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Investors’ Corner
Investors' Corner | 29 September 2008

City Developments
Price – $9.63 Target – $11.25

City Developments’ (CDL) 53.5%-owned Millennium & Copthorne Hotels plc (M&C) has been requested by Kangho AMC Co (Kangho) to extend the completion of Millennium Seoul Hilton’s £232.6m sale to 30 Nov 08. We believe that Kangho’s lenders could be demanding higher interest rates given the increasing risk premiums and cost of capital. Further, the Korea Times also reported in Jul 08 that Kangho not only currently sits on a debt of 241b won, but also generated a net loss of 15.4b won in 2007. For CDL, recognition of the pre-tax gain of £155m will now be recognized in 4Q08 instead of 3Q08, provided the sale does complete by 30 Nov 08. Nonetheless, in the event that the sale is postponed beyond FY08, we estimate that impact is relatively minimal. We believe that sentiments remain weak within the property sector and there remains a lack of near-term catalysts for residential-centric developers such as CDL. Maintain NEUTRAL. – DMG & Partners (22 Sep)

Rickmers Maritime
Price – $0.935 Target – $1.22

Rickmers Maritime (RMT) recently accepted delivery of its 12th vessel, MOL Dedication, the second of 13 additional vessels RMT is contracted to buy over 2008-2010. RMT plans to fund the contracted acquisitions using a combination of retained cash, debt and equity. RMT has US$608.3m in unused debt facilities (before paying for MOL Dedication), which gives it some breathing space in the nearer term. However, an equity injection will be inevitable over FY09-FY10 in order to accommodate RMT’s debt repayment schedule and to fund the US$771.6m vessels due in 2010. In line with turbulent markets and the Singapore-listed shipping trust sector, RMT saw volatile movements in its share price last week. RMT is our top pick for the shipping trust sector and we think today’s 13.6% yield (FY08F) looks attractive. Maintain BUY. – OCBC Investment (22 Sep)

TeleChoice Int’l
Price – $0.22 Target – $0.30

We believe that market concerns revolve around the risks to growth and outcome of the Joint Venture with Fortune. Nonetheless, our assessment reaffirm that the risk of abrupt decline in growth is low on the heels of strong backing from Singapore Technologies Telemedia and its key customer, Starhub. We prefer DDM methodology to value the counter in light of its consistency in dishing out dividend. Although we believe downside risk for the dividend payout is limited, it may occur under the circumstances such as (1) cash flow needed for working capital (2) new project intakes for network engineering segment, and (3) potential M&A. The share price has been corrected over the last few months despite the firm fundamentals remain largely unchanged. Therefore, given the depressed valuations, we recommend BUY with 36% upside potential. – Westcomb (22 Sep)

Sino-Environment Technology Group
Price – $0.955 Target – $1.68

We met with Sino-Environment Technology Group (SINE) recently for an update. We were pleased to learn that it has been business as usual for SINE, despite the government temporarily shutting down heavy industries during the Olympics. SINE also updated us that both its DeSOx (desulphurization) and DeNOx (denitrogenation) operations are progressing as planned. However, we view the 34% sell-down of SINE’s shares since end Aug to an intraday low of S$0.765 on 16 Sep as unwarranted, underperforming even the FTSE China index (down 29% to an intraday low of 237.52 on 18 Sep), given the company’s good growth potential in the waste gas treatment market and large number of secured orders already on hand. For FY08, we believe SINE should comfortably meet our 94% revenue and 78% earnings growth forecast. But due to increased volatility of its shares recently, our DCF-based fair value drops from S$2.26 to S$1.68. As there is still >70% upside from here, we maintain our BUY rating. – OCBC Investment (23 Sep)

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