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Stock Picks

Ascendas REIT (March 8: HOLD; S$2.20)

Mapletree Logistics Trust (March 8: BUY; S$1.03)

At the recently concluded FY10 results, we found a few common themes in the guidance given by Industrial REITs (real estate investment trusts) managers. First, Industrial rental values in 4Q10 experiencing their fastest pace of growth since recovery. There was also increased demand for business parks and high-specs industrial space. Secondly, the acquisition spree, which started in the early quarters in 2010, continues on the back of low interest rates and with the economy awash with liquidity. Thirdly, the last quarter also saw some REITs affected by Singapore Land Authority’s compulsory land acquisition for the construction of the Tuas West MRT extension and road works along PIE. Overall, the outlook for the industrial property market remains sanguine on the back of strong economic fundamentals, as well as the government’s continued commitment to stimulate growth in the manufacturing sector. Maintain OVERWEIGHT for the industrial- REITs subsector. – OCBC Investment Research

Hyflux Limited (March 8: BUY; S$2.41)

Hyflux Ltd has secured the Tuas Desalination project – the latest seawater desalination plant in Singapore, beating eight other local and international bidders. The Design, Build, Own and Operate (DBOO) plant, which will cost up to S$890 million, will be completed by 2013; Hyflux will fund it using a mixture of project financing and equity financing. The latest order win shows that Hyflux’s skill-set is highly mobile and it is not solely dependent on MENA (Middle East and North Africa) for growth. We are leaving our estimates unchanged as we have allowed for contract wins in our forecasts; but we will need to adjust should Hyflux announces more contract wins, especially in China. Maintain BUY with S$2.41 fair value. – OCBC Investment Research

Natural Cool Holdings (March 8: BUY; S$0.235)

After incurring losses in FY09, Natural Cool (NC) returned to profit- ability with FY10 PATMI of S$6.7 million which was below our

expectations of S$8.3 million due to lower than expected estima- tion of exceptional gain on disposal of 29 Tai Seng Avenue and higher than expected administrative expenses. NC has a market share of about 85 per cent of all HDB upgrading works in Singa- pore. The ongoing upgrading work plans by HDB will benefit NC with a flow of projects in light of proven track record and relation- ship with the Town Council. Further, Government efforts to provide more public housing to meet increasing public and private demand also augur well for NC. The strong construction pipeline over the next three to five years will underpin growth for NC, which derives about 96 per cent of its revenue from the local construction indus- try. After marginal losses in the core business in FY10, we expect the core business to turn profitable. FY11 to FY12 growth will be underpinned by core business expansion in the switchgear business through newly acquired Titans Power Holdings Group (Titans) and strong construction demand. The aircon business will also benefit from domestic real estate boom. – NRA Capital

DBS (March 8: HOLD; S$13.75)

UOB (March 8: BUY; S$18.60)

OCBC (March 8: BUY; S$11.18)

For the full year 2010, all three banks achieved a record profit (excluding DBS’s S$1.0 billion goodwill write‐off) with double‐digit bottomline growth. Though OCBC’s headline growth was the lowest at 15 per cent YoY, we think it portrayed the best quality in terms of key revenue lines. Its above-market loan book growth helped buck the trend of falling net interest income, while its merger with ING Asia Private Bank saw fees and commissions rise the most by 36 per cent YoY. In view of the limited size of the Singa- pore market, the next leap in profit growth will have to come from regionalisation and enhanced service capabilities beyond traditional commercial banking. The three local banks are well‐placed to benefit from the Asian growth story, but must grab the window of opportunity. Sector outperformers will have to show evidence of this in 2011/2012 to justify further rerating. OCBC is our top pick in the sector and we expect its superior wealth management platform to spawn new cross‐selling synergies among the various entities. UOB will continue to be a steady performer, with sufficient loan provisioning coverage buffer and cost discipline. While we recognise DBS’s potential to transform into a substantial Asian name, we expect cost pressures will weigh on its profitability before it can achieve its goal. – Kim Eng Research