consolidation, while improved margins further

boosted profits. Going forward, further margin expansion will be supported

by the provision of value-added services. In addition, we view Olam's ready

access to capital as a strategic advantage that will allow it to extend its

dominance amid industry consolidation. We maintain our BUY rating on

Olam. Our fair value estimate remains at S$3.53.

Pacific Andes: A consistent performer

Pacific Andes Resources Development (PARD) has been a consistent

performer in the past few years. Profits have grown a strong 43% CAGR

from FY04 to FY10, while revenue grew 20% for the same period. Going

forward, we are projecting profit growth per year of 21.8% and revenue growth

of 16.7% for FY11-FY12. Recently, it announced the acquisition of a 19.76%

stake in ASX-listed Tassal Group Limited for A$51.7m. We view this deal

positively as it offers a complementary fit into PARD's current operations.

The stock is currently trading at only 0.8x NAV and undemanding PERs of

6.6x FY11F earnings and 5.0x FY12F earnings besides a dividend yield of

4.1%. We are retaining our BUY rating and fair value estimate of S$0.40.




Strategy Update

SembCorp Marine Ltd: Securing its fair share of orders

Demand for premium high-spec jack-up rigs has returned, illustrated by the

recent orders secured by the SembCorp Marine (SMM) and Keppel Corp.

And should the options for these recently secured rig deals be exercised,

the construction of repeated units may result in higher productivity, leading

to better margins. The results of Petrobras' 28-rig tender may also be out

by the end of the year, though we conservatively expect the final outcome

by 1Q11 to factor in administrative issues and possible delays. Order flows

are gaining momentum and we should see additional new orders in the

next quarter that will benefit the entire sector with renewed capex rollouts.

After securing about S$2.5b worth of new orders YTD, SMM has already

met its new order target for this year. We maintain our BUY rating with fairvalue estimate of S$5.70.

StarHub Ltd: Maintain BUY with S$3.02 Fair Value

StarHub Ltd recently posted a much better-than-expected set of 3Q10

results, with the biggest surprising coming from a sooner- and stronger-

than-expected recovery in margin. Although we do expect to see slightly

more margin improvements, we note that it will only come from its Pay TV

business; this as we expect the service EBITDA margins for both its mobile

and broadband businesses to remain flat. In any case, we have taken thesedevelopments into our recent revision and hence we maintain our DCF-

based S$3.02 fair value. As we also expect StarHub to continue paying out

S$0.05/share quarterly dividend in 2011, which translates to an attractive

7.4% annual yield, we maintain our BUY rating.




Strategy Update

UOL Group Ltd: Top pick for 2011

UOL Group launched its freehold Spottiswoode Residences project last

month. According to the Business Times , some 252 units have already

been sold (72% project take-up). The Spottiswoode site was the last

remaining site in UOL's outstanding Singapore land-bank. The GLS 1H2011

sites present UOL with an opportunity to carefully pick and choose future

projects. With sustained conditions of high liquidity and cheap debt, webelieve it is very likely that policymakers will implement further measures

to regulate the residential market in 1H2011. We prefer developers with

strong balance sheets and those with balanced exposure to the property

sector, which should buttress earnings and performance in a year of fairly

high uncertainty for residential property. Keeping these factors in mind,

UOL is our top pick for the property sector in 2011. Maintain BUY with

unchanged S$5.42 fair value estimate, at a 10% discount to RNAV.

UOB: Upgrade to BUY

UOB has been a consistent performer even during the recent 2008 financial

crisis, reflecting its prudent risk taking policy and its good asset quality.

However, the stock was dragged down by weak sentiment and has

underperformed both the STI and the FTSE Financial Index. We view this

discount as not sustainable as UOB is still delivering good profits (+44%

to S$1990m for the 9-month ended Sep 2010 and with good cost control

translating into a sub-40% cost-to-income ratio of 38.7%). UOB's Net Interest

Margin (NIM) is likely to trend down reflecting the current low interest rate

environment and the recent property cooling measures. However, we expect

a 9.5% increase in Non-interest Income in FY11 to buoy earnings for FY11.

At current level, valuations are looking more attractive and yield is at a

decent 3.3%. We are upgrading UOB to BUY.




Strategy Update

Venture Corp: Transforming into a solutions provider

Venture Corp (VMS) says it remains driven to achieving profitable growth,

where it will continue to make a push for higher-margin ODM (Original Design

Manufacturer) business; This as part of a revamp to reduce its traditional

heavy reliance on the Printing & Imaging OEM business. It also intends to

build up its solutions/enterprise segment with its own IPs (Intellectual

Properties). Besides being encouraged by the group's business

transformation into an ODM player, which we believe should herald a new

era for the group, we also have confidence in its ability to execute and

deliver on its "blue ocean strategy". As we are rolling forward our 15x

valuation from blended FY10F/FY11F EPS to FY11F EPS, our fair value

increases from S$10.73 to S$12.10. Maintain BUY. Key risks include

currency fluctuations (exposure to US$) and continued component shortages.




Strategy Update

Big is beautiful

Big is beautiful. With the acquisition of 28 properties from

its sponsor, The Ascott Limited (TAL), Ascott Residence Trust(ART) will transform from a Pan-Asian to an International REIT,doubling its total asset size to almost S$2.85b. It will alsomove from 12th to the 6th largest S-REIT in terms of totalasset value. Its enlarged portfolio now constitutes 55% Pan-Asian and 45% European assets. This coupled with theenlarged free-float post-EFR (equity fund raising), ART has

not only improved its diversification geographically but alsomake its shares available to a wider pool of internationalinvestors. In addition, most of the European acquisitions areon master leases which offer less cash flows volatility to theREIT. The ensuing income stability helps to improvemanagement's debt capacity.

Good divestment and renewal strategy. We also like ART'sstance towards divestment of assets that have reached theoptimal stage of its life cycle (Ascott Beijing, Country WoodsJakarta etc.) and use these proceeds to fund furtheracquisitions or repay debt. We view ART's massive scale-uppositively, but have some lingering concerns over its existing

foreign-exchange management given the forthcoming influx ofEuropean currencies into the portfolio. Without an ongoingactive currency-hedging strategy, ART may be vulnerable tothe long-standing contest between the East-West currenciespairs, especially with the ongoing monetization of debt by theUS, the debt-crisis and fiscal-austerity measures in Europeand the push for Renminbi appreciation in Asia.

Portfolio Performance. ART's RevPAU increased 7% YoYin 3Q10, mainly led by RevPAU growth of 37% in Singapore.The better performance in Singapore is mainly due to thesuccessful launch of the refurbished apartment units ofSomerset Grand Cairnhill and Somerset Liang Court. RevPAUfor Australia, China, Indonesia and The Philippines also

increased in 3Q10. We are also seeing better performance inShanghai arising from World Expo. However, Tianjin'sperformance declined due to increased competition andreduction in corporate accommodation budget. Japan is alsofacing weak market demand and lower profits due to higherrepair, maintenance and advertising expenses.

Maintain BUY. Our investment thesis on ART is intact andwe look forward to the performance results and revenuecontribution of the 28 newly acquired properties in 4Q10.Management has also stated its confidence in delivering theforecasted 4Q DPU of 1.84 S cents as disclosed in the Offer-Information-Statement (13-Sep). Maintain BUY with an

unchanged fair-value of S$1.38.

Ascott Residence Trust15 December 2010

Maintain

BUYPrevious Rating: BUY

Closing price (10 Dec): S$1.22Fair Value : S$1.38

Reuters Code ASRT.SI

ISIN Code A68U

Bloomberg Code ART SP

Issued Capital (m) 1,108

Mkt Cap (S$m/US$m) 1,352 /975

Major Shareholders

CapitaLand 47.5%

Free Float (%) 52.5%

Daily Vol 3-mth (‘000) 2,751

52 Wk Range 0.987 - 1.377

Ong Kian Lin(65) 6531 9810e-mail: [email protected]

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

Ascott

Residence

Trust

STI

(S$ m) FY08 FY09 FY10F FY11F

Revenue 192.4 175.5 205.4 295.1

Gross profit 95.5 84.6 94.7 156.1

Distr income 53.7 45.2 54.1 80.1

DPU yield (%) 7.2 6.0 5.9 5.9

P/NAV (x) 0.8 0.9 0.9 0.9




Strategy Update

Ascott Residence Trust's Key Financial Data

EARNINGS FORECAST BALANCE SHEET

Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F As at 31 Dec (S$m) FY08 FY09 FY10F FY11F

Revenue 192.4 175.5 205.4 295.1 Investment properties 1565.3 1528.3 2607.9 2653.0

Direct expenses -96.9 -91.0 -110.7 -139.0 Cash 56.1 63.2 61.4 57.0

Gross profit 95.5 84.6 94.7 156.1 Other current assets 32.1 28.1 28.3 34.3

Finance costs -20.8 -23.7 -23.8 -41.1 Total assets 1687.6 1652.0 2736.1 2782.7

Manager's management fees -8.1 -7.5 -8.5 -12.4 Current liabilities ex debt 79.0 77.9 90.5 91.7

Net profit bef. unrealized gains 64.3 51.5 59.3 101.4 Debt 624.4 651.1 1116.0 1142.6

Change in property values -94.0 -49.4 35.5 0.0 Total liabilities 722.6 755.2 1220.1 1247.8

Total return after tax -37.9 -15.5 76.5 90.8 Minority interests 65.9 71.7 72.5 80.9

Return attributable to unitholders -42.2 -21.1 68.5 80.1 Unitholders' funds 899.0 825.1 1443.5 1454.0

Total distributable amount 53.7 45.2 54.1 80.1 Total equity and liabilities 1687.6 1652.0 2736.1 2782.7

CASH FLOW

Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F KEY RATES & RATIOS FY08 FY09 FY10F FY11F

Operating cash flows 70.4 74.8 89.6 142.9 Units outstanding 610.8 617.2 1107.1 1112.2

Acquisitions -30.7 -21.8 -1239.3 0.0 DPU (S cents) 8.8 7.3 7.2 7.2

Investing cash flows -42.5 -30.6 -982.2 -50.2 CFPS (S cents) 11.5 12.1 10.5 12.8

Distributions to unitholders -52.4 -48.0 -45.1 -77.2 NAV (S$) 1.5 1.3 1.3 1.3

Interest paid -19.6 -24.6 -25.6 -41.1 DPU yield (%) 7.2 6.0 5.9 5.9

Financing cash flows -39.6 -36.8 891.2 -97.2 P/CF (x) 10.6 10.1 11.7 9.5Net change in cash -11.7 7.3 -1.4 -4.5 P/NAV (x) 0.8 0.9 0.9 0.9

Cash at beg of period 64.5 56.1 63.2 61.4 Gross profit margin (%) 49.6 48.2 46.1 52.9

Translation effects 3.3 -0.2 -0.4 0.0 Distr to revenue (%) 27.9 25.8 26.4 27.1

Cash at end of period 56.1 63.2 61.4 57.0 Total debt/Total assets (x) 0.4 0.4 0.4 0.4

Source: Company data, OIR estimates




Strategy Update

Biosensors Int’l Group

15 December 2010


Reuters Code BIOS.SI

ISIN Code B20

Bloomberg Code BIG SP


Mkt Cap (S$m / US$m) 1,315 / 948

Major Shareholders

Autumn Eagle Ltd 29.5%


Daily Vol 3-mth (‘000) 18,588

52 Wk Range 0.690 - 1.260

Growth momentum expected to continue

Outlook looks bright. Biosensors International Group (BIG)has shown that it has put its past losses behind it and looksset to continue its turnaround story moving forward. It hasdemonstrated its resilience by making headway in the drug-eluting stent (DES) market despite increasing competitiveness.BIG's DES market share in addressable markets stands atclose to 15% and this has exceeded its 10% target. As a

recap, BIG reported a good set of 2Q11 results recently, whererevenue grew 33.9% YoY to US$36.5m, whereas net profitincreased 31.6% to US$8.5m. This was due largely to itsBioMatrix DES, which engages cutting-edge technology.Traditionally, BIG's product revenues for 2H have been stronger(Exhibit 1) and we do not expect FY11 to be any different.This is due to the recent Transcatheter CardiovascularTherapeutics (TCT) 2010 Conference which allowed BIG toshowcase its positive clinical trial results. Hence it has helpedto increase awareness on the safety and efficacy of BIG'sDES products to physicians. We expect BIG's strong growthmomentum to continue, driven largely by increased sales ofBioMatrix DES as well as higher licensing revenues fromTerumo Corp.

Enlarged portfolio necessary for growth. BIG hashighlighted that it will enlarge its product portfolio and we aresanguine about the increased capabilities that could possiblyarise. Part of this has come from inorganic growth, with theacquisitions of CardioMind and Devax recently. CardioMindhas led to the introduction of the Sparrow DES, which couldpossibly address neurological and peripheral parts of the bodyin the future. The Devax AXXESS stent is a specialty bifurcatedDES and the technology transfer is already taking place.Internally, BioFreedom represents BIG's next generation DESand initial First-In-Man trial results have been positive. Currentdiscussions are ongoing with regulatory bodies on developing

the protocol of a global study. The greatest strength ofBioFreedom, in our opinion, is its prevention of the use of dualanti-platelet therapy, which carries bleeding implications.

Maintain BUY. Since we resumed coverage on BIG on 15Oct 10, its share price has risen 15.4%. We believe there isstill potential for further upside and continue to like BIG for itstechnological superiority to its peers and executioncapabilities. Hence we reiterate our BUY rating and DCF-basedfair value estimate of S$1.35. Key risks include the roll-out ofdisruptive innovative products by competitors; failure to gainlicense approval in key markets; and clinical trial results thatturn out to be unsatisfactory.

Wong Teck Ching (Andy)(65) 6531 9817e-mail: [email protected]

Maintain


10001500

2000

2500

3000

3500

4000

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

0.2

0.4

0.6

0.8

1.0

1.2

Biosensors

STI

(US$ m) FY09 FY10 FY11F FY12F

Revenue 119.0 116.2 158.2 210.6

EBIT 16.2 22.0 40.1 55.8

P/NTA (x) 10.0 7.0 5.5 3.9

EPS (cts) -0.1 3.0 3.7 6.4

PER (x) n.m. 28.7 23.3 13.6




Strategy Update

Biosensors International Group's Key Financial Data


Year Ended 31 Mar (US$m) FY09 FY10 FY11F FY12F As at 31 Mar (US$m) FY09 FY10 FY11F FY12F

Revenue 119.0 116.2 158.2 210.6 Bank and cash balances 60.1 60.1 75.3 105.0

EBITDA 19.1 24.6 42.9 58.5 Other current assets 37.7 51.1 59.8 77.8

Depreciation and amortisation 2.9 2.7 2.8 2.7 Property, plant, and equipment 9.9 9.7 9.5 9.3

EBIT 16.2 22.0 40.1 55.8 Total assets 198.5 227.8 272.2 345.8

Net interests -2.8 -3.8 -4.7 -4.8 Debt 46.8 29.1 31.3 33.4

Share of results of JVs, net 7.3 14.9 20.7 26.2 Current liabilities excluding debt 45.4 51.0 53.3 56.4

Profit before tax 8.9 33.7 46.7 77.2 Total liabilities 94.6 83.1 87.6 92.7

Income tax expense -10.0 -1.6 -6.7 -8.7 Shareholders equity 103.9 144.7 184.6 253.1

Minority interests 0.0 0.0 0.0 0.0 Minority interests 0.0 0.0 0.0 0.0

Profit attributable to shareholders -1.1 32.1 40.0 68.5 Total equity and liabilities 198.5 227.8 272.2 345.8

CASH FLOW

Year Ended 31 Mar (US$m) FY09 FY10 FY11F FY12F KEY RATES & RATIOS FY09 FY10 FY11F FY12F

Op profit before working cap. chg. 29.0 34.9 33.5 58.5 EPS (US cents) -0.1 3.0 3.7 6.4

Working cap, taxes and int -18.0 -22.1 -18.0 -28.4 NTA per share (US cents) 8.7 12.3 15.9 22.2

Net cash from operations 11.0 12.8 15.6 30.1 EBIT margin (%) 13.6 18.9 25.4 26.5

Purchase of PP&E -5.1 -2.1 -2.5 -2.5 Net profit margin (%) -0.9 27.6 25.3 32.5

Other investing flows -0.4 0.0 0.0 0.0 PER (x) n.m. 28.7 23.3 13.6

Investing cash flow -5.5 -2.2 -2.5 -2.5 Price/NTA (x) 10.0 7.0 5.5 3.9

Financing cash flow 0.3 -10.7 2.2 2.1 EV/EBITDA (x) 48.3 36.8 20.8 14.8

Net cash flow 5.8 0.0 15.2 29.6 Dividend yield (%) 0.0 0.0 0.0 0.0

Cash at beginning of year 54.3 60.1 60.1 75.3 ROE (%) -1.1 25.8 24.3 31.3

Cash at end of year 60.1 60.1 75.3 105.0 Net gearing (%) net cash net cash net cash net cash





Strategy Update

Valuation seems attractive

CapitaLand Limited15 December 2010

Reuters Code CATL.SI

ISIN Code C31

Bloomberg Code CAPL SP


Mkt Cap (S$m/US$m) 15,643 / 11,279

Major Shareholders

Temasek 39.7%


Daily Vol 3-mth (‘000) 15,148

52 Wk Range 3.460 - 4.383

Meenal Kumar(65) 6531 9112e-mail: [email protected]

New launch in Singapore. CapitaLand (CapLand) launched

the 1715-unit d'Leedon (formerly Farrer Court ) at Farrer Road

late last month. The 99-year leasehold project is being

developed by a CapLand-led consortium. As of 06 Dec, some

82% of the 250 units released for the initial launch have been

sold at an average S$1680 per square foot (Channel News

Asia). Of these ~205 units, 52 units were purchased by former

Farrer Court owners. Meanwhile, CapLand said at 3Q10 results

that 55-unit The Nassim should be launch-ready by 4Q.

Sells Adelphi units. CapLand announced earlier this month

that it will sell 163 units at The Adelphi , consisting of 86 office

units and 77 retail units, for a total S$218.1m. It expects to

earn an after-tax profit of about S$15.7m on the transaction,

which is expected to be completed by 28 Jan 2011. CapLand

said the sale was in line with its "strategy to unlock the value

of non-core assets and recycle assets". Other recent capital

recycling initiatives include the planned divestment of 28

serviced residence properties to its 47.74%-owned hospitality

REIT. CapLand noted at 3Q10 results that it plans "to maintain

significant financial flexibility to protect the downside, yet takeadvantage of any relevant opportunities that may arise." It had

a net gearing of 0.21x debt-to-equity as of 30 Sep.

More policy measures likely. We note that the property

market has continued to perform well even after the Aug 30

property measures. With sustained conditions of high liquidity

and cheap debt, we believe it is very likely that policymakers

will implement further measures in 1H2011. We believe that

the issues of changed buyer risk appetite (hinged on cheap

debt) and housing affordability, and their impact on mass-

market households, are likely to be the central concern for

policymakers. Further policy measures could potentially impact

prices and volumes of property transactions (particularly forthe mass-market segment). We also note that while the high-

end segment still has room to move upwards, this segment is

also more vulnerable to external shocks.

Valuation seems attractive. We prefer developers with strong

balance sheets and those with balanced exposure to the

property sector, which should buttress earnings and

performance in a year of fairly high uncertainty for residential

property. While UOL Group is our top pick for the sector, we

think CapLand's valuations are attractive at the current price

level. We maintain our BUY call on the stock with an unchanged

S$4.54 fair value estimate, at parity to RNAV.

Maintain



1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

1.0

2.0

3.0

4.0

5.0

6.0

CapitaLand

STI

(S$m) FY08 FY09 FY10F FY11F

Revenue 2,752.3 2,957.4 3,129.0 3,306.5

Shareholders' profit 1,260.1 1,053.0 1,175.8 699.1

NAV per share (S-cents) 378.3 315.6 329.0 335.1P/NAV (x) 1.3 1.2 1.1 1.1

PER (x) 10.9 14.0 13.3 22.3




Strategy Update

CapitaLand's Key Financial Data



Revenue 2,752.3 2,957.4 3,129.0 3,306.5 Cash 4,228.4 8,729.7 5,278.0 5,426.8

Cost of sales -1,680.2 -1,931.2 -1,774.7 -2,087.0 Development properties for sale 3,347.2 3,590.2 3,949.3 3,751.8

Gross profit 1,072.2 1,026.2 1,354.3 1,219.5 Investment properties 4,254.8 4,406.2 4,626.5 4,857.8

Other operating income 1,330.7 1,238.4 571.6 130.1 Interests in assoc & JV 7,864.6 8,684.2 9,118.4 9,574.4

Profit from operations 1,838.4 1,279.8 1,447.9 842.6 Total assets 25,083.6 30,166.0 31,831.6 32,923.7

Finance costs -516.3 -453.9 -450.0 -480.0 Borrowings 9,789.9 10,275.0 10,186.1 10,864.8

Share of results of assoc & JV 375.1 269.2 375.1 497.9 Total liabilities 13,095.8 13,286.3 14,326.0 15,081.3

Profit before taxation 1,697.2 1,095.1 1,373.0 860.6 Shareholders' equity 10,681.7 13,408.3 13,974.1 14,235.5

Profit after taxation 1,461.4 1,008.6 1,235.7 774.5 Total equity 11,987.8 16,879.8 17,505.6 17,842.4

Profit attributable to shareholders 1,260.1 1,053.0 1,175.8 699.1 Total equity and liabilities 25,083.6 30,166.0 31,831.6 32,923.7

CASH FLOW


Op profit before working cap.chges 909.0 1,011.1 1,334.2 840.6 EPS (S-cents) 44.7 26.2 27.7 16.5

Working cap, taxes and int 261.0 -135.1 -1,373.3 -113.6 NAV per share (S-cents) 378.3 315.6 329.0 335.1

Net cash from operations 1,170.0 876.1 -39.1 727.1 PER (x) 10.9 14.0 13.3 22.3

Acquisition of properties -1,366.8 -269.8 -400.0 -400.0 P/NAV (x) 1.3 1.2 1.1 1.1

Other investing flows 430.4 2,650.6 -2,038.6 -543.9 Gross profit margin (%) 39.0 34.7 43.3 36.9

Investing cash flow -936.4 2,380.7 -2,438.6 -943.9 Net profit margin (%) 53.1 34.1 39.5 23.4

Financing cash flow -387.5 1,272.3 -922.7 365.7 Net gearing (x) 0.5 0.1 0.3 0.3

Net cash flow -127.6 4,501.3 -3,451.8 148.8 Dividend yield (%) 1.4 2.9 1.5 1.5

Cash at beginning of year 4,356.0 4,228.4 8,729.7 5,278.0 ROE (%) 12.2 6.0 7.1 4.3

Cash at end of year 4,228.4 8,729.7 5,278.0 5,426.8 ROA (%) 5.8 3.3 3.9 2.4





Strategy Update

DBS underperformed in 2010. In a year of fairly good share

price gains for equities, some Singapore banking stocks were

unfortunate underperformers, weighed down by several global

factors like the sovereign debt crisis in Europe which dampened

sentiment. As a result, the FTSE Financial Index rose by a

very modest 1.5% versus +9.9% for the STI. This despite DBS

delivering total earnings of S$1972m for the first nine months

of this year, +27%, excluding the one-off goodwill impairment

charges of S$1018m in 2QFY10.

Softer margins ahead, but within expectations. After the

last two quarters of posting better-than-market estimates

earnings, the outlook for interest income is likely to be softer

due to current low interest rates and recent measures to cool

the Singapore property market. Mortgage applications have

come off, and this means that Net Interest Margin is likely to

stay subdued. In addition, we expect this situation to persist

for a few more quarters. However, we expect Non-interest

Income to remain healthy as DBS is a leading player in the

capital market and the IPO pipeline for the 1H of 2011 looks

healthy and this will benefit DBS which has a lion share of the

local IPO market. It has also been revamping its operations

and re-investing in its brand name (the latest being its regional

campaign in six countries and its plan to expand its branch

network in China from 16 currently to 50 within three years).

The past one year of changes should place it in a position to

enjoy better fee income and this will come from its initiatives

to beef up its regional and wealth operations.

Maintain BUY. DBS has underperformed in 2010 and is down

9.0% YTD (till 10 Dec 2010). We view this discount as being

excessive and unwarranted. While challenges remain in the

global economy, DBS has been streamlining its operations

and is likely to end the year with good earnings of about

S$2622m (based on our estimates). We are going for FY11

net earnings estimates of S$2899m, +10.6%. Going into the

new year, there is likely to be a re-rating, especially with the

potential influx of more funds into the region looking for value

stocks, and we believe that DBS is likely to be a potential

candidate. We are reiterating our BUY rating for DBS and our

fair value estimate of S$16.00.

Looking attractive at current level

DBS Group Holdings Ltd15 December 2010

Maintain



Reuters Code DBSM.SI

ISIN Code D05

Bloomberg Code DBS SP


Mkt Cap (S$m/US$m) 32,364 / 23,336

Major ShareholdersTemasek 28%

Free Float (%) 43%

Daily Vol 3-mth (‘000) 5,708

52 Wk Range 13.240 - 15.800

Carmen Lee(65) 6531 9802e-mail: [email protected]

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

1.03.05.07.09.011.013.015.017.0

DB S

STI


Net Income Income 4,301 4,455 4,335 4,333

Non-Interest Income 1,752 2,148 2,710 2,693

Net profits * 1,929 2,041 1,604 2,899

EPS (cts) 0.85 0.89 0.69 1.26

PER (x) 16.6 15.7 20.2 11.2

* FY10 net earnings is S$2622m excluding one-off goodwill impairment

charge




Strategy Update

DBS' Key Financial Data

EARNINGS FORECASTYear Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F BALANCE SHEETAs at 31 Dec (S$m) FY08 FY09 FY10F FY11F

Interest Income 8,122 6,114 5,725 5,854 Share capital 4,215 8,435 8,775 8,775

Interest Expense 3,821 1,659 1,390 1,521 Revenue & other reserves 19,788 21,064 23,980 26,126

Net Interest Income 4,301 4,455 4,335 4,333 Shareholders' fund 24,003 29,499 32,755 34,901

Fee & commision income 1,274 1,394 1,365 1,451 Deposits and other accounts 163,359 178,448 184,694 188,388

Non-Interest Income 1,752 2,148 2,710 2,693 Other liabilities 60,335 41,589 47,079 46,321

Total Income 6,053 6,603 7,045 7,026 Total liabilities 232,715 229,145 251,389 255,109

Staff and operating expenses -2655 -2604 -2877 -2949 Cash and balances 15,790 22,515 23,924 22,440

Impairment charges -888 -1552 -915 -433 Loans & advances 125,841 129,973 147,139 153,025

Pretax profit 2,585 2,513 2,333 3,723 Other assets 79,823 67,993 75,738 75,980

Reported net profit 1,929 2,041 1,604 2,899 Total assets 256,718 258,644 284,144 290,010

CASH FLOW

Year Ended 31 Dec (S$m)FY08 FY09 FY10F FY11F KEY RATES & RATIOS FY08 FY09 FY10F FY11F

Pretax profits 2,139 2,228 2,333 3,723 EPS (S cents) 0.85 0.89 0.69 1.26

Depreciation 149 195 195 195 NAV per share (S cents) 10.25 10.85 11.55 12.34

Others 865 1504 2015 553 Net interest income growth (%) 4.7 3.6 -2.7 -0.1

Changes in working capital -8615 1163 4062 -2018 Non-interest income growth (%) -14.7 22.6 26.2 -0.6

Net cash from operating activities -5462 5090 8605 2453 Interest Inc / Total Inc (%) 71.1 67.5 61.5 61.7

Net cash in investing activities 2174 -81 15 13 Cost-to-income (%) 43.9 39.4 40.8 42.0Cash flow from financing activities 64 1557 -2171 -1492 PER (x) 16.6 15.7 20.2 11.2

Change in cash -3275 6603 6449 974 Price/NAV (x) 1.4 1.3 1.2 1.1

Beg cash 15,953 12,678 19,281 25,730 Dividend yield (%) 4.6 4.0 4.0 4.0

Cash at end of year 12,678 19,281 25,730 26,703 ROE (%) 9.6 9.0 6.0 10.1


* FY10 net earnings is S$2622m excluding one-off goodwill impairment charge




Strategy Update

Focusing on the integration of AMC

Ezra Holdings Ltd15 December 2010

Maintain



Reuters Code EZRA.SI

ISIN Code 5DN

Bloomberg Code EZRA SP

Issued Capital (m) 795

Mkt Cap (S$m/US$m) 1,320 / 952

Major Shareholders

Lionel Lee 23.1%


Daily Vol 3-mth (‘000) 5,933

52 Wk Range 1.504 - 2.487

Low Pei Han(65) 6531 9813e-mail: [email protected]

Demand for specialised vessels to hold up. From our talks

with industry players, demand for specialised construction

vessels such as multi-purpose support vessels and high-spec

pipelay barges in the region continues to be strong. We are

positive on the outlook of the marine construction market. In

particular, there should be long-term growth in the demand for

subsea construction vessels, driven by the push for more

pipeline and subsea equipment installation projects as well

as maintenance of present infrastructure. All of this means

more work for Ezra's specialised vessels in the long term.

AHTS charter rates to remain pressured. Consistent with

our expectations, AHTS charter rates have been facing

downward pressure for the most of this year as newbuilds

continue to be delivered. It is encouraging, however, that Ezra

recently announced that it had secured letters of intent/award

for about US$51m worth of new contracts which will charter

five AHTS vessels and a PSV; the average period for the

charters exceeds two years. We note that more than 75% of

Ezra's vessels is deepwater capable and the fleet is youngwith an average age of about three years. Most are also locked

into long-term contracts, hence we are not expecting a

significant decline in rates for the group's vessels. Meanwhile,

Ezra will also add four high-end multi-purpose PSVs to its

fleet in light of the positive outlook for the sector.

AMC acquisition to propel group, but need time for

results. The proposed acquisition of Aker Marine Contractors

(AMC) will allow Ezra to provide more comprehensive

Engineering, Procurement, Installation and Construction

(EPIC) and Subsea, Umbilicals, Risers and Flowlines (SURF)

solutions, and the group will be able to bid for larger and morecomplex subsea projects. There is also little overlap of existing

operations and the combined entity will have an enlarged

customer base. However, Ezra has to integrate AMC (which

saw negative EBITDA from Sep 2009 to Aug 2010), and we

estimate this process may take at least half a year. We

understand that AMC is bidding for about US$1.5b worth of

work in the Gulf of Mexico and the North Sea, and the clinching

of deals should improve the performance of the group

subsequently, but it is unclear when this will take place.

However, we remain positive about the group's execution and

long-term growth strategy. We maintain our BUY rating and

S$2.27 fair value estimate.

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

0.1

0.6

1.1

1.6

2.1

2.6

3.1

3.6

Ezra

STI


Revenue 329.4 353.6 473.4 569.7

EBIT 63.0 78.1 102.0 117.9P/NTA (x) 1.4 1.6 1.5 1.3

EPS (cts) 11.7 9.6 12.2 13.2

PER (x) 10.1 13.2 10.4 9.6




Strategy Update

Ezra's Key Financial Data


Year Ended 31 Aug (US$m) FY09 FY10 FY11F FY12F As at 31 Aug (US$m) FY09 FY10 FY11F FY12F

Revenue 329.4 353.6 473.4 569.7 Cash and cash equivalents 161.3 187.3 159.5 127.9

Gross profit 101.2 103.8 145.3 170.9 Other current assets 238.6 328.4 334.9 394.5

Other income -6.2 23.6 4.0 4.0 Fixed assets 298.9 611.5 634.0 693.6

Admin expenses -32.0 -49.3 -47.3 -57.0 Other long term assets 252.9 302.9 311.4 320.7

Operating profit 63.0 78.1 102.0 117.9 Total assets 951.8 1,430.1 1,439.7 1,536.8

Operating profit (ex-EI) 73.7 56.9 102.0 117.9 Debt 309.0 548.0 548.0 548.0

EBIT 63.0 78.1 102.0 117.9 Total liabilities 417.7 836.7 769.2 793.3

Profit before tax 79.2 78.9 110.3 119.0 Shareholders equity 534.1 592.9 670.1 743.0

Profit for the year 70.1 75.9 97.0 104.7 Total equity 534.1 593.4 670.5 743.5

Profit attributable to shareholders 70.1 76.1 97.0 104.7 Total equity and liabilities 951.8 1,430.1 1,439.7 1,536.8

CASH FLOW

Year Ended 31 Aug (US$m) FY09 FY10 FY11F FY12F KEY RATES & RATIOS FY09 FY10 FY11F FY12F

Op profit before working cap. chang 81.7 77.4 116.9 135.3 EPS (US cents) 11.7 9.6 12.2 13.2

Working cap, taxes and int -108.0 -26.9 -35.8 -67.0 NTA per share (US cents) 86.1 72.0 81.7 90.9

Net cash from operations -26.2 50.4 81.1 68.3 Net profit margin (%) 21.3 21.5 20.5 18.4

Purchase of PP&E -176.7 -295.3 -100.0 -80.0 PER (x) 10.1 13.2 10.4 9.6


Financing cash flow 177.0 338.3 -11.9 -19.9 Price/Book (x) 1.3 1.6 1.4 1.3

Net cash flow 15.1 29.6 -30.8 -31.6 Dividend yield (%) 0.9 0.9 1.5 2.4Cash at beginning of year 153.1 161.3 190.4 159.5 ROE (%) 13.1 12.8 14.5 14.1

FDs and cash pledged -6.7 -3.0 0.0 0.0 ROA (%) 7.4 5.3 6.7 6.8

Cash at end of year 161.3 187.3 159.5 127.9 Net gearing (%) 27.6 60.8 58.0 56.5





Strategy Update

Bountiful 4Q10 Likely

Genting Singapore15 December 2010


Carey Wong(65) 6531 9808e-mail: [email protected]

Reuters Code GNTG.SI

ISIN Code G13

Bloomberg Code GENS SP


Mkt Cap (S$m / US$m) 26,431 / 19,058Major Shareholders

Genting Berhad 51.7%


Daily Vol 3-mth (‘000) 141,785

52 Wk Range 0.835 - 2.350

Maintain


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0 0.2

0.7

1.2

1.7

2.2

Genting

Spore

STI


Revenue 630.7 491.2 2830.6 4547.2

EBITDA 26.7 -52.3 1288.2 2103.4P/NTA (x) 12.3 5.1 5.1 3.8

EPS (cts) -1.3 -2.9 8.9 15.7

PER (x) na na 24.5 13.8

Bountiful 4Q10 likely. Genting Singapore (GS) is likely to

perform well in the final quarter of 2010, the traditional holiday

period. According to management, RWS has the correct

offering to do well, given that it is pitched towards the family

and vacation crowd. As such, it expects the fourth quarter to

perform better than the third, which was also affected by the

"Ghost Month", making it "inauspicious" for some to visit the

casino. Nevertheless, management was also pleased with its

3Q10 showing, noting that its hotel occupancy was 71% withan average room rate of S$250, as it continued to receive

some 3m visitors to the integrated resort (IR). It adds that

Universal Studios Singapore (USS) has also turned cash

positive, and will gradually increase the current daily capacity

from 8k visitors to 18k by next year. GS acknowledged that

the visitors so far were "low-hanging" fruits plucked from areas

around the region; but with its enlarged marketing program,

management is confident that it can attract visitors from further

afield.

Junkets possible from early 2011. And also likely to boost

gaming revenue for GS in the coming years, news that theCasino Regulatory Authority (CRA) has received licence

applications from junket operators endorsed by Resorts World

Sentosa (RWS), where industry watchers believe that some

of these operators could get their licences by early next year.

During the recent 3Q10 briefing, management concurs with

market watchers that these licenses could be issued in early

2011. Junkets typically have their own base of "high rollers"

and continuously source for more of these players; they also

provide credit facilities for their clients, which help to reduce

the credit risk of the casinos; although casinos typically have

to pay them commission, which is then shared with their

clients. As before, we estimate that the Singapore gaming

market should stabilize around S$7b in 2011, with RWS

maintaining a slightly more dominant share of around 55%.

Depending on how many licenses are subsequently issued,

we do see room to revise up our gaming market estimates.

Maintain BUY with S$2.53 fair value. Last but not least,

we understand that management is keen to look at developed

countries - namely Japan, Taiwan or Korea - for overseas

expansion; but how far it can get into these places would

depend on legislation. For now, we are maintaining our FY10

and FY11 estimates. Our DCF-based fair value also remains

at S$2.53, offering a potential upside of 16.6% from here.

Maintain BUY.




Strategy Update

Genting's Key Financial Data


Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F

Revenue 630.7 491.2 2,830.6 4,547.2 Cash 1,008.0 2,767.7 4,497.5 6,346.8

EBITDA 26.7 -52.3 1,288.2 2,103.4 Other Current Assets 259.0 296.5 724.5 1,097.3

Operating Profit -15.8 -89.9 1,174.7 1,955.3 Fixed Assets 2,103.6 4,538.2 5,339.7 5,191.6

Fair Value Adj (Net) 33.2 -110.6 0.0 0.0 Intangible Assets 1,286.5 1,400.7 1,400.7 1,400.7

Impairment of Intangibles -100.8 0.0 0.0 0.0 Total Assets 4,718.8 9,057.6 12,046.9 14,120.9

Finance Expenses -64.2 -56.2 -123.3 -122.1 Current Liabilities less Debt 250.8 714.1 1,289.9 1,938.5

Associates -0.9 -8.9 -8.9 -8.9 Debt 1,309.1 3,750.8 4,933.1 4,884.8

Exceptionals 0.0 0.0 0.0 0.0 Other Long Term Liabilities 421.1 458.5 343.3 343.3

Pre-tax Profit -148.5 -265.7 1,042.4 1,824.2 Shareholders Equity 2,737.7 4,134.2 5,480.6 6,954.4

Net Profit -124.8 -277.6 886.1 1,568.8 Total Equity and Liabilities 4,718.8 9,057.6 12,046.9 14,120.9

CASH FLOW


Operating Profit 47.4 -32.7 1,258.5 1,890.4 EPS (S cents) -1.3 -2.9 8.9 15.7

Working Capital Changes -34.7 -31.9 74.8 475.7 Core EPS (S cents) -0.6 -1.7 8.9 15.7

Net Cash from Operations 29.7 -69.4 1,156.0 2,109.7 Core PER (x) na na 24.5 13.8

Capex -748.6 -1,994.0 -1,500.0 -450.0 Price/NTA (x) 12.3 5.1 5.1 3.8

Investing Cash flow -920.0 -1,998.8 -806.2 -89.9 EV/EBITDA (x) 795.9 -419.3 14.7 9.7

Change in Equity 0.2 1,510.3 321.0 0.0 Dividend Yield (%) 0.0 0.0 0.0 0.0Net Debt Change 278.0 2,419.1 1,182.2 -48.3 ROIC (%) -3.1 -3.5 9.8 12.4

Financing Cash Flow 243.1 3,825.6 1,379.9 -170.4 ROE (%) -4.6 -6.7 18.7 21.2

Net Cash flow -674.2 1,759.7 1,729.7 1,849.3 Net Gearing (%) 11.0 23.8 7.9 Net Cash

Ending Cash Balance 1,008.0 2,767.7 4,497.5 6,346.8 PE to Growth (x) 2.2 -0.6 0.0 0.3


Note FY08 and FY09 include discontinued operations




Strategy Update

Good Prospects for Further Growth

Hyflux Ltd15 December 2010

Maintain



Reuters Code HYFL.SI

ISIN Code 600

Bloomberg Code HYF SP


Mkt Cap (S$m / US$m) 1,871 / 1,349

Major ShareholdersOlivia Lum 31.8%


Daily Vol 3-mth (‘000) 924

52 Wk Range 2.680 - 3.770


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0

N o v - 1 0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Hyf lux

STI

1 http://english.peopledaily.com.cn/90001/90776/90882/7225347.html

2 http://www.utilities-me.com/article-897-oapec-report-highlights-growing-

water-scarcity/


Revenue 554.2 524.8 557.9 643.6

EBITDA 87.2 101.3 108.5 121.7EPS (cts) 11.3 14.3 13.2 15.3

PER (x) 29.0 22.9 24.8 21.4

P/NTA (x) 7.4 6.2 5.4 4.7

Good prospects for water treatment plays. The shortageof water around the globe is getting worse, according to Britain'schief scientist John Beddington, as climate change disruptsrainfall patterns and result in more severe droughts; the issueis further compounded by a growing world population and rapidurbanization. Separately, a recent report by EuromonitorInternational adds that the lack of water will put pressure onfood prices, restrict developing countries' efforts to reducepoverty and also hamper economic growth. However, it notes

that this will create opportunities in the water and wastewaterindustry.

Hyflux is in a sweet spot. Hyflux Ltd, as Singapore's largestlisted membrane-based water treatment company, is in asweet spot to capture these opportunities in both the waterand wastewater industry. Already sitting on an estimated orderbook of S$1715m, Hyflux intends to focus its efforts in Chinaand MENA, both regions identified by global agencies as thosemost likely to suffer chronic water shortages. According tothe World Bank, China may have a supply shortfall of 201bm3 by 2030; the PRC government has previously acknowledgedthat the water problem is severe1 . Separately, a recent report2

by the Organisation of Arab Petroleum Exporting Countries(OAPEC) warns that population growth will worsen the watershortage in the Arab world by 2025 unless there is furtherinvestment in desalination and water treatment capacity.Meanwhile, we understand that Hyflux is also actively lookingtowards the Indian subcontinent - another region expected tosee severe water shortages over the next decade.

Bonus issue an added sweetener. Seperately, Hyflux hasgotten in-principal approval from the SGX-ST for its 1-for-2 bonusissue, which management had earlier proposed during its 3Q10results to both reward shareholders and increase the liquidityof its shares. As the company has fixed the book closure dateas 22 Dec 2010, the stock will trade ex-bonus on 17 Dec. As

a recap, Hyflux had previously done a 1-for-4 bonus issue inJun 2002, another 1-for-4 in Dec 2003 and a 1-for-2 in Jul 2005.

Maintain BUY with S$3.66 fair value. In the longer term,the next catalyst will come from the signing of the two megadesalination projects in Libya (worth an estimated S$1.3-1.5b),which management notes is still in the technical discussionstage, essentially making it a mid-2011 story. In between, wealso expect Hyflux to announce smaller contract wins, mostlyfrom China. Maintain BUY with an unchanged fair value ofS$3.66 (25x FY11F EPS), or S$2.44 (adjusted for bonus issue).




Strategy Update

Hyflux's Key Financial Data


Year Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F As of 31 Dec (S$m) FY08 FY09 FY10F FY11F

Revenue 554.2 524.8 557.9 643.6 Cash 90.7 166.7 114.2 124.8

EBITDA 87.2 101.3 108.5 121.7 Other Current Assets 293.4 382.4 371.7 405.7

Depreciation & amortisation -9.7 -16.5 -19.3 -18.7 Fixed Assets 56.9 134.9 130.7 127.0

Operating Profit 77.5 84.8 89.3 103.0 Other long term assets 405.5 388.5 423.7 418.2

Net interest -5.5 -6.0 -7.8 -8.0 Total Assets 846.6 1,072.6 1,040.4 1,075.6

Associates -1.4 2.6 2.2 2.0 Current Liabilities less Debt 274.3 272.6 240.2 277.1

Exceptionals 0.0 -1.4 0.0 0.0 Debt 258.1 400.3 359.5 307.6

Pre-tax profit 70.4 83.0 83.6 97.0 Other Long Term Liabilities 6.3 6.3 6.3 6.3

Tax -8.2 -8.7 -8.4 -9.7 Shareholders Equity 297.5 365.2 406.3 456.5

Net Profit 59.0 75.0 75.3 87.3 Total Equity and Liabilities 846.6 1,072.6 1,040.4 1,075.6

CASH FLOW


Profit Before Tax 70.4 83.0 83.6 97.0 EPS (S cents) 11.3 14.3 13.2 15.3

Working Capital Changes -67.3 -44.9 -34.6 -3.6 Fully Diluted EPS (S cents) 11.0 14.0 12.6 14.7

Net Cash from Operations 22.5 54.8 34.6 112.4 PER (x) 29.0 22.9 24.8 21.4

Capex -18.8 -8.6 -15.0 -15.0 Price/NTA (x) 7.4 6.2 5.4 4.7

Investing Cash flow -96.6 -95.8 -20.0 -15.7 EV/EBITDA (x) 21.6 19.2 18.1 15.6

Change in Equity 3.3 4.7 0.0 0.0 Dividend Yield (%) 1.0 1.5 1.8 2.0Net Debt Change 50.7 134.6 -40.8 -52.0 ROIC (%) 10.6 10.0 9.8 11.4

Financing Cash Flow 43.3 121.3 -67.1 -86.2 ROE (%) 19.9 20.9 18.5 19.1

Net Cash flow -29.6 75.3 -52.5 10.5 Net Gearing (%) 56.2 64.0 60.4 40.0

Ending Cash Balance 90.7 166.7 114.2 124.8 PE to Growth (x) 0.4 0.9 -3.3 1.3





Strategy Update

New order flow gaining momentum

Demand for high spec jack-ups has returned. BothSembcorp Marine (SMM) and Keppel Corp have collectivelyannounced seven new rig orders with options for nine moresince Oct, with the bulk of these contracts secured by theformer. Demand for premium jack-up rigs (independent leg unitswith water depth greater than 300ft, and higher hook loadcapacity) has returned, illustrated by the recent orders. Thisreaffirms the confidence in the jack-up rig market, in particularfor high-spec rigs. Indeed, ODS-Petrodata predicts that thepremium jack-up market will see a potential shortage of unitsby 20151 .

New order flow gaining momentum. Order flows are gainingmomentum and we should see additional new orders that willbenefit the entire sector with renewed capex rollouts. MaerskDrilling, for instance, aims to order a new rig every six monthsas rental rates rise and consolidation takes place in theindustry2 . According to Upstream, FloaTec (a JV of Keppel) isone of five contenders for a major engineering contract forAustralia's Browse gas project3 . Keppel's Brasfels yard alsolooks set to secure work4 for the topside integration of two

FPSOs to be used in Brazil's Santos Basin.

Petrobras results to be out by next few months. Thoughthere is talk that results of the Petrobras 28 rig tender may beknown by the end of this year, we conservatively expect thefinal outcome by 1Q11 to factor in administrative issues andpossible delays. We continue to believe that Keppel is well-positioned to secure orders from the tender, althoughnewswires have reported the possibility of Petrobras cancellingthe chartered units segment of the rig tender. Should thismaterialise, we think Petrobras may allocate more units tothe first segment (owned drillships) since it had wanted moredrillships originally. Hence this increases the chances of Keppeland SMM securing a batch of drillships each in the first section

of the tender.

Maintain BUY. Keppel's O&M arm has secured about S$2.6bworth of new orders YTD vs. our full year estimate of S$2.5b.Currently we still see good value in Keppel Corp's stock, andshould the group secure its fair share of orders in the comingquarter, there is further room for better stock performance. Itsproperty arm has also done well in the past year and wecontinue to expect healthy sales contribution from it. As such,we maintain our BUY rating and fair value estimate of S$12.50.

Keppel Corporation

15 December 2010

Maintain



Reuters Code KPLM.SI

ISIN Code BN4

Bloomberg Code KEP SP


Mkt Cap (S$m/US$m) 17,413 / 12,555Major Shareholders

Temasek Holdings 21.5%


Daily Vol 3-mth (‘000) 5,343

52 Wk Range 7.865 - 11.060


1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

Keppel

Corp

STI

1 "Jackup rig market report 2010- 2018". ODS-Petrodata. Nov 2010.2 "Maersk Drilling plans to order rig every six months, Chief Hemmingsen

says". Bloomberg. 16 Nov 2010.3 "Woodside closing in on Browse picks". Upstream. 19 Nov 2010. 4 "Brasfels in line for Petrobras floater double". Upstream. 10 Nov 2010.


Revenue 11,805.4 12,247.1 9,968.2 10,922.1

EBITDA 1,377.6 1,679.1 1,943.8 1,856.8

P/NTA (x) 3.8 2.9 2.6 2.4

EPS (cts) 69.0 102.0 85.2 76.3

PER (x) 15.7 10.7 12.7 14.2




Strategy Update

Keppel Corp's Key Financial Data



Revenue 11,805.4 12,247.1 9,968.2 10,922.1 Cash and cash equivalents 2,244.9 2,935.8 2,934.5 2,583.6

Operating profit 1,238.5 1,504.8 1,738.9 1,574.9 Other current assets 5,845.6 5,649.7 6,220.2 6,771.7

EBITDA 1,377.6 1,679.1 1,943.8 1,856.8 Property, plant, and equipment 1,872.6 2,157.2 2,202.2 2,320.4

Finance costs & invt income 4.4 29.1 3.2 -11.1 Total assets 16,746.4 17,306.9 18,402.5 18,871.1

Associates and JV 354.0 321.7 200.4 210.4 Debt 1,970.2 1,759.2 2,300.0 2,300.0

Exceptionals 12.6 322.1 0.0 0.0 Current liabilities excluding debt 7,646.5 6,423.4 6,001.3 5,658.7

Pre-tax profit (excl. EI) 1,596.8 1,855.6 1,942.4 1,774.2 Total liabilities 9,997.9 8,594.3 8,713.1 8,370.5

Profit before tax 1,609.4 2,177.7 1,942.4 1,774.2 Shareholders equity 4,596.2 5,985.3 6,762.1 7,374.5

Minority interests -223.4 -204.7 -200.1 -198.7 Total equity 6,748.5 8,712.6 9,689.4 10,500.6

Profit attributable to shareholders 1,098.0 1,625.1 1,363.5 1,220.6 Total equity and liabilities 16,746.4 17,306.9 18,402.5 18,871.1

CASH FLOW


Op profit before working cap. chang 1,395.7 1,708.6 1,968.7 1,882.9 Core EPS (S cents) 69.0 79.3 85.2 76.3

Working cap, taxes and int 651.1 -1,038.4 -1,443.0 -1,300.4 EPS (S cents) 69.0 102.0 85.2 76.3

Net cash from operations 2,046.8 670.1 525.7 582.5 NTA per share (S$) 2.8 3.7 4.2 4.6

Purchase of PP&E -399.6 -475.8 -500.0 -400.0 Net profit margin (%) 9.3 13.3 13.7 11.2

Other investing flows 228.4 899.3 56.6 74.8 PER (x) 15.7 10.7 12.7 14.2

Investing cash flow -171.2 423.5 -443.4 -325.2 Price/NTA (x) 3.8 2.9 2.6 2.4

Financing cash flow -1,255.6 -376.7 -81.8 -608.2 EV/EBITDA (x) 12.3 9.6 8.6 9.2

Net cash flow 620.0 717.0 0.4 -350.9 Dividend yield (%) 3.2 5.6 3.6 3.5

Cash at beginning of year 1,597.1 2,244.9 2,935.8 2,934.5 ROE (%) 23.9 27.2 20.2 16.6

Cash at end of year (incl ODs) 2,244.9 2,935.8 2,934.5 2,583.6 Net gearing (%) Net cash Net cash Net cash Net cash





Strategy Update

Most prolific Industrial REIT acquirer

15 December 2010

Maintain



Reuters Code MAPL.SI

ISIN Code M44U

Bloomberg Code MLT SP


Mkt Cap (S$m/US$m) 2,244 / 1,618

Major Shareholders

Temasek Holdings 40.8%


Daily Vol 3-mth (‘000) 5,396

52 Wk Range 0.716 - 0.945

Mapletree Logistics Trust

Riding on Asia's Acquisition Wave. Mapletree Logistics

Trust (MLT) has been focusing on inorganic growth for the

most part of 2010. The latest acquisition was the Toki Logistics

Centre for S$16.2m. Year-to-date, MLT has completed the

acquisitions of 12 properties at NPI yields of 7%-9% in Asia

after raising S$305m via equity in Sep 10. This was in stark

contrast to 2009, where it only completed one acquisition. Itnow has 94 properties, comprising 52 properties in Singapore,

eight in Hong Kong, six in China, 11 in Malaysia, 14 in Japan,

two in South Korea and one in Vietnam. Going forward, MLT

has stated that it will continue its pipeline of accretive third-

party acquisition opportunities in markets such as Japan &

Singapore, which offer attractive NPI yields.

Favorable Industrial Outlook. According to DTZ, there is a

total of 398m sf of industrial space in Singapore as at 1Q10,

with 26.9m sf of new supply expected over the next three

years (majority pre-committed). The 3Q10 price and rental

indices of industrial space also continued to improve by 8.3%

and 4.8% QoQ, respectively. With improved rail connectivity

to the suburban regions, we also expect further upside to the

industrial buildings situated near the upcoming MRT lines.

MLT has some 51% of its net property income (NPI) derived in

Singapore. In line with our OVERWEIGHT rating for the

Industrial REITs subsector, we think MLT will likewise benefit

from positive rental reversions in FY11-FY12. Asia is also

expected to lead the industrial recovery due to increasing trade

flows and domestic consumption in China (+Hong Kong) and

Vietnam, which constitute 25% of MLT's NPI.

Valuations. Given the continued pick-up in industrial space

demand and the strengthening of industrial rents, we thinkMLT looks set to capitalize on the recovery cycle in Asia. The

full effect of its announced acquisitions should also improve

its top-line and DPU contributions by 2011. We are positive

on MLT's track record in undertaking accretive acquisitions

that boost distributable income. Sponsor, Mapletree

Investments, and Itochu also plan to develop logistics built-to-

suit projects of approx US$300-500m over the next 3-5 years,

which will be offered to MLT on a right-of-first refusal basis,

further providing MLT with a pipeline of potential assets for

future acquisitions. Maintain BUY with a RNAV-derived fair value

of S$1.00 (14.9% estimated total return).

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

0.10.20.3

0.40.50.60.70.80.91.0

Mapletree

Logistics

STI

Ong Kian Lin(65) 6531 9810e-mail: [email protected]


Revenue 184.9 206.8 227.9 258.6

NPI 161.0 180.8 199.9 225.0

Distributable inc 97.4 117.9 133.4 151.4

DPU yield (%) 7.8 6.5 6.7 6.7

P/NAV (x) 1.0 1.1 1.1 1.1




Strategy Update

Mapletree Logistics Trust's Key Financial Data



Gross revenue 184.9 206.8 227.9 258.6 Cash and cash equivalents 81.9 67.4 88.6 98.3

Property expenses -23.9 -25.9 -28.0 -33.6 Total current assets 102.9 83.5 111.2 122.7

Net property income 161.0 180.8 199.9 225.0 Investment properties 2943.4 2916.7 3451.7 3451.7

Manager's management fees -19.0 -21.9 -22.3 -26.6 Total assets 3046.3 3000.2 3562.9 3574.4

Borrowing costs -36.9 -33.2 -30.7 -37.7 Current liabilities ex borrowings 136.0 121.9 126.7 137.1

Net investment income 99.6 117.2 145.1 156.4 Total borrowings 1159.4 1092.6 1321.9 1321.9

Chg in value of invt properties 94.1 -16.5 13.1 0.0 Other long term liabilities 28.8 32.4 33.0 33.0

Total return 160.1 94.7 152.3 152.4 Total liabilities 1324.2 1246.8 1481.6 1492.0

Adjustment -62.7 23.2 -18.9 -1.0 Total equity 1722.0 1753.3 2081.3 2082.3

Amt distributable to unitholders 97.4 117.9 133.4 151.4 Total liabilities and equity 3046.3 3000.2 3562.9 3574.4

CASH FLOW


Operating cashflows 152.9 149.9 158.9 198.5 Units outstanding 1939.3 2054.3 2426.7 2426.7

Purchase of invt properties -355.3 -48.0 -540.6 0.0 DPU (S cents) 7.2 6.0 6.2 6.2

Investing cash flows -355.0 -47.7 -540.8 0.4 CFPU (S cents) 7.9 7.3 6.5 8.2

Proceeds from new units 606.7 79.4 305.0 0.0 NAV (S$) 0.9 0.9 0.9 0.9

Proceeds from borrowings 544.7 338.8 616.2 0.0 DPU yield (%) 7.8 6.5 6.7 6.7

Financing cash flows 232.8 -115.0 403.8 -189.1 P/CF (x) 11.7 12.7 14.1 11.3

Net change in cash 30.6 -12.8 21.9 9.7 P/NAV (x) 1.0 1.1 1.1 1.1Cash at beg of period 45.7 81.9 67.4 88.6 NPI margin (%) 87.1 87.5 87.7 87.0

Exchange rate effects 5.6 -1.7 -0.7 0.0 Distr to revenue (%) 52.7 57.0 58.5 58.5

Cash at end of period 81.9 67.4 88.6 98.3 Total debt/Total assets (x) 0.4 0.4 0.4 0.4





Strategy Update

Earnings to take flight in 2011

Strong 3Q10; earnings to accelerate in FY11. Noble Group(Noble) recently reported a strong set of 3Q10 results. Weare positive on the stock in anticipation of earnings accelerationin FY11, as the group begins to reap the fruits of its recentpipeline investments. As a recap, Noble beat expectations bydelivering a 78.7% YoY jump in 3Q10 revenue to US$14.9band a 40.6% YoY increase in gross profit to US$442.3m.Recurring net profit was flat YoY at US$131.1m. Sequentially,these represented a 15.6% improvement in revenue, and more

significantly, a 178% jump in recurring net profit, demonstratingits sharp reversal from a lacklustre 2Q10. We expect Noble'searnings to continue to be buoyed by strong underlyingfundamentals for commodities such as energy and agriculture.The group has spent US$2.8b expanding its pipeline since2007 and several of these investments are nearing maturity,adding a further boost to earnings from 4Q10 onwards.

Performance buoyed by Agriculture and Energy. Noble'srobust 3Q10 performance was driven by its Agriculture andEnergy segments, which benefitted from stronger volumes andhigher prices amid stabilising economic conditions. Overallgross profit margin contracted by 0.8ppt YoY (but expanded

0.6ppt QoQ) due to higher revenue contribution from the Energysegment which entails lower margins. Core net profit margineased 0.7ppt (but gained 0.5ppt QoQ) to 0.9%. Agriculture,whose 2Q10 margins were hurt by challenging soybeanmarkets, surprised pleasantly with a record high gross profitof US$237.5m in 3Q10 as gross profit margin rebounded by2.3ppt YoY and 4.0ppt QoQ to 6.7%. Management expressedconfidence in this segment's FY11 performance as it has lockedin improved soy crushing margins.

Preferred pick within commodities sector. Noble hasreaffirmed its target of achieving US$1b in earnings over thenext three years, implying a 24% CAGR between FY09 andFY13. With its strong balance sheet, the group remains well-

positioned to capture any investment opportunities that mayarise. While China's price controls may imply volatileagricultural margins in the near term, Noble's well-diversifiedbusiness model means that continued growth from othersegments and geographies will offset underperformance fromany single business unit. With earnings expected to bepropelled by pipeline investments coming on stream in 2011,Noble is among our preferred picks within the commoditiessector. We reiterate our BUY rating with S$2.59 fair valueestimate. Key risks that may impede the group's performanceinclude longer-than-expected gestation periods for itsinvestments, as well as continued USD/SGD weakness, which

could lead to translation losses.

Noble Group15 December 2010

Maintain


Closing price (10 Dec): S$2.12Fair Value: S$2.59

Reuters Code NOBG.SI

ISIN Code N21

Bloomberg Code NOBL SP


Mkt Cap (S$m/US$m) 12,776 / 9,212

Major Shareholders

Fleet Overseas (NZ) 23.5%


Daily Vol 3-mth (‘000) 28,011

52 Wk Range 1.540 - 2.232

Lee Wen Ching(65) 6531 9806e-mail: [email protected]

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0 0.2

0.7

1.2

1.7

2.2

2.7

3.2

3.7

Noble Grp

STI


Revenue 36,090.2 31,183.1 50,282.0 60,798.8

Gross Profit 1,347.6 1,105.0 1,357.6 1,702.4

P/NAV (x) 2.8 2.1 2.9 2.5

EPS (cts) 17.5 14.5 8.6 11.7

PER (x) 12.0 14.6 21.6 13.9




Strategy Update

Noble Group's Key Financial Data


Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F As at 31 Dec (US$m) FY08 FY09 FY10F FY11F

Revenue 36,090.2 31,183.1 50,282.0 60,798.8 Cash and cash equivalents 1,318.2 937.3 2,700.7 2,451.2

Gross Profit 1,347.6 1,105.0 1,357.6 1,702.4 Inventories 1,757.0 3,414.6 3,519.7 3,951.9

Other income 103.9 125.5 70.4 60.8 Property, plant, equipment 1,003.8 1,522.7 2,016.5 2,295.7

Operating expenses -567.6 -422.9 -597.4 -715.0 Total assets 8,152.6 10,655.0 13,831.5 15,211.4

EBIT 883.9 807.6 830.7 1,048.2 Debt 2,556.1 3,541.1 5,833.7 5,833.7

Associates & JV -15.8 -24.8 -6.8 -6.8 Current liabilities excluding debt 3,600.4 3,937.0 4,596.2 5,435.8

PBT 676.0 620.2 584.0 793.1 Total liabilities 6,291.8 7,616.8 10,480.2 11,330.4

PAT 579.7 555.1 519.7 705.9 Shareholders equity 1,851.1 2,955.4 3,344.3 3,872.6

Reported net profit 577.3 556.0 518.5 704.4 Total equity 1,860.9 3,038.2 3,351.2 3,881.1

Recurring net profit 437.8 429.7 453.7 704.4 Total equity and liabilities 8,152.6 10,655.0 13,831.5 15,211.4

CASH FLOW

Year Ended 31 Dec (US$m) FY08 FY09 FY10F FY11F KEY RATES & RATIOS FY08 FY09 FY10F FY11F

Op profit before working cap. 958.1 877.5 940.6 1,174.0 EPS (US cents) 17.5 14.5 8.6 11.7

Working cap, taxes and interest 512.3 -1,687.1 -828.0 -847.5 NAV per share (US cents) 57.6 79.0 55.7 64.5

Net cash from operations 1,470.4 -809.6 112.5 326.5 PBT margin (%) 1.9% 2.0% 1.2% 1.3%

Purchase of PP&E -506.2 -626.9 -600.0 -400.0 Net profit margin (%) 1.6% 1.8% 1.0% 1.2%

Investing cash flow -584.4 -1,136.9 -512.1 -400.0 PER (x) 12.0 14.6 21.6 13.9

Financing cash flow -176.9 1,399.0 2,163.0 -176.1 Price/NAV (x) 2.8 2.1 2.9 2.5

Net cash flow 709.1 -547.5 1,763.4 -249.5 EV/EBITDA (x) 11.4 13.0 13.6 11.2

Cash at beginning of year 471.1 1,175.8 619.8 2,383.2 Dividend yield (%) 2.7% 2.2% 1.3% 1.8%

Cash at end of year 1,175.8 619.8 2,383.2 2,133.6 ROE (%) 31.2% 18.8% 15.5% 18.2%

Cash and cash equivalents 1,318.2 937.3 2,700.7 2,451.2 Net gearing (%) 66.9 88.1 93.7 87.3





Strategy Update

Good start to FY11; growth strategy intact . Olam

International (Olam) kicked off its FY11 on a strong note and

remains poised for sustained medium-term growth, driven by

robust underlying fundamentals for agricultural commodities,

coupled with volume and margin growth on the back of the

group's ongoing expansion initiatives. To recap, Olam posted

its 1Q11 results with a 30.6% YoY growth in revenue to S$2.5b.

Net profit jumped 56.2% YoY to S$29.7m. We are projecting

earnings CAGR of 17% over the next two years and believe

that profits may surpass expectations should the group embark

on more M&A activity with near-term earnings accretion.

Beyond structural bottlenecks which are expected to keep

physical markets tight in the near term, we expect Olam to

grow its earnings in the medium term through market share

gains and margin expansion.

Volume growth, improved profitability to drive

performance. Olam's 1Q11 growth was supported by broad-

based revenue and volume growth across all segments. Overall

volume grew 21.1% as the group gained market share amid

industry consolidation. Margin expansion further boosted thegroup's bottomline with Gross Contribution (GC) / ton and Net

Contribution (NC) / ton growing 14.4% and 16.0% YoY,

respectively, demonstrating the group's success in extracting

greater value along the supply chain. Management sees room

for margin expansion via the provision of value-added services.

As the industry continues to consolidate in 2011, we see room

for Olam to further expand its market share.

Financial flexibility offers strategic advantage. As the

industry continues to consolidate in 2011, companies that are

nimble to capitalize on opportunistic investments will have a

strategic advantage over their peers. As such, we believe thatOlam, with its ready access to capital, will extend its

dominance against this landscape. The group's balance sheet

remains sound with adjusted net gearing of 0.59x. Credit

facilities remain available to the group, which recently

completed a US$250m bond issue and US$350m loan facility

and is backed by Temasek Holdings as a strategic shareholder.

Olam has embarked on several investments, with the most

recent being the setting up of a sugar refinery in Nigeria and

the construction of a fertilizer complex and development of

palm plantations in Gabon. Such investments should build a

larger volume and revenue base to support its sustained long-

term growth. We maintain our BUY rating on Olam. Our fair

value estimate remains at S$3.53.

Strategically positioned amid industry consolidation

Olam International Ltd15 December 2010

Maintain



Reuters Code OLAM.SI

ISIN Code O32

Bloomberg Code OLAM SP


Mkt Cap (S$m / US$m) 6,588 / 4,750

Major ShareholdersKewalram Singapore Ltd 21.6%


Daily Vol 3-mth (‘000) 7,555

52 Wk Range 2.180 - 3.410

Lee Wen Ching(65) 6531 9806e-mail: [email protected]

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Olam Int'l

STI


Revenue 8,587.9 10,455.0 11,499.6 12,653.1

Gross Profit 1,746.4 2,230.4 2,391.9 2,631.8

P/NAV (x) 5.1 3.5 3.3 2.9

EPS (cts) 10.6 13.5 14.6 17.4

PER (x) 29.2 23.0 21.2 17.8




Strategy Update

Olam's Key Financial Data


Year Ended 30 Jun (S$m) FY09 FY10 FY11F FY12F As at 30 Jun (S$m) FY09 FY10 FY11F FY12F

Sale of goods 8,587.9 10,455.0 11,499.6 12,653.1 Cash and cash equivalents 533.8 671.5 600.0 466.6

Other income 138.5 241.2 0.0 0.0 Inventories 1,966.4 2,537.9 2,759.9 3,036.7

Gross profit 1,746.4 2,230.4 2,391.9 2,631.8 Property, plant, equipment 517.4 1,054.2 1,061.3 1,067.7

Operating expenses -1,290.3 -1,595.6 -1,766.3 -1,938.9 Total assets 5,415.4 7,799.5 7,997.0 8,330.1

EBIT 456.1 634.7 625.6 693.0 Debt 3,174.2 4,503.0 4,478.1 4,455.7

Finance costs -239.2 -227.5 -268.7 -267.3 Current liabilities excluding debt 1,132.5 1,396.0 1,385.6 1,463.4

PBT 258.0 420.2 356.9 425.6 Total liabilities 4,369.5 6,028.8 5,993.5 6,048.8

PAT 252.0 359.7 310.5 370.3 Shareholders equity 1,045.8 1,771.9 2,004.7 2,282.5

Reported net profit 252.0 359.5 310.5 370.3 Total equity 1,045.9 1,770.7 2,003.6 2,281.3

Recurring net profit 182.2 271.8 310.5 370.3 Total equity and liabilities 5,415.4 7,799.5 7,997.0 8,330.1

CASH FLOW

Year Ended 30 Jun (S$m) FY09 FY10 FY11F FY12F KEY RATES & RATIOS FY09 FY10 FY11F FY12F

Op profit before working cap. 331.0 531.3 678.5 746.5 EPS (S cents) 10.6 13.5 14.6 17.4

Working cap, taxes and interest 96.6 -1,588.2 -587.5 -704.9 NAV per share (S cents) 61.0 87.6 94.4 107.4

Net cash from operations 427.6 -1,056.9 91.0 41.6 PBT margin (%) 3.0 4.0 3.1 3.4


Investing cash flow -544.1 -750.2 -60.0 -60.0 PER (x) 29.2 23.0 21.2 17.8

Financing cash flow 198.8 1,984.2 -102.5 -115.0 Price/NAV (x) 5.1 3.5 3.3 2.9

Net cash flow (Incl forex) 104.4 235.3 -71.6 -133.4 EV/EBITDA (x) 17.9 14.4 14.9 13.7 Cash at beginning of year 164.3 268.7 503.9 432.4 Dividend yield (%) 1.1 1.5 1.2 1.4

Cash at end of year 268.7 503.9 432.4 299.0 ROE (%) 24.1 20.3 15.5 16.2

Cash and cash equivalents 533.8 671.5 600.0 466.6 Net gearing (%) 252.5 216.2 193.4 174.8





Strategy Update

A steady consistent performer. Pacific Andes Resources

Development (PARD) has been a consistent performer in the

past few years. In terms of profits, this trend has been rising

from only HK$90m in FY04 to HK$773m in the recent financial

year end. This implied a compounded average growth rate

(CAGR) of 43% during this period. Revenue growth is also

strong at a CAGR of 20% for the same period, reachingHK$7432m recently. Despite going through the high-growth

phase in the past few years, management is not sitting on its

laurels as we see potential for the group to further develop its

operations via acquisitions and better utilisation of its assets

and we are projecting growth of 16.7% and 21.8% respectively

for revenue and profits in the coming two years. This will be

buoyed by the expansion of its fishing and fishing-related

businesses.

Going into the salmon business. Recently, it announced

the acquisition of a 19.76% stake in ASX-listed Tassal Group

Limited (Tassal) for A$51.7m (or S$67m). Tassal is a vertically

integrated salmon grower, processor, seller and marketer.

According to management, Tassal is also Australia's largest

producer and marketer of salmon with brand names such as

Tassal Pure Tasmania, Tasmanian Smokehouse, twiceaweek

and Superior Gold. It employs over 650 people and harvests

over 12,000 tonnes of salmon per annum. Tassal's 5-year

EBITDA CAGR growth rate is 34% and this reached A$50.3m

in FY2010. The acquisition of Tassal is priced at A$1.79 per

share. PARD will be financing this transaction from its own

internal sources. We view this deal positively as it offers a

complementary fit into PARD's current operations.

Still a BUY. In addition, we reiterate our view that consumptionof seafood is still on an uptrend and the above transaction,

together with its existing operations, will aid in its positioning

to tap on still growing demand for fish and related products. It

is currently trading at only 0.8x NAV and undemanding PERs

of 6.6x FY11F earnings and 5.0x FY12F earnings besides a

dividend yield of 4.1%. It has also reduced its total borrowings

from HK$6513m as at 28 Jun 2010 to HK$5959m by 28 Sep

2010. This brings its net debt to equity ratio down to 61%, of

which a significant 56% is short term debt and are largely

trading debts for its SCM operation. We are retaining our BUY

rating and fair value estimate of S$0.40.

A consistent performer

Pacific Andes Resources

Development

15 December 2010

Maintain



Reuters Code PACF.SI

ISIN Code P11

Bloomberg Code PAH SP


Mkt Cap (S$m/US$m) 966 / 697

Major ShareholdersPAIH 58%

Free Float (%) 28%

Daily Vol 3-mth (‘000) 4,334

52 Wk Range 0.265 - 0.415


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0

0.0

0.1

0.2

0.2

0.3

0.4

0.5Pacific Andes

Resources

STI

(HK$m) FY9/09A FY10A FY11F FY12F

Revenue 7,610 7,432 8,532 10,127Gross Profits 1,550 1,830 2,068 2,575

Net Profits 733 773 864 1,147

EPS (HK cts) 26.3 27.2 30.4 40.4

PER (x) 3.8 7.4 6.6 5.0




Strategy Update

PARD's Key Financial Data

EARNINGS FORECAST

Year Ended 28 Sep (HK$m)FY09A FY10A FY11F FY12F

BALANCE SHEET

As at 28 Sep (HK$m)FY09A FY10A FY11F FY12F

Revenue 7,610 7,432 8,532 10,127 Share capital 705 721 721 721

Gross Profit 1,550 1,830 2,068 2,575 Reserves 5,143 6,254 6,882 7,792

Other Income 158 166 90 65 Minority interest 1,166 2,265 1,176 951

Operating expenses -370 -503 -513 -462 Total equity 7,014 9,240 8,779 9,464

EBIT 1337 1493 1645 2178 Fixed assets 7,622 9,664 9,856 10,094

Finance costs -376 -370 -328 -423 Current assets 5,237 6,518 5,134 5,422

Joint ventures / associates 1 2 1 1 - Inventory and receivables 4,801 5,993 4,236 4,839

Pretax profit 962 1124 1318 1756 Current liabilities 2,874 3,778 3,135 2,882

Net profit 733 773 864 1147 Long-term liabilities 2,972 3,164 3,075 3,170

Net profit - before exceptionals 733 773 864 1147 Total assets 7,014 9,240 8,779 9,464

CASH FLOW

Year Ended 28 Sep (HK$m)FY09A FY10A FY11F FY12F Key RATES & RATIOS FY09A FY10A FY11F FY12F

Op profit 401.6 1,124.4 1,318.4 1,755.8 EPS (HK cents) 26.3 27.2 30.4 40.4

Non-cash items 326.2 902.3 670.4 767.8 NAV per share (HK$) 2.1 2.5 2.7 3.0

Changes in working capital -587 -1018 1581 -467 Gross margin (%) 20.4 24.6 24.2 25.4

Operating cash flow 141 1008 3570 2057 EBIT margin (%) 17.6 20.1 19.3 21.5

Net cash from operating activities -31 658 3179 1546 Net profit margin (%) 9.6 10.4 10.1 11.3

Net cash used in investing activities -1065 -2298 -1999 -1589 PER (x) 3.8 7.4 6.6 5.0

Cash flow from financing activities 1,094.0 1,719.1 -781 -281 Price/NAV (x) 1.0 0.8 0.8 0.7Net cash flow -3 78.8 398 -324 Dividend yield (%) 1.8 4.1 4.1 4.1

Cash at beginning of year 171.1 168.5 247.3 645.7 ROE (%) 15.0 13.5 11.9 14.2

Cash at end of year 168.5 247.3 645.7 321.5 Net gearing (%) 72.8 61.8 56.3 52.8





Strategy Update

Securing its fair share of orders

SembCorp Marine Ltd15 December 2010

Reuters Code SCMN.SI

ISIN Code S51

Bloomberg Code SMM SP


Mkt Cap (S$m/US$m) 10,637 / 7,670

Major Shareholders

SembCorp Industries 61.0%


Daily Vol 3-mth (‘000) 6,184

52 Wk Range 3.200 - 5.200


Demand for high spec jack-ups has returned. Demand for

premium high-spec jack-up rigs is returning: Sembcorp

Marine's (SMM) PPL Shipyard won contracts to build two such

rigs with options for three more from Atwood Oceanics in Oct

while the group's Jurong Shipyard also secured orders for two

premium jack-ups with options for another four from Seadrill

in the same month. In Nov, PPL Shipyard signed a contract to

sell a high spec jack-up that is under construction to

Transocean. Keppel Corp also won two orders from MermaidMaritime with options for two more in Oct.

Margins likely to remain strong. Gross profit margins

increased from 13.6% in 3Q09 and 21.6% in 2Q10 to 29.8%

in 3Q10, though the resumption of profit recognition of the CJ-

70 harsh environment rig resulted in an upward bias. We expect

margins to normalize in 4Q10, but should the options for

recently secured rig deals be exercised, the construction of

repeated units may result in better margins due to higher

productivity.

Petrobras results to be out by next few months. Thoughthere is talk that results of the Petrobras 28-rig tender may be

known by the end of this year, we conservatively expect the

final outcome by 1Q11 to factor in administrative issues and

possible delays. Meanwhile, newswires have reported the

possibility of Petrobras cancelling the chartered units segment

of the rig tender (which SMM did not participate in). Should

this materialise, we think Petrobras may allocate more units

to the first segment (owned drillships) since it had wanted

more drillships originally. Hence this increases the chances

of SMM securing a batch of drillships in the first section of the

tender.

Order flows gaining momentum. Order flows are gaining

momentum and we should see additional new orders in the

next quarter that will benefit the entire sector with renewed

capex rollouts. Besides oil drillers, investors and speculators

are also starting to enter the market. Recall that Keppel

recently secured an order for a jack-up rig from a subsidiary of

Ferncliff TIH AS Group. Unlike previous contracts that have

been secured recently, the owner of this rig is an investment

company. Should we see more of such developments, it will

underscore the confidence that the investment community has

in the offshore rig market. After securing about S$2.5b worth

of new orders YTD, SMM has already met its new order target

for this year. We maintain our BUY rating with fair value estimateof S$5.70.

1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

M a y - 0 8

S e p - 0 8

J a n - 0 9

M a y - 0 9

S e p - 0 9

J a n - 1 0

M a y - 1 0

S e p - 1 0

0.5

1.5

2.5

3.5

4.5

5.5

STI

SembCorp

Marine

Maintain




Revenue 5,063.9 5,724.7 5,092.1 5,169.9

Gross Profit 655.2 986.1 1,018.4 889.2

P/NTA (x) 8.1 5.6 4.5 3.8

PER (x) 24.6 15.1 13.2 16.3

EPS (cts) 20.8 33.8 38.8 31.5




Strategy Update

Sembcorp Marine's Key Financial Data



Revenue 5,063.9 5,724.7 5,092.1 5,169.9 Cash and cash equivalents 2,054.0 1,978.5 2,175.6 2,429.8

Gross profit 655.2 986.1 1,018.4 889.2 Other current assets 1,381.5 1,539.3 1,593.8 1,721.6

Operating and admin expenses -153.3 -123.7 -152.9 -133.9 Property, plant, and equipment 697.7 678.4 900.9 941.1

EBITDA 572.5 937.6 938.7 841.7 Total assets 4,611.8 4,687.5 5,311.4 5,898.3

Operating profit 501.8 862.4 865.5 755.3 Debt 272.0 30.9 350.0 450.0

Other expenses/income -22.2 19.9 83.5 53.6 Current liabilities excluding debt 2,909.4 2,623.3 2,407.3 2,419.2

Associates 65.3 25.4 52.3 56.9 Total liabilities 3,251.9 2,727.1 2,830.6 2,936.1

Pre-tax profit 545.0 907.6 1,001.3 865.8 Shareholders equity 1,318.0 1,884.1 2,379.4 2,804.3

Profit for the year 451.2 756.8 831.1 710.0 Total equity 1,360.0 1,960.4 2,480.8 2,962.3

Profit attributable to shareholders 429.9 700.1 806.1 653.3 Total equity and liabilities 4,611.8 4,687.5 5,311.4 5,898.3

CASH FLOW


Op profit before working cap. chang 634.7 960.5 938.7 975.7 Earnings per share (S cents) 20.8 33.8 38.8 31.5

Working cap, taxes and int 1,375.7 -546.7 -499.2 -391.7 NTA per share (S cents) 63.6 90.7 114.3 134.7

Net cash from operations 1,916.9 413.7 439.5 583.9 Gross profit margin (%) 12.9 17.2 20.0 17.2


Other investing flows 11.9 6.4 3.4 5.0 PER (x) 24.6 15.1 13.2 16.3


Financing cash flow -518.4 -428.7 -45.8 -134.7 EV/EBITDA (x) 18.6 11.3 11.3 12.6Net cash flow 1,313.6 -75.5 197.1 254.2 Dividend yield (%) 2.1 2.9 2.1 2.1

Cash at beginning of year 740.5 2,054.0 1,978.5 2,175.6 ROE (%) 34.2 40.2 34.9 25.3

Cash at end of year 2,054.0 1,978.5 2,175.6 2,429.8 Net gearing (%) Net cash Net cash Net cash Net cash





Strategy Update

Maintain BUY with S$3.02 Fair Value

Earlier-than-expected recovery in margins. StarHub Ltd

recently posted a much better-than-expected set of 3Q10

results, with the biggest surprise coming from a sooner- and

stronger-than-expected recovery in margin; service EBITDA

margin recovered to around 32.3% for the quarter, compared

to 25.9% in 2Q10, and was almost back to the 33.4% level

seen in 3Q09, largely thanks to the absence of the BPL

(Barclays Premier League) broadcast cost and other premium

sports content. For 9M10, its service EBITDA margin is back

to around 26.9%, though off 9M09's 32.6%, StarHub is

confident it can achieve 28% for the full year.

Margin improvement likely to come from Pay TV. While

we expect StarHub to benefit from the modest growth in the

mobile market in 2011, buoyed by the expected increase in

tourist arrivals, more outbound travellers, and still-robust

economic growth in Singapore, we do not see much room for

further EBITDA margin improvements, as acquisition costs

may remain high (due to bigger subsidies for the increasingly

popular smartphones), while ARPUs may stay flat; this as

higher data usage may replace voice traffic. Instead, we expect

its Pay TV margins to improve further, as it will continue toenjoy lower content costs (at least in 1H11) with the absence

of the pricey BPL and other premium sports content; but Pay

TV revenues may stagnate. However, the new cross-carriage

mandate (expected to take effect in 1H11) may work in

StarHub's favour as it has more content to offer and "cross

sell" onto SingTel's mio TV network. In any case, we still see

content as being king and expect operators to continue bidding

for content albeit not as aggressively.

No significant NBN impact. Due to the slow rollout of NBN

(National Broadband Network) and the low take-up rate, we

do not expect to see any significant impact - benefits orincreased competition - on StarHub's broadband business.

However, declining ARPUs may continue to be a concern,

which suggests that margins may remain compressed. We

also see some uncertainty for Nucleus Connect (NC) - though

it is the official NBN OpCo, both SingTel and M1 are looking

to set up their own OpCos, which could complicate the

operational dynamics.

Maintain BUY with S$3.02 fair value. In any case, we have

taken these developments into our recent revision and hence

we maintain our DCF-based S$3.02 fair value. As we also

expect StarHub to continue paying out S$0.05/share quarterly

dividend in 2011, which translates to an attractive 7.4% annual

yield, we maintain our BUY rating.

StarHub Limited15 December 2010

Reuters Code STAR.SI

ISIN Code CC3

Bloomberg Code STH SP


Mkt Cap (S$m/US$m) 4,597 / 3,315

Major ShareholdersTemasek Hldg 57.2%


Daily Vol 3-mth (‘000) 1,974

52 Wk Range 2.010 - 2.820


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0 1.0

1.5

2.0

2.5

3.0

StarHub

STI

Maintain




Revenue 2,127.6 2,150.0 2,221.1 2343.3

EBITDA 644.4 653.5 598.8 697.5

P/NTA (x) -16.8 -15.9 -15.3 -21.6

EPS (cts) 18.3 18.7 15.8 20.0

PER (x) 14.7 14.4 17.0 13.4




Strategy Update

StarHub's Key Financial Data



Revenue 2,127.6 2,150.0 2,221.1 2,343.3 Cash 128.3 234.2 241.9 266.3

EBITDA 644.4 653.5 598.8 697.5 Other Current Assets 281.2 292.3 327.3 340.5



Net interest -26.5 -23.3 -21.0 -20.5 Total Assets 1,661.2 1,732.6 1,852.3 1,930.2

Associates 0.0 0.0 0.0 0.0 Current Liabilities less Debt 577.6 635.1 734.8 745.1

Exceptionals 0.0 0.0 0.0 0.0 Debt 953.8 937.9 890.0 880.0


Tax -71.5 -65.5 -55.5 -70.1 Shareholders Equity 108.0 125.8 137.5 224.9

Net Profit 311.3 319.6 270.9 342.4 Total Equity and Liabilities 1,661.2 1,732.6 1,852.3 1,930.2

CASH FLOW


Operating Profit 382.8 385.1 326.4 412.6 EPS (S cents) 18.3 18.7 15.8 20.0

Working Capital Changes -55.7 32.6 24.2 51.7 Fully Diluted EPS (S cents) 18.2 18.6 15.7 19.9


Capex -219.8 -231.4 -318.7 -304.6 Price/NTA (x) -16.8 -15.9 -15.3 -21.6


Change in Equity 7.9 2.4 0.0 0.0 Dividend Yield (%) 6.7 7.1 7.5 7.5Net Debt Change -54.3 -17.9 -55.8 -10.0 ROIC (%) 30.5 31.3 27.7 32.5

Financing Cash Flow -359.9 -332.2 -360.8 -265.6 ROE (%) 288.1 254.1 197.1 152.2

Net Cash flow -9.7 105.9 7.7 24.5 Debt/EBITDA (x) 1.2 1.0 1.0 0.8

Ending Cash Balance 128.3 234.2 241.9 266.3 PE to Growth (x) -6.2 6.6 -1.1 0.5





Strategy Update

Upgrade to BUY

A prudent and consistent performer. The global banking

sector is likely to see further changes in 2011 and this is

likely to spill over to affect the local banking stocks, as was

the case in 2010. Policy makers have in recent years been

instrumental in dictating the changes and policies in the

banking sector and we expect the operating environment to

remain challenging. However, UOB has been a consistent

performer even during the recent 2008 financial crisis, reflecting

its prudent risk taking policy and its good asset quality.

Nevertheless, the stock was punished and fell from the 2010

high of S$21.08 to S$18.14 currently (down 14%). It is also

down 7.9% YTD (to 10 Dec 2010) and has underperformed

both the STI and the FTSE Financial Index. We view this

discount as not sustainable as UOB is still delivering good

profits (+44% to S$1990m for the 9-month ended Sep 2010

and with good cost control translating into a sub-40% cost-to-

income ratio of 38.7%).

Softer NIM is already priced in. Like its peers, UOB's NetInterest Margin (NIM) is likely to trend down reflecting the

current low interest rate environment and the recent property

cooling measures, and this trend looks likely to stay for a

while. At the last update, management remains comfortable

with the quality of its portfolio and NPL (non-performing loan)

has stayed stable. Apart from its core market in Singapore,

management will continue to grow its regional SME operation.

We expect a 9.5% increase in Non-interest Income in FY11

to buoy earnings for the group next year even as Interest

Income stays relatively flat.

Upgrade to BUY, maintain fair value at S$19.70. We areupgrading our rating on UOB from Hold to BUY. We have stated

in our earlier reports that we would turn buyers at S$18.40 or

lower and the stock has slipped below this level since our last

report in Nov 2010. At current level, valuations are looking

more attractive. In addition, UOB has been paying out 60 cents

as dividend per year for the past two years and we do not

expect any change to this policy. This translates to a decent

annual yield of 3.3%. We are projecting FY10 earnings of

S$2642m and a 5.5% growth to S$2786m in FY11. However,

we are expecting the cost ratio to move up to marginally above

40% in FY11, reflecting the still tight labour market for banking

staffs.

United Overseas Bank

15 December 2010

Upgrade to

BUYPrevious Rating: HOLD


Reuters Code UOBH.SI

ISIN Code U11

Bloomberg Code UOB SP


Mkt Cap (S$m/US$m) 28,301 / 20,406Major Shareholders

WCY 17%

Free Float (%) 30%

Daily Vol 3-mth (‘000) 3,303

52 Wk Range 17.840 - 21.080


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0

5.0

10.0

15.0

20.0

25.0UOB

STI


Net Income Income 3,575 3,674 3,636 3,715

Non-Interest Income 1,675 1,732 1,994 2,183

Net Profit 1,937 1,903 2,642 2,786

EPS (S$) 1.3 1.2 1.7 1.8

PER (x) 14.5 14.8 10.6 10.1




Strategy Update

UOB's Key Financial Data

EARNINGS FORECASTYear Ended 31 Dec (S$m) FY08 FY09 FY10F FY11F BALANCE SHEETAs at 31 Dec (S$m) FY08 FY09 FY10F

Interest Income 6,855 5,159 5,038 5,167 Share capital 4,045 4,051 4,468

Interest Expense 3,280 1,485 1,402 1,452 Revenue & other reserves 11,528 14,935 16,648

Net Interest Income 3,575 3,674 3,636 3,715 Shareholders' fund 15,719 19,155 21,348

Non-interest Income 1675 1732 1994 2183 Deposits and other accounts 146,623 149,253 163,657

Fee & Com Income 1095 976 1142 1269 Other liabilities 12,805 9,688 10,366

Staff Costs -1082 -1116 -1237 -1345 Total liabilities 167,222 166,423 182,061

Other Operating Expenses -968 -959 -1000 -1050 Cash and balances 20,290 18,865 22,544

Impairment -807 -1121 -345 -250 Loans & advances 99,840 99,201 108,129

Pretax profits 2485 2307 3164 3374 Other assets 13,091 8,994 9,309

Net profits 1937 1903 2642 2786 Total assets 182,941 185,578 203,409

CASH FLOW

Year Ended 31 Dec (S$m)FY08 FY09 FY10F FY11F Key RATES & RATIOS FY08 FY09 FY10F

Pretax profits 3200 3331 3392 3502 EPS (S$) 1.3 1.2 1.7

Depreciation 134 138 138 138 NAV per share (S$) 8.8 11.0 11.9

Others -163 -32 -58 -58 Net interest income growth (%) 20.0 2.8 -1.0

Changes in working capital 2512 7609 6099 4103 Non-interest income growth (%) -11.5 3.4 15.1

Net cash from operating activities 1597 7186 5599 3539 Interest Inc / Total Inc (%) 68.1 68.0 64.6

Net cash in investing activities 411 1665 -652 -985 Cost-to-income (%) 39.0 38.4 39.7Cash flow from financing activities -275 -1217 -482 -1038 PER (x) 14.5 14.8 10.6

Change in cash 1,317 7,757 4,364 1,417 Price/NAV (x) 2.1 1.7 1.5

Beg cash 30,283 31,600 39,357 43,721 Dividend yield (%) 3.3 3.3 3.3

Cash at end of year 31,600 39,357 43,721 45,138 ROE (%) 11.8 11.0 13.2





Strategy Update

New launch does well. UOL Group launched its freeholdSpottiswoode Residences project last month. The 351-unitsin the 36-storey development comprise primarily of one- tothree-bedrooms of between 592 square feet to 1421 sf.According to the Business Times , some 252 units have alreadybeen sold (72% project take-up) at prices ranging from S$1,720per sf to S$2,270 psf.

GLS an opportunity. The Spottiswoode site was the lastremaining site in UOL's outstanding Singapore land-bank, butUOL has had the financial flexibility (in our opinion) to wait outthe market and replenish its land bank at disciplined pricelevels. This strategy has proven true with recent tendersseeing less "frothy" bids as developers keep policy risks inmind - which have already manifested to some extent throughthe significant new supply being released in the market. TheGLS 1H2011 sites, which will yield ~14,300 new homes, thuspresent UOL with an opportunity to carefully pick and choosefuture projects. At the same time, UOL has been expandingits presence abroad through a recent land parcel purchase in

China.

Further policy measures likely. We note that the propertymarket has continued to perform well even after the Aug 30property measures. With sustained conditions of high liquidityand cheap debt, we believe it is very likely that policymakerswill implement further measures to regulate the residentialmarket in 1H2011. We think increasing policy risk is offset byUOL's strong financials, while UOL's commercial andhospitality portfolio should provide a counterweight to anyweakness in the residential segment. We also note that UOL'srevenue should be supported in future quarters by previoussuccessful launches, including the 616-unit Waterbank at

Dakota and the 172-unit Terrene at Bukit Timah (50% stake)launched earlier this year.

UOL top pick for 2011. We prefer developers with strongbalance sheets and those with balanced exposure to theproperty sector, which should buttress earnings andperformance in a year of fairly high uncertainty for residentialproperty. Keeping these factors in mind, UOL is our top pickfor the property sector in 2011. UOL is firing on all cylindersand earnings should be underpinned, in our view, by: 1)progressive revenue recognition on various residential projects;2) the continued strength of the tourism sector; and 3) the stillvibrant retail sector and an improving Singapore office sector.

Maintain BUY with unchanged S$5.42 fair value estimate, ata 10% discount to RNAV.

Top pick for 2011

UOL Group Limited15 December 2010

Reuters Code UTOS.SI

ISIN Code U14

Bloomberg Code UOL SP


Mkt Cap (S$m / US$m) 3,639 / 2,624

Major ShareholdersWee Cho Yaw 29.1%



52 Wk Range 3.410 - 4.840

Meenal Kumar(65) 6531 9112e-mail: [email protected]

Maintain



1000

1500

2000

2500

3000

3500

4000

J a n - 0 8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0 9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1 0

A p r - 1 0

J u l - 1 0

O c t - 1 0

0.51.0

1.52.02.5

3.03.54.0

4.55.0

UOL

STI


Revenue 899.2 1,007.1 1,164.2 1,169.4

Shareholders' profit 147.2 424.2 490.2 383.6

NAV per share (S-cents) 426.4 529.4 553.0 603.3

P/NAV (x) 1.1 0.9 0.8 0.8PER (x) 25.3 8.7 7.5 9.6




Strategy Update

UOL's Key Financial Data



Revenue 899.2 1,007.1 1,164.2 1,169.4 Cash and bank balances 263.9 281.5 304.7 341.7

Cost of sales -447.1 -554.6 -635.6 -638.2 Investment properties 2,202.3 2,027.5 2,067.5 2,107.5

Gross profit 452.0 452.5 528.5 531.2 Development properties 1,274.7 1,562.7 1,437.3 1,433.0

Operating expenses -177.3 -190.4 -167.7 -160.9 Total assets 6,093.6 7,328.0 7,319.5 7,569.0

Share of profit of assoc 64.6 88.3 203.8 87.7 Debt 1,555.5 1,936.5 1,617.1 1,396.8

Profit before other gains and tax 354.2 363.8 574.4 467.9 Current liabilities excluding debt 187.7 219.8 305.1 308.7

Fair value gain on properties -106.8 -147.6 24.8 0.0 Total liabilities 2,278.4 2,720.1 2,473.4 2,281.5

Profit before tax 210.4 493.5 604.4 467.9 Shareholders equity 3,394.7 4,148.2 4,332.7 4,727.3

Profit for the period 164.2 461.5 544.0 430.4 Total equity 3,815.2 4,607.9 4,846.1 5,287.6

Shareholders' profit 147.2 424.2 490.2 383.6 Total equity and liabilities 6,093.6 7,328.0 7,319.5 7,569.0

CASH FLOW


Net profit 164.2 461.5 544.0 430.4 EPS (S-cents) 18.5 53.7 62.6 49.0

Adjustments 102.0 -117.4 -92.8 8.4 NAV per share (S-cents) 426.4 529.4 553.0 603.3

Change in Working Capital -272.4 -465.0 -246.9 20.6 PER (x) 25.3 8.7 7.5 9.6

Operating cash flow -270.3 68.6 411.4 396.1 P/NAV (x) 1.1 0.9 0.8 0.8

Investing cash flow -270.9 -257.9 26.0 -40.0 Gross profit margin (%) 50.3 44.9 45.4 45.4

Dividends paid -119.4 -59.7 -78.4 -78.4 Net profit margin (%) 18.3 45.8 46.7 36.8

Financing cash flow 399.4 206.9 -414.1 -319.2 Net gearing (%) 40.4 41.3 32.2 24.7Net change in cash -141.8 17.6 23.2 37.0 Dividend yield (%) 1.6 2.1 2.1 2.1

Cash at beginning of period 405.7 263.9 281.5 304.7 ROE (%) 4.3 10.2 11.3 8.1

Cash at end of period 263.9 281.5 304.7 341.7 ROA (%) 2.7 6.3 7.4 5.7





Strategy Update

Transforming into a solutions provider

Near-term outlook remains cautiously upbeat. After

recently posting a fairly decent set of 3Q10 results, Venture

Corp (VMS) expects to see sequential revenue growth going

into its seasonally strong quarter, noting most of its customers

have maintained their positive sentiment; although a few have

exercised caution in their demand commitments, probably still

due to continued shortage for certain components (mainly for

interface I/Cs, capacitors and switchers). On its part, VMS

has stocked up some excess inventory with the blessing fromcustomers, which we believe accounts for its slightly more

upbeat outlook.

Medium-term outlook looks good. In the medium term, VMS

says it remains driven to achieving profitable growth, where

VMS will continue to make a push for higher-margin ODM

(Original Design Manufacturer) business as it reduces its

traditional heavy reliance on the Printing & Imaging OEM

(Original Equipment Manufacturer) business. VMS also intends

to build up its solutions/enterprise segment with its own IPs

(Intellectual Properties). VMS reveals that it is making good

progress and has new projects/products in the pipeline. In

fact, some of its new products have started to see growingcommercial success.

MineTracer is just the start. One particular product which

we think is worth highlighting is the MineTracer - an integrated

wireless communication and tracking system for use in coal

mines. We believe that regulators and mine owners will place

a greater emphasis on safety, especially after a series of high-

profile mining incidents in Chile and New Zealand recently.

The product - approved by US Mine Safety & Health

Administration (MSHA) - is already installed in mines in West

Virginia, Kentucky, Pennsylvania, Illinois and Alabama; and

by working with experienced installers to market the product,we understand that VMS is looking to expand the use of this

safety system into non-coal mines like gold etc in the US,

South Africa and Australia.

Maintain BUY with new S$12.10 fair value. Besides being

encouraged by the group's business transformation into an

ODM player, which we believe should herald a new era for the

group, we also have confidence in its ability to execute and

deliver on its "blue ocean strategy". As we are rolling forward

our 15x valuation from blended FY10F/FY11F EPS to FY11F

EPS, our fair value increases from S$10.73 to S$12.10.

Maintain BUY. Key risks include currency fluctuations

(exposure to US$) and continued component shortages.

Venture Corp

15 December 2010

Maintain



Reuters Code VENM.SI

ISIN Code V03

Bloomberg Code VMS SP


Mkt Cap (S$m/US$m) 2,526 / 1,821

Major Shareholders

Aberdeen Asset Mgmt 15.1%



52 Wk Range 8.310 - 9.970


1000

1500

2000

2500

3000

3500

M a y - 0 8

A u g - 0 8

N o v - 0 8

F e b - 0 9

M a y - 0 9

A u g - 0 9

N o v - 0 9

F e b - 1 0

M a y - 1 0

A u g - 1 0

2.0

5.0

8.0

11.0

Venture

Corp

STI


Revenue 3,784.1 3,412.5 2,770.9 2,968.7

EBITDA 341.1 215.9 243.8 267.2

EPS (cts) 60.8 52.3 68.5 80.6

PER (x) 14.9 17.4 13.3 11.3

P/NTA (x) 1.4 1.4 1.4 1.3




Strategy Update

Venture's Key Financial Data



Revenue 3,784.1 3,412.5 2,770.9 2,968.7 Cash 513.8 567.1 560.0 652.8

EBITDA 341.1 215.9 243.8 267.2 Other Current Assets 1,270.9 1,116.2 1,036.6 1,076.1



Net interest 6.5 3.3 0.8 5.5 Total Assets 2,916.3 2,744.5 2,589.2 2,659.8

Associates 0.2 -0.8 0.0 0.0 Current Liabilities less Debt 666.9 630.6 542.4 574.0

Exceptionals -114.5 -18.2 0.0 0.0 Debt 321.5 223.7 100.0 50.0


Tax -5.0 2.8 -4.8 -6.8 Shareholders Equity 1,895.6 1,862.8 1,913.5 1,997.5

Net Profit 166.7 143.4 187.8 221.1 Total Equity and Liabilities 2,916.3 2,744.5 2,589.2 2,659.8

CASH FLOW


Profit Before Tax 354.0 221.1 252.2 309.2 EPS (S cents) 60.8 52.3 68.5 80.6

Working Capital Changes 34.5 109.8 28.7 -7.9 Fully Diluted EPS (S cents) 60.8 52.2 68.3 80.4


Capex -32.6 -16.4 -30.0 -25.0 Price/NTA (x) 1.4 1.4 1.4 1.3


Change in Equity 0.0 0.0 0.0 0.0 Dividend Yield (%) 5.5 5.5 5.5 5.5Net Debt Change -189.1 -99.6 -123.7 -50.0 ROIC (%) 7.5 6.9 9.3 10.8

Financing Cash Flow -326.2 -236.7 -260.8 -187.1 ROE (%) 8.8 7.7 9.8 11.1

Net Cash flow 20.4 53.3 -7.1 92.9 Net Gearing (%) Net Cash Net Cash Net Cash Net Cash

Ending Cash Balance 513.8 567.1 560.0 652.8 PE to Growth (x) -0.3 -1.2 0.4 0.6




Strategy Update

SHAREHOLDING DECLARATION: The analyst/analysts who wrote this report holds NIL shares in the above securities, except:

- Carey Wong holds shares in Hyflux Ltd.- Low Pei Han’s immediate family holds shares in Keppel Corporation Ltd and SembCorp Marine Ltd

RATINGS AND RECOMMENDATIONS: OCBC Investment Research’s (OIR) technical comments and recommendations are short-term and trading oriented.- However, OIR’s fundamental views and ratings (Buy, Hold, Sell) are medium-term calls within a 12-month investment horizon. OIR’s Buy = More than 10% upside from the current price; Hold = Trade within +/-10% from the current price; Sell = More than 10% downside from the current price.- For companies with less than S$150m market capitalization, OIR’s Buy = More than 30% upside from the current price; Hold = Trade within +/- 30% from the current price; Sell = More than 30% downside from the current price.

DISCLAIMER FOR RESEARCH REPORT This report is solely for information and general circulation only and may not be published, circulated,reproduced or distributed in whole or in part to any other person without our written consent. This report should not be construed as an offer or solicitation for the subscription, purchase or sale of the securities mentioned herein. Whilst we have taken all reasonable care to ensure that the information contained in this

publication is not untrue or misleading at the time of publication, we cannot guarantee its accuracy or completeness, and you should not act on it without first independently verifying its contents. Any opinion or estimate contained in this report is subject to change without notice. We have not given any consideration to and we have not made any investigation of the investment objectives, financial situation or particular needs of the recipient or any class of persons, and accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the recipient or any class of persons acting on such information or opinion or estimate. You may wish to seek advice from a financial adviser regarding the suitability of the securities mentioned herein, taking into consideration your investment objectives, financial situation or particular needs, before making a commitment to invest in the securities. OCBC Investment Research Pte Ltd, OCBC Securities Pte Ltd and their respective connected and associated corporations together with their respective directors and officers may have or take positions in the securities mentioned in this report and may also perform or seek to perform broking and other investment or securities related services for the corporations whose securities are mentioned in this report as well as other parties generally.

Privileged/Confidential information may be contained in this message. If you are not the addressee indicated

in this message (or responsible for delivery of this message to such person), you may not copy or deliver this message to anyone. Opinions, conclusions and other information in this message that do not relate to the official business of my company shall not be understood as neither given nor endorsed by it.

Documents

OCBC - S'pore Strategy-20101215