YangZIJIang Shipbuilding by Merrill Lynch

Setting the stage for cyclical newbuilding rebound in 2H11
The record containership deliveries in 1H11 are likely to add pressure to falling freight rates, as per Shipping - Asia-Pacific, 01 February 2011. This is in line with our view for lackluster new orders in 1H11, resulting in a renewed order-to-fleet ratio downtrend. We expect this short-term phenomenon to set the stage for a cyclical newbuilding recovery in 2H11E, as ship owners gradually re-position for the 5ppt slower rise in capacity, vs demand, in 2013E. Buy Yangzijiang (YZJ), the direct stock on containership newbuilding upturn. We keep our S$2.49 PO for YZJ.
Expected game changer – Maiden (>8,000TEU) ship orders
We expect the medium-term catalyst to come in 2H11, when YZJ secures its maiden large-sized containerships (>8,000TEU) newbuild contracts. This gamechanging moment will likely come when the leading Korean yards exhaust delivery slots for 2013, and YZJ attracts ship owners with the delivery of competitively priced containerships for mid-2013, via its new yard that is expected
to be ready by end-2011.
The Street has room to close earnings forecast gap with us Our net profit estimates for FY11 and FY12 have narrowed by 3ppt to 12%, and 6ppt to 25% above consensus, respectively, since Yangzijiang Shipbuilding, 09 November 2010. We expect this upward earnings revision by the Street to stay in 1H11, due to the growing recognition of less severe margin compression on YZJ’s
order backlog, and the factoring in of revenue growth from new yard expansion.
Better able to mitigate impact of higher steel prices
We expect YZJ to absorb higher steel prices better than its peers. This is done via leveraging on its strong balance sheet to secure better price discounts, aboveindustry average margins, proven delivery track record that could bargain for certain cost escalation clauses, and productivity gains. Still, a vanilla 10ppt higher than- expected rise in steel prices could cut our FY12 earnings forecast by 10%.

United Envirotech: S$0.45 BUY (TP: S$0.61) by OSK/DMG

Strong growth in recurring income to continue..

United Envirotech’s (UE) 3QFY11 earnings fell 20.8% YoY to S$4.1m, which was below our expectations. However, with a strong pipeline of projects (like the Tangshan project announced yesterday) and the Chinese government’s emphasis on environmental protection, we believe UE’s outlook remains positive. We cut our FY11 and FY12 earnings by 19.9% and 8.5% respectively on the back of previously over-bullish engineering revenue estimates. Our TP is lowered slightly to S$0.61 based on 10.8x FY11/FY12 blended earnings. The stock is trading at 6.4x FY12 earnings, cheap relative to its peers which are going for 12x.

Results below expectations, but margin expansion seen. UE’s 3QFY11 earnings fell 20.8% YoY to S$4.1m, due to revenue coming in 31.8% lower YoY at S$12.8m. This was attributable to a drop in engineering income with the completion of its Guangzhou City EPC project. This is partially offset by a 50% surge in treatment revenue on the back of a newly completed
build-operate-transfer (BOT) plant in Hegang. On a positive note, net profit margin grew 4.4 ppt YoY to 31.9% this quarter, due to increased contribution from treatment revenue, which typically has higher margins (~50%) versus engineering revenue (~20%).

Strong pipeline of projects. Yesterday, UE was awarded a transfer-operate-transfer (TOT) project from the Tangshan-Nanpu Economic Development Zone Management Committee in Hebei province. The project involves the acquisition of an existing 80k m3/day wastewater treatment plant and a 40k m3/day wastewater recycling plant, upgrading of the plant and operating it for 30 years. UE has a 50% stake in the project. We estimate ~S$29m of revenue (19.2% of FY12 top line) and S$6.1m of profit (18.2% of FY12 earnings) to be recognised in 2011. With the continued enforcement by the PRC government on the quality of water discharged, we believe opportunities abound for both new and upgrading of existing wastewater treatment plants. These include the modification of the existing CNOOC refinery wastewater treatment plant (constructed by UE), as well as the construction of phase two of the plant.

Lowering earnings but outlook remains bright. We are trimming our FY11 earnings by 19.9% to S$19.3m and FY12 earnings by 8.5% to S$33.5m, due to overly bullish engineering revenue forecasts previously. However, with the continued strong demand for wastewater treatment facilities in China and UE’s track record in constructing MBR plants, we are maintaining our BUY
call.

Genting Singapore by citibank

Genting Singapore (GENS.SI)
Read Across from LVS Results – Lowering TP to S$2.60 LVS: VIP Volume Fell in Singapore — Las Vegas Sands (LVS.N; US$46.03; 1L) reported its 4Q10 results on Feb 3rd. MBS generated EBITDA of US$305.8m and a 54.6% margin (both are the highest quarterly numbers from any single property in LVS' history) thank largely to the 3.11% VIP hold rate and its stringent cost controls. However, the major disappointment in our view was the ~20% QoQ fall in VIP rollings. Despite LVS management’s guidance that MBS EBITDA in Jan has reached US$110m, we lowered our MBS VIP rolling assumption by 20% and EBITDA by ~3% in 2011-12E. LVS’ stock price fell 8.45% on the next trading day.
 Implications — We believe we could see some ripple effect as the market could become worried about a possible volume decline at Resorts World Sentosa. We would not be surprised to see some share price weakness in Genting Singapore when the stock market reopens on February 7th. At this stage, we have conservatively lowered our 4Q10 VIP rollings assumption from 2% QoQ growth to 5% QoQ decline. Consequently we have reduced our 4Q revenue forecast by ~7% to S$765.1m and EBITDA estimate by ~7%to S$371.7m. Our 2010-12E earnings estimates as a result have been cut by 2-9%.
 Market Size — Despite lower volume at MBS’ VIP business and a possible similar
decline at RWS, we continue to like the growth prospect in the Singapore gaming
market. We expect Singapore to generate US$5.1bn in gross gaming revenue in 2011, implying that the market size of Singapore, with only two casinos, is roughly
85% of what Las Vegas is.
 Maintain Buy (1M); Lowering TP to S$2.60 — Genting Singapore is expected to report its 4Q10 results in mid-February. To derive our target price, we continue to assign equal weights to equity values derived from our SOTP and DCF valuation methodologies. Based on the lowered earnings estimates, we have accordingly
trimmed our target price from S$2.75 to S$2.60.

DBS by DMG

Expect sequential weakness in investment gains
Expect lower provisions to drive earnings YoY growth. We are forecasting 4Q10 net profit of S$642m, up 30% YoY. The expected S$149m YoY improvement is largely attributed to 1) lower provisions – we forecast 4Q10 provisions of S$101m, versus 4Q09’s S$384m; and 2) higher other operating income of S$235m, versus 4Q09’s S$87m – DBS recorded a strong 9M10 other
operating income of S$1,086m, largely due to trading income improvement.
These will, however, be partly offset by 4Q10 taxes of S$159m, compared with a S$47m writeback in 4Q09. As we expect SIBOR to remain soft till 3Q11, we see no catalyst for DBS share price to trend up. Maintain NEUTRAL on DBS with a target price of S$14.30, pegged to 1.22x 2011 book.
Soft SIBOR likely to have led to YoY decline in net interest income. SIBOR remained soft in 4Q10, with the 3-mth SIBOR averaging 0.45%, close to 3Q10’s 0.54%. As DBS has a low S$ loan deposit ratio of 61%, the soft SIBOR is a negative for DBS’ interest earning yield. In addition, we expect the trend of narrow DBSHK NIM to persist, given the deposit competition in the HK market.
Hence, we expect 4Q10 NIM to be narrow, similar to 3Q10’s 1.80%. Following the 1.2% QoQ loan growth in 3Q10, we expect DBS to register a 1.6% sequential loan expansion in 4Q10. Factoring in the above, we forecast net interest income to be marginally weaker YoY.
4Q10 trading and investment income may be weaker sequentially. DBS recorded 3Q10 trading income of S$223m, which is 4x that of 3Q09’s S$56m. 3Q10 gain from financial investments of S$123m was a multiple of 3Q09’s S$7m, due to profit taking on investments. In 4Q10, Singapore government bond yields rose – with the 10-yr yield rising 69 bps to end-2010’s 2.7%. We believe this will lead to lower trading and investment income in 4Q10. We have reduced our expectations of trading and investment income and this led us to lower FY10 net profit by 2% to S$1,596m.

Bloomberg

Jan. 26 (Bloomberg) -- Some Chinese banks have raised lending rates to as much as 1.45 times the benchmark level to rein in credit growth, the official China Securities Journal reported today.

One large commercial lender has told branches to charge between 1.1 and 1.45 times the rate, depending on which industries borrowers are in, the newspaper said, citing an unidentified official from the bank. The key one-year borrowing cost is 5.81 percent. The report didn’t name the lender.

The surge in lending typical of the start of each year may be hampering government efforts to rein in liquidity, cool inflation and prevent asset bubbles. This month’s lending reached 1.2 trillion yuan ($182 billion) by Jan. 24, according to a China Business News report today citing an unidentified person. That would compare with 481 billion yuan last month.

The China Securities Journal report didn’t specify the duration of the loans that the increased rates apply to.

At Industrial & Commercial Bank of China Ltd., the world’s biggest lender by market value, Beijing-based press officer Xie Taifeng said he’s not aware of any increase in rates.

“The process of setting the lending rate is market based, our headquarters doesn’t give specific instructions to branches on that,” Xie said.

No comment was immediately available from Bank of China Ltd. or China Construction Bank Corp.

Falling Freight Rates: CIMB PM

Yesterday, insolvent dry bulk shipper Korea Line Corp filed for protective receivership in the midst of falling freight rates. Freight rates have seen better days. The Baltic Dry Index has fallen 43% since its last peak on 10 September 2010.
(Please see attached for Baltic Dry Index chart)
Our take on falling freight rates: In conventional wisdom, falling freight rates can only be caused by i) decrease in demand for freight or ii) excessive supply of vessels. The main culprit for existing freight environment can be attributed to the latter, and the resultant competition between ship owners led to the fall in freight rates.
Some will win, some will lose: In our view, falling freight rates could impact CWT, Goodpack and Cosco.
CWT: Around 40% of CWT’s revenues are derived from freight forwarding. A falling freight rate environment will help the company to boost its freight forwarding margins as CWT usually books freights after settling the contracts with its customers. As freight rate falls, CWT will be able to charge clients at rates higher than actual booked rates. This will positively impact CWT’s margins going forward. Outperform; TP S$1.72.
Goodpack: Similar to CWT, Goodpack, another logistics services company is also impacted by freight rates. A falling freight rate environment could also boost the company’s margins going forward. Neutral; TP S$2.20.
Cosco: The dry bulk container vessels operator tumbled 7 Scts or -3.1% to S$2.24 this morning, following reports of Korea Line Corp’s receivership filing. This recent development could put some selling pressure on Cosco in the near term. Outperform; TP S$2.63.

CitiBank

SINGAPORE | EQUITY STRATEGY
FSSTI Target 3450 — Although Singapore may underperform our bullish regional view (MXASJ target 695, +29%) we see 20-30% upside in selected names. Ample global liquidity suggests continued SGD strength, low interest rates and buoyant commodity prices. Banks have lagged, yet are at record earnings, NIMs look close to bottom and business lending is recovering. In a low rate environment property office values could rise and mass market residential and REITs remain attractive. O&M is seeing a new rig replacement cycle underpinned by a strong demand outlook and firm oil prices. At 1.78x P/B,
FSSTI is +0.5SD above mean, and well below "bubble" 2.3-2.4x levels of past cycle peaks. Top picks: DBS, Keppel Corp, Yangzijang, Genting, ComfortDelGro, M1, AREIT, Allgreen.