Raffles Education Corporation: Seeding the clouds. Initiate with BUY

30% growth in FY09F. We are forecasting Raffles Education Corporation (Raffles) to grow its bottomline at a clip of 28% in FY09F. While long-time investors have been used to higher growth trajectories, we think that Raffles will be using this year to refine its operations in its schools. The difficult credit and equity situation will not present them cheap financing opportunities as it had in the past. As such, we think Raffles is unlikely to undergo another bout of major acquisitions that will boost its financials. On a quarterly basis for FY09F, Raffles could face resistance to growth due to slower student recruitment and very minor fee hikes (in the light of the difficult economic situation).

Prime asset overlooked. While the market looks at Oriental University City (OUC) as an outsized investment, we are of the view that it is Raffles' prime asset that will drive growth in the next few years, if run properly. The land bank and its possible plot sales, set up of more private colleges on campus and ready pool of current students to recruit into its own programs hold tremendous potential.

Reduce dividends? We think more investors may opt out of the scrip dividend scheme. Although Raffles has not indicated so, we anticipate that Raffles could reduce its dividends to 0.75 S cents/quarter (vs current 1 S cent/quarter) to preserve more cash. We are assuming that the scrip program will continue indefinitely with a 50% subscription rate. This will translate to about 4-5% dilution every year.

Attractive valuation, initiate with BUY. We are using a PER-type valuation for Raffles as we think that earnings growth will drive its share price. Raffles has traded in a wide spectrum, ranging from ~34-78x in 2007 to its recent 52-week low of ~8x PER during the Oriental Century scandal. Concomitant with the volatile equity market conditions, we think recent lows have primarily factored in the funding needs for its expansion (especially OUC's RMB2b price tag), cloudy sentiments of S-chips, its slowing growth in student numbers and ability to operationally execute well with an enlarged geographical footprint. As such, we peg our valuation to a blended 12x FY09/10F PER, closer to its lower trading band. Our fair value is S$0.60 (46% upside). Initiate with BUY. Dividend yield for FY09F is attractive at ~8% despite our 0.75 S cent/quarter assumptions. Sustained margins that trump our estimates and continued ability to grow student population beyond our forecasts will incentivise us to edge our valuation upwards.

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Technically buy China Sport, Oceanus, Hongxing Sports

China Sports International (CSPORT SP; S$0.10) – BUY

• The stock appears to have built a base above its 30-day SMA and look poised for a move upwards. It could climb to test its last support-turned-resistance at S$0.12-0.13.

• Daily MACD continued to edge higher and so is its RSI. A rise in volume is likely to lend the bulls a hand in lifting the stock.

• Aggressive investors may want to buy now with a stop placed below its 30-day SMA at S$0.085.

China-Sports International Limited is principally engaged in the design, manufacture and sale of sports fashion footwear and the design and sale of sports fashion apparel under their YELl brand.

Oceanus (OCNUS SP; S$0.145) – BUY

• The stock broke out above its resistance trend line on strong volume. More upside is likely to follow in the coming days as buyers pour in.

• Both indicators continue to edge higher. Any weakness towards the support at S$0.12-0.13 is a good level to get in.

• As the momentum is still on the rise, the stock is likely to test the upper resistance at S$0.16-0.165 next. The breakout above this resistance could see the stock climb to try to take out the strong resistance at S$0.195.

Oceanus is a marine aquaculture specialist focusing on large scale; land based industrialised production and sale of premium quality Japanese Abalones. Its principal activities are the research and development, breeding, intensive production and sale of this luxury product.

China Hongxing Sports (CHHS SP; S$0.125) – BUY

• The stock has broken out of its downtrend channel and also its 30-day SMA. There is a good chance that the stock could see a strong run to close the gap at S$0.135-0.14. S$0.155 is the next target if this gap is filled.

• Both indicators are positive at the moment, supporting the view for higher prices ahead. The bullish divergence on its MACD is also a positive sign.

• Buy now with a stop loss place below the trend line at S$0.095.

China Hongxing manufactures its sports footwear at its production facilities in Quanzhou City, China and has a current annual production capacity of approximately 17.9m pairs of sports footwear. The manufacture of sports apparel, sports accessories and a portion of its sports footwear are subcontracted to selected contract manufacturers who meet the quality and design requirements of the Group.

Yanlord Land - Strong contract sales, but stock has outperformed

Outperformed on strong contract sales. Yanlord has outperformed the China developers and FTSE STI Index by 13% and 40% YTD, on the back of a much stronger contract sales YTD. Our latest conversation with management indicated that the group has achieved almost RMB2bn contract sales so far, up 62% YoY and represents 48% of our old estimates. We have therefore increased our FY09 contract sales and earnings estimates up by 40% and 61% respectively.

Leverage and financial flexibility less of a concern. Given the latest project stake sales to GIC and the much improved cash inflow from contract sales, Yanlord's financial flexibility, especially its ability to repay the CB in Feb 2010 should no longer be a concern in our view. Assuming a contract sales of RMB5.9bn this year, we estimate a rather flat gearing of 63% by end 2009.

Momentum is still up, but valuation is a bit stretched. With new upcoming launches in Tianjin and Nanjing in May and July, and continuous encouraging sales in Shanghai, contract sales momentum would still be on the uptrend in our view. However, at S$1.30/share, the stock is trading at 43% discount to our RNAV estimates and 12x FY09 P/E, a slight premium to the S-MID cap China developers in Hong Kong. We re-set our broad trading range to S$1.00 - 1.50 based on our revised estimates, and will start to trim our exposure with another 10% gain from currently level.

We remain Neutral on Yanlord, with Dec-09 price target of S$1.40/share (S$1.10/share previously), based on 40% discount to our RNAV estimates. Our PT translates into 13x/12x FY09E/10E, and 1.1x end-FY09E P/B. Key risk to our rating and price target would include 1) the company's inability to sustain the current run rate of monthly contract sales and as a result miss our RMB 6 billion contract sales forecast; and 2) possible fund-raisings to strengthen its balance sheet further.