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.

CIMB PM Play the dual-listing theme wisely
China Gaoxian’s KDR debut opened lower this morning, with its KDR price falling to a low of 5,360 KRW (equivalent to S$0.307 per share) before recovering to 5,605 KRW as at writing. As a result, its SGX price fell from S$0.44 (yesterday’s closing price) to a low of S$0.36 (-18%) before finishing at S$0.365 at the break; stock’s KDR value effectively trades at a discount to its SGX value currently.
Our take on dual listing: Our review suggested that stocks dual-listed on Hong Kong generally trade at only slight premium (except for Novo Group; but unfortunately trading is inactive) to SGX prices. Thus, arbitraging may not be profitable for retail investors when transaction costs are factored in. In Taiwan however, TDRs generally trade at a premium to SGX prices. However, we think that the premium is sustained because (i) the Taiwan market trades at a premium to Singapore, and (ii) arbitrage opportunities for TDR are non-existent as they are not fungible. Though so, premium TDR valuations may still have the effect of lifting the companies’ SGX prices without eliminating the valuation gap.
For the investors: Make your investments based on company’s fundamentals; do not chase dual listing themes blindly. Current investors in China Gaoxian could take advantage of this opportunity to buy its KDR and sell SGX shares (in equivalent amount) to make the spread (+12% before transaction costs).
Trader’s perspective: China Gaoxian’s share price fell 5.6% (to close at S$0.42) on the next trading day after it announced KDR pricing (S$0.405 per share) at a discount to its last transacted price on the SGX (S$0.445 per share); as at noon, price has fallen 18% since announcing KDR price. Prior to this sell-down, its price rallied +134% from S$0.19 (last closing price before KDR plans was revealed) to S$0.445 (just before KDR pricing announced). Thus, we feel that traders playing the dual listing theme will be better off taking profits on announcement of dual listing offer price.
What to buy now? Companies (with good fundamentals) set for Korean listings but has NOT announced KDR pricings. In this space, we like Combine Will (Buy, TP S$0.52) and UMS Holdings (Pending results review: Buy, TP S$0.835).

GENTING Singapore Plc by CIMB

Quick takes - Junket regulations up the ante - by Joseph Wong Chin Wai CFA
(GENS SP / GENS.SI, OUTPERFORM - Maintained, S$2.15 - Tgt. S$2.70, Travel and Leisure)
--------------------------------------------------------------------------------
The Casino Regulatory Authority (CRA) has reportedly engaged Spectrum Gaming Group (SGG) to conduct background checks on several entities that have applied for junket licences since 2010. We take a negative view of this development as stringent checks could scare away junkets as they will need to pay higher-than-expected charges for such checks. Furthermore, the charges are not refundable if they fail the probity check. That said, we view this as a longer-term, rather than a near-term concern as we believe that the novelty effect of the IRs will continue to pull in the punters in the near term. This will allow RWS to nurture its higher-margin in-house VIP market by leveraging the Genting group's extensive clientele base. We retain our FY10-12 forecasts, SOP-based target price of S$2.70 and OUTPERFORM rating for Genting Singapore.

KIM ENG

Ascott Residence Trust - The "art" of diversification
(BUY, $1.22 - TP $1.38, ASRT.SI / ART SP, REITs)
Ascott Residence Trust (ART) reported a 58% YoY jump in revenue to $72.8m for 4Q10 due to the additional contribution from the 28 properties acquired in Oct 2010, in line with market and our expectations. Final DPU of 2.27 cts was declared. The buoyant demand in the hospitality industry especially in Singapore and United Kingdom will underpin revenue growth and our DPU forecast of 8.1 cts for FY11F. Maintain Buy with target price unchanged at $1.38.

IPO Highlights: XMH by SIAS

Main Activities: XMH is a Singapore-based distributor for a wide variety of marine and industrial diesel engines, power generating sets and related components. The company also provides customized products and services such as their in-house “e-Gen” power generating units and “XMH IPS” propulsion systems.

Source: SIAS Research EstimatesKey ratios (FY11F)
PER 7.0 P/BV 2.3
ROE 32.7%
Debt/Equity 15%
Current ratio 1.59Source:
SIAS Research EstimatesIPO DetailsNo. of Public Offer Shares1.5mNo. of Placement SharesFloat to PublicPlacement PriceNet IPO Proceeds to XMHLast Date of Application*Date of Trading*IPO Manager99.45m25.2%S$0.250S$18.85m24 January 2011, noon26 January 2011, 9amUnited Overseas Bank*Indicative timelineStock DetailsNumber of Shares*400 mMarket Capitalization*S$100 m


XMH Holdings Ltd. (XMH) is poised to list on the SGX Mainboard on 26 January 2011. 100.95m shares will be issued at S$0.25 each, representing 25.2% of the enlarged post-IPO shares capital. Our preliminary analysis reveals that the company has a stable business model and industry trends reflect a higher demand for XMH’s marine diesel engines. That said, our economic profit model indicates an intrinsic value of S$0.380, representing an upside of 52% over its IPO offering price of S$0.250.
Fundamental Drivers:
 Stable Business Model: Owing to the wide application of marine diesel engines and limited well-known brands within the industry, we believe that XMH operates in a steady business environment. This is further supported by their popular customized in-house products and strong customer following. 75.9% of FY2010 sales are attained from repeat clients.
 Firm Supplier Relationship: Thanks to XMH’s competent distribution network, the company was granted the exclusive distribution rights to a limited range of Mitsubishi brand of high speed and medium speed marine diesel engines and products in regions like Singapore, Indonesia and Maldives. Mitsubishi is one of the four globally renowned marine diesel engine brands and the firm supplier support provides XMH with an edge which competitors cannot replicate.
 Robust Growth Prospect: With the IPO proceeds, XMH can broaden its advantage against other peers by establishing an assembly line for their customized "e-Gen" power generating sets. This facility enables XMH to manufacture exclusive in-house components, shorten its lead time, ensure component quality and assemble more sophisticated products.
 Supportive Industry Catalysts: Indonesia’s demand for XMH’s marine diesel engines is likely to increase on the back of the execution of cabotage regulation, coupled with upcoming coal-fired power plant projects in Indonesia and escalating coal exports to China.

21 Jan 2011 14:42 CST DJ MARKET TALK: STI Off 0.4%; Volume Tepid; 3165 Support -DBSV
0642 GMT [Dow Jones] Singapore's STI is down 0.4% at 3192.60, with selling in banks, commodity plays and rig builders weighing on the index as caution prevails after yesterday's sharp fall. Volume falls from yesterday, and is at 1.01 billion shares so far. DBS Vickers strategist Yeo Kee Yan says "earnings season has a history of being choppy. Back in December I highlighted that the market should start to rise, but that profit-taking might kick in by mid-January, which is actually what's happening now. Ultimately I believe that corporate earnings will support the market for blue chips, so downside will be limited in the near term." Below 3200, he tips support at 3165. He adds, other than profit-taking, traders may also be paring down holdings ahead of the Lunar New Year holiday (Feb. 3). Noble (N21.SG) is down 1.3% at S$2.24, OCBC (O39.SG) is off 0.6% at S$9.94, Golden Agri (E5H.Sg) is down 2.0% at S$0.725, and Keppel (BN4.SG) is down 1.7% at S$11.30. (matthew.allen@dowjones.com)

CIMB PM
Tiger Airways: Stuck between a rock and a hard placeTough operating environment, steep valuations. We believe Tiger Airways could face a tough operating environment going forward. The budget carrier could face headwinds from i) Australian floods, ii) rising oil prices and iii) recovery from reputation loss. In addition, Tiger is trading at 9x CY12 P/E, in line with full service carriers. However, in view of its operational risks going forward, we believe that Tiger should be trading at a lower P/E multiple.Australian floods to impact growth. With almost 50% of its revenues derived from Australia, the existing floods will have near term and longer-term impact on Tiger. Around 30% of Tiger’s Australia route portfolio consists of flights to major airports in Queensland, including Brisbane, Mackay, Gold Coast and Sunshine Coast. Although Tiger will be able to reschedule their route portfolio and transfer capacity to other major airports, the flood will have longer term impacts on Australia’s economy. According to estimates, Australia could need three to five years to reconstruct decimated property and infrastructure in the wake of the floods, and economic growth could be stunted. We expect air travel demand growth to slow and competition between airlines could heighten. Domestic passenger fares could dip and margins could be squeezed going forward.Rising oil prices to add to Tiger’s woes. We expect margins to be squeezed in view of rising oil prices. Although we do note that Tiger engages in fuel hedging practices of 35-40% of total fuel requirement up to 15 months forward, a 1% increase in oil prices will still have a 3.7-4% decrease in EPS, according to our estimates.Steep valuations. At 9x CY12 P/E, Tiger is trading in line with full service carriers. However, in view of operational risks as well as a harsh operating environment going forward, Tiger Airways could see some weak earnings going forward. We believe Tiger should not be trading in line with well capitalized full service carriers, which have lower risk profiles.Recommendation. We have an Underperform recommendation with target price of S$1.59.

Interesting Article.. Fengshui by CLSA 2011

Some Fengshui masters predicted that Water industries will do well for 2011...

Rabbit year forecast
Renowned Feng Shui Master Lee Shing-chak presented to a full house at our annual CLSA 2011 Feng Shui Luncheon in Hong Kong. He views the rabbit as reserve, attentive, conservative, and
excitable. The stock market will be range bound with little opportunities to make large profits. The big risks this year could be bird flu, North Korean conflict and earthquake. Gold will do
well, but property will not. Market will improve in 2012 leading to a continue rally until recession in 2014-15. He likes entertainment, gaming, transports and tourism sector. Avoid property and construction. Stocks with the luckiest numbers are Yanzhou (1171 HK), NWD (17 HK), Cheung Kong (1 HK) and Tencent (700 HK).


What to buy? Markets, sectors, home prices, and gold
This will be a bouncy year for the market with no large rally or money making opportunities. Market will be weak in 1H, bottoming between May and August and should rally there-after. The best element this year is water which means movement. Thus, transport, logistic, and tourism sector will do well. The western direction is auspicious which means that entertainment including Macau gaming should also do well. He is also positive on gold which will go up to USD 1,600 - 1,800 oz by the end of the year. The best entry point would be mid-year. This is the year of metal which means that it is bad for the wood element. Property and construction will not do well.
Hong Kong property policies will follow Beijing and hence will cap property price. Property price will fall until mid-year and then rebound. Luxury will do better than mass market due to potential new policy. The best area in Hong Kong is Tai Koo Shing. Aberdeen could become a luxury market.

This is a good year for the dog sign as dogs always chase and out-runs the rabbit. People who are born in the year of the Monkey or Sheep will make the best investments this year.

Conclusion
As Chinese, we’re always interested in Feng Shui and what the heavens had to say. We may pay more attention this year than last as CLSA’s Feng Shui index was remarkably accurate last year. For real astrological advice we defer to Master Lee. He is forecasting a second half rally much like us, but we believe the rally could be stronger than he predicts. In terms of sector, we both agree on water (transports, tourism, logistics) and entertainment (Macau gaming). He is a buyer of gold, but not HK property. It really all sounds very sensible.
If you want to follow Master Lee, we provide stock suggestions for the sectors he likes:
􀂉 Transport – Air China (753.HK), China Merchants (144.HK), Cathay Pacific
􀂉 Tourism – Ctrip, Homes Inn
􀂉 Entertainment – Sands China (1928.HK), Wynn (1128.HK), SJM
􀂉 Gold – Zhaojin (1818.HK)

Lucky number 7 & 1 stocks – Stocks above and: Yanzhou Coal (1171.HK), New World Development (17.HK), Tencent (700.HK), Cheung Kong (1 HK), Want Want (151.HK), PetroChina (857.HK), China Telecom (728.HK)

CIMB PM
North South Expressway gets green light, Singapore contractors to benefitYesterday, the Land Transport Authority (LTA) gave approval for the alignment of the North-South Expressway (NSE) between Admiralty Road West and Toa Payoh Rise. When completed, the NSE will be Singapore's 11th expressway, and will run parallel to the Central Expressway (CTE). Among SGX-listed construction stocks under our coverage, we believe that OKP and Yongnam have the most direct exposure to NSE.Road works underway for the next 10years: The 5km Marina Coastal Expressway (MCE) is currently under construction, and is expected to be completed by 2013. Meanwhile, construction of the proposed 16km NSE is expected to commence from 2013 and finish by 2020. Given the scale (3x longer than MCE measured by length) and complication (described by LTA as “one of the most challenging engineering undertakings to date”) of the NSE, we expect bigger and potentially more lucrative contracts to be awarded to contractors.OKP (BUY; TP: S$0.85): OKP is involved in the construction and maintenance of urban and arterial roads, expressways, vehicular bridges, flyovers etc. The company is also likely to benefit from road construction contracts awarded for the NSE project. We like OKP for its high projects visibility in the public sector, and its strong potential overseas expansion story. OKP is also a prime candidate to benefit from governments’ infrastructural spending.Yongnam (Outperform; TP S$0.41): As a leading provider of specialist civil engineering (SCE) solutions in Singapore, we believe that Yongnam is well-positioned to secure specialist civil engineering contracts for the NSE project. The Group won six MCE contracts worth S$363m in aggregate between 2009 and 2010. Given that the NSE is a much bigger project compared to the MCE, we expect its total contract wins for the NSE to surpass its MCE contract wins. Its order book stands at S$451xm as at 30 Sep 2010, with the record high of S$540m registered on 30 Sep 2009. We expect the specialist civil engineering contracts for the NSE to be awarded from 4Q2012.

COSCO CORPORATION (SINGAPORE) LIMITED
(Company Registration No. 196100159G)
CLARIFICATION OF ARTICLE IN THE BUSINESS TIMES
The Board of Directors of COSCO Corporation (Singapore) Limited (the “Company”) refers to the
article which appeared in The Business Times on 20 January 2011 entitled “Talk of asset injection boosts Cosco Corp”. Citing recent research reports, the article refers to the possibility of a restructuring effort by parent company Cosco Group that would see it inject its 19 per cent interest in Cosco Shipyard Group and its 100 per cent stake in Cosco Shipbuilding Industry Company, which owns two shipbuilding yards in Nantong and Dalian, into the Company. With respect to these recent reports, the Company wishes to state that it has not received any proposal nor is it currently in any discussions with any party in relation to the recently reported proposed asset injection. The Company will make further announcements of relevant developments (if any) at the appropriate junctures. Shareholders of the Company and investors are advised to exercise caution in dealing in the shares of the Company.
By Order of the Board
Jiang Li Jun
Vice Chairman and President
20 January 2011

Kim Eng Lunch Bites

Looking at banks Looking at banks – The three local banks are due to announce their 4QFY10 results in February. Reporting dates: DBS Feb 10, OCBC Feb 18, UOB Feb 25. To recap, following the 3QFY10 results announced in November last year, we had a neutral-to-positive view on the sector, with our top pick being OCBC. Share price performance during this period was encouraging, OCBC was up 7.8%, UOB rose by 3.9%, and DBS improved by 4.4%, versus the STI’s 2.2% decline. We now expect the market to focus on the possible fallout from the government’s fourth round of property cooling measures, with UOB likely to face the spotlight here due to its higher proportion of mortgage loans. On the bright side, we think asset and earnings quality will remain good for all three banks. We could also start to see net interest margins bottoming out, with DBS CEO Piyush Gupta explicitly upbeat on this front.

Blog reopened!!

Long Cheer Holdings by DBS

Strong headwinds ahead
• Weak sell through and smartphone
cannibalisation, this trend to last for three
quarters.
• Expect losses in FY11 on lower sales and severe
margin erosion.
• Downgrade to Sell; >20% downside to TP of
S$0.49.
Weak demand and severe margin compression in India.
Our channel checks indicated that in Nov/Dec, the India
handset market was plagued with a severe stock pile in the
feature phone segment (Longcheer’s key products) due to: 1)
weak sell through during Deepavali; and 2) smartphone’s
cannibalisation of the low to mid range feature phones. As a
result, handset makers aggressively cut ASP to clear stock. As
there is still inventory in the channel, we believe this trend of
low volume and low margin will last for three more quarters.
As India accounts for 40% of group sales and almost 50% of
shipments, we expect a significant adverse impact on
Longcheer’s performance in the quarters ahead.
3G rising in China but mobile lottery yet to materialize.
With 3G penetration in China gaining momentum, we
believe Longcheer’s shipments to China Telecom are growing
in line with expectations. However, Longcheer’s 3G volume is
still small and will not offset the weakness from feature
phones. Meanwhile, we have not seen signs of mobile lottery
contributing in 1Q11 and believe it will take a much longer
time to create user awareness and become a significant
contributor.
Downgrade to Sell. Following a16%/20% cut in shipment
volume for FY11F/12F, 10% drop in ASP and a 4-4.7%
decline in gross margins, we forecast a loss of S$12m in
FY11 and S$12.7m profit in FY12. In view of the drastic
change in operating prospects and our expectation of losses
in FY11F, we have re-pegged our target price to historical
mean P/B of 1.3x FY11, thus yielding a revised TP of S$0.49.
Downgrade to Sell on weakening outlook and >20%
downside to TP. Historically, Longcheer has traded to –1SD
of 0.81x P/B (S$0.30).