CitySpring’s earnings up by 33% YoY to $70.6m

Event
CitySpring achieved group cash earnings (less MI) of $70.6m for FY Mar11 (up 33% YoY), beating our expectations. Distribution per unit (DPU) of 1.05 cent for 4QFY Mar11 was declared. Although the DPU guidance for FY Mar12F was maintained at 4.20 cents, the outcome of the capital structure review to be announced by September 2011 may alter the DPU plan. Nonetheless, we believe the risk of a DPU reduction has been priced in and the selling wave is over. Upgrade to HOLD with target price unchanged at $0.54.

Our View
CitySpring generated higher cash earnings mainly due to the higher town gas selling prices (tariff increases) and sales volume at City Gas. SingSpring and Basslink also performed within expectations. Overall, the cash earnings of these three businesses remained strong. CitySpring and City Gas have obtained commitments from DBS Bank to refinance their respective loans of $142m and $128m, with a corresponding extension of maturity from August 2011 to August 2014 and from February 2012 to February 2014. This suggests an amount close to 70% of the group’s total borrowings will mature in 2014 and 2015. A capital injection is clearly needed to provide long‐term financial flexibility for the group.

Action & Recommendation
We believe the selling pressure that started last November is over as the market assimilates the prospect for a capital injection. We upgrade our stock recommendation to HOLD as we await the results of the capital structure review which will be completed by September 2011. Our DCF‐
derived target price is maintained at $0.54.