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ComfortDelgro (BUY)

Using the NEL as a benchmark may be misleadingly low as it runs through new towns Punggol and Sengkang while the Buangkok and Woodleigh stations did not open until years after the line opened in 2003. Phase 1 will provide more connections downtown, Phase 2 will run from Bukit Panjang through the congested Bukit Timah corridor while Phase 3 will provide an East West Line alternative in the east. Hence, our long-term ridership estimates for the DTL have been too conservative. Our latest model now assumes far more aggressive double- digit growth of 10-25 per cent in 2018-2020, up from 5 per cent per annum previously. We are particularly optimistic on Phases 2 and 3 to drive ridership growth. Our revised assumptions suggest total revenue of S$5 billion over 19 years (previously S$3.5 billion). In addition, the rental of commercial space would add another element of upside. In 2010, ComfortDelgro earned less than 3 per cent of EBIT from commercial rental. Based on 14,000 sq m of space and assuming SMRT’s achieved rental rates, we estimate the annualised rental income could more than double existing rental income from the existing S$10 million or so yearly. – Kim Eng Research

Goodpack (NEUTRAL; Target Price: S$1.78)

4QFY11 earnings were above our expectations, hitting US$11.8 million, mainly on the back of lower-than-expected expenses. 4QFY11’s strong showing was as a result of a surge in revenue, coming in at US$45.5 million, which is attributed to increased penetration in existing markets as a result of new customer conversions, as well as higher demand from existing customers. Goodpack is currently conducting trials with 20 global car manufacturers and parts suppliers in the automotive industry. While feedback have been positive so far, we believe that Goodpack earnings will still be predominantly driven by the synthetic rubber segment in the next 2-3 years. Any significant contribution from the automotive segment may commence only from FY13, at the earliest. On the back of current uncertainty in global trade, we have lowered our FY12 and FY13 revenue estimates by 12.5 per cent and 11.5 per cent respectively. This is offset by a reduction in estimated expenses, thus raising our FY12 and FY13 earnings by 12.7 per cent and 8.3 per cent respectively. We now estimate FY12 and FY13 earnings to come in at US$48.2 million and US$53.8 million respectively. – DMG Research

Kian Ann Engineering (Not Rated)

The group stocks over 1.3 million item lines for distribution to a global customer base of more than 1,000 dealers in 60 countries. Markets in Asia make up 79 per cent of the group’s revenue in FY11. Malaysia is its largest single market, accounting for 31.5 per cent of group revenue in FY11. KAE’s products are distributed by dealers to end-users in the mining, timber, infrastructure, and construction industries. Management is unfazed by the prospects of a softening economy as the demand for heavy machinery parts will increase when end-users delay the purchase of new machineries. KAE declared a full year dividend of 1.1 cents/share on Monday on the back of a good set of results. At a consensus forward PER (price earnings ratio) of 5.4x, the stock is undervalued relative to its peers. – Kim Eng Research

United Envirotech (BUY; Target Price: S$0.51)

United Envirotech’s (UE) is acquiring a 40-per cent stake in Maxrise Envirogroup Ltd (Maxrise) for RMB100 million. Maxrise holds equity interests in four wastewater treatment plants in China, which have a combined treatment capacity of 170,000 cubic metres per day. The earnings contribution for UE’s 40-per cent stake for 1QFY12 was S$0.6 million. In our previous report, we had already included contributions from new wastewater treatment projects acquired using KKR’s investment into our FY12 earnings estimates. As the projected earnings contribution from the acquisition appears to fall within our projections, we are leaving our earnings estimates untouched for now. We will provide an update once we obtain further details from management. – DMG Research

UOL Group Limited (BUY; Target Price: S$5.48)

The latest DC rates revisions showed largest increases in Industrial/Warehousing (Group D – 31 per cent) and Commercial (Group A – 22 per cent). Overall, we believe the market would be neutral to these revisions as these were in line with the broad 1H11 uptrend in industrial and commercial rentals and capital values. We judge that the incremental impact of these rates increases in itself would be relatively low for developers. But, coupled with current macro uncertainties and expected inflection points in residential prices and office rentals ahead, this could push developers further towards a cautious stance. Going forward, we expect the rate of DC increases for the commercial and residential sector to decelerate as selling prices, rentals and capital values soften with macro headwinds. We prefer UOL due to its limited residential exposure and the potential to pick up landbank as the acquisition environment cools down further. – OCBC Investment Research