www.dbsvickers.com

Ed: JS / sa: YM

STISTISTISTI :::: 2222,,,,999947474747....03030303

Analysts Janice CHUA +65 6682 3692 YEO Kee Yan +65 6682 3706 janicechuast@dbs.com keeyan@dbs.com

LING Lee Keng +65 6682 3703 Singapore Research Team leekeng@dbs.com

Key Indices

CurrentCurrentCurrentCurrent % Chng 1 day% Chng 1 day% Chng 1 day% Chng 1 day

STI Index 2,947.03 -0.5%

FS Small Cap Index 417.13 -0.3%

USD/SGD Curncy 1.40 -0.6%

Daily Volume (m) 1,562

Daily Turnover (S$m) 1,233

Daily Turnover (US$m) 878

Source: Bloomberg Finance L.P. Market Key Data – DBS Coverage

(%) EPS Gth Div Yield

2014 7.2 3.9

2015F 2.8 3.9

2016F 8.7 4.0

(x) PER EV/EBITDA

2014 14.4 10.9

2015F 14.1 11.1

2016F 12.9 10.2

Source: DBS Bank Stock Picks

Price ($) 8 Oct 15

Target Price ($)

Rcmd

Capitaland 3.02 3.73 Buy

Ezion 0.70 1.00 Buy

Frasers Centrepoint Trust 1.955 2.05 Buy

Mapletree Greater China Commercial Trust*

0.955 1.12 Buy

Pacific Radiance 0.370 0.42 Buy

Riverstone Holdings 1.705 2.15 BUY

Sheng Siong 0.845 1.00 Buy

ST Engineering 3.16 3.40 Buy

Thai Beverage 0.685 0.81 Buy

Venture Corporation 8.11 9.00 Buy

Sembcorp Industries 3.73 4.00 Buy

Singapore Airlines 10.65 11.50 Buy

Source: Bloomberg Finance L.P; DBS Bank

DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity DBS Group Research . Equity

12 Oct 2015

Singapore Market Focus

Singapore Strategy

Refer to important disclosures at the end of this report

Ride the bounce • Three key events to watch in October: MAS policy

meeting, GDP and 3Q earnings report card

• Preview of 3Q results – earnings cuts could continue

• REITS offer temporary shelter; depressed valuations in oil and gas sector provide trading opportunities

• Stay with stocks with earnings visibility, dividend upside potential and restructuring plays

Three key events to watch. Asia and emerging markets

rebounded strongly in the past week as rate hike expectations were

pushed back. DBS Economist sees the initial FED lift off in 1Q16

(previously Dec 2015) and for rates to increase twice (instead of 4

times) in 2016. Closer home, the three important events that

investors will be following closely in October are: (1) Singapore’s

3Q GDP which could point to a technical recession; (2) MAS could

ease its monetary policy at its policy meeting; (3) 3Q reporting

season which is unlikely to inspire. Market volatility is in full swing,

this time to the upside. We maintain our near term STI trading

range of 2750-3050 and 12-month target at 3200.

3Q preview : most sectors could disappoint except for

transport. With macro uncertainties and the shadow of a technical

recession in 3Q, investors are likely to cast a wary eye on the

upcoming results season. For 3Q results, we will be keeping an eye

on 1) provision and NPLs for banks; 2) margins for downstream

consumer and plantation sectors and the rig builders; 3) forex

impact on plantations and SREITs; and 4) contract

rescheduling/cancellations for rig builders which could point to

further downgrades for 2016. The only bright spot could come

from better earnings from airlines/shipping, as we expect the

positive impact of lower fuel costs to filter through.

Select stocks with earnings visibility or dividend upside - Thai

Bev, , Riverstone, Sheng Siong, Sembcorp Industries, ST

Engineering, Capitaland, Singapore Airlines, and Venture

Corporation. With the potential rate hike likely to be out of the

way till 2016, REITS offer a temporary shelter for investors seeking

yields. Our picks are stocks with sustainable growth - Mapletree

Greater China Trust and Frasers Centrepoint Trust.

Depressed valuations in oil/gas sector throw up trading

opportunities. Oil prices are near the bottom and the risk is on

the upside as we approach a seasonally stronger quarter on winter

demand, while OPEC’s meeting on Dec 4 is the wild card.

Valuations of oil and gas stocks are near their GFC lows. Among

the small caps, we prefer companies which have lower refinancing

risks and are better positioned to survive this downturn - Ezion

and Pacific Radiance. Sembcorp InduSembcorp InduSembcorp InduSembcorp Industriesstriesstriesstries is attractively priced,

near its GFC trough valuation, its steady utility business should

mitigate weakness from the marine sector.

Market Focus

Singapore Strategy

Page 2

Market Outlook

Rate hike expectations have back paddled

FED Chair Janet Yellen had remarked that FED funds rate will

likely rise later this year even as she left interest rates

unchanged at the September FOMC meeting. But chances are

she will have to flip the ‘prediction’ again after September’s

non-farm payrolls rose by a much weaker than expected 142k

(consensus 203k) and hourly wages fell. Job growth at goods

producing industries has slumped since March and payrolls at

the service sector have tumbled in recent months.

Our economist believes that with the weak jobs number, soft

core capex orders and core PCE inflation that has been falling

for 3.5 years, the FED will delay raising rates. DBS Research DBS Research DBS Research DBS Research

sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December sees the initial FED lift off in 1Q16 (previously December

2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times) 2015) and for rates to increase just twice (instead of 4 times)

in 2016, implying a gradual climb.in 2016, implying a gradual climb.in 2016, implying a gradual climb.in 2016, implying a gradual climb.

US non-farm payrolls

0

50

100

150

200

250

300

350

400

450

1/1/2011

4/1/2011

7/1/2011

10/1/2011

1/1/2012

4/1/2012

7/1/2012

10/1/2012

1/1/2013

4/1/2013

7/1/2013

10/1/2013

1/1/2014

4/1/2014

7/1/2014

10/1/2014

1/1/2015

4/1/2015

7/1/2015

Source: DBS Bank

Core PCE inflation

0.7

0.9

1.1

1.3

1.5

1.7

1.9

2.1

2.3

10

/1/2

01

0

1/1

/20

11

4/1

/20

11

7/1

/20

11

10

/1/2

01

1

1/1

/20

12

4/1

/20

12

7/1

/20

12

10

/1/2

01

2

1/1

/20

13

4/1

/20

13

7/1

/20

13

10

/1/2

01

3

1/1

/20

14

4/1

/20

14

7/1

/20

14

10

/1/2

01

4

1/1

/20

15

4/1

/20

15

7/1

/20

15

10

/1/2

01

5

Source: DBS Bank

Closer home, 3 keys events to watch out for in October

The three important events that investors will be following

closely in October in Singapore are:

Risk of technical rRisk of technical rRisk of technical rRisk of technical recessionecessionecessionecession

(1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point (1) Singapore’s 3Q GDP to be released on 14 Oct could point

to a technical recession to a technical recession to a technical recession to a technical recession –––– Current consensus is for the figure

to come in at -0.1% saar q-o-q. Our Singapore economist

expects a more negative 0.6% q-o-q contraction for 3Q,

which implies a technical recession after the 4% decline in

2Q15. The manufacturing sector is already in recession,

having contracted the past 3 quarters in y-o-y terms and in 3

out of the past 5 quarters on a sequential basis. The outlook

for the services sector is not strong. Growth moderated to

3.5% YoY in 2Q15, from 4.2% in 1Q. On a sequential basis,

output fell by 1.1% (QoQ, saar) in 2Q. DBS Research forecasts DBS Research forecasts DBS Research forecasts DBS Research forecasts

1.8% y1.8% y1.8% y1.8% y----oooo----y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016y GDP growth for 2015 and 2.1% for 2016, which

is below the official and market consensus forecasts of 2.0-

2.5% and 2.2% respectively.

Singapore GDP

Source: DBS Bank

… and MAS could ease its monetary policy … and MAS could ease its monetary policy … and MAS could ease its monetary policy … and MAS could ease its monetary policy

(2) MAS policy meeting on 14 OctMAS policy meeting on 14 OctMAS policy meeting on 14 OctMAS policy meeting on 14 Oct – With risk of a technical

recession looming and headline CPI reading in negative

territory for 10 consecutive months since November 2014, the

probability has risen that MAS will ease monetary policy at the

upcoming policy meeting and macroeconomic review.

Singapore CPI (% y-o-y)

-1

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

0.8

Source: DBS Bank

The SGD NEER has been easing towards the floor of its ap-

preciating policy band. If this continues, our Singapore

economist believes that the MAS will have two options: spend

reserves defending the band or relax its policy.

Market Focus

Singapore Strategy

Page 3

Currency appreciation becomes a difficult policy to maintain in

the current environment whereby recession risk looms and

full-year inflation is expected to be negative. DBS Research

expects the MAS to re-center the SGD NEER policy band lower

by half a band, which by our model would be equivalent to a

one-off devaluation of 2%. The DBS Macro Research team

expects the SGD to depreciate to 1.47 per US dollar over the

next 12 months.

SGD Neer testing the lower limit

Source: DBS Bank

3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire3Q reporting season unlikely to inspire

(3) 3Q results season3Q results season3Q results season3Q results season – The 3Q results season spans from

October till mid-November. The continuation in earnings

downgrades since the start of the year had led to a slash in

FY15F growth forecast from +13.4% (at the start of the year)

down to +2.8% for stocks under our coverage. With a

technical recession on the cards and growth uncertainties

unlikely to go away anytime soon, we continue to expect

further downgrades following the 3Q results season. This is

especially so for FY16, given the high single digit 7.7% EPS

growth forecast.

3Q results preview

Attention turns towards the earnings season that is about to

start. With macro uncertainties and the shadow of a technical

recession in 3Q, investors are likely to cast a wary eye on the

upcoming results season. Growth uncertainties had led to a

downward revision in EPS growth for FY15F from a strong

double digit 13.4% at the end of last year to a mere 2.8%

currently. We expect STI index component stocks to post a

decline in earnings this year. The earnings downgrade trend

could continue given the uncertain economic outlook,

especially for FY16F where growth expectations remains at a

high single digit.

Sector valuation

Eps Growth (%) CAGR PER (x) Div Yld

Sector 2014A 2015F 2016F 14-16 2014A 2015F 2016F 2014 Banking 14.0 11.7 6.1 8.9 10.9 9.8 9.2 3.6

Consumer Goods -0.1 0.3 11.6 5.8 14.2 14.1 12.7 3.0

Consumer Services -3.5 -3.0 15.7 5.9 18.8 19.4 16.8 3.1

Financials -5.1 -0.8 4.5 1.8 23.4 23.6 22.6 6.0

Health Care 17.3 17.9 18.3 18.1 53.7 45.5 38.5 0.8

Industria ls 9.7 15.6 12.4 14.0 20.3 17.5 15.6 3.2

Oil & Gas 9.1 -22.1 14.0 -5.8 8.2 10.5 9.2 5.4

Real Estate 5.2 -2.6 8.9 3.0 13.6 14.0 12.9 2.6

REITS 5.5 6.2 3.3 4.7 15.5 14.6 14.2 6.4

Technology 13.8 8.1 6.6 7.4 13.5 15.2 14.3 5.6

Telecommunications 5.2 0.1 6.2 3.1 15.7 15.7 14.8 4.8

DBS CoverageDBS CoverageDBS CoverageDBS Coverage 7.27.27.27.2 2.82.82.82.8 8.78.78.78.7 5.75.75.75.7 14.414.414.414.4 14.114.114.114.1 12.912.912.912.9 3.93.93.93.9

ExExExEx----propertypropertypropertyproperty 7.17.17.17.1 3.33.33.33.3 8.78.78.78.7

STI DBSV Forecast Avg STI DBSV Forecast Avg STI DBSV Forecast Avg STI DBSV Forecast Avg (Before EI)(Before EI)(Before EI)(Before EI)

6.46.46.46.4 ----1.21.21.21.2 7.77.77.77.7 3.23.23.23.2 12.312.312.312.3 12.412.412.412.4 11.511.511.511.5

STI Consensus AvgSTI Consensus AvgSTI Consensus AvgSTI Consensus Avg 6.46.46.46.4 ----2.92.92.92.9 7.17.17.17.1 2.02.02.02.0 12.312.312.312.3 12.612.612.612.6 11.811.811.811.8

Source: DBS Bank

Market Focus

Singapore Strategy

Page 4

The table below summarises the results preview by sector.

We will be keeping an eye on 1) provision and NPLs for

banks; 2) margins for downstream consumer and

plantation sectors and rig builders; 3) forex impact on

plantation stocks and SREITs; 4) contract

rescheduling/cancellations for rig builders which could

point to further downgrades for 2016. The only bright

spot could come from better earnings from

airlines/shipping, as we expect the positive impact of lower

fuel costs to filter through after unwinding of their

expensive hedge positions.

What to look out for in 3Q

results

Sector Net Earnings : DBS vs

Consensus (S$bn)

Earnings Downside vs

Upside risks

Valuation / stock picks

Banks LIM Sue Lin +65 6682 3711 suelinlim@dbs.com

1. 1. 1. 1. Look out for provisions and Look out for provisions and Look out for provisions and Look out for provisions and

NPLs on the downside.NPLs on the downside.NPLs on the downside.NPLs on the downside. Banks

may possibly add buffers in a

difficult environment. NIM

would likely continue to

surprise on the upside judging

from SIBOR levels (+30bps q-

o-q). Although expectations of

the Fed rate hike have been

pushed back, the possibility of

a hike remains.

2. Loan growth is expected to

be slow. We forecast full year

2015 loan growth at <5%

currently.

We are 6% and 8% below

consensus for FY15F and

FY16F, mainly due to higher

credit cost and lower loan

growth for both years.

Earnings downside would be

credit costs while upside

would be in higher NIM.

OCBCOCBCOCBCOCBC is a buy; UOBUOBUOBUOB is a Hold

(tactical sell).

Consumer (Downstream) Andy SIM CFA +65 6682 3718; andysim@dbs.com / Alfie YEO +65 6682 3717; alfieyeo@dbs.com

1.1.1.1. Not expecting a significant Not expecting a significant Not expecting a significant Not expecting a significant

pickpickpickpick----up in 3Q15 earnings. up in 3Q15 earnings. up in 3Q15 earnings. up in 3Q15 earnings.

Consumer sentiment

remains subdued. Even

though stimulus packages

have been announced, it

would take time to filter

down to earnings.

2. Possible margin pressure. Possible margin pressure. Possible margin pressure. Possible margin pressure.

We expect margins to be

under pressure as regional

currencies remain weak vs

the USD.

0.0

0.5

1.0

1.5

2.0

2.5

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

Consumer (downstream)Consumer (downstream)Consumer (downstream)Consumer (downstream)S$bn

We have been more

conservative than consensus

and have trimmed our

forecasts by 10-11% since July

on the back of macro

uncertainties and regional

currency weakness.

Downside risks on FY16F. Downside risks on FY16F. Downside risks on FY16F. Downside risks on FY16F. We

are still cautious but less so

now compared to the period

prior to 2Q15 results.

Our FY15F/16F/17F earnings

growth is now more modest

at -4.1%/11%/12%. That

said, we see potential

downside in FY16F earnings if

macro uncertainties persist.

Dairy Farm Dairy Farm Dairy Farm Dairy Farm ((((BUY, TP US$7.34BUY, TP US$7.34BUY, TP US$7.34BUY, TP US$7.34)))). . . .

We like Dairy Farm for its

attractive PE valuations at -

1.5SD of its mean. Core

business after stripping out

Yonghui investment is trading

at 18x PE, below peer and

historical average multiple of

25x.

Petra Petra Petra Petra ((((Fully Valued, TP S$2.40Fully Valued, TP S$2.40Fully Valued, TP S$2.40Fully Valued, TP S$2.40))))....

Petra’s earnings continue to

face challenges on 1) weak

domestic consumption in

Indonesia, and 2) lower

margins on depreciating

IDR. Stock is valued at 28x

FY16F PE compared to regional

peers’ 22x.

SPHSPHSPHSPH (Fully Valued, TP: S$3.51).

SPH’s core print ops is likely to

be affected by the weaker

GDP. We expect cuts to FY16F

DPS and this could potentially

de-rate the counter.

Source :DBS Bank, Bloomberg Finance L.P.

10

11

12

13

DBS FY15F Cons. FY15F

DBS FY16F Cons. FY16F

BanksBanksBanksBanksS$bn

Market Focus

Singapore Strategy

Page 5

What to look out for in 3Q

results

Sector Net Earnings : DBS vs

Consensus (S$bn)

Earnings Downside vs

Upside risks

Valuation / stock picks

Health Care Andy SIM CFA +65 6682 3718; andysim@dbs.com

1. Topline growth from Topline growth from Topline growth from Topline growth from

inpatient admissioninpatient admissioninpatient admissioninpatient admissionssss. . . . We

expect to see slower rate of

topline growth on the back

of macro uncertainties,

thereby having an impact

on inpatient admissions. The

weaker regional currencies

are likely to continue to

have an impact on foreign

patient admissions.

2.2.2.2. Margins performance. Margins performance. Margins performance. Margins performance. On

the back of expected slower

topline growth, we would

watch for impact on

margins.

0.0

0.2

0.4

0.6

0.8

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

Health CareHealth CareHealth CareHealth CareS$bn

We have been more

conservative in terms of costs

assumptions vis-à-vis

consensus.

Downside. Downward

revision on earnings possible

on the back of slower topline

and increased costs.

We are Neutral Neutral Neutral Neutral on Healthcare

plays given their rich valuations.

That said, we prefer IHHIHHIHHIHH over

RFMD given its diversified

geographical exposure.

Crude Palm Oil Ben SANTOSO +65 6682 3707 bensantoso@dbs.com

1. ASP net of export levy. ASP net of export levy. ASP net of export levy. ASP net of export levy. Since

16 Jun15, Indonesian

planters began paying

export tax levies. This will be

reflected in weaker than

expected top line

2.2.2.2. FX losses. FX losses. FX losses. FX losses. USD strength will

manifest itself in jump in FX

losses (realised + unrealised)

in 3QCY15

3.3.3.3. Refining margins. Refining margins. Refining margins. Refining margins. For

refiners however, export

levies provide extra cushion.

Expect better margins for

Indonesian refiners vs.

Malaysian refiners.

0.0

1.0

2.0

3.0

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

PlantationPlantationPlantationPlantationS$bn

We believe consensus has not

factored in the impact of

export levies and FX losses –

judging by earnings

expectations

There remain risks of further

earnings downside if:

1. Brazil expands soybean

acreage more than

expected

2. USD weakens

3. Indonesian biodiesel

mandate churns out less

than expected volumes

WilmarWilmarWilmarWilmar looks oversold; strong

Chinese soybean import

volumes in 2H15, drop in

CPO/soybean prices and

Indonesia’s export levies have

been favourable.

Any significant CNY

depreciation would only

temporarily affect Wilmar’s

Consumer segment in China

before prices are adjusted

Source :DBS Bank, Bloomberg Finance L.P.

Market Focus

Singapore Strategy

Page 6

What to look out for in 3Q

results

Sector Net Earnings : DBS vs

Consensus (S$bn)

Earnings Downside vs

Upside risks

Valuation / stock picks

Real Estate Derek Tan +65 6682 3716 derektan@dbs.com

1.1.1.1. Revenue trends still stableRevenue trends still stableRevenue trends still stableRevenue trends still stable....

Expected to remain steady

as developers draw down

on locked in sales. The more

resilient commercial

segments should prop up

topline.

2. New New New New ssssales ales ales ales outlook. outlook. outlook. outlook. New

sales from unsold inventory

will be perceived positively

by the market as developers

look to clear unsold stock.

3.0

3.2

3.4

3.6

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

Real EstateReal EstateReal EstateReal EstateS$bn

FY16F skewed by higher

contribution from Fraser

Centerpoint Limited

Downside to earningsDownside to earningsDownside to earningsDownside to earnings. Other

subsectors (office and retail)

in S’pore are weakening,

which may be a drag on

earnings going forward.

Developers are trading at 0.72x

P/NAV and close to 0.6x

P/RNAV, which we believe are

attractive.

Our picks are CapitalandCapitalandCapitalandCapitaland and

City DevelopmentsCity DevelopmentsCity DevelopmentsCity Developments based on

attractive valuations.

REITS Derek Tan +65 6682 3716 derektan@dbs.com / Mervin Song +65 6682 3715 mervinsong@dbs.com /

Rachael TAN +65 6682 3713 rachaeltan@dbs.com

1. Topline and net property Topline and net property Topline and net property Topline and net property

income grincome grincome grincome growth. owth. owth. owth. We believe

retail REITs will be the most

resilient, followed by

industrials, office and

hospitality REITs.

2. Generally modest rental Generally modest rental Generally modest rental Generally modest rental

reversions reversions reversions reversions expected but

magnitude of downside in

the office and hospitality

sectors will be looked at

closely.

3.3.3.3. IntereIntereIntereInterest cost trends. st cost trends. st cost trends. st cost trends. While

not expected to move

much, we expect most S-

REITs to lock in as much as

possible given the still low

rate environment.

4. Currency. Currency. Currency. Currency. Volatility will have

an impact on distributions.

REITs with exposure to

RMB/HKD will see the most

upside.

3.2

3.4

3.6

3.8

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

REITSREITSREITSREITSS$bn

Above consensus mainly for

retail REITs. We are forecasting

higher returns as we think the

retail sector is more

conservative.

Operational cost pressures Operational cost pressures Operational cost pressures Operational cost pressures

and margins. and margins. and margins. and margins. Net property

income (NPI) margins may

come under pressure as

maintenance, utilities and

security contracts are

renewed. We have factored in

a 10% increase in costs.

Yield spreads of 4.7% is close

to – 1 SD level.

Picks: Mapletree Greater China Mapletree Greater China Mapletree Greater China Mapletree Greater China

TrustTrustTrustTrust, Frasers Centerpoint TrustFrasers Centerpoint TrustFrasers Centerpoint TrustFrasers Centerpoint Trust

and CapitaRetail China TrustCapitaRetail China TrustCapitaRetail China TrustCapitaRetail China Trust.

Source :DBS Bank, Bloomberg Finance L.P.

Market Focus

Singapore Strategy

Page 7

What to look out for in 3Q

results

Sector Net Earnings : DBS vs

Consensus (S$bn)

Earnings Downside vs

Upside risks

Valuation / stock pick

Oil & Gas Services Suvro SARKAR +65 6682 3720; suvro@dbs.com

1.1.1.1. OSV utilisation and day OSV utilisation and day OSV utilisation and day OSV utilisation and day

rate rate rate rate trends.trends.trends.trends. We will look

out for whether fleet

utilisation rates are

improving on a q-o-q basis

or are markets still very

volatile. Day rate erosion –

is there more downside

from current levels?

2.2.2.2. New order win outlook.New order win outlook.New order win outlook.New order win outlook.

Are oil majors still in ‘wait

and watch’ mode with

regards to new contracts

or are projects starting to

take off?

3.3.3.3. Financial strength. Financial strength. Financial strength. Financial strength. We

would monitor for any

liquidity or solvency issues

and whether the decline

in asset values will trigger

any financial covenants.

0

1

2

3

4

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

Oi l & GasOi l & GasOi l & GasOi l & GasS$bn

Our day rates and Utilisation

rates assumptions are more

conservative than consensus.

WWWWe expect more e expect more e expect more e expect more earnings earnings earnings earnings

downside potential downside potential downside potential downside potential as day

rates could be weaker than

expected for some vessel

types in current weak market

and new vessels may not be

able to secure charters on

time. Potential rate

renegotiations or impairments

on assets, though unlikely,

cannot be ruled out.

However, having lost up to

85% of market capitalisation,

value is emerging for some of

the quality names, particularly

in the service provider space,

which could potentially be

multi-baggers when oil price

recovers.

We pick financially fit and

sound stocks with cheap

valuations. Our top picks in this

environment are EzionEzionEzionEzion and

Pacific Radiance.Pacific Radiance.Pacific Radiance.Pacific Radiance.

Rigbuilders HO Pei Hwa +65 6682 3714; peihwa@dbs.com

1. Revenue and marRevenue and marRevenue and marRevenue and margin gin gin gin

trendtrendtrendtrendssss.... Revenue for

offshore projects could

normalise from S$3.2bn a

quarter last year to

S$2.5bn a quarter; EBIT

margins could also come

under pressure in view of

delivery push-backs and

sluggish rig orders. This

could be partially

mitigated by ship repair

income, which is

seasonally stronger in 2H.

2. Contract rContract rContract rContract rescheduling escheduling escheduling escheduling and and and and

cancellations.cancellations.cancellations.cancellations. Update on

delivery schedule and

cancellation risks

especially Petrobras

projects.

3. Order win outlook.Order win outlook.Order win outlook.Order win outlook.

Enquiry levels and

guidance. YTD wins have

been slow at S$4.4bn (vs

over S$9bn for full year

2014)

Analysts have been trimming

forecasts for FY15-16,

factoring in deferments and

slow order wins.

More downside risks More downside risks More downside risks More downside risks as we

expect further project

deferments amid weak oil

prices; potential

reversals/provisions for

cancellations; prudent margin

recognition.

Downside could be limited by

attractive valuationsattractive valuationsattractive valuationsattractive valuations near GFC

lows and 5555----6% dividend yield6% dividend yield6% dividend yield6% dividend yieldssss.

We favour Sembcorp Industries Sembcorp Industries Sembcorp Industries Sembcorp Industries

as a safer proxy to ride O&G

recovery given current sector

volatility and uncertainty; the

other half of its business -

utilities - is expected to see

sequential improvement from

ramp-up of India power plant.

Source :DBS Bank, Bloomberg Finance L.P.

1.6

1.8

2.0

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

RigbuildersR igbuildersR igbuildersR igbuildersS$bn

Market Focus

Singapore Strategy

Page 8

What to look out for in 3Q

results

Sector Net Earnings : DBS vs

Consensus (S$bn)

Earnings Downside vs

Upside risks

Valuation / stock picks

Transport Paul YONG CFA +65 6682 3712 paulyong@dbs.com

1. Transport operators Transport operators Transport operators Transport operators (airlines

and shipping) are expected

to post better earnings y-o-y

largely on lower fuel costs,

partially offset by lower

yields or rates

2. Infrastructure plays Infrastructure plays Infrastructure plays Infrastructure plays like

ports and toll roads are

projected to post only

modest improvements in

the top and bottom line,

due to tepid economic

growth

3.3.3.3. Among land transport land transport land transport land transport

names, ComfortDelgro is

projected to record stable

earnings though SMRT is

likely to see lower earnings

due to higher repair and

maintenance costs

We have generally cut

earnings over the last few

months, factoring in lower top

line growth on global

economic uncertainty

We expect some upside risk in

the short term as fuel prices

are below our assumptions.

However, longer term

downside risk exists if

economic growth continues

to be anaemic and keen

competition prevails.

We see Singapore AirlinesSingapore AirlinesSingapore AirlinesSingapore Airlines as a

proxy for low oil prices, and it

has potential to pay out better

than expected dividends given

its strong net cash position.

CMH (Pacific) CMH (Pacific) CMH (Pacific) CMH (Pacific) also offers an

attractive dividend yield of

8.4%, with good growth

prospects bolstered by

acquisitions

Telecommunications Sachin MITTAL +65 6682 3699 sachinmittal@dbs.com

1.1.1.1. M1 launM1 launM1 launM1 launched much cheaper ched much cheaper ched much cheaper ched much cheaper

postpostpostpost----paid plans in July paid plans in July paid plans in July paid plans in July

(without handset subsidy) in

anticipation of fourth telco

entry – only S$37 per

month for 5GB data, 400

mins and 1000 SMSes.

SingTel and StarHub

followed. Need to check its

take up rate.

2.2.2.2. StarHub launched online StarHub launched online StarHub launched online StarHub launched online

sssstreaming service in August treaming service in August treaming service in August treaming service in August

in anticipation of entry of

players like Netflix which

offer much cheaper

content. Need to watch out

for cable TV ARPU trends.

Weak currencies (AUD –

down 11% and IDR – down

6% on annual basis) may

adversely impact earnings

contribution from overseas.

Downside risk to M1’s M1’s M1’s M1’s 3Q15

earnings as mobile revenue

comes under pressure due to

lower priced plans. StarHub’sStarHub’sStarHub’sStarHub’s

earnings may be in line due to

lower handset subsidy as

iPhone 6 sales slows down in

third quarter.

Mantain Fully Valued rating on

M1M1M1M1 as fourth telco may be

disruptive due to its low-cost

business model

Source :DBS Bank, Bloomberg Finance L.P.

4.0

4.5

5.0

5.5

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

TelecommunicationsTelecommunicationsTelecommunicationsTelecommunicationsS$bn

0.0

0.5

1.0

1.5

2.0

2.5

DBS FY15F

Cons. FY15F

DBS FY16F

Cons. FY16F

TransportTransportTransportTransportS$bn

Market Focus

Singapore Strategy

Page 9

Strategy Asia/emerging markets not out of the woods despite

current rebound

Asia and emerging markets rebounded strongly over the

past week as rate hike expectations were pushed back

following the weak US September job numbers. This led to

a rebound in regional currencies against the USD and

oil/commodity prices. In turn, a partial reversal of the funds

outflow that had weighed down on Asia and emerging

markets in recent months was triggered. Short covering and

bargain hunting on oversold stocks look to be the forces

behind the current strength. The rebound has been sharp,

with the MSCI Emerging Markets Index and MSCI South-

East Asia Index rising 6.2% and 10% respectively last week.

For now, “bad news is good news”. But there is a limit to

such an argument justifying the stock market rally in Asia.

The FED is pushing back, not doing away with normalising

interest rates. Not for now, but rate hike concerns will

return to haunt the markets at another date. Sooner or

later depends on incoming economic data.

Next, emerging market and China uncertainties were cited

as one of the reasons why the FED had withheld rate hikes.

Asia’s growth is slowing down and corporate earnings

continue to be on the decline.

While we do not see a repeat of last week’s feat and any

further upside over the next month or two should occur on

a much more gradual pace, any pullbacks should be above

the recent lows underpinned by the desire to bargain hunt

and possible year-end ‘window dressing’ activities.

Government stimuli around the region have also helped to

stabilise the sharp stock market downswing.

Government stimulus announced over the past 3 months

China • Yuan devaluation – Aug15 • Cut in lending, deposit and RRR • Cooling property measures including lowering down payment for second home

buyers, waived transaction tax for sellers after home ownership of two years, easier terms for borrowers

• Proactive fiscal policy e.g. increased infrastructure spending, more public private partnership investment, and faster reforms of areas such as taxation.

• Measures to boost stock market e.g. proposed a “circuit breaking mechanism”, scrap China’s dividend tax on investors who hold a stock for more than a year etc.

Malaysia RM28 bn stimulus package:- • RM20 bn for the stock market to support undervalued shares • RM4.5 bn for integrated development of hotel and theme park in Desaru

Coast • RM2 bn for small and medium enterprises • Balance for tourism sector, Domestic Investment Strategic Fund etc

Thailand 136 bn baht stimulus package (phase 1) :-

• 60 bn baht loan to low-income earners • 36 bn baht for small construction and repair projects that employ locals. • 40 bn baht to speed up existing and new small government projects.

206 bn baht stimulus package (phase 2) to support SME which includes a cut in the corporate income tax

Indonesia • First Stimulus package (announced early September): Aim to improve policies and regulations, accelerate infrastructure projects and government spending, and investments in property.

• Second Stimulus package (announced late September): include measures aim at streamlining regulations and processes to attract investments; tax incentives for exporters to keep their export proceed in Indonesia.

• Third Stimulus package (announced in October): Measures include relaxation of regulation for banks, lowering interest rates on loans and providing easier access, giving electricity tariff discounts and cutting fuel prices.

Source: DBS Bank

STI valuation - testing the upside

With reference to our previous Singapore strategy report

dated 31st August, the base-case range of 2750 to 3050

worked out very well thus far with the STI rebounding sharply

off the 2740 low in late September. Recap that the 3050

upside was based on 5% below our revised bottom-up 12-

month STI target of 3200.

Market volatility is in full swing, this time to the upside. While

an overshoot towards 3100 cannot be ruled out, we are

inclined to keep the 3050 cap. This is based on the 5% below

bottom-up STI target as well as 12.22x (-1SD) 12-mth forward

PE, given the likelihood that corporate earnings downgrade

trend has yet to end.

STI at various 12-mth fwd PE levels

----2sd 2sd 2sd 2sd

10.71x 10.71x 10.71x 10.71x

PEPEPEPE

----1.5sd 1.5sd 1.5sd 1.5sd

11.411.411.411.46x 6x 6x 6x

PEPEPEPE

----1 sd 1 sd 1 sd 1 sd

12.22x 12.22x 12.22x 12.22x

PEPEPEPE

----0.5 sd 0.5 sd 0.5 sd 0.5 sd

12.98x 12.98x 12.98x 12.98x

PEPEPEPE

Avg Avg Avg Avg

13.74x 13.74x 13.74x 13.74x

PEPEPEPE

FY16FY16FY16FY16 2,710 2,900 3,092 3,284 3,476

Avg 15 & 16Avg 15 & 16Avg 15 & 16Avg 15 & 16 2,6132,6132,6132,613 2,7962,7962,7962,796 2,9812,9812,9812,981 3,1673,1673,1673,167 3,3523,3523,3523,352

12121212----mth fwdmth fwdmth fwdmth fwd 2677267726772677 2865286528652865 3055305530553055 3245324532453245 3435343534353435

Source: DBS Bank

Market Focus

Singapore Strategy

Page 10

REITs offer temporary shelter The weakness in jobs data from the US prompted DBS economists to revise our forecast for the FED to postpone their rate lift-off to 1Q16 (from Dec’15) and subsequent hikes to be more modest (2 more in 2016 vs 4 previously). The 10-year UST and 10-year SG bonds have retreated by 30-40bps from year highs. This is a positive boost for S-REITs in the shorter term, benefitting big caps (like CapitaLand Mall TrustCapitaLand Mall TrustCapitaLand Mall TrustCapitaLand Mall Trust, , , , CapitaLand Commercial TrustCapitaLand Commercial TrustCapitaLand Commercial TrustCapitaLand Commercial Trust, , , , Mapletree Industrial TrustMapletree Industrial TrustMapletree Industrial TrustMapletree Industrial Trust, , , , Mapletree Commercial TrustMapletree Commercial TrustMapletree Commercial TrustMapletree Commercial Trust, , , , Keppel REITKeppel REITKeppel REITKeppel REIT, , , , Suntec REITSuntec REITSuntec REITSuntec REIT). S-REITs currently offer an average FY16F yield of 7.0% and with yield spreads of 4.7% at close to its – 1 SD range, we see a comfortable buffer for investors to add at current levels.

Prefer REITs with sustainable growthPrefer REITs with sustainable growthPrefer REITs with sustainable growthPrefer REITs with sustainable growth; picks : ; picks : ; picks : ; picks : Mapletree Mapletree Mapletree Mapletree Greater China Commercial TrustGreater China Commercial TrustGreater China Commercial TrustGreater China Commercial Trust, , , , Frasers Centrepoint TrustFrasers Centrepoint TrustFrasers Centrepoint TrustFrasers Centrepoint Trust and and and and CapitaLand Retail China TrustCapitaLand Retail China TrustCapitaLand Retail China TrustCapitaLand Retail China Trust.... While we expect operational headwinds and have cut back our growth assumptions, REITS are more resilient and offer better earnings growth at 6.2% vs -2% for STI components in 2015. Among the sub-sectors, retail REITS are likely to outperform given strong foot traffic and sustained tenant sales. In our view, hospitality REITS could face weakness in 3Q results with rising competition. We are selective and favour stocks with sustainable growth - MAMAMAMAGGGGIC IC IC IC and FCTFCTFCTFCT. We also believe that CRCTCRCTCRCTCRCT, trading at 7.9% forward yield, is attractive.

S-REIT yield sector and yield spread

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15

(%)(%)(%)(%)

Yield Yield Spread vs 10-year bond Historical Mean Historical - 1 SD

Source: DBS Bank

S-REIT DPU Growth by Sectors (FY15-17F)

Source: Companies, DBS Bank

Earnings cut by subsectors in 2Q15

Source: Companies, DBS Bank

Oil and gas – Ride the bounce on depressed valuations

Sentiment for O&G sector took a sharp upturn last week

on the back of a weakening USD, accelerating rig count

decline, mounting geopolitical tension in the Middle East,

China stimulus hopes, and Russia’s statement that it is ready

to talk to OPEC (as well as non-OPEC oil producers) on the oil

market. We believe volatility prevails as we continue to see

mixed signals. With oil prices near its bottom (GFC low at

around US$40/bbl), the risk is on the upside as we approach a

seasonally stronger quarter on winter demand, while OPEC’s

meeting on Dec 4 is the wild card. Stock prices are highly

correlated to oil prices. A sustained bounce up to US$60/bbl

will lift oil and gas stocks, providing opportunities to trade as

the sector’s valuation has been stressed to close to GFC levels.

We expect oil prices to post a modest recovery, ranging

between US$55-65/bbl (average around US$60/bbl) in 2016. Oil price surged >10% in a week to over US$53/bbl

0

20

40

60

80

100

120

140

Brent WTI

Source: Bloomberg Finance L.P, DBS Bank

US and OPEC hold the keys. With price hedges expiring and

rig count falling off the cliff, US shale oil production will slow

down, offsetting the potential new supply from Iran next year.

OPEC’s production stance is a wild card. The current 2mmbpd

surplus could easily be bridged by production cuts should

OPEC decide to do so, though it is widely expected to stick

with its market share strategy in the upcoming OPEC meeting

on 4th Dec.

4.0%

2.5%

4.2%

2.1%2.3%

1.1%

3.2%

Office Retail Commercial Industrial Hospitality Healthcare S-REIT Average

-4%

-2%

-3%

-1%

-5%

0%

Office Retail Commercial Industrial Hospitality Healthcare

Market Focus

Singapore Strategy

Page 11

Knock on shipyards and service providers. We reiterate our

stance that the low oil price of US$50-65/bbl should continue to

propel investments into shallow water and developmental

projects, though inevitably putting halts on the deepwater front.

As a result, new orders for Singapore rigbuilders are expected to

fall from S$9bn to S$5-6bn p.a. as we continue to see orders for

production facilities (FPSOs, FLNG vessels, accommodation

platforms, etc) but demand for newbuild drilling rigs will wane

in the next 1-2 years. This will eventually translate into declining

earnings, more vividly from 2017 onwards. As exploration

activities slow down, rig utilisation has also fallen, resulting in

lower demand for offshore support vessels. Earnings risks prevail

for these service providers and we cannot rule out the possibility

that some uncompetitive players may go under in a prolonged

low oil price environment.

Stay with companies which passed our stress test –

Ezion and Pacific Radiance. The “survivability” and

“financial health” of O&G SMCs have come under close

scrutiny as many of them have geared up for expansion to

ride on the sector upturn but now that earnings have

plunged, there are mounting fears of defaults and

insolvencies. We stress tested the balance sheets of key

Singapore and Indonesia service providers. Ezra and Swiber

have the highest near-term refinancing requirements in 2015-

2016. Ezra has undergone a series of corporate actions –

asset sales, equity raising and partial divestment - resolving its

2015 refinancing needs. Both EzionEzionEzionEzion and PACRAPACRAPACRAPACRA have lower

near-term refinancing risks. We believe Ezion’s strong market

positioning and resilient demand for service rigs, and PACRA’s

superior management team and cost competitiveness are key

differentiators that will allow them to better navigate through

the downturn.

Ezra and Mermaid are trading at rock-bottom

valuations. Despite last week’s rally, valuations for O&G

stocks remain fairly depressed, having lost up to 85% of their

market capitalisation prior to this. We recently upgraded EzraEzraEzraEzra

to BUY following its divestment of its 50% stake in the

subsea business (EMAS AMC) to a Japanese strategic partner

– Chiyoda. We believe the elimination of the near-term

overhangs – rights issue and bond refinancing - should lift its

current distressed valuation of <0.2x P/BV as it alleviates its

insolvency concerns. MermaidMermaidMermaidMermaid is another bombed-out stock,

dragged by execution issues and earnings disappointments in

the past. However, trading at <0.3x P/BV seems unwarranted

in view of its strong 2Q15 results, relatively stable recurring

IRM business, decent orderbook, and low gearing.

Among the blue chips, SCISCISCISCI appears attractively priced at

below its GFC trough valuation and the steady utility business

should mitigate the weakness on the marine side.

SMC O&G service providers trading close to GFC low

0.0

0.5

1.0

1.5

2.0

2.5

2008 2009 2010 2011 2012 2013 2014 2015

(x) Small/Mid cap O&G playersSmall/Mid cap O&G playersSmall/Mid cap O&G playersSmall/Mid cap O&G players---- PBPBPBPB

Avg: 1x

+2sd: 1.8x

+1sd: 1.4x

-1sd: 0.6x

-2sd: 0.3x

Source: Bloomberg Finance L.P, DBS Bank

Implied GFC trough share price

GFC GFC GFC GFC TrougTrougTrougTrough PBh PBh PBh PB

FY15 FY15 FY15 FY15 BVPSBVPSBVPSBVPS

Implied Implied Implied Implied Share Px Share Px Share Px Share Px

Last Px @ Last Px @ Last Px @ Last Px @ 8888----OctOctOctOct

DBS DBS DBS DBS TPTPTPTP

DBS DBS DBS DBS RecRecRecRec

xxxx S$S$S$S$ S$S$S$S$

Keppel 1.1 6.04 6.34 6.89 7.50 HOLD

SMM 1.5 1.51 2.27 2.30 2.48 HOLD

SCI 1.1 3.40 3.74 3.53 4.00 BUY

Ezion nm 1.12 nm 0.72 1.00 BUY

Ezra 0.3 0.59 0.19 0.12 0.30 BUY

PACRA na 0.87 na 0.34 0.42 BUY

POSH na 0.96 na 0.33 0.35 HOLD

Mermaid 0.5 0.56 0.28 0.16 0.26 BUY

Nam Cheong

na 0.20 na 0.18 0.17 HOLD

Vard 1.8 0.62 1.11 0.43 0.39 HOLD

Cosco 1.3 0.61 0.79 0.38 0.42 HOLD

Yangzijiang 0.5 1.34 0.67 1.16 1.62 BUY

Source: Bloomberg Finance L.P, DBS Bank

Depressed asset and equity values trigger more

opportunities for M&A. The prolonged low oil prices is set

to fuel another wave of mergers and acquisitions, as major

players shed non-core assets and smaller companies merge in

an attempt to scale up and survive. We identify some

potential takeover targets to be EzionEzionEzionEzion, DynaDynaDynaDyna----MaMaMaMacccc and Ezra

Group companies like TriyardsTriyardsTriyardsTriyards and EMAS OffshoreEMAS OffshoreEMAS OffshoreEMAS Offshore.

Companies with high cash hoards such as Baker TechBaker TechBaker TechBaker Tech,

Tanjung Offshore Tanjung Offshore Tanjung Offshore Tanjung Offshore are good privatisation candidates. We do

not rule out M&A possibilities among Singapore shipyards to

boost competitiveness amid rising competition from Korea

and China in the long run.

Market Focus

Singapore Strategy

Page 12

Stock Picks

While the upcoming 3Q results may disappoint, we select

stocks with earnings visibility or potential upside in dividends –

Thai Bev, , Riverstone, Sheng Siong, Sembcorp Industries, ST

Engineering, Capitaland, Singapore Airlines, and Venture

Corporation.

CapitaLand (BUY; TP: S$3.73)

Capitaland, positioned mainly in Tier 1/2 cities in China,

expects a steady return of buyers and is looking to

launch close to c.7,600 units to capture the recovery in

price trend. With 45% of its assets in China, Capitaland

is a clear proxy to benefit from the easing monetary

policy in China. Management has highlighted

opportunities within its integrated developments across

its key markets of China and Singapore. Its ongoing

retail mall developments remain on track to complete

over 3 years, and will underpin a steady growth in

recurring earnings. We believe that 2015 is an

appropriate time for the company to look at asset

recycling of some of the stable assets (Westgate Mall,

CapitaGreen upon TOP and retail malls in China) in its

portfolio to its REITs to optimize capital values and lock

in gains. This should also help to close the gap between

share price and RNAV. The stock is undervalued, with

upside to its ROE from value unlocking and recycling.

Ezion (BUY; TP: S$1.00)

Ezion is one of the best and safest proxies to ride oil

price recovery. It is well-positioned to benefit from the

rising popularity of liftboats in this region, capitalising on

its first-mover advantage. We believe service rigs are in

an early growth phase, buoyed by the substitution effect

to replace typical work boats/barges. Ezion has taken

delivery of 25 service rigs and the fleet is expected to

grow to 33 units by end of 2015, and 37 units by 2016,

driving earnings growth in the next two years.

Frasers Centerpoint Trust (BUY, TP S$2.05)

Reversions outlook is underpinned by robust tenants

performance while occupancy cost remains low at

<16%, particularly at Causeway Point, a key driver to

topline at 41% of revenue. FCT is a resilient performer

even in times of uncertainty given high exposure to

necessity shopping. Its robust capital management

ensures minimal risk to earnings. At current level, FCT

offers investors a dividend yield of 6% and 11% total

return.

Mapletree Greater China Trust (BUY,TP S$1.12)

MAGIC offers visible organic growth and quality

portfolio assets. The Trust is trading at an attractive 19%

discount to NAV and offers FY16 yield of 7.6%. We see

upside from better than projected rents at Sandhill Plaza.

MAGIC should benefit from positive rental reversions

over the next 3-4 years as Sandhill Plaza’s rents are

below market.

Pacific Radiance (BUY; S$0.42)

Pacific Radiance is amongst the most cost competitive

OSV player. While earnings performance will be nothing

to shout about in the near term, we believe valuations of

0.4x P/BV do not fairly reflect the underlying asset

valuations nor the fact that the company fares quite well

on credit ratios, with no near-term solvency or liquidity

issues. If oil prices move up or even stabilise to an extent,

the stock should rebound faster than peers in our

opinion.

Riverstone Holdings (BUY; TP: S$2.15)

We’ve recently initiated coverage on Riverstone with a

BUY and target price of S$2.15. As a market leader in

high-end nitrile clean room gloves and a growing

healthcare glove player, we like Riverstone as a

beneficiary of the strong US$ vs Ringgit, low commodity

prices and most importantly, capacity expansion (double

from 2014 to 2018 to 8.2bn pieces per year) to expand

its business. We forecast EPS CAGR of 27% from 2014-

2017F, and our target price of S$2.15 is based on 18x

FY16 PE, which is represents c. 28% discount to its

larger peer average of 25x earnings.

Sheng Siong (BUY; TP: S$1.00)

We like SSG as earnings are firing on all cylinders. SSG is

on track towards its 50-store target, margin expansion

trend is performing to our expectations, and there is no

let up SSSG. The company is one of the most well run

grocery retailers in ASEAN, leading regional peers in

profitability, cashflow generation and working capital

management. SSG offers an attractive dividend yield of

about 4%, as it pays out 90% or more of its earnings as

dividends.

ST Engineering (BUY; TP: S$3.40)

ST Engineering is a proxy to recovery in the US and

Europe, as about 24% of total sales is derived from the

US. A stronger US dollar is beneficial to STE's earnings.

Orderbook inched up to S$12.4bn at end-2Q15 from

S$12.2bn as of end-1Q15 and covers close to two years

of revenue and secures visibility, going forward. Though

2Q15 headline numbers were unexciting as the

slowdown in commercial vehicle business continued to

bite, we expect a better 2H15. Share price decline of

16% from recent highs in April 2015 provides a good

entry point for the stock. Higher interim dividend of

5Scts (FY14: 4Scts) shows confidence in management’s

ability to deliver steady performance. Dividend yield of

4.5% at current price looks attractive.

Market Focus

Singapore Strategy

Page 13

Thai Beverage (BUY; TP: S$0.81)

We project growth for FY15F/16F to continue as

ThaiBev’s sales tend to be more resilient, given its wide

portfolio range, particularly in the Spirits segment.

Corporate restructuring could be a catalyst. With the

disposal of FNN’s stake in MBL to its JV partner,

Myanmar Economic Holdings Limited, this could possibly

pave the way for the eventual consolidation of FNN as a

subsidiary, coupled with the eventual monetisation of its

stake in Frasers Centrepoint Limited. In our view, this ties

in with the Group’s announced “Vision 2020” Strategic

Roadmap, in which one of the targets is to increase Non-

alcoholic beverages revenue contribution to over 50%.

Venture Corporation (BUY; TP: S$9.00)

Venture is a beneficiary of the strong US dollar and weak

ringgit. Almost 60% of staff costs are denominated in

MYR for Venture. According to our sensitivity analysis,

every 2% decline in MYR would have a 1.5% positive

impact on Venture’s profits. All of of Venture’s sales are

denominated in USD, about 50% of which go to US and

the balance 50% to EU and Asia. A strong USD can also

dampen demand from EU and Asia. Overall, we estimate

that a 1% rise in USD would have a 1% positive impact

on Venture’s profits. Venture’s strong balance sheet and

its net cash position should support the current dividend

payout of 50Scts, with a yield of c.6%.

SembCorp Industries (BUY; TP: S$4.00)

SCI is trading close to GFC low of 1.1x P/BV, pricing in

the weakness of its marine arm (through 61%-owned

SMM), competitive Singapore Power market and startup

losses of TPCIL's power plant in India. The TPCIL plant is

likely to breakeven this year and will contribute to SCI’s

bottomline from 2016 onwards with better economies

of scale after the second unit is operational towards the

end of 2015. This would mitigate earnings decline from

Singapore power plants. In addition, a total of 2,588MW

of power generation capacity (excluding the 660MW

TPCIL Unit 1 plant in India, already online since Apr-

2015), 140tph of steam capacity and 1.6million m3/day

of water treatment capacity is expected to be added

from now until 2017. This roughly translates to a 31%,

3% and 17% increase in power, steam and water

treatment capacities respectively, driving growth in the

next 2 years. We reiterate our BUY on SCI with 14%

upside potential to our SOTP-based TP S$4.00 (translates

to 1.25x P/BV), plus a 4% dividend yield.

Singapore Airlines (BUY; TP S$11.50)

We expect fuel cost savings for SIA to be more

substantial from 2H FY15 onwards, which should drive

better earnings recovery. We project SIA’s earnings to

nearly double to S$616m in FY16. Earnings risk is on the

upside if jet fuel stays below US$90/bbl for a sustained

period. Our S$11.50 target price is based on 1.1x FY16

P/BV, which is its historical mean and reflects SIA’s

improved earnings outlook. With net cash of c.S$3.40

per share, we see its current valuation of 0.9x FY16 P/BV

as an attractive entry level for investors.

Stock Picks

MktMktMktMkt Pri c ePri c ePri c ePri c e Ta rge tTa rge tTa rge tTa rge t

Compa nyCompa nyCompa nyCompa ny Ca pCa pCa pCa p (S$)(S$)(S$)(S$) Pric ePric ePric ePric e %%%%

(US$m)(US$m)(US$m)(US$m) 08-Oc t08-Oc t08-Oc t08-Oc t (S$ )(S$ )(S$ )(S$ ) Ups ideUps ideUps ideUps ide RcmdRcmdRcmdRcmd 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F 15F15F15F15F 16F16F16F16F

Capitaland 9,177 3.02 3.73 24% Buy 18.0x 16.9x 0.8x 0.7x 2.6% 2.6% (38%) 7%

Ezion 786 0.70 1.00 43% Buy 5.7x 3.3x 0.6x 0.5x 0.1% 0.1% (23%) 76%

Frasers Centrepoint Trust 1,276 1.955 2.05 5% Buy 15.7x 16.0x 1.1x 1.1x 6.0% 6.2% 6% 2%

Mapletree Greater China

Commercial Trust*

1,863 0.955 1.12 18% Buy 17.1x 15.6x 0.8x 0.8x 7.6% 8.3% 11% 9%

Pacific Radiance 190 0.370 0.42 14% Buy 9.1x 7.9x 0.4x 0.4x 3.0% 6.0% (69%) 15%

Riverstone Holdings 450 1.705 2.15 26% BUY 18.1x 14.0x 4.3x 3.6x 2.0% 2.6% 45% 29%

Sheng Siong 905 0.845 1.00 18% Buy 23.7x 21.2x 5.3x 5.1x 3.8% 4.2% 14% 12%

ST Engineering 6,982 3.16 3.40 8% Buy 18.5x 18.4x 4.5x 4.4x 4.7% 4.7% (0%) 1%

Thai Beverage 12,247 0.685 0.81 18% Buy 18.0x 16.7x 4.0x 3.7x 3.6% 3.8% 12% 8%

Venture Corporation 1,594 8.11 9.00 11% Buy 14.4x 12.8x 1.2x 1.2x 6.2% 6.2% 11% 12%

Sembcorp Industries 4,743 3.73 4.00 7% Buy 9.7x 9.3x 1.1x 1.0x 3.9% 3.8% (15%) 5%

Singapore Airlines* 8,828 10.65 11.50 8% Buy 21.0x 14.9x 0.9x 0.9x 3.3% 4.7% 79% 41%

EPS / DPUEPS / DPUEPS / DPUEPS / DPU

PE (x)PE (x)PE (x)PE (x) P/B (x)P/B (x)P/B (x)P/B (x) Div Yld Div Yld Div Yld Div Yld GrowthGrowthGrowthGrowth

Source: DBS Bank

* FY16 & 17 forecast

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Singapore Strategy

Page 14

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUYSTRONG BUYSTRONG BUYSTRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY BUY BUY BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLDHOLDHOLDHOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUEDFULLY VALUEDFULLY VALUEDFULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL SELL SELL SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank Ltd. This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the “DBS Vickers Group”) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS Bank Ltd.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”)) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months.

ANALANALANALANALYST CERTIFICATIONYST CERTIFICATIONYST CERTIFICATIONYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report (“interest” includes direct or indirect ownership of securities).

COMPANYCOMPANYCOMPANYCOMPANY----SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES SPECIFIC / REGULATORY DISCLOSURES

1.1.1.1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 31 Aug 2015 except CapitaLand, CapitaLand Commercial Trust, CapitaLand Mall Trust, CapitaLand Retail China Trust, City Development, Cosco Corporation, Ezion Holdings, Ezra Holdings, Frasers Centrepoint Trust, Keppel Corporation, Keppel REIT, M1, Mapletree Commercial Trust, Mapletree Greater China Commercial Trust, Mapletree Industrial Trust, Neptune Orient Lines, OCBC, Sembcorp Industries, Sembcorp Marine, Singapore Airlines, SPH, ST Engineering, StarHub, Suntec REIT, Thai Beverage Public Company, Triyards Holdings, UOB, Venture Corporation , Wilmar International, Yangzijiang Shipbuilding

2.2.2.2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 31 Aug 2015.

Market Focus

Singapore Strategy

Page 15

3.3.3.3. Compensation for investment banking servicCompensation for investment banking servicCompensation for investment banking servicCompensation for investment banking services:es:es:es: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services from Keppel Corporation, Ezra Holdings.

DBSVUSA does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

RESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTIONRESTRICTIONS ON DISTRIBUTION

GeneralGeneralGeneralGeneral This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

AustraliaAustraliaAustraliaAustralia This report is being distributed in Australia by DBS Bank Ltd. (“DBS”) or DBS Vickers Securities (Singapore) Pte Ltd (“DBSVS”), both of which are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, which differ from Australian laws. Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong KongHong KongHong KongHong Kong This report is being distributed in Hong Kong by DBS Vickers (Hong Kong) Limited which is licensed and regulated by the Hong Kong Securities and Futures Commission.

IndonesiaIndonesiaIndonesiaIndonesia This report is being distributed in Indonesia by PT DBS Vickers Securities Indonesia.

MalaysiaMalaysiaMalaysiaMalaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

SingaporeSingaporeSingaporeSingapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report.

ThaThaThaThailandilandilandiland This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. Research reports distributed are only intended for institutional clients only and no other person may act upon it.

United United United United KingdomKingdomKingdomKingdom

This report is being distributed in the UK by DBS Vickers Securities (UK) Ltd, who is an authorised person in the meaning of the Financial Services and Markets Act and is regulated by The Financial Conduct Authority. Research distributed in the UK is intended only for institutional clients.

DubaiDubaiDubaiDubai

This research report is being distributed in The Dubai International Financial Centre (“DIFC”) by DBS Bank Ltd., (DIFC Branch) having its office at PO Box 506538, 3rd Floor, Building 3, East Wing, Gate Precinct, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

United StatesUnited StatesUnited StatesUnited States Neither this report nor any copy hereof may be taken or distributed into the United States or to any U.S. person except in compliance with any applicable U.S. laws and regulations. It is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate.

Other Other Other Other jurisdictionsjurisdictionsjurisdictionsjurisdictions

In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank Ltd.DBS Bank Ltd.DBS Bank Ltd.DBS Bank Ltd. 12 Marina Boulevard, Marina Bay Financial Centre Tower 3

Singapore 018982 Tel. 65-6878 8888

Company Regn. No. 196800306E