Singapore economy & sectors to watch. PM Lee Hsien Loong started the National Day Message set in Bishan-Ang Mo Kio Park on a subdued note. With all the major headwinds he noted at the start of the speech, it is not surprising that Singapore's economy dipped by 0.7% QoQ in Q2, led by waning global demand for electronics. It also didn't help that tourism-related services, including hotels, restaurants and the integrated resorts (IRs), have started to see some slowdown, after growing at a blistering pace the past few quarters. The biggest quarterly falls came from accommodation and food services (- 5.8%), and "other services" (-7.5%). The latter category includes contributions from the integrated resorts.

This fall is unsurprising, given the weak global conditions coupled with the strengthening Singdollar. In fact, I have sold out of my long-standing position in CDL Hospitality Trusts a month back for my Model Portfolio, after the stock gained 20+% YTD. I still think that the sector still has legs, albeit 'shorter' ones compared to a year or two back. There is still a lack of hotel rooms in Singapore and the listing of Ascendas Hospitality Trust and Far East Hospitality Trust will likely draw further interest in the sector. Singapore looks on track to hit this year's target of 13.5-14.5m visitor arrivals and $23-24 billion in tourism receipts, led by new attractions like Gardens by the Bay and Marine Life Park.

CDL Hospitality Trusts (BUY, TP S$2.20)

Although CDL-HT experienced a growth of 5.9% YoY in NPI in 2Q12, it is mainly attributable to Orchard Hotel Shopping Arcade and the newly acquired Studio M Hotel. Stripping these two items, NPI for the remaining four hotels grew at a lower rate of c.4% (after stripping the one-off property tax refund). This is possibly a result of lower corporate spending amid concerns over the European debt crisis during 2Q12. Going forward, as tourism in Singapore continues to remain robust, together with the impeccable management skills of CDL-HT and the ability to tap on potential pipeline of assets from both M&C and CDL, we expect CDL-HT's performance will continue to remain solid. Given limited additional hotel supply in the coming years together with a growing range of new attractions and strong event calendar in 2012, CDL-HT is well positioned to benefit from this stable demand. Given the bright prospect in the tourism industry of Singapore, we maintain our BUY call on CDL-HT with a DDM based (COE: 8.6%, terminal growth: 2.0%) TP of S$2.20. CDL-HT currently offers a forecasted FY12/13 yield of 5.9% and 6.4%; while trading at 4.8% spread vs the pre-crisis mean of 2.6%, our TP represents a spread of 4.2%.

One bright spot' is the transport logistics sector. This is led by the two largest rig builders ' Keppel Corp and Sembcorp Marine, which have collectively raked in over S$16 billion in orders year-to-date. Over the past week, both of them pulled in over US$8b worth of deals from Sete Brasil, while Keppel won another US$950m from Petrobras. The solid orders will have a positive impact on rig service providers like SBI Offshore, which I believe will see very strong growth ahead.

SBI Offshore (BUY, TP S$0.32)

SBI's 1H results came in below our expectations, dipping slightly into the red. Revenue fell 34.1% YoY to US$3.3m as sales generated by RBV Energy (50% owned JV), amounting to US$3.2m can no longer be booked under the group level due to a change in accounting policy. Profitability was also impacted by the delay in commission recognition for its Aker drilling equipment sales. However, we remain upbeat over the group's 2H performance as we expect them to complete the turnkey tender rig project ahead of the schedule, booking US$15m to US$20m in 2H of FY12. Furthermore, driven by strong demand from Sembcorp Marine's big contract wins, we expect the group's drilling equipment packages and other offshore equipments to remain robust. BUY with a TP of S$0.32, based on 9.9x industry average FY12 P/E.

My Model Portfolio popped up 1.2%, outpacing both the STI and FSTS, largely on the back of Ezion Holdings and OSIM International. Their stock prices surged 6-7% on the back of positive newsflow from their respective sectors. The Offshore & Marine sector was lifted with big multi-billion dollar wins by Keppel Corp and Sembcorp Marine, which lent a boost to Ezion. We have argued that it remained cheap despite the strong performance over the past 10 months, and we have recently upgraded the TP to S$1.37. As for OSIM, it also looks attractive compared to some of the regional consumer plays, many of which have gone up by over 20% this year on the back of M&A and improving sentiment, particularly the staples.

Source: OSK