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

RHB Research Institute

RHB Equity 360°

23 June 2010 (Sunway Holdings, Motor, O&G, Kencana, KFC, Proton; Technical: My E.G.)

Top Story : Sunway Holdings – Earnings visibility improves further Outperform

Visit Note
- The high construction margins recorded in 1QFY12/10 appear sustainable over the next few quarters.
- Property profits from Malaysia are likely to exceed our forecasts as Sunway rides on its seemingly
workable "boutique development" strategy.
- The still relatively poor visibility for new public jobs will not derail Sunway's overall growth prospects as
growth in non-construction profits remains robust.
- FY12/10-12 net profit forecasts are raised by 7-11% largely to reflect higher construction margins and
stronger property profits from Malaysia.
- Fair value is raised by 39% from RM1.69 to RM2.35. Maintain Outperform.

Sector Call

Motor : May TIV rises 15.6% yoy, 4.2% mom Overweight

Sector Update
Proton - Fair value is RM5.50 based on stripped down book value Outperform
Tan Chong - Fair value at RM5.26 Outperform
MBM - Fair value at RM5.04 Outperform
UMW - Fair value at RM7.52 Outperform
- Total industry volume (TIV) increased 15.6% yoy in May 10 (vs. +17.1% yoy in Apr 10) thanks to: 1)
sustained pent-up demand from 2009; and 2) increased production by key car makers/assemblers, driven
by order backlog.
- Mom, TIV grew 4.2% (vs.-13.2% in Apr 10) which we believe is due to consumers rushing to buy new cars
ahead of the expected rise in interest rates on car loans on the heels of the hike in OPR to 2.25%
(previously 2.0%) by Bank Negara Malaysia on 13 May 2010.
- Perodua and Proton maintains their market leadership in May 10 with market shares of 29.5% and 27.8%
respectively (vs. 32.6% and 23.1% in Apr 10).
- We are keeping our 2010-12 TIV growth projections at 8.9%, 2.8% and 2.3% respectively.
- We believe the 2010 automotive sector earnings growth will continue to gain traction on the back of: 1)
strong industry’s TIV growth ahead; and 2) sustained strengthening of the RM against US$ and yen which
would help to reduce costs of imported materials. We reiterate our Overweight stance on the sector.

Oil & Gas : SOGT back in the spotlight Neutral

Sector Update
- We highlight that the long-delayed Sabah Oil & Gas Terminal (SOGT) construction contract has reopened
for submission of bids. The tender will close next week. Nine bidders have been shortlisted including
Kencana and Dialog. The contract is expected to be awarded in Sep or Oct and will be for a period of two
years, i.e. for completion in 2013.
- Dialog clearly has the edge in our view given its expertise in constructing tank terminals both in Malaysia
and Singapore, as well as managing the facilities (in Kertih and Tanjung Langsat Port). Kencana also has
the fabrication expertise although some of the technical expertise will have to come from its foreign partner.
- Nevertheless, we believe the industry is still facing some uncertainty on contract flows as the near-term
direction of crude oil prices remains unconvincing. Trading sentiment may drive stocks like SapuraCrest,
KNM and Petra Perdana but we prefer to remain cautious at this time. Nevertheless, we are more positive
on the longer-term earnings visibility for O&G service providers as reserves will still need to be replenished
and global economic recovery drives demand. We thus maintain our Neutral stance on the sector for now.
Our top pick is Dialog (OP, FV = RM1.23).

Corporate Highlights

Kencana : Follow up Market Perform

Company Update
- We spoke with Kencana’s management yesterday. The tender-assist drilling rig owned by MKR1 will be
delivered to Petronas Carigali by mid-Aug, and should commence operations in mid-Sep. The rig is in fact
physically completed and only awaiting final testing.
- The charter will earn a pre-tax profit margin of 30-35% p.a. which is higher than our estimate yesterday of
20-30% EBIT margin based on SapuraCrest’s drilling division earnings.
- We note that the second drilling rig contract (with clients other than Singapore-listed Mermaid Maritime) is
now unlikely to happen for another 1-2 years as the regional market for drilling rigs is saturated. This is
negative for Kencana’s plans to move up the value chain and fabricate technically more-complex and thus
higher-margin structures.
- We highlight that Kencana is one of the shortlisted bidders for the long-delayed Sabah Oil & Gas Terminal
construction contract which has reopened for tender. The contract is expected to be awarded in Sep or Oct
and will be for a period of two years.
- In our view, Kencana’s shift towards more recurrent earnings is positive and reduces the risks that come
with fabrication jobs. Nevertheless, we are wary about the medium-term visibility of contract flows for the
industry. We thus reiterate our Market Perform call on the stock with an unchanged fair value of RM1.52
(based on 13x FY11 PER).

KFC : Share split, bonus and free warrants issue Outperform

News Update
- Proposed three exercises to be completed in sequence aimed at completion by 3Q2010: 1) 1-to-2 share
split; 2) 1-for-2 bonus issue; and 3) free warrants on 1-for-25 basis (5-year tenure). Theoretical ex-all share
price would be RM2.28.
- Positive for sentiment. Although this will not have any impact on valuations, we believe it will be viewed
positively as it would buoy retail sentiment on the stock due to the improved liquidity. No changes to our
forecasts for now.
- We have rolled forward our valuation base year to FY11. As such, our fair value has been raised to
RM11.20 (ex-all: RM2.80), from RM9.63 (ex-all: RM2.41) based on unchanged PER target of 12.5x.

Proton : Proton and Lotus to develop small hybrid cars Outperform

News Update
- Proton and its wholly-owned subsidiary Lotus, will jointly develop small cars with hybrid technology for the
global market. The model is expected to be launched in the next 18-24 months as part of their strategy to
enter into the global market that entails industry players to come out with small, fuel efficient and
environmental friendly cars.
- The small cars which are expected to have an engine capacity ranging from 1-1.5 litres will be sold in
markets that both Lotus and Proton operate in, i.e. Singapore, Indonesia, Thailand, UK, Australia, South
Africa, Turkey and Iran.
- Lotus has also rolled out structured a five-year transformation plan under its new CEO Dany Bahar which
entails among others, tripling of its annual production from 2,500 cars to 8,000 cars by 2015, having been
loss-making in the past decade.
- We see this as a positive move by both companies as Proton has yet to fully utilise the technology that
Lotus has to offer and its iconic brand since its acquisition a decade ago. However, execution remains the
key to success. Hence, we are maintaining our Outperform rating on the stock with a fair value of RM5.50
based on stripped down book value.

Technical Highlights

Daily Trading Strategy : Risk appetite to reduce in the near term…

- FBM KLCI was weaker than expected, reversing its upswing before even closing the last technical gap
from 1,341.23 to 1,344.27. We had expected that it could retest the tough hurdle from 1,347-1,350 region.
- Given yesterday’s retreat, the index has indicated that it could ease towards the 10-day and 40-day SMAs
near 1,306 and 1,310 or even to retract the 1,300 psychological level soon.
- As overall market turnover fell back to the 500-600m shares mark, short-term risk appetite is poised to
reduce in the near term.
- As a result, we expect the index to be stuck within 1,300-1,350 region for now, pending clearer breakout
pattern ahead.
 Daily Technical Watch: My E.G. Services – Volatility to increase in immediate term, with a negative bias …
- 10-day SMA: RM0.6985
- 40-day SMA: RM0.5761
- Support: IS = RM0.80 S1 = RM0.695 S2 = RM0.62
- Resistance: IR = RM0.875

Bulletin Board

Co/Sector News Impact Recom

Kossan Kossan plans to spend RM60m in the next two
years to expand its operations in Klang,
Selangor. The company also plans to set up its
first overseas plant either in Indonesia, Vietnam
or Thailand. (BusinessTImes)
Axiata Axiata is firming up details on the issuance of
RM4.2bn sukuk bonds to refinance its existing
debts that are maturing. The group is also in the
midst of drawing up a new dividend policy, which
it expects to announce by 3QFY10. (Fin. Daily)
Genting GP has entered into an amended and restated
Plantations JVA with Simon Property Group Inc for the
establishment of Chelsea Premium Outlet
Centres in Malaysia. The main changes involve:
1) extension of time period to fulfil all conditions
from 29 Jun 10 to 29 Sep 10; 2) reduction in the
initial share subscription of the JV company to
RM25m or RM12.5m per JV partner (from a total
of RM125m previously); and 3) subscription of
19.18m RCPS at RM1/share within 6 months of
completion of the JVA (none previously). (Bursa)
Neutral. We are keeping our earnings forecasts OP, FV =
unchanged for now as we have assumed Kossan RM10.74
would spend RM100m in capex over the next two
years.
Neutral. Assuming: 1) A dividend payout ratio of OP, FV =
30%; and 2) Dividends are declared starting from RM4.53
FY11 net profit, we estimate a full-year net DPS
of 8.1 sen, translating to a net yield of 2.1%.
Neutral. We believe the lower initial share UP, FV =
subscription value would mean that the company RM6.65
intends to finance the project (which has a
development cost of about RM158m) on a 40:60
equity/debt basis. No impact to our forecasts as
we have yet to include contributions from this
project, given that the other details of the JVA
and of the property have yet to be disclosed. In
any case, contribution from this project is likely
only to start coming in from FY12/13 onwards.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Tradewinds (M) Final dividend of 5% less 25% tax 13-Jul-10 30-Jul-10

Going “ex” on 24 Jun

Sinotop Holdings Renounceable rights issue on the basis of 10-for-1 24-Jun-10 -
Kurnia Setia Single tier tax exempt final dividend of 10 sen 24-Jun-10 9-Jul-10
Maxis Final single tier tax exempt dividend of 3 sen 24-Jun-10 15-Jul-10
Tasco Final tax exempt dividend of 3 sen 24-Jun-10 15-Jul-10
Daya Materials First and final dividend of 0.32 sen less 25% tax 24-Jun-10 16-Jul-10
Kossan Rubber Industries Final tax exempt dividend of 9 sen 24-Jun-10 19-Jul-10
United Plantations Final div of 20 sen + special div of 30 sen, less 25% tax 24-Jun-10 22-Jul-10
Riverview Rubber Estates First interim dividend of 8 sen less 25% tax 24-Jun-10 30-Jul-10

...For more details, see individual reports attached

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