PP 7767/09/2010(025354)

16 July 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Marke t Upda te
16 July 2010
MARKET DATELINE

Government Measures
Fuel Price Hike

♦ First step to reducing fuel subsidies. The Government announced a

Table 1. 16 July Price Hikes
petrol price hike yesterday evening, including a 5 sen/litre increase in the
Item 16 Jul price Pemandu
price for RON95 (+2.8%) and RON97 (+2.4%) petrol, as well as diesel
hike proposals
(+2.9%). RON97 price will move to market pricing under a managed float
RON95/97 +5 sen/litre +15 sen/litre
mechanism. The price of Liquid Petroleum Gas (LPG) was raised by 10
Diesel +5 sen/litre +10 sen/litre
sen/kg (+5.7%). LPG is typically used for as a cooking fuel. The fuel price
LPG +5.7% +10%
hike became effective on 16 Jul. We believe this is the Government’s first
Sugar +25 sen/kg +20 sen/kg
step towards reducing fuel subsidies although on an even more gradual
Source: Star, Pemandu
basis than envisaged by the Government’s Performance Management &
Delivery Unit (Pemandu) in its Subsidy Rationalisation proposals in May.
Table 2. Stocks Potentially Affected By
Separately, sugar price was raised by 25 sen/kg (+15.2%).
16 July Price Hikes
♦ Impact is marginal now … Price FV Rec
(RM)# (RM)
o Transport-related sectors. For PLUS, we expect the petrol price
PLUS 3.57 4.23 OP
hike to have marginal impact on traffic volumes. Recall traffic volume
Proton 4.49 5.50 OP
at PLUS’s core expressways contracted by only 0.1% yoy in 2QFY06
Tan Chong 4.39 6.16 OP
following a 30sen/litre hike in RON97 petrol price in Feb 06. We
UMW 6.34 7.50 OP
believe the increase will also have minimal impact on motor sales
MBM 3.00 5.31 OP
numbers, and further fuel price hikes if done on a gradual basis would
KFC 11.12 11.20 OP
be well-absorbed by consumers.
# As at 15 Jul
o Food-related sectors. The price hike for LPG and sugar will likely be Source: Bloomberg, RHBRI
received badly by F&B outlets (e.g. KFC, Overseas, etc.) and other
producers of snack foods and drinks (e.g. Mamee, Hup Seng, CI Table 3. Stocks Potentially Affected By
Holdings) although we note that incremental costs would likely be Future Reduction Of Fuel Subsidies
passed on to consumers. Price FV Rec
(RM)# (RM)
♦ … but more measures expected. The next revision will likely be for Positive
natural gas prices for power (and in turn impact electricity tariffs) as well TNB 8.60 10.20 OP
as industrial sectors. We highlight that Pemandu had recommended an Negative
initial 43.5% hike in natural gas price from RM10.70/mmbtu to RM15.35, Ann Joo 2.46 2.25 UP
followed by a RM3/mmbtu hike every six months. To compensate TNB for Hiap Teck 1.31 1.28 UP
the higher gas price, electricity tariffs would be adjusted upwards by 2.4 Kinsteel 0.845 0.64 UP
sen/kWh for the initial RM4.65/mmbtu increase in gas price. Thereafter, Perwaja 1.18 1.12 UP
TNB will be allowed to raise electricity tariffs by 1.6 sen/kWh every six CSC Steel 1.65 1.82 MP
months to cater for the corresponding increase in gas price. The new Lafarge 6.48 6.83 MP
electricity tariffs, however, would not impact household consumers with YTL Cement 3.99 5.51 OP
monthly electricity consumption of < 200kWh. We note that the building Top Glove 14.48 16.40 OP
materials sector is a major consumer of electricity and natural gas. As for Kossan 8.18 13.39 OP
the rubber glove manufacturers, natural gas currently accounts for Adventa 3.13 4.92 OP
around 8-10% of production costs. We note that Pemandu has also Hartalega 8.43 9.29 OP
proposed an increase in toll rates (as per concession agreements), and # As at 15 Jul
prices of flour (+20 sen/kg) and cooking oil (+15%/1kg). Source: Bloomberg, RHBRI

♦ Market reaction likely to be muted. We believe the market reaction to

these Government measures will be relatively muted although the
anticipation will be on future measures to come. The key beneficiary
would be TNB if the fuel cost-pass-through mechanism is approved. Yap Huey Chiang
Overall, we continue to advocate a bottom-up strategy, preferring stocks (603) 92802171
with strong underlying businesses, good management and robust balance yap.huey.chiang@rhb.com.my
sheet.

Please read important disclosures at the end of this report.

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 16 July 2010

IMPORTANT DISCLOSURES

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