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Cache Logistics Trust (Not Rated)

In a private placement concluded on 22 March 2012, 60 million new shares were placed at S$0.985 per share. The private placement was about 1.24x subscribed and saw strong participation from Asian and European investors with the majority of demand from Asia. The private placement raised net proceeds of S$57.1 million, of which S$36 million would be used to finance the proposed acquisition of 21 Changi North Way, a warehouse facility and S$20.5 million to partially repay existing debt. CLT’s gearing is expected to decrease from 29.6 per cent as at December last year to 26.1 per cent after the deployment of the proceeds. With the purchase of 21 Changi North Way, CLT will have 11 assets under management – 10 in Singapore and one in Shanghai. CLT is the capital recycling platform for CWT and C&P. Based on our estimates, the warehouse properties that CWT owns in Singapore and overseas are worth about S$439 million. Assuming a target gearing ratio of 40 per cent, CLT has debt headroom of about S$170 million for more acquisitions. The existing properties under the right of first refusal (ROFR) granted to CLT involve 13 properties in Singapore and China. With a combined GFA of 2.8 million sq ft, they form a sizeable pipeline for acquisition. In addition, CLT is mulling third‐party acquisitions in the Asia Pacific. – Maybank Kim Eng Research


DBS Group Holdings (SELL; Target Price: S$11.50)

With Singapore, Hong Kong and Greater China accounting for about 86 per cent of 2011 pretax, DBS’s earnings are susceptible to a slowdown in China and the global economies, while corporate/treasury exposure add to the volatility. Just over a year into the job and CEO Piyush Gupta’s initiatives are beginning to deliver results, with enhancement to the group’s cash management and trade financing capabilities. Moreover, treasury operations are more client-driven than before. Other areas of focus moving forward would be in strengthening its regional SME presence as well as increasing regional contributions. Cross-selling opportunities will have to be stepped up if normalised ROE (return on equity) targets of 12-13 per cent are to be achieved. Low-teens loan growth is still the guidance this year, with extra attention to be paid to the shipping, SME and property markets. NIMs (net interest margins) are expected to be stable, for corporates have been willing to pay a little more premium for stable funding, while housing rates appear to have stabilised for now. USD funding cost however is still rising, while funding costs are also still high for the group’s Hong Kong operations. There are no signs at this juncture of any stress in the loan book. The specific loan to a European shipper that was classified as an NPL (nonperforming loans) in 4Q11 is still performing at this stage, as is 40 per cent of the group’s total NPLs. – Maybank Kim Eng Research


Ezion Holdings (BUY; Target Price: S$1.05)

Keppel Corp (BUY; Target Price: S$12.27)

STX OSV (BUY; Target Price: S$2.25)

Quoting French ministers, newswires such as Bloomberg and Reuters have reported that France is in talks with the US and Britain on a possible release of strategic oil reserves to push fuel prices lower. This is hardly a surprise considering that oil consuming markets have been bemoaning the continued rise in energy prices. Of note is the fact that 2012 will be an election year for both the US and France, and politicians may have to placate voters’ concerns about rising fuel prices. Oil reserve releases are usually coordinated by the International Energy Agency (IEA), and currently there are obstacles to such a concerted effort as the head of IEA has questioned the need for a coordinated IEA release and support also has to be garnered from oil producing countries as it is possible that they may reduce production. Even if most of the international community does agree to cooperate, the issue of geopolitical tension in the Middle East has to be resolved. The flood of liquidity by central banks will also support prices of scarce resources such as oil. Stripping out effects of inflation, oil prices are still set to rise over the longer term, due to the fundamental reason that the era of easy oil is over. Many existing oil fields are in decline, and new discoveries are mainly in places where resources are difficult to extract, be it in physical, economic or political terms. Hence, as much as share prices of oil and gas related stocks are correlated to movements in oil price, we are not overly concerned with this latest piece of news, unless a more fundamental driver emerges. – OCBC Investment Research


Fortune REIT (BUY; Target Price: HK$4.88)

Provisional statistics for February retail sales in HK were released yesterday. We note that the retail sales figure for February (+15.7 per cent YoY) grew faster than that for January (+14.9 per cent YoY), which is encouraging especially since Chinese New Year fell in January instead of February this year. On a combined basis, for the first two months of 2012, HK retail sales climbed by 15.2 per cent YoY. Adjusting for inflation, the volume of sales climbed 9.5 per cent YoY. An official commented that going forward, improved incomes and good inbound tourism should still be positive for the retail business in the near term. We note that Bloomberg’s consensus estimates for real GDP growth for China and HK in 2012 are still highly encouraging at 8.3 per cent and 3.0 per cent respectively. For 2014, the figures are even better at 8.4 per cent and 4.5 per cent. In HK, the unemployment rate is forecasted to increase only slightly from 3.46 per cent in 2011 to 3.6 per cent for this year. In 2011, there were 42 million tourists to HK, which has a population of only seven million. Mainland China’s import tariffs on luxury goods, of up to 30-60 per cent, are considered a reason for the strong retail sales growth and high rents at prime locations in HK, which help support suburban retail rents, benefiting players like Fortune REIT. Earlier this month, a former deputy Minister of Commerce said that there will be two rounds of cuts to the tariffs this year, but the Ministry of Finance has defended the current rates. While the tariffs remain as they are, HK is still a beneficiary. – OCBC Investment Research


Swiber Holdings (NEUTRAL)

Swiber announced this morning that its subsidiary Kreuz Holdings had entered into a placement of 20 million vendor shares from Kurush Phiroze Contractor who is the President and CEO of Kreuz and 50 million new shares at an offer price of S$0.34. The placement came three days after the massive US$273 million Mexican contract win. While we believe Swiber should continue to reduce its gearing levelling as well as operating leasing expenses, the recent reduction of stakes by key shareholder and management does not bode well on the company. Most notably, Swissco Holding, which was Swiber’s original parent has been cashing out periodically since Swiber’s spinoff. It ceased its position as a substantial shareholder (less than 5 per cent) on 8 February 2012. We believe the market will not take this positively. – DMG Research


Yip’s Chemical (NEUTRAL; Target Price: HK$7.04)

Given highly volatile raw material prices in 2011, both the coating and solvent businesses margins were squeezed. Although the prices of raw materials such as titanium dioxide fell from RMB23,000/tonne in May 2011 to RMB16,500/tonne in November 2011, the coating business has a lagging time period of 5-6 months from the time the prices of raw materials changes to the time it is reflected in the business of the company. In an attempt to diversify their solvent portfolio, Yip’s Chemical plans to expand its product portfolios by building a Butyl Acrylate production facility in Jiangmen; the first extensive production base for butyl acrylate in the province. Currently, the new production facility is on schedule and is expected to be on stream in October 2012, bringing an additional 80,000 tonnes of capacity to the group. Going forward, a combination of higher oil price, lower raw material prices together with the delayed effect of improving margins in the coating business, we believe the margins in 1H12 would improve from the year before. However as we believe the full earnings potential of the company will only be reflected in FY13F, we maintain our NEUTRAL rating on Yip’s Chemical with a target price of HK$7.04 which translates to a FY12 P/E (price earnings) of 14x. – DMG Research