Brokers' Take Published May 3, 2008

S-chips DMG & Partners Securities, May 2

THE Shanghai Composite Index has been on a downtrend over the past few months. Despite the Chinese government cutting the stamp duty on stockmarket transactions (effective April 24), which led to a positive market reaction, the index is still 33 per cent lower than at end-2007.

The FTSE ST China (FSTC) Index, which comprises Chinese companies listed in Singapore, has also weakened in tandem with the weakness for the Shanghai Composite Index. The FSTC Index value of 475 on April 29 is 38 per cent lower YTD, though there was some temporary firmness following the stamp duty cut by the Chinese government.

The temporary firmness in the FSTC Index has been accompanied by a corresponding surge in the volume of FSTC Index member stocks traded. The volume exceeded 400 million units per day for April 22-24 as market players traded on expectations of some measures by the Chinese government, and also post-announcement, sharply higher than the 248 million units daily average from Jan 10 to April 29.

What is more interesting is the ratio of the trading volume of FSTC Index member stocks to the trading volume of Straits Times Index member stocks, which rose to a recent peak of more than two times compared with the average of one time over the past three-and-a-half months. However, over the past two to three days, the ratio has fallen back close to its 3.5-month average.

We note that the FSTC Index typically weakens after the ratio peaks. This occurred in late-February and early-April. It is likely that the ratio peak from April 22-24 could lead to some temporary weakness in the FSTC Index in future, barring any other measures by the Chinese government which could stimulate the stock market. If the FSTC Index does weaken, it will lower the PE of S-chips to below the current 9.5 times, which is already attractive.

Notwithstanding this possible weakness, we recommend investors to buy into S-chips with strong fundamentals such as China XLX ('buy', TP: S$1.00) and Ferrochina ('buy', TP: S$2.14). In addition, JES International (unrated) and Li Heng Chemical Fibre (unrated) look interesting.


Singapore PostMay 2 close: S$1.15DBS Group Research, May 2


UNDERLYING Q4 FY2008 net profit of $33.6 million (down 1.2 per cent y-o-y, and 8.0 per cent lower q-o-q) was below our $35 million forecast, as a 13 per cent y-o-y increase in operating expenses (excluding an impairment charge of $4.9 million) was above our already high single-digit growth estimate. The company declared a final dividend of 2.5 cents, taking full-year dividends to 6.25 cents.

Operating expenses grew mainly due to: 1) rising wages; 2) higher traffic volume coupled with higher oil prices; and 3) higher selling expenses for boosting retail sales. Management has guided for stabilisation of operating costs at Q4 FY2008 levels, which means that Q1 FY2009 and Q2 FY2009 could be hit by a high cost base compared to the corresponding quarters in FY2008. Moreover, postal liberalisation, although not very significant, can put additional pressure on Singapore Post's margins.

We have trimmed our FY2009 earnings estimates by 6.5 per cent on lower margin assumptions. In view of an uncertain property market, sum-of-the- parts valuation based on the assumed sale of the SPC building may be less relevant now. Our new target price of $1.12 is pegged at 15 times FY2009 PE (based on a historical range of 15-18 times), and we downgrade Singapore Post to 'hold'. Stable earnings with a 5.5 per cent dividend yield remain as key attractions of the stock.HOLD


CapitaLandMay 2 close: S$7.09CIMB-GK Research, May 2

CAPITALAND'S Q1 2008 core EPS of 7.5 cents formed 20 per cent of our full-year forecast. We believe the results were below consensus forecast. Q1 2008 saw revenue from the residential segment falling by 8 per cent y-o-y to $412 million, while revenue from commercial and retail operations leapt 62 per cent and 67 per cent y-o-y respectively. With the pace of completion of residential projects expected to pick up, we expect stronger recognition in the next few quarters. CapitaLand is also expected to launch several overseas projects this year.

We have lowered our FY2008-10 core EPS forecasts by 21-219 per cent on less aggressive recognition assumptions in Singapore. On the other hand, our end-2008 RNAV estimate and target price have been raised by 6 per cent to $6.86 to factor in higher market valuations for its listed subsidiaries and higher fee income growth assumptions. Rich valuations remain the main reason for our 'underperform' rating.UNDERPERFORM

Glossary:

EPS - earnings per share
Ebit - earnings before interest & tax
Ebitda - earnings before interest, tax, depreciation & amortisation
FY - fiscal/financial year
H1, H2 - first or second halfNAV - net asset value
9M - nine months
P/B - price/book value (ratio)
PE - price/earnings (ratio)
Q1, Q2, Q3 - first, second, or third quarterq-o-q - quarter-on-quarter
ROE - return on equity
RNAV - revised net asset value
TP - target price
y-o-y - year-on-year
YTD - year to date
- Compiled by CONRAD TAN

Disclaimer: All analyses, recommendations and other information herein are published for general information. Readers should not rely solely on the information published and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein. Brokers who wish to send in their reports can email us at btnews@sph.com.sg