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4/9/20104/9/20104/9/2010 9 April 2010

Morning Matters
While You Were Sleeping
Figure of the Day

US markets: Positive
Dow futures: +3 (as at 8am Singapore Time)

US wrap: DJIA rose 29.55 points (+0.27%) to 10,927.07. The S&P also grew,
by 3.99pts (+0.34%) to 1,186.44. U.S. stocks gained on Thursday after
surprisingly strong March retail sales increased optimism that the economic
recovery is on track. Investors snapped up retailers' shares after top U.S.
chains reported a record year-over-year increase in same-store sales for
March. The sales reflected a boost in consumer demand that some investors
had doubted would materialize, with job growth still anemic. Online merchant
Significance of this number? Check out Amazon.com (AMZN.O) jumped 4.5 percent to $140.96, its highest close in
'Analysing the News'. four months. Among advancers in the retail space, Target Corp (TGT.N) rose
3 percent to $55.64, while Gap Inc (GPS.N) climbed 3.1 percent to $24.59.
Gains in retailers' stocks eclipsed worries about Greece's debt load as the
country's borrowing costs rose to new highs even as the government
struggled to reassure markets it can stay solvent
Key Market Indices
The Day Ahead…
Value Chg % Chg
Market sentiment: Flat
Dow Jones 10,927.07 +29.55 +0.27 STI resistance/support: 2997/2946
S&P 500 1,186.44 +3.99 +0.34
2,436.81 +5.65 +0.23
Nasdaq Scoop of the Day: We met up with the management of Asiatravel and
FTSE 100 5,712.70 -49.36 -0.86
understand that the indefinite closure of Universal Studios Singapore's main
Nikkei 11,168.20 -124.63 -1.10
21,867.04 -61.73 -0.28
attraction Battlestar Galactica roller coaster is likely to have an impact on the
Hang Seng
3,118.71 -29.51 -0.94
former's bottom line. Running a ferry service between hotels and the park,
Shanghai
KOSPI 1,733.78 +7.18 +0.42 Asiatravel has to endure the ~S$200k/month running cost, which will only
STI 2,963.19 -24.91 -0.83 allow it to breakeven when USS is fully opened. With the expected slower
KLCI 1,332.93 -12.16 -0.90 revenue growth and start up costs incurred for the new project, earnings
growth is likely to be lower than previously expected. We have adjusted our
earnings estimate and arrived at a new TP of S$0.61 (previously S$0.78).
Key IndicatorsValue Chg % Chg
Maintain NEUTRAL.

Oil Price*
(US$/bbl) 85.39 -0.49 -0.57 WHAT’S INSIDE?
Gold Price**
(US$/oz) 1150.55 +1.20 +0.10
Analysing the News
US$/S$ 1.3946 -0.003 -0.08
Lian Beng Group: 3QFY10 results almost doubled YoY (SGXNET)

Thomson Medical 1HFY10 net profit rises 22% (SGXNET)


* WTI Crude Future
** Gold Spot
On the Platter

First Resources: Low cost entry into the plantation sector (BUY)

M1: Warming Up to NGNBN (BUY)

StarHub: NBA for BPL (NEUTRAL)


9 April 2010
ANALYSING THE NEWS

Lian Beng Group: 3QFY10 results almost doubled YoY (SGXNET)

The news: Lian Beng’s 3QFY10 earnings came in 90.6% higher YoY, hitting S$5.8m this quarter.
Revenue was up 4.7% YoY, coming in at S$82.9m. Gross profit margin improved 3.5ppt to 12.8%
this quarter. Cash stood at a healthy S$49.8m as at Feb 10, representing an improvement of
S$43.1m over the previous corresponding period.

Our thoughts: The Group continues to enjoy brisk business activity flowing from the local private
residential scene, announcing a slew of project wins since Mar - The Laurels, Centro Residences
and Waterbank at Dakota. Order book stood at S$850m as at Mar 10. We see demand for
construction services to remain sustained on the back of public infrastructure and private property
projects rolling out. Within the sector, we like BBR (BUY, TP S$0.33), CSC (BUY, TP S$0.29) and
KSH (BUY, TP S$0.38).

Thomson Medical 1HFY10 net profit rises 22% (SGXNET)

The news: Thomson Medical reported a 22% growth in 1HFY10 net profit to S$7.2m, on the back
of higher number of baby deliveries, inpatient admissions and demand for its outpatient services.
Thomson Medical delivered 4,685 babies in 1H (+6.5%) and recorded higher patient load at its
satellite clinics. Balance sheet remains strong, with a net cash position of S$18.8m (6.4 S¢ per
share). It declared a 1.2 S¢ dividend per share for 1HFY10.

Our thoughts: The addition of a senior O&G specialist in 3QFY10 could add to its hospital’s
patient load and also contribute to growth. However, given the space limitation at its hospital, we
feel that growth is more likely to be driven by its satellite clinics and women’s cancer centre.
Thomson Medical has a network of women’s clinics across the island and intends to continue to
expand this network in the neighbourhoods. The opening of its Hanh Phuc hospital project in
Vietnam has now been pushed back to 1QFY11 due to some delays. We do not think this would
affect its FY10 earnings as we had initially estimated most of the contribution from this consultancy
project to come in from FY11 onwards. We are maintaining our BUY recommendation and TP of
S$0.78.

DMG Research
See important disclosures at the end of this publication 2
9 April 2010

On the Platter

First Resources: Low cost entry into the plantation sector (BUY)
Selena Leong (6232 3898, selena.leong@dmgaps.com.sg)
Terence Wong, CFA (6232 3896, terence.wong@dmgaps.com.sg)

Plantation plays have done well of late, rising some 14% since Mar 2010 on the back of a
weak US$ and firm CPO price. First Resources (FR) has been lagging behind its larger peers,
which we believe is unjustified, given (1) strong organic growth; (2) low cost of production of
US$200/tonne; and (3) attractive valuations, trading at 12.8x P/E against industry average of
17.5x. Positive macro factors such as strong projected demand growth coupled with possibly
muted supply growth (due to poor rainfall), a weaker US$ and higher crude oil prices would
help support CPO prices. Maintain BUY, with a TP of S$1.40 based on 15x FY10 P/E.

Industry beating oil extraction rate (OER). FR’s OER of 23.7% compares favourably against
its regional peers’ 20.5 - 23.2%. This can be attributed to the maturity profile of its trees, which
have an average age of 7.5 years, as well as the locations of its mills providing logistical
efficiency. Its young trees fall within the peak production age, providing a platform for further
production growth with minimal capex going forward.

Low cost of production beneficial. Cost of production is expected to increase by 11.1% YoY
to hit US$200/tonne, due mainly to wage increase. This is nevertheless still among the lowest
in the industry.

Strong global demand but potentially muted supply growth. Oil World believes that
consumption of palm oil is likely to exceed production in 2010, with global production estimated
at 46.8m tonnes and consumption coming in at 47.2m tonnes. This is backed by the robust
consumption by the top few countries/regions in 2009 – China, India and the EU-27. Supply
growth issues remain with poor rainfall affecting FFB production.

Cheaper than its regional peers. We assume CPO prices to average RM2,250/ tonne in
FY10 (spot prices ~RM2,600). Our core earnings estimate is IDR883.9b in FY10, up 13.4%
YoY. Based on 15x FY10 P/E (24% discount to its Malaysian peers), we derive a TP of
S$1.40.

FYE Dec (IDRm) FY07 FY08 FY09 FY10F FY11F


Turnover 1,691,368 2,782,948 2,276,665 2,625,949 2,888,544
Net Profit 431,257 1,091,768 1,169,420 883,922 976,303
% chg YoY 76.9% 153.2% 7.1% -24.4% 10.5%
EPS (S¢) 6.2 11.5 12.3 9.3 10.3
DPS (S¢) - 1.4 2.2 2.2 2.2
Div Yield (%) - 1.2 1.8 1.8 1.8
ROE (%) 13.5 26.2 21.9 13.3 13.0
ROA (%) 6.9 14.0 12.3 8.5 8.5
P/E (x) 19.1 10.4 9.7 12.8 11.6
P/B (x) 3.5 2.7 2.1 1.7 1.5
Source: Company and DMG Estimates

M1: Warming Up to NGNBN (BUY)


Singapore Research

We have tweaked our FY10/11 forecast upwards following a recent update with
management. M1’s mobile revenue was steady in January and February with evidence
of a further pick-up in roaming sales on the back of the economic recovery and the
opening of Resorts World Sentosa (RWS). The stock remains our top Sing telecoms
exposure as it is tipped to gain most from the impending launch of the NGNBN and the
potential for active capital management. We view the recent content carriage ruling by
MDA positively for M1’s foray into pay-TV where it is exploring a niche delivery.
Maintain BUY with upgraded TP of SGD2.55.

DMG Research
See important disclosures at the end of this publication 3
9 April 2010
Surely and steadily. We see the (i) recovery in Singapore’s economy, (ii) higher tourist flows
(from the opening of the 2 IRs); (ii) generally improved business sentiment; and (iv) impending
launch of the NGNBN as re-rating catalysts for the stock. Checks with management revealed
that roaming revenues recovered somewhat in Jan/Feb, marking a reversal from the y-o-y
decline in 4Q09, helped by seasonality. Recall that service revenue (ex handset sales) grew
the strongest q-o-q for six quarters in 4Q09, driven by improving mobile revenue momentum.

Capital management. Although management remained tight-lipped, we do not rule out a


capital management surprise. Firstly, we see little upside risk to M1’s capex guidance of
SGD100-120m for FY10, with FCF yield trending at 10%-14% for FY10/11, among the highest
in our regional telecoms coverage. Secondly, M1 recently completed the re-financing of its
SGD250m debt, the trigger point for more proactive management of its capital. We estimate
scope for M1 to return up to 25 cents/share on top of its guided dividend payout of 80%,
assuming a target net debt/EBITDA of 1.5x from 0.8x.

Strong take-up for iPhone. While M1 did not disclose the number of handsets sold, it
indicated that take-up is strong, driven by the combination of subscribers re-contracting and
incoming churn from rival networks (M1 is the only operator that provides unlimited iPhone
data download on its high-tier plan). We understand the iPhone ARPU is about 20% higher
than its average postpaid ARPU of SGD60/mth. We expect M1’s data revenue contribution to
hit 30% by end-2010 from 27.1% in FY09 from increased adoption of both smartphones and
the iPhone.

Top pick for Singapore telecoms. On the back of the improved revenue outlook, we now
tweak upwards our FY10/11 core profit forecast by 3%-4%. This implies a 2-year core earnings
CAGR of 5.1% versus 3.3% previously. Our target price on the stock has been raised
accordingly to SGD2.55 based on DCF (WACC: 10.5%, TG-2.5%) from SGD2.30. The key
share price re-rating catalyst is the upside from the impending launch of the NGNBN where
intends to capture a 20% share of the fixed broadband market in 5 years.

StarHub: NBA for BPL (NEUTRAL)


Singapore Research

StarHub has announced that the pricing of its sports package will be reduced by more than half
to SGD12/mth effective June 2010. It also unveiled fresh sports content which includes a multi-
year contract with the National Basketball Association (NBA). Sports fans will also be treated to
3 other new channels in the form of Racket Channel (for fans of racket sports), PGA Tour on
demand and Ten Sports (cricket).

Paying less for other sports. The reduced subscription price is in line with the earlier pledge
made by management to lower the price of the sports package by a minimum 50%. This
follows the lost of the Barclays Premier League (BPL) rights to Singtel last October for the
upcoming 2010-2013 season. While the NBA is fast gaining popularity, we believe the
following and viewership still pales in comparison to the near cult following of the BPL in this
part of the world.

Based on the new pricing, existing sport subscribers stand to save 28% in monthly
subscription. The implied cost per channel (for a basic entry level package) is effectively cut by
24% to SGD1.05 from SGD1.38 as illustrated in Table 1 for a total of 36 channels versus 38
channels previously. We suspect that some subscriber may even upgrade their subscription

DMG Research
See important disclosures at the end of this publication 4
9 April 2010
plans

Bigger bang for the buck. Note that StarHub still has the most compelling pay-tv content
across genres in Singapore which complements its widest sports coverage. Hence, the risk of
its sports subscribers churning-out completely is likely to be low. As not to disrupt a typical
viewing preference for a household, a StarHub subscriber may choose to spin-down to a basic
package (SGD25.68 with GST) and sign-up for the EPL package on Singtel’s mio-TV and still
not be worst- off with a dual subscription of SGD52.43/mth, on par with the current spending
(assuming no other incidental charges and rental of set-top box). The mitigating factors here
are : (i) the majority of subscribers still find incredible value and are likely to maintain their set-
top box (STB); and (ii) the ruling by the Media Development Authority (MDA) requiring pay-tv
operators to share content from September 2010 effectively suppressing the need to swap
operators and hence STBs. In our report dated 2 Oct 200, we had surmised that the net impact
on group EBITDA is <5% in the worst case scenario of a complete churn from StarHub’s sports
subscribers.

Maintain NEUTRAL based on target price of SGD2.20. We believe the revenue impact from
lower subscription prices going forward would be offset by sharply lower content cost for
StarHub given the prohibitive cost of the BPL rights. Our forecast is maintained pending the
release of StarHub’s 1Q10 results next month. We see share price weakness as a buying
opportunity given the generous dividend yields of over 8% offered. Our top pick for exposure to
Sing telecoms is M1.

DMG Research
See important disclosures at the end of this publication 5
9 April 2010
INSIDER TRADES HIGHLIGHTS FOR 08 Apr 10

Share Price % Stake before % Stake after


Company Insider No. of Shares
(S$) transaction transaction
Purchase
BRC Asia Lingco Marine 2,000,000 na 26.36 26.66
China New Town Dev Co Li Yao Min # 888,750 na 0.190 0.190
Cogent Holdings Tan Yeow Khoon 4,750,000 0.185 52.16 53.65
HLN Technologies Wa Kok Liang 134,000 na 8.17 8.27
Ramba Energy T.S.C. Cottew 7,000,000 0.255 3.538 7.076
Singapore Tech Engg Credit Suisse AG 2,500,000 na 10.95 11.03
Top Global Oei Siu Hoa @ Sukmawati Widjaja 3,320,998 na 58.61 58.75
Viz Branz Ben Chng Beng Beng 405,000 0.296 0.64 0.89
LMA International N.V. Share Buy-back 511,000 0.245 na 1.74
Sale
Advanced Systems Automation Value Capital Asset Management 71,682,000 na 5.95 1.32
Liang Huat Aluminium Malayan Banking Berhad 105,000 0.030 12.10 12.09
Pteris Global Deutsche Bank AG 2,653,000 0.195 6.03 5.47

# Exercise of Rights issue / Share Options / Convertibles / Warrants / Share Issuance.


## Married deal.

DIARY OF EVENTS

5-Apr 6-Apr 7-Apr 8-Apr 9-Apr


US Data US Data US Data US Data US Data
Pending Home Sales (Feb) ABC Consumer Confidence (Apr 5) Consumer Credit (Feb) Wholesale Inventories (Feb)
MBA Mortgage Applications (Apr 3) Initial Jobless Claims (Apr 4)
Continuing Claims (Mar 28)

SG Data SG Data SG Data SG Data SG Data


Purchasing Manager Index (Mar) Automobile COE Open Bid Cat A (Mar 17)
Electronics Sector Index (Mar) Automobile COE Open Bid Cat B (Mar 17)
Automobile COE Open Bid Cat E (Mar 17)
Foreign Reserves (Mar)
SG Results SG Results SG Results SG Results SG Results
China Life Insurance (FY09)
12-Apr 13-Apr 14-Apr 15-Apr 16-Apr
US Data US Data US Data US Data US Data
Monthly Budget Statement (Mar) ABC Confidence Consumer (Apr 12) Initial Jobless Claims (Apr 11) U. of Michigan Confidence (Apr)
Trade Balance (Feb) MBA Mortgage Applications (Apr 10) Continuing Claims (Apr 4) Housing Starts (Mar)
IPI (Mar) Consumer Price Index (Mar) Industrial Production (Mar)
Advance Retail Sales (Mar) Philadelphia Fed. (Apr)
Business Inventories (Feb)
SG Data SG Data SG Data SG Data
Retail Sales (Feb) Electronic Exports (Mar)
NODX (Mar)
SG Results SG Results SG Results SG Results SG Results
Foxconn International (FY09)
19-Apr 20-Apr 21-Apr 22-Apr 23-Apr
US Data US Data US Data US Data US Data
Leading Indicators (Mar) ABC Consumer Confidence (Apr 19) PPI (Mar) New Home Sales (Mar)
MBA Mortgage Applications (Apr 17) Initial Jobless Claims (Apr 18) Durable Goods Orders (Mar)
Continuing Claims (Apr 11)
Existing Home Sales (Mar)

SG Data SG Data SG Data SG Data SG Data


Automobile COE Open Bid Cat A (Apr 21) CPI (Mar)
Automobile COE Open Bid Cat B (Apr 21)
Automobile COE Open Bid Cat E (Apr 21)

SG Results SG Results SG Results SG Results SG Results


Ping An Insurance Group (FY09) China Overseas Land (1Q10)

DMG Research
See important disclosures at the end of this publication 6
9 April 2010

Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage

This research is for general distribution. It does not have any regard to the specific investment objectives, financial situation and particular needs of
any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial
adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this
report.

The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty
nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to
change without notice.

This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities, DMGAPS and its affiliates, their
directors, connected person and employees may from time to time have interest and/or underwriting commitment in the securities mentioned in this
report.

DMG & Partners Securities Pte Ltd is a joint venture between OSK Securities Berhad (a subsidiary of OSK Investment Bank Berhad) and Deutsche
Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange
Securities Trading Limited.

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DMG Research
See important disclosures at the end of this publication 7