MARKET PULSE: Fortune REIT, NOL, SMRT, Yangzijiang (5 Jul 2012)

Stock Name: NOL
Company Name: NEPTUNE ORIENT LINES LIMITED

Research House: OCBC

Price Call: BUY

Target Price: 1.38

Stock Name: Fortune Reit HK$
Company Name: FORTUNE REAL ESTATE INV TRUST

Research House: OCBC

Price Call: BUY

Target Price: 5.22

Stock Name: SMRT
Company Name: SMRT CORPORATION LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.71

Stock Name: Yangzijiang
Company Name: YANGZIJIANG SHIPBLDG HLDGS LTD

Research House: OCBC

Price Call: HOLD

Target Price: 1.08

MARKET PULSE: Fortune REIT, NOL, SMRT, Yangzijiang

5 Jul 2012

KEY IDEA Fortune Real Estate Investment Trust: Suburban shopping malls are more defensive For May, retail sales in HK climbed 8.8% YoY to HK$36.0b. While this is the lowest pace of growth since Sep 2009 (excluding seasonal distortions during Jan and Feb each year due to Chinese New Year), we believe that Fortune will continue to have good positive rental reversions this year, especially as suburban malls are more defensive than luxury retail spaces. In volume terms, luxury goods saw sales contracted 2.9% while supermarket sales rose 9.1%. Since we initiated coverage on 14 Mar, Fortune's share price has climbed 17.5% to a one-year high and we think further upside is possible. 2Q12 will be the first quarter to see full contributions from two properties acquired in mid-Feb. Fortune is trading at a P/B of 0.6x and an estimated FY12 dividend yield of 6.8%. We maintain our BUY rating and our fair value of HK$5.22. (Sarah Ong) MORE REPORTS Neptune Orient Lines: Lower fuel prices, higher freight rates Bunker fuel prices in 2Q12 averaged 11% lower QoQ while the Shanghai (Export) Containerised Freight Index in 2Q12 averaged 31% higher QoQ. Shipping consultants Drewry this week said shipping liners' successful rate hikes in major global trade lanes meant most liners are now profitable. While eastbound transpacific shipping demand remains strong, the outlook for Asia-Europe routes is still bleak and is unlikely to see a strong peak shipping season this year. Thus, capacity management remains the key to shipping liners' profitability for the rest of 2012. In addition, Neptune Orient Lines' (NOL) restructuring to better allocate its capital and reduce its cost base should signal a turnaround in its core business. We maintain our fair value estimate of S$1.38/share and BUY rating on NOL. (Eric Teo) SMRT Corp: No surprises in COI Summary: The list of recommendations included in the full report of the Committee of Inquiry (COI) findings did not yield any surprises and we deem this development as a positive for SMRT. Most of the COI's 14 recommendations on engineering and maintenance issues have been proactively addressed by SMRT in its S$900m upgrading and renewal plan announced two months ago. While the cost burden issue between the company and the Land Transport Authority (LTA) has yet to be finalized, we have already made conservative provisions in our estimates. With the conclusion of the COI, what remains is the Government's response to the report on 9 Jul's Parliament sitting, and the implementation of a fine on SMRT for the service disruptions. In our view, the latter will come into play after the Ministerial Statement, and we could expect to see a maximum fine of S$1m per incident levied onto SMRT for a resulting S$2m impact on its books in the following quarter (2QFY12). As we have accounted for this potential fine amount, we maintain our HOLD rating on SMRT at an unchanged fair value of S$1.71 ahead of its 1Q12 results. (Lim Siyi) Yangzijiang Shipbuilding: Relocation agreement signed A subsidiary of Yangzijiang Shipbuilding (YZJ) has entered into an agreement with the municipal government of Jiangyin city, China, for the relocation of its old yard. This is within expectations as YZJ had previously mentioned in early Mar this year that the agreement would be signed in 1H12. Land-based production should discontinue by 30 Sep 2012 and all relocation works are to be completed by 31 Mar 2013. A compensation of RMB720m will also be paid by the municipal government. According to management, YZJ has made the necessary arrangements to ensure the yard relocation will not affect the existing vessel delivery schedule. As mentioned in our earlier report (3 Mar 2012), the group may also participate in property development of the freed-up site after the relocation; discussions with the municipal government are ongoing. Pending further details, we maintain our HOLD rating with S$1.08 fair value estimate on the stock. (Low Pei Han)

For more information on the above, visit www.ocbcresearch.comfor the detailed report.

NEWS HEADLINES - The FTSE 100 index fell 0.1% as bank and energy stocks traded lower. Barclays PLC's ex-CEO, Bob Diamond, testified before a UK parliamentary panel. US markets were closed for the Fourth of July holiday. - Cambridge Industrial Trust has entered a sales and purchase agreement with Eurosports Auto Pte Ltd for the proposed acquisition of 30 Teban Gardens Crescent for a consideration of S$41m. - Spindex Industries' subsidiary, Synturn (M) Sdn Bhd, has agreed to buy a piece of land and a factory in Malaysia for MYR9.5m (~S$3.8m). - Serial System's 91%-owned subsidiary, Serial Microelectronics (Shenzhen) Co., has entered into sale and purchase agreements to acquire office units located at Shenzhen Futian Free Trade Zone, Shenzhen Fortune Plaza B for a consideration of RMB 71.8m (~S$14.3m).