6 November 2012 g

Morning Matters
Figure of the Day

While You Were Sleeping US markets: Positive Dow futures: -7 (as at 8am Singapore Time) US Wrap: The major U.S. stock averages finished slightly higher on Monday ahead of what's expected to be a tight presidential election on Tuesday. The Dow Jones Industrial Average added more than 19 points, or 0.15%, to close at 13,112. The blue-chip index, which has fallen in each of the past two weeks, began the session up a little over 7% in 2012. The S&P 500 rose a little more than 3 points, or 0.22%, to settle at 1417.26, while the Nasdaq jumped more than 17 points, or 0.59%, to finish at 2999.66. Apple (AAPL) was a bright spot with shares rising 1.4% after the company said it sold a better-than-expected three million iPad minis over the weekend. Gold for December delivery rose $8 to settle at $1,683.20 an ounce at the Comex division of the New York Mercantile Exchange, while December crude oil contracts added 79 cents at $85.65 a barrel. The benchmark 10-year Treasury rose 10/32, pushing the yield down to 1.685%. The dollar was up 0.22%, according to the U.S. dollar index. The Day Ahead Scoop of the Day: Sembcorp Marines 3Q12 net profit of S$116m (-19% QoQ, -48% YoY) lifted 9M12 net profit to S$371m (-29%), accounting for 6062% of ours and consensus estimates. Revenue was lower than expected while operating margin was in-line. The key takeaway was the operating margin guidance of 10-12% in FY13 due to conservative margin recognition for the drillship project at the initial stage and recognition of non-repeat semisubs. Sector outlook is still strong but competition is rising as traditional shipbuilders are also eyeing offshore jobs. We cut FY12-14F net profit estimates by 12%/15%/22% respectively. Downgrade the stock to Neutral with a TP of S$4.61, implying 17.3x FY13F P/E. (Jason Saw) WHATS INSIDE? On The Platter Sembcorp Marine: Below expectations; cut FY12-14F EPS by 12-22% (NEUTRAL, S$4.69, TP: S$4.61) Hi-P International: Management remains optimistic (NEUTRAL, TP: S$0.74) S$0.77, TP: TP:

Source: Company

SembMarine's results not as good as we thought. See 'Scoop of the Day'.

Market Indices Value

Dow Jones S&P 500 Nasdaq FTSE 100 Nikkei Hang Seng Shanghai KOSPI STI KLCI 13,112.4 1,417.3 2,999.7 5,839.1 9,007.4 22,006.4 2,114.0 1,908.2 3,031.7 1,654.0

Chg
+19.28 +3.06 +17.53 -29.49 -43.78 -104.93 -3.02 -10.50 -9.06 -2.09

% Chg
+0.15 +0.22 +0.59 -0.50 -0.48 -0.47 -0.14 -0.55 -0.30 -0.13

Key Indicators Value

Oil Price* (US$/bbl) Gold Price** (US$/oz) US$/S$ 85.65 1685.00 1.2247

Chg
+0.79 +6.90 -0.00

% Chg
+0.93 +0.41 -0.01

* WTI Crude Future ** Gold Spot

Sino Grandness: Starry-eyed over upcoming 3Q12 (BUY, S$0.65) Singapore Airlines: 1HFY13 A Choppy Ride (NEUTRAL, S$10.39)

S$0.48, S$10.58,

Starhub: 9MFY12 Results Review: A Starry Quarter (NEUTRAL, S$3.65, TP: S$3.40) Insider Trade Highlights 5 Nov 12 Disclaimer: DMG & Partners Securities Pte Ltd may have received compensation from the companies covered in this report for its corporate finance or its dealing activities; this report is therefore classified as a non-independent report. Please refer to important disclosures at the end of this publication.

6 November 2012

On the Platter Sembcorp Marine: Below expectations; cut FY12-14F EPS by 12-22% (NEUTRAL, S$4.69, TP: S$4.61) Jason Saw (+65 6232 3871, jason.saw@sg.oskgroup.com) Downgrade to Neutral. 3Q12 net profit of S$116m (-19% QoQ, -48% YoY) lifted 9M12 net profit to S$371m (-29%), accounting for 60-62% of ours and consensus estimates. Revenue was lower than expected while operating margin was in-line. The key takeaway was the operating margin guidance of 10-12% in FY13 due to conservative margin recognition for the drillship project at the initial stage and recognition of non-repeat semisubs. Sector outlook is still strong but competition is rising as traditional shipbuilders are also eyeing offshore jobs. We cut FY12-14F net profit estimates by 12%/15%/22% respectively. Downgrade the stock to Neutral with a TP of S$4.61, implying 17.3x FY13F P/E. Margins in-line; bottomline miss on lower revenue. 3Q12 revenue of S$892m was sharply lower (-27% QoQ, -31% YoY) as 3Q11 included lumpy recognition from Songa Eclipse project. Revenue recognition can be lumpy depending on the initial recognition of major projects. Only one Noble jackup rig achieve initial recognition in 3Q12. 3Q12 operating margin came in at 14.1% (9M12: 13.3%), in-line with our estimates, and would have been higher at 15.4% (9M12: 14.3%) if not for S$11.8m losses from forex and hedges (9M12: -S$30m). Competition could cap ASP hike; margins expansion limited. SMM is seeing strong market fundamentals and is hoping to add more work to its existing order book by end of the year. However, intense competition from shipyard with excess capacity in Korea and China are putting pressure on margins. Valuation: We cut our TP by 19% from S$5.70 to S$4.61 primarily due to lower earnings and lower target P/E of 16x on shipyard operations (old: 18x) to reflect rising competition. In the previous boom, O&M stocks could trade >20x P/E as the rig upcycle was running in tandem with the boom for commercial shipbuilding, leading to strong pricing power for shipyards. We think the market dynamics are slightly different now as commercial shipyards in China are struggling and Korean yeards are also competing in the semisub market.

DMG Research See important disclosures at the end of this publication 2

6 November 2012

Hi-P International: Management remains optimistic (NEUTRAL, S$0.77, TP: S$0.74) Edison Chen (+65 6232 3892, edison.chen@sg.oskgroup.com) Terence Wong, CFA (+65 6232 3896, terence.wong@sg.oskgroup.com) Hi-Ps reported a weak set of 3Q with S$3.0m PATMI (-53.9% YoY) on the back of S$271.7m revenue (-12.0% YoY). The disappointing results are largely attributable to a couple of delayed projects which we believe to involve with Apple, Research-in-Motion (RIM) and Amazon. Management sounded positive over the briefing and shared that outlook has improved as most of the delayed projects have commenced since early 4Q. Going forward, we see a close correlation between Apple and Hi-Ps share price performance with Hi-Ps growing exposure to Apples products. Therefore, we are taking a cautious stance in view of Apples weakening share price amid intensifing competition. We lower our FY12 and FY13 estimates by 29.7% and 4.5% respectively. Maintain NEUTRAL with a lower TP of S$0.74 pegging blended FY12/13 earnings to 13x forward P/E (5-yr historical average). Delayed projects have resumed. During the results briefing, management shared that there were three to four projects that were delayed, resulting in the disappointing performance. We believe that the projects involve with Apples iPhone 5, RIMs Blackberry 10 as well as Amazons Paperwhite. Similar to our channel checks, management explained that the delay was not due to Hi-Ps capabilities (e.g. yield issues) but rather the disruption of the supply chain. Nonetheless, most of the projects have resumed in 4Q with the last major one still pending. Close correlation with Apple. We observed that there was a close correlation between Apples share price performance and Hi-Ps for the past one year with the growing exposure. Despite the delay of the new metal casing business, we estimate that Apples revenue contribution to Hi-P had surpassed 30% in 3QFY12. And we expect this percentage to increase further to 50% with the programme resuming and the new Nantong plant starting to carry out the final assembly work next year. In view of Apples recent weak share price movement with intensifying product competition, we are taking a cautious stance towards HI-Ps short term performance.

DMG Research See important disclosures at the end of this publication 3

6 November 2012

Sino Grandness: Starry-eyed over upcoming 3Q12 (BUY, S$0.48, TP: S$0.65) Melissa Yeap (+65 6232 3897, melissa.yeap@sg.oskgroup.com) Terence Wong, CFA (+65 6232 3896, terence.wong@sg.oskgroup.com) We have reviewed our numbers and believe that our earlier earnings estimates which were in line with consensus may be too conservative. As such, we have raised our FY12 earnings estimates by 11%, making us the most bullish on the street. We are expecting 3Q12 earnings of RMB77m vs RMB45m in 3Q11. Our bullish stance is backed by: 1) Stronger orders for its export canned foods from Europe, 2) Raised ASP and gross margin assumptions for its asparagus and mushroom canned foods to be in line with 2Q results, 3) Lower opex and finance cost assumptions. This has resulted in our net margins rising from 14.1% to 15.5%. We change our valuation methodology from sum-of-parts to P/E and derive a higher TP of S$0.65, pegged to 3x FY13F earnings (mean historical trading band). Results will be announced on Nov 6th after market close with a results briefing to be held the following day. Upgrade to BUY. Europes tightening wallets belie stronger demand for canned foods. We are expecting stronger demand for its export canned foods from Europe where the Group currently supplies to two major discount store operators in Europe (Lidl and Aldi) under OEM basis. We understand that the current depressed economic conditions in the West has spurred demand for cheaper supermarket brands as consumers switch down from premium to non-premium products. Good harvest raises gross margins for 2012. We expect a good harvest year for mushrooms and asparagus. Hence, we raise our gross margin assumptions for the two from 31% to 33% to be in-line with 2Q results. We also raise our ASP assumptions for asparagus to be in-line with 1H12 pricing. Szechuan plant now ramping up beverage production and accounts for 20% of production. Since July 2012, the Group has commenced internal production and this is expected to result in cost savings. Puree, a main ingredient in its beverages is now also produced internally. We are expecting gross margins of 41% for its beverage operations.

DMG Research See important disclosures at the end of this publication 4

6 November 2012

Singapore Airlines: 1HFY13 A Choppy Ride (NEUTRAL, S$10.58, TP: S$10.39) Singapore Research (+65 6533 0718, research@sg.oskgroup.com) SIA reported disappointing results, with 1HFY13 core earnings of a meager SGD165.9m, accounting for only 30% and 34% of our and consensus full-year forecasts respectively. Earnings came in lower than expected as the airlines rising costs outpaced revenue growth while yields continued to be pressured. We are trimming our earnings estimates for FY13/FY14/FY15 by 35%/10%/10% respectively, and accordingly downgrade SIA from a TRADING BUY to NEUTRAL. Disappointing earnings. SIA's 1HFY13 results were a let-down, with core earnings coming in at only SGD165.9m (YTD: -20.2%, 2QFY13 y-o-y: -44.7%, q-o-q: +7.1%). A single-tier dividend of six cents was also announced, versus 10 cents last year. The earnings were below our and consensus full-year projections, accounting for only 30% and 34% of the forecasts respectively. Its 1HFY13 revenue, which made up 48% of our full year estimate, grew 4%, bolstered by SilkAir's capacity expansion and SIA Engineering. However, a tripling of losses in the cargo division and the higher break-even load factor following an increase in non-fuel expenses dragged down SIA's overall earnings. This is in contrast to our earlier bullish expectation of an upside surprise. No yield upside just yet. Surprisingly, passenger yields were unchanged q-o-q (-2.6% y-o-y) as the company continued to aggressively offer fare discounts to beef up its load factor. SIA's cargo division, which has been floundering in the past few years, saw its yields dropping by 4.1% y-o-y amid feeble global economic conditions. SilkAir, too, saw its yields dipping by 3% y-o-y in 2QFY13 due to intensifying competition. We are lowering our yield assumptions for SilkAir and SIA's cargo division to reflect the groups current 1H yield. Outlook still bleak. While the recent drop in jet fuel price is positive for SIA, demand for 2H remained weak in view of the potential yield compression amid intense competition. Despite these challenges, SIAs management is confident that the airline would be able to weather the storm given its strong balance sheet. Downgrade to NEUTRAL. We are now forecasting lower yields for SilkAir and cargo. This will accordingly lower our topline and earnings estimates for FY13/FY14/FY15 by 2%/1%/1% and 35%/10%/10% respectively. In view of the tough market conditions and yields looking unlikely to turn positive, we are pegging our P/B multiplier to 0.9x from 1x earlier, which reduces our FV from SGD11.67 to SGD10.39. We downgrade SIA to a NEUTRAL from TRADING BUY as we had previously anticipated an upside surprise in 2QFY13.

DMG Research See important disclosures at the end of this publication 5

6 November 2012

Starhub: 9MFY12 Results Review: A Starry Quarter (NEUTRAL, S$3.65, TP: S$3.40) Singapore Research (+65 6533 0718, research@sg.oskgroup.com) Starhub posted a fairly strong quarter as opex fell faster than expected on subdued revenue after it renegotiated interconnect rates. We expect the 4Q12 numbers to be weaker due to the full impact of the iPhone5 and the typical seasonal boost in A&P. We tweak up our forecasts by a marginal 2% for FY12/13 after adjusting our traffic cost assumptions, with FV rising to SGD3.40 from SGD3.30 based on 8.0% WACC. Starhub remains our preferred exposure to the sector for its capital management headroom and robust earnings. An expected 5 cents/share quarterly dividend was declared, in line with the guidance for FY12. Broadly in line. Although 9MFY12 annualised results were some 6% above our and consensus expectations, we consider Starhubs numbers in line as we see a weaker Dec quarter on rising subscriber acquisition cost (SAC) and A&P from the full three-month impact of the iPhone5, for which there is strong pent-up demand. The q-o-q and y-o-y dip in mobile revenue was more than offset by falling traffic and content costs post-Euro 2012, which lifted EBITDA margin to 34% in 3Q12 - the highest since 3Q09. Lower interconnect/outbound revenue. The renegotiation with its partners for lower interconnect rates and weaker roaming revenue led to the slide in postpaid ARPU q-o-q, despite the strong net-adds of 17k. Its prepaid base continued to shrink although management believes this has bottomed. Excluding the interconnect adjustments, mobile revenue would have tracked the 2% growth run-rate seen in 1HFY12. Data usage poised to accelerate. Despite being able to only monetise about 20% of its base that utilises over 2GB of data/month, Starhub is confident of capturing stronger revenue going forward with greater LTE adoption and higher data usage on smartphones. According to Starhub, data usage per subscriber has effectively doubled since the iPhones introduction in 2009. To stoke LTE demand, Starhub and M1 have extended the promotion periods on their LTE plans to Dec 31 2013 from March 2013. 4Q capex to surge. Starhub will book higher capex from LTE in the final quarter and has maintained its capex/sales guidance of 11% for the full year. This would imply a near doubling of capex q-o-q. BPL. Starhub did not reveal its intentions in relation to BPL, highlighting that talks between Singtel and FAPL have yet to be concluded. We do not expect Starhub to vie for BPL although Singtel has inked the content on a non-exclusive basis. It expects pay-TV churn to rise going forward with the opening of some of its content, but the availability of content on the OTT (over the top) platform should mitigate churn.

DMG Research See important disclosures at the end of this publication 6

6 November 2012

INSIDER TRADES HIGHLIGHT FOR 5 Nov 12

DMG Research See important disclosures at the end of this publication 7

6 November 2012

DIARY OF EVENTS

5-Nov US Data US Data

6-Nov

7-Nov US Data MBA Mortgage Applications (Nov 2)

8-Nov US Data Initial Jobless Claims (Nov 3) Continuing Claims (Oct 27)

9-Nov US Data

SG Data

SG Data

SG Data Automobile COE Open Bid Cat A (Nov 7) Automobile COE Open Bid Cat B (Nov 7) Automobile COE Open Bid Cat E (Nov 7)

SG Data

SG Data

SG Results SembCorp Marine Q3 12

SG Results

SG Results United Overseas Bank Ltd Q3 12 ST Engrg Q3 12

SG Results Noble Group Ltd Q3 12

SG Results SembCorp Industries Q3 12 OCBC Bank Ltd Q3 12 Wilmar International LTd Q3 12 16-Nov US Data

12-Nov US Data US Data

13-Nov

14-Nov US Data MBA Mortgage Applications (Nov 9)

15-Nov US Data Initial Jobless Claims (Nov 10) Continuing Claims (Nov 3)

SG Data

SG Data

SG Data

SG Data Retail Sales Ex Auto (YOY) - Sep Retail Sales (YOY) - Sep Retail Sales (MOM) sa - Sep

SG Data

SG Results Comfort Delgro Q3 12 Genting Singapore PLC Q3 12 Golden Agri-Resources Ltd Q3 12

SG Results

SG Results Olam International Ltd Q1 13 City Development LTd Q3 12 Singapore Telecommunications Q2 13

SG Results

SG Results Fraser & Neave Ltd Y 12

19-Nov US Data US Data

20-Nov

21-Nov US Data MBA Mortgage Applications (Nov 16)

22-Nov US Data Initial Jobless Claims (Nov 17) Continuing Claims (Nov 10)

23-Nov US Data

SG Data

SG Data

SG Data Automobile COE Open Bid Cat A (Nov 21) Automobile COE Open Bid Cat B (Nov 21) Automobile COE Open Bid Cat E (Nov 21)

SG Data

SG Data

SG Results

SG Results

SG Results

SG Results

SG Results

DMG Research See important disclosures at the end of this publication 8

6 November 2012
DMG & Partners Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/- 10% over the next 12 months Take Profit: Target price has been attained. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage DISCLAIMERS This research is issued by DMG & Partners Research Pte Ltd and it is for general distribution only. It does not have any regard to the specific investment objectives, financial situation and particular needs of any specific recipient of this research report. You should independently evaluate particular investments and consult an independent financial adviser before making any investments or entering into any transaction in relation to any securities or investment instruments mentioned in this report. The information contained herein has been obtained from sources we believed to be reliable but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Opinions and views expressed in this report are subject to change without notice. This report does not constitute or form part of any offer or solicitation of any offer to buy or sell any securities. DMG & Partners Research Pte Ltd is a wholly owned subsidiary of DMG & Partners Securities Pte Ltd, a joint venture between OSK Investment Bank Berhad and Deutsche Asia Pacific Holdings Pte Ltd (a subsidiary of Deutsche Bank Group). DMG & Partners Securities Pte Ltd is a Member of the Singapore Exchange Securities Trading Limited. DMG & Partners Securities Pte Ltd and their associates, directors, and/or employees may have positions in, and may effect transactions in the securities covered in the report, and may also perform or seek to perform broking and other corporate finance related services for the corporations whose securities are covered in the report. As of the day before 6 November 2012, DMG & Partners Securities Pte Ltd and its subsidiaries, including DMG & Partners Research Pte Ltd, do not have proprietary positions in the subject companies, except for: a) Nil b) Nil As of the day before 6 November 2012, none of the analysts who covered the stock in this report has an interest in the subject companies covered in this report, except for: Analyst Company a) Nil b) Nil DMG & Partners Research Pte. Ltd. (Reg. No. 200808705N) Kuala Lumpur
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DMG Research See important disclosures at the end of this publication 9