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SEE APPENDIX I FOR IMPORTANT DISCLOSURES AND ANALYST CERTIFICATIONSCo. Reg No: 198700034E

MICA (P) : 090/11/2009

SUNNY SIDE UP Start your day the Kim Eng way

1 September 2011

What’s cookingSingapore Office Sector - Elevated Downside Risks.

The recent market sell-down could be a harbinger of

things to come. There are visible signs of a global

economic slowdown and Singapore looks like it could

be heading into another recession. With ample new

office supply and looming secondary supply, we are of the view that office rents have peaked, with mounting

downside risks. We advise investors to switch out of

the office sector and switch to developers with

diversified exposures. We are downgrading SingLand

to SELL (TP: $4.89) and CityDev to HOLD (TP: $11.05),

but maintain BUY on Keppel Land and CapitaLand

with target prices of $4.05 and $3.56 respectively.

[email protected]

Hot stockAmtek Engineering (AMTK SP, $0.665, NOT RATED) –

This could be an opportunity to buy Amtek cheaply, if

signals from major shareholder Standard Chartered

Private Equity are to be believed. The fund bought 9m

shares in Jun 2011 at close to a dollar. With the stock

now trading at a 30% discount to SCPE’s purchases

and nearly half the IPO price, Amtek’s single digit

valuations and 8% yield do look tasty!

[email protected]

Overnight market snapshotsDow Jones 11,613.53 53.6

Nasdaq 2,579.46 3.4

FTSE 100 5,394.53 125.9

CAC 40 3,256.76 97.0

DAX Index 5,784.85 140.9

Top news in bite-sized piecesOVERNIGHT…

US stocks closed higher on Wednesday, as the

US reported growth in factory orders that

exceeded projections, while a private report

showed that American business activity topped

forecasts. The Dow ended up 53.58 points,pushing the index into the black for the year.

LOCAL…

Government to ensure steady supply of office

space. Singapore Deputy Prime Minister Tharman

Shanmugaratnam said the government will make

sure prime office space, and commercial space in

general stays competitive. He noted that Grade A

office rents are still about 45% cheaper than the

equivalent in Hong Kong and 25% cheaper thanthat in Tokyo. “And we have to keep it that way,”

he said.

Platinum privileges…Meet the CFO – China Animal Healthcare

(1 September 2011): China Animal Healthcare is a

manufacturer of three out the four compulsory

vaccines under the requirements of the Ministry

of Agriculture of China. We expect its vaccine

business to grow from strength to strength. HearCFO Edwin Goh talk about the prospects for the

company and its goal to explore new growth

opportunities. 1-2pm. 39F Boardroom, Suntec

Tower 2. Please register for the session through

your trading representative.

Kim Eng Research Portal: This is part of our

efforts to better engage YOU, our valued client.

Everything is just a click away. Get actionable

trading ideas each day. It’s even iPhone friendly.Free public access for now, so mark down this site

and share the joy with your friends!

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MORE TO DIGEST

Wilmar International (WIL SP) – Fails in Proserpine bid in Australia

Previous day closing price: $5.30

Recommendation – HOLD (maintained)

Target price – $5.31 (maintained)

Wilmar’s Australian sugar subsidiary, Sucrogen, has been unable to secure the necessary level of

support from Proserpine’s members to enable it to purchase its assets. Wilmar needed 75% of

PCSMA members who voted needed to vote in favour of Sucrogen’s offer. Wilmar came close,

with 70% of the vote secured. In June, Sucrogen entered into an agreement to buy the business

assets for A$115m. The vote failed despite Proserpine’s board recommendation and regulator

approval secured. Sucrogen alluded that there were other interested parties that may have

disrupted the transaction.

The purchase of Proserpine would have increased Sucrogen’s milling capacity by about 2m tonnesto a total of 17m tonnes, and increase raw sugar production by about 10 per cent, to 2.2m tonnes.

While this is a setback, we do not expect the deal to have a significant impact on Wilmar’s large

earnings base. Overall, the positive aspect is evident in the high level of competition to secure

such assets, and for soft commodities and agri-businesses in general. This bodes well for Wilmar’s

prospects. After a volatile ride, Wilmar’s share price has recovered to our target price of $5.31. We

maintain our Hold [email protected]

Year End Dec 31 2009 2010 2011F 2012F 2013F

Sales (US$ m) 23,885.1 30,377.5 36,539.9 38,528.7 40,100.4

Pre-tax (US$ m) 2,294.4 1,644.2 2,066.7 2,630.8 3,140.3

Net profit (US$ m) 1,882.0 1,324.0 1,658.1 2,122.5 2,560.6

EPS (US cts) 29.5 20.7 25.9 33.2 40.0

EPS growth (%) 22.9 (29.7) 25.1 28.0 20.6

PER (x) 14.9 21.1 16.9 13.2 10.9

EV/EBITDA (x) 13.3 19.4 16.1 12.3 10.2

Yield (%) 1.8 1.3 2.2 2.3 1.9

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WHAT’S COOKING Singapore Office Sector

Analyst: Wilson LIEW 65-64321454 [email protected]

The recent market sell-down could be a harbinger of things to come. There are visible signs of a

global economic slowdown and Singapore looks like it could be heading into another recession.

With ample new office supply and looming secondary supply, we are of the view that officerents have peaked, with mounting downside risks. We advise investors to switch out of the

office sector and switch to developers with diversified exposures.

Jittery markets a harbinger of things to come?

The Eurozone debt woes have continued to plague on, with some economists citing that the risks

that the bloc may eventually split have elevated. Things are not looking rosy in the U.S. either, as it

gets mired in its own debt crisis. As for Singapore, the government has also cut its 2011 GDP

forecast from 5-7% growth to 5-6%, led by a weakening manufacturing sector. Demand for office

space is closely tied with business sentiments and economic confidence. It can be shown that on a

historical basis, if the quarterly GDP YoY growth rates decline by more than 5 ppts over two

consecutive quarters, this heralds an impending office sector downturn. In 2Q11, Singapore’s GDP

grew by a mere 0.9% YoY compared to the 9.3% YoY growth for 1Q11, which may not bode well

for the office sector.

Buoyant office leasing activities are over

According to Jones Lang Lasalle, average prime office rents surged 31% to $10.15 psf in 2Q11 from

a recent trough of $7.75 psf in 1Q10. Much of the leasing activities came in a busy 12-month

period which saw bulk pre-commitments from major financial institutions and MNCs for space at

the new International Grade A developments such as MBFC and Ocean Financial Centre. Thestrong office demand came at a time when the Singapore economy rebounded strongly, coinciding

with a tight office market as the new developments were still under construction. However, with

most of the bulk leases already signed, momentum started to wane in 2Q11. We think that with

the looming economic headwinds, office rents have already peaked.

Older developments could lead the downturn

While Singapore is likely to remain a desired destination for international companies as occupation

costs remain at a significant discount to our closest competitor Hong Kong, prime Grade A rents

could see a correction of about 10% by end 2012 to $9.60 psf, and $12.15 psf for the International

Grade A category. Prime Grade B buildings may see greater downside pressure, considering

increased competition from alternative supply, such as business parks, secondary space, and

perhaps even the return of “shadow space”.

Downgrading office landlords, prefer diversified developers

We are downgrading Singapore Land to SELL (TP: $4.89), and would avoid other office-biased

landlords, such as OUE (unrated). At this juncture, we prefer developers with more business

diversification. We are maintaining our BUY calls on CapitaLand (TP: $3.56) and Keppel Land (TP:

$4.05) although on lower valuations due to their office exposures. We are downgrading City

Developments Limited to a HOLD on valuation grounds (TP: $11.05), due mainly to a lower M&Cshare price and a weaker Pound Sterling.

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HOT STOCK Amtek Engineering

Analyst: Gregory YAP 65-64321450 [email protected]

Up-to-date in 60 secondsSold down! Amtek is now trading at a sharp

discount to its IPO price in Dec 2010 followingthe market selldown and share sales by Capital

Group and Temasek Holdings. Today, Amtek is

trading at just 7x historical EPS and 2x book

compared to 27x historical EPS and 4x book at

the time of the IPO. Further, it has declared a

S$0.055 per share dividend (55% of FYJun11

earnings), which would yield an attractive 8%.

Our viewEarnings below consensus... Amtek posted a

109% jump in FY11 earnings to US$45.2m (FY10

earnings included US$13m in exceptional

charges for the closure of overseas factories,

among others). Excluding the exceptionals, we

estimate core earnings were 20% below

consensus. Gross margin was also weaker due to

the stronger US$ and higher raw material costs.

…but strong cashflow. However, it generated

positive free cashflow of US$30m during the

year that saw net gearing reduce from 0.9x in

FY10 to just 0.1x. It also ringfenced 55% of earnings for dividends, inline with its 50% policy.

With only US$20-25m in capex expected

annually, future dividends should be secure.

Net purchases from major shareholders.

Capital Group sold 7.6m shares in Aug, which

may have contributed to the share price malaise.

However, we note that Capital has been selling

across the board in recent months, most notably

in stocks such as CapitaMalls Asia and SingPost.

In contrast, long-time shareholder StanChartboosted its stake by 9m shares in June 2011.

That may be the better signal to follow.

Shareholders signalling: Is anyone listening?Capital Group Sold (m) Before (%) After (%)

26-Aug 7.1 7.0% 5.7%

12-Aug 0.5 7.1% 7.0%

Total 7.6

StanChart Pvt Equity Bought (m) Before (%) After (%)

29-Jun 2.2 29.5% 29.9%

27-Jun 0.6 29.4% 29.5%

24-Jun 3.7 28.7% 29.4%

23-Jun 0.2 28.7% 28.7%

22-Jun 1.0 28.5% 28.7%

21-Jun 0.9 28.4% 28.5%

17-Jun 0.5 28.3% 28.4%

Total 9.0

Source: Company

BackgroundProvider of comprehensive end-to-end EMS

solutions that includes product design, metal

stamping, plastic and rubber moulding, product

assembly and other finishing services.

Key ratios…Price-to-earnings: 6.7x Price-to-NTA: 1.9x

Net gearing: 0.1x Return on equity: 32%

Dividend per share / yield: S$0.055 / 8.3%Source: Bloomberg, based on historical data

Everything else…Share price (S$) S$0.665

Issued shares (m) 543.2

Market cap (S$ m) 361.2

Free float (%) 34.1%

Recent fundraising

activities

Dec 2010: IPO at $1.30,

200m vendor shares

Financial YE 30 June

Major shareholders Metcomp Holdings (30.3%)

StanChart Private Equity (29.9%)

Capital Grp (5.7%), Mgt (5.3%)

YTD change -46%

52 week px range S$1.37-0.58Source: Company

Summary Financials

YE June 30 2009 2010 2011 4Q10 4Q11

Sales (US$'m) 624.6 638.0 681.6 164.7 175.8

Pre-tax (US$'m) (0.5) 38.4 59.7 4.9 13.2

Net profit (US$'m) (12.4) 21.7 45.2 0.6 9.6

EPS (US cts) (2.3) 4.0 8.3 0.1 1.8

EPS growth (%) n/a n/a 108.6 n/a 1516

PER (x) n/a 13.9 6.7 n/a n/a

EV/EBITDA (x) 12.5 5.8 3.5 n/a n/aYield (%) - - 8.3% n/a n/a

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APPENDIX I: TERMS FOR PROVISION OF REPORT, DISCLOSURES

AND

DISCLAIMERS

This report, and any electronic access to it, is restricted to and intended only for clients of Kim Eng Research Pte. Ltd. ("KER") or a

related entity to KER (as the case may be) who are institutional investors (for the purposes of both the Singapore Securities and

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IF YOU ARE NOT AN AUTHORISED PERSON OR DO NOT AGREE TO BE BOUND BY THE TERMS AND DISCLAIMERS SET OUT BELOW,

YOU SHOULD DISREGARD THIS REPORT IN ITS ENTIRETY AND LET KER OR ITS RELATED ENTITY (AS RELEVANT) KNOW THAT YOU NO

LONGER WISH TO RECEIVE SUCH REPORTS.

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financial advice, investment advice, trading advice or any other advice. It is not to be construed as a solicitation or an offer to buy

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offerings of any securities, options, stocks or other investment vehicles.

The report has been prepared without regard to the individual financial circumstances, needs or objectives of persons who receive

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herein as authoritative or substitute for the exercise of their own skill and judgment in making any investment or other decision.Readers should independently evaluate particular investments and strategies, and are encouraged to seek the advice of a financial

adviser before making any investment or entering into any transaction in relation to the securities mentioned in this report. The

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Additional information on mentioned securities is available on request.

Jurisdiction Specific Additional Disclaimers:

THIS RESEARCH REPORT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT, MAY NOT BE DISTRIBUTED TO THE PRESS OR OTHER MEDIA,

AND MAY NOT BE REPRODUCED IN ANY FORM AND MAY NOT BE TAKEN OR TRANSMITTED INTO THE REPUBLIC OF KOREA, OR

PROVIDED OR TRANSMITTED TO ANY KOREAN PERSON. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A

VIOLATION OF SECURITIES LAWS IN THE REPUBLIC OF KOREA. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE

FOREGOING LIMITATIONS.

THIS RESEARCH REPORT IS STRICTLY CONFIDENTIAL TO THE RECIPIENT, MAY NOT BE DISTRIBUTED TO THE PRESS OR OTHER MEDIA,

AND MAY NOT BE REPRODUCED IN ANY FORM AND MAY NOT BE TAKEN OR TRANSMITTED INTO MALAYSIA OR PROVIDED OR

TRANSMITTED TO ANY MALAYSIAN PERSON. FAILURE TO COMPLY WITH THIS RESTRICTION MAY CONSTITUTE A VIOLATION OF

SECURITIES LAWS IN MALAYSIA. BY ACCEPTING THIS REPORT, YOU AGREE TO BE BOUND BY THE FOREGOING LIMITATIONS.

Without prejudice to the foregoing, the reader is to note that additional disclaimers, warnings or qualifications may apply if the

reader is receiving or accessing this report in or from other than Singapore.

As of 1 September 2011, Kim Eng Research Pte. Ltd. and the covering analyst do not have any interest in the mentioned companies.

Analyst Certification:

The views expressed in this research report accurately reflect the analyst's personal views about any and all of the subject

securities or issuers; and no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the

specific recommendations or views expressed in the report.

© 2011 Kim Eng Research Pte Ltd. All rights reserved. Except as specifically permitted, no part of this presentation may be

reproduced or distributed in any manner without the prior written permission of Kim Eng Research Pte. Ltd. Kim Eng Research Pte.

Ltd. accepts no liability whatsoever for the actions of third parties in this respect.

Stephanie Wong

CEO, Kim Eng Research

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