Be very selective on longs

Singapore bourse: Yesterday's price action on the ST Index was
not
indicative of market mood. Market breadth was extremely low with
2.44
stocks declining for every 1 stock gaining. The ST Index had declined
to a
low of 2473, within our stated support at 2470-2475 but quickly
reversed
its losses in afternoon as a handful of index stocks were pushed
into
positive territory. Sing Tel for example was pushed up form $2.62 to
near
day's high of 2.67. The stock however faces significant
resistance at
$2.70.Likewise DBS and SIA rebounded in afternoon session and were the
main
reason behind the index positive close at 2502. We still remain
cautious of
the Singapore bourse and still maintain our sell into
strength
recommendation as the index approaches 2520. At this stage, investors
need
to be extremely selective. Among index stocks, SIA and SPH are the
two
stocks which are still trending strongly and offer decent upside
potential.
SIA could head up towards $15.50 while SPH which had emerged from a
strong
base at $4.20-4.26 could head up towards $4.65. We do not see
any
significant upside for small caps in general and at best they could
base
build while the index heads higher. Interest could also be
restricted to
new issues.




Best Regards

K Ajith

64195411

United Food's (UFood) -Sign of Recovery

United Food's (UFood) FY05 results were marginally below our expectation.
Revenue grew 15% yoy to Rmb3.3b, driven by Soybean Processing. But net
profit declined 25% yoy to Rmb196m. 4Q05 net profit also fell 8.6% yoy but
grew 14% qoq. A final dividend of Rmb0.08 was declared, implying a 33% payout
ratio and a respectable 5% yield.
Quarterly recovery from most sectors in 4Q05. Animal Feed grew 40% qoq
while Processed Meat and Healthcare Products each rose over 20%. We believe
this was due to the sufficient pig supply, favourable pig prices and recovery in
pig rearing.
Signs of recovery in FY06. Pig supply continues to be sufficient, which will support
stable pig prices in 1H06. Price of animal feed and its major ingredient, soybean
meal, also had a nice rebound in Jan 06. We feel positive about the contribution
from two potential projects although they are still conceptual.
Valuation. The stock trades at an undemanding 6.3x FY05 PE and 5.6x FY06 PE,
and a 45% discount to its net asset value of Rmb1.94/share. The decent dividend
yield could support the share price. Potential risks include higher-than-expected
pig prices and the avian flu. We cut our FY06 net profit forecast by 8% to reflect
the uncertainties ahead. However, we believe the downside has largely been
factored in and thus raise our target price to $0.28 (7x FY06 PE, slightly lower
than the average PE of China stocks due to the uncertainties). Given the attractive
dividend yield, improving industrial environment, and reasonable PE range,
we upgrade the stock from HOLD to BUY.

Singapore market

Singapore market- The Singapore bourse has been relatively resilient as
the
index rose past 2500. Small cap stocks have also lost some of their
upward
momentum though most of the top tier china related stocks are still in
focus. We view support for the ST Index at 2470-2467 and then 2450. So
long
as the index manges to hold above the first support zone at 2470-2475,
we
are unlikely to see any significant sell-off. There is interim
resistance
for the ST index near 2520, which is the zone of a prior gap in January
2000.
There are however several signs of bearish divergences. Market volume
and
value for the month of March has been significant;y lower compared to
previous peak levels in February. Yesterday's market volume at 1.329
billion was significantly lower than the 2 billion transacted in
February
when the ST index was at 2450. This suggests that market players are
being
increasingly selective. Stock selection as such is critical at this
stage
and we prefer to look at stocks which appear to be emerging from
consolidation patterns.We still like the oil and gas sector and think
that
they represent low entry risk as most of the stocks in the sector
appear to
be close to breaking out of consolidation phases. Alternatively
investors
can look at high dividend yield stocks.


1. SembCorp Marine- The company announced today that it had secured a
contract worth US$480m from Petromena. Daily chart shows the stock
consolidating within a symmetrical triangle formation. Key resistance
is at
$3.00 has been taken out and the stock looks likely to head towards
next
resistance at $3.20.Recommend accumulating the stock at $3.04.

2. Pearl Energy - Price chart shows an unusually bullish formation as
the
stock is consolidating in a tight range near July- August 2005 highs.
This suggests the potential of a sharp breakout once the stock breaks
out
of the consolidated pattern. Transacted volume however is low and as
such
we would only advice recommend accumulating gradually. On the upside,
the
stock could rise by approximately 30 cents towards $2.30 once the stock
rises above $2.00.

Good Examples of Single Bottom or Cup without handle

From William J O Neil - How to make Money in Stocks - Investing like a Professional - Page 162

China stocks sizzle again as ST Index crosses 2,500

Published March 6, 2006
BT
Market Close

By R SIVANITHY
A NEW high for the Straits Times Index thanks to DBS, UOB and Singapore Telecom and continued enthusiasm for China stocks led by China Fishery, China Sun and China Life were the main features of an active but mainly mixed day for the local stock market today.


The session actually got off to a slow start with the ST Index hovering uncertainly below the 2,500 level but once Japan finished convincingly higher and Europe opened firmer, the index took off, eventually closing 19.45 points higher at 2,512.88.

UOB's 40-cent rise to $15.40, DBS's 10-cent rise to $16.30 and SingTel's three-cent rise to $2.68 accounted for about 12 out of the 19 points. The broad market, however, was not as firm as the index's movement suggested - excluding warrants, bonds and debentures, the advance-decline score was 173-168.

The China segment was led by China Fishery, which shot up 29 cents to $3.04. Since listing on Jan 26 at $1.25, the counter has now gained 143 per cent in six weeks, making it the market's best performer.

There were no fresh corporate developments to account for China Fishery's latest rise - in response to a Singapore Exchange query last week, the company said it did not know of any reason for the interest in its shares - and neither were there any new announcements to help propel the other China stocks higher.

As a result, some brokers expressed concern at the inflating of a huge speculative bubble in these counters. As one said: 'We have replaced speculative Malaysian stocks on Clob International with speculative China stocks.'

Sources also pointed out that brokers are now making their rounds of China stocks, trying to find value in those that may not have risen yet.

Turnover in many China stocks was heavy - China Sun, for instance, traded 55 million units while China Dairy traded 25 million shares. Excluding foreign currency issues, overall turnover was 1.32 billion units worth $1.2 billion, in line with recent averages.

SingTel's rise was probably in response to news of the government's Next Generation National Infocomm Infrastructure initiatives, which were announced last week and aim to have every household in Singapore broadband-equipped by 2008.

Citigroup said this would require higher capital expenditure but believes commercial considerations will outweigh these costs. 'Consequently, we see any stock price weakness on these misplaced concerns as a great opportunity to be buying StarHub and SingTel,' said Citigroup.

Among the losers was Parkway Holdings, which dropped five cents to $2.33. Citigroup has a target price of $2.82 for the healthcare provider and today pondered in its daily notes Parkway's new growth initiatives in China, Vietnam and India following a meeting with Parkway's management.

'The board is committed to capital management through good dividends and fund raising to expand, including a Reit if necessary,' said Citigroup. 'In the medium term, management conceded it may retain capital to fund future growth.'

Singapore NOL JV Gets India Rail License

Friday March 3, 6:49 PM
UPDATE: Singapore NOL JV Gets India Rail License

SINGAPORE (Dow Jones)--Singapore's Neptune Orient Lines Ltd. (N03.SG), the world's sixth biggest container shipping company by volume, Friday said its joint venture has received approval in principle from the Indian government to provide freight rail services there.

The joint venture, called India Infrastructure and Logistics Pvt Ltd, received a "Category 1" license which enables it to run unlimited trains on all India routes, for an initial period of 20 years which is extendable by another 10 years, NOL said.

NOL said IIL expects to invest between US$60 million and US$70 million over the next two years on the Indian rail operations, which it will initially run between the country's main port of Mumbai and the capital, New Delhi.

NOL has "about a three-quarter" stake in ILL, with Hindustan Infrastructure Projects & Engineering Pvt Ltd owning the rest, a NOL spokesman said. Hindustan Infrastructure is controlled by Indian telecom tycoon Rajeev Chandrasekhar.

"We have considerable experience operating freight rail services. Our APL subsidiary pioneered double-stack trains in the U.S. in 1984. Although the U.S. investment was sold in 1999, we retain considerable managerial and IT expertise in this business," NOL Group Deputy President Cedric Foo said in a statement.

"By investing in landside facilities, we will complement and differentiate our liner services in India and at the same time develop a new stream of logistics income for the Group," he said.

NOL said it intends to invest in "chokepoints," or areas where infrastructure is lacking or congested and the movement of cargo slowed, to offer seamless end-to-end transportation.

Operating in India's growing rail freight industry may help NOL partly offset an expected decline in freight rates as more ships ply the key routes in years ahead.

At the fourth-quarter results briefing on Feb. 28, NOL Chief Executive David Lim said the company planned to partly counter the cyclical downturn in shipping by strengthening the links between its main container liner division and its much smaller logistics business.

NOL reported a 54% on-year fall in fourth-quarter net profit to US$164 million from US$355 million, reflecting higher fuel costs and a $103 million tax writeback in the year-earlier period.

In the fourth quarter, the APL, or shipping, business posted a 24% fall in core earnings before interest and tax to $199 million from $262 million a year earlier.

APL's costs per FEU, or 40-feet equivalent unit, rose 7% on year in 2005 due to higher bunker expenses and inland transportation costs in the U.S., NOL said.

EBIT from the logistics business in the fourth quarter, meanwhile, doubled to $14 million from $7 million in the year-ago period, reflecting higher profit margins.

Ferrochina -Strong Results

03/01/06 02:52 PM Subject: Ferrochina -
Strong results, but the best is yet to be!





FERROCHINA LTD (FRC:
S$0.62)
BUY (Upgrade)
Strong results, but the best is yet to be !

Net profit of RMB 146m is 3.6% below our forecast of RMB 151.6m.
Excluding
the IPO expense, net profit of RMB 159.2m is 5% above our forecast.
The
excellent performance was due to contribution from second production
line
which started in June 2005. Raw material price was volatile,
leading to
lower margins. Outlook is very positive because of acquisition
of
Everbright and potential acquisitions of XingYu and XingHai.
Profit at
existing XingDao operations will balloon after renovation of line
one.
Upgrade to BUY with a revised 12-month price target of S$1.10,
based on
comparative valuation vis-à-vis its Taiwanese competitors.

(I) Strong earnings growth from more efficient second production line
and
favourable price trend

· The 35% growth in net profit to RMB 146.1m in 2005 was due to
increased output of galvanized steel despite lower profit margin per
ton.

· Output increased following the completion of a second line which
started in June 2005. Operational efficiency at the second line was
superior to the first because of more and better machineries.

· Margins declined despite 4% higher average selling price in 2005.
This is because of price volatility in raw material, namely Hot and
Cold
Steel Coils.

· Price of hot rolled coil during 2005 declined from a peak of RMB
6,000 / MT in March to RMB 3500 / MT in September, and RMB 3000 / MT in
December. The finished product, Galvanized Steel declined from a peak
of
RMB 7200 / MT in March to RMB 5350 / MT in September and RMB 4,000 / MT
in
December. This spread between raw material and finished product
increased
from RMB 1000 to RMB 1850, and then fall back to RMB 1000.

· The above situation is in China. In the international market,
prices
of Galvanized Steel have fallen less steeply than that in China, partly
because overseas demand for Galvanized Steel has increased in the
post-hurricane construction boom in US, post earthquake rebuilding in
India
and Pakistan, and post-tsunami recovery in Thailand, Sri Lanka and
Indonesia.

(II) Outlook is superb: clear management strategy for growth is
applauded

(a) Existing business at XingDao

· Management disclosed that order book is filled for 1Q06 at higher
selling prices. Production efficiency has reached 100% for 1Q06, up
from
90% in 4Q05. Orders for 2Q06 are strong, but management is holding out
for
higher prices. This is due to strong overseas interest, particularly in
the
US. 1H06 net profit is expected to be significantly stronger than that
in
1H05. Management is focusing its marketing efforts in the international
market where prices of Galvanized Steel have fallen less than that in
China.

· Ferro China is building a cutting and slitting workshop, new
warehouse and docking berth facilities to complement existing
operations.
Upon completion in 3Q06, savings in transportation costs, and bringing
the
existing cutting service in-house, will add at least RMB 50 per MT of
output to net profit.

· Production line one will be upgraded to produce Galvanized Steel
coils with expanded product applications, including automobile and home
appliance industry. Hitherto, line one supplies only to the
construction
industry, although line two has expanded the product range to include
steel
for the construction of grain-storage silos. Line One will be shut for
three months in 3Q06.

(b) Purchase of Everbright

· We were wrong in our earlier assessment of Everbright. (See
report
dated 18 January 2006).

· We have underestimated the tremendous growth potential of
Everbright.
We have earlier assumed that the 6 Slitting and Cutting Lines, 1
Pickling
Line and 1 Cold Reversing Mill were all that the plant at Changshu
could
offer. Subsequently, we learn that 1 Continual Hot dip Galvanizing Line
would be added in 2Q06, 1 Color-coating Line in 3Q2006, 2 Cold
Reversing
Mills and 2 Continual Hot-dip Galvanizing lines in 2007. The existing
Pickling Line was only completed in Oct 2005 and the Cold Reversing
Mill in
July 2005. Hence, the reported RMB 155m net profit for FY2005 does not
represent the potential from Everbright.

· We have added our earnings projection for Everbright into
forecast
for Ferro China. The latter will have 35% of Everbright's earnings for
the
last 7 months of 2006, and 25% in 2007 and 2008 (20% if Everbright
successfully goes for public listing in Hong Kong in 2007 as proposed
by an
American investment bank). Everbright has secured investment from
Taiwanese
notebook maker Asustek and car-maker YuLong, as well as secured orders
for
at least 30% of its output from these investors. Margins for Everbright
are
projected to be better than that of XingDao, Ferro's existing sole
business.

(c ) XingYu and XingHai

· We HAVE NOT added projections for FerroChina's potential
investment
in two new steel processing plants, XingYu and XingHai. Construction of
these plants has started and production may start in 2007 or 2008 at
the
latest. We expect Ferro China to announce acquisitions of these two
plants
in 2006. Management has given an assurance that no new Ferro China
shares
would be issued for this acquisition.

· Xinghai has a license to manufacture and sell antisepticised
steel
coil and cold rolled steel coils (full hard); Xingyu has a license to
manufacture and sell cold rolled steel coils (soft). The shareholders
of
Xinghai and Xingyu have granted FerroChina a three year option (till 11
April 2008) to purchase the two companies.

(IV) Valuation and Recommendation

· We upgrade our recommendation to BUY with a 12-month revised
price
target of S$1.10. This is based on a target of 5x forward PE. Such
valuation parameter is calculated on the weighted average of its
Taiwanese
competitors and discount for the disparity in market capitalization and
years of establishment. Consideration has also been taken of the
potential
for equity dilution, arising from the forthcoming issue of preferential
shares.

Tan Khow Siong (65)
6232
3890
khow-siong.tan@dmgaps.com.sg