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CSC Holdings (NEUTRAL; Target Price: S$0.11)

Singapore Sports Council (SSC) announced that it had ended the project agreement with consortium SG Changi last Wednesday to develop the 41 hectares sea-facing site along Aviation Park Road into a S$380 million motoring sports centre. The project had run into funding difficulties and construction delays and construction halted in January when SG Changi failed to meet outstanding progress payments. Changi Motorsports Hub’s future is uncertain and SSC would re-engage the motorsports industry and consult with the projects previous bidders on the commercial merits of the project under current market conditions. CSC was the foundation specialist awarded with the piling contract and it had accumulated S$10 million worth of outstanding progress payments before halting work earlier this year. We think the impact on CSC would not be overly negative as the company had received S$1 million out of the S$10 million originally outstanding and provisions of S$7.9 million was already made on its books in 4QFY11. In the worst case scenario, CSC would only need to make an additional S$1.1 million of provisions in its books. The outstanding S$1.1 million is only 0.7 per cent of CSC’s total receivables and 0.5 per cent of current assets. While the S$50 million CMH contract make up a significant 19.2 per cent of its current orderbooks of S$260 million, order wins by CSC has been forth coming – it announced project wins of S$50 million and S$110 million worth of contracts since October. Thus, we believe the impact on its orderbooks would be mitigated with the strong flow of project wins. – DMG Research

Ho Bee Investment (HOLD; Target Price: S$1.01)

The implementation of an Additional Buyer’s Stamp Duty (ABSD) will dampen the already slow take-up of residential units in Sentosa Cove and prolong its recovery. Foreigners and corporate entities form a large segment of buyers in Sentosa Cove. This group of buyers, expected to be hit by the highest tier of ABSD, contributed 35 per cent and 44 per cent of purchases of non-landed homes in Sentosa Cove’s primary and secondary markets, respectively. We expect this pool of buyers to shrink. While immediate price cuts are not expected, fundamentals are weaker than in other prime districts. We do not expect immediate price cuts from developers but do not eliminate the possibility, especially if recovery does not take place in the next five years. All the sites sold on Sentosa Cove are on a 99-year lease. Fundamentals there are weaker than in other prime districts like Orchard, where land is largely freehold, located in the central of Singapore and with access to an abundance of amenities and transport infrastructure. There remains an estimated S$578 million in unbilled sales from substantially sold projects (Trilight, Parvis and One Pemimpin), which will be progressively recognised until end-2012 or early 2013. For its office exposure, although leasing activities is anticipated to slow in tandem with a slowdown in GDP growth, the low breakeven of The Metropolis at approximately S$800 psf does provide some comfort. – Kim Eng Research

Rotary Engineering (Not Rated)

Rotary recently announced that it has signed a Memorandum of Understanding with Malaysian-listed Benalec Holdings Bhd to jointly develop an independent deepwater storage terminal for oil products in Tanjung Piai. Located at the southwestern tip of Johor, the integrated storage facility will have deepwater jetty facilities capable of handling very large crude carriers (VLCCs). We understand that both Rotary and Benalec will together embark on a technical feasibility study, after which they will form a joint-venture company by participating in taking equity ownership and development of the first 1 million cubic metres oil storage terminal, as well as other terminal projects. In addition, the JV will exclusively undertake the promotion of Tanjung Piai as an oil and petrochemicals terminal hub. Through this strategic tie-up, Rotary hopes to offer a broader range of value-added services to its clients. The proposed terminal, built on reclaimed land with a total area of 250 acres, will have its initial capacity of 1 million cubic metres increased to 3 million cubic metres in phases and will be a petroleum storage facility for storing, blending and distributing crude oil and its derivatives. Rotary’s share price has shed about 35 per cent of its value YTD as investors avoid cyclical stocks altogether. The stock currently trades at 8x forward PER (price earnings ratio), based on consensus estimates. Earnings risks include delays in commencement of key projects and possible margin pressure. – Kim Eng Research

SMRT Corporation (BUY; Target Price: S$2.04)

SMRT announced that it would be revising its taxi fares to match the recent increase by ComfortDelgro. Given that the fare revision will only affect travelling costs for passengers and cab drivers’ income, and the fact that SMRT has not yet announced any changes to its taxi hire-out/lease-out rates, we are leaving our FY12 earnings projections unchanged. Furthermore, we are unlikely to see any significant cannibalization effect by trains and buses on taxi utilizations. Although SMRT’s share price has come off slightly together recently, we continue to like the counter for its dividend yield, and see opportunities for SMRT’s operating margins to improve. Based on valuation grounds, we upgrade SMRT to BUY with an unchanged fair value estimate of S$2.04. – OCBC Investment Research

Yangzijiang Shipbuilding (NEUTRAL; Target Price: S$1.04)

Yangzijiang (YZJ) announced that they will invest US$205 million in two joint ventures with Qatar Investment Corp (QIC) to build offshore oil & gas vessels and platforms. The two new joint ventures will provide a platform for YZJ to move into the newbuild offshore support vessel (OSV) market but we believe near term impact on earnings will be insignificant. YZJ can easily fund the new investments internally (gross cash of RMB6.7 billion as of 3Q11). The stock appears attractive at 5x FY12F P/E (price earnings) but we think any upside is capped by the poor outlook for commercial shipbuilding. YZJ and QIC will each own 50 per cent stake in YZJ Offshore Engineering Pte Ltd (YOEPL), which will have a paid-up capital of US$110 million. YOEPL will provide marketing, procurement, front end engineering and design, management consultancy services for the construction of offshore oil & gas vessels and platforms. Separately, YOEPL and YZJ will set up YZJ Offshore Engineering (China) Co Ltd. (YOECCL) with 40 per cent and 60 per cent stake respectively and initial paid-up capital of US$250 million. YOECCL will be involved in turnkey construction, fabrication and repair of offshore vessels and platforms. – DMG Research