SINGAPORE Strategy Update

MITA No. 007/06/2008

15 October 2008 Strategy

Flight to safety

Refinancing woes. Frozen credit markets have raised concerns globally

and central banks are now working together to restore confidence in the
market and to induce banks to resume their lending activity. In light of the
tight credit market, companies that are highly geared and those that face
near term refinancing obligations have come under intense scrutiny. The
key risks facing these companies include the ability to secure refinancing
under present tight credit situation, soaring finance costs in light of rising
LIBOR (Exhibit 1) and widening spreads.

Coupled with economic uncertainty. The deteriorating economic outlook

also raises questions about companies’ abilities to fulfill their loan repayment
obligations. Singapore has slipped into a technical recession, and the
Ministry of Trade and Industry (MTI) has trimmed its growth forecast to
around 3%, from 4%-5% previously (Exhibit 2). The Monetary Authority of
Singapore (MAS) added that “external risks remain on the downside as
the ongoing financial turmoil has presented ‘new uncertainties’ for the
Singapore economy”. Softening demand for products and services, coupled
with pressing inflation, could dampen earnings growth, and in turn,
companies’ abilities to repay their loans.

Companies with healthy cash positions are in a stronger position. In

light of the above, companies with net cash positions or those that have
little short term debt obligations are deemed to be in a stronger position.
Conversely, those with high net gearing ratios, coupled with sizeable short
term debts, are exposed to higher refinancing risk in the near term. Under
our coverage, some of the companies that we favour, and have net cash
positions, include Biosensors Int’l (BUY, S$1.02), Ezra (BUY, S$3.30),
SembCorp Marine (BUY, S$4.98) and Singapore Press Holdings (BUY,
S$5.14). While this is not an exhaustive list, these firms are fairly defensive
in nature and are likely to be able to weather the ongoing turbulence.

Impact of tight credit market more pronounced on Tech, REITS and

Trusts. On the other hand, several companies in the technology sector are
relatively highly geared and operate on thin margins, and this could expose
Research Team them to potential risks in the face of macro headwinds. REITS and Trusts
(65) 6531 9800 are also highly geared, and although most do not require short term
e-mail: info@ocbc-research.com
refinancing, their further growth, which is typically spurred by asset
acquisitions, hinges on their ability to secure debt financing, the terms of
which may not be attractive in light of today’s tight credit market.
Stock Gross Net ST LT ST / LT TIE NTA/ Reporting Rating Fair
Gearing Gearing Debt Debt ratio share Currency value
(m) (m) (x) (x) ($) (S$)
1 Biosensors Int'l 39% Net Cash 0.2 45.2 0.0 37.3 0.08 USD BUY 1.02
2 Ezra 34% Net Cash 81.2 56.1 1.4 3.7 0.68 USD BUY 3.30
3 SembMarine 26% Net Cash 241.0 176.9 1.4 31.3 0.77 SGD BUY 4.98
4 SPH 29% Net Cash 14.5 573.6 0.0 29.4 1.28 SGD BUY 5.14
Source: Company Financials, OIR
TIE = Times Interest Earned

Please refer to the important disclosures at the back of this document.

Strategy Update

Exhibit 1: 12-month Libor rate, Jan 08 – present

4.5

4.0

3.5

%
3.0

2.5

2.0

02/01/2008

02/02/2008

02/03/2008

02/04/2008

02/05/2008

02/06/2008

02/07/2008

02/08/2008

02/09/2008

02/10/2008
Source: Bloomberg

Exhibit 2: Singapore’s Real GDP Growth vs Inflation, 2000 – 2008F

12 7
10 6
8 5
6 4
4 3
2 2
0 1
-2 2000 2001 2002 2003 2004 2005 2006 2007 2008F* 0
-4 -1

Real GDP (%) - LHS CPI (%) - RHS

Source: Bloomberg

*2008 forecasts based on official estimates. Inflation is expected to come in between 6% - 7%.

Page 2 15 October 2008

Strategy Update

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price; Sell = More than 10% downside from the current price.

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Carmen Lee
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Page 3 15 October 2008