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Singapore’s Transport Sector (Ratings and Target Prices below)

The uncertain economic outlook continues to weigh on business confidence, which in turn negatively impacts global travel and trade volume. Weak demand outlook and high current fuel prices raise concerns on the aviation and shipping sub-sectors, both of which we rate as UNDERWEIGHT. While the weakness seen in the aviation sub-sector may filter down, we are NEUTRAL on the aviation service providers. Their outlook remains healthy because air traffic and the global aircraft fleet should continue to grow over the longer term. While rating the shipping sub-sector UNDERWEIGHT, we maintain our preference on Goodpack (BUY; Target Price: S$1.70) due to its specialty and dominance in the shipping of rubber. We are OVERWEIGHT on the land transportation sub-sector in Singapore because it has no viable large-scale substitute. We prefer ST Engineering (BUY; Target Price: S$3.01), due to its diversified revenue streams, and SMRT Corp (BUY; Target Price: S$2.04) for the defensive nature of its business. – OCBC Investment Research


SIA Engineering Co Ltd (BUY; Target Price: S$3.88)

Both global air passenger load and capacity have been growing in CY11, diminishing the impact of the decline in air freight load and capacity on the maintenance, repair and overhaul service providers such as SIA Engineering (SIAEC). But falling global air freight volumes, usually a leading indicator of air travel, and declining business confidence, have clouded the outlook for aviation and related sectors. But air travel traffic is expected to continue growing in the longer term and the global passenger aircraft fleet is forecast to double from now to 2030. SIAEC’s setting up of two joint ventures with SAFRAN and Panasonic Avionics Corp in FY12 resulted in revenue, which would otherwise have contributed to its top-line, to be recorded at the joint venture level. Management explained that despite the near-term cannibalisation effect, these joint ventures will help it to gain a bigger growth potential in the longer term. With the longer-term outlook still relatively upbeat for SIAEC, we maintain our fair value estimate of S$3.88 per share and upgrade SIAEC to a BUY. – OCBC Investment Research


Midas Holdings (NEUTRAL; Target Price: S$0.36)

We note two recent developments for Midas – a cut-back on China’s Ministry of Railways’ (MOR) projections for railway infrastructure spending to RMB470 billion / RMB400 billion in 2011 / 12, and a total RMB142 million of new orders secured by the company – and believe their net impact on Midas’ share price is neutral. MOR cited high financing costs as a key reason for missing its spending target of about RMB600 billion p.a., which will likely continue to cast doubts over its ability to award new orders in the coming year. To meet our FY11 and FY12 revenue estimates, Midas would need to secure RMB330 million of new extrusion orders. With an uncertain industry outlook in the near-term, we maintain NEUTRAL on the stock with a TP of S$0.36. – DMG Research