SUNNY SIDE UP

Whats cooking

Start your day the Kim Eng way

Top news in bite-sized pieces
1 September 2011

Singapore Office Sector - Elevated Downside Risks. The recent market sell-down could be a harbinger of things to come. There are visible signs of a global economic slowdown and Singapore looks like it could be heading into another recession. With ample new office supply and looming secondary supply, we are of the view that office rents have peaked, with mounting downside risks. We advise investors to switch out of the office sector and switch to developers with diversified exposures. We are downgrading SingLand to SELL (TP: $4.89) and CityDev to HOLD (TP: $11.05), but maintain BUY on Keppel Land and CapitaLand with target prices of $4.05 and $3.56 respectively.

OVERNIGHT US stocks closed higher on Wednesday, as the US reported growth in factory orders that exceeded projections, while a private report showed that American business activity topped forecasts. The Dow ended up 53.58 points, pushing the index into the black for the year.

LOCAL Government to ensure steady supply of office space. Singapore Deputy Prime Minister Tharman Shanmugaratnam said the government will make sure prime office space, and commercial space in wilsonliew@kimeng.com general stays competitive. He noted that Grade A office rents are still about 45% cheaper than the equivalent in Hong Kong and 25% cheaper than Hot stock Amtek Engineering (AMTK SP, $0.665, NOT RATED) that in Tokyo. And we have to keep it that way, This could be an opportunity to buy Amtek cheaply, if he said. signals from major shareholder Standard Chartered Private Equity are to be believed. The fund bought 9m Platinum privileges Meet the CFO China Animal Healthcare shares in Jun 2011 at close to a dollar. With the stock now trading at a 30% discount to SCPEs purchases (1 September 2011): China Animal Healthcare is a and nearly half the IPO price, Amteks single digit manufacturer of three out the four compulsory vaccines under the requirements of the Ministry valuations and 8% yield do look tasty! gyap@kimeng.com of Agriculture of China. We expect its vaccine business to grow from strength to strength. Hear CFO Edwin Goh talk about the prospects for the company and its goal to explore new growth Overnight market snapshots opportunities. 1-2pm. 39F Boardroom, Suntec Dow Jones 11,613.53 53.6 Nasdaq 2,579.46 3.4 Tower 2. Please register for the session through FTSE 100 5,394.53 125.9 your trading representative.
CAC 40 DAX Index 3,256.76 5,784.85 97.0 140.9

Kim Eng Research Portal: This is part of our efforts to better engage YOU, our valued client. Everything is just a click away. Get actionable trading ideas each day. Its even iPhone friendly. Free public access for now, so mark down this site and share the joy with your friends! www.kimengresearch.com.sg

Co. Reg No: 198700034E MICA (P) : 090/11/2009

SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONS

MORE TO DIGEST
Wilmar International (WIL SP) Fails in Proserpine bid in Australia Previous day closing price: $5.30 Recommendation HOLD (maintained) Target price $5.31 (maintained) Wilmars Australian sugar subsidiary, Sucrogen, has been unable to secure the necessary level of support from Proserpines members to enable it to purchase its assets. Wilmar needed 75% of PCSMA members who voted needed to vote in favour of Sucrogens offer. Wilmar came close, with 70% of the vote secured. In June, Sucrogen entered into an agreement to buy the business assets for A$115m. The vote failed despite Proserpines board recommendation and regulator approval secured. Sucrogen alluded that there were other interested parties that may have disrupted the transaction. The purchase of Proserpine would have increased Sucrogens milling capacity by about 2m tonnes to a total of 17m tonnes, and increase raw sugar production by about 10 per cent, to 2.2m tonnes. While this is a setback, we do not expect the deal to have a significant impact on Wilmars large earnings base. Overall, the positive aspect is evident in the high level of competition to secure such assets, and for soft commodities and agri-businesses in general. This bodes well for Wilmars prospects. After a volatile ride, Wilmars share price has recovered to our target price of $5.31. We maintain our Hold recommendation.
rohan@kimeng.com

Year End Dec 31 Sales (US$ m) Pre-tax (US$ m) Net profit (US$ m) EPS (US cts) EPS growth (%) PER (x) EV/EBITDA (x) Yield (%)

2009 23,885.1 2,294.4 1,882.0 29.5 22.9 14.9 13.3 1.8

2010 30,377.5 1,644.2 1,324.0 20.7 (29.7) 21.1 19.4 1.3

2011F 36,539.9 2,066.7 1,658.1 25.9 25.1 16.9 16.1 2.2

2012F 38,528.7 2,630.8 2,122.5 33.2 28.0 13.2 12.3 2.3

2013F 40,100.4 3,140.3 2,560.6 40.0 20.6 10.9 10.2 1.9

WHATS COOKING

Singapore Office Sector

Analyst: Wilson LIEW 65-64321454 wilsonliew@kimeng.com

The recent market sell-down could be a harbinger of things to come. There are visible signs of a global economic slowdown and Singapore looks like it could be heading into another recession. With ample new office supply and looming secondary supply, we are of the view that office rents have peaked, with mounting downside risks. We advise investors to switch out of the office sector and switch to developers with diversified exposures. Jittery markets a harbinger of things to come? The Eurozone debt woes have continued to plague on, with some economists citing that the risks that the bloc may eventually split have elevated. Things are not looking rosy in the U.S. either, as it gets mired in its own debt crisis. As for Singapore, the government has also cut its 2011 GDP forecast from 5-7% growth to 5-6%, led by a weakening manufacturing sector. Demand for office space is closely tied with business sentiments and economic confidence. It can be shown that on a historical basis, if the quarterly GDP YoY growth rates decline by more than 5 ppts over two consecutive quarters, this heralds an impending office sector downturn. In 2Q11, Singapores GDP grew by a mere 0.9% YoY compared to the 9.3% YoY growth for 1Q11, which may not bode well for the office sector. Buoyant office leasing activities are over According to Jones Lang Lasalle, average prime office rents surged 31% to $10.15 psf in 2Q11 from a recent trough of $7.75 psf in 1Q10. Much of the leasing activities came in a busy 12-month period which saw bulk pre-commitments from major financial institutions and MNCs for space at the new International Grade A developments such as MBFC and Ocean Financial Centre. The strong office demand came at a time when the Singapore economy rebounded strongly, coinciding with a tight office market as the new developments were still under construction. However, with most of the bulk leases already signed, momentum started to wane in 2Q11. We think that with the looming economic headwinds, office rents have already peaked. Older developments could lead the downturn While Singapore is likely to remain a desired destination for international companies as occupation costs remain at a significant discount to our closest competitor Hong Kong, prime Grade A rents could see a correction of about 10% by end 2012 to $9.60 psf, and $12.15 psf for the International Grade A category. Prime Grade B buildings may see greater downside pressure, considering increased competition from alternative supply, such as business parks, secondary space, and perhaps even the return of shadow space. Downgrading office landlords, prefer diversified developers We are downgrading Singapore Land to SELL (TP: $4.89), and would avoid other office-biased landlords, such as OUE (unrated). At this juncture, we prefer developers with more business diversification. We are maintaining our BUY calls on CapitaLand (TP: $3.56) and Keppel Land (TP: $4.05) although on lower valuations due to their office exposures. We are downgrading City Developments Limited to a HOLD on valuation grounds (TP: $11.05), due mainly to a lower M&C share price and a weaker Pound Sterling.

HOT STOCK
Sold down! Amtek is now trading at a sharp discount to its IPO price in Dec 2010 following the market selldown and share sales by Capital Group and Temasek Holdings. Today, Amtek is trading at just 7x historical EPS and 2x book compared to 27x historical EPS and 4x book at the time of the IPO. Further, it has declared a S$0.055 per share dividend (55% of FYJun11 earnings), which would yield an attractive 8%. Earnings below consensus... Amtek posted a 109% jump in FY11 earnings to US$45.2m (FY10 earnings included US$13m in exceptional charges for the closure of overseas factories, among others). Excluding the exceptionals, we estimate core earnings were 20% below consensus. Gross margin was also weaker due to the stronger US$ and higher raw material costs. but strong cashflow. However, it generated positive free cashflow of US$30m during the year that saw net gearing reduce from 0.9x in FY10 to just 0.1x. It also ringfenced 55% of earnings for dividends, inline with its 50% policy. With only US$20-25m in capex expected annually, future dividends should be secure. Net purchases from major shareholders. Capital Group sold 7.6m shares in Aug, which may have contributed to the share price malaise. However, we note that Capital has been selling across the board in recent months, most notably in stocks such as CapitaMalls Asia and SingPost. In contrast, long-time shareholder StanChart boosted its stake by 9m shares in June 2011. That may be the better signal to follow.
Summary Financials
YE June 30 Sales (US$'m) Pre-tax (US$'m) Net profit (US$'m) EPS (US cts) EPS growth (%) PER (x) EV/EBITDA (x) Yield (%) 2009 624.6 (0.5) (12.4) (2.3) n/a n/a 12.5 2010 638.0 38.4 21.7 4.0 n/a 13.9 5.8 -

Amtek Engineering
Analyst: Gregory YAP 65-64321450 gyap@kimeng.com

Up-to-date in 60 seconds

Shareholders signalling: Is anyone listening?

Capital Group 26-Aug 12-Aug Total StanChart Pvt Equity 29-Jun 27-Jun 24-Jun 23-Jun 22-Jun 21-Jun 17-Jun Total
Source: Company

Our view

Sold (m) 7.1 0.5 7.6 Bought (m) 2.2 0.6 3.7 0.2 1.0 0.9 0.5 9.0

Before (%) 7.0% 7.1% Before (%) 29.5% 29.4% 28.7% 28.7% 28.5% 28.4% 28.3%

After (%) 5.7% 7.0% After (%) 29.9% 29.5% 29.4% 28.7% 28.7% 28.5% 28.4%

Provider of comprehensive end-to-end EMS solutions that includes product design, metal stamping, plastic and rubber moulding, product assembly and other finishing services. Key ratios
Price-to-earnings: 6.7x Price-to-NTA: 1.9x Net gearing: 0.1x Return on equity: 32% Dividend per share / yield: S$0.055 / 8.3%
Source: Bloomberg, based on historical data

Background

Everything else
Share price (S$) Issued shares (m) Market cap (S$ m) Free float (%) Recent fundraising activities Financial YE Major shareholders YTD change 52 week px range
Source: Company

S$0.665 543.2 361.2 34.1% Dec 2010: IPO at $1.30, 200m vendor shares 30 June Metcomp Holdings (30.3%) StanChart Private Equity (29.9%) Capital Grp (5.7%), Mgt (5.3%) -46% S$1.37-0.58

2011 681.6 59.7 45.2 8.3 108.6 6.7 3.5 8.3%

4Q10 164.7 4.9 0.6 0.1 n/a n/a n/a n/a

4Q11 175.8 13.2 9.6 1.8 1516 n/a n/a n/a

Sunny Side Up

1 September 2011

APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLOSURES AND DISCLAIMERS This report, and any electronic access to it, is restricted to and intended only for clients of Kim Eng Research Pte. Ltd. ("KER") or a related entity to KER (as the case may be) who are institutional investors (for the purposes of both the Singapore Securities and Futures Act (SFA) and the Singapore Financial Advisers Act (FAA)) and who are allowed access thereto (each an "Authorised Person") and is subject to the terms and disclaimers below. IF YOU ARE NOT AN AUTHORISED PERSON OR DO NOT AGREE TO BE BOUND BY THE TERMS AND DISCLAIMERS SET OUT BELOW, YOU SHOULD DISREGARD THIS REPORT IN ITS ENTIRETY AND LET KER OR ITS RELATED ENTITY (AS RELEVANT) KNOW THAT YOU NO LONGER WISH TO RECEIVE SUCH REPORTS. This report provides information and opinions as reference resource only. This report is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice. It is not to be construed as a solicitation or an offer to buy or sell any securities or related financial products. The information and commentaries are also not meant to be endorsements or offerings of any securities, options, stocks or other investment vehicles. The report has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. Readers should not rely on any of the information herein as authoritative or substitute for the exercise of their own skill and judgment in making any investment or other decision. Readers should independently evaluate particular investments and strategies, and are encouraged to seek the advice of a financial adviser before making any investment or entering into any transaction in relation to the securities mentioned in this report. The appropriateness of any particular investment or strategy whether opined on or referred to in this report or otherwise will depend on an investors individual circumstances and objectives and should be confirmed by such investor with his advisers independently before adoption or implementation (either as is or varied). You agree that any and all use of this report which you make, is solely at your own risk and without any recourse whatsoever to KER, its related and affiliate companies and/or their employees. You understand that you are using this report AT YOUR OWN RISK. This report is being disseminated to or allowed access by Authorised Persons in their respective jurisdictions by the Kim Eng affiliated entity/entities operating and carrying on business as a securities dealer or financial adviser in that jurisdiction (collectively or individually, as the context requires, "Kim Eng") which has, vis--vis a relevant Authorised Person, approved of, and is solely responsible in that jurisdiction for, the contents of this publication in that jurisdiction. Kim Eng, its related and affiliate companies and/or their employees may have investments in securities or derivatives of securities of companies mentioned in this report, and may trade them in ways different from those discussed in this report. Derivatives may be issued by Kim Eng its related companies or associated/affiliated persons. Kim Eng and its related and affiliated companies are involved in many businesses that may relate to companies mentioned in this report. These businesses include market making and specialised trading, risk arbitrage and other proprietary trading, fund management, investment services and corporate finance. Except with respect the disclosures of interest made above, this report is based on public information. Kim Eng makes reasonable effort to use reliable, comprehensive information, but we make no representation that it is accurate or complete. The reader should also note that unless otherwise stated, none of Kim Eng or any third-party data providers make ANY warranties or representations of any kind relating to the accuracy, completeness, or timeliness of the data they provide and shall not have liability for any damages of any kind relating to such data. Proprietary Rights to Content. The reader acknowledges and agrees that this report contains information, photographs, graphics, text, images, logos, icons, typefaces, and/or other material (collectively Content) protected by copyrights, trademarks, or other proprietary rights, and that these rights are valid and protected in all forms, media, and technologies existing now or hereinafter developed. The Content is the property of Kim Eng or that of third party providers of content or licensors. The compilation (meaning the collection, arrangement, and assembly) of all content on this report is the exclusive property of Kim Eng and is protected by Singapore and international copyright laws. The reader may not copy, modify, remove, delete, augment, add to, publish, transmit, participate in the transfer, license or sale of, create derivative works from, or in any way exploit any of the Content, in whole or in part, except as specifically permitted herein. If no specific restrictions are stated, the reader may make one copy of select portions of the Content, provided that the copy is made only for personal, information, and non-commercial use and that the reader does not alter or modify the Content in any way, and maintain any notices contained in the Content, such as all copyright notices, trademark legends, or other proprietary rights notices. Except as provided in the preceding sentence or as permitted by the fair dealing privilege under copyright laws, the reader may not reproduce, or distribute in any way any Content without obtaining permission of the owner of the copyright, trademark or other proprietary right. Any authorised/permitted distribution is restricted to such distribution not being in violation of the copyright of Kim Eng only and does not in any way represent an endorsement of the contents permitted or authorised to be distributed to third parties.

Sunny Side Up

1 September 2011

Additional information on mentioned securities is available on request. Jurisdiction Specific Additional Disclaimers: THIS RESEARCH REPORT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT, MAY NOT BE DISTRIBUTED TO THE PRESS OR OTHER MEDIA, AND MAY NOT BE REPRODUCED IN ANY FORM AND MAY NOT BE TAKEN OR TRANSMITTED INTO THE REPUBLIC OF KOREA, OR PROVIDED OR TRANSMITTED TO ANY KOREAN PERSON. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF SECURITIES LAWS IN THE REPUBLIC OF KOREA. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS. THIS RESEARCH REPORT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT, MAY NOT BE DISTRIBUTED TO THE PRESS OR OTHER MEDIA, AND MAY NOT BE REPRODUCED IN ANY FORM AND MAY NOT BE TAKEN OR TRANSMITTED INTO MALAYSIA OR PROVIDED OR TRANSMITTED TO ANY MALAYSIAN PERSON. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF SECURITIES LAWS IN MALAYSIA. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS. Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the reader is receiving or accessing this report in or from other than Singapore. As of 1 September 2011, Kim Eng Research Pte. Ltd. and the covering analyst do not have any interest in the mentioned companies. Analyst Certification: The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in the report. 2011 Kim Eng Research Pte Ltd. All rights reserved. Except as specifically permitted, no part of this presentation may be reproduced or distributed in any manner without the prior written permission of Kim Eng Research Pte. Ltd. Kim Eng Research Pte. Ltd. accepts no liability whatsoever for the actions of third parties in this respect.

Stephanie Wong CEO, Kim Eng Research