Excerpts from latest analyst reports.....


ImageDDS partners: Design Studio CEO Bernard Lim and Mohannad Sweid, CEO of Depa. Picture by Goh Chee Kiong
 

Kim Eng says Design Studio (57 cents) is a multi-bagger in the making; target $1

Analyst: Pauline Lee

Earnings to quadruple
The group’s earnings look on track to quadruple to $50m over the next 3-5 years. By then, we believe it should command a higher PER of at least 10x, which implies a $500m company in the making in terms of market capitalisation! Singapore remains a buoyant revenue segment as it offers potential of near $8.4bn in the hospitality and residential sectors. In addition, the growth potential from overseas could be many times that of Singapore.

Ample value to be unleashed from DDS
While DDS has already won contracts related to the IRs worth $155m, it could tap into another $7.8b-worth of projects to be built in Singapore by 2012. In the Asia Pacific, where there are nearly $9b-worth of hotels and theme parks under development, the management is particularly optimistic about Thailand and Vietnam. With Asia being the key growth driver, it makes good sense for Depa to acquire Design Studio. Conversely, Design Studio could take over DDS given its strong net cash position of $32m.

Downside risk is low
The management assured that the company has minimal exposure to Dubai. There is mainly one uncompleted project - Burj Dubai ($1.3m outstanding), which is secured by letters of credit. Raw material costs are well-contained with fluctuations of less than 5% given its widespread network of suppliers. Collections, which are mostly backed by progress claims, are on schedule.

Image
Pauline Lee's upgraded forecast of Design Studio's performance.

Order book is filling up fast
With the bulk of its order book of $172m to be recognised in FY10, the group may possibly meet our FY10 earnings estimates of $33m even without any contributions from DDS. DDS will continue to drive positive earnings surprises with its tremendous growth potential. Thanks to the improving economies of Asia, the group is in the process of securing more contracts to boost its order book from FY11 onwards.

Still at the early stage of re-rating
Despite its strong growth potential, the stock is deeply undervalued. It is trading at an ex-cash PER of 3.4x (a sharp discount to its peers) and offers a good dividend yield in excess of 5%. Design Studio can also be a cheap alternative to the buoyant property and hospitality sectors in Asia. Growth catalysts are imminent as it explores opportunities in fast-growing markets like China and India. Reiterate Buy.

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OCBC Investment Research has a 'hold' on KS ENERGY ($1.19)

Analyst: Low Pei Han

We are optimistic about the group's medium- to long term outlook after the business consolidation. The distribution business has not recovered after the dramatic fall in oil prices in 2008 but things are looking better with a recovering global economy. Although we have tweaked our FY10 and FY11 earnings estimates, we are keeping our FY09 estimates intact as the consolidation still needs the approval of shareholders which will take place only early next year.

We now peg the distribution business to 9x FY10F earnings (prev. 8x) as the group is now better positioned to be a one-stop distribution centre and its consolidated capabilities is likely to provide greater value-added services to customers. Despite this, the new share issuance lowers our fair value estimate to S$1.20. Maintain
HOLD.



Morgan Stanley downgrades SUNTEC REIT ($1.29) to 'equal weight'
Price target: $1.30


Analysts: Brian Wee & Melissa Bon

ImageSuntec REIT: Price target of $1.30

Investment Thesis: Why EW?
• We downgrade Suntec Reit to Equal-weight, after recent strong price performance of +24% in the last 3 months.
• Implied capital values of Suntec Reit of ~S$1,370 should provide share price support, but we believe it is hard to see capital values, in particular office,recovering soon as the upcoming supply puts a damper on rents and capital appreciation.
• Dividend yield of 6.4% for FY10e looks reasonable compared to 10yr SGS bond yield of 2.5%.

Key Value Drivers
• Singapore-centric – office and retail markets: Suntec REIT offers investors exposure to the Singapore office and retail markets, with assets concentrated in the Marina and Orchard areas. However, with newretail and office supply due for completion in the next 2-3 years, coupled with falling demand, rental renewals will likely be negatively affected by the current recession.

Potential Catalysts
• Upside: Stabilization of office rentals;Positive growth in retail rents; further improvement in credit markets.
• Downside: Office rents continue to fall at a sharp rate; vacancy levels continue to climb despite improving macro-economic conditions. Higher cost of funds.

Risks
• Downside: Loss of a large tenant in office or retail portfolio.
• Upside: Stronger-than-expected recovery in demand limiting downside risk to rents and capital values.


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