Left Brain Right B - the DBS Vickers Securities Equities Research

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Regional Equity Strategy 4Q 2009 Country Assessment Sector recommendation and stocks for Singapore SECTOR REMARKS STOCK SELECTION Industrials Underweight Oil & Gas Neutral Property Neutral We believe that the market’s hope for early Petrobras’ contracts may disappoint as we expect Petrobras’ award of its first batch of 28 offshore rigs (7-9 units) to occur only in 1H 2010. This is due to: 1) Still high equipment cost, 2) High local content requirement, 3) Petrobras has the benefit of “time” to sit out for better prices, 4) Lower margins for yards, 5) Tight credit market, 6) Probe by Brazilian Congress on past deals. Hence, there is potential risks of earnings downgrades in the event contract win assumptions are too optimistic for 2009. However, we believe that the offshore/rig newbuilding activities would pick up in 2H 2010 as credit normalizes upon economic recovery, and equipment prices decline as suppliers relent on diminished order books. For dry bulk shipping, the oversupply situation is now aggravated by the higher-than-expected deliveries since mid-2009 and the credit slowdown in 2H 2009 in China. This will be negative for China shipyards, and the momemtum for contract cancellations could continue. Within industrial, our preference is for water and environmental plays, as we expect Hyflux and Epure to benefit from more contract wins resulting in further earnings upgrades. Our stock picks for industrial sector are Hyflux and Epure. Our industry analysis and channel checks show that offshore deepwater activities are holding up relatively well. We expect the ratio of mid-large AHTS (>8,000 bhp) to floater to be 2.3-2.6x in the 2009-13 periods, contrary to market’s concern on severe oversupply issues. This is at the lower half of the theoretical 2-3x healthy range. We expect day rates for mid-large AHTS to drop another 5-10% from current levels, at most. This represents a decline of about 20% or less from peak levels in 2008. The outlook is stronger for subsea vessels, as the utilisation rates have improved since late 2Q 2009, and charter rates have stabilised at
Regional Equity Strategy 4Q 2009 Country Assessment Sector recommendation and stocks for Singapore SECTOR REMARKS STOCK SELECTION Reits Overweight Technology Neutral Telecom Overweight Sreits had generally performed well in 3Q09, particularly the Integrated Resort thematic plays. The sector is currently yielding c7% FY10 earnings. Looking into Q4, we expect Sreits to hold up relatively better than developers as investor attention shift towards more defensive targets with good dividend yields as we see little room for significant RNAV upgrades for developers in the short term. Our strategy for Sreits this quarter would be to prefer those with potential for growth from new acquisitions as well as attractive valuations. Our preferred picks are FCT, ART and Suntec. Our optimism on the Technology sector since April has paid off with an average of 80% appreciation vs broader market 41% gain. We believe earnings will continue to improve in the near term, per our view that 4Q09 would be the first quarter of on-year growth considering the low base in 4Q08. However, we do not expect much earnings upsides compared to the last two quarters since most of the production ramp for this year would have been completed by Q3 if not early Q4. In fact, most tech stocks have normalized to historical means and thus have priced in most of the earnings recovery for now. Pending more concrete signs of end demand absorbing past quarters' seasonal buildup, we see little price upside for the sector hereon. As such, we have downgraded our rating on the sector to NEUTRAL. Nevertheless, we remain positive on Venture as 2H ramp up is bolstered by new customers as well as market share gain from a competitor's hiccup. Another catalyst would be its CDO writeback ( c. 50cts/share) end of the year. Mobile ARPU, after its recent sharp decline, is on recovery path as roaming contribution is starting to come back. Pay TV and broadband ARPU may take longer time to recover as consumers may not upgrade to the high-end plans in the near term. Higher take-up of mobile data plans provides opportunity to raise mobile ARPU over the longer term. M1, being a pure mobile player is likely to benefit more than others, and is the only beneficiary of National Broadband Network (NBN) from FY10F onwards. Potentially high cost of sports content is already refelcted in StarHub's stock price and the possibility of content-sharing could lift the stock price. M1 and StarHub offer dividend yields of 8% and 8.5% respectively, highest in the Asian telecom space. Top pick -M1 Frasers Centrepoint Trust, Ascott Residencel Trust and Suntec Reit Venture M1 Page 52
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Left Brain Right B - the DBS Vickers Securities Equities Research

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