Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

21 May 2010 (Market, O&G, Axiata, Hai-O, CIMB, UMW, Kossan; Technical: AirAsia)

Top Story : Market Momentum – Pick and choose

Market Update
- We do not see much good news in the near term and Malaysia appears caught in a downdraft of fear
sparked off by global macroeconomic concerns. The risk of more downside is thus likely to be greater than
the potential for upside.
- Clearly, losers from the strong ringgit have been among the hardest hit, including resources (plantations, oil
& gas and timber), semiconductor, rubber gloves and steel. The GLCs and M&A plays could also slip
further if confidence continues to falter.
- If the FBM KLCI falls as expected by RHBRI’s technical research to the next support level of 1,229, i.e. 6%
lower than current levels, last seen in Oct 2009, 2010-2011 PERs would fall to 14.0x and 12.2x
respectively, from 15.1x and 13.1x currently. We thus see value re-emerging.
- We believe the long-term picture is still intact with sustained economic and corporate earnings growth. We
expect the Government to push forward with liberalisation policies and reduction of subsidies later. M&A
activities are likely to continue in the industrial space, as well as banks and insurance. In addition, we
expect Malaysian corporates to look overseas for new growth opportunities, and especially given their
pricing power have improved with the stronger ringgit.
- Under current volatile market conditions, we highlight that this is an opportunity to pick and choose stocks,
especially those that have fallen hard in the last month such as Notion, Daibochi, Evergreen and Unisem.

Sector Call

Oil & Gas : Fabricators to ride on stronger contract flows in 2H10 Overweight
Sector Update
- The focus on developing deepwater fields over the next six years, led by various oil majors’ participation in
the exploration and development activities in Malaysian waters, would mean increasing demand for
Malaysian maintenance and fabrication works. According to industry sources, Petronas expects to
construct 60 new oil & gas platforms over the period of 2010-15, driven mainly by new deepwater fields
coming onstream.
- We note that the YTD share prices of O&G stocks have underperformed the FBM KLCI index by 7.5%. We
believe this is mainly due to the uninspiring contract awards from Petronas and its PSCs as well as a slew
of negative news flows (i.e. setback in Wah Seong’s bid for Socotherm pipe coating assets and termination
of Kencana’s jv with Global Offshore).
- Nevertheless, we highlight that while sizeable contract awards were still minimal in the Jan-May period, we
believe contracts will likely pick up more substantially in 2H10 given the gradual pick up in energy demand
as well as increased reserve replenishment activities by national oil companies and major E&P players.
- Hence, we maintain our Overweight stance on the sector. Our top picks for the sector are Dialog (FV =
RM1.29) and SapuraCrest (FV = RM2.66).

Corporate Highlights

Axiata : Likely to report strong 1Q10 performance Outperform

Results Preview
- We believe Axiata’s 1Q10 result is likely to come in stronger on a yoy basis, underpinned by: 1) Stronger-
than-expected 1Q10 performances at XL and Dialog; 2) Rupiah that has strengthened against RM; and 3)
Low base effect.
- We expect 1Q10 EBITDA margin to improve marginally yoy, underpinned by a higher EBITDA margin at XL
that is likely partly offset by lower EBITDA margin at Celcom.
- Quarterly results aside, we believe Idea’s successful bid in its 3G spectrum is unlikely to result in an equity
injection, as: 1) Idea has sufficient capacity to raise debt further; and 2) Idea could raise around US$1bn
via the disposal of Indus Tower, if needed.
- We are raising our FY12/10-11 net profit forecasts by 4.6-5.2% to reflect: 1) Upward revisions in our net
profit forecasts for Axiata’s key subsidiaries post release of their 1Q results; and 2) Lower net interest
expense arising from recent XL stake selldown, partly offset by higher MI for XL.
- SOP fair value is raised by 11.9% from RM4.05 to RM4.53, which takes into account: 1) The upward
revisions in our valuation benchmarks for the key subsidiaries (XL, Dialog and TMIB); and 2) Gross
proceeds raised from the placement of XL shares.

Hai-O : Slower membership growth ahead Market Perform (down from OP)
Company Update
- Due to announce 4QFY04/10 results next month, which could be below our expectations due to slower
MLM membership growth in 4Q10. We expect revenue and net profit to weaken by single-digit % from
3Q10. Slower membership growth attributed to the tightening in credit financing to households by some
banks and rising interest rate environment. Another interest rate hike expected in Sep 10 could further
slowdown membership growth in the near term.
- To offset the impact, it will be launching 1 to 2 new key products in Jun 10.
- We have reduced our earnings forecasts by 6-13% for FY10-12 after reducing our membership growth per
month and % of active members following the tightening of credit financing from banks and effect from
interest rate hikes to consumer borrowing pattern.
- Our valuation target has been rolled forward to FY04/11, resulting in a lower fair value of RM4.30 (from
RM5.20) based on 10x (from 11.5x) FY04/11 PER (from FY10 PER). Downgrade to Market Perform.

CIMB : Off to a good start Outperform

1QFY10 Results/Briefing Note
- 1Q net profit of RM838m (+36.5% yoy; +4.4% qoq) was within our and consensus expectations. No
dividend was declared for the quarter.
- For the quarter, stronger PBT contributions from CIMB Niaga (+265% yoy) and CIB (+103.4% yoy) helped
drive overall yoy growth, partly offset by weaker contribution from the treasury segment (-30% yoy).
- Gross loans expanded by 13.7% yoy (+2.9% qoq), underpinned by the Malaysian consumer loans (+15.6%
yoy) and +31.7% yoy expansion (in RM terms) in CIMB Niaga’s loan book.
- CIMB’s has fully adopted FRS139 from 1 Jan 2010. Consequently, the gross impaired loans ratio as at
end-Mar’10 stood at 7.5%, as compared to the gross NPL ratio of 5% as at end-Dec’09 (1 Jan 2010: 7.6%).
Management, however, expects the ratio to fall to around 4-5% once the sale of the bad bank is completed.
Allowance coverage/LLC stood at 80.5% as at end-1Q10 (4Q09: 90.8%; 1Q09: 85.6%).
- No change to our earnings forecasts. Maintain fair value of RM8.12 (adjusted for bonus issue).

UMW : Sustaining strong hold in 1Q10 Outperform

1QFY10 Results
- 1QFY12 net profit of RM132.9m came in within our and market expectations accounting for 21.4% and
24.7% of our full-year forecast and market consensus respectively.
- Yoy, net profit increased by 101.4% on the back of 29.1% jump in revenue as unit sales of Toyota continue
to grow in tandem with improving consumer sentiment and rising demand for premium cars as well as good
model mix.
- Qoq net profit also increased by 33.2% as equipment division margin increased by 26.1% as demand
increased domestically and externally in line with improving economic conditions.
- Maintain forecasts. Indicative fair value remains unchanged at RM7.52, based on 16x PER for its
automotive and oil & gas divisions, 8x for its heavy equipment and 7x for its manufacturing division.

Kossan : No surprises Outperform

1QFY10 Results
- 1QFY12/10 net profit of RM30.4m (-25.8% qoq; +15.9% yoy) was within our and consensus expectations,
accounting for 23% and 25.2% of our and consensus full-year forecasts respectively.
- Qoq, revenue grew by 15.4% qoq mainly on the back of upward adjustments to selling prices to pass on
the higher raw material cost, partly offset by the lower revenue from TRP segment (-9.0% qoq) largely due
to seasonality effects, where 1Q is typically a slower period.
- 1Q10 core pre-tax margin contracted by 6.5%-pts qoq largely on the back of: 1) time lag in passing on the
higher raw material prices and weakening US$; and 2) weaker performance from TRP segment. As a
 result, 1Q10 net profit fell 25.8% qoq.
- Our indicative fair value is maintained at RM10.74, which is based on unchanged target CY10 PER of 13x.
Kossan is currently trading at CY10 PER of 9.1x, which in our view is undemanding given FY09-12 net
profit CAGR of 13.1%. We reiterate our Outperform call on the stock.

Technical Highlights

Daily Trading Strategy : A “dead cross” suggests bearish medium-term outlook …

- Although the FBM KLCI managed to defend the key psychological threshold of 1,300 yesterday, by staging
a mild recovery from 1,300.44 low, the overall technical landscape remains bearish.
- In fact, given the newly cut “dead cross” pattern on the 10-day and 40-day SMAs, the medium-term chart
outlook on the FBM KLCI has also turned bearish.
- As turnover and trading sentiment remains unfavourable, and added with another plunge in the overnight
US market, the FBM KLCI may open with a gap-down at below the 1,300 level today, in our opinion.
- We therefore maintain our bearish call on the market and expect the FBM KLCI to head towards the 1,250
support, before retesting another psychological level at 1,200 in the near term.
- For the medium term, we foresee a stabilisation zone at between the 23.6% Fibonacci Retracement (FR)
level and the 38.2% FR level near 1,160-1,229 region.

Daily Technical Watch: AirAsia – Further retracement to the lower support of RM1.09 – RM1.17…
- 10-day SMA: RM1.284
- 40-day SMA: RM1.34
- Support: IS = RM1.17 S1 = RM1.09 S2 = RM0.98
- Resistance: IR = RM1.28 R1 = RM1.40 R2 = RM1.50

Bulletin Board

Co/Sector News Impact Recom

Telecoms MCMC has come up with a draft spectrum plan in
which it proposes to re-farm several blocks of
frequency including those in the 850 Mhz, 900
Mhz and 2.5 Ghz bands. Sources say the 900
Mhz and 2.5 Ghz spectra may be allocated for
4G services sometime next year. (Starbiz)
Allianz Allianz has set the price of its Irredeemable
Convertible Preference Shares (ICPS) at
RM3.18, thus issuing 192.3m ICPS to raise
RM611m. (Business Times)
KPJ KPJ Healthcare yesterday announced that it had
entered into a S&P agreement to acquire
additional 4m shares, representing the remaining
30% stake in Bukit Mertajam Specialist Hospital
from Penang Development Corporation for a
purchase consideration of RM4.7m. (Bursa)
Positive for Digi, as the re-allocation of spectrum OW
would allow Digi to expand its network coverage,
especially in the rural areas. Having said that, we
believe the spectrum re-farming is likely to take a
while before it would materialise.
Neutral. Assuming conversion of the ICPS, the OP, FV =
dilution to the FY11 EPS would be 39%. In our RM6.68
report dated 29 Apr, we have estimated a
potential dilution of 38%, based on RM3.20 ICPS
price and 190.7 new ICPS shares.
The acquisition is not a surprise to us as MP, FV =
management has always hinted that it would RM3.20
purchase remaining stakes from its JV partners
given a willing buyer willing seller basis.
Currently, the Bukit Mertajam hospital has 120
beds, which represent 6% of KPJ’s total beds of
2,100. We believe the revenue contribution from
Bukit Mertajam’s is small and not significant to
overall earnings. As we have already projected
RM200m in capex for FY10, we are leaving our
forecasts unchanged for now.

Important Dates
 Company Entitlement details Ex-date Payment date
New entitlements
Solution Engineering First interim tax exempt dividend of 0.5 sen 3-Jun-10 14-Jun-10
JCY International Interim dividend of 3.91 sen 11-Jun-10 30-Jun-10
Panasonic Manufacturing Proposed final div of 35 sen and special div of 70 sen, less 25% tax 20-Sep-10 13-Oct-10

Going “ex” on 24 May

KKB Engineering Bonus issue on the basis of 3-for-5 24-May-10 -
KKB Engineering Share split on the basis of 1-into-2 24-May-10 -
Progressive Impact Corp Final dividend of 0.41 sen less 25% tax 24-May-10 7-Jun-10
K & N Kenanga Holdings First and final dividend of 1 sen less 25% tax 24-May-10 10-Jun-10
United U-Li Corporation Final tax exempt dividend of 1.5 sen 24-May-10 18-Jun-10

...For more details, see individual reports attached

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more over a period of three months, but fundamentals are not
strong enough to warrant an Outperform call. It is generally for investors who are willing to take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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