RHB Report My Malaysia 2q17 Strategy 20170331 RHB Final Use This 559397956841070658e2d642bd4c4

MARKET DATELINE
PP7767/09/2012 (030475)
3 April 2017 Strategy | Strategy - Malaysia
Malaysia - Strategy 2Q17

Stocks Covered: 150
Goldilocks Is Back But Dont Ignore The Bears Ratings (Buy/Neutral/Sell): 61 / 77 / 12
Last 12m Earnings Revision Trend: Negative
Investor sentiment is being buoyed by a confluence of positives. The FBM KLCI 7-year forward consensus P/E
improved US economic fundamentals add to expectations that Mr Trumps
pro-growth agenda may lift global economic growth, while the US Feds (x)
18.0
dovish interest rate guidance has encouraged EM investors. Rising 2sd: 17.5x
exports, quickening GDP expansion, corporate earnings recovery and 17.0

1.5sd: 17.1x
1sd: 16.6x
depressed MYR are spurring renewed foreign interest in local equities. Mr
Trump is a major risk, and our optimism is tempered by the recognition 16.0 Average: 15.8x
that we are in a matured stage of the global growth cycle. OVERWEIGHT on 15.0 -1sd: 15.0x
the banking, healthcare, technology, construction, aviation, oil & gas, basic -1.5sd: 14.5x
-2sd: 14.1x
materials and utilities sectors. 14.0
Global growth on a firmer footing. We see the continuation of investor risk

13.0
appetite coming back to Emerging Market (EM) equities. The risk sentiment
improvement has similarly followed through high-yield EM bonds, alongside a 12.0
2010 2011 2012 2013 2014 2015 2016 2017
decline in currency volatility. This stems from the alignment of improving external
macroeconomic factors with an increasingly compelling domestic investment Source: Bloomberg
case. After two consecutive years of slowing growth, the global macroeconomic
environment is now looking rosier from firmer activity in the US and US President Yield stocks
Donald Trumps pro-growth policies, the emergence of the Eurozone from
Yield (%)
deflation, and greater stability in Japan and China.
SHL Consolidated 7.4
Rosier domestic growth outlook. We recently upgraded Malaysias 2017 GDP
UEM Edgenta 7.4
growth forecast to 4.5% (2016: +4.2%) and export growth to 3.9% (2016: +0.1%),
Bermaz Auto 7.3
underpinned by improved domestic demand. A better commodity outlook and
robust electrical & electronics (E&E) demand is helping to drive exports as global Magnum 6.7
growth prospects improve. We are more optimistic that expectations of a Glomac 6.7
rebound in corporate earnings (2017: +11.7% growth) can be sustained coming B-Toto 6.4
off a low base in 2016 (-5.2% YoY). Together with an undervalued MYR, foreign MRCB-Quill REIT 6.1
investors have been net buyers this year (YTD 2017: USD1.1bn). Maybank 6.1
Bears are lurking. The global economy being in a matured stage of the growth Hektar REIT 6.0
cycle is susceptible to an unpredictable black swan event, although the threat of Matrix Concepts 6.0
an imminent global recession has receded. While the Brexit process could be a Source: RHB
source of volatility, the Frexit threat appears to be diminishing. President Trumps
unpredictability and protectionist leanings are also a key risk. SELL stocks
Growing appetite for equities. The improving risk appetite for Malaysia equities TP (MYR/share)
is backed by the positive confluence of an improving external macroeconomic Maxis 5.10
environment and a more compelling domestic investment case. Our top-down IOI Corp 4.20
end-2017 FBM KLCI target is 1,790 pts (16x 1-year forward earnings, a slight HL Bank 12.00
premium to the post-global financial crisis (GFC) average). Key investment BAT 43.30
themes include the preference for cyclical stocks, exporters, large-cap Lafarge 5.05
beneficiaries of rising foreign participation, high growth potential small and mid- Affin 2.50
caps for alpha, infrastructure plays, government-linked companies (GLCs) Bumi Armada 0.63
restructuring, and high-yield stocks. IJM Plant^ 2.70
Rosier bonds outlook. The expected improvement in domestic economic and Media Prima 0.90
corporate activity would likely translate into healthy corporate bond issuance Source: RHB
activity. Despite US rate hikes, increasing MYR stability has helped 10-year
Malaysian Government Securities (MGS) yields trend 15bps lower vs the 4.25%
seen at the start of 2017.
Economists
% Upside P/E (x) P/B (x) Yield (%)
Com pany Nam e Rating Price Target (Dow nside) Dec-18F Dec-18F Dec-18F Lim Chee Sing
Berjaya Food BUY MYR1.82 MYR2.21 21.3 15.3 1.5 3.3
Cahya Mata Saraw ak BUY MYR4.20 MYR4.90 16.7 13.9 1.8 2.9
+603 9280 2153
Gadang Holdings
IHH Healthcare
BUY
BUY
MYR1.30
MYR5.98
MYR1.55
MYR7.30
19.2
22.1
7.4
34.4
1.1
2.0
2.4
0.5
cslim@rhbgroup.com
Inari Amertron BUY MYR1.94 MYR2.53 30.6 13.4 3.3 2.9
Kimlun Corporation BUY MYR2.19 MYR2.57 17.5 7.7 1.0 3.3 Peck Boon Soon
Malayan Banking BUY MYR8.90 MYR9.30 4.5 12.5 1.2 6.3
Petronas Chemicals BUY MYR7.43 MYR8.59 15.6 16.3 1.9 3.1
+603 9280 2163
Press Metal
Public Bank
BUY
BUY
MYR2.45
MYR20.18
MYR3.27
MYR22.00
33.5
9.0
11.4
14.2
2.8
1.9
2.6
3.0
bspeck@rhbgroup.com
SapuraKencana Petroleum BUY MYR1.91 MYR2.05 7.3 34.0 0.9 0.5
Sime Darby Bhd BUY MYR9.34 MYR10.15 8.7 22.3 1.7 3.2 Analyst
SP Setia BUY MYR3.40 MYR4.00 17.6 14.3 1.1 5.0
Telekom Malaysia BUY MYR6.32 MYR7.50 18.7 26.5 3.0 3.4
Alexander Chia
Tenaga Nasional
Yinson Holdings
BUY
BUY
MYR13.72
MYR3.21
MYR18.60
MYR3.88
35.6
20.9
8.8
12.0
1.1
1.4
3.4
0.8
+603 9280 8889
DRB-HICOM TRADING BUY MYR1.39 MYR1.83 31.6 177.7 0.4 1.1 alexander.chia@rhbgroup.com
Source: Company data, RHB
See important disclosures at the end of this report

1
Powered by the EFA Platform
Strategy - Malaysia Malaysia Strategy
3 April 2017
Table Of Contents
Executive Summary 1
Market Review 3
Market Outlook 5
Key Risks 33
Market Strategy 35
FBM KLCI From a Technical Perspective 43
Fixed Income Strategy 44
SECTOR OUTLOOK
Auto 47
Aviation 49
Banking 52
Basic Materials 55
Construction 58
Consumer 61
Gaming 64
Healthcare 66
Logistics 70
Media 73
Non-Bank Financials 75
Oil & Gas 78
Plantation 80
Property 83
Property REITs 86
Rubber Products 88
Technology 91
Telecommunication 94
Timber 100
Utilities 103
APPENDIX
Valuations and Ratings of Individual Stocks Under Coverage
2
3 April 2017
Market Review
Figure 1: FBM KLCIs movement from January to March
Source: RHB
Note: Data as of 17 Mar 2017
Optimistic start to the year

Markets began the year strongly, with the FBM KLCI following on the coat-tails of the US New year, new hope
market. The rally in global markets was driven by expectations that favourable reflationary
policies by the newly-elected US president Donald Trump would spill over to boost global
economic growth.
The market continued its rally following the inauguration of Mr Trump as the US president US to withdraw from TPPA
on 20 Jan 2017. President Trump signed a pact to formally withdraw the US from the
Trans-Pacific Partnership Agreement (TPPA) on 23 Jan, fulfilling one of his key campaign
promises.
While the TPPA move was widely expected, what surprised the market was his executive
order restricting travel and immigration from certain countries. This ignited concerns that
his campaign rhetoric on anti-trade measures could also come to pass. This led to the
retracement of FBM KLCI by 15 pts.
Taking cues from the US Federal Reserve (US Fed)

The Federal Open Market Committee (FOMC) kept rates unchanged on 1 Feb in a widely-
anticipated move following the last interest rate hike in Dec 2016. Meanwhile, the US Fed
continued to stay committed to raising interest rates gradually, with an unchanged forecast
of three rate hikes in 2017.
The FBM KLCI continued to stay firm on increased risk appetite and broke through the Stronger-than-expected 4Q16 GDP
1,700-pt resistance to close at 1,710 pts on 13 Feb. The market was further boosted by growth lifts investor sentiment
Malaysia reporting stronger-than-expected 4Q16 GDP growth on 17 Feb of 4.5% YoY.
On 22 Feb, headline inflation picked up to 3.2% YoY for Jan 2017, the quickest pace in 11
months. However, the market took its cue from US Fed officials who warned of an
imminent interest rate hike. As the market priced in a rate hike at the March FOMC
meeting, the FBM KLCI retreated from its high to close at 1,693 pts on 28 Feb.
3
3 April 2017
First US rate hike for 2017

On 13 Mar, the UK Parliament passed the legislation that allowed the UK Government to Dovish rate hike by the US Fed
invoke Article 50 of the Lisbon Treaty. On 15 Mar, the US Fed lifted its benchmark interest
rate for the first time in 2017. With the rate hike already priced in, investors were more
relieved at the dovish tone from the Fed although it continued to guide for a total of three
rate hikes in 2017. The FBM KLCI rose another 1.2% and continued its upward
momentum.
Oil prices hit a 3-month low in mid-March on the back of rising global crude stocks, rising Populisms advance grounds to a halt
US shale oil production and higher-than-expected production by Saudi Arabia, the worlds in the Netherlands
largest oil exporter. Markets stayed focused on the pace of US drilling activity, and the
Organisation of the Petroleum Exporting Countries (OPEC) and other producers possibly
reaching a consensus on extending production cuts beyond mid-2017.
China raised borrowing costs by 10bps on 16 Mar, as a stabilising economy allowed it to
mirror policy-tightening in the US. The Dutch election results, announced on 17 Mar, was
a relief to the market after the incumbent centre-right Prime Minister Mark Rutte triumphed
over the anti-EU Party for Freedom (PVV) led by Mr Geert Wilders, and helped stem the
wave of populism.
Figure 2: FBM KLCIs performance vs that of other regional markets
Index 2016 2017 2016 2017
Country indices 17-Mar-17 Q2 Q3 Q4 Q1 YTD
% change
Malaysia KLCI 1,745.2 (3.7) (0.1) (0.7) 6.3 (3.0) 6.3
Singapore STI 3,169.4 0.0 1.0 0.4 10.0 (0.1) 10.0
Thailand SET 1,561.0 2.6 2.6 4.0 1.2 19.8 1.2
Philippines PCOMP 7,345.0 7.4 (2.1) (10.3) 7.4 (1.6) 7.4
Indonesia JCI 5,540.4 3.5 6.9 (1.3) 4.6 15.3 4.6
Hong Kong Hang Seng 24,309.9 0.1 12.0 (5.6) 10.5 0.4 10.5
Taiwan TWSE 9,908.7 (0.9) 5.8 0.9 7.1 11.0 7.1
Korea KOSPI 2,164.6 (1.3) 3.7 (0.8) 6.8 3.3 6.8
China Shanghai 3,237.4 (2.5) 2.6 3.3 4.3 (12.3) 4.3
China Shenzhen 2,029.7 3.2 1.1 (1.3) 3.1 (14.7) 3.1
India Mumbai 29,649.0 6.5 3.2 (4.4) 11.4 1.9 11.4
Vietnam VSE 710.5 12.7 8.5 (3.0) 6.9 14.8 6.9
Sri Lanka Colombo AMl-Share 6,047.8 3.5 4.0 (4.7) (2.9) (9.7) (2.9)
US Dow Jones 20,914.6 1.4 2.1 7.9 5.8 13.4 5.8
US S&P 500 2,378.3 1.9 3.3 3.3 6.2 9.5 6.2
US Nasdaq 5,901.0 (0.6) 9.7 1.3 9.6 7.5 9.6
Note: *Data as at 17 Mar 2017
Source: Bloomberg
4
3 April 2017
Figure 3: Top performers & underperformers under our coverage (YTD)

Gainers 17-Mar-17 30-Dec-16 % chg Losers 17-Mar-17 30-Dec-16 % chg
(MYR/share) (MYR/share) (MYR/share) (MYR/share)
Press Metal 2.45 1.58 55.0 Perisai Petroleum 0.07 0.09 (23.5)
Oldtown 2.68 1.88 42.6 Malakoff Corp 1.18 1.37 (13.9)
Globetronics Technology 4.85 3.44 40.8 Karex 2.07 2.36 (12.3)
Eastern & Oriental 2.00 1.45 37.9 MSM Malaysia Holdings 4.50 5.05 (10.9)
Malaysian Pacific Industries 10.16 7.41 37.1 Evergreen Fibreboard 0.88 0.96 (8.9)
Tasco 2.00 1.49 34.7 IJM Plantations 3.17 3.40 (6.8)
UMW Holdings 6.10 4.57 33.5 Westports Holdings 3.95 4.23 (6.6)
Unisem (M) 3.08 2.36 30.5 Lafarge Malaysia 6.73 7.19 (6.4)
IQ Group 3.32 2.55 30.2 UEM Edgenta 3.23 3.45 (6.4)
V.S. Industry 1.80 1.39 29.3 Petronas Gas 19.78 21.10 (6.2)
CIMB Group Holdings 5.65 4.51 25.3 Hovid 0.32 0.34 (5.9)
GHL Systems 1.12 0.90 25.0 IHH Healthcare 5.98 6.35 (5.8)
Paramount Corp 1.73 1.39 24.5 Pavilion REIT 1.76 1.86 (5.4)
Gadang Holdings 1.30 1.05 23.8 AEON Co (M) 2.44 2.57 (5.1)
Oka Corp 1.46 1.18 23.7 Ta Ann Holdings 3.76 3.95 (4.8)
Felda Global Ventures 1.91 1.55 23.2 Supermax Corp 2.01 2.11 (4.7)
Genting Bhd 9.79 7.95 23.2 KPJ Healthcare 4.02 4.18 (3.8)
Bumi Armada 0.74 0.61 21.5 Jaya Tiasa Holdings 1.29 1.34 (3.7)
Pantech Group 0.54 0.45 21.3 Ho Hup Construction 0.79 0.82 (3.7)
Genting Malaysia 5.47 4.52 21.0 Tune Protect 1.37 1.42 (3.5)
Source : Bloomberg
5
3 April 2017
Market Outlook
Goldilocks scenario lifts risk appetite
Going forward, we see the continuation of investor risk appetite coming back to EM A happy confluence of positives
equities. This optimism stems from the alignment of improving external macroeconomic
factors with an increasingly compelling domestic investment case for Malaysia equities.
While not entirely without risk, the foreseeable downside concerns appear to be less
immediate, outside of a black swan-type event.
Global equity markets are riding on rising expectations for higher global growth prospects. Improving global growth prospects
After two consecutive years of decelerating growth, the global macroeconomic
environment is now looking rosier, from:
i. Firmer activity in the US as the economy continues to add jobs and a potential fiscal
stimulus from President Trumps policies;
ii. The emergence of the Eurozone out from deflation with a more conducive growth
environment, ie low interest rates, a weak EUR and an end to austerity initiatives in
some countries;
iii. A recovery in exports that is positive for Japans economy;
iv. Some stabilisation in Chinas economy despite it still being in a structural slowdown.
Figure 4: Global growth forecasts Figure 5: IMF upgrades global growth forecasts
% YoY
Projections 3.7
3.6
3.5
+0.2
3.4
3.3
+0.3
3.2
3.1
3.0
2013 2014 2015 2016 2017F 2018F
IMF Global Outlook Prospect in Jan 2017
IMF Global Outlook Prospect in Oct 2016
Source: Various Source: International Monetary Fund (IMF)
EM growth is also projected to pick up, given: Stronger EM growth

i. A better commodity price outlook boosting commodity-dependent economies,
particularly the large energy producers;
ii. Gradual normalisation of conditions in a number of large economies that have been
experiencing macroeconomic strains.
Malaysias economy is also set to benefit from the improvement in the external economic
environment:
i. Recent upgrade of the 2017 GDP growth forecast to +4.5% and export growth to
+3.9%;
ii. Higher average oil prices would help to lift fiscal revenues.
6
3 April 2017
Global growth on a firmer footing

Figure 6: Global growth forecasts
IMF1 RHB World Bank2 OECD3
20154 20164 2017F 2018F 2017F 2018F 2017F 2018F 2017F 2018F
Global Economy 3.2 3.1 3.4 3.6 3.4 3.7 2.7 2.9 3.3 3.6
OECD countries 2.0 2.3
US 2.6 1.6 2.3 2.5 2.1 2.5 2.4 2.7 2.4 2.8
Euroland 2.0 1.7 1.6 1.6 1.6 1.6 1.5 1.4 1.6 1.6
UK 2.2 2.0 1.5 1.4 1.2 1.0 2.1 2.1 1.6 1.0
Japan 0.5 0.9 0.8 0.5 0.9 0.7 0.9 0.8 1.2 0.8
Canada 1.1 1.3 1.9 2.0 - - 2.1 2.2 2.4 2.2
China 6.9 6.7 6.5 6.0 6.6 6.4 6.5 6.3 6.5 6.3
India 7.6 6.6 7.2 7.7 - - 7.6 7.8 7.3 7.7
Asia ex-Japan 6.6 6.3 6.4 6.3 - - 6.3 6.3 - -
Malaysia 5.0 4.2 4.5 4.6 4.5 4.7 4.3 4.5 - -
Advance economies 2.1 1.6 1.9 2.0 1.8 2.1 1.8 1.8 - -
Emerging & developing 4.0 4.1 4.5 4.8 4.5 4.8 4.2 4.6 - -
Note: F = forecasts
Sources: 1 = IMF World Economic Outlook, Jan 2017; 2 = World Bank Global Outlook, Jan 2017; 3 = OECD Economic Outlook, Mar 2017, 4 = IMFs historical
data
Following two consecutive years of slowing growth, the outlook is improving on better
commodity prices, which are lifting growth in the EM economies. Meanwhile, the major
developed economies are shifting towards fiscal policies to bolster growth.
The US, in particular, is likely to be the main driver of growth in the developed world. The President Trumps reflationary
outlook is boosted by: policies are important catalysts for
growth
i. Expectations of substantial tax cuts;
ii. Massive deregulation;
iii. Big spending on infrastructure.
In recent months, this has been supported by firmer economic data, improvements in
corporate earnings and a recovery in the energy sector. On balance, we see global
economic growth picking up to 3.4% in 2017 from +3.1% in 2016 and +3.2% in 2015.
This would ultimately lead to stronger global trade activity. The World Trade Organisation
(WTO) projects the global merchandise trade to expand by 1.8-3.1% in 2017, recovering
from -2.7% in 2016 and -11.8% in 2015.
Figure 7: World merchandise trade
%YoY (Value)
-5
-10
-15
-20
2013 2014 2015 2016
Total World Trade Emerging Asia Exports
Emerging Asia Imports

Source: CPB World Trade Monitor 2016
7
3 April 2017
Figure 8: Stronger global growth outlook Figure 9: Firmer commodity prices

%YoY Index Index
10 200 110
8 100
180
6
160 90
4
80
2 140
70
0 120
-2 60
100 50
-4
-6 80 40
Feb-12
Feb-13
Feb-14
Feb-15
Feb-16
Feb-17
May-12
Aug-12
Nov-12
May-13
Aug-13
Nov-13
May-14
Aug-14
Nov-14
May-15
Aug-15
Nov-15
May-16
Aug-16
Nov-16
05 06 07 08 09 10 11 12 13 14 15 16 17F 18F
Global economy
Advanced economies Bloomberg Industrial Metals subindex (LHS)
Emerging market & developing economies Bloomberg Agriculture Subindex (RHS)
Source: IMF, RHB Source: Bloomberg, RHB
In the US, Mr Trumps election victory spurs growing optimism

Despite the US recording subdued GDP growth of 1.6% in 2016 the weakest since 2011 Improving US economic fundamentals
the stronger economic activities in 2H16 and President Trumps pro-growth policies have
raised expectations on the outlook for the US.
Multilateral institutions such as the International Monetary Fund (IMF), World Bank and the
Organisation of Economic Cooperation and Development (OECD) are estimating that his
reflationary policies could boost US GDP growth by 0.1-0.4ppts this year and by 0.4-
0.8ppts next year.
Recent data also points to a better growth outlook ahead, with an uptrend seen in
business capex and wage incomes for households, falling unemployment rates, and rising
auto and retail sales. Business investment the biggest disappointment over the past four
years has shown signs of picking up. This, coupled with investments in the residential
housing sector and President Trumps policy-induced investments, augurs well for a
stronger economic growth in 2017.
Indeed, both businesses and consumers are turning more upbeat on growth prospects,
and the manufacturing industry has also started to recover.
Figure 10: The US economy is strengthening Figure 11: Business capex in the US is on an uptrend
% annualised Index %YoY
6 65 3.0
5.0 63
4.6 2.8
5 61
4.0 4.0 2.6
4 3.5 59
2.9 3.1 57 2.4
2.7 2.8 2.6
3 2.3 55 2.2
1.9 2.0 2.0 2.1
1.4 53 2.0
2
0.8 0.8 0.90.8 51
0.5 1.8
1 49
0.1 1.6
47
0 45 1.4
-1 11 12 13 14 15 16 17
-2 -1.5 -1.2 Business actual Capital Expenditure (LHS)

2011 2012 2013 2014 2015 2016
Wage Growth (RHS)
Source: Bloomberg Source: Bloomberg
President Trumps promises to slash regulations and tax rates to bolster economic growth Despite a Republican Party-controlled
may prove to be an uphill battle, as shepherding complex legislation through the US US Congress, the legislative path
Congress has never been an easy task. Similarly, getting congressional approval for may not be smooth
higher infrastructure and military spending with an increased fiscal deficit may also not
be an easy task, with a potential time lag in implementation.
Nevertheless, a sharp cut in the corporate tax rate and the introduction of a border tax
system, if it materialises, would encourage companies to invest and manufacture more of
their products in the US and source more inputs/components domestically. However, it
would also harm the country by raising costs for consumers and reduce the
competitiveness of its economy over time.
8
3 April 2017
Meanwhile, a stronger USD could dampen President Trumps push to boost America First initiative may have
manufacturing growth and propel export industries. At the same time, tighter financial downside risks
conditions and higher interest rates would also raise business costs and subdue prospects
in the residential housing market. The impact of these measures could be felt more
quickly, ie relative to the potential boost coming from tax cuts, deregulations and
infrastructure spending.
On balance, we are of the view that the growth momentum of the economy is strong
enough to weather the short-term challenges, However, the booster coming from
President Trumps reflationary policies may take time to filter down to the real economy.
Having said that, we are optimistic that US economic growth is likely to pick up to around
2.1% YoY in 2017 (2016: +1.6% YoY).
Figure 12: Improving business and consumer confidence in Figure 13: US inflation is approaching the US Feds target
the US
Index Index %YoY
120 50
3.0
110 40
2.5
100 30
90 20 2.0
80 10 1.5
70 0 1.0
60 -10 0.5
50 -20
0.0
40 -30
11 12 13 14 15 16 17 -0.5
13 14 15 16 17
Conference Board Consumer Confidence (RHS)
Total CPI Core CPI Core PCE
Philadelphia Fed Business Outlook (LHS)
EU on the mend, but faces political uncertainty

While the UK and the 19-nation EU appear to have weathered Brexit relatively well, this is Brexit process is a wildcard
partly because negotiations with regards to Britain exiting the political and economic
union have yet to start. Anecdotal evidence points towards uncertainty over the UKs
future ties to the EU, and investors are holding back expansion plans.
On the surface, it may suggest the possibility of more investors heading to the Eurozone Spread of populism halted in the
to invest for growth and mitigate the uncertainties. This, however, is not assured, as the Netherlands
bloc is also facing with mounting political risks and uncertainties.
There are potential populist surprises for markets and the currency bloc from the
impending leadership elections in France and Germany. Italy may also move up national
elections set for early 2018, which is contributing to political risk in the continent. The
defeat of Mr Geert Wilders anti-EU PVV in the recent Dutch elections by incumbent Prime
Minister Mark Ruttes Peoples Party for Freedom and Democracy (VVD) has, at least,
slowed the rise of populism.
While it might take some time for Mr Rutte to form a coalition government brought about Political risks aplenty in Europe
by the fragmentation of the political landscape in Holland, other risks in Europe persist ,
what with:
i. A tight race for the French presidential election, with the looming threat of the far-
right;
ii. A growing dispute between Turkey and EU members;
iii. The triggering of Article 50 that brings Brexit closer, coupled with secession risks in
Scotland and Northern Ireland;
iv. The divergence of monetary policies;
v. The troubled banking system in Italy, which has yet to be fully resolved;
vi. The potential showdown between the IMF and the EU over Greeces debts, and
further measures to keep it afloat.
Nevertheless, the underlying growth momentum of the economy remains intact, although
numerous political uncertainties lie ahead.
The Eurozone economy grew at an annualised rate of 1.6% in 4Q16, albeit lower than
+1.8% registered in 3Q16, driven by domestic demand with some modest pick-up in
9
3 April 2017
exports. Indeed, the Eurozones GDP growth of 1.7% in 2016 surpassed that of the US for
the first time since 2009.
Despite a series of shocks including Brexit and terrorist attacks in Germany, France and
Belgium the regions growth held up relatively well in 2H16. Germany, the EUs largest
economy, grew by an annualised rate of 1.7% in 4Q16, led by a pick-up in government
spending and buoyant construction activity.
Overall, the regions economic growth in 2017 would be helped by:
i. An improving global outlook;
ii. Low interest rates;
iii. A weaker currency;
iv. The end of austerity for some economies in the bloc.
That said, uncertainties over future trade relations with the UK and US, as well as the risk
of rising anti-EU sentiment ahead of key elections in France and Germany, could weigh on
consumer spending and business investments in the period ahead.
On balance, we see Eurozones economic growth sustaining at around 1.6% in 2017,
albeit marginally lower than the +1.7% recorded in 2016. Meanwhile, risk of deflation has
vanished, with the headline inflation accelerating to its fastest pace of 2% YoY in
February.
Figure 14: The EU is recording stable growth Figure 15: EU growth is driven by domestic demand and
exports
%YoY
% annualised
4.0 15
3.2 3.3
10
3.0
2.02.0 5
1.8 1.8 1.81.6
2.0 1.3 1.3 1.4 1.5 0
1.1 1.2
0.8 0.7
1.0 -5
0.00.1
-10
0.0
-15
-1.0
-0.8 -0.6 -20
-1.2 05 06 07 08 09 10 11 12 13 14 15 16
-2.0 -1.4 -1.3
-1.7
2011 2012 2013 2014 2015 2016 domestic demand exports
Source: Bloomberg, RHB Source: Bloomberg, RHB
Figure 16: The EUs trade surplus Figure 17: Inflation is accelerating in the EU
USDbn %YoY
500 3.5
400 3.0
300 2.5
200 2.0
100 1.5
0 1.0
-100 0.5
0.0
-200
-0.5
-300
05 06 07 08 09 10 11 12 13 14 15 16 -1.0
11 12 13 14 15 16 17
Trade balance Current account cpi core cpi
10
3 April 2017
Figure 18: Details of upcoming elections in Europe

Country Election type/sate Remarks
Leader of the National Front Ms Marine Le Pen has pledged to hold a
France Presidential election, April/May
referendum to decide on France's continuing membership in the EU.
Local elections in May would be the first electoral test for Prime Minister
UK Local elections, May
Theresa May and her "Brexit means Brexit" stance.
A snap election is likely following the "No" vote in the 4 Dec 2016 Italian
Italy General election, 2017/2018
referendum to be decided by President Sergio Mattarella.
German regional elections:
Angela Merkel's Christian Democrat party (CDU) faces stiff battle against
i. Schleswig-Holstein and North-Rhine Westphalia,
Germany openly anti-immigration Alternative for Germany party (AfD). The outcome of
May;
the regional May elections may predict how respective parties fair nationally.
ii. Parliamentary election, September
Opinion polls show Czech Prime Minister Bohuslav Sobotka's centre-left Social
Czech Republic General election, October Democrats almost 15ppts behind ANO 2011, its coalition partner, which has
capitalised on voters' distrust in traditional parties.
Eurosceptic leader Prime Minister Viktor Orban's October referendum on

Hungary Parliamentary election, Spring 2018 mandatory EU migrant quotas was rendered invalid due to a low turnout.
However, a pro-government think-tank showed his approval ratings are rising.
Source: Various media
Japans recovery slows, but export outlook improves

Four years into Abenomics, Japans economy is still unable to take-off. It has swung Four consecutive quarters of growth
between contractions and modest growth until 2015. While Japan finally delivered four in 2016
consecutive quarters of positive growth in 2016 the first time that has happened in a
calendar year since 2005 real GDP growth decelerated from a high 2.2% annualised
rate in 2Q16 to 1.2% in 4Q16.
Weak spending by consumers took the shine off a pick-up in exports and investments in
4Q16. In the latter quarter, exports grew by an annualised rate of 11% from 8.5% in 3Q16,
helped by stronger shipments of autos to the US and smartphone components to China.
Whilst its export outlook has improved on account of a weaker JPY and stronger global
growth prospects, uncertainty over President Trumps policies could still keep firms from
investing.
Notwithstanding several challenges, the gradual recovery of the Japanese economy is Japans economy recovering on its
likely to continue in 2017, given the better export outlook and sustained public spending, in improved export outlook
our view. A rise in external demand should lift exports, production and investment,
providing support to the underlying growth momentum.
Japan launched an economic stimulus package worth JPY28.1trn, or more than 5% of
GDP, late last year. For FY17, the Japanese Cabinet approved a record JPY97.7trn
(USD830bn) spending budget.
While a lack of significant wage growth and an ageing population have been holding back
consumers from spending, Prime Minister Shinzo Abe has repeatedly called on
businesses to raise wages for their employees to spur private consumption. This could
materialise in a better export environment, which would lift consumer spending and
investment along the way.
That said, overall GDP growth would still be constrained by low potential output of the
economy given:
i. Japans ageing population;
ii. A declining labour force;
iii. Stagnating growth in productivity.
We are of the view that growth for the Japanese economy can be sustained at 0.9% in
2017, albeit marginally slower than +1% recorded in 2016.
11
3 April 2017
Figure 19: Japan GDP growth still modest Figure 20: Japan exports are on an uptrend
% annualised %YoY
6 5.3
4.8 4.4 4.5 25
4.3
4 20
2.3 2.7
1.9 2.2 15
2 1.2 1.2 10
0.5 0.6
0
5
0
0
-2 -0.5 -0.9 -5
-1
-1.5-1.8 -10
-4 -15
-6 -20
12 13 14 15 16 17
-8 -7
12 13 14 15 16
Growth momentum in China holding up for now

RHB economists expect Chinas economic conditions to stabilise in 1H17, given the solid Some stability in Chinas economy for
recovery in the manufacturing sector and a speeding-up of infrastructure spending by both now but risks still weighted on the
public and private sectors. Property sales in low-tier cities could also come in better than downside going forward
previously expected in the earlier part of the year.
However, we believe there are downside risks moving into 2H17 and 2018, given the start
of the destocking process, narrowing car sales, tighter controls in the property market and
mounting external uncertainties. Meanwhile, the Peoples Bank of China (PBoC) is likely to
stay with its tightening bias, and could further raise its market-based rates in the coming
quarters.
We remain positive on Chinas economic growth in 1H17, amid:
i. More infrastructure spending by both the public and private sectors;
ii. The industrial sector continuing to enjoy relatively high profitability in the next few
months;
iii. Property sales in low-tier cities possibly performing better than expected in the near
term, given that demand has moved from the large cities.
However, the sustainability of this recovery is in question, as:
i. The Producer Price Index (PPI) is to moderate at a fast pace in 2H17 amid the rising
comparable base;
ii. Industrial inventory is likely to peak in 3Q16, and would trigger the destocking
process thereafter;
iii. Rapid growing property prices in Tier-2 and Tier-3 cities would surely result in more
tightening measures, which would then dampen property investment;
iv. Automobile sales would face more headwinds in 2H17, given front-loaded demand
and the high base effect;
v. External uncertainty would remain as another major overhang for the economy.
As such, we believe Chinas GDP growth rate may edge down to 6.6% in 2017 (2016:
6.7%) and would slow down further to 6.4% in 2018. Given the stabilised economic
conditions, the Chinese Government is likely to focus more on efforts to lower leverage
and cut debt levels. It would also implement tight controls over financial risks and fast
growing off-balance sheet assets.
The PBoC is likely to stick to a tightening stance and could raise market-based rates
further in 2017 and 2018. As such, pressures on liquidity would be on the upside. The
external uncertainty to Chinas economy stems from uncertainty over President Trumps
trade policies to reduce the US massive trade deficit with China.
12
3 April 2017
Figure 21: China is seeing a downside pressure to growth Figure 22: China threat from weak private investments
%YoY %YoY, 3mma
8.5 30
8.1 8.1 25
7.9 7.9 20
8.0
7.7
7.6 7.6 15
7.5 7.5
7.4 10
7.5
7.2
7.1
7 7
5
6.9 0
7.0 6.8 6.8
6.7 6.7 6.7
-5
Sep 13
2M14
Aug 14
Sep 15
2M16
Aug 16
Jun 14
Jun 16
May 15
Mar 15
Jul 13
Nov 13
Oct 14
Dec 14
Jul 15
Nov 15
Oct 16
Apr 14
Apr 16
6.5
6.0
12 13 14 15 16 Private Inv State-led Inv
Source: Bloomberg Source: Wind info
Group of 20 (G20) drops anti-protectionist pledge

G20 finance ministers have dropped an anti-protectionist commitment after opposition G20 pressured by the US to drop anti-
from the US. As recently as last July, the G20 had promised to resist all forms of protectionist pledge
protectionism a pledge now absent as the previous consensus on commerce is
challenged by the new US president.
Before President Trump and the rest of the groups leaders meet again in Hamburg in
July, his counterparts have little more than 100 days to gauge if the removal of those
words represents the beginning or the end of his administrations attempt to reset global
terms of trade that it deems as economically unfair.
After much wrangling, the ministers agreed that we are working to strengthen the
contribution of trade to our economies. This implies a compromise to salvage what
remained of the foundations of an understanding that the G20 had long largely taken for
granted.
One area of contention that remained relatively untouched was currencies. Despite the
Trump administrations criticism of Germanys trade surplus, US officials signed up to the
G20s prior comments, including that we will refrain from competitive devaluations and we
will not target our exchange rates for competitive purposes.
That lack of formal discord does not exclude this from also becoming another area of
contention as part of the wider trade discussion going forward.
13
3 April 2017
A dovish US Fed boosts equities
Figure 23: US Fed dot plot
Source: Bloomberg
The US Feds decision to hike rates by 25bps at its March meeting was well anticipated by The US Fed is guiding for three rate
the market. While this helped to spur investor confidence that the US economy is poised hikes in 2017
to continue growing, what encouraged markets was the central banking system of the US
dovish outlook on the pace of rate hikes going forward.
The FOMC reiterated its expectation that with the current economic condition there
would be gradual increases in the federal fund rate (FFR). The market currently expects
the US Fed to hike the rate two more times in 2017 (unchanged from its previous
projection), likely in June, then once more in September. The slight easing of the USD
also indicates that the rate hike has been fully priced in.
While higher interest rates are generally negative for equities, markets can adjust to the
rising rates as long as the pace of increase remains gradual as it is also a harbinger of
stronger economic growth to come.
The outlook for oil

Figure 24: Revised crude oil price forecast
(USD/bbl) 1Q16 2Q16 1H16 3Q16F 4Q16F 2016F 2017F 2018F

RHB's Brent average 34.5 47.5 41 50 50 45.5 60 60
Bloomberg QTD/YTD actual 34.5 46 40.3 44.5 41
Bloomberg avg. cons. Aug 2016 48.5 50 43.5 56.1 64.5
Bloomberg avg. cons. May 2016 34 41.3 37.7 43 46.5 41 55 62
source: RHB, Bloomberg
Oil markets have been relatively stable since an agreement was drawn in January Historic agreement between OPEC
between OPEC and non-OPEC members to limit production in an attempt to drawdown on and non-OPEC members to curtail
stock overhang and bring the oil market into balance. The agreement resulted in total cuts production
amounting to 1.758mbpd.
Since then, oil markets have moved in line with expectations. OPEC cuts for both January
and February have been at historical highs, with a 99%-plus compliance rate. As
expected, US shale oil production and rig counts have been increasing, while American
crude inventory remains at historic highs.
14
3 April 2017
The data coming from the US all point towards a much higher crude oil output. The US rig
count remains on an ascent now at 633 rigs after falling to a low of 316 rigs in May
2016 and peaking at 1,609 rigs in Oct 2014.
Figure 25: US rig count Figure 26: US crude oil production rising
no. of rigs
m bpd
1,800
10.0
1,600
1,400
9.0
1,200
1,000
8.0
800
600
400
7.0
200
0 6.0
Jul-201 3
Jul-201 5
Mar-20 13
Jul-201 4
Mar-20 15
Jul-201 6
Mar-20 17
Mar-20 14
Mar-20 16
Jan-20 13
Jan-20 15
Jan-20 17
Jan-20 14
Jan-20 16
Nov-2014
Nov-2015
May-2013
Nov-2013
May-2015
Nov-2016
May-2014
May-2016
Sep -2015
Sep -2013
Sep -2014
Sep -2016
Source: International Energy Agency (IEA) Source: US Energy Information Administration (EIA)
US crude oil production shows no signs of abating, increasing by 56kbpd as at 3 Mar. This US shale producers benefit from
puts total US crude oil production at 9,088kbpd (the lowest point was Jul 2016s OPEC restraint
8,428kbpd). Of this, shale oil production was 4,853kbpd.
The US Energy Information Administration (EIA) expects shale oil production to increase
to 4,962kbpd in April. Of note, shale oil production peaked in Mar 2015 at 5,469kbpd and
fell to a low of 4,684kbpd in Dec 2015. All this adds up to higher production from the US.
The EIA currently forecasts US crude oil production to increase to 9.53mbpd by end-2017
and 9.73mbpd by 2018. US crude stocks remain at historic highs, at 528mbbls. We
believe that stock would remain at lofty levels until the US driving season begins around
June-August.
Figure 27: Crude oil inventory in the US

mbbls
600.0
500.0
400.0
300.0
200.0
100.0
0.0
Source: EIA
However, at a recent conference, Saudi Arabias Oil Minister Khalid Al-Falih warned an US shale oil producers need to
audience of American producers that have benefited from the production cuts to not fall cooperate
prey to: wishful thinking that OPEC or the kingdom will underwrite the investments of
others. Saudi Arabia will not allow itself to be used by others.
Currently, the shale oil producers are producing as much as possible, while OPEC and
non-OPEC members are doing all they can to cut production so that markets can
rebalance. This cycle can only be played for a short period of time, as the shale oil
producers are enjoying all the growth at the expense of the other producers.
The question is whether Saudi Arabia is having second thoughts on the production cuts,
and whether or not it would continue to support the market. We believe that Saudi Arabias
15
3 April 2017
position has not wavered since its first production cut agreement with OPEC and
subsequently with non-OPEC producers in 4Q16.
We believe the next step would be to convince the shale oil producers to increase at a
measured pace, ie to increase in line with demand. If not, we may see another round of
price collapse. That is something that Saudi Arabia may not want to see, with national oil
company (NOC) Saudi Aramcos IPO just around the corner in 2018.
After a recent meeting of the Joint OPEC-Non-OPEC Ministerial Monitoring Committee
(JMMC), it was announced that Februarys production cut progress was satisfactory,
achieving 94% conformity and demonstrating the willingness of all participating countries
to continue their co-operation. The JMMC noted that low seasonal demand, refinery
maintenance and rising non-OPEC supply have slowed down the positive impact of the
production adjustments on inventory drawdowns. However, after the refinery maintenance
season ends, there should be some noticeable reduction in inventory.
Five members of OPEC have signalled support for a possible extension of the production Will the production cuts be extended?
cuts beyond mid-2017. Saudi Arabia has indicated that it was willing to extend the
agreement if global stockpiles remained above a 5-year high.
We believe that this Middle East nation would be looking at other countries production
cuts as well before committing to an extension. It has been reported that Russia may not
be ready to support the extension of oil supply cuts for 2H17. The Russian Government
said that it needed more time to assess the market, inventories, US production and other
non-OPEC countries. We note that Russias oil production is mostly from listed
companies, which are more difficult to control.
Figure 28: Improving demand and supply situation
(USD/bbl)
100.0 2.5
99.0 2.0
98.0
1.5
97.0
1.0
96.0
0.5
95.0
0.0
94.0
-0.5
93.0
92.0 -1.0
91.0 -1.5
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17
Oversupply/Deficit (RHS) Demand Supply
Source: EIA
Overall, we see an improving demand and supply situation, with a supply deficit of Demand and supply is slowly
0.35mbpd and 0.2mbpd in 1H17 and 2H17 respectively. We have used the International rebalancing
Energy Agencys (IEA) quarterly demand and supply numbers.
For forecasted OPEC production numbers, we have assumed full compliance, with
production of 32.5mbpd, although current production is slightly above target. For 2H17, we
have assumed OPEC production to increase to 33.2mbpd, which was the pre-production
cut level. We expect average demand to be at 97.2mbpd in 1H17 and 98.7mbpd in 2H17.
16
3 April 2017
Out of bonds into equities
Figure 29: Fixed income foreign flows Figure 30: Foreign shareholding of debt instruments
MYR bn
%
15 11.5 100
10 7.7
6.2
90
5.7 5.7 6.1
3.5 4.1 3.9 80
5 2.4
1.2 1.7 70
0 60
-1.4 50
-5 -3.4
-5.2 -5.4
-3.9 40
-10
-8.9 -8.4
-7.3 30
20
-15
10
-20 0
-19.9
-25
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
MGS Money market
Source: Bank Negara Malaysia (BNM), RHB Source: BNM, RHB
Figure 31: Total government debts maturing annually in the Figure 32: Total government bonds maturing in 2017
next decade
MYR bn MYR bn
90 18
78.0 15.5
80 69.3 71.3 16
66.8 66.9 13.5
70 14
11.5
60 12 10.5
49.0 9.3
50 10 8.5
40.2 38.3
40 31.6 8 5.8
29.0
30 6
20 4
2 1.0 1.0 0.5 1.0
10 0.0
0 0
2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Source: BNM Source: BNM
Bank Negara Malaysias (BNM) unexpected move last November to curb MYR trading on
the non-deliverable forward (NDF) market this was on top of requiring foreign banks to BNMs forex market rulings hit
provide a written commitment from trading in offshore MYR NDFs has had the investor sentiment
unintended consequence of a sell-off in the domestic bond market. Hence, the regulations
and lack of liquidity has impeded hedging for foreign investors.
While market uncertainty accompanied the adjustments to forex administration rules as
would have been expected following changes to policies of any kind this uncertainty had
subsequently eased promptly. This was BNM clarified that this was a measure to curb
excessive volatility in the currency market, in line with the central banks mandate.
We note that foreign bond holders have been net sellers totalling MYR36.5bn in Nov
2016-Feb 2017. While some portion of this bond sell-off may have exited the country, we
believe that some may have been re-allocated into equity investments or money market
instruments. The rising US interest rate environment and improving macroeconomic
environment suggests that equities are preferred over bonds.
17
3 April 2017
Figure 33: ASEAN market net foreign flows from 2016 to Figure 34: ASEAN market net foreign flows YTD 2017
2017 YTD
Thailand : 2,425.4 USDmil Malaysia : 1,291.1

USDmil
Indonesia : 1,884.7 1,400 Indonesia : 626.0
4,500
Malaysia : 698.1 1,200 Thailand : 185.0
4,000
Philippines : (-265.5) 1,000 Philippines : (348.9)
3,500
800
3,000
600
2,500
2,000 400
1,500 200
1,000 0
500 (200)
0
(400)
(500)
(600)
(1,000)
Jan-17
Jan-16
Jun-16
Nov-16
Dec-16
Aug-16
Sep-16
Jul-16
Feb-16
Feb-17
Mar-16
Apr-16
May-16
Oct-16
Mar-17
Indonesia Philippines Thailand Malaysia Indonesia Philippines Thailand Malaysia
Malaysia has enjoyed the lions share of equity flows into ASEAN in 2017 (Singapore Compelling reasons for foreign
foreign flow data is not available). We believe foreign institutional funds are increasingly investors to re-evaluate their
re-evaluating their exposure to Malaysia equities, given: weighting in Malaysia equities
i. Foreign investors have been underweight on Malaysia for the last 2-3 years note
that the combined net foreign outflow from domestic equities in 2014-2016 totalled
MYR29.8bn;
ii. Low foreign ownership on Bursa Malaysia;
iii. Depressed MYR against the USD, the MYR has lost 11% in the past 12 months
and 19.4% over the past two years;
iv. Improving macroeconomic fundamentals;
v. Improving outlook for corporate earnings in 2017.
Figure 35: Foreign ownership on Bursa Malaysia
(%) Index
29.0 2,000
26.6 1,800
27.0
25.1 1,600
25.0 24.4 24.3
24.0 1,400
23.6
23.1 23.1
23.0 22.1
22.5
22.1 22.3 22.3 22.3 22.3 22.3 1,200
21.8
21.4 1,000
20.8
21.0 800
19.5 19.2
19.0
18.6 18.5 600
19.0 18.1 17.9 17.7
17.4 17.6 17.6
17.1 400
16.5 16.5 16.6 16.5 16.5 16.7
17.0 15.7 15.7 15.8 15.7
15.3 200
15.0 0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 2017 2017
Jan Feb
in units (LHS) in RM (LHS) FBMKLCI index (RHS)
Source: Bursa Malaysia
18
3 April 2017
MYR remains subdued

Figure 36: RHBs currency forecasts
1Q17F 2Q17F 3Q17F 4Q17F 1Q18F
EUR/USD 1.06 1.04 1.06 1.07 1.08
GBP/USD 1.24 1.21 1.19 1.18 1.20
AUD/USD 0.76 0.74 0.75 0.76 0.77
USD/MYR 4.45 4.50 4.42 4.35 4.30
USD/IDR 13,350 13,500 13,300 13,300 13,400
USD/SGD 1.42 1.41 1.42 1.43 1.43
USD/KRW 1,158 1,150 1,170 1,180 1,190
USD/CNY 6.89 7.00 7.05 7.10 7.15
USD/THB 35.20 35.00 35.20 35.40 35.60
Source : Bloomberg, RHBFIC
Figure 37: Relative performance of regional currencies vs Figure 38: Relative performance of regional currencies vs
USD from 2016 USD YTD 2017
(%)
(%)
15.0 4.0
SGD
12.0
3.0
THB
9.0
2.0
6.0
IDR
3.0 1.0 MYR
IDR
0.0 THB
0.0
SGD
-3.0
MYR
-1.0 PHP
-6.0 PHP
-9.0 -2.0
Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16
USDSGD Curncy USDIDR Curncy USDMYR Curncy USDSGD Curncy USDIDR Curncy USDMYR Curncy
USDPHP Curncy USDTHB Curncy USDPHP Curncy USDTHB Curncy
Figure 39: DXY Index

USD
104.0
102.0
100.0
98.0
96.0
94.0
92.0
90.0
Source: Bloomberg
19
3 April 2017
As the Malaysian economy is still expected to grow at a steady pace, we expect the MYR
to recover gradually over time on steadier commodity prices and if policies by President
Trumps administration start to disappoint. Nevertheless, volatility in the MYR could persist
in the near term, given:
i. Expectation of further US rate hikes;
ii. Vulnerability from large foreign holdings of fixed income instruments in the country;
iii. Volatility of oil prices.
On the currency front, the MYR strengthened by 1.1% against the USD to MYR4.438 for
the YTD-17 Mar, after falling by 4.1% in 2016 and 18.6% the year before. The stabilisation
in MYR was likely attributed to the implementation of measures by BNM that included
requiring exporters to convert 75% of their export proceeds into MYR, and restrictions on
local companies with borrowings in the local currency to invest in foreign currency-
denominated investments.
Similarly, the stabilisation of oil prices may also have provided some support to the MYR. The MYR is undervalued
We believe the MYR had overshot on the downside, due to the strengthening of USD and
earlier uncertainty caused by speculation by offshore traders. The latter was subsequently
curbed by BNM.
On balance, the MYR is expected to trade at the MYR4.30-4.50 range against the USD,
before settling at MYR4.35 per USD at the end of the year as capital flows improve. We
expect the MYRs discount to its fair value to gradually narrow on the back of improving
fundamentals and diminishing concerns of regulatory risk. Furthermore, once the interest
rate hike cycle in the US hits the expected ceiling, EM sentiment should improve.
Forex reserves stabilise

Malaysias forex reserves remained stable at USD94.9bn at mid-March, which was Stable reserves
unchanged from the previous month. This suggests that the outflow of foreign capital
could have subsided in February, while the requirement to convert 75% of export
proceeds may have helped as well. This was despite a sizeable MYR9bn of MGS that
reached maturity during the month. In MYR terms, forex reserves rose by MYR300m to
MYR426.3bn in the same period due to earlier uncertainty after the central bank
introduced measures to stop speculation by offshore traders.
Meanwhile, the amount of excess liquidity (including repos) mopped up by BNM rose to an
estimated MYR138.3bn as at end-Feb 2017, bouncing back from its lowest level in 17
months of MYR130.5bn at end-Jan 2017 and compared to MYR140.4bn at end-Dec 2016.
This was mainly due to the drawdown of deposits by the Government from the central
bank that had boosted liquidity.
Rosier domestic growth outlook helped by export recovery

Malaysias real GDP growth picked up to 4.5% YoY in 4Q16 from +4.3% in 3Q16 and Exports boost GDP growth
compared to +4% in 2Q16. This was mainly supported by a stronger-than-expected
recovery in exports, which grew 1.3% in 4Q16, reversing from a decline of 1.3% in the
previous quarter.
RHB economists now forecast Malaysias real GDP to grow by a faster pace of 4.5% YoY
for 2017 from +4.2% in 2016. This is on account of:
i. A stronger recovery in exports;
ii. A sustained increase in domestic demand on the back of resilient consumer
spending;
iii. Fiscal spending that could help growth.
20
3 April 2017
Figure 40: Real GDP by expenditure Figure 41: Real GDP by sector
%YoY GDP %YoY
25 Domestic Demand 20 GDP
20 Exports Manufacturing
15
15 Services
10 10
5 5
0 0
-5 -5
-10
-10
-15
-20 -15
-25 -20
06 07 08 09 10 11 12 13 14 15 16 06 07 08 09 10 11 12 13 14 15 16
Source: Department of Statistics (DoS), RHB Source: DoS, RHB
Export recovery to continue in 2017

After suffering a decline of 8.6% YoY in Oct 2016, Malaysias exports recovered strongly, 3.9% real export growth in 2017
growing 10.7% and 13.6% in Dec 2016 and January respectively. This was due to higher
commodity prices and robust E&E exports. RHB economists are forecasting exports to
grow by a faster pace of 3.9% in 2017 from +0.1% in 2016, driven by:
i. Recovery in demand for commodity products;
ii. A pick-up in global semiconductor sales since late 2016, which translates to higher
E&E exports;
iii. Improving global trade outlook as global growth prospects improve.
Figure 42: Malaysia commodity exports Figure 43: Semiconductor sales

%YoY %YoY
200.0 Brent Crude Oil Prices 80.0
150.0 Malaysia's Commodity Exports 60.0
100.0 40.0
20.0
50.0
0.0
0.0
01 03 05 07 09 11 13 15 17
-20.0
-50.0
-40.0 Semiconductor Sales Growth
-100.0 Malaysia's E&E Exports
95 97 99 01 03 05 07 09 11 13 15 17 -60.0
Source: DoS, Bloomberg Source: DoS, SIA
Oil prices rebounded in recent months on the back of a production cut agreement after
averaging USD45 per bbl in 2016, while CPO prices also crept up in late 2016 due to tight
supply following the El Nio weather phenomena earlier in the year. Overall, commodity
exports, which represent about 12% of total exports, are expected to rebound to a growth
in 2017. This was after recording back-to-back declines of 20.5% in 2015 and 13.6% in
2016.
Resilient growth in E&E exports is also expected to boost total exports in 2017. Based on
the Semiconductor Industry Association (SIA) global sales report, global semiconductor
sales slipped into a decline of 0.8% in 2016 following a growth of +1.1% in 2015 and
+10% in 2014.
This was reflected in the slowdown in the countrys E&E exports to 3.5% during the year,
after growing rapidly at a pace of 8.5% in 2015 and 8.1% in 2014.
However, global semiconductor sales have recovered since Aug 2016 and it grew at its
strongest pace in more than six years at 13.9% YoY in January from +1.3% in Aug 2016
and after dipping to a decline of 7.3% in May 2016. We expect this recovery trend to be
sustained into 2017.
The SIA expects the industry to grow by 3-3.5% globally for 2017, picking up from 1.5% in
2016. This comes on the back of stronger demand from the US, Japan and the Asia-
Pacific region as a whole. This would likely translate into continued healthy growth for
Malaysias E&E exports for 2017 after recording a 3.5% growth in 2016.
21
3 April 2017
Exports of non-E&E products, which accounted for 51.2% of total exports, should also
maintain a resilient growth pace for 2017 (+3.6% in 2016). This is in line with an
improvement in global economic growth. Growth of 13.8% YoY in Dec 2016 from +6.9% in
Nov 2016 was achieved from higher shipments of petroleum products, supported by better
crude oil prices. Likewise, shipments of rubber products, mainly rubber gloves (70% share
of rubber products), are likely to improve as well during the year. This is supported by the
growing external demand.
Modest improvement in domestic demand
Figure 44: MIERs Business Conditions Index Figure 45: MIERs Consumer Sentiment Index
%YoY Index
40.0 130.0
140
Threshold
120
20.0 110.0 Threshold
100
80
0.0 90.0
06 07 08 09 10 11 12 13 14 15 16 60
40
-20.0 70.0
20
0
-40.0 Private Investment (LHS) 50.0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Business Conditions Index (RHS)
Source: Malaysian Institute of Economic Research (MIER), RHB Source: MIER, RHB
Based on 4Q16 GDP data, domestic demand has moderated on the back of slower private
consumption. Indeed, consumer spending slowed to 6.2% YoY in 4Q16 from +6.4% in the
previous quarter. This was mirrored in the drop in Malaysian Institute of Economic
Researchs (MIER) Consumer Sentiment Index (CSI) to 69.8 in 4Q16 its lowest level in
four quarters from 73.6 in 3Q16.
Tepid job market prospects and income growth was a drag on sentiment as the
unemployment rate inched higher to 3.5% of the labour force in 2016 from 3.4% a year
earlier. Auto sales plunged 13% to 580,136 units in 2016, its lowest level in seven years,
after stagnating in 2015.
Looking ahead, the growth in private consumption is expected to moderate to 5.7% YoY in Private consumption to stay resilient
2017 from +6.1% in 2016, mainly on account of the elevated household debt of 88.4% of
GDP as at end-2016 and the rising cost of living.
Nevertheless, consumer spending is expected to be resilient in 2017, as the full-year
impact from a hike in the minimum wage and civil servants pay in Jul 2016, as well as the
reduction in employees contributions to the Employees Provident Fund (EPF) (it took
effect in Mar 2016) is likely be felt in 2017.
In addition, the Government increased its cash assistance via 1Malaysia Peoples Aid Infrastructure programmes are picking
(BR1M) scheme for the low-income group of population and introduced measures to help up pace
the Medium-40 income segment of the population. The slowdown in private consumption,
however, would likely be cushioned somewhat by stable private investment in 2017.
The ongoing implementation of projects under the various economic programmes, in
particular, the construction of mega-infrastructure projects is likely to continue to lend
support to private investment in 2017. Note that construction work on the Mass Rapid
Transit Line 2 (MRT2) project commenced in Sep 2016. This would likely be aided by the
construction of the Light Rail Transit Line 3 (LRT3) and various highway projects.
Likewise, the construction of the East Coast Rail Link (ECRL) and the Pan-Borneo
Highway would also provide a lift to private investment.
In addition, the 1Malaysia Housing Programme (PR1MA) initiative is expected to complete
15,000 homes nationwide in 2017, supporting continued investments in the housing
sector.
Nevertheless, investments would still be weighed down partly by subdued capex spending Oil & gas capex spending remains
in the oil & gas sector as well as a slowdown in private residential and commercial subdued
construction activities. In 2016, Petronas reduced its capex by 22% YoY to MYR50.4bn,
but expects to spend MYR60bn in capex in 2017. As a whole, we project private
investment to pick up modestly by 4.6% in 2017 from +4.4% in 2016.
22
3 April 2017
Figure 46: GDP by expenditure components (at constant 2010 prices)

2015 2016 2016 2017(E) 2018(F)
3Q 4Q 1Q 2Q 3Q 4Q
% YoY
Consumption:
Private sector 4.1 4.9 5.3 6.3 6.4 6.2 6.1 5.7 5.6
Public sector 3.5 3.3 2.8 5.5 2.3 -4.2 1.0 3.4 2.9
Gross fixed capital formation 4.2 2.7 0.1 6.1 2.0 2.4 2.7 3.4 4.5
Private sector 5.5 4.9 2.2 5.6 4.7 4.9 4.4 4.6 5.0
Public sector 1.8 0.4 -4.5 7.5 -3.8 -0.3 -0.5 1.0 3.4
Aggregate domestic demand 4.1 4.0 3.6 6.2 4.6 3.3 4.4 4.7 4.9
Exports of goods & services 3.2 4.0 -0.5 1.0 -1.3 1.3 0.1 3.9 3.2
Imports of goods & services 3.1 4.0 1.3 2.0 -2.3 0.7 0.4 3.4 2.7
GDP 4.7 4.5 4.2 4 4.3 4.5 4.2 4.5 4.7

Note: F = RHB forecasts, E = RHB estimates
Source: DoS, RHB
On the public expenditure side, fiscal consolidation is likely to persist, although the Higher oil prices offer some breathing
stabilisation of oil prices at around USD50-55 per bbl could provide some relief to the room
Governments budget in 2017. Likewise, government revenue is expected to improve on
the back of the formation of the Collection Intelligence Arrangement (CIA) to improve tax
collection. Indeed, the Government recorded a collection of MYR41.2bn in GST in 2016,
higher than the previous estimate of MYR39bn.
For 2017, the Government is projecting GST collection of MYR40bn, although we expect
this target to be exceeded. This would allow some room for the Government to spend, and
lowers the risk of not achieving its budget deficit target of 3% of GDP.
Although public consumption was a drag to growth in 2016 (+1%), we expect it to grow at
a quicker pace of 3.4% this year.
We see public investment growing by 1% in 2017, reversing from a 0.5% decline in 2016,
while overall domestic demand would pick up modestly to 4.7% in 2017 from +4.4% in
2016.
Improving external activities to drive manufacturing output higher in 2017

Figure 47: Approved manufacturing Figure 48: Industrial production
MYRbn %YoY
40 Domestic Foreign 30 IPI Manufacturing Mining
20
30
10
20 0
10 -10
-20
0
-30
10 11 12 13 14 15 16 17
Source: Malaysian Investment Development Authority (MIDA), RHB Source: DoS, RHB
The manufacturing sector is expected to be the main beneficiary of the improvement in the Manufacturing growth to accelerate in
external sector. Meanwhile, a rebound in agriculture output is projected for 2017 due to 2017
improving weather conditions following the El Nio phenomenon last year.
Value-added segments in the manufacturing sector are projected to grow by a faster pace
of 4.7 % in 2017 from +4.4% in 2016. This is on the back of the recovery in external trade
activities and sustained domestic demand. The manufacturing production index eased to
4.3% YoY in 2016, down from +4.8% in 2015. However, we expect the trend to reverse
with a stronger growth in 2017.
23
3 April 2017
Indeed, domestic-oriented industries are likely be supported by the resilient consumer-

related cluster such as food & beverages (F&B) and textiles, while the construction-related
cluster such as the production of non-metallic mineral products, basic metal & fabricated
metal products are expected to be driven by the ongoing progress of infrastructure
projects implementation.
Export-oriented industries are expected to hold up in 2017, led by the E&E segment. This
is as global semiconductor demand is picking up momentum. At the same time, growth in
the resources-based industries such as the petroleum, chemical, rubber & plastic products
cluster would likely be sustained amid better international commodity price outlook.
Agriculture output is projected to rebound into a growth of 3.1% in 2017, from a decline of
5.1% in 2016, as the production of crude palm oil and rubber the two largest
components in the sector are envisaged to recover. However, slowing demand for palm
oil from China and India would cap some of the upside.
On a different note, the growth in the broad services sector is projected to hold up at 5.2%
in 2017, albeit at a more moderate pace from +5.6% this year and compared to +5.1% in
2015. Meanwhile, the accommodation & restaurants and wholesale & retail subsectors are
likely to hold up during the year, underpinned by resilient consumer spending and
investment as well as an increase in tourism activities.
Real estate & business services sub-sector is envisaged to be slower, as demand for
private housing and commercial properties slow, but would likely be cushioned by the
relaxation of requirements for the purchase of PR1MA homes (affordable housing) by the
Government and the introduction of the Special PR1MA End Financing (SPEF) scheme to
boost PR1MA home sales and ownership.
Although growth of the information & communications subsector is expected to come off
from high-base effects, following strong expansion in recent years, this sub-sector would
still likely play the lead role in driving services activities. This is underpinned by strong
demand for cellular and broadband services amid promotions by the telecommunications
industry players. Likewise, ongoing fiscal consolidation efforts are expected to cap the
expansion in government services.
Figure 49: GDP by industrial origin (at constant 2010 prices)

2015 2016 2016 2017E 2018F
3Q 4Q 1Q 2Q 3Q 4Q
% YoY
Agriculture 2.3 1.5 -3.8 -7.9 -6.1 -2.4 -5.1 3.1 3.2
Mining 5.1 -1.3 0.3 2.6 3.0 4.9 2.7 1.1 2.0
Manufacturing 4.9 5.0 4.5 4.1 4.2 4.8 4.4 4.7 4.5
Construction 9.9 7.4 7.9 8.8 7.9 5.1 7.4 5.2 6.5
Services 4.4 5.0 5.1 5.7 6.1 5.5 5.6 5.2 5.3
GDP 4.7 4.5 4.2 4.0 4.3 4.5 4.2 4.5 4.7
Note: F = RHB forecasts, E =RHB estimates
Source: DoS
Construction activities are envisaged to ease to a growth of 5.2% this year from +7.4% in
2016. This is due to the ongoing slowdown in residential and non-residential property
demand amid stricter lending rules.
However, the sector is expected to be underpinned by continued work on infrastructure
projects, particularly civil engineering activities such as the Pan-Borneo Highway, MRT2,
the Pengerang Industrial Complex and the ECRL. As at 2016, civil engineering
construction accumulated 34.2% of total construction work done. Additionally, PR1MA is
targeting to build 15,000 homes nationwide in 2017, further supporting residential
construction.
Meanwhile, mining output is expected to slow down to 1.1% in 2017 from +2.7% for 2016.
This is partly due to voluntary oil output cuts by Petronas, in line with an agreement by
OPEC members and some non-members to hold up crude oil prices. Based on a pact
agreed in Dec 2016, Petronas is expected to reduce production by 20,000bpd,
representing a 3.1% cut from the 684,000bpd average in 2016. This would be partly
mitigated by the completion of the national oil companys first floating LNG facility
24
3 April 2017
(PFLNG1) last year. The vessel, which has a processing capacity of 1.2m tonnes pa, is
expected begin commercial operations in 1Q17.
Higher oil price relieves fiscal pressures

The Governments fiscal position would likely get some relief from the higher average oil Current oil price higher than the
prices that are trending above the assumption of USD45 per bbl used in Budget 2017. If USD45 per bbl assumption in the
oil prices stabilise around the USD50-55 per bbl range for the rest of the year, the boost to budget
government revenue could amount to MYR1.5-3bn.
With the additional oil revenue from the rise in oil prices, the Government would likely use
the additional topline contributions as a safety net on any uncertainties. At the same time,
it could also use it to repay its debt to maintain the debt level under 55% of GDP in 2017
vs 52.7% in 2016.
Revenue for 2016 fell by 3.1% to MYR212.4bn in 2016, from -0.7% or MYR219.1bn in the
previous year. This was mainly due to lower oil revenue on the back of lower oil prices
during the year and partly mitigated by higher GST collection during the year.
Government opex also declined by 3.1% to MYR210.2bn in 2016, from MYR217.0bn in
2015. Gross development expenditure slowed down to 2.9% or MYR42bn in 2016, after
increasing by +3.2% to MYR40.8bn in the previous year. The drop in spending by the
Government was mostly in line with the budget recalibration efforts to reduce its
expenditure due to a weaker oil price outlook in early 2016.
On the expenditure front, the Government is aware of the large share of emoluments and
pensions in opex and intends to cap the number of civil servants and implement reforms
on pensions. It also plans to plug leakages and continue with further subsidy
rationalisation.
A supplementary budget tabled on 21 Mar by the Government, seeking an additional Another supplementary budget
allocation of MYR3.08bn for 2016 is not likely to worsen the overall budget deficit of
MYR38.7bn or 3.1% of GDP in 2016, as the actual operating expenditure was MYR2.25bn
less than budgeted. This amount was transferred to development expenditure that
requires disclosure in the form of a supplementary bill.
The supplementary bills are tabled for expenditure on the services not provided in the
appropriated recalibrated budget in 2016. The largest portion sought in the supplementary
budget was for contributions to statutory funds totalling MYR2.25bn.
As a whole, with the improvement in oil prices, the Government is expected to achieve its
budget deficit target of 3% of GDP for 2017, continuing with its fiscal consolidation efforts
from the 3.1% deficit registered in 2016.
Figure 50: The Malaysian Governments budget deficit
MYRbn (%)
Budget Deficit (LHS)
-44.0 -5.3 % of GDP (RHS) -6
-43.0 -4.7
-4.3 -5
-42.0
-41.0 -3.8 -4
-40.0 -3.4
-3.2 -3.1
-39.0 -3
-38.0
-37.0 -2
-36.0 -1
-35.0
-34.0 0
10 11 12 13 14 15 16
Source: BNM, RHB
25
3 April 2017
Figure 51: The Malaysian Governments financial position

2015 1 20161 20172 20173
Brent crude prices USD52/bbl USD46/bbl USD45/bbl USD50-55/bbl
MYRbn MYRbn MYRbn % chg MYRbn % chg
Revenue 219.1 212.4 219.7 3.4 222.0 4.5

Total expenditure 257.8 251.1 260.8 3.9 263.1 4.8
Opex 217 210.2 214.8 2.2 217.7 3.6
Gross development expenditure 40.8 42.0 46.0 9.5 45.4 8.1
Less: loan recoveries 1.5 1.1 0.7 -36.4 1.0 -9.1
Net development expenditure 39.3 40.9 45.3 10.8 44.4 8.6
Overall balance -37.2 -38.7 -40.3 4.1 -40.1 3.6
% to GDP -3.2 -3.1 -3.0 -3.0
Note: 1 = Actual figures, : 2 = Ministry of Finance (MoF) estimate, 3 = RHB estimates
Source: 2017 Budget, MoF
Money supply (M3) to recover on improving economic growth

M3 growth picked up 4.4% YoY in Jan 2017 from +3% in Dec 2016 and compared to
+2.6% in Dec 2015, after a rebound in demand for funds from external operations to 2.2%
Stronger business loan growth was
offset by slower lending to
YoY in Jan 2017 this was following a 4-month decline in Sep-Dec 2016. This indicated households
the return of fund inflows into the country.
This was partly offset by the slowdown in the demand for funds by the public sector, while
the demand for funds by the private sector inched lower in January.
Narrow money M1 growth gained pace to 6.5% YoY in January from +5.7% in the
previous month and compared to +4.1% in Dec 2015. Overall, monetary growth showed a
marked recovery after hitting a low of 0.9% in Mar 2016.
Moving forward, we expect M3 to grow 4.5% in 2017, from 3% registered last year, on the
back of stronger projected economic growth.
Loan growth accelerated to 5.6% YoY in January from +5.3% in Dec 2016 but still below
the +7.9% registered in 2015. This was attributed to acceleration in the growth of
corporate loans to 5.4% YoY during the month from +5% in Dec 2016 from a pick-up in
loans to the transport & storage, wholesale & retail, construction and financing &
insurance sectors. Meanwhile, loans extended to the manufacturing sector rebounded into
a growth, following a 7-month decline.
Household sector loans slowed to 5.2% YoY in January from +5.3% in the previous month
after moderation in residential property loans. Meanwhile, the growth of loans extended for
personal use, credit cards and purchase of durable goods also slowed in January.
These were mitigated by the slower rate of decline in loans extended for the purchase of
passenger cars during the month. Household loans have been unwinding gradually since
hitting a peak of +13.9% in late 2010. This was after BNMs introduction of macro-
prudential measures in 2012 and, thereafter, followed by tighter credit conditions and
property cooling measures in 2013.
These measures were meant to rein in the elevated household debt of 88.4% of GDP as
at end-2016. Given the prevailing tight credit conditions and in line with slowing household
loan growth, we project loan growth to remain flattish at around 5% in 2017 from +5.3% in
2016.
26
3 April 2017
Figure 52: Pick-up in money supply Figure 53: Stabilising loan growth
%YoY %YoY Loan Growth
20 M1 20 Deposit Growth
M3
15 15
10 10
5
5
0
0
10 11 12 13 14 15 16 17
-5
-5
11 12 13 14 15 16 17
Source: BNM, RHB Source: BNM, RHB
Current account surplus to widen in 2017

Given the rebound in global merchandise trade activity and the recovery in the Current account still in surplus
commodities sector, Malaysias export growth is envisaged to grow at a faster pace in
2017. This would likely contribute to a pick-up in merchandise surplus.
As it stands, the commodity surplus has widened by 19.7% QoQ to MYR30.4bn in 4Q16,
from 5.8% or MYR25.4bn in 3Q16. This was along with a rally in international commodity
prices, with oil prices being lifted following an OPEC members and non-members
agreement to curb production.
As a result, Malaysias current account surplus more than doubled in 4Q16 to MYR12.2bn,
from the preceding quarter. On a different note, the services account is projected to record
a larger deficit in 2017, on the back of larger net payments for construction & transport
services amid the ongoing implementation of infrastructure projects in the country.
Figure 54: Current account balance
MYRbn
30.0
25.0
20.0
15.0
10.0
5.0
0.0
10 11 12 13 14 15 16
Source: BNM, RHB
27
3 April 2017
Figure 55: Commodities trade balance

Net Net
MYRbn MYRbn
3Q16 4Q16
Rubber 0.8 1.1
Palm oil 11.7 11.7
Crude oil 2.3 3.2
Petroleum products -1.5 -1.0
LNG 6.9 9.6
Timber 5.2 5.8
Surplus from commodities 25.4 30.4
Total trade surplus 18.0 27.5
Source: DoS, RHB
Similarly, the deficit in the income account is also expected to widen, partly due to the
larger repatriation of income by foreign workers in Malaysia. As a whole, we expect the
current account surplus of the balance of payments to widen to MYR33.7bn or 2.6% of
GDP in 2017, from a surplus of MYR25.1bn or 2% of GDP in 2016.
The financial account registered a smaller outflow of MYR4.2bn in 2016, compared to an
outflow of MYR50.9bn in 2015, as inflow of direct investment improves. Meanwhile, the
outflow of portfolio investments subsided during the year.
In 4Q16, portfolio outflows accelerated due to expectations of a stronger US economy
lifted by President Trumps fiscal policy promises and uncertainty caused by the BNMs
initiatives to stop currency speculation.
Portfolio investment outflows are expected to continue in 2017, albeit at a slower pace.
This is given further interest rate hikes in the US. Outflows in the fixed income market
likely to remain sizeable due to increasing number of MGS that are maturing during the
year. This would be partly mitigated by the equity market registering net inflows on
improved fundamentals and renewed interest in EM equities.
Continued inflows of foreign direct investment (FDI) into Malaysia should also provide
some support to the financial account, aided by the Governments investment promotion
effort and an improvement in global economic environment.
As a whole, the financial account is envisaged to record a smaller net outflow of
MYR2.3bn, from a net outflow of MYR4.2bn in 2016. After taking into account a deficit in
the errors and omissions, which include the revaluation gain/loss from the forex reserves,
the overall balance of payments is projected to register a bigger surplus of MYR21.1bn in
2017 from a surplus of MYR15bn in 2016.
Figure 56: Balance of payments

2015 2016
2016 2017E 2018F
2Q 3Q 4Q 1Q 2Q 3Q 4Q
(MYRbn)
Current account 8.1 4.7 10.5 5.0 1.9 6.0 12.2 25.1 33.7 41.1
(% of GDP) (2.9) (1.6) (3.5) (1.7) (0.6) (1.9) (3.7) (2.0) (2.6) (3.0)
(% of GNI) (2.9) (1.7) (3.6) (1.8) (0.6) (2.0) (3.8) (2.1) (2.7) (3.1)
Goods 23.6 27.2 31.1 23.5 19.8 26.5 31.4 101.2 112.9 113.1
Services -5.0 -6.0 -6.4 -6.8 -4.6 -5.1 -6.0 -22.6 -24.0 -18.7
Income -4.6 -10.6 -9.1 -6.7 -8.2 -10.8 -9.0 -34.7 -35.8 -33.2
Current transfers -5.9 -5.9 -5.0 -4.9 -5.1 -4.6 -4.1 -18.7 -19.5 -20.1
Capital account -1.1 0.0 0.0 0.0 0.1 0.0 0.0 0.1 0.2 0.2
Financial account 5.7 -30.7 3.9 5.8 9.5 -6.3 -13.2 -4.2 -2.3 -2.0
Errors & omissions* -4.3 43.0 -20.4 -38.4 -2.7 14.9 20.1 -6.0 -10.0 -3.0
Overall balance 8.5 17.0 -6.0 -27.6 8.8 14.6 19.2 15.0 21.1 36.3
Outstanding reserves^ 398.1 415.1 409.1 381.6 390.4 405.0 424.2 424.2 445.8 474.3
(USD)^ 105.5 93.3 95.3 97.0 97.2 97.7 94.6 94.6 102.5 113.5
Note: ^As at end-period
Note 2: *Reflects mainly revaluation gains/losses from MYR depreciation/appreciation and statistical discrepancies.
Source: DoS, RHB
28
3 April 2017
Higher inflation from cost-push factors
Figure 57: Consumer Price Index (CPI) Figure 58: Inflation and Overnight Policy Rate (OPR)
%YoY (%)
10 OPR (RHS)
5.0
Total CPI 8 Headline Inflation (LHS)
4.0 Core CPI
6
3.0 4
2
2.0
0
1.0 -2
0.0 -4
05
06
07
08
09
10
11
12
13
14
15
16
17
12 13 14 15 16 17
Source: DoS, RHB Source: BNM, RHB
The headline inflation rate picked up significantly to 3.2% YoY in January, ie the quickest
pace in 11 months, from +1.8% in Dec 2016 and Nov 2016. This was mainly on account of
the upward adjustment of fuel prices during the month, which led to higher transport costs
(+8.3% YoY) in the month under review.
RON95 petrol prices rose 10.5% in January, following a 2.6% drop in the preceding
month, in line with an increase in crude oil prices. Fuel prices saw another rise 9.5% in
February, which could assert further upward pressure on inflation.
Meanwhile, the core inflation rate, which excludes nine of the most volatile items of fresh
foods as well as administered prices of goods and services ticked higher to 2.3% YoY
in January from +2.1% in Dec 2016.
Overall, we are of the view that several cost-push developments would boost inflationary Mainly cost push inflation
pressure in the months ahead. One of it would likely be firmer oil prices the fuel and
lubricants sub-group accounts for a 7.8% weightage in Malaysias overall Consumer Price
Index (CPI).
Likewise, the upward revision in the prices of several administered goods prices would
also bolster prices in the months ahead, considering that the Government removed
subsidies for cooking oil in Nov 2016 and raised sugar prices by 3.9% in Mar 2017.
The weaker MYR would also lead to higher prices of imported goods, although the pass-
through effect to consumer prices may be somewhat limited due to weak demand and low
import content (only ~7%) in the CPI. As a whole, we envisage the headline inflation rate
to pick up to 3% in 2017 from 2.1% in 2016.
Overnight Policy Rate (OPR) likely to remain unchanged in 2017

BNMs Monetary Policy Committee (MPC) kept the OPR unchanged at 3% for the fourth
consecutive meeting on 2 Mar. This was after reducing it by 25bps in Jul 2016. This came
within expectations amid the continued weakness in MYR and a surge in monthly inflation
in January.
The central bank is of the view that at the current OPR is accommodative and supportive
of economic activity. BNM projects headline inflation rate to be higher at 3-4% in 2017,
reflecting the pass-through impact of the increase in global oil prices and domestic retail
fuel prices. This is in line with our projection for higher inflation this year.
We are of the view that BNM is to maintain the OPR at the current level of 3% in 2017. A 25bps OPR hike in 2017 cannot be
This is with the rise in inflation and weakness in MYR limiting its capacity to cut interest ruled out
rates while the prospect of a hike is capped by an environment of moderate growth in
domestic demand. That said, a 25bps rate hike should not be completely ruled out if
domestic demand growth recovers faster than expected and inflation exceeds
expectations.
29
3 April 2017
Dec 2016 quarter results cement expectations for earnings recovery

Corporate Malaysia returned to form, delivering a more than respectable set of earnings More encouraging Dec 2016 quarter
for the Dec 2016 quarter. 18.7% of the stocks under our coverage beat expectations, while earnings
just 24.6% were below. This was a sharp improvement from the preceding quarter and
brought the misses to beats ratio down to 1.3x (Sep 2016: 4.3x). In fact, the ratio of stocks
reporting disappointing earnings is the lowest seen in the past 12 quarters.
Although only earnings in the oil & gas sector were adjudged to have come in above
expectations, the plantations, banks, logistics and property sectors all had more beats
than misses. Even the much-maligned auto sector reported earnings in line for the first
time in 15 quarters.
We also saw positive revisions to market earnings, with forecasts for 2017 and 2018
raised by 2.1% in each year. Positive earnings revisions were notable in the utilities,
plantations, logistics, and auto sectors.
The large-cap names in the FBM KLCI performed well with more stocks (five) beating
estimates than in the preceding quarter (three). The beats were contributed by the
plantations, oil & gas, banks and telecom sectors.
The component stocks also saw positive revisions to estimates with forecasts raised by
2.8% and 2.2% for 2017 and 2018 respectively. While we were already forecasting a
recovery in earnings in 2017, the Dec 2016 quarterly results cemented expectations that
the recovery looks to be sustainable when compared to the false dawn seen over the last
three years.
We recently upgraded the banks, technology and healthcare sectors to OVERWEIGHT
(from Neutral), after the recommendation upgrade for Malayan Banking (Maybank), three
technology stocks and IHH Healthcare. Other OVERWEIGHT sectors include oil & gas,
construction, aviation, basic materials and utilities.
The plantation sector was downgraded to UNDERWEIGHT (from Neutral), on
expectations that CPO prices are heading lower. This is given the recovery in production
and bumper soybean harvest in South America. Auto was raised to NEUTRAL (from
Underweight) following the recommendation upgrade for UMW. We have NEUTRAL calls
on the remaining sectors.
More optimistic on a sustainable corporate earnings recovery in 2017

Figure 59: Earnings outlook and valuations
FBM KLCI RHB BASKET
COMPOSITE INDEX @ 1,745.2 2015 2016 2017F 2018F 2015 2016 2017F 2018F
17 Mar 2017
EBITDA growth (%) 2.4 5.2 9.2 5.1 1.5 4.4 8.9 5.3
Pre-tax earnings growth (%) (5.3) 6.2 9.2 5.6 (8.1) 7.0 11.0 7.5
Normalised earnings growth (%) 1.5 (4.1) 12.8 5.5 (2.3) (1.2) 14.4 7.5
Normalised EPS (sen) 44.0 41.7 46.6 49.0 26.4 25.4 28.6 30.6
Normalised EPS growth (%) 0.3 (5.2) 11.7 5.2 (6.5) (3.9) 12.9 7.0
Normalised EPS growth (%) ex-plantation 4.3 (5.4) 9.8 5.1 (2.9) (4.2) 10.8 7.1
Prospective P/E (x) 17.3 18.3 16.4 15.6 18.0 18.5 16.4 15.3
Price/EBITDA (x) 9.5 9.2 8.5 8.1 9.1 8.9 8.3 7.9
Price/Bk (x) 2.0 1.8 1.7 1.6 1.8 1.7 1.6 1.5
Price/NTA (x) 2.4 2.2 2.0 1.9 2.2 2.1 1.9 1.8
Net interest cover (x) 11.1 8.4 10.7 11.6 6.1 5.7 7.3 7.8
Net Gearing (%) 33.8 35.8 30.8 24.9 44.2 45.4 41.3 36.3
EV/EBITDA (x) 7.5 7.4 6.7 6.2 8.5 8.4 7.7 7.2
Div Yld (%) 3.0 3.0 3.1 3.3 3.1 2.9 3.1 3.2
ROE (%) 11.3 10.0 10.5 10.4 10.1 9.2 9.9 10.1
Note: FBM KLCI stocks not under our coverage = HLFG, PPB, Petronas Dagangan, RHB Bank, YTL and Hap Seng Consolidated.
Source: Bloomberg, RHB
30
3 April 2017
Figure 60: FBM KLCI weightings & valuations

Market cap Weight EPS growth (%) P/E (X)
MYRbn (%) FY16 FY17F FY18F FY16 FY17F FY18F
AMMB 14.6 1.6 2.0 1.0 4.8 11.0 10.9 10.4
CIMB 49.2 5.3 (2.6) 18.6 10.4 14.4 12.2 11.0
HL Bank 26.0 2.8 (21.1) 0.3 5.7 13.6 13.6 12.9
Maybank 88.4 9.6 (9.8) 14.3 3.8 14.5 12.6 12.2
Public bank 77.9 8.5 2.7 0.4 4.9 15.0 14.9 14.2
Banking 256.2 27.8 (5.7) 8.6 5.6 14.3 13.1 12.4
IJM Corp 12.3 1.3 (16.9) 30.9 4.3 21.1 16.1 15.5
Construction 12.3 1.3 (16.9) 30.9 4.3 21.1 16.1 15.5
BAT 13.7 1.5 (25.8) 5.1 7.9 20.3 19.3 17.9

Consumer 13.7 1.5 (25.8) 5.1 7.9 20.3 19.3 17.9
Genting 36.6 4.0 (25.7) 11.9 7.3 17.6 15.7 14.6

Genting Malaysia 32.5 3.5 27.4 6.5 10.5 20.5 19.2 17.4
Gaming 69.1 7.5 (9.4) 9.6 8.7 18.8 17.2 15.8
IHH Healthcare 49.2 5.3 (13.1) 39.2 30.4 62.4 44.8 34.4
Healthcare 49.2 5.3 (13.1) 39.2 30.4 62.4 44.8 34.4
Westports 13.5 1.5 24.5 (0.6) 2.1 21.1 21.3 20.8

Logistic 13.5 1.5 24.5 (0.6) 2.1 21.1 21.3 20.8
Astro 14.9 1.6 3.8 13.4 6.9 23.3 20.5 19.2

Media 14.9 1.6 3.8 13.4 6.9 23.3 20.5 19.2
MISC 32.8 3.6 (23.7) 14.3 9.8 14.2 12.4 11.3

Petronas Chemicals 59.4 6.5 5.4 23.5 0.6 20.3 16.4 16.3
Oil & Gas 92.2 10.0 (9.8) 19.4 4.5 17.6 14.7 14.1
IOI Corp 29.6 3.2 (24.4) 57.4 (3.0) 38.4 24.4 25.1
KLK 26.4 2.9 28.4 34.5 5.6 23.7 17.6 16.7
Sime Darby 58.6 6.4 (5.6) 32.7 11.8 35.0 26.4 23.6
Plantation 114.5 12.4 (2.6) 37.9 6.3 32.2 23.2 21.9
KLCCP Stapled 14.7 1.6 5.2 (2.0) 5.6 21.8 22.2 21.0
Property 14.7 1.6 5.2 (2.0) 5.6 21.8 22.2 21.0
Axiata 43.2 4.7 (32.6) 24.8 11.7 30.5 24.4 21.9

Digi 40.0 4.3 (21.1) 13.0 2.1 27.6 24.4 23.9
Maxis 47.5 5.2 0.5 (5.6) (11.0) 24.2 25.7 28.8
Telekom 23.7 2.6 (8.5) 0.3 5.0 27.9 27.9 26.5
Telecommunication 154.5 16.8 (16.8) 7.6 1.3 27.2 25.3 25.0
Petronas Gas 39.1 4.2 (20.6) 10.1 7.5 22.5 20.4 19.0
Tenaga 77.4 8.4 15.9 2.6 (0.3) 9.0 8.8 8.8
Utilities 116.6 12.7 7.6 3.9 1.1 11.3 10.9 10.7
FBM KLCI 921.3 100.0 (5.2) 11.7 5.2 18.3 16.4 15.6
Source: RHB
31
3 April 2017
We are increasingly optimistic that expectations for a rebound in corporate earnings can
be sustained. In addition to the low base in 2016 (-5.2% YoY), we are seeing a strong
earnings recovery coming from the oil & gas, plantations, telecommunications, healthcare,
gaming and banking sectors.
i. Oil & gas earnings are rebounding on the back of higher average crude oil prices;
ii. Plantation the sector is anticipated to benefit from the normalisation of CPO output
in 2017;
iii. Telecommunications 2016 earnings at DiGi.Com (Digi) and Axiata were dragged
lower by weakness in the prepaid segment, merger related costs and impairment
charges;
iv. Healthcare recorded a strong uptick in growth from maturing assets at IHH
Healthcare after a soft 2016 that was marred by provisioning, forex losses and start-
up costs;
v. Gaming sector heavyweight Gentings 2016 earnings were dragged down by
weaker profitability in Singapore, lower plantation earnings, together with share of
associate and joint-venture (JV) losses with stronger gaming operations, recovery in
plantations driving 2017 earnings growth;
vi. Banking sector EPS is expected to rebound 8.6% in 2017 from the stabilisation of
asset quality by mid-2017, 6% sector loan growth, moderation in NIM compression
and continued cost discipline.
Regional comparisons: rising tide lifts all boats

In the weeks following Mr Donald Trumps victory in the US presidential election, ASEAN
markets endured a sell-off as the market focused on the negative aspects of his rhetoric
on protectionism and anti-trade proposals.
Subsequently however, markets rallied on the back of the anticipated reflationary policies
that could help to lift global growth. YTD, the FBM KLCI ranks behind only the STI for
absolute performance while taking the lions share of foreign flows. This reflects the
economys dependence on exports and the markets low weightage on foreign investors
portfolios.
Figure 61: Relative performance of ASEAN markets Figure 62: ASEAN markets YTD 2017 local currency
(%)
15.0
10.0% 9.3%
FSSTI
10.0 8.0%
7.0%
6.7%
FBMKLCI 6.0%
5.0
5.0%
SET
JCI 4.0%
0.0
PCOMP
2.0%
-5.0
0.0%
-10.0 -0.2%
-2.0%
FBM KLCI SET PCOMP JCI STI
-15.0
9-Nov-16 23-Nov-16 7-Dec-16 21-Dec-16 4-Jan-17 18-Jan-17 1-Feb-17 15-Feb-17 1-Mar-17 15-Mar-17
Source: Bloomberg Source: BNM, RHB
32
3 April 2017
Figure 63 : Regional comparisons

Malaysia Singapore Thailand Philippines Indonesia Hong Kong Taiwan Korea
FactSet Asian Consensus Trends report dated 28 Feb 2017
2017 EPS growth (%) 1.6 7.7 6.8 6.7 15.8 8.6 11.4 23.2
2018 EPS growth (%) 12.0 7.3 10.3 11.5 14.2 10.2 6.2 6.1
2017 P/E (x) 16.8 13.8 14.7 16.7 17.1 11.8 13.5 9.4
2018 P/E (x) 15.0 12.8 13.3 15.1 15.0 10.7 12.7 8.8
P/E / EPS growth

2017 (x) 10.5 1.8 2.2 2.5 1.1 1.4 1.2 0.4
2018 (x) 1.3 1.8 1.3 1.3 1.1 1.0 2.0 1.4
Performance (%)
2016 (YoY) (3.0) (0.1) 19.8 (1.6) 15.3 0.4 11.0 3.5
2017 (YTD)* 6.3 10.0 1.2 7.4 4.6 10.5 7.1 6.6
Note: * as at 17 March closings
Source: FactSet
Base case assumptions a favourable confluence of positive factors

Investor sentiment is being buoyed by a favourable confluence of positive factors. The
steady improvement in US economic fundamentals, coupled with expectations that
President Trumps reflationary policies would further lift corporate earnings and boost
economic growth to translate into improved global economic growth, helping to spur a rally
in commodities. Dovish interest rate guidance from the US Fed has also encouraged EM
investors.
Domestically, the pick-up in exports, quickening GDP growth and higher commodity prices
are positive developments. Resilient domestic consumption patterns and public sector
infrastructure projects are also important economic growth drivers.
Our expectations for a rebound in corporate earnings this year would be a critical factor to
ease the pressure on forward market valuations and extend the headroom for the market
to move higher. These factors contribute to a more compelling argument for foreign
investors to re-evaluate their underweight stance on Malaysia equities, not least a growing
body of opinion that the USD is looking fully valued.
The MYR already trades at depressed levels. The relatively low foreign ownership levels
in Malaysia equities and macroeconomic fundamentals favouring equities over bonds
(encouraging more switching) are also factors that suggest that the YTD net foreign
inflows into Malaysia equities could continue to rise.
Of course, the more optimistic market outlook is not without risk. The global economy is
already in a matured stage of the cycle, with 2017 being the eighth year of the recovery
following the GFC. This means rising risks from an unpredictable black swan event
although the threat of an imminent global recession has receded.
In the coming months, investors will be looking closely at the outcome of the presidential
election in France, the negotiations on the revised economic and political relationship
between the UK and Europe following the invocation of Article 50 of the Lisbon Treaty and
the ability of President Trump to push through his reflationary policies. The markets are
likely to be less tolerant of further misadventures in Mr Trumps legislative agenda
following the debacle involving his failed healthcare initiative, which would introduce more
volatility into the market going forward.
We retain our end-2017 FBM KLCI target of 1,790 pts that is derived from ascribing a 16x
target P/E on forward earnings. This is at a slight premium to the average market P/E post
GFC. From a bottom-up perspective, the implied end-2017 FBM KLCI target is 1,850 pts.
33
3 April 2017
Key Risks
Trump Administrations anti-trade policies
Mr Trumps campaign promises include those relating to trade, immigration, taxes and Mr Trumps campaign promises on
foreign policy. The US has already withdrawn from the TPPA and intends to re-negotiating trade are a major worry for Asian
the North American Free Trade Agreement (NAFTA) and imposing double-digit tariffs on economies
goods from China and Mexico.
This would be negative for global trade and could well spark a global trade war, which
would affect US foreign policy and military relationships. This is in addition to higher
production and living costs for US consumers. Until there is better clarity on the new policy
stance, businesses may delay their foreign investment plans.
Failure of the Trump Administration to implement reflationary policies

Equity markets have rallied on the back of President Trumps promises to cut taxes, roll Markets have priced in fiscal policy
back regulation and increase infrastructure spending. The inability of these reflationary positives
fiscal policies to be implemented fully and in a timely manner due to political or financial
reasons could have implications for growth in the US and global economies. The risk of
markets being disappointed is high.
Timing and pace of US interest rate hikes

The Trump Administrations policies on immigration could increase labour costs and lead
to higher wage inflation in the US. On top of the fiscal stimulus planned, this could
A faster pace of US rate hikes could
spook EM and result in unwanted
accelerate the timing and pace of US interest rate increases beyond what is now being
USD strength
guided by the US Fed, which, coupled with the possible introduction of a Border
Adjustment Tax, could lead to a stronger USD. Changes to expectations on the US Fed
funds rate ought to result in heightened volatility in global markets.
Fear of capital outflows

A structural shift of funds back to the US in anticipation of higher bond yields and faster Foreign selling in the bond market
economic growth could accelerate the outflow of capital from both the debt and equity has driven local yields higher
markets. This is considering the high foreign ownership in the domestic debt market
(44.7% of MGS and 59.4% of the money market as at end-February). Persistent outflows
from the debt market could lead to higher interest rates and funding costs for the
Government, considering that gross debt issuance in 2017 is estimated at MYR107-
109bn.
Continued depreciation of the MYR

Fund outflows could lead to significant downward pressure on MYR, pressure the pressuring the MYR lower
countrys foreign reserves and attract currency speculators. Severe currency volatility
could impact business investments and FDI flows. Importers would be adversely affected,
giving rise to higher imported inflation that could even jeopardise Malaysias infrastructure
spending programme.
Persistent oil price volatility

Weaker-than-expect crude oil prices would be negative for the Government from a fiscal Higher oil price will add to inflation
perspective, weaken the current account balance and lead to a weaker MYR. Higher-than- given the absence of fuel subsidies
expected oil prices could result in a spike in inflation that could prompt BNM to raise the
OPR to counter negative real interest rates. This would raise the cost of doing business.
Heightened political risks in the Eurozone

The challenges confronting Europe would be shaped by multiple elections in 2017, with Multiple sources of Eurozone political
recent gains by anti-establishment, populist movements. The fracturing of the Eurozone risks in 2017
and EU could be disastrous for the under-capitalised European banking system. The
presidential election in France is of particular importance, as one of the front runners, the
National Fronts Ms Marine Le Pen, has pledged to hold a referendum on the countrys EU
membership if she is elected president.
34
3 April 2017
France is a founding member of the European project, the second-biggest economy in the
Eurozone, the largest military power on the continent, and a permanent member of the UN
Security Council. The first round of the vote is to be held on 23 Apr and, unless a
candidate wins more than 50% of the popular vote, the top two candidates would face off
in a second referendum on 7 May.
Premature downturn in the global economic cycle

2017 would be the eighth year of growth for the global economy in the current cycle,
where the late stage of an economic growth cycle tends to be associated with higher
Global economy is at a mature stage
downside risk. This happens when business cycles become stretched, and inventory
builds as spending is postponed.
With debt already at record highs, the scope for continued fiscal stimulus diminishes, while
stretching monetary policy to the extreme can be counter-productive. Indeed,
policymakers in the major world economies are running out of policy ammunition should
global economic growth take another turn for the worse. A policy misstep or an
unexpected black swan event could tip the global economy into recession.
Hard landing for Chinas economy

A sharper-than-expected slowdown in Chinas economy would be negative for Malaysia A hard landing in China is a medium-
and other export-oriented economies in ASEAN, although this is not our base case term concern
assumption. However, we still believe downside risk for Chinas economy should not be
ignored, given:
i. Short-term pains from deepening supply-side reform;
ii. Sluggish recovery in the private sector;
iii. More tightening measures in the property market;
iv. Mounting external uncertainties.
We expect Chinas economic growth to be relatively stable, growing at 6.6% in 2017 and
6.4% in 2018 (2016: +6.7%). The Fitch Rating Agency considers a hard landing in China
to be a key risk to global growth with challenges facing China in its transition to a
consumption-based economy clouding the medium- to long-term growth outlook.
35
3 April 2017
Market Strategy
Figure 64: RHB basket of stocks sector weightings & valuations
Covered Stocks Mkt cap Weight EPS growth (%) P/E (x) Recommendation
MYRbn % FY16 FY17F FY18F FY16 FY17F FY18F
Banking 284.1 21.4 (4.1) 8.4 6.0 14.0 13.0 12.2 Overweight
Utilities 135.1 10.2 4.0 3.8 1.5 11.6 11.2 11.0 Overweight
Oil & Gas 129.3 9.7 (20.7) 27.4 8.3 20.7 16.2 15.0 Overweight
Healthcare 56.6 4.3 (10.0) 29.4 27.5 46.9 36.2 28.4 Overweight
Construction 34.0 2.6 (11.5) 22.0 11.0 19.2 15.7 14.1 Overweight
Aviation 22.1 1.7 3029.8 (9.7) 7.6 10.9 12.1 11.3 Overweight
Basic Materials 19.9 1.5 (11.7) 46.4 21.7 25.7 17.5 14.4 Overweight
Technology 13.1 1.0 4.3 41.9 17.1 22.9 16.1 13.8 Overweight
Telecommunications 160.4 12.1 (15.9) 8.1 2.3 27.3 25.2 24.7 Neutral
Gaming 76.1 5.7 (9.9) 9.9 7.8 18.4 16.7 15.5 Neutral
Consumer 68.2 5.1 (6.0) 11.9 10.7 22.1 19.7 17.9 Neutral
Property 50.8 3.8 (0.3) (11.3) 2.8 11.5 13.0 12.6 Neutral
Property-REITs 38.1 2.9 5.0 2.7 4.9 20.7 19.9 18.9 Neutral
Logistics 26.7 2.0 48.8 3.2 8.1 21.0 20.4 19.0 Neutral
Rubber Products 21.9 1.7 (20.0) 9.3 18.2 22.7 20.8 17.6 Neutral
Auto 18.1 1.4 (179.6) 428.9 51.3 (76.4) 23.2 15.4 Neutral
Media 16.2 1.2 (4.3) 14.2 7.9 22.5 19.7 18.3 Neutral
Non-Bank Financials 11.8 0.9 9.1 7.3 6.7 16.8 15.6 14.6 Neutral
Timber 4.1 0.3 (35.2) 36.2 3.9 14.8 10.9 10.5 Neutral
Plantation 140.4 10.6 0.3 45.3 5.7 33.5 23.0 21.8 Underweight
RHB BASKET 1327.2 100.0 (3.9) 12.9 7.0 18.5 16.4 15.3
Source: RHB
Figure 65: Top BUYs

Market EPS EPS Growth P/E P/BV P/CF DY
FYE Price TP Shariah
Cap (sen) (%) (x) (x) (x) (%)
(MYR/s) (MYR/s) Compliant (MYRm) FY17F FY18F FY17F FY18F FY17F FY18F FY18F FY18F FY18F
17-Mar-17
Petronas Chem Dec 7.43 8.40 Y 59,440 45.3 45.5 23.5 0.6 16.4 16.3 1.9 14.7 3.1
Sime Darby Jun 9.34 10.15 Y 59,094 35.4 39.6 32.7 11.8 26.4 23.6 1.8 17.8 3.0
Telekom Dec 6.32 7.50 Y 23,750 22.7 23.8 0.3 5.0 27.9 26.5 3.0 7.4 3.4
Sapura Energy^ Jan 1.91 2.25 Y 11,445 5.8 6.6 68.2 13.2 33.0 29.2 0.8 6.2 0.6
SP Setia Dec 3.40 4.00 Y 9,807 24.3 23.7 (17.1) (2.2) 14.0 14.3 1.0 6.3 5.0
Press Metal Dec 2.45 3.27 Y 9,069 16.9 21.4 40.6 26.7 14.5 11.4 2.8 6.3 2.6
DRB-HICOM^ Mar 1.39 1.83 Y 2,687 (3.0) 2.0 87.6 n.a. n.m. 68.7 0.4 6.4 1.1
MPI Jun 10.16 12.88 Y 2,132 85.5 96.2 22.0 12.5 11.9 10.6 1.7 5.2 3.0
Gadang^ May 1.30 1.55 Y 841 16.5 18.2 10.2 9.9 7.9 7.2 1.1 n.a 2.5
Kimlun Dec 2.19 2.57 Y 680 27.0 28.6 0.5 6.1 8.1 7.7 1.0 4.1 3.3
Note: ^FY17-18 valuations refer to those of FY18-19
Source: RHB
36
3 April 2017
Figure 66: Top SELLs

Market EPS EPS Growth P/E P/BV P/CF DY
FYE Price TP Shariah
Cap (sen) (%) (x) (x) (x) (%)
(MYR/s) (MYR/s) Compliant (MYRm) FY17F FY18F FY17F FY18F FY17F FY18F FY18F FY18F FY18F
17-Mar-17
Maxis Dec 6.33 5.10 Y 47,539 24.7 22.0 (5.6) (11.0) 25.7 28.8 10.2 13.6 3.0
IOI Corp Jun 4.69 4.20 Y 30,308 19.2 18.7 57.4 (3.0) 24.4 25.1 3.7 20.5 2.3
HL Bank Jun 13.62 12.00 N 29,524 100.1 105.8 0.3 5.7 13.6 12.9 1.2 n.a. 3.1
BAT Dec 47.90 43.30 N 13,677 248.5 268.1 5.1 7.9 19.3 17.9 19.9 18.0 5.3
Lafarge Dec 6.73 5.05 Y 5,725 18.8 22.5 +>100 20.0 35.9 29.9 1.9 29.9 2.9
Affin Dec 2.85 2.50 N 5,537 30.3 32.6 4.3 7.5 9.4 8.8 0.6 n.a. 3.7
Bumi Armada Dec 0.74 0.63 N 4,312 4.3 7.0 n.a. 62.2 17.0 10.5 0.7 2.1 2.4
IJM Plant^ Mar 3.17 2.70 Y 2,791 17.1 18.1 9.3 5.9 18.5 17.5 1.6 13.1 3.5
Media Prima Dec 1.21 0.90 N 1,342 8.9 10.3 20.3 15.8 13.6 11.7 0.9 8.1 5.1
Maxis Dec 6.33 5.10 Y 47,539 24.7 22.0 (5.6) (11.0) 25.7 28.8 10.2 13.6 3.0
HL Bank Jun 13.62 12.00 N 29,524 100.1 105.8 0.3 5.7 13.6 12.9 1.2 n.a. 3.1
Source: RHB
Market strategy Goldilocks is in the house but dont ignore the bears
We see the rising risk appetite for Malaysia equities as being very much justified, backed Confluence of positives
by the positive confluence of an improving external macroeconomic environment together
with a more compelling domestic investment case. While President Trumps actions and
policies have an immediate impact on equity markets and sentiment, investors remain
encouraged by his:
i. Pro-growth agenda;
ii. The positive trajectory of global growth helped by a better economic prognosis for the
Eurozone and receding political concerns there;
iii. A more stable China economy.
Domestically, investors would be paying attention to commodity price trends, export data
and corporate earnings shifts.
Although markets rarely move in a straight line, we remain cognisant that the FBM KLCI is Accumulate on weakness
the second-best performing market in ASEAN YTD (in USD terms), with the benchmark
index up by over 7% YTD. Our core strategy would be to accumulate on weakness, with
key investment themes centring on:
i. The export recovery;
ii. Sectors benefitting from the cyclical upturn;
iii. The reawakening of foreign interest in Malaysia equities.
This is together with the infrastructure boom, Chinas One Belt One Road (OBOR)
initiatives and the ongoing trend of restructuring GLCs.
Recovery in exports and improved outlook for global growth

The pick-up in exports on the back of a rosier outlook for global economic growth is an Improving external environment
important driver for the domestic economy. The ongoing recovery in the demand for
commodities would be favourable for the oil & gas, basic materials, plantation and timber
sectors.
We remain OVERWEIGHT the oil & gas sector, with Sapura Energy, Petronas Chemicals
and Yinson as our Top Picks. In the basic materials sector (OVERWEIGHT), we like Press
Metal as the main beneficiary of rising aluminium prices.
Despite the normalisation of production in the plantations sector this year, much of the
good news is already in the price. Accordingly, we are more selective on our stocks picks
here, with Sime Darby as our preferred choice. In the timber sector, we like Jaya Tiasa.
The sectors benefitting from the export theme include technology, logistics, furniture, ports
and rubber products.
37
3 April 2017
Recovery in economic growth and corporate earnings favour cyclicals

The improved GDP growth outlook and expectations that corporate earnings are Inflection of economic and earnings
recovering in 2017 suggests that investors should focus on cyclical stocks and sectors. growth favour cyclical stocks
Cyclical sectors would benefit the most from an upturn in the economic cycle and they
include financials, basic materials, consumer cyclicals, transport (including aviation and
logistics), technology and tourism.
Financials:
i. Maybank;
ii. Public Bank;
iii. BIMB;
iv. AEON
Basic materials: Press Metal
Consumer cyclicals:
i. AEON;
ii. DRB-HICOM
Transport:
i. Malaysia Airports;
ii. POS Malaysia
Technology:
i. Malaysian Pacific Industries (MPI);
ii. Datasonic;
iii. Inari Amertron (Inari)
Foreign investors making a comeback

YTD 2017, Malaysia has seen the highest net foreign flows for the ASEAN markets for More compelling reasons for foreign
which we have data. While foreign investors can be fickle, on this occasion we believe that investors to re-evaluate their equity
the buying we have seen so far represents just the start of what is a shift toward at least a exposure in Malaysia
neutral-weight of foreign holdings in Malaysia, after being underweight for the past 2-3
years.
Up to 31 Mar, YTD net foreign buying amounted to MYR5.7bn when compared to the
combined net foreign outflow from Malaysia equities in 2014-2016 of MYR29.8bn. The
current depressed value of the MYR represents another discount of sorts for USD-based
investors. It is also possible that some portion of the proceeds from the ongoing sell-off of
government debt instruments are being re-allocated into domestic equities.
This re-emergence of foreign flows suggests a focus on laggard, large-cap stocks. The
larger cap names tend to offer higher liquidity and allow foreign investors to take larger
positions.
38
3 April 2017
Figure 67 : RHB Coverage biggest laggards Figure 68 : RHB Coverage biggest laggards
(3M % Change) (6M % Change)
3 mth chg 6 mth chg
(%) (%)
FTSE Bursa Malaysia KLCI 6.6 FTSE Bursa Malaysia KLCI 5.6
Telekom Malaysia 5.7 Gamuda 4.9

Astro 5.5 Sunway Bhd 4.8
SP Setia 5.3 MAHB 4.5
IJM Corp 4.9 Alliance Financial Group 4.3
Carlsberg 4.6 IJM Corp 4.2
Kuala Lumpur Kepong 4.0 Kuala Lumpur Kepong 3.9
BIMB 3.7 Public Bank 3.2
Heineken 3.3 Yinson 2.6
Digi.com 3.2 SP Setia 2.4
Public Bank 2.3 MISC (1.6)
Hartalega 1.3 Astro (2.4)
Kossan Rubber Industries 0.5 YTL Power (3.2)
Tenaga 0.0 Nestle (3.5)
MISC 0.0 Telekom Malaysia (4.0)
Top Glove (0.6) Tenaga (4.7)
Nestle (1.9) Axiata (7.8)
Berjaya Sports Toto (2.0) Petronas Gas (8.3)
KPJ Healthcare (3.4) IHH Healthcare (9.1)
IHH Healthcare (6.3) Westports (10.2)
Petronas Gas (7.0) IOI Properties (14.8)
Westports (8.1) Felda Global (15.1)
Malakoff (17.5) Malakoff (28.5)
Source : Bloomberg Source : Bloomberg
39
3 April 2017
Figure 69: Foreign shareholding levels of the largest 50 stocks under coverage
FYE Rec Price TP Shariah Foreign As at end
17-Mar-17 Compliant Shareholding
(MYR/s) (MYR/s) (%)
BAT Dec S 47.90 43.30 N 86.4 Feb 2017
Lafarge Dec S 6.73 5.05 Y 81.0 Jan 2017
Nestle Dec N 76.82 72.90 Y 73.8 Feb 2017
Heineken Dec B 17.64 19.30 N 73.5 Dec 2016
Genting Bhd Dec N 9.79 9.59 N 44.0 Dec 2016
Genting M'sia Dec N 5.47 5.08 N 40.0 Dec 2016
Public Bank Dec B 20.18 22.00 N 36.1 Jan 2017
Alliance Financial Group Mar N 4.10 3.80 N 30.0 Jan 2017
IJM Corp Mar B 3.44 3.83 Y 28.0 Feb 2017
Tenaga Dec B 13.72 18.60 Y 26.7 Mar 2017
CIMB Dec N 5.65 5.00 N 26.5 Feb 2017
Affin Dec S 2.85 2.50 N 26.0 Feb 2017
AMMB Mar N 4.87 4.30 N 25.0 Dec 2016
Gamuda Jul B 5.14 5.55 Y 22.0 Jan 2017
MAHB Dec B 6.94 7.70 N 19.3 Dec 2016
IHH Healthcare Dec B 5.98 7.30 Y 18.5 Feb 2017
Astro Jan B 2.86 3.08 N 18.0 Jan 2017
Maybank Dec B 8.90 9.30 N 17.7 Mar 2017
IOI Corp Jun S 4.69 4.20 Y 17.0 Dec 2016
IOI Prop Jun B 2.00 2.57 Y 16.8 Feb 2017
Top Glove Aug N 5.20 4.91 Y 15.5 Feb 2017
Hartalega Mar N 4.81 4.76 Y 15.1 Feb 2017
Sapura Energy Jan B 1.91 2.25 Y 14.4 Mar 2017
Sime Darby Jun B 9.34 10.15 Y 14.3 Feb 2017
KLK Sep N 24.76 25.20 Y 13.5 Jan 2017
Dialog Jun B 1.66 1.77 Y 12.4 Mar 2017
Telekom Malaysia Dec B 6.32 7.50 Y 12.3 Feb 2017
Westports Dec N 3.95 4.10 Y 12.2 Feb 2017
UMW Dec N 6.10 5.48 Y 11.1 Feb 2017
Axiata Dec N 4.97 4.30 Y 10.4 Feb 2017
Digi.com Dec N 5.15 4.70 Y 10.1 Feb 2017
HL Bank Jun S 13.62 12.00 N 9.1 Dec 2016
Felda Global Dec N 1.91 2.15 Y 9.0 Jan 2017
YTL Power Jun N 1.53 1.55 N 8.9 Mar 2017
MISC Dec B 7.34 8.72 Y 8.1 Mar 2017
Petronas Gas Dec N 19.78 21.26 Y 6.7 Mar 2017
Malakoff Dec N 1.18 1.38 Y 3.7 Mar 2017
Petronas Chemicals Dec B 7.43 8.40 Y 8.7 Mar 2017
UEM Sunrise Dec N 1.24 1.09 Y 8.4 Dec 2016
BIMB Dec B 4.46 5.20 Y 8.2 Mar 2017
Sunway Bhd Dec B 3.25 3.55 Y 8.0 Feb 2017
Genting Plantations Dec N 11.50 12.50 Y 7.0 Feb 2017
QL Resources Mar N 4.60 4.33 Y 7.0 Dec 2016
Maxis Dec S 6.33 5.10 Y 6.0 Jan 2017
Press Metal Dec B 2.45 3.27 Y 6.0 Feb 2017
SP Setia Dec B 3.40 4.00 Y 4.7 Feb 2017
MMC Corp Dec B 2.50 3.50 Y 4.5 Dec 2016
IGB REIT Dec N 1.67 1.69 N 3.7 Feb 2017
KLCCP Stapled Group Dec N 8.14 8.40 Y 2.5 Feb 2017
Source : Company data, RHB
40
3 April 2017
High growth, high potential small- and mid-cap stocks
Figure 70: FBM small cap 7-year forward consensus P/E

(x)
14.0
2sd: 13.2x
13.0
1.5sd: 12.3x
12.0 1sd: 11.5x
11.0
Average: 9.9x
10.0
9.0
-1sd: 8.3x
8.0
-1.5sd: 7.5x
7.0 -2sd: 6.7x
6.0
5.0
2010 2011 2012 2013 2014 2015 2016 2017
Source: Bloomberg
The higher earnings growth potential from small- and mid-cap companies means that Growing institutional focus on small-
investors are now adding more resources than ever to identify such stocks. In the 2017 and mid-cap stocks
Budget, the Government announced a special MYR3bn fund from GLCs for potential
investments in small- and mid-cap companies. It also announced the establishment of a
Capital Market Research Institute with an initial funding of MYR75m to manage a research
scheme focused on smaller companies.
While investors typically add small- and mid-cap names to boost their funds alpha, stock
picking would be crucial. Non-FBM KLCI component stocks under our coverage now trade
at 14.8x 2018F P/E, with 16.4% and 11.4% EPS growth for 2017 and 2018 respectively.
Infrastructure theme
The Government remains committed to large-scale infrastructure projects such as the Infrastructure sector boosted by the
MRT2, LRT3, Refinery and Petrochemical Integrated Development (RAPID), Tun Razak OBOR initiative
Exchange (TRX) and Pan Borneo Highway amongst others. Other high-profile projects
include the Bukit Bintang City Centre (BBCC), Sungai Besi-Ulu Kelang Elevated
Expressway (SUKE), Damansara-Shah Alam Highway (DASH) and West Coast
Expressway (WCE).
Projects further out include the Kuala Lumpur-Singapore High Speed Rail (HSR), Bandar
Malaysia development and Penang Transport Master Plan. We also expect MRT3 to
reach the planning stage by 2018. On the back of the OBOR initiative, the MYR55bn East
Coast Rail Line (ECRL) is also poised to take-off, with some tenders set to be announced
in the coming months. Local contractors ought to be kept busy in the coming years. We
maintain our OVERWEIGHT stance on the construction sector. Top Picks are Gamuda
(for large-caps) and Gadang (for smaller-cap contractors).
GLC restructuring theme

The GLC restructuring theme kicked off following the appointment of new leadership at New leadership drives change at PNB
Permodalan Nasional (PNB). In recent month, initiatives to unlock value have been
announced at Sime Darby, UMW and UMW Oil & Gas. Other PNB group companies that
may be restructuring candidates include SP Setia and Maybank. In recent months, reports
have emerged of possible initiatives at Felda Global Ventures and also at companies
within the Khazanah Nasional stable (eg Telekom Malaysia and Axiata).
41
3 April 2017
Early general election theme

Various media reports and other anecdotal evidence appear to suggest that the Prime Possibility of early elections could lift
Minister Dato Sri Najib Razak is seriously considering calling for elections well before the sentiment
due date of mid-2018. The most likely window for the elections to be held in 2017 appears
to be in October.
While the ruling Barisan Nasional (BN) is a shoo-in to be returned to power to form the
next government given the fragmented opposition, the market continues to expect some
pre-election spending to boost consumer sentiment. Historically, the possibility of general
elections has offered the market some speculative buzz.
Figure 71: Election plays
1 Affin 19 Petronas Chemicals

2 Axiata 20 Petra Energy
3 Boustead Plantations 21 Petronas Gas
4 Bumi Armada 22 Prestariang
5 Cahya Mata Sarawak 23 Protasco
6 CIMB 24 Sapura Energy
7 Datasonic 25 Sime Darby
8 Destini 26 SP Setia
9 DRB-HICOM 27 Star Group
10 EFORCE 28 Tadmax
11 Felda Global Ventures 29 Tenaga
12 Genting 30 Time dotCom
13 Genting Malaysia 31 UEM Edgenta
14 Malaysia Airports 32 UEM Sunrise
15 Maxis 33 Yinson Holdings
16 Media Prima 34 YTL Corporation
17 MISC
18 MYEG
Source: RHB
Yields still appeal

Stocks with resilient earnings capable of sustaining its dividend and their defensive traits
would continue to be attractive to certain investors.
Figure 72: High-dividend yield stocks
DY EPS Growth P/E P/BV ROE
Price
(%) (%) (x) (x) (x)
(MYR/s) FY17F FY18F FY17F FY18F FY17F FY18F FY18F FY18F
17-Mar-17
SHL Consolidated^ 2.84 7.4 6.7 11.5 (4.7) 8.0 8.4 0.8 10.1
UEM Edgenta 3.23 7.4 8.9 23.5 20.9 9.5 7.8 1.5 20.5
Bermaz Auto^ 2.05 7.3 7.8 57.1 29.7 13.3 10.3 4.2 43.1
Magnum 2.12 6.7 6.8 15.5 1.6 13.4 13.2 1.2 9.3
Glomac^ 0.72 6.7 6.7 67.3 7.9 5.8 5.4 0.5 8.9
B-Toto^ 2.95 6.4 6.5 10.3 1.1 13.3 13.1 4.3 33.6
MRCB-Quill REIT 1.27 6.1 6.4 (9.6) 5.8 15.7 14.8 1.0 6.7
Maybank 8.90 6.1 6.3 14.3 3.8 12.6 12.2 1.2 10.2
Hektar REIT 1.63 6.0 5.8 5.2 2.9 14.9 14.5 1.1 7.6
Matrix Concepts^ 2.49 6.0 6.4 5.6 3.7 6.6 6.4 1.1 19.0
Tambun Indah 1.41 5.9 6.4 (12.6) 7.1 6.1 5.7 0.9 17.0
IGB REIT 1.67 5.9 6.1 7.4 5.7 19.2 18.1 1.6 8.6
Al-Salam REIT 1.04 5.8 5.9 1.4 2.2 16.5 16.2 1.0 6.1
Axis REIT 1.64 5.7 5.9 14.3 3.0 17.4 16.9 1.3 7.9
Wah Seong 0.87 5.6 6.4 +>100 13.4 7.1 6.3 0.5 9.7
Source: RHB
42
3 April 2017
FBM KLCI: From a Technical Perspective

Figure 73: FBM KLCIs weekly chart
1,868-pt level
Consolidation zone
200-week SMA line
Source: RHB, Bloomberg
Arriving At The 200-week SMA Line

In the last two strategy reports, we have been highlighting the wide consolidation zone for The sideways zone
the FBM KLCI, ranging from the 1,595-pt level to the 200-week SMA line. We mentioned
that the index is expected to continue to extend its sideways trend which started since
Sep 2015 until a major breakout or breakdown is detected.
After a strong rebound YTD, the upward momentum has now brought the FBM KLCI to the
200-week SMA line, which is the resistance line for the sideways zone. Since 2015, there Testing the 200-week SMA line
have been two failed attempts to return to above this line. We shall see if it can decisively
breach it this time around.
To recap, the 200-week SMA line has been playing a significant role in determining the
FBM KLCIs sentiment since 2015. As shown in the weekly chart above, back in 2015, the Importance of the 200-week SMA line
index either rebounded strongly after touching the line or retraced sharply after breaching
the same line. We also saw the 200-week SMA line capping the markets upside on two
occasions over the last two years.
Hence, the market may enjoy positive sentiment in 2Q17 should the FBM KLCI decisively Technical landscape is expected to
breach above the 200-week SMA line, which may likely signal the end of the consolidation be enhanced upon breaching the
phase. A breakout confirmation would likely be obtained if the index ends convincingly 200-week SMA line
higher beyond the SMA line by the end of any given week.
Above the 200-week SMA line, look for the 1,800 psychological mark as the next major
resistance. The next strong hurdle can be seen at the 1,868-pt level, which was the
Resistance levels at 1,800 pts and
1,868 pts
highest level achieved in 2015. To the downside, look for supports at the 1,713-pt level,
followed by the 1,700 psychological level, and 1,688-pt level.
Analyst
Shin Kao Jack
+603 9280-8870
shin.kao.jack@rhbgroup.com
43
3 April 2017
Fixed Income & Currencies

Credit market outlook has improved
The reaction of the fixed income and credit market over the year in the lead up to the Credit positive developments
recent US Fed rate hike (and following it), suggests a solid trajectory on expectations of
rate hikes, global inflation and growth. This culminated in a combined hike in global
sovereign yields and a fall in credit spreads (Figure 76).
As we have discussed in our previous reports, with the higher levels of debt post-GFC,
sovereigns in the EM still continue to suffer from the twin effects of credit outflows while
their respective economies are faced with a weaker phase in their economic cycles the
sovereigns in Asia (especially EM Asia) continue to see negative pressures on their
ratings.
The quarter has however seen a swing in the global growth outlook, strengthening
commodity prices and an improvement in the tech export cycle. These have had positive
effects on the credit markets of the Asia-Pacific and have been a salve to reduce the
negative pressure on the sovereign ratings of the region. Especially benefiting from this
was Indonesia, China and India, and the corporates in their respective universes.
Figure 74: Stabilising anticipated inflation indicator Figure 75: 10-year UST remains in a 30-year bullish trend
10.00
2.3
9.00
2.2
8.00
2.1
7.00
2
6.00
1.9
5.00
1.8
4.00
1.7 3.00
1.6 2.00
1.5 1.00
1987 1992 1997 2002 2007 2012 2017
Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17
Higher interest rate expectations are solid, but uneven global rate
trajectories and a well-prepared market could provide a partial shield
Looking forward, the US Fed has been tightening with two FFR hikes in Dec 2016 and US Fed is guiding for three rate hikes
March. The questions now being asked are how many subsequent hikes the FOMC can in 2017
deliver and whether other central banks can follow the US gradual tightening path.
While the path of US growth and firmer expectations for three rate hikes are likely to
occur, the rates markets could be shielded by the fact that the European Central Bank
(ECB) and the Bank of Japan (BoJ) do not appear to be in a hurry to raise rates. This is
especially in Japan where inflationary pressure remains minimal.
Furthermore, the March FFR hike was well managed. The interactive and reciprocal
effects between the US Feds forward guidance and financial markets have allowed global
markets, including emerging ones, to cushion this event and to mitigate excess volatility
10-year US Treasury (UST) yield traded in a tight 35bps range. The reaction after the
FOMC decision also illustrates that it was largely priced in. This alleviates further concerns
over the funding cost, risk-free rate calibration and EM resilience.
The first quarter of 2017 saw a surprising outperformance of the high-yield

(HY) markets in Asia-Pacific HY bonds outperformed in 1H17
This was following the surprisingly strong rally seen in the EM universe in 2017. Agai
n the reasons for this could have been attributed to the: Analyst
Ray Choy
i. Positive surprises seen in the markets in global growth;
+603 9280-2181
ii. Pickup in manufacturing Purchasing Managers Index (PMI) in the region; choy.swee.yew@rhbgroup.com
iii. Improvements in regional exports.
44
3 April 2017
This has led to an upgrade of regional growth and inflationary expectations by our
economics team in 2017, leading us to similarly expect this HY bond rally to remain for the
short to medium term.
We, however, remain reluctant to upgrade our expectations in the HY space in the longer
term. We are concerned of the staying power of the current rally beyond 1H17, as we
believe we should not downplay the:
i. Risk of a more insular US;
ii. Political turbulence emanating from the EU;
iii. Liquidity tightening that is to follow the US rate hikes;
iv. Volatility in capital flows in the region over the next few months.
We still see a correction in the way for credit spreads, especially as we see reduced return
on risk and duration for the credit space in Asia. We expect to see a correction in the
reward for duration in the coming quarter, but may see the latter correct after 1H17.
Figure 76: Performance of USD Asia ex-Japan bond indices Figure 77: Spread Performance of EM Asia USD bond
indices
A USD consolidation will benefit EM currencies and local currency bonds

When fiscal policies are finally unveiled by the Trump Administration, the USD could USD looks overvalued
appreciate by a final c.5% before consolidating. Indeed, on softer real Trump effects,
attention could then shift to valuations.
At this juncture, the USD remains strongly overvalued in nominal effective exchange rate
(NEER)/real effective exchange rate (REER) terms by c.18%, which puts a strong cap
onto further USD appreciation. In parallel, uncertainties/risks would remain supportive of
USTs and safe havens.
Lastly, while periods of stronger USD continue to weigh on EM currencies, EM Asia
markets have proven to be more resilient than initially expected, underscoring brighter
prospects for the region towards mid-year and onwards. We favour countries with
domestically-oriented economies, with attractive interest rate differentials and a stable-to-
positive credit outlook, eg Malaysia and Indonesia.
During the quarter, there has been a reduction in credit risk perceptions for most of the
corporates in Asia. This was largely attributed to the better performance of most Asian
currencies against the USD, better commodity process, and generally better export
demand for the region.
We still note, however, the:
i. Increased leverage in Asian credit;
ii. Still heavy funding requirement over the next three years;
iii. Risk of volatility and funding thinning over the coming months on an overhanging risk
after 1H17.
45
3 April 2017
This risk is especially true where the banking sector a major source of funding for Asian
corporates still continues to show increased pressures from their loan books and
regulatory requirements. This is expected to result in risk intolerance and reduced funding
for the corporate space.
On the opposite side, 1Q17 has seen strong demand and inflows for Asian debt,
especially those denominated in USD. The issuance of USD-denominated debt saw an
uptick of close to 48% in 2017 when compared to a similar period in 2016, and the supply
channel is still strong. This demand has been a support for the credit space in Asia,
especially those in the HY and unrated spaces.
For the coming quarter, we would reduce our cautiousness on credits and sovereigns in
the short term, but would remain vigilant against a correction in the market that we expect
to see in the second half of the year. For long-term positioning, we would favour more
defensive, less cyclical credits with less exposure to the export and commodity industries.
46
3 April 2017
Auto: Languid Sentiment Crimps Outlook Neutral

Dec 2016 quarter sector earnings in line
The auto sectors earnings for the Dec 2016 quarter were in line with expectations for the Dec quarter earnings were within
first time in 15 quarters. Of the stocks under our coverage, DRB-HICOM (DRB MK, expectations
TRADING BUY, TP: MYR1.83) and Tan Chong (TCM MK, NEUTRAL, TP: MYR1.76)
reported earnings that were better than expected while UMWs (UMWH MK, NEUTRAL, TP:
MYR5.48), APMs (APM MK, NEUTRAL, TP: MYR3.37) Bermaz Autos (BAuto) (BAUTO
MK, NEUTRAL, TP: MYR2.17) results were in line. MBM (MBM MK, NEUTRAL, TP:
MYR2.47) disappointed but Hong Leong Industries (HLI MK, BUY, TP: MYR11.11)
continues to prosper, with its robust business model and leading market position.
The 1HFY17 (Jun) results were well within our expectations, making up ~50% of our full-
year earnings estimates. We tempered our call on BAuto to NEUTRAL (from Buy) on the
back of a cut in earnings estimates, but upgraded UMW to NEUTRAL (from Sell) after its
proposed exit from the oil & gas industry that we expect would reduce the drag on earnings,
lower gearing levels, ease capital requirements and enable management to refocus on its
core businesses. On the back of this recommendation upgrade at UMW, the largest stock
in the sector, we also recently raised our sector call to NEUTRAL.
2016 TIV dips below the 600,000 mark

According to data from the Malaysian Automotive Association (MAA), total industry volume 2016 TIV down 13% YoY
(TIV) for 2016 reached 580,124 units, a 13% YoY decline that was in line with MAAs
forecast, but 3.3% lower than our 2016 estimate. The seasonally stronger sales in Dec 2016
of 64,822 units (-6.6% YoY, +32.0% MoM) were likely due to enticing sales promotions (and
discounts) offered by distributors in addition to concerns of possible price increases going
forward on the back of the recent weakness in the MYR.
Honda remains the undisputed non-national market leader. Its market share widened further
to 15.8% (2015: 14.2%) after a stellar 2016, with sales easing 3.2% to 91,830 units helped
by new attractive models that are competitively priced.
Toyota sales plunged 32.1% YoY to 65,110 units, as the more competitive market place
took a toll on its performance. Both Mazda and Nissan sales declined broadly in proportion
to the market.
While Perodua sales remained commendable declining just 2.9% to 207,110 units, this was
4.1% short of its 216,000 target for 2016. Nonetheless, this meant further market share
gains for Perodua, reaching a record 35.7% (2015: 32%). Perodua sales were helped by
the positive market reception for the Bezza sedan and consistent sales of the Myvi and Axia
models.
Meanwhile, Proton sales declined 29.2% YoY to 72,290 units. Despite positive media
reviews for the new Saga and Persona, monthly sales have not seen a corresponding pick-
up. We understand this has been partly due to more stringent quality control initiatives
leading to supply bottlenecks. However, we suspect that Proton continues to face strong
consumer prejudice against its brand that would take some time to rectify. The auto market
is expected to remain flat in 2017, with the MAA forecast at 590,000 units (RHB: 600,000
units).
Challenges ahead for the sector

We still believe operating conditions could remain challenging for all players in 2017. The
weak MYR and languid consumer sentiment means that distributors would find it difficult to
Business conditions remain difficult
pass on higher costs to consumers. Price-sensitive consumers have led to many distributors
resorting to heavy discounting to clear inventories and/or meet sales targets. We believe
the trend of consumers trading down to cheaper models remains intact and
profit margins may continue to remain under pressure, exacerbated by the weak MYR.
While we see good demand for popular new models, this is also tempered by banks Analyst
heightened concerns over maintaining asset quality. The continued implementation of Alexander Chia
stringent credit standards is a bottleneck for new car sales with anecdotal evidence +603 9280 8889
indicating that rejection rates for hire purchase (HP) loan applications remain high. alexander.chia@rhbgroup.com

47
3 April 2017
Distributors without a consistent stream of new product (or refreshed models) launches
would find it increasingly difficult to compete and may be forced to offer more discounts and
other deals to tempt buyers, again putting pressure on margins. There are few compelling
reasons to support a sector re-rating at this juncture. We believe consumers would continue
to be mindful of economic uncertainties and escalating living costs when considering
potential spending on big ticket consumer discretionary items that may require multi-year
financial commitments.
Figure 78: HP loan approvals vs applications Figure 79: Monthly TIV trends
(%) Units ('000)
%
60
80
50 50.0
70
40
60 30.0
30
20
50
10.0
10 40
0 30 \ -10.0
-10 20
-20 -30.0
10
-30
0 -50.0
Jul-08
Jul-09
Jul-10
Jul-11
Jul-12
Jul-13
Jul-14
Jul-15
Jul-16
Jan-10
Jan-14
Jan-08
Jan-09
Jan-11
Jan-12
Jan-13
Jan-15
Jan-16
Jan-17
-40
Auto loans - 3MA Approvals (% YoY) Auto loans - 3MA Applicatiions (% YoY) TIV YoY
Source: RHB, BNM Source: MAA
Key risks
Key downside risks to our rating include a persistent weakness of the MYR and a significant Weak MYR is a key risk
deterioration in consumer spending patterns. Other factors such as regulatory changes, the
availability of financing and other macroeconomic indicators will also influence the auto
sector.
NEUTRAL
We expect a muted recovery in sales volumes in 2017 on the back of cautious consumer DRB-HICOM is our Top Pick
sentiment. Although margins for companies in the sector would likely remain under
pressure, many of the stocks in the sector are already trading at trough valuations.
DRB-HICOM is our Top Pick in the sector, with the market largely ignoring its various
profitable businesses and valuable assets. The rehabilitation of Proton is underway and a
sustainable tie-up with a credible foreign strategic partner could be a strong re-rating
catalyst for the stock. Although we have a NEUTRAL call on Bermaz Auto, the stock is
attractive for its dividend yields that we believe is sustainable going into FY18 on the back
of a strong product line-up and an attractive pipeline of all new and face-lift models.
Figure 80: Valuations of auto stocks

Price Target Mkt P/E EPS Growth P/BV P/CF ROE DY Rec
Cap (x) (%) (x) (x) (%) (%)
(MYR/s) (MYR/s) (MYRm) FY17F FY18F FY17F FY18F FY17F FY17F FY17F FY17F
HL Industries 9.52 11.11 3,122 11.8 10.9 7.5 7.4 2.2 11.9 19.5 4.7 B
DRB-Hicom^ 1.39 1.83 2,687 n.m. 68.7 87.6 n.a. 0.4 9.5 (3.1) 1.1 TB
UMW 6.10 5.48 7,127 27.7 16.6 n.a. 67.4 1.5 9.3 5.4 2.0 N
Bermaz Auto^ 2.05 2.17 2,352 13.3 10.3 57.1 29.7 4.6 15.9 34.9 7.3 N
Tan Chong 1.82 1.76 1,188 n.m. 96.4 75.7 n.a. 0.4 46.8 (0.5) 1.1 N
MBM Resources 2.43 2.47 949 9.4 7.6 9.1 24.2 0.6 102.4 6.2 3.3 N
APM Automotive 3.68 3.37 720 13.8 12.0 7.4 14.8 0.6 3.1 4.3 4.1 N
Sector Avg 23.2 15.4 428.9 51.3
^ FY17-18 valuations refer to those of FY18-19

48
3 April 2017
Aviation: Looking Forward To An Eventful Year Overweight

Dec 2016 quarter sector earnings were in line with our expectations
In line with expectations, AirAsia X (AAX MK, BUY, TP: MYR0.50) reported strong 4Q16 Dec 2016 quarter earnings for airlines
earnings. The airline booked its fourth consecutive quarter of core profits and first full-year and EBITDA for airport was well
profit since its IPO. We lowered AirAsia Xs 2017F-2018F profits by 4-6% to account for a within expectations
weaker MYR and higher non-fuel costs and adjusted our TP to MYR0.50 (from MYR0.54).
Malaysia Airports (MAHB) (MAHB MK, BUY, TP: MYR7.70) had a strong 4Q16, with
recurring EBITDA growing 34% YoY to MYR516m. The FY16 revenue and EBITDA were in
line with our estimates, accounting for 100% of our forecasts.
We increased 2017F-2018F earnings by 4-12% to account for the lower costs as the
extension of operating concession in Malaysia should enable MAHB to report a lower
depreciation in the near term. We also increased our DCF-based TP to MYR7.70 (from
MYR7.00).
AirAsia X plans to increase capacity and improve aircraft utilisation

Although AirAsia X would not add any new aircraft in 2017, management is guiding for a Growth to come from capacity
25% increase in ASK. Growth in ASK would be driven by the full-year impact of the capacity increase and higher aircraft utilisation.
put in place in 2016, higher aircraft utilisation and redeployment of two wet lease aircraft Higher aircraft utilisation should help
back to scheduled flights. Although the Mauritius route is to be dropped, it plans to increase offset some yield pressure
frequencies to Tehran, and introduce flights to Wuhan and Hawaii later this year.
We believe management may add one more new destination in Asia to deploy its spare
capacity. ASK growth could exceed 25% if AirAsia X manages to commence flights to
Europe later this year. We believe improving utilisation may enable the airlines offset some
yield pressure.
Yields may come under pressure

We believe AirAsia X would be able to report slower but continuing improvements in 2017 AirAsia X to witness much slower
yield. Management has highlighted that the carrier continues to increase its average air improvement in revenue yield in 2017
fares by double digits, especially for high demand maturing routes like Japan, Iran and South
Korea. The forward booking numbers disclosed by AirAsia X remains encouraging, with
higher YoY load factors and average fares through to Jul 2017. We forecast 8-2% yield
increases in 2017-2018 respectively.
AirAsia X is well hedged on fuel but there is forex risk

AirAsia X has hedged 75% of their 2017 fuel requirements at USD60 per bbl, which is lower
than the YTD average jet fuel price of USD65 per bbl. Although MYR seems to have
stabilised against USD, it has depreciated from an average of MYR4.14/USD in 2016 to a
spot price of MYR4.43. We foresee forex risk for AirAsia X as the airline does not hedge its
USD exposure and has all of its debt and a large portion of operating costs denominated in
USD. We forecast MYR to average MYR4.43 in 2017.
Irrational to expect 2017 airline earnings growth to mirror 2016

With the expected addition of fresh capacity by almost all Malaysian carriers, we do expect Analyst
some pricing pressure to persist in 2017. Despite the lack of benefits from lower jet fuel Shekhar Jaiswal
prices; new route additions, slower but continuing improvements in revenue yield and +65 6232 3894
ancillary revenue growth should enable AirAsia X to deliver 16% EBITDA growth and 4% shekhar.jaiswal@rhbgroup.com
core net profit growth in 2017.

49
3 April 2017
Figure 81: Key estimates for AirAsia X
Recovery in passenger traffic to underpin earnings growth for MAHB

After a doubling of EBITDA in 2015 amidst full-year contributions from the Kuala Lumpur
International Airport 2 (klia2), MAHBs 2016 EBITDA grew only by 2% amidst weak
contributions from Turkish operations. Weakness in its Turkish operations was driven by a
EBITDA growth in 2016 was dragged
by weak Turkish operations
decline in passenger traffic growth especially international passenger traffic, which
commands a higher PSC. Management is guiding for a recovery in passenger traffic for
Malaysia and Turkey in 2017, especially in the international passenger traffic at Turkeys
Istanbul Sabiha Gokcen (ISG) Airport.
Management is also guiding for 2017 passenger traffic growth of 6.5% in Malaysia (2016:
5.6%) and 7.2% growth in Turkey (2016: 4.9%).
Management is guiding for strong
In line with expectations of traffic recovery, management is guiding for 2017 EBITDA to grow recovery in Turkish passenger traffic
5.6% to MYR1.8bn. However, growth would accrue from Turkey, as Malaysian EBITDA
would decline amidst higher costs. We estimate 2017 EBITDA to grow by 4% to MYR1.7bn.
Figure 82: MAHB our estimates vs. management KPIs for Figure 83: Key estimates for MAHB
2017
Source: Company data, RHB Source: Company data, RHB
Key risks
Key risks for the AirAsia X include higher-than-estimated non-fuel operating costs, lower-
than-expected revenue yields due to growing competition, and a slower-than-estimated
recovery in earnings from associates and joint ventures. For MAHB, we see downside risks
from weak traffic growth at ISG and the appreciation of MYR against EUR, which would
lower contributions from ISG.

50
3 April 2017
Maintain OVERWEIGHT
Despite the outperformance of aviation stocks in 1Q17, we maintain our OVERWEIGHT
rating on the aviation sector as valuations still remain compelling. Although the benefits from
declining oil prices would not be available in 2017, we expect AirAsia X to benefit from
capacity expansion, higher aircraft utilisation and continuing improvement in demand.
Earlier-than-estimated recovery in associate earnings could also lead to improved earnings
outlook for the long haul low cost carrier.
On the other hand, while we expect recovery in passenger traffic growth, especially in
Turkey, to underpin EBITDA growth for MAHB in 2017, we believe the following factors
could cause an overhand on the stock in the near term:
i. Uncertainty about the Government paying for the shortfall in PSC revenue from lower
ASEAN PSCs at KLIAs main terminal building;
ii. Lower-than-estimated and lower-than-guided international passenger traffic growth in
Turkey;
iii. Likely revision in framework that links PSC with airport service levels in 2018.
Figure 84: Valuations of aviation stocks

Price Target Mkt P/E EPS Growth P/BV P/CF ROE DY Rec
Cap (x) (%) (x) (x) (%) (%)
MAHB 6.94 7.70 11,515 70.7 39.0 (38.4) 81.4 1.5 8.0 2.1 1.8 B
AirAsia X 0.41 0.50 1,680 7.2 6.1 4.1 18.9 1.3 2.7 19.2 0.0 B
Sector Avg 12.1 11.3 (9.7) 7.6

51
3 April 2017
Banking: Brighter Skies On The Horizon Overweight

Improving growth outlook as exports recover
A faster pace of growth in 2017. Malaysias real GDP growth picked up for the second
consecutive quarter in 4Q16, supported by a stronger recovery in exports. As external activities
recover from a better global growth outlook, RHB economists now expect Malaysias GDP to
grow at a faster pace of 4.5% for 2017 (revised from 4.3%; 2016: +4.2%). Growth would be
supported by:
i. A faster 6% growth in exports (2016: +1.1%) on a recovery in demand for commodity
products, pick-up in global semiconductor sales, and improving global trade outlook;
ii. A modest pick-up in domestic demand to 4.7% from +4.4% in 2016 helped by resilient
consumer spending;
iii. Higher crude oil prices that would bring some relief for the Governments fiscal position.
Downside risks could come from policy shifts, particularly the rising protectionist pressures in
the US and disappointments from President Trumps pro-growth policies. There could also be
risk of the Eurozone disintegrating due to populist surprises from multiple leadership elections
this year.
Asset quality to stabilise by mid-2017

Asset quality of Malaysian banks is holding up well despite the challenging macroeconomic
environment. Sector absolute GIL increased 19% YoY at end-Dec 2016. GIL ratio, although
higher at 1.96% (Dec 2015: 1.75%), remained benign. As the rise in absolute GIL was partly
due to the classification of restructuring and rescheduling of loans (R&R loans) as impaired
loans, sector LLC declined to 76% (Dec 2015: 81.7%). This also explains the moderate increase
in credit cost to 40bps in 2016 vs 32bps in 2015.
GIL ratio to stay below 2% in 2017. Banks expect some asset quality pressures to persist into
1H17, particularly for the commodities and shipping sectors but rule out systemic risks.
Reflecting this, banking system business GILs have eased 3.4% between the peak seen in Jul
2016 and Jan 2017. However, household GILs increased 3.9% over the same period, impacted
by high leverage and rising cost of living. We expect asset quality to stabilise by mid-2017 given
the improving macroeconomic outlook. This should keep GIL ratio below 2% in 2017.
Lower credit cost of 36bps. Banks sanguine view on asset quality is also reflected in their
guidance for a decline in credit cost in 2017, albeit a moderate one. For stocks under our
coverage, we expect a 7.6% YoY decline in loan provisions which would lower sector credit cost
to 36bps in 2017. Risks of negative surprise could come from faster-than-expected
normalisation of credit cost as loan recoveries are coming to a tail-end, and pre-emptive
provisioning as banks prepare for the adoption of the Malaysian Financial Reporting Standard
9 (MFRS 9) in 2018.
Sustained loan growth

Business segment to lead loan growth. System loans growth has picked up since Sep 2016,
after a sluggish first eight months last year. The sustained MoM growth momentum of 0.9% in
Jan 2017 is a good early sign of improving loan demand.
Business loans growth, which has strengthened to 6.1% YoY in Jan 2017 from a low of +2.2%
YoY in Aug 2016, is expected to underpin growth in system loan. We believe loan demand
would come mainly from the construction, wholesale and retail, and financial services sector.
Lending to households has slowed to +5.2% YoY in Jan 2017 (Jan 2016: +7.6% YoY) and would
continue to trail behind business loan growth, in our view. Given the weak consumer sentiment,
we expect households to deleverage and defer big ticket purchases.
Sector loan to grow 6% YoY. Overall, banks expect loan growth to be susta Analyst
Fiona Leong
ined at mid-single digit in 2017. We forecast a 5% YoY increase in banking system loans (2016: +603 9280 8886
+5.3%), with sector loan growth at a slightly higher 6.2% YoY (2016: +6.3%) due in part to fiona.leong@rhbgroup.com
stronger lending activities from banks regional operations.

52
3 April 2017
NIM compression slowing

In 4Q16, banks surprised with a 10bps QoQ improvement in sector NIM. This was attributed to
a combination of efforts to manage funding cost via active focus on CASA accumulation and
shedding of expensive time deposits, and upward repricing of loans by some banks.
Still, most banks expect margins to narrow by 5-10bps in 2017. They believe funding costs
would edge higher as competition for deposits remains keen, especially with LDR at a multi-
year high of 93.7% at end-2016 (Dec 2015: 90.7%).
We believe NIM slippage would be at the lower end of banks range guidance of 5-10bps. Our
economist expects Bank Negara Malaysia (BNM) to keep the overnight policy rate (OPR) at 3%
throughout 2017. A stable policy rate as well as increasing use of risk-based return approach
to lending, point to moderate margin slippage in our view.
Non-II uplift from renewed capital market activities

Prospects of recovery in global growth have led to improved sentiment and increased risk
appetite among investors. Since late-February, trading volumes on Bursa Malaysia as well as
regional bourses have increased significantly. Average daily volume (ADV) on the equities
market was a very robust MYR2.99bn and this boosted 1Q17 ADV by 35% to MYR2.27bn. The
return of investor interest, we believe, would make for a more conducive environment for
corporate deals and manoeuvre. Should momentum in capital market activities be sustained,
this could result in positive earnings surprise for banks with strong investment banking units.
Cost discipline to drive positive jaws

With sector topline growth projected at a slightly stronger 5.2% YoY in 2017F (2016: +4.3%),
banks are likely to continue to maintain discipline on costs. Except for the Alliance Financial
Group (AFG), which expects to incur a 9-10% increase in operating expenses due to
investments for growth, most banks reiterated plans to contain opex growth to drive positive
jaws. We forecast sector CIR to improve to 47% in 2017 vs 48.1% in 2016.
M&A talks making a comeback

M&A speculations within the banking and financial space are making a comeback with the
recent buzz in capital markets. The Edge Weekly reported that an AMMB Holdings and RHB
Bank merger could be back on the table after talks broke down back in 2015. This is likely to be
spurred by interest among major shareholders of AMMB Holdings to exit the banking group.
Dato' Sulaiman Mohd Tahir, group CEO of AmBank Group has, however, dismissed reports of
a potential merger.
Earlier on, Malaysian Building Society announced that it has received BNMs approval to enter
into negotiations to take-over Asian Finance Bank. Given that banks ROEs have declined
substantially over the past three years, we believe pricing would be the key hurdle for any bank
M&A deal.
Earnings to rebound by 11% YoY

After three years of depressed profitability, Malaysian banks are expected to deliver an 11%
YoY rebound in 2017 earnings that would nudge sector net profit back to levels seen in 2013.
The improvement would come from:
i. A 5% YoY rise in operating income. Net interest income is projected to grow 3% on a
sustained 6% growth in loans somewhat offset by a modest narrowing of NIMs. Non-II is
expected to increase by a stronger 10% YoY (revised from 5%) after factoring in on better
capital market related income and fees from wealth management;
ii. Modest increase in operating expenses of 2.9% YoY as banks continue to rein in costs.
This would see CIR improve to 47% from 48.1% in 2016;
iii. A 9.9% YoY decline in total impairment charges with loan credit cost easing to 36bps
(2016: 41bps).
EPS would however, rise by a smaller 8% due to capital preservation measures, namely script
dividend schemes. This is a result of continued focus by banks to strengthen capital ahead of
BNMs implementation of MFRS9.

53
3 April 2017
Maintain OVERWEIGHT, Maybank, Public Bank and BIMB are BUYs

We raised our sector rating to OVERWEIGHT (from Neutral) in early March, following our
upgrade of Maybank to BUY (from Neutral) on the back of the 4Q16 results. Improvement in
underlying operations seen in 4Q16 coupled with investors increased risk appetite, have led to
an upward re-rating of bank stocks. Malaysian banks share prices have risen by 10% between
1 Jan and 17 Mar. The sector currently trades at 1.3x 2017F P/BV, which is close to -1SD
historical mean, but is unlikely revert to mean valuation of 1.8x P/BV as projected ROEs of
c.10% are substantially below the 12.2% recorded in 2008.
While we have turned more positive on the sector and take comfort in the fact that ROEs are
beginning to stabilise, we are mindful that external factors remain the key risk to our view. Our
BUYs are Maybank (best capitalised Malaysian bank and key beneficiary of expected pick-up
in capital market-related income), Public Bank (solid asset quality with high loan provision
buffers) and BIMB (strong asset quality and above average loan growth due to increasing
demand for shariah compliant financing).
Risks. Key downside risks to our sector view are the higher-than-expected impairment charges,
bigger-than-expected NIM slippage and lower-than-expected non-II.
Figure 85: Valuations of banking stocks

Price Target Mkt P/E EPS Growth P/BV DY ROE Rec
Cap (x) (%) (x) (%) (%)
(MYR/s) (MYR/s) (MYRm) FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F FY17F FY18F
Maybank 8.90 9.30 92,251 12.6 12.2 14.3 3.8 1.2 1.2 6.1 6.3 10.2 10.2 B
Public Bank 20.18 22.00 77,925 14.9 14.2 0.4 4.9 2.1 1.9 2.9 3.0 14.6 14.1 B
BIMB 4.46 5.20 7,086 11.9 11.1 6.1 6.5 1.7 1.5 3.0 3.1 14.7 14.2 B
CIMB 5.65 5.00 50,918 12.2 11.0 18.6 10.4 1.0 1.0 3.4 3.9 8.9 9.3 N
AMMB^ 4.87 4.30 14,634 10.9 10.4 1.0 4.8 0.9 0.8 3.5 3.7 8.1 8.0 N
AFG^ 4.10 3.80 6,253 12.4 11.0 (4.5) 13.2 1.2 1.1 3.8 4.0 9.8 10.5 N
HLB 13.62 12.00 29,524 13.6 12.9 0.3 5.7 1.3 1.2 3.0 3.1 9.9 9.9 S
Affin 2.85 2.50 5,537 9.4 8.8 4.3 7.5 0.6 0.6 3.3 3.7 6.6 6.7 S
RHB Bank* 5.26 NA 21,093 10.3 9.6 16.7 7.3 0.9 0.8 2.5 2.7 8.5 8.4 NR
Sector Avg 13.0 12.2 8.4 6.0 1.3 1.2
* Not under our coverage.

54
3 April 2017
Basic Materials: A Stock-Picking Game Overweight

Demand to slowly pick up in 2017, but
A slew of infrastructure contracts have already been awarded in 2016, and we believe that Demand for basic materials is set to
the value of construction jobs awarded in 2016 is likely to surpass that of the preceding improve from 2017 but
year. Already, various contracts for high-profile projects like the Mass Rail Transit Line 2
(MRT2) and Pan Borneo Highway (Sarawak) have been awarded YTD.
a sluggish property market may cap upside

Meanwhile, we expect a meaningful pickup in the usage of basic materials in 2017, driven a slowdown in the property market
mainly by infrastructure projects. However, the sluggish property market could translate may cap upside
into lower construction activities for both residential and non-residential projects in the
medium term. Hence, it may cap the substantial upside in basic materials requirements.
Therefore, we remain selective in our stock selection within our sector universe.
Press Metal remains our sector Top Pick

We continue to like Press Metal (PRESS MK, BUY, TP: MYR3.27) as we see room for Press Metal is our Top Pick for the
further earnings improvement. The companys Phase 3 smelter in Samalaju was fully basic materials sector, given its room
commissioned in late May. Phase 2 of its Samalaju smelter also returned to normal for upward earnings surprise. We
operations in Nov 2015 after six months of repairs due to a fire incident. Meanwhile, we deem the valuations as still cheap
expect the commissioning of Samalaju Port (capable of handling Panamax vessels) slated
for April would help to cut inland logistics and shipping costs.
Apart from that, we also see potential cost savings derived from the new smelter that is
sharing some common infrastructure and has room to lower power usage. Press Metal also
targets to raise its value-added production, which may help to enhance profitability.
More importantly, the London Metal Exchange (LME) aluminium cash price seems to have
formed a new support at around USD1,900 per tonne. The premium, which is a surcharge
consumers must pay on top of the LME price, has also bottomed ou
t at USD95 in 1Q17 (for Main Japan Port or MJP). It recently concluded at USD128 per
tonne for 2Q17 delivery to MJP. Therefore, the stock is our Top Pick for the basic materials
sector.
Figure 86: Press Metal's core competitive advantage (upstream)

POWER LOCATION
1) 25-year Power Purchase Agreement; 1) Centrally located between the alumina
2) Competitive tariff (hydro); supply (Australia) and Asia ex-China
3) Stable supply (hydro); markets;
4) State of art technology: 2) Samalaju/Mukah smelter is 70km/200km
(a) Samalaju (400 KA) from Bintulu Port respectively;
(b) Mukah (225 KA) 3) Samalaju Port (deep sea) would be located
next to its Samalaju smelter by mid-2017.
LOW COST MODEL OTHERS
1) Adopted state-of-the-art Chinese technology 1) Samalaju smelter enjoys 10+5-year tax
that utilises half of Western technologys holiday;
2) Mukah smelter was granted investment tax
capex;
allowance (ITA);
2) Replicated Hubei smelters low cost 3) Mukah focuses on 100% aluminium billets
operating model in Sarawak; (value-added products);
3) Scalable operations in Samalaju (640,000 4) Increase value-added production at
tonne pa in one location) improve cost Samalaju smelter (A356, wire, billets, etc).
efficiency.
Analyst
Ng Sem Guan, CFA
+603 9280 8878
ng.sem.guan@rhbgroup.com

55
3 April 2017
CMS back on the right track

Cahya Mata Sarawaks (CMS) (CMS MK, BUY, TP: MYR4.90) share price has since We believe the worst is finally over for
rebounded after sharp pullback in 2Q16. Meanwhile, all of CMS business units have made CMS. Hence, our BUY call
a comeback over the last two consecutive quarters, with improved sales and margins
recorded across the board.
We believe its 25%-owned OM Materials (Sarawak) SB (OMS) to see gradual improvement,
as the remaining six furnaces are progressively commissioned however, full turnaround
is only expected from 3Q17. Apart from that, 50% stake in Sacofa SB (the sole
telecommunication tower service provider in the state) would see further earnings escalation
moving forward.
As for CMS traditional businesses like cement, materials & trading, and construction & road
maintenance, all these units are all set to continue benefit from the MYR16bn Pan Borneo
Highway (Sarawak) project and the development of the Sarawak Corridor of Renewable
Energy (SCORE). We have therefore upgraded the stock to BUY, as we believe the worst
is finally over for CMS, at least in the medium term.
Another niche player worth a closer look

Within the basic materials sector, we also like OKA Corp (OKA) (OKAC MK, BUY, TP: We also like OKA, a niche player
MYR1.61), given its more aggressive pricing in order to capture a bigger market share. In within the basic materials space
addition, its internal cost optimisation strategies would support margins going forward, in
our view. Demand for its products should remain stable, underpinned by various
infrastructure projects that have been announced, such as new highways and flood
mitigation projects.
West Malaysian cement players suffer from extended over supply

Pure cement players in West Malaysia such as Lafarge Malaysia (Lafarge) (LMC MK, The competitive business environment
SELL, TP: MYR5.05) continue to struggle from stiff price competition. This has led to is expected to be extended due to
cement manufacturers in West Malaysia offering larger bulk discounts at the expense of additional new capacity and a possible
margins. slowdown in basic materials
Until more new major construction projects hit the ground running, we expect selling prices requirements in the interim period
of cement to be under close scrutiny amid stiff competition. This is as we project a softer
pickup entering into 2017. Meanwhile, Hume Industries (HUME MK, NR) just
commissioned its new production line, which suggests there could be further price
competition in the near future.
That said, we continue to like the cement segment as there is only one producer each in
Sabah and Sarawak. Meanwhile, the West Malaysia market is dominated by an oligopoly.
We continue to monitor developments in the sector for any re-rating catalysts.
Figure 87: New and pipeline cement capacity in Malaysia

Capacity (000 tonnes pa)
Company Clinker Grinding Status
Hume Cement (Phase I) 1,500 2,000 Operating since 2013
Cement Industries of Malaysia 1,500 1,800 Operating since 2014
YTL Cement 1,500 1,800 Operating since 2015
Lafarge Malayan Cement - 300 Commissioned in Feb 2016
Lafarge Malayan Cement - >900 Commissioned in Jul 2016
CMS Cement - 1,000 Commissioned in 1H16
Hume Cement (Phase II) 1,500 1,800 Commissioning in 2H16
Source: RHB
Pantech in need of more shelter from RAPID

Separately, Pantech Group Holdings (Pantech) (PGHB MK, NEUTRAL, TP: MYR0.46)
physical presence in Johor suggests that it may win more supply contracts from the
We keep our NEUTRAL call on
Pantech on the back of a challenging
Refinery and Petrochemical Integrated Development (RAPID) project. However, there are
oil & gas industry outlook
still limited orders from this single-largest oil & gas project in the country thus far. As a
result, Pantech is unable to fully compensate for the overall slowdown in sales at both its
manufacturing and trading divisions.

56
3 April 2017
OVERWEIGHT with selective BUY

We are keeping the sector rating at
As we are expecting a recovery in basic materials demand in 2017 and with three BUY OVERWEIGHT with selective BUYs
calls (on top of one NEUTRAL recommendation and one SELL call) in the sector we are
keeping the basic materials sector at OVERWEIGHT. That said, we believe investors should
be selective in stock selection within the industry.
Figure 88: Valuations of basic materials stocks

Price Target Mkt Cap P/E EPS Growth P/BV P/CF ROE DY Rec
(x) (%) (x) (x) (%) (%)
Press Metal 2.45 3.27 9,069 14.5 11.4 40.6 26.7 3.4 7.1 25.3 2.1 B
CMS 4.20 4.90 4,512 16.0 13.9 44.3 14.5 1.9 14.6 12.4 2.5 B
OKA^ 1.46 1.61 234 9.1 8.5 4.7 7.2 1.4 8.3 15.0 4.1 B
Pantech^ 0.54 0.46 310 8.2 7.5 24.9 9.6 0.6 9.2 7.0 3.8 N
Lafarge 6.73 5.05 5,725 35.9 29.9 +>100 20.0 1.9 35.9 5.2 2.4 S
Sector Avg 17.5 14.4 46.4 21.7

57
3 April 2017
Construction: Another Promising Year Ahead Overweight

A mixed bag in 4Q16
As anticipated, construction sector earnings for 2016 were a mixed bag. Most older projects Financial results for constructors
secured in earlier years are coming to the tail end of the billing cycle whilst new projects remains mixed in 4Q16
secured early this year are still at the site planning stages, with little work commissioned to-
date. The situation is truly reflected in the Malaysia construction GDP, which has been
declining over the past three quarters.
Figure 89: GDP of the construction sector in Malaysia
25 Title:
Source:
20
Please fill in the values a
15
10
Source: Department of Statistics, RHB
Getting busier hence possible uptick in earnings

After relatively robust contract flows in 2016, we are expecting a meaningful pickup in Execution for new projects secured
earnings for local contractors going into 2017, as project implementation and hence, billings earlier last year may pick up
pick up steam. Meanwhile, results for contractors remained mixed in 4Q16, due to lower job momentum hence its earnings
recognition as older projects secured in previous years are coming to the tail-end of their
billing cycles. In the meantime, new projects secured earlier last year may pick up
momentum, after a few months in the site planning stage.
Whats in the bag?

2016 was rather fruitful for most of the contractors, with many receiving record new orders Many contractors receiving record
during the year. Already, various packages related to high-profile projects like the Mass Rail new orders in 2016
Transit (MRT) Line 2 (MRT2), Pan Borneo Highway (Sarawak), Sungai Besi-Ulu Kelang
Elevated Expressway (SUKE), Damansara-Shah Alam Highway (DASH) and West Coast
Expressway (WCE) have been awarded. Meanwhile, public sector projects remain one of
the Governments main focus, in particular transportation-related infrastructure.
More contract awards in the coming months?

As all key packages of MRT2 were awarded early this month, all eyes are on the Light Rail Enough outstanding jobs to be
Transit Line 3 (LRT3) and Pan Borneo Highway (Sabah). Aside from that, there are still a awarded in short to medium term
few more projects in the pipeline scheduled to be awarded in the coming months through
2017.
We believe the long-awaited sub-contracting works for the Gemas-Johor Bahru electrified
double tracking (EDT) project may be dished out soon. There are also several mega projects
in the early stages of construction and planning, such as the Tun Razak exchange (TRX)
and Bukit Bintang city centre (BBCC) projects. Analyst
Ng Sem Guan, CFA
Awarding for these projects can be expected in the coming months, and possibly extend to +603 9280 8878
the next few years given that some of the mega development projects may take decades to ng.sem.guan@rhbgroup.com
be fully implemented.

58
3 April 2017
What is left beyond 2018?

We remain hopeful over the availability of new jobs in 2018 and beyond. There are still many Room for more development in
public and private projects in the pipeline, such as High Speed Rail (HSR) between Kuala Malaysia, hence more construction
Lumpur and Singapore, and works related to the Penang Transport Master Plan (PTMP). projects in the pipeline beyond 2018
Separately, MRT Line 3 (MRT3) may be in the planning stage by 2018. Also, the newly-
proposed East Coast Rail Link (ECRL) is expected to hit the ground at end-2018 or early
2019. We may also finally see a revival of the property market by then, hence more private
projects may be eventually be launched.
Figure 90: Key logistic infrastructure initiative in Malaysia

No Project MYRm 4Q16 1Q17 2Q17 3Q17 4Q17 2018 2019 2020 > 2020
1 KVMRT 1 23,000
2 KVMRT 2 28,000
3 KVMRT 3 36,000
4 KVLRT 3 9,000
5 BRT Kuala Lumpur - Klang 1,500
6 BRT Kota Kinabalu 1,000
7 HSR Kuala Lumpur - Singapore 60,000
8 Gemas-JB electrified double tracking project 7,130
9 Pan Borneo Highway (Sarawak) 16,100
10 Pan Borneo Highway (Sabah) 12,800
11 Sg Besi-Ulu Kelang Expressway (SUKE) 5,300
12 Damansara-Shah Alam Highway (DASH) 4,200
13 Central Spine Road 6,600
14 Penang Transport Master Plan (PTMP) 46,000
15 New East Coast Rail Line 55,000
Estimated construction period
Source: RHB
P/E valuation for the construction sector

On valuation, the construction sector index is now trading at 15.6x historical P/E band. This Construction sector index trading
is between the mean to +1SD based on past 25 years trading range: between the mean to +1SD based on
i. We are now valuing larger-cap contractors at 15-16x forward P/Es, approximately past 25 years trading range, still
+1SD to +2SD above the sectors historical trading range since 2005; undemanding in our opinion
ii. We value mid-cap construction stocks based on mean to +1SD of KLCIs trading range;
iii. For smaller-cap construction companies, we currently value them based on 10-12x
forward P/Es, around -1SD of the historical trading range.
Considering most of the contractors also have other businesses such as property, road
concessions, manufacturing and others, we normally value the stocks based on SOP
methodology.
Figure 91: Construction sector P/E trading range

(x)
30.0 Title:
Source:
25.0
Please fill in the values abo
2sd: 21.4x
20.0
1sd: 18.0x
15.0 Average: 14.7x
10.0 -1sd: 11.3x
-2sd: 7.9x
5.0
0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: RHB

59
3 April 2017
Investment risks
Key risks for the sector include new job awards falling short of our estimates, and higher Actual job wins and cost management
input costs, which may translate into poor margins. Although certain projects may face are two major risks for contractors
funding challenges, we note that most public projects have already secured financing via
special purpose vehicles (SPVs).
Separately, we see aggressive participation from Chinese contractors in the local We believe contracts available at the
construction scene. Undeniably, it has posed some competition to the local boys, but we moment is big enough to cater to all
believe the amount of contracts available at the moment is big enough to cater to all parties, parties, inclusive of Chinese
hence no major threat is expected as yet. contractors
We also believe that traditional main contractors like Gamuda and IJM may continue to play
their roles in key infrastructure projects unless the projects are being funded by China. For
instance, we expect Chinese contractors to lead the ECRL project, with funding by EXIM of
China. That said, we still expect local contractors to be involved in at least a third of the
projects in any case, such projects may not even exist in the first place without any funding
from China, in our view,
Reiterate OVERWEIGHT stance for construction sector

We maintain our OVERWEIGHT stance on the construction sector. Overall, the healthy Underpinned by robust job prospects,
orderbook, driven by public sector infrastructure projects, should keep local contractors we reiterate our OVERWEIGHT rating
busy in the medium term, in our view. on the construction sector
Gamuda is our Top Pick for the sector (large cap). We like the companys prominent role in Gamuda is excellent proxy for
Malaysias infrastructure development. Aside from a record order book of MYR9bn, construction sector hence out Top
Gamuda is eyeing other projects and a role in the next phase of rail-related infrastructure Pick
development.
Separately, Gadang is our Preferred Pick for smaller cap construction stocks as we see a Gadang is our Top BUY for smaller
good opportunity to accumulate after the recent selldown, and that the stock is currently cap construction stock
trading at single-digit forward P/E vs the peer average (in low teens). Apart from strong
medium-term earnings visibility, it has also laid the foundation for the longer term.
Figure 92: Valuations of construction stocks

(x) (%) (x) (x) (%) (%)
Gamuda 5.14 5.80 12,434 17.9 15.3 11.2 16.5 1.7 84.3 9.8 2.3 B
IJM^ 3.44 3.83 12,332 16.1 15.5 30.9 4.3 1.3 14.4 8.0 2.5 B
Sunway Cons 1.76 2.05 2,276 15.2 13.4 21.5 13.3 3.9 8.8 27.7 2.3 B
HSL 1.69 2.18 931 11.8 10.1 40.0 16.3 1.2 7.5 10.8 2.0 B
Gadang^ 1.30 1.55 841 7.9 7.2 10.2 9.9 1.2 10.3 16.3 2.3 B
Kimlun 2.19 2.57 680 8.1 7.7 0.5 6.1 1.1 4.4 14.7 3.1 B
WCT 1.88 1.80 2,373 16.3 14.2 41.7 14.9 0.8 6.8 5.2 3.1 N
Pintaras 3.58 3.50 585 14.7 11.7 +>100 25.0 1.7 11.6 11.9 5.3 N
Sector Avg 15.7 14.1 22.0 11.0

60
3 April 2017
Consumer: Anticipating a Better Sentiment Neutral

4Q16 sector earnings generally in line
Out of the 14 stocks that we cover, the performance was mixed (six achieving results within 4Q16 earnings came in mixed
expectations; two coming in above expectations; and six below expectations). From the
company perspective, Oldtown (OTB MK, NEUTRAL, TP: MYR2.75) and Padini (PAD MK,
NEUTRAL, TP: MYR2.79) recorded strong results in 4Q16 with the former boosted by solid
growth in export sales, while the latter was aided by seasonality.
On the flipside, retailers including Aeon Co M (Aeon) (AEON MK, NEUTRAL, TP:
MYR2.38), Berjaya Food (BFood) (BFD MK, BUY, TP: MYR2.21) and 7-Eleven Malaysia
(7-Eleven) (SEM MK, NEUTRAL, TP: MYR1.40) disappointed, as consumer sentiment
remained weak while operating costs kept margins under pressure.
During the quarter, we maintained most of our previous recommendation on the stocks
under our sector coverage. We upgraded Aeon to NEUTRAL (from Sell) as we think that
the negative share price performance may have priced in most of the negatives, and we
expect FY17F earnings to improve from a low base. Meanwhile, we downgraded Carlsberg
Brewery Malaysia (Carlsberg) (CAB MK, NEUTRAL, TP: MYR MYR15.40) from Buy as we
think that the stock is fairly valued, and the topline growth is less encouraging compared to
Heineken Malaysia (Heineken) (HEIM MK, BUY, TP: MYR19.30).
Similarly, we downgraded SKP Resources (SKP MK, NEUTRAL, TP: MYR1.49) as we
believe that its share price has priced in most of the positives of the company.
Sector remained resilient despite weak sentiment

Generally, QoQ strength was observed during the quarter, which is best showcased by Consumer sentiment dipped
Heineken and Padini with sales growth of 50% and 38% respectively. Overall in the
consumer sector, the QoQ sales growth recorded in 4Q16 was 11%. The strong seasonal
jump was driven by the year-end school holidays and festivities, and we also believe that
the earlier timing of Lunar New Year in 2017 (28 Jan 2017) compared to 2016 (8 Feb 2016)
had further boosted 4Q16 sales given the earlier preparation and stocking-up for the festival.
Meanwhile, the Malaysia Institute of Economic Research (MIER) Consumer Sentiment
Index (CSI), a lagging indicator of consumer sentiment, has pointed to a second consecutive
quarter of decline in 4Q16. The intensified expectations of rising prices, subdued income
and job outlook were the factors keeping consumer confidence and mood cautious.
Overall, we observed that the consumer sector has shown healthy 5% YTD topline growth,
showcasing the resilient nature of the consumer companies. However, that has not
translated into better profitability largely due to the recovery in commodity prices,
unfavourable forex, as well as higher operating costs. The cost pass through via price
increases was difficult considering the weak consumer sentiment and the surveillance of
anti-profiteering mechanism.
Feel-good factors in sight

Looking forward, we believe the sentiment can improve from the low base in 4Q16, as
consumers may turn more optimistic in expecting an economy recovery thanks to a slew of
Sentiment could improve from low
base
positive economic developments including better-than-expected GDP growth, robust export
and better commodity prices. On top of that, the South-East Asian (SEA) Games in August
and a potential election in 2017 (if it materialises), could be potential feel-good factors to
look at to lift the consumer sentiment.
The SEA Games are likely to attract more tourist arrivals and lift nationalism if local athletes
excel, while consumer spending could be lifted if a pre-election spending budget were to
benefit the rakyat via a direct approach.
To recap, MIERs CSI had catapulted to a high of 123 points in 1Q13 before the 13 th General
Election (GE13) on May 2013, ie its highest level since 1Q07. Meanwhile in the commodity
market, we observed that the strong rally in the key commodities in 2016 had mod
erated or normalised, particularly for milk powder and sugar.
Thus, we believe that would ease the cost pressures for most of the food manufacturers Analyst
moving forward, as the cost pass through via price increases would be difficult in view of the Soong Wei Siang
weak consumer sentiment. +65 92808865
soong.wei.siang@rhbgroup.com

61
3 April 2017
Figure 93: CSI
Source: RHB, Malaysia Institute of Economic Research (MIER)
Elsewhere, we believe that the plastic packaging companies earnings and prospects would
be driven by ramp-up of new capacity, while the movement of raw material prices, and the
selling price of new capacity, would also be key in determining the quantum of earnings
growth, in our view. Prices for resin, the main raw material in plastic packaging and also a
by-product of crude oil, have remained relatively stable in 2016 as compared to 2015, ie
tracking the movement of crude oil. We think this bodes well for plastic packaging
manufacturers in terms of production planning.
Meanwhile, for electronics manufacturing services (EMS) providers, we still view contract
flows as the key to securing future growth prospects. The main customer for Malaysian EMS
providers a major UK technology company Is rumoured to be exploring or researching
new revolutionary products, including an electric car and a smart toothbrush. We think that
if the design can be finalised, local EMS players can benefit given their strong reputation
and existing relationship with said UK customer.
From a macroeconomic perspective, we believe that the economic environment is
supportive and conducive to the overall consumer sector with the in-house GDP growth
forecast of 4.5% in 2017. Consumer spending is expected to stay resilient with the
forecasted private consumption of 5.7% in 2017 while spending power is unlikely to be
dented by excessive inflation, with the Consumer Price Index (CPI) projected at 3.2% in
2017.
Key risks
Key downside risks to our recommendation include a persistent weak consumer sentiment, Weak sentiment is a key risk
sharp rise in commodity prices, unfavourable regulation or policy change, and weaker-than-
expected economy condition.
NEUTRAL
All in, we are maintaining our NEUTRAL sector call on the consumer sector. We have four BFood is the Top Pick
BUYs, nine NEUTRALs, and one SELL in our coverage universe, which supports our sector
call.
Fundamentally, we expect sentiment to recover in 2017, albeit from a low base. However,
we are not overly optimistic, as the sentiment is unlikely to turn confident. This is barring
any strong catalysts, with consumers expected to stay cautious given higher living costs and
a tepid job market outlook. On the flipside, the sectors resilient nature is likely to cap the
downside if the sentiment fails to improve and remains subdued.
Our Top Pick in the sector is BFood, as we like the company for its Starbucks-driven growth,
and potential re-rating as a pure Starbucks play if the under-performing Kenny Rogers
Roasters business can be disposed or successfully restructured. We also like Scientex (SCI
MK, BUY, TP: MYR8.40) for its capacity expansion at its manufacturing division, as well as
its resilient market positioning in the property division. We like VS Industry (VSI MK, BUY,
TP: MYR2.12) too for its growth potential, established reputation, strong relationship with
key customers and hands-on management team.

62
3 April 2017
Figure 94: Valuations of consumer stocks

(x) (%) (x) (x) (%) (%)
Heineken Malaysia 17.64 19.30 5,329 18.4 17.2 6.2 7.1 13.4 12.7 73.1 5.3 B
Scientex 7.42 8.40 3,413 10.8 9.0 30.7 20.6 2.4 14.2 18.7 2.8 B
VS Industry 1.80 2.12 2,239 12.1 11.3 20.2 6.3 2.3 10.4 19.9 3.5 B
Berjaya Food^ 1.82 2.21 693 18.0 14.2 54.3 26.5 1.6 2.9 9.1 2.8 B
IQ Group^ 3.32 4.20 292 11.8 10.5 5.4 12.9 1.8 10.3 15.5 3.3 B
Nestle 76.82 72.90 18,014 27.8 26.4 1.6 5.5 27.6 18.0 99.5 3.6 N
QL Resources^ 4.60 4.33 5,741 25.3 23.4 10.9 8.1 3.0 1.4 12.4 1.2 N
Carlsberg 14.60 15.40 4,498 19.0 17.2 15.6 10.4 14.0 15.9 73.7 5.3 N
AEON Co 2.44 2.38 3,426 30.8 27.3 40.8 13.1 1.8 0.5 5.9 1.6 N
MSM Malaysia 4.49 4.06 3,156 19.9 17.2 31.3 15.9 1.5 6.5 7.9 3.0 N
Padini 2.90 2.79 1,908 12.6 11.3 10.5 11.2 3.4 2.5 29.7 3.4 N
7-Eleven 1.51 1.40 1,862 31.3 27.1 14.1 15.7 31.6 0.7 126.4 1.9 N
SKP Resources^ 1.32 1.49 1,663 11.1 9.7 29.7 14.6 3.5 1.3 34.4 4.5 N
OldTown^ 2.68 2.75 1,194 15.7 13.9 11.7 12.4 2.8 3.5 13.8 3.5 N
NTPM^ 0.85 0.92 949 15.1 12.9 7.4 17.3 2.0 1.0 13.9 3.6 N
BAT 47.90 43.30 13,677 19.3 17.9 5.1 7.9 21.1 19.8 112.4 4.9 S
Sector Avg 19.7 17.9 11.9 10.7

63
3 April 2017
Gaming: Waiting For Re-Rating Catalysts Neutral

Genting Integrated Tourism Plan (GITP) could re-rate visitations in the long
run
The new facilities under Genting Malaysias (GENM MK, NEUTRAL, TP: MYR5.08) GITP
has commenced operations progressively since Dec 2016. The core facilities that are
already open include its SkyAvenue shopping mall and the new cable car system known as
Awana SkyWay. Based on official statistics released by management, Awana SkyWay has
carried close to 1.2m passengers from its official opening on 22 Dec 2016 to 28 Feb 2017.
Average daily footprint is clocking in at 10,000-12,000 passengers.
Beyond that, we gather that there have been some delays in the opening of the Genting
Highlands Premium Outlets as well as the new casino known as SkyCasino. For the former, Some delays in completion of certain
we understand that the official opening has now been postponed to 2Q17 (from Feb 2017). facilities under the GITP
For SkyCasino meanwhile, we gathered that management is still finalising the interior design
and fittings. Initially scheduled for opening in Jan 2017, we now believe an official opening
in 2H17 is a more realistic timeline.
We reiterate our view that the opening of SkyCasino would likely involve the closure of some
of its existing casino areas, as we gathered that overall gaming floor space remains
unchanged for now. We do not, however, discount the possibility of a higher overall number
of gaming tables for yields maximisation. We believe that the group is hoping to increase its
gaming floor capacity by some 200-300 tables (from 550 tables now) by 2018/2019.
While we see long-term potential in GITP, impending earnings accretion in the near term
remains uncertain. This is as the outdoor theme park the jewel of the crown to spur
visitations and hence patronage to its casinos would only be completed by end-2017.
Singapore stabilising, Japan next?

As for Resorts World Sentosa, 4Q16 impairment on receivables improved further to
SGD38.9m vs 3Q16s SGD50.2m. Management expects the current level to be the new
normal going forward. This is as its outstanding receivables closed at a low of SGD197.7m
vs SGD646.4m in 4Q15.
We believe this is achievable, owing to its continued efforts on credit controls. On the
downside, however, this would likely impede its VIP growth, as management reiterates its
risk-averseness in extending credit for now.
On a side note, we expect Genting Singapore (GENS SP, NEUTRAL, TP: SGD0.93) to go
all out in Japan once the local authorities firm up the development plan. Management
Expect cutthroat competition in Japan
highlighted that the group would participate in bidding for all potential locations. We are not
entirely surprised, given that the Japanese gaming market is widely seen as the next Holy
Grail amongst the global casino operators. Genting Singapore estimates that the setting up
of an integrated resort in the land of the rising sun could cost USD7-12bn.
That said, we caution that competition is likely to be stiff, as major casino operators including
Las Vegas Sands Corp, MGM Resorts International and Wynn Resorts Ltd are all looking
to commit similar amounts of investment to establish their presence in potentially the
second-largest gaming market in Asia.
Expanding presence in the US

In New York, Genting Malaysia has started rolling out its USD400m expansion programme,
which includes the addition of 1,000 video lottery terminals there are 5,500 units currently.
We expect full completion by 2019. This could potenti
ally lift its bottomline by 2-3% after commissioning assuming full-year accretion. Losses
continued to pile up at its Bimini site, with an EBITDA loss of USD41m in 4Q16. We expect
operations to turn around earliest by 2018.
On the other hand, Genting (GENT MK, NEUTRAL, TP: MYR9.59) has finalised the budget
for the first phase of development at its Resorts World Las Vegas (RWLV) for a total of RWLV could open its doors in 2019
USD3bn. Based on our channel checks, the development plan likely involves construction
Analyst
of over 3,500 hotel rooms, along with a show arena, movie theatres and convention
Kong Heng Siong
facilities. Tenders for construction work packages under RWLV are to be called by 1H17.
+603 9280 8866
kong.heng.siong@rhbgroup.com

64
3 April 2017
We expect the soft opening of the casino by 2019, with other supporting facilities likely to
be completed by 2020.
We expect RWLV to source 30-40% of its total project costs from equity financing. We
estimate that at the company level, Gentings cash pile was approximately MYR1bn as at
Dec 2016. The group receives an estimated MYR550-650m pa from its subsidiaries in the
form of management and licensing fees. These, coupled with the ploughing back of
dividends from its units, should enable it to meet the capital requirements for RWLV.
Number forecast operators (NFOs) are all about yields

For the NFOs, we continue to see both Magnum (MAG MK, NEUTRAL, TP: MYR2.19) and Pay for NFOs yields
Berjaya Sports Toto (BST MK, NEUTRAL, TP: MYR2.95) as appealing dividend plays, as
the duo offer decent annual dividend yields of over 6%. Industry growth, however, is unlikely
to be exciting in the foreseeable future at annual growth rates in the low single digits. This
is due to continued proliferation of illegal operators.
Meanwhile, we gather that there have been some market concerns over the potential
abolishment of special draws (which amounts to 20-25 draw days pa) following calls by one
of the opposition parties for the Government to take action. While we believe this is unlikely,
we estimate that this measure, if implemented, could potentially result in an 8-11% earnings
reduction for the NFOs under our coverage
NEUTRAL stance reaffirmed

All in, we maintain our NEUTRAL stance on the sector, as we do not see any major re-rating
catalyst over the near term. Genting Malaysia is our preferred pick as we continue to believe
that its MYR10.4bn GITP capex programme for Genting Highlands could propel earnings
growth in the long run.
Figure 95: NFO-related taxes .Figure 96: Regional casino-related taxes

12% 9%
45%
10% 39% 39%

40%
35%
8% 6%
30%
25% 25%
6% 25%
20%
4% 3% 15% 15%
15%
2% 10% 7%
6% 5% 5%
5%
0% 0% 0% 0%
0%
Macau Malaysia Singapore Philippines
Poolbetting duty (LHS) GST (LHS) NFO gaming tax (RHS)

VIP Mass market GST
Source: RHB Source: RHB
Figure 97: Valuations of gaming stocks

(x) (%) (x) (x) (%) (%)
Genting 9.79 9.59 36,633 15.7 14.6 11.9 7.3 1.0 5.0 6.5 0.6 N
Genting M'sia 5.47 5.08 32,481 19.2 17.4 6.5 10.5 1.5 12.0 8.2 1.3 N
B-Toto^ 2.95 2.95 3,986 13.3 13.1 10.3 1.1 4.5 11.6 35.1 6.4 N
Magnum 2.12 2.19 3,048 13.4 13.2 15.5 1.6 1.2 13.8 9.3 6.7 N
Sector Avg 16.7 15.5 9.9 7.8

65
3 April 2017
Healthcare: Improving Health Overweight

We upgrade the sector to OVERWEIGHT (from Neutral). While near-term earnings outlook IHH is our Top Pick in the sector
remains challenging due to moderating patient volumes and revenue intensity, sector
valuations have corrected. We remain positive on longer-term growth prospects for the
sector, and expect a stronger 2H17 on resilient economic growth.
IHH (IHH MK, BUY, TP: MYR7.30) is upgraded to BUY (from Neutral) and is our Top Pick
as we like its regional footprint and stronger earnings growth profile. Key catalyst for IHH is
the potential quick EBITDA breakeven at its new Hong Kong hospital. KPJ (KPJ MK,
NEUTRAL, TP: MYR4.10) is downgraded to NEUTRAL (from Buy) on subdued earnings
outlook.
Demand should improve on resilient economic growth

We expect IHH to still be able to pass through cost increases in FY17, while sustaining its
in-patient volume growth by working with private insurance companies and offering
More positive on 2H17 as demand
picks up on resilient economic growth
packaged services. Gleneagles Hong Kong (GHK) is expected to start operations at the end
of March. EBITDA dilution from pre-opening costs at GHK should diminish as the hospital
starts generating revenue.
Meanwhile, we expect KPJs patient attrition to stabilise going into 2H17, as resilient
economic growth in Malaysia would help drive improvement in domestic demand. The
company is also expected to hike prices in FY17 to pass through cost increases. We have
forecasted KPJs total patient volume to grow 1.3%/1.6% YoY in FY17F-18F (vs -0.4% in
FY16) and revenue intensity to grow by 6% pa in FY17F-18F (vs +8% in FY16).
Disappointing 4Q16 results season

Both IHH and KPJ posted weak sets of 4Q16/FY16 results respectively. For IHH, while FY16
revenue at its hospital operations grew a strong 18% YoY, driven by inpatient admissions
and revenue intensity, its EBITDA only grew by 9% YoY. EBITDA margin fell 1.8ppt to 20.2%
over the same period, dragged down by pre-opening expenses at GHK, start-up losses from
the new hospitals, higher doubtful debts expenses, and staff costs.
KPJ posted FY16 revenue growth of 6% YoY. Its EBITDA was up 8% YoY but core net
earnings was 5% lower YoY over the same period excluding gains from the one-off provision
for the employees stock option scheme (ESOS) payments, and gains from the disposal of
assets and shares in associates. Its patient volumes in FY16 were tepid on the back of
higher attrition as cautious and price-sensitive patients switched to public healthcare and
deferred elective treatments. No dividends were announced in 4Q16, which was below
market expectations.
Valuations have corrected look out for key catalysts ahead

Post the disappointing 4Q16 results that were released in February, share prices for the IHH and KPJ are trading at discounts
Malaysian listed hospital operators have unperformed by 4% relative to the market over the to regional peers unjustified given
past month. Currently trading at 16x and 11x FY18F EV/EBITDA respectively, IHH and KPJ their positive growth prospects
are both at an 11% and 39% discount to the regional peer average of 18x.
Both IHH and KPJ are trading close to or at -1SD below their 3-year historical 1-year forward
EV/EBITDA valuations. Given the still-positive earnings growth prospects for these two
companies (expected 2-year EBITDA CAGR of 23% for IHH and 9% for KPJ), we are of the
view that the current valuations are unjustified.

66
3 April 2017
Figure 98: IHHs 1-yr forward EV/EBITDA Figure 99: KPJs 1-yr forward EV/EBITDA
IHH regional champion: upgrade to BUY, TP: MYR7.30

We believe IHH is best positioned to capture both domestic private and medical tourism Opening of GHK would be a strong
demand growth in the region, given its market leadership and regional footprint. The opening earnings growth catalyst for IHH
of GHK at end-Mar 2017 should be a strong earnings growth catalyst going forward. We going forward
have revised up our FY17-18 EBITDA forecast by 2-4% to reflect resilient inpatient revenue
and demand growth. We upgrade IHH to BUY and revise up our SOP-based TP to
MYR7.30. Currently trading at FY18F EV/EBITDA of 16x, we believe its valuations are
undemanding given its strong 2-year EBITDA CAGR of 23%.
Positive on opening of GHK

IHH is scheduled to open GHK by end-Mar 2017. We expect the opening of this greenfield,
500-bed hospital in Hong Kong to be a key earnings driver for the company from 2018
onwards. Management has guided for GHK to breakeven at the EBITDA level in 12 months.
Based on its past track record from the opening of Mount Elizabeth Novena hospital in
Singapore where the hospital achieved EBITDA breakeven in eight months we believe
GHK should also track similar progress, given sufficient
pent-up demand in the Hong Kong market for quality private healthcare. We have forecasted
for GHK to generate EBITDA losses of MYR214m in FY17, but should see a turnaround
and strong growth in FY18F-19F of MYR159m and MYR418m respectively.
GHK would be in part a premium private quaternary care hospital and practicing hospital for
doctors from the University of Hong Kongs Faculty of Medicine. This is the first private
hospital in Hong Kong to be commissioned since 1995. We believe competition should
remain low. Given tight private healthcare supply and the growth in private healthcare
insurance and higher healthcare costs in Hong Kong compared to Singapore and Malaysia,
we believe that the ramp-up of GHKs operations should be fairly quick.
Meanwhile, to ensure pricing clarity for its services, the hospital is expected to offer c.150
medical packages with all-inclusive pricing. To date, the hospital has signed on 45
professors from Hong Kong Universitys Faculty of Medicine, 400 specialists with admitting
rights to the hospital, and hired 400 nurses.
Figure 100: Comparing cost of medical procedures Medical costs in Hong Kong are at a
Procedure (USD) US Cost India Malaysia Singapor South Korea Thailand Turkey Hong Kong 25-30% premium to Singapores
Coronary artery bypass graft - CABG 88,000 14,400 20,800 e
54,500 29,000 23,000 20,500 NA
Valve replacement with bypass 85,000 11,900 18,500 49,000 33,000 22,000 20,000 NA
Hip replacement 33,000 8,000 12,500 21,400 15,500 16,500 11,800 26,750
Knee replacement 34,000 7,500 12,500 19,200 15,000 11,500 12,000 24,000
Spinal fusion 41,000 9,500 17,900 27,800 18,000 16,000 16,500 33,400
IVF cycle, excluding medication 15,000 3,300 7,200 9,450 7,500 6,500 9,500 10,450
Gastric bypass 18,000 6,800 8,200 13,500 12,500 12,000 13,000 18,000
Full facelift 12,500 3,500 5,500 8,750 5,900 5,300 4,800 NA
Rhinoplasty 6,200 2,800 3,600 4,750 4,700 4,300 3,300 NA
Note: NA indicates no comparable data available.

Source: MedicalTourism.com, average package pricing from various private hospital websites in Hong Kong, RHB

67
3 April 2017
Meanwhile, IHH is expected to open its first tertiary hospital in Chengdu, China in 1H18. We
expect start-up costs for its China foray to be lower, given that it would be operating on an
asset-light model where its c.48,000 square metre hospital space would be leased. IHHs
ParkwayHealth Chengdu hospital is also expected to be a feeder hospital for more complex
cases to GHK, extending its hub-and-spoke business model.
Key catalysts for the stock include an earlier-than-expected EBITDA breakeven at GHK,
earnings accretive acquisitions, and improved geo-political stability in Turkey, which would
drive a stronger TRY and medical tourism.
KPJ subdued earnings outlook: downgrade to NEUTRAL, TP MYR4.10

The near- to mid-term outlook remains challenging for KPJ, as concerns over rising prices, Soft patient volume and revenue
soft wage growth, and a weak job market have led to cautious and price-sensitive patients intensity growth in the near-term but
switching to public healthcare and deferring elective treatments. We have cut our FY17-18 we are more positive on its longer-
NP forecasts by 19-21% on slower patient and revenue intensity growth, a longer new term prospects
hospital breakeven period, and still loss-making operations in Australia. We downgrade KPJ
to NEUTRAL and cut our DCF/SOP-based TP to MYR4.10 (from MYR5.60). Its 2-year
EBITDA CAGR of 9% growth is relatively unexciting, in our view.
Slower expansion plans ahead

KPJ is expected to open a 60-operating bed hospital in Perlis in 2Q17, two hospitals in
Sarawak (Kuching and Miri) and one in Johor in 2018. At 0.64x FY17F, KPJs net gearing
is higher that the peer average of 0.4x.
However, we are of the view that its balance sheet is manageable despite its capex plans.
This is as the company is able to raise funding from a slew of asset injections into its sister
company, Al-Aqar Healthcare REIT, as its greenfield hospital assets mature.
Figure 101: KPJs expansion plans

PROJECT LOCATION TOTAL CAPACITY OPERATING COMPLETION OPENING
(Beds) BEDS
*Tg Lumpur Pahang 190 88 4Q2015 May-16

Perlis Perlis 90 60 1Q2017 2Q2017
Kuching Sarawak 150 114 4Q2017 1Q2018
BDO Johor 150 90 4Q2017 1Q2018
Miri Sarawak 96 61 1Q2018 2Q2018
UTM Johor 150 90 TBA TBA
K/Bayuemas Selangor 90 90 TBA TBA
Nilai Negeri Sembilan 96 61 TBA TBA
* completed
Key catalysts for the stock include the potential divestment of its loss-making aged care
operations in Australia, better-than-expected patient volume and revenue intensity growth,
as well as faster-than-expected ramp up of its new hospitals.

68
3 April 2017
Figure 102: Regional healthcare sector valuations

Bberg
Ticker Market cap Rating Price Target price Core PE EV/EBITDA P/B Net gearing Div yield ROE EBITDA
(USD m) (local ccy) (local ccy) FY17 FY18 FY17 FY18 FY17 FY17 FY17 FY17 2-yr CAGR
Malaysia
IHH Healthcare IHH MK 11,098 Buy 5.98 7.30 44.8 34.4 19.5 16.0 2.1 19.9% 0.5% 5.9% 22.9%
KPJ Healthcare KPJ MK 950 Neutral 4.02 4.10 26.6 23.2 12.0 10.6 2.6 63.9% 1.9% 9.8% 9.3%
Singapore
Raffles Medical Group RFMD SP 1,766 Buy 1.42 1.72 28.8 24.0 23.5 20.4 3.4 Cash 1.4% 12.4% 10.8%
Indonesia
Siloam International SILO IJ 1,340 Neutral 13,750 9,200 112.9 76.5 23.0 19.2 8.1 43.5% 0.1% 7.4% 18.8%
Hospitals Tbk
Mitra Keluarga MIKA IJ 2,857 Buy 2,620 3,100 52.3 42.2 35.4 30.6 9.8 Cash 1.0% 19.6% 17.8%
Karyasehat
Sarana Tbk PT
Meditama SAME IJ 225 Buy 2,540 3,300 40.4 80.5 18.7 15.5 3.4 75.3% 0.3% 8.8% 10.6%
Metropolitan Tbk PT
Thailand
Bangkok Dusit Medical BDMS TB 9,067 Buy 20.40 26.11 32.0 27.3 21.5 19.1 5.2 16.3% 1.6% 17.0% 10.5%
Bumrungrad Hospital BH TB 3,774 Neutral 180.50 163.25 31.7 29.7 21.4 19.0 8.2 1.7% 1.4% 27.6% 9.7%
Bangkok Chain Hospital BCH TB 937 Neutral 13.10 7.00 34.9 29.8 17.4 15.3 5.8 40.3% 2.9% 17.3% 12.9%
Chularat Hospital CHG TB 766 NR 2.46 NA 33.2 33.2 25.6 21.9 7.9 225.8% 2.7% 20.2% 16.1%
India
Apollo Hospital APHS IN 2,576 NR 1,226.10 NA 41.3 41.3 24.1 19.6 4.6 0.4% 1.7% 7.8% 24.3%
Fortis Healthcare FORH IN 1,448 NR 185.30 NA 44.1 44.1 29.4 22.0 2.1 2.3% 1.6% 3.5% 35.4%
China
Phoenix Healthcare 1515 HK 1,904 NR 10.16 NA 24.1 24.1 17.8 13.2 3.4 39.3% 3.3% 14.1% 42.9%
Australiasia
Ryman Healthcare RYM NZ 2,942 NR 8.50 NA 22.5 22.5 19.3 19.9 2.8 40.3% 3.8% 11.5% 4.3%
Ramsay Healthcare RHC AU 9,980 NR 65.30 NA 22.2 22.2 12.1 11.1 6.0 8.8% 4.0% 24.7% 7.9%
Regional Average 39.5 37.0 21.4 18.2 5.0 44.4% 1.9% 13.9% 16.9%
Note: Prices as at 17 Mar 2017
Source: RHB, Bloomberg
Figure 103: Valuations of healthcare stocks

Price Target MktCap P/E EPS Growth P/BV P/CF ROE DY Rec
(x) (%) (x) (x) (%) (%)
IHH Healthcare 5.98 7.30 49,176 44.8 34.4 39.2 30.4 2.1 19.3 5.9 0.5 B
UEM Edgenta 3.23 5.15 2,628 9.5 7.8 23.5 20.9 1.7 9.1 18.5 7.4 B
KPJ Healthcare 4.02 4.10 4,276 26.6 23.2 (2.7) 14.6 2.6 9.2 9.8 1.9 N
Hovid 0.32 0.40 261 16.4 8.1 (16.0) +>100 1.2 10.7 7.7 0.0 N
CARiNG Pharmacy^ 1.35 1.35 294 19.7 19.7 28.4 0.0 2.1 18.5 11.0 2.5 S
Sector Avg 36.2 28.4 29.4 27.5

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3 April 2017
Logistics: Valuations Ahead Of Earnings Growth Neutral

Malaysias Digital Free Trade Zone (DTFZ) and Alibabas regional logistics hub
Prime Minister Dato Sri Najib Razak has signed a memorandum of understanding (MoU) Alibabas e-commerce distribution
with Alibaba Group (Alibaba) founder Mr Jack Ma on 22 Mar to launch the worlds first DFTZ facility is expected to launch by end-
in Malaysia. This trade zone would include Alibabas first regional e-commerce distribution 2019
hub outside of China and is likely to boost e-commerce growth in the country to 20.8% by
2020 from 10.8% currently. It is also likely to increase GDP contributions to MYR211bn over
the same period.
The DFTZ is expected to provide physical and virtual zones to facilitate small and medium
enterprises (SMEs) to capitalise on the convergence of exponential growth of the internet
economy and cross border e-commerce activities. Meanwhile, Alibabas e-commerce
distribution facility is expected to be launched by end-2019. It would function as a centralised
customs clearance, warehousing and fulfilment facility for Malaysia and the region. This is
in order to deliver faster clearance for imports and exports. Goods bought online would be
exempted from tax in the DFTZ, as long as the products are worth MYR1,200 and below, a
higher threshold than the earlier MYR500 price range.
Figure 104: Details of the DFTZ
What exactly is in the Digital Free Trade Zone
LOGISTICS COMPONENT SERVICES COMPONENT PROPERTY COMPONENT-KUALA LUMPUR

E-FULFILMENT HUB E-SERVICES PLATFORM INTERNET CITY
The e-fulfilment hub will be located at the old Low Malaysia Digital Economy Corp Alibaba Group will The Kuala Lumpur Internet City is envisioned
Cost Carrier Terminal collaborate on building a platform to offer a range satellite hub for the DFTZ
of government and business services to make it
easier and more efficient for small businesses to
get into the export game.
This will form a crucial part of the KLIA Aeropolis Government services to be offered on the platform Regional internet company Catcha Group will be
master plans logistics cluster include customs clearance permits, Industry the KLICs master developer to build a total of five
compliance and border trade advisories million sq ft of space over a 15-year period
Alibaba Group will take up the existing 20-acre site Business services to be offered include The project is estimated to have a gross
with an option to expand to an adjacent 90-acre warehousing and fulfilment, freight forwarding, development value of around RM5 billion
tract last-mile delivery, payments, insurance, web
hosting and other services
Alibaba Groups affiliates e-commerce platform The e-service platform will be connected to The KLIC aims to be a purpose-built digital hub that
Lazada and logistics firm Cainiao Network to Alibabas OneTouch platform and link Malaysia can house at least 1,000 internet-related
work with Malaysia Airports Holdings Bhd, which directly to the e-commerce pilot area in Hangzhou, companies and serve as a hub for over 25,000 tech
owns the hub, as well as Pos Malaysia Bhd, which China professionals from Malaysia and beyond
is running logistics operation on the existing site
Facilities include warehouse with the latest It will be located in Bandar Malaysia and will
technologies to enhance efficiencies in sorting, include offices spaces, co-working spaces, offline-
shelving and pick-pack capacities; its own customs to-online showrooms MICE facilities, training
inspection and quarantine area; light industrial centres and scarce on the KLIC project. Catcha
units to allow for minor repairs or assembly prior to Group has yet to reveal more details on which
shipping goods and specific facilities such as property developer or construction firm it would
temperature-controlled storage and secure partner or appoint to develop the project.
warehousing
Source: The Edge Weekly
Positive in the longer term, competition risks in the near to mid term
Key beneficiaries of the DFTZ are the logistics operators like POS Malaysia (POSM MK, While e-commerce demand growth is
NEUTRAL, TP: MYR3.00), GD Express Carrier (GDEX) (GDX MK, NEUTRAL, TP: exciting, we expect heightened
MYR1.63), Freight Management (FMH MK, NEUTRAL, TP: MY competition risks in the last mile, e-
R1.30) and Tiong Nam Logistics (Tiong Nam). According to Statista, Malaysias e- fulfilment deliveries business segment
commerce market is currently valued at US1.1bn and is expected to grow at a 23.2% CAGR Analyst
in 2017-2021. Alexander Chia
+603 9280 8889
alexander.chia@rhbgroup.com

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3 April 2017
While e-commerce demand growth is exciting, we expect heightened competition risks in

the last mile, e-fulfilment deliveries business segment which is currently dominated by
POS Malaysia and GDEX in the near to medium term. This is as integrated logistics
operators like Freight Management and Tiong Nam are also entering this segment and
launching their own delivery services.
Freight Management acquired Hubwire SB (Hubwire) in 2016 and is currently offering a
distribution platform for merchants that also includes marketing support, warehousing and
logistics solutions. Apart from launching its cross-border land trucking business from
Malaysia to China to leverage on the Chinese Governments One Belt One Road initiative,
Tiong Nam is also targeting the e-commerce segment and is launching its own e-fulfilment
delivery business in Malaysia in 2Q17.
Figure 105: 2017F-2021F e-commerce revenue in Malaysia is Figure 106: 2017F e-commerce penetration rate in Malaysia
expected to grow by 23.2% CAGR to USD2.6bn in 2021 is high compared to 78.3% in US and 52.1% in China
Source: Statista, September 2016 Source: Statista, September 2016
Uncertainties remain on the global front

While Malaysias exports continued to accelerate by 13.6% YoY in January on the back of RHBs economics team expects
a recovery in global demand and broad-based pick-up in exports, uncertainties remain on exports to grow at a more robust pace
the impact of a Mr Donald Trumps presidency on the global economic outlook for 2017 and of 6% in 2017
beyond. Currently, ambiguity remains as to whether or not President Trump would be able
to impose some of his most radical policy proposals (eg heavy penalty import duties on
imported goods), what with the US Congress expected to provide a rigorous check and
balance system. RHBs economics team expects exports to grow at a more robust pace in
2017. However, downside risks remains in event of policy changes globally.
A decent 4Q16 reporting season

Four out of five companies under our coverage posted 4Q16 results that were in line and
one which was above our expectations. MMC Corps (MMC) (MMC MK, BUY, TP: MYR3.50)
results were above expectations, mainly due to:
i. The consolidation of NCB Holdings (which helped offset lower throughput volumes);
ii. Stronger construction contributions;
iii. Absence of provision charges.
Westports (WPRT MK, NEUTRAL, TP: MYR4.10) posted a strong set of results, with its
bottomline growth driven by the gateway tariff hike, a lower effective tax rate due to
investment tax allowances (ITA) and throughput volume growth.
POS Malaysia reported a good set of results, mainly due to stronger contribution from its
courier business, which helped mitigate weaknesses at its traditional mail division. Freight
Managements earnings tracked expectations, driven mainly by growth at its sea freight and
airfreight segments. However, earnings growth was subdued given the drag from start-up
losses at its e-commerce operations and share of losses at its oil & gas joint venture (JV).
GDEX delivered a positive set of 1H17 earnings, driven by YoY growth in its express delivery
segment. We expect the company to leverage on the growing e-commerce trend and its
healthy balance sheet to pursue value-accretive investments in ASEAN to grow its footprint.

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3 April 2017
Valuations have run ahead of earnings, maintain NEUTRAL

Share prices of the logistics names have outperformed the market by 25% in the past month. Share prices of the logistics names
This was on the back of positive news flow in the run up to the launch of the DFTZ. Stocks have outperformed the market by
in the sector are currently trading at above their 5-year historical trading averages. 20% YTD on the back of positive
RHBs economics team expects a recovery in global trade and expects Malaysias exports news flow
to grow by 6% in 2017 (2016: +1.1%). On the back of real demand recovery, our 2017 GDP
growth projection for the country has also been revised up to 4.5% (from 4%). We believe
this should bode well for port operators, given expectations of throughput volume growth on
the back of increased trade activities.
However, changes in shipping routes and port calls made by the shipping alliances should
result in uncertainties over transshipment volumes in the near to medium term.
While the industry outlook has turned more positive, we are of view that implementation of Maintain NEUTRAL
the initiatives from DFTZ would take time. We maintain our NEUTRAL stance on the sector.
This is as valuations for stocks under our coverage remain rich, while earnings have yet to
catch up with expectations.
Key risks include:
i. A slowdown in domestic consumption and the global economies;
ii. Contraction in international trade;
iii. Aggressive competition in the logistics e-commerce space.
Figure 107: Valuations of Logistics stocks

(x) (%) (x) (x) (%) (%)
MMC Corp 2.50 3.50 7,613 15.4 13.3 6.5 16.3 0.8 4.6 5.1 1.2 B
Westports 3.95 4.10 13,470 21.3 20.8 (0.6) 2.1 6.3 14.3 30.0 3.5 N
GD Express 1.86 1.63 2,573 62.3 53.3 18.2 17.0 6.2 97.0 10.3 0.6 N
Pos M'sia^ 4.56 3.00 2,449 27.3 26.3 5.5 3.9 2.1 11.5 7.4 2.2 N
TASCO 2.00 1.55 400 12.8 12.2 6.1 5.0 1.1 7.4 8.9 2.3 N
Freight 1.26 1.30 222 9.2 8.7 4.8 6.6 0.9 4.3 10.4 4.1 N
Sector Avg 20.4 19.0 3.2 8.1

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3 April 2017
Media: Sobering Times Neutral

Cautious ad spending to persist
We expect the weak earnings momentum in the media sector to persist as advertising Earnings momentum for media
expenditure (adex) prospects continue to be shrouded by feeble consumer sentiment and companies should remain sluggish
risks on the external front. While there may be some uplift in ad spending heading into 2H17
on the back of the 29th South-East Asian (SEA) Games (to be held from 19-31 Aug) and the
potential general elections, it is unlikely to be significant enough to justify a re-rating of the
sector, in our view.
We project marginal industry gross adex growth this year (+2-3%), off a low base in 2016 (-
1%). Breaking down the key 2016 adex components, the free-to-air (FTA) television share
widened 2ppts to 41% in 2016, from 38% in 2015, while newspapers contracted by 4ppts to
51% from 55% in 2015. The latter continued to be impacted by the structural shift in media
consumption behaviour towards digital mediums.
Media Prima and Star Media Groups net adex revenue fell 17-20% YoY in
4Q16
Media Prima (MP) (MPR MK, SELL, TP: MYR0.90), the countrys largest integrated media Media Prima posted a headline loss in
group, posted a headline loss of MYR59.2m in FY16 (FY15 PATAMI: MYR138.7m) against FY16 due to the sharp fall in both
MYR1.29bn in revenue (-10% YoY). Excluding the MYR104.6m cost booked for the circulation and adex revenues
decommissioning of two regional printing plants (Ajil and Senai) and start-up losses from its alongside restructuring costs
new digital venture of MYR43.4m (includes its home shopping business, CJ WoW Shop),
core earnings came in at MYR29m in 4Q16 and MYR82.1m in FY16 (-38% YoY).
Group net adex revenue plunged 13% YoY in FY16, as adex and circulation revenues for
its print business (NSTP) fell 22.1% and 32.3% respectively. Even after backing-out
restructuring cost, NSTP remains in the red with headline loss of MYR26.3m (FY15:
MYR28.2m profit) on steep overheads which dragged down print EBITDA by a hefty 93%
YoY.
In comparison, its closest peer, Star Media Group (Star) (STAR MK, NR) posted a 41% fall
in FY16 EBITDA on the back of a 9% decline in group revenue. Save for its event
management outfit, Cityneon Holdings (56% stake), all key divisions witnessed contractions
in revenues. Its print and digital segment revenue/EBITDA fell 15%/42% respectively in
FY16.
while Astros adex continued to buck industry trends

Astro (ASTRO MK, NEUTRAL, TP: MYR3.06) which is due to report its 4QFY17 results Astro held up better in the October
by end-March, posted a 10% YoY and 6% decline in EBITDA for 3QFY17 (October quarter) quarter due to its subscription model
and 9MFY17 respectively. This was mainly led by the normalisation of content cost following and its growing share of pay-TV adex.
the high base of two major sporting events in 1HFY17 (Euro 2016 and Olympics). Astros
overall group adex continued to buck industry trends, up 12% YoY in 9MFY17 (3QFY17:
+16%), supported by the 21.5% and 11% YoY jump in pay-TV and radex (radio adex)
respectively for the quarter as it strengthened its share of TV adex further.
Dividend consolation
Despite the trying times, media companies are still sustaining their dividend payouts. Stars Media companies still paying out
FY16 DPS of 18sen per share represents a payout of 121%, which translates into a decent dividends
respectable dividend yield of over 7%. Meanwhile, MPs 8sen per share DPS for the year
translates into a payout of >100% with its dividend yield at over 6
%. We expect Astro to also sustain its FY16 DPS payout of 12sen per share for FY17, which
would imply a dividend yield of c. 5%. Analyst
Jeffrey Tan
+603 9280 8863
jeffrey.tan@rhbgroup.com

73
3 April 2017
Figure 208: Astros adex revenue (MYRm) (LHS) and growth Figure 109: Media Primas quarterly revenue and EBITDA
(YoY) (RHS) trend
200 25% 450 Title:
180 400 Source:
20% 350
160
300 Please fill in the values above to have them enter
140
15%
(MYRm)
250
120
200
100 10%
150
80
100
5%
60 50
40 0
0%
20
0 -5%
Revenue EBIT DA
Source: RHB, Company data Source: RHB, Company data
CSI hits another low in 4Q16

Concerns over near-term finances on the back of the lacklustre job market has contributed CSI is now below the pre-GST low
to a further decline in the consumer sentiment index (CSI) to 69.8 in 4Q16. This was the
lowest level seen since 4Q15s 63.8, and below the pre-GST level of 72.6 recorded in 1Q15.
According to the Malaysian Institute of Economic Research (MIER), the slow pace of wages
(due to the sluggish job market) has not been able to keep inflation in check with the higher
price of oil, weak MYR and cuts in subsidies (cooking oil, sugar) expected to further sap
consumer sentiment in the medium-term.
Figure 110: MIERs consumer sentiment index (CSI) fell further to 68.5 in 4Q16
Index
130 Threshold
120
110
100
90
80
70
60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: MIER
NEUTRAL sector weighting remains

We remain NEUTRAL on the media sector due to continuing adex headwinds, the shift in Preferred pick remains Astro
media consumption patterns and feeble consumer sentiment. While we expect a seasonal
lift in 2H17 adex from sporting events (SEA Games) and a potential early general elections,
this is off a low base in 2016 with underlying adex momentum still sluggish at best. Our
preferred exposure remains Astro due to its relatively steady subscription-based pay-TV
model (c.79% of group revenue), attractive content proposition and strong free cash flow
generation, which provides scope for further capital management. Key risks to our sector
view include stronger-than-expected recovery in consumer/economic sentiment leading to
an accelerated uplift in adex spending.
Figure 111: Valuations of media stocks

(x) (%) (x) (x) (%) (%)
Astro^ 2.86 3.06 14,878 20.5 19.2 13.4 6.9 87.4 4.7 150.2 4.4 N
Media Prima 1.21 0.90 1,342 13.6 11.7 20.3 15.8 0.9 11.0 6.7 4.4 S
Sector Avg 19.7 18.3 14.2 7.9

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3 April 2017
NBFIs: Improving Risk Appetite Neutral

Better macroeconomic outlook
Following a pick-up in global economic outlook, our in-house economics team expects
Malaysias GDP to grow at a quicker pace of 4.5% for 2017 (from 4.3%). We expect the
better macroeconomic conditions to translate to higher earnings growth potential for the
NBFIs under our coverage.
Meanwhile, insurers nationwide would be affected by the implementation of phased
liberalisation in the motor industry effective 1 Jul 2017. While this would allow insurers to
reprice their products according to the market rate, we do not foresee an excessive
reduction in premium rates due to Bank Negaras limit on pricing revisions upwards or
downwards by 10%. We further expect that the Risk Based Pricing approach to be
implemented by most insurers to result in better efficiencies coupled with lower claims ratio
going forward.
While we continue to like Syarikat Takaful (STMB MK, NEUTRAL, TP: MYR4.10) for its
dominant position in the takaful segment, we believe this has already been priced-in at
current levels.
Tune Protect (TIH MK, BUY, TP: MYR1.66) remains a BUY as we believe the weak travel
outlook has already been reflected in the sell-down of its share price. We are positive on
managements pipeline of initiatives to be launched in 2017, in efforts to boost its take-up
rate for the travel segment. Management also hopes to capture a bigger market share in the
motor insurance segment with the free-pricing mechanism as it looks to tie-up with start-ups
to introduce various products tailored to the risk profile of their customers.
Non-bank lender, Aeon Credit (ACSM MK, BUY, TP: MYR18.00) is a beneficiary of
consumers improved risk appetite, as well as a potential general election play. The group
is still projected to post impressive loan growth of 17% in FY18, far outpacing that of the
average banking industrys expectations of 5%. Asset quality is expected to remain resilient
however, with the groups tight credit collection controls in place. We are also positive on
the groups healthy capital adequacy ratio (CAR) of 19% as at Nov-2016, which should
provide sufficient buffer for any material spikes in provisions arising from the implementation
of MFRS9 effective 1 Jan 2018.
On Bursa Malaysia (BURSA MK, NEUTRAL, TP: MYR8.60), we see higher securities
average daily value (SADV) YTD-March of 35% QoQ. This is driven by bullish investor
sentiment in the equities market. However, we maintain our forecast of 20% growth YoY in
SADV for 2017 as sustainability of recent strength in volumes remains a concern. Bursa is
supported by a dividend yield of 4%.
Phased liberalisation effect to kick-in

The first phase of tariff liberalisation effective 1 July 2017 would see the introduction of new
products at market rates. Insurers under our coverage have thus
far indicated that they do not foresee a stiffer competitive environment arising out of the de-
tariffication. This is due to Bank Negaras regulation that insurers are to cap revisions to
their product pricing whether upwards or downwards by 10%.
We believe this is to prevent any excessive reduction of premium rates in the market
following the abolishment of price control. This is exemplified by India whereby insurers
faced large stresses on capital requirements following the dumping of prices when tariff was
removed beginning 1 Jan 2007. We therefore believe that most local insurers would opt to
move to the Risk Based Pricing approach.
We like Syarikat Takaful for its dominant position in the insurance segment as well as being
the prime beneficiary of the move from conventional to takaful products. The statistics
released by Bank Negara Malaysia showed that Takaful fund assets grew at 5-year CAGR
of 11% by the end of 2015. Takaful assets as a percentage of total assets in the insurance
industry also grew to 9.4% in 2015 from 7.4% in 2011.
We believe the groups continuous effort in promoting its takaful products as well as its
ongoing 15% cash back strategy (returning 15% cash back to policy holders if there are no
Analyst
claims made within the coverage period) would continue to sustain growth of its general
Stephanie Cheah
takaful segment going forward. Having said that, we think Syarikat Takafuls growth
+603 9280 8859
prospects have been priced-in at current valuations. We therefore maintain our NEUTRAL
stephanie.cheah@rhbgroup.com
call pending further catalysts.

75
3 April 2017
Figure 312: Takaful fund assets from 2010-2015
30,000 9.4 10.0 Title:

9.0 9.1 Source:
8.2 9.0
25,000 7.8
7.4 8.0 Please fill in the values above to hav
3,322
3,127 7.0
20,000 2,982
2,756 6.0
15,000 2,571 5.0
2,259
4.0
10,000 21,389
19,619 3.0
17,952
16,290
14,377
12,461 2.0
5,000
1.0
- -
2010 2011 2012 2013 2014 2015
Family General % of total assets of the insurance and takaful industry
Source: Bank Negara Malaysia, RHB
Tune Protect remains a BUY as we believe the worst is over for its travel insurance segment.
The group reported the weakest set of fourth quarter results in 4Q16, as take-up rate in its
travel insurance segment fell to a low of 10.8% following the opt-in policy as regulated by
the Malaysian Aviation Commission (MAVCOM).
We understand that several initiatives are set to be launched by management in 2017.
Among these initiatives is an agreement with AirAsia (AIRA MK, BUY, TP: MYR3.50) to
bundle its insurance package into AirAsias and AirAsia Xs (AAX MK, BUY, TP: MYR0.50)
Value Pack, Premium Flex and Premium Flatbed (only available on AirAsia X) fares.
These are higher-fare options for passengers, besides the Low Fare option and aside from
the soon-to-be introduced insurance packages, and currently provides the additional benefit
of higher baggage allowance, meal inclusion and seat selection amongst others.
While no official data is available on the number of passengers who have purchased these
packages in Malaysia, we understand that they make up less than 10% of both AirAsia and
AirAsia Xs total passenger tickets sold.
Figure 113: Comparison of AirAsias fare packages
Source: AirAsia website
On its general insurance segment, management continues to focus on its motor insurance
business, which made up the bulk of 35% of its gross written premium in 2016 (2015: 30%).
Following de-tariffication, among the products that management is looking at is one based
on the usage-based insurance model whereby premium is determined mainly by the amount
of time spent or distance travelled on the road.

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3 April 2017
In addition, management is looking to tie-up with start-ups on various initiatives that they
have planned. With the new model, Tune Protect hopes to capture market share with the
right risk-based pricing formula in place.
Aeon Credit contained asset quality

On the non-financial lenders segment, Aeon Credit remains resilient with financing
receivables projected to grow at 17% for FY18F, a slight moderation from the 20% YoY
growth in FY17F. This is still well above the average banking industry loan growth of 5%
expected for 2017. We also project for a slight NIM compression of 3bps YoY for FY18
(FY17F: 12.8%) as the group consciously diversifies away from higher-yielding segments,
which are also more prone to asset quality stress such as the general easy payment (GEP)
segment.
Asset quality is key in sustaining earnings for non-bank lenders such as Aeon Credit. We
expect credit cost to stay manageable below 4% for FY18, in line with managements
guidance.
Our key concern lies on the potential impact of MFRS9 Financial Instruments (effective 1
Jan 2018) given the nature of Aeon Credits business. While the impact is still being
assessed currently, we are comforted by the groups capital adequacy ratio (CAR), which
was reported at 19% as at Nov 2016. This is still well above Bank Negaras requirement of
16%. We maintain our BUY call on Aeon Credit.
Figure 114: Aeon Credits net credit cost ratio vs NPL ratio
5.00% 4.56% Title:
4.40% Source:
4.50% 4.15%
3.89% 3.89%
4.00%
Please fill in the values above
3.50%
3.00% 2.76%
2.47% 2.55% 2.60%
2.50% 2.14%
2.00%
1.50%
1.00%
0.50%
0.00%
FY14 FY15 FY16 FY17F FY18F
Net credit cost ratio NPL ratio
Source: Company Data, RHB
Bursa Malaysia recent strength in securities volume traded

Bursa Malaysias Jan-Mar 2017 SADV rose 35% QoQ to MYR2.27bn, with MTD Mar 2017s
SADV at a very robust MYR2.99bn. Februarys derivatives average daily contract (DADC)
of 63,000 was stronger than 4Q16s 54,000 due to strength in CPO futures volumes.
For SADV, we have assumed a 2017 level of MYR2.18bn, an improvement over 2016s
MYR1.81bn. Our 2017 assumption is lower than numbers in recent weeks as it is unclear if
the Mar SADV strength can be sustained. The above could lift 2017 revenue by 10%, in
our view. Our TP of MYR8.60 is pegged to 21x FY17 EPS (similar to the 6-year historical
average).
The current trading price of MYR9.50 (as of 17 Mar 2017) is close to our MYR8.60 TP, and
Bursa has a dividend yield of 4%. In the absence of key catalysts, we maintain our
NEUTRAL rating on Bursa Malaysia.
Figure 115: Valuations of NBFI stocks

Price Target Mkt Cap P/E EPS Growth P/BV ROE DY Rec
(x) (%) (x) (%) (%)
Aeon Credit^ 16.50 18.00 2,376 9.0 8.4 6.1 6.5 2.2 1.9 26.6 4.2 B
Tune Protect 1.37 1.66 1,030 12.2 10.7 5.2 14.9 1.9 1.7 16.1 3.3 B
Bursa Malaysia 9.50 8.60 5,095 23.2 22.7 10.7 2.1 6.1 6.0 26.7 4.1 N
Syarikat Takaful 4.05 4.10 3,314 17.6 16.2 6.2 8.4 3.7 3.2 23.1 2.3 N
Sector Avg 15.6 14.6 7.3 6.7

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3 April 2017
Oil & Gas: Looking Much Better This Year Overweight

4Q16 sector earnings above expectations
Earnings for the Dec 2016 quarter came in above our expectations, led mostly by our sector December quarters earnings above
Top Picks Petronas Chemicals (PCHEM MK, BUY, TP: MYR8.59), Sapura Energy (SAPE expectations
MK, BUY, TP: MYR2.25) Yinson Holdings (YNS MK, BUY, TP: MYR3.91) and MISC (MISC
MK, BUY, TP: MYR8.72).
Petronas Chemicals higher-than-expected earnings were helped along by better olefins &
derivatives and methanol product prices, following the crude oil price rally, as well as
improving petrochemicals outlook.
Sapura Energys engineering & construction arm helped the group beat expectations on the
back of margin recovery. Higher contributions from both the FPSO and OSV segments
propped up earnings at Yinson Holdings, while MISC was able to take advantage of higher
spot rates during 4Q16, by having a higher mix of tankers on spot charters.
Malaysia Marine and Heavy Engineering (MMHE) (MMHE MK, NEUTRAL, TP: MYR0.96)
and Bumi Armadas (BAB MK, SELL, TP: MYR0.63) earnings came in lower than
expectations. MMHE disappointed as its orderbook replenishment was below expectations,
while its costs did not go down in tandem. Bumi Armada registered core losses due to lower
contributions from two of its assets in Nigeria, which are facing payment issues exacerbated
by the weakness in its offshore marine services segment.
Fundamentals improving for crude oil

Following the crude oil production cut by both the Organisation of Petroleum Exporting Improvement in outlook following
Countries (OPEC) and non-OPEC members, fundamentals for the crude oil market have stabilisation of crude oil price
started to improve. Malaysia is also involved in the production cut, agreeing to a cut
amounting to 20,000 bpd in 1H17, equivalent to 3% of the countrys total production.
The deal has resulted in Brent crude oil price rallying to as high as USD58 per bbl. It remains
to be seen as to whether the production cut would be extended beyond 1H17. We maintain
our view that the crude oil market would be able to balance itself without the production cuts,
as demand catches up with supply in 2H17.
Crude oil prices are testing the USD50 per bbl line now due to several factors:
i. Increased production and inventory in the US;
ii. Higher MoM production numbers from Saudi Arabia;
iii. Refineries maintenance season in the northern hemisphere.
We expect the current crude oil price weakness to be short-lived as refineries would soon
start to stock up in anticipation of the summer months in the northern hemisphere.
On shale, our view is that shale players would have to play ball with the rest of the oil
producing nations, otherwise a repeat of end-2014 would occur.
Improved cash flows following USD7bn deal

In late February, Saudi Aramco and Petronas announced that both parties agreed to jointly
develop and manage the refinery and petrochemical integrated development (RAPID).
Petronas cash flows should improve
following the Saudi Aramco deal,
Saudi Aramco would invest up to USD7bn to take up a 50% equity stake in the refinery
allowing it to focus on other projects
portion of the RAPID project.
In our view, Saudi Aramcos investment in RAPID would minimise the risk of further delays
to the project, as Saudi Aramco would provide its expertise in the development of the
refinery. Secondly, we believe that having another equity partner would ease Petronas cash
flows, allowing it to concentrate on other developments, domestic upstream projects, as well
as the USD27bn LNG project in Canada.
Analyst
Wan Mohd Zahidi
+603 9280 8879
wan.zahidi@rhbgroup.com

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3 April 2017
Performance to come from direct beneficiaries of higher crude oil price

Over the mid-term, we believe companies with direct exposure to higher crude oil price
would outperform. Our Top Picks for the sector are unchanged Sapura Energy and
Petronas Chemicals.
We continue to be positive on Sapura Energy as its oil production sharing contract (PSC)
would enable it to take advantage of the higher crude oil price. Its engineering & construction
division should continue to do well, owing to its exposure to developing oil & gas markets.
We have not imputed any new wins at its drilling segment due to the soft rig market
environment, hence a surprise contract win at the segment would translate to an earnings
upgrade.
On Petronas Chemicals, we continue to be positive on the company as petrochemical prices
have a high positive correlation to crude oil price. It is also a beneficiary of stronger USD,
as 80% of its revenues are in USD while only 60% of its costs are in USD.
Key risks
Key downside risks to our recommendation include lower realised crude oil price versus our Lower realised crude oil price remains
expectations, as well as lower orderbook replenishment for the services sector. a key concern for the sector
OVERWEIGHT sector stance

We maintain our OVERWEIGHT call on the sector as we believe fundamentals for the crude Sapura Energy and Petronas
oil market are improving. In our view, three key ingredients are needed for the oil & gas Chemicals are our two top picks
sector to remain an OVERWEIGHT:
i. Higher crude oil price;
ii. Stabilisation of crude oil price;
iii. Flow of new contracts.
Higher crude oil price has been realised by OPEC and non-OPEC members production
cuts. Stabilisation of oil price should come naturally post production cuts, which would then
give oil & gas producers more confidence to start capex investments.
The flow of new contracts remains to be seen as we are still in the early part of the year.
However talking to industry players, there are signs that contract flows in 2017 are looking
much better than 2016 giving us some optimism for the sector.
Maintain OVERWEIGHT with Sapura Energy and Petronas Chemicals as our two Top
Picks.
Figure 116: Valuations of oil & gas stocks
(x) (%) (x) (x) (%) (%)
Petronas Chemicals 7.43 8.40 59,440 16.4 16.3 23.5 0.6 2.1 14.8 13.0 3.0 B
MISC 7.34 8.72 32,764 12.4 11.3 14.3 9.8 0.8 3.3 6.8 2.4 B
Sapura Energy^ 1.91 2.25 11,445 33.0 29.2 68.2 13.2 0.9 7.9 2.6 0.6 B
Dialog 1.66 1.77 8,857 28.4 26.8 14.8 5.8 3.4 78.2 12.4 1.4 B
Yinson^ 3.21 3.91 7,059 29.1 23.8 (16.0) 22.4 3.6 15.4 11.7 0.5 B
Muhibah Engineering 2.65 3.75 1,278 10.9 10.4 26.8 4.4 1.2 (6.9) 11.5 2.3 B
MMHE 0.98 0.96 1,560 51.8 38.6 n.a. 34.1 0.6 8.2 1.2 0.0 N
Bumi Armada 0.74 0.63 4,312 17.0 10.5 n.a. 62.2 0.7 2.1 4.4 1.5 S
Sector Avg 16.32 15.0 27.4 8.3

79
3 April 2017
Plantation: Time To Lock In Profits Underweight

CPO prices on downward trend. We believe CPO prices should be on a downtrend from
hereon, given the abundant supply of CPO coming into the market in 2H17, as well as the
CPO prices on downward trend
fourth bumper crop of soybean coming out of South America from April onwards. Demand
continues to be sluggish, and is not expected to recover to previous levels of growth of 5-
6% per annum, despite relatively low stock levels in Malaysia and Indonesia currently.
Market is forward looking. We believe the market is forward looking and investors should Time to lock in some profits
therefore look to lock in profits. CPO prices have already started to moderate from its highs
of MYR3,300 per tonne in January to MYR2,900 per tonne currently.
The price gap between CPO spot and futures prices has widened to MYR200 per tonne
(from MYR80 per tonne a few weeks ago), while the price gap between CPO and soybean
oil prices has widened back to around USD60 per tonne currently (from USD13 per tonne a
month ago). While the price premium between soybean oil and CPO is still far from its
historical averages of USD100-150 per tonne, we believe there is still room for the premium
to widen.
Figure 117: Palm oil trading at a USD61 per tonne Figure 118: Gap between CPO spot and futures prices
discount to soybean oil
1,600 500 4,000 300
250
450 3,500
1,400 200
400 150
1,200 3,000
350 100
50
1,000 300 2,500
0
250
800 2,000 -50
200 -100
600 1,500
150 -150
-200
400 100 1,000
-250
50
-300
200 500
- -350
- -50 0 -400
Futures over Spot Premium/(Discount) Spot Price (MYR/tonne)

Premium, USD (RHS) Soyoil, USD (LHS) CPO, USD (LHS) 3-mth Futures (MYR/tonne)
CPO output is expected to rise by 6m tonnes (+10.2% YoY) in 2017, with the bulk of the CPO output to rise 10% in 2017, while
output coming in 2H17. Indonesias CPO output is expected to see growth of close to 3m soybean output to rise 8% YoY
tonnes, while CPO output in Malaysia is expected to grow by 2.5m tonnes in 2017. With
demand projected to grow by only 1.3-1.8m tonnes in 2017, there would be a surplus of
4.5m tonnes in 2017, based on our estimates.
On the soybean front, production is anticipated to jump by 26m tonnes (+8.3% YoY)
in 2017, with the bulk of the growth coming from the US and Brazil. The Brazilian soybean
harvest is progressing well this season, with 56% of planted surface harvested up to mid-
Mar (vs 52% last year). Harvesting should be completed within the next month or so. With
the projected abundance in supply, and the market still digesting the previous three years
bumper soybean crops, demand is expected to grow by only 14.4m tonnes (4.5% YoY),
leaving a surplus of 11.6m tonnes in 2017.
Weather is always a risk. We note that there is always a risk to supply, should weather Weather poses a risk, as always
extremities take place. Currently, the probability of El Nino coming back in 3Q17 has risen
to 68%. Most weather models suggest that this El Nino, if it occurs, could be a weak one.
Nevertheless,
we would not impute this into our forecasts for now, given that the probability is still relatively Analyst
low. Recall in 2014, the probability was much higher at above 80%, but El Nino didnt Hoe Lee Leng
materialise in the end. +603 9280 8860
hoe.lee.leng@rhbgroup.com

80
3 April 2017
Figure 119: El Nino probability rose to 68% for Jul-Sep 2017 period
Source: Oil World
Demand not likely to recover in 2017. While the story about supply recovery is well Demand still lacklustre in 2017
known, there have also been expectations that demand would make a comeback in 2017.
However, we believe this is unlikely to be the case, with the global economy still struggling
to grow and domestic consumption still at sluggish levels. Therefore, despite the fact that
inventory of CPO at importing countries are at low levels currently (2.2m in India vs 2.8-3m
tonnes normally; and 5.1m in China vs 6-7m tonnes normally), we do not expect restocking
to occur in a significant manner in the coming months.
Indias demand would depend on its own oilseed crop output. In India, most forecasts Indias domestic crop should be better
are for oilseed crops to grow significantly in 2017, with USDA projecting rapeseed and this year
mustard seed crops to rise 25% in 2017 to 8m tonnes, due to higher acreage and improving
productivity. Total oilseed crops are therefore forecasted to rise by 23% YoY in 2017. What
this means is that with an abundant domestic oilseed harvest and assuming a normal
monsoon season, Indias reliance on imported vegetable oils would be relatively sombre
this year at (+1.5% YoY), despite the low stock levels currently. Demand has already been
relatively weak in YTD-Feb, with edible oil imports falling by 14.3% YoY and CPO imports
declining by 1.8% YoY.
Chinas demand to hinge largely on its meal demand for livestock output. As for China, while Chinas demand for imported
demand for imported edible oils in 2017 would depend largely on whether China crushes its edible oils could wane due to crushing
soybean reserves. This would, in turn, depend on Chinas need for feedmeal for its hog of domestic soybean reserves
industry. According to Jiusan Group, Chinas hog output is expected to rise 5.6% YoY in
2017, a 10-year high. This would translate to a 6.6% YoY rise in demand for feed from
soymeal. With this, we believe it is more likely for the Chinese Government to utilise and
crush its alleged 6m tonnes of soybean in reserves, in order to get the meal required. This
would, in turn, translate to higher volumes of soybean oil being made available domestically
and less imports of edible oils required. Oil World estimates Chinas imports of palm oil to
actually fall by 4.9% in 2017, a fourth year of decline in a row.
Biodiesel is the only hope for demand. With demand from the two large import markets Biodiesel the only spectre of hope
not expected to be particularly exciting in 2017, the only remaining hope for palm oil demand
would be biodiesel, in our view. The price gap between CPO and gasoil is at USD22 per
tonne currently, meaning it is still not a profitable venture without subsidies. While we do not
expect much to change on the Malaysian biodiesel demand front, Indonesia is the wild card
in this scenario. Indonesia is targeting to consume 4.4m tonnes of biodiesel in 2017, based
on the B20 mandate (up from 2.4m tonnes in 2016). We believe this is unlikely to be
achieved, given implementation issues and the fact that the biodiesel fund can only
subsidise some 2.9m tonnes of CPO at current CPO and gasoil price levels, based on our
estimates.
Overall 17 oils and fats composite to be in surplus in 2017. What all this means is that Overall, both the 17 oils and fats and
the overall 17 oils and fats composite would be in a surplus position of about 6m tonnes in eight vegetable oils complex would be
2017, while the eight vegetable oil complex would be in a surplus of about 7m tonnes in in surplus in 2017
2017. Although stock levels would still not be normalised yet at the end of the crop year of
Oct 2016/Sep 2017, we expect normalisation to occur by year-end.

81
3 April 2017
Figure 120: 17 oils and fats in surplus in 2017 Figure 121: Eight vegetable oils in surplus in 2017
Source: Oil World Source: Oil World
Revisions in earnings estimates. All in, our earnings forecasts have been revised by an Raised FY17 forecasts, but lowered
average of +5.2% for FY17, -4.4% for FY18 and -1.3% for FY19. This is after: FY18 and FY19 forecasts
i. Raising 2017 CPO prices to MYR2,600 per tonne (from MYR2,500 per tonne).
Although we continue to expect prices to be on a downward trend from hereon, the
strong prices recorded in the first two months of the year have resulted in our 1H17
price assumption being higher at c.MYR2,800 per tonne, while our 2H17 price
assumption would remain at MYR2,400 per tonne;
ii. Lowering 2018 prices to MYR2,400 per tonne (from MYR2,500 per tonne). We believe
prices could moderate further in 2018, as CPO stock levels would have been
replenished in 2017, and CPO output would continue on its recovery track post-El Nino.
For 2019, we have assumed for prices to go back to MYR2,500 per tonne;
iii. Revising PK and PKO price assumptions given expectations that PK and PKO prices
are expected to moderate post-2017, on the back of a recovery in output;
iv. Updating for our latest exchange rate assumptions for USD/IDR.
Downgrade to UNDERWEIGHT. We have also lowered our valuation targets for the stocks Downgrade sector to Underweight.
under our coverage. For big-cap stocks, we now attribute a 2017 P/E of 18x (from 20x) for Top Sell: IOI; Top Buy: Sime Darby
the plantations division, while for mid-cap stocks, we now assume a P/E of 16x (from 17x).
We expect valuations to moderate as CPO prices fall, as has been the case historically. P/E
valuations usually shrink by 1 to 2 SD during a CPO price downtrend.
We downgrade our recommendations on three stocks:
i. Kuala Lumpur Kepong (KLK MK) to NEUTRAL (from Buy) with a lower SOP-based TP
of MYR25.20 (from MYR29.30);
ii. IOI Corp (IOI MK) to SELL (from Neutral) with a lower SOP-based TP of MYR4.20
(from MYR4,60);
iii. Genting Plantations (GENP MK) to NEUTRAL (from Buy), with a higher SOP-based
TP of MYR12.50 (from MYR12.45).
We are now left with one BUY, namely Sime Darby (SIME MK, BUY, MYR10.15) for its
restructuring story, which we believe would create value. Overall, we downgrade our sector
recommendation to UNDERWEIGHT (from Neutral).
Figure 122: Valuations of plantations stocks

(x) (%) (x) (x) (%) (%)
Sime Darby 9.34 10.15 59,094 26.4 23.6 32.7 11.8 1.8 13.6 6.8 2.7 B
CBIP 2.14 2.45 1,152 11.5 11.4 15.6 0.8 1.5 9.8 13.5 4.2 B
KLK 24.76 25.20 26,431 17.6 16.7 34.5 5.6 2.3 14.6 13.8 2.6 N
Genting Plantation 11.50 12.50 9,131 22.0 24.3 37.3 (9.4) 1.8 17.5 8.6 0.9 N
Felda Global Ventures 1.91 2.15 6,968 37.4 28.4 n.a. 31.8 1.2 5.6 3.2 2.1 N
TSH Resources 1.82 1.70 2,449 18.9 19.9 42.4 (4.9) 1.5 49.9 9.8 1.6 N
SOP 3.61 3.85 2,058 15.1 13.9 9.4 8.8 1.0 15.1 7.1 1.4 N
IOI Corp 4.69 4.20 30,308 24.4 25.1 57.4 (3.0) 3.9 21.5 16.7 2.1 S
IJM Plantations^ 3.17 2.70 2,791 18.5 17.5 9.3 5.9 1.6 14.5 9.0 3.9 S
Sector Avg 23.0 21.8 45.3 5.7

82
3 April 2017
Property: Expect Downtrend To Stabilise Neutral

Improving economic growth to cap downside to the property sector
Being a high-beta sector, the KL Property Index (KLPRP) has appreciated by 13.5% vs the Expect flat property price growth and
FBMKLCIs 6.7% YTD. Sentiment on the property sector has largely improved, mainly marginal improvement in transaction
driven by the stronger equity market, led by improving economic growth and corporate volume
earnings.
RHBs economics team is now expecting GDP growth of 4.5% for 2017, from 4.2% in 2016.
Although sector fundamentals have not seen a significant improvement yet, the slightly
better economic growth should help to cap downside to the property sector. We expect the
property market to stabilise this year. Property price growth should likely stay flat and
transaction volume may only improve marginally over the near term. While banks remain
tight on mortgage lending, the cooling measures imposed by the Government are still in
place.
Stock-specific catalysts help to lift investors sentiment

The sector rally YTD was mostly driven by stock-specific catalysts, such as speculation on
M&As, strategic landbank deals, corporate exercises, contract flows etc. The stocks that Re-rating is not broad-based
have such angles include E&O (EAST MK, TRADING BUY, TP: MYR2.37), Malton (MALT
MK, NR), O&C Resources (ONC MK, NR), Sunsuria (SSR MK, NR) etc, and more recently,
the announcement of the corporate exercise involving the consortium related to Bandar
Malaysia development has also sparked investors interest.
In our view, the theme will continue, as the restructuring exercises for some companies are
largely in the beginning stage and more details will be unveiled. The active participation of
China corporates and government-linked companies (GLCs) in the infrastructure space is
expected to open up more development opportunities, and hence news flow on these
investments may excite the market. Prior to the next general election, we also think that
contract flows should remain strong this year, and this should benefit O&C Resources, as
well as certain developers, such as Sunway, that have their own construction arms. We look
forward to the announcement of contract winners for the Bandar Malaysia integrated
transport terminal job, as well as some 1Malaysia Housing Programme (PR1MA) and
university student housing projects.
Apart from contract flows, we think some developers may also start accumulating landbank
again, in anticipation of the next sector upcycle. Among the developers under our coverage,
SP Setia (SPSB MK, BUY, TP: MYR4.00) and Mah Sing (MSGB MK, NEUTRAL, TP:
MYR1.57) have indicated their intention for landbanking, and both companies have raised
funds from the capital market as their war chest.
Expect 0-5% growth in property sales

We expect aggregate property sales to grow 0-5% this year, after having fallen by 9% and Relatively flat new property sales
19% in 2016 and 2015, respectively. Many developers remain cautious, given that they have growth
set the same sales target for 2017 ie 0% growth. We believe these are decent targets, and
some slight upside potential is also possible if the economy improves further. According to
the feedback of some developers, buyer sentiment has picked up in 1Q17, given that there
are more people visiting the sales galleries. Some projects have also seen better take-up
rates post the Lunar New Year.
Overall, we think developers would still need to continue to offer attractive discounts and
rebates to draw buyers, as the property market is still lacking strong catalysts for buyers to
return. At the meantime, there are also more developers moving down the value chain by
offering mass market products, which would increase competition in the ind
ustry. Therefore, we believe the profit margins for developers would remain under pressure.
We believe the Klang Valley region would remain the main area for developers to
concentrate on, as demand is supported by the population. Meanwhile, the Batu Kawan
area in Penang mainland would also be a popular spot, given that the catalytic investments
remain largely on track. The IKEA outlet as well as the KDU campus are currently under
construction. Analyst
Loong Kok Wen, CFA
As for the Iskandar Malaysia region, we think it could take longer to recover, even after three +603 +603 9280 8861
consecutive years of contraction. More local and foreign investments on the loong.kok.wen@rhbgroup.com
tourism/industrial segments are needed in our view, before a meaningful recovery in
demand kicks in.

83
3 April 2017
Figure 123: Developers annual new sales (includes overseas sales)

MYRm
30,000
25,000
20,000
-35%
15,000 -19%
-9%
10,000
5,000
0
2013 2014 2015 2016
Cooling measures, and restrictive mortgage financing, to suppress demand

Although the property market sentiment has turned slightly positive, we think the existing Some concerns to hinder sector
cooling measures, as well as the tight mortgage lending by the banks, will continue to recovery
suppress demand for property. Income growth continues to lag behind the sharp property
price growth over the last few years, thus, affordability, and hence loan eligibility, remain an
issue.
In our opinion, it is reasonable for the market to expect some easing in macroprudential
measures ahead of the upcoming general election, and given that Singapore has recently
loosened its cooling measures slightly. However, we think that the impact would be rather
neutral, given that the banks remain tight on lending.
Meanwhile, the recent capital control imposed by the Chinese Government would mean that
Chinese buyers may no longer be able to absorb some of the housing supply in Malaysia.
Some developers that used to rely on foreign buyers can no longer sell their property
products to the Chinese buyers. To a certain extent, this could be good news to some local
developers, such as UEM Sunrise, which is facing intense competition from the Chinese
developers in the Iskandar Malaysia region. However, the resulting glut in a few property
spots may not be healthy for the overall property market.
Key Risks
Key upside risks to our recommendation include:
i. A significant loosening in banks mortgage lending policies;
ii. A material recovery in economic growth over the short term.
While downside risks include:

i. A drastic negative turn in the global economy;
ii. Significantly more cooling measures to be imposed.
Maintain NEUTRAL
We maintain our NEUTRAL sector rating. The sector still lacks solid fundamentals for a Maintain NEUTRAL
convincing recovery, despite the recent rally in the equity market. Given some catalysts on
a few specific stocks, the sector is now trading at 46% discount to RNAV, vs 51% discount
to RNAV in the beginning of the year.
We like SP Setia and IOI Properties (IOIPG MK, BUY, TP: MYR2.57) for big caps, and
Paramount (PAR MK, BUY, TP: MYR2.24) for small caps. While SP Setia may see more
aggressive landbanking this year, and M&A is always a wild card, IOI Properties is attractive
from its valuation perspective post its rights issue. Paramount, on the other hand, should
see catalysts from its property asset disposal in the near term, and the potential listing of its
education division in the long term. Amongst others, we also like Malton, given its potential
restructuring angle; as well as O&C Resources, in view of its active contract flow.
84
3 April 2017
Figure 124: Valuations of property stocks

(x) (%) (x) (x) (%) (%)
SP Setia 3.40 4.00 9,807 14.0 14.3 (17.1) (2.2) 1.0 6.2 7.5 5.0 B
IOI Prop 2.00 2.57 9,947 12.4 12.7 8.3 (2.6) 0.6 11.3 4.9 4.4 B
Sunway 3.25 3.55 6,772 12.1 11.3 1.6 6.7 3.3 9.0 7.4 4.0 B
Matrix^ 2.49 2.80 1,467 6.6 6.4 5.6 3.7 1.3 7.8 20.3 6.0 B
Tambun Indah 1.41 1.66 609 6.1 5.7 (12.6) 7.1 1.0 5.3 17.4 5.9 B
Paramount 1.73 2.24 733 9.3 8.5 8.1 9.6 0.8 5.0 8.3 5.2 B
E&O^ 2.00 2.37 2,525 42.9 34.7 (1.0) 23.6 1.4 6.2 3.4 1.0 TB
UEM Sunrise 1.24 1.09 5,646 39.2 34.6 (2.1) 13.3 0.8 9.9 2.1 1.2 N
UOA Dev 2.53 2.58 4,337 12.3 11.1 (50.4) 10.5 1.1 10.4 9.1 5.5 N
Mah Sing 1.52 1.57 3,783 10.5 11.4 (8.9) (7.5) 1.1 13.8 10.6 4.3 N
Glomac^ 0.72 0.78 524 5.8 5.4 67.3 7.9 0.5 2.8 8.7 6.7 N
Hua Yang^ 1.14 1.05 401 4.8 4.1 4.9 18.7 0.5 4.4 11.5 4.4 N
Sector Avg 13.0 12.6 (11.3) 2.8

85
3 April 2017
Property - REITs: Challenging Outlook For Retail And Office Neutral

MGS yield moderated gradually
We expect the policy rate and interest rate outlook to remain stable this year, largely due to Unlikely to outperform this year
the:
i. Continued weakness in the MYR;
ii. Expectations of sustained economic growth;
iii. Higher inflationary pressure (cost-push in nature);
iv. The rising interest rate environment in the US.
As such, we do not expect the REIT sector to outperform the market this year.
Post the end-2016 US presidential election, the 10-year Malaysian Government Securities
(MGS) yield surged by over 80bps. However, as the uncertainty of interest rate movements
gradually subsided, the yield shed 20-25bps from its peak to the 4.1-4.2% level currently.
With our in-house average MGS yield forecast of 4.2% this year, this translates to a yield
spread of 110-140 bps.
Challenging office segment outlook

We have yet to see signs of easing in the oversupply situation in the office segment. Office segment remain difficult
According to Sunway REIT, approximately 13.32m sqf of office space is scheduled to be
completed by the end of 2018, vs 114.4m sqf currently. The occupancy rates for Sunway
Putra Tower and Sunway Tower have been very low, at 31.2% and 20.7% respectively, due
to difficulties in getting tenants. Meanwhile, KLCCP Stapled Groups (KLCCSS MK,
NEUTRAL, TP: MYR8.40) office segment is expected to chalk a weaker performance in
1H17 due to the expiry of its leases in Menara ExxonMobil in Jan 2017. While ExxonMobil
is reducing its occupancy in the building to 60%, management has identified potential new
tenants to take up the remaining 40% in 2Q17. As such, the office segment may experience
a 3-month income loss in 1H17 during this transition period.
Dampened by weak consumer sentiment

Weak consumer sentiment a threat to
We expect the retail segment to also see a similar oversupply condition in the near future. retailers
Currently, existing retail space stands at 59.9m sqf with an average occupancy rate of
80.1%. An additional 14.3m sqf of retail space is expected to enter the Klang Valley by 2019.
Thus, we think the outlook for the retail segment may be challenging this year, as consumer
sentiment remains weak due to the escalating cost of living and the weakening MYR. Having
said that, the downside could be mitigated as the weak MYR could potentially boost the
number of tourists especially from China and Singapore. Thus, this could benefit some
prime retail malls, such as Komtar JBCC by Al Salam REIT (SALAM MK, BUY, TP:
MYR1.18), and some of the urban malls own by Pavilion REIT (PREIT MK, NEUTRAL, TP:
MYR1.90) and KLCCP Stapled Group. Footfalls in selective anchor malls such as Mid Valley
Megamall/The Gardens Mall and Sunway Pyramid should remain stable, given their
strategic locations with large matured residential population. Hence, the tenancy and rental
rates should be relatively more resilient. Overall, we think the weak consumer sentiment
would have a more negative impact on the low- to mid-sized retail malls
Acquisitions could be catalysts

While earnings growth seems to be unexciting, we believe new acquisitions could potentially
Expecting more acquisitions for some
REITs
be the re-rating catalyst for some REITs, depending on asset quality. REITs that may see
asset acquisitions this year include Pavilion REIT, Sunway REIT, Axis REIT and Al- Salam
REIT. The prime assets include Pavilion Extension and Sunway V Analyst
elocity, which opened their doors in end-2016. We think these assets may only be injected Muhammad Syafiq
into their respective REITs in 2H, at the earliest, and these should excite the market, given +603 9280 8867
their sizes and locations. muhammad.syafiq.mohd@rhbgroup.com

86
3 April 2017
Figure 125: FBMKLCI vs MREIT Figure 126: MGS 10-year yield

120 4.6
115
4.4
110
4.2
105
4
100
3.8
95
3.6
90
3.4
Mar-16
Mar-16
Mar-16
Feb-17
Feb-17
Mar-17
May-16
May-16
Jun-16
Jun-16
Jan-17
Jan-17
Apr-16
Apr-16
Oct-16
Oct-16
Jul-16
Jul-16
Nov-16
Nov-16
Dec-16
Dec-16
Aug-16
Aug-16
Sep-16
Sep-16
Sep-16
Feb-15
Mar-15
Feb-16
Mar-16
Feb-17
Mar-17
May-15
Jun-15
Jan-16
May-16
Jun-16
Jan-17
Apr-15
Oct-15
Apr-16
Oct-16
Jul-15
Nov-15
Dec-15
Aug-15
Sep-15
Jul-16
Nov-16
Dec-16
Aug-16
Sep-16
FBM KLCI MREIT
Source: RHB, Bloomberg Source: Bloomberg
Figure 127: Consumer Sentiment Index Figure 128: Business Conditions Index
Source: MIER Source: MIER
Key Risks
Key downside risks to our recommendation include rental reversion pressure from Oversupply of office and retail space
would be the key risk
oversupply of office and retail space, as well as prolonged weak consumer sentiment. Other
factors, such as movements in MGS yields, would also influence the REITs sector.
Maintain NEUTRAL
We maintain our NEUTRAL sector rating, with the current yield standing at around 5%. For IGB REIT and Axis REIT are our Top
investors who would still like to have some defensive exposure among the large caps, we Picks
prefer IGB REIT given Mid Valley Megamalls strong market position; and Axis REIT (AXRB
MK, NEUTRAL, TP: MYR1.70), due to long-term leases for most of its properties. Among
the smaller REITs, we prefer Al-Salam REIT as we expect Komtar JBCC to benefit from the
weekend shopping crowd from Singapore, supported by the weak MYR.
Figure 129: Valuations of REITs stocks

(x) (%) (x) (x) (%) (%)
Al-Salam REIT 1.04 1.18 603 16.5 16.2 1.4 2.2 1.0 15.2 6.0 5.8 B
KLCCSG 8.14 8.40 14,695 22.2 21.0 (2.0) 5.6 1.1 8.2 7.0 4.4 N
IGB REIT 1.67 1.69 5,729 19.2 18.1 7.4 5.7 1.6 15.5 8.1 5.9 N
Pavilion REIT 1.76 1.90 5,320 19.1 18.4 18.2 3.8 1.3 13.8 7.1 5.4 N
Sunway REIT 1.75 1.84 5,125 19.0 18.0 3.5 5.6 1.3 16.3 6.7 5.3 N
CMMT 1.67 1.69 3,381 20.0 19.4 (0.2) 3.1 1.3 13.9 6.3 5.2 N
Axis REIT 1.64 1.70 1,795 17.4 16.9 14.3 3.0 1.3 9.4 7.5 5.7 N
MRCB-Quill REIT 1.27 1.32 1,356 15.7 14.8 (9.6) 5.8 1.0 16.0 6.3 6.1 N
Hektar REIT 1.63 1.59 653 14.9 14.5 5.2 2.9 1.0 33.8 6.9 6.0 N
Sector Avg 19.9 18.9 2.7 4.9

87
3 April 2017
Rubber Products: Cautious Over Expansion Neutral

Expecting a better 1H17
We believe that 1H17 earnings for rubber product manufacturers could be sequentially Better 1H17 due to lower latex prices
stronger, as the USD/MYR remains strong and raw material prices have fallen. Natural
rubber latex prices reached a 5-year high in February (USD1.85 per kg), but have since
declined to USD1.6 per kg as of 16 Mar.
We expect latex price to continue easing after the end of the floods in Thailand to
c.USD1.30-1.50 per kg for the remainder of 2017. Nitrile prices, which are normally known
to follow the trend of natural rubber prices, are also expected to be weaker in April.
Short-term margins gain

As the pass-through mechanism has a lag time gap of 1-2 months before the actual input Short-term margins gain on lower raw
cost can be passed on to customers, we expect the rubber product manufacturers to enjoy material prices in 1H17
a temporary spike in margins from a downward movement in raw material prices.
Nonetheless, with the pass-through mechanism, we expect raw material prices to have a
minimal impact to the rubber products manufacturer earnings in the long run.
Demand-supply dynamics
We believe the improved glove demand-supply dynamics through the open book system Open book system helps
ought to help manufacturers pass on incremental costs. The increase in glove ASPs (in manufacturers pass on input costs
USD terms) signal that the worst of the price competition is over. The improving glove
demand-supply dynamics would also help restore the cost pass-through mechanism
between manufacturers and clients. It ought to also alleviate concerns of further
competition-led margins compression.
Karex emphasises its own brand

Karex (KAREX MK, NEUTRAL, TP: MYR2.30) has put a lot of effort into expanding its own OBM to drive Karexs earnings
band manufacturer (OBM) segment. It successfully listed its One brand of products into
Walmart in the US. Following the acquisition of Pasante Healthcare Ltd (Pasante), the
company also expanded its OBM network in the UK and managed to list One in Superdrug
stores there.
We expect this segment to continue expanding through more listings in major UK and US
retail stores. We also expect Karexs earnings to improve in 1H17 due to the recovery in the
tender segment and the OBM wings expansion. We also expect the latters revenue share
to increase to 13-15% (FY16: 8%).
Stable demand growth

In 2016, it was estimated that 210bn pieces of gloves had been sold worldwide. Malaysian
manufacturer are expected to hold a dominant market share of over 60%. Of these, our
World demand to grow at 8%pa
rubber glove manufacturers under our coverage produce c.70% of the total domestic
production capacity (or c.46% of total world production).
The Malaysian Rubber Glove Manufacturers Association (MARGMA) expects global
demand for rubber gloves to increase by 8% in 2017, or 17bn pieces. MARGMA also
believes that market demand could grow up to 400bn pieces by the next decade before
reaching maturity.

88
3 April 2017
Figure 130: Rubber glove sectors P/E band Figure 131: Latex prices (USD per kg)
30
25
20
15
10
5
Mar-12 Mar-13 Mar-14 Mar-15 Mar-16
PE_RATIO Average +1SD
+2SD -1SD -2SD
Figure 132: Global glove demand (bn pieces) Figure 133: USD/MYR trend
300
245
250 227
210
194
200 180
171
160
150 148
140
150
122 124
110
94 102
100 84 92
68
50
Source: MIER Source: Bloomberg
Key risks
Our downside risks include stronger-than-expected price competition and the struggle to Competition and input cost are the key
fully past the cost pressures from a rise in raw material prices (latex and nitrile), as well as risks
increased utilities (increase in gas and electricity tariff) and labour costs.
Maintain NEUTRAL
We believe the rubber products manufacturers would continue to grow over the next few Top Glove is the Top Pick
years from new capacity expansion. While the industry headwinds from last year have
eased, we believe the current business conditions remain competitive.
We like Top Glove (TOPG MK, NEUTRAL, TP: MYR4.91) as the market leader in the
industry. It is now trading at 22x P/E, which is slightly below the glove sectors P/E. The
gloves sector currently trades at 24x P/E, or +1SD over the 5-year average. This is justified,
in our opinion, given Top Gloves global dominance and expansion mode with 3-year
earnings CAGR of 14%.
For prophylactics players, we stay NEUTRAL on Karex due to short-term operational
challenges. This is despite being positive on its long-term OBM ambitions and its 3-year
earnings CAGR of 31%. Maintain NEUTRAL.

89
3 April 2017
Figure 134: Valuations of rubber products stocks

(x) (%) (x) (x) (%) (%)
Hartalega^ 4.81 4.76 7,894 23.0 20.7 24.2 11.0 4.4 18.7 19.9 2.0 N
Top Glove 5.20 4.91 6,514 20.0 17.4 (10.0) 15.1 3.2 15.7 16.9 1.6 N
Kossan Rubber 6.38 6.80 4,080 19.3 15.6 23.6 23.9 3.5 10.9 18.7 1.6 N
Karex 2.07 2.30 2,075 41.7 27.2 (10.2) 52.9 4.2 27.2 10.2 0.6 N
Supermax 2.01 2.24 1,367 10.9 8.9 24.1 22.6 1.2 4.7 11.3 2.7 N
Sector Avg 20.8 17.6 9.3 18.2

90
3 April 2017
Technology: All Eyes On The Next iPhone Overweight

Mixed 4Q16 showing
4Q16 was a mixed quarter for the technology sector, with one/four/two companies under
our coverage reporting earnings that were above/within/below our expectations Exporters stole the limelight
respectively.
On the semiconductor side, Unisem (UNI MK, NEUTRAL, TP: MYR3.46) and Inari Amertron
(Inari) (INRI MK, BUY, TP: MYR2.53) reported decent quarters, lifted by a favourable
USD/MYR at an average of 4.32 for 4Q16 (3Q16: 4.05, 4Q15: 4.28).
Globetronics Technology (Globetronics) (GTB MK, NEUTRAL, TP: MYR4.79), meanwhile,
disappointed as the run-rate for its proximity sensors dropped to a low of 2m units per month
in Dec 2016 (from 10-11m previously). Malaysian Pacific Industries (MPI) (MPI MK, BUY,
TP: MYR12.88), on the other hand, reported a positive earnings surprise, leveraging on its
automotive segment, which now makes up 24% of total group sales.
For the non-semiconductor players, Datasonic Groups (Datasonic) (DSON MK, BUY, TP:
MYR1.84) subpar 3QFY17 (Mar) showing was within our expectations as the group did not
receive any orders for its MyKad contract during the quarter.
GHL Systems (GHLS MK, NEUTRAL, TP: MYR1.00) 4Q16 numbers were largely in line,
as the group reiterates its focus on acquiring its own merchants to expand its transaction-
based payment division. Prestariang (PRES MK, BUY, TP: MYR2.57), meanwhile, suffered
another disappointing quarter due to subpar order flows from government ministries under
its existing contracts.
1Q17 likely boosted by forex gains

For most of the exporters under our coverage, we expect 1Q17 sales in USD terms to come Further forex boost likely in 1Q17
in marginally lower QoQ due to seasonality. On a YoY basis, we expect sales to come in at
the low to medium single-digit growth levels. This is as volume loadings remain healthy,
based on our channel checks.
Headline numbers, however, could receive a massive boost from the current favourable
forex environment in the form of operational gains as well as the incurrence of unrealised
forex gains on USD-denominated receivables.
We see minimal impact from potential losses on USD-denominated borrowings, given that
all four semiconductor players under our coverage are currently in net cash positions. The
USD/MYR is currently averaging at 4.45 YTD vis--vis 4.32 in 4Q16 and 4.19 in 1Q16. We
are currently forecasting for an average USD/MYR of 4.43 for 2017 and 4.25 thereafter.
iPhone 7 trumped expectations

Despite our earlier cautious view on the global demand for the iPhone 7 series given the
lack of significant improvements as well as the dearth of new features in the current line-up
overall sales have further defied expectations. This is as Apple Inc reported all-time high
iPhone 7 defying expectations
sales of 78m units in 4Q16.
Within the local space, we note that Inari is one of the largest beneficiaries as its single
largest customer Broadcom Ltd (Broadcom) has gained some new radio-frequency (RF)
content in this latest line-up. Over the near term, however, we do not discount the possibility
of slower component orders in 1H17. This is as consumers could potentially hold back their
purchases in anticipation of the upcoming revamped 2017 line-up that is scheduled to be
launched in 3Q17.
10th anniversary for the iPhone

Consumers and market observers are all expecting a major revamp in the next iPhone line-
up to be unveiled in August/September. This is as 2017 marks the 10th anniversary of the
Market expects an all new iPhone
line-up come Sep 2017
iPhone, as well as providing Apple with the opportunity to catch up with
its peers latest offerings. Some of the new features that the market is anticipating include Analyst
a complete redesign (notably an edge-to-edge display with its fingerprint sensor and front- Kong Heng Siong
facing camera to be incorporated directly under the display panel), wireless charging, +603 9280 8866
organic light-emitting diode (OLED) screen (on at least one of the models), and improved kong.heng.siong@rhbgroup.com
biometric authentication standards such as facial and iris recognition.

91
3 April 2017
On the local front, we gather that some of the semiconductor suppliers have started to
develop next-generation components for 2017 iPhone models. Based on our channel
checks, Globetronics has secured one out of two qualification approvals for its light sensors.
We expect the final approval to be secured in due course. The group is looking at total
installed capacity of 31-32m units per month to be in place by mid-2017. New machines are
coming in progressively, with installation to take place beginning next month to meet its
customers production schedule. We believe this could be intended for Apples 2017 iPhone
line-up.
Iris scanning to be widely adopted?

For most of the flagship smartphone launches this year, we believe iris scanning could be Iris scanning could trigger the next
a new standard security feature to complement the current fingerprint sensing technology. earnings upgrade cycle
In essence, iris recognition is a biometric identification method that uses mathematical
pattern-recognition techniques on video images of an individuals iris. These patterns are
typically complex and random, but unique to each individual. Samsung Electronics
(Samsung) Galaxy Note 7 was amongst the first flagship smartphone models to come
equipped with this feature before its global recall due to battery issues.
Looking ahead, Samsungs upcoming Galaxy S8 and the recently-unveiled Huawei
Technologies (Huawei) P10 series are expected to come equipped with such technology.
This is as smartphone manufacturers are reportedly looking to combine iris scanning and
fingerprint authentication to enhance the security of mobile payments.
We believe this adoption could mirror that of fingerprint sensors over the past 3-4 years.
Apple was amongst the first in the market to introduce a fingerprint scanner in its iPhone 5s
in 2013. Subsequently, its major competitors (eg Samsung, HTC and Huawei) followed suit.
According to official Statista statistics, global fingerprint sensor shipments jumped to 499m
in 2015 (2014: 316m). We gathered from industry sources that shipments totalled 620m in
2016. While iris scanner adoption is still in its infancy, the potential market size, in our view,
could mirror that of fingerprint sensors. This is as adoption rises over the next 2-3 years.
Should this technology take off, we expect Inari to be the biggest beneficiary on the local
front as it is looking to commence assembly and packaging works on an iris scanning
module developed by own of its existing customers. The group has spent MYR25m to derive
installed capacity of 5m units per month and is looking to allocate another MYR75m in FY18
for further capacity expansion.
On a side note, we believe Globetronics may also benefit as the group has recently secured
wafer sawing and die sorting works on iris scanning-related modules from one of its existing
major customers.
Upgrade to OVERWEIGHT
Taking the abovementioned factors and our latest USD/MYR forecasts (4.43 for 2017, 4.25
thereafter) into account, we upgrade our sector stance to OVERWEIGHT (from Neutral).
We believe the potential introduction of new features in 2017 smartphone line-ups could
translate into more job opportunities ahead for local semiconductor players.
We like Inari for potential earnings upside should Broadcom gain more RF content in 2017
iPhone line-up and if iris scanning becomes a standard security feature going forward. We
also like MPI, as we expect its earnings growth momentum to be driven by the automotive
segment in the long run.
Outside the semiconductor space, we continue to like Datasonic, as we believe that the
commencement of its passport book job in Dec 2016, coupled with the likely extension of
its passport polycarbonate page contract by 2H17, would propel earnings to a new high in
2017.

92
3 April 2017
Figure 435: Quarterly shipments of Apples iPhones
90
80
70
60
50
40
30
20
10
0
Source: RHB, Statista
Figure 136: The USD/MYR trend
4.6
4.4
4.2
4.0
3.8
3.6
3.4
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2016 2017
Source: Bloomberg
Figure 137: Valuations of technology stocks

(x) (%) (x) (x) (%) (%)
Inari Amertron 1.94 2.53 3,868 19.1 14.6 38.4 30.3 4.8 14.0 27.2 2.1 B
MPI 10.16 12.88 2,132 11.9 10.6 22.0 12.5 1.9 6.7 17.3 2.8 B
Datasonic^ 1.25 1.84 1,688 15.3 14.5 62.7 5.5 4.9 10.8 35.2 2.9 B
Prestariang 2.19 2.57 1,060 26.3 19.2 +>100 36.7 6.3 34.3 24.6 3.2 B
Unisem 3.08 3.46 2,260 12.0 11.6 16.1 3.7 1.5 7.9 12.9 3.9 N
Globetronics 4.85 4.79 1,362 19.8 15.2 +>100 30.5 5.0 15.8 25.7 4.5 N
GHL Systems 1.12 1.00 719 31.1 24.2 39.2 28.3 2.6 36.2 8.6 0.0 N
Sector Avg 16.1 13.8 41.9 17.1

93
3 April 2017
Telecommunications: Consolidation Vibes Neutral

The quarter that was
It was a mixed showing for the 4Q16 reporting season with a sprinkling of beats (Maxis)
and misses (Axiata Group). Maxis FY16 core earnings (+0.6% YoY) were lifted by the A mixed bag for the 4Q16 reporting
strong recovery in postpaid revenue and lower-than-expected opex while Axiatas season
numbers (FY16 core earnings: -31.5% YoY) were clobbered by significant forex losses,
merger-related costs, accelerated depreciation and weaker contributions from key mobile
assets and associates. Disappointingly, it also slashed its dividend payout to 50% (FY15:
85%) and guided for DPS to remain suppressed for the next two FYs, as it tightens its
purse strings for capex and potential M&As. DiGi.Coms (Digi) in-line results were on the
back of a -9% YoY drop in FY16 core earnings from higher financing cost and depreciation.
For the fixed-line boys, both TM and Time dotComs (TDC) results were in line. The
incumbents earnings continued to be crimped by webes losses and accelerated
depreciation charges (FY16 core earnings: -6.3% YoY), while TDC benefitted from the
stronger momentum in the retail broadband market and sustained regional bandwidth
sales which fuelled its double-digit YoY core earnings growth.
Another moribund year anticipated
Industry mobile service revenue fell 5.1% in 2016, the sharpest contraction on record and
the third consecutive year of revenue shrinkage (FY15: -0.6%). This was attributed to Expect another challenging year for
accelerated competition in the market, displacement of traditional revenues from over-the- the indudtry as a whole
top (OTT) applications and feeble consumer sentiment. The prepaid segment, which
makes up over 60% of industry revenue, remains a key drag. Revenue for the segment is
down an estimated 9.2%, due to tightened conditions in the overseas foreign workers
(OFW) market and the pricing skirmish within the IDD and mobile data segments as telcos
jostle for market share. We expect the outlook for 2017 to remain challenging, with the
realignment of the 900/1800MHz spectrum (in favour of the smaller operators) driving
renewed marketing aggression in the market, with industry mobile service revenue set to
grow by 0-1%.
Figure 538: Mobile service revenue share MY (Big 3) Figure 139: Mobile service revenue growth MY (Big 3)
45% 8% Title:
Source:
6%
40%
4% Please fill in the values above to have them entered in yo
35% 2%
0%
30% -2%
-4%
25%
-6%
20% -8%
Celcom Maxis Digi YoY Growth YoY Growth (ex. Celcom)

94
3 April 2017
Maxis Witnessed The Strongest ARPU Uplifts

but it remains to be seen if this can be sustained
On the back of higher penetration of 4G/LTE enabled smartphones and aggressive

promotions in the market to drive 4G take-up, the industrys 4G user base has expanded
to some 35% in 4Q16 from 19% a year ago. The migration to LTE is viewed positively, as
the spectrally more efficient technology lowers the cost per MB of data. This should drive
monetisation opportunities and better profitability for mobile data, which continues to usurp
legacy revenues at an unprecedented scale.
Of the Big-3 mobile operators, Maxis exhibited the biggest jump in blended APRU in 2016 Maxis posted the biggest ARPU
(+4%). This was led by the prepaid segment, which benefitted from the launch of the uplift in 2016
Hotlink F4ST plan in 2Q16. The latters subscriber (sub) base more than doubled in two
quarters, driving the 9% increase in overall prepaid ARPU to MYR37 in 4Q16. Maxis
postpaid ARPU also reached a high not seen since 2Q13, as more legacy subscribers
switched to the Maxis One Plan (MOP) (61 % of its postpaid base), coupled with the strong
demand for its shared/supplementary lines. Consequently, postpaid data usage surged
34% QoQ to 3.7GB per sub per month, with 4G data usage hitting 5.9GB per sub per mth.
Digis ARPUs were relatively steady, with an uplift in 4Q16 after the telco reframed its
postpaid plans to better compete in the market. The focus on customer segmentation
alleviated prepaid ARPU pressure from competiton.
Celcoms 4Q prepaid ARPUs saw an uptick QoQ, but this was driven by an exercise to
churn some 400,000 non-active subscribers during the quarter. Excluding the impact,
prepaid ARPU would have been flat sequentially. Its postpaid ARPU rose 5.3%
sequentially from enhanced postpaid plans launched.
Figure 140: Prepaid ARPU (MYR) Big 3 Figure 141: Postpaid ARPU (MYR) Big 3
45 120 Title:
Source:
40 110
Please fill in the values above to have them entered in yo
100
35
90
30
80
25
70
20
60
Maxis Celcom DiGi

Maxis Celcom DiGi
Note: Celcom ARPU excludes inbound roaming revenue from 1Q15 Note: Celcom ARPU excludes inbound roaming revenue from 1Q15
Figure 142: Maxis Hotlink F4ST prepaid plan targets savvy Figure 143: Maxis data usage grew 133% YoY to 3.7GB per
and higher-end mobile internet users sub per mth in 4Q16
6.0
5.0
4.0
GB/subs/mth
3.0
2.0
1.0
0.0
Prepaid Postpaid
Source: Company Source: RHB

95
3 April 2017
Industry data yield slipped 43% in 2016
We estimate the industrys mobile data yield (Big-3) fell a further 19% QoQ (-48% YoY) to
MYR8 per GB (USD1.80 per GB) in 4Q16, due to price-focused competition in the market
and 4G promotions. For 2016, industry mobile data revenue (Big-3) grew 16.8% with the Data yields remain under pressure
strong pick-up in mobile data usage/traffic (+104%) more than offsetting the 43% decline as the industry remains fixated on
in data yield. At USD1.80 per GB, the average data yield in Malaysia is slightly higher than large data bundles
Indonesias average of USD1.50 per GB and Thailands USD1.60.
Average data usage in Malaysia has more than doubled to 3.9GB per sub per month in
4Q16 (4Q15: 1.7GB per sub per month) from the increased usage of data-intensive OTT
applications (ie Netflix, iFlix, Spotify, Youtube) and the improvement in subscriber
experience which indirectly leads to higher data consumption. We expect the uptrend in
data usage to continue, going forward, underpinned by the scalabiliy of 4G networks which
are capable of handlng significantly more data throughputs vs 3G and the use of carrier
aggregation.
.
Figure 144: Data yield development Figure 145: Quarterly mobile data usage (GB/m) Big 3
4.0 7.0 Title:

300
Source:
3.5 6.0
250
3.0 Please fill in the values above to have them entered in your re
5.0
2.5 200
4.0
2.0
3.0 150
1.5
2.0
1.0 100
0.5 1.0
50
- -
Average data usage (GB)/subs/mth

Revenue per GB (USD)(RHS) Quarterly Data traffic (GB m)
The sectors elevated capex looks to be sustained
The mobile operators are guiding for capex to be either sustained or increased sligthly
from the MYR3.3bn spent in 2016 (Big-3). Implicit in the guidance, in our view, is some The industrys high capex intensity
spillover spending for the retuning and optimisation of networks following the spectrum is set to sustain with the focus on
refarming, with the bulk of capex allocated for stepping up 4G coverage/capacity and data experience
data/digital investments.
Digi has allocated a similar amount of capex for FY17 (capex/sales guidance of 12.5%) as
with the MYR780m spent in FY16. This will primarily be for 4G/4G+ expansion and the
digitalisation of its core business. The telco witnessed capex savings of MYR73m after a
comprehensive review of its fixed asset register in 2Q16, and is expected to reap At 88%, Maxis has the strongest 4G
additional savings from the award of 2x5MHz of the 900MHz band (which improves indoor coverage, ahead of Digis 85%,
signal quality). Digi continues to lead the industry in LTE-Advance (LTE-A/4G+) coverage Celcoms 78% (4Q16) and webes
(41% of the population), with its fibre footprint reaching 7,600km in 4Q16 from 6,400km in >55%
4Q15.
Maxis expects its base capex for FY17 to be similar to FY16s MYR1.2bn, with the
spending inclined towards ensuring superior mobile data experience.
Meanwhile, Celcom, which is playing catch-up on network investments, has guided for
capex of MYR1.2-1.4bn in FY17 (FY16: MYR1.3bn) as it attempts to take the data
leadership position by 2018. The telcos 4G coverage has lagged its peers, at 76% due to
uncertainties caused by the spectrum reallocation exercise. Celcoms higher capex
trajectory is also one of the key reasons for the higher capex guided for Axiata Group at
MYR6.6bn in FY16 (FY15 : MYR6.1bn).

96
3 April 2017
TM expects its capex to peak in FY17 (at 30% of group revenue) or some MYR3.7bn
(FY16: MYR3.31bn), due to webes network rollout and the high speed broadband
(HSSB2) and suburban broadband (SUBB) projects. For FY16, webes capex amounted
to MYR500m, as the converged telco upgraded and commissioned new 4G sites natiowide
for the commercial launch of its service which took place last September.
Towercos scaling new heights
OCK Group (OCK), the countrys largest network services provider by revenue, chalked
record revenue and EBITDA in 4Q/FY16. This was supported by maiden contributions OCKs strong earnings growth is set
from its regional towerco business in Myanmar (OCK Yangon), and the ongoing strong to continue, with maiden
pipeline of tower contracting revenues from 4G deployments. The focus on expanding the contribution from SEATH, which is
portion of group revenues from recurring revenues is also paying off, with recurring Vietnams largest brownfield
revenue contriibution set to expand to 35% in FY17 from 20% in FY16. This would be towerco
supported by maiden contributions from Southeast Asia Telecommunications Holdings
(SEATH), Vietnams largest independent towerco (to be consolidated in 1Q17), and
additional site deliveries to Telenor Myanmar with potential upside from new orders. We
forecast OCKs core EBITDA to grow at a commendable FY16-19 FCAGR of 29%.
In our view, the news on potential inorganic expansion for edotco, the regions largest
towerco (66%-owned by Axiata) would continue to sustain the interest and positive
sentiment on the local towerco industry. This should bode well for OCK, as it is still the
largest telco network services provider in Malaysia and the only listed towerco with a
regional footprint. edotcos primary and secondary share placements to two strategic
investors Khazanah Nasional and the Innovation Network Corporation of Japan (INCJ)
in January has set a new benchmark for the valuation of Malaysian-based towercos.
Ascribing a 20% discount to edotcos EV/EBITDA valuation of 12.5x to reflect OCKs
significantly smaller scale, we estimate this could potentially unlock 18 sen per share and
bump up our SOP valuation by 17.4%.
Figure 146: OCKs TP sensitivity based on various discounts to edotcos EV/EBITDA

Discount to edotco's EV/EBITDA 30% 20% 10% 0%
Value enhancement (MYRm) 103.3 208.2 313.0 417.8
Value enhancement per OCK share (MYR) 0.09 0.18 0.28 0.37
TP uplift 8.6% 17.4% 26.1% 34.9%
Source: RHB
Not much light on spectrum
We expect the the regulator to possibly set out the information and framework for the
auction of the 2300MHz and 2600MHz bands in 2H17. This may then be followed Spectrum risks remain as there may
thereafter by an auction, ahead of the expiration of both spectrum by year-end. The be a tussle for the 700MHz and
2300MHz spectrum (120MHz) was previously awarded to four operators (YTL, webe, 2100MHz
Asiaspace and Redtone) in 2007, while the 2600MHz (180MHz) were allocated to eight
operators (including the four incumbents) in 2012. As the 2100MHz (60MHz) spectrum is
set to also expire early next year, the Government may consider early or joint auctions.
On the beachfront 700MHz band, Malaysia is among the few countries in the region that
will need to realign to the analogue switch-off timelines and we would not be surprised if
the allocation of the band is delayed. The Government raised MYR2.2bn in upfront
spectrum fees from the reallocation of the 900/1800MHz to four telcos last November.
The Infocomm Media Development Authority (IMDA) of Singapore is slated to hold the
general spectrum auction (GSA) for the 700MHz, 900MHz and 2500MHz spectrum in
1Q17, which should serve as a benchmark for spectrum pricing in Malaysia. The IMDA
had last December allocated 60MHz of the 900MHz and 2300MHz to a new operator,
raising SGD105m (MYR325m).

97
3 April 2017
Some balance sheet headroom
Given the sustained capex and potentially larger specturm payouts going forward, the
telcos have put in place adequate financing facilities and/or implemented capital
management exercises to ensure balance sheet headroom. Most recently, Digi has
proposed to issue up to MYR5bn sukuk (Islamic debt) for working capital and to fund future
spectrum payouts. It was the last of the Big-3 telcos to beef up its balance sheet with
Islamic debt, following the MYR10bn and MYR5bn Islamic facilities lined up by Maxis and
Axiata Group in 2014 and 2012 respectively. The bullet payments totaling MYR2.2bn for
the 900/1800MHz spectrum in Nov 2016 were funded from a combination of internal cash
resources and terms loans (Digi) and related Islamic debt (Maxis and Celcom).
Of the three telcos, Digi is the least leveraged with net debt/EBITDA at 0.6x (4Q16),
followed by Celcom and Maxis with 1.6x and 1.9x respectively. Axiatas gross debt
EBITDA of 2.6x (4Q16) has exceeded its target of 2.5x and at historical highs, no thanks
to the MYR weakness, with management looking to address the 30% unhedged USD debt
in its books.
The great expectations (industry consolidation)
We believe industry talks of a re-merger of TM and Axiata are not without merit (both
companies have earlier denied the speculation), given the increasingly blurry distinction TM-Axiata merger more than
between the fixed-mobile strategies adopted by both. Capex considerations and the fact meets the eye
that there is already some level of network collaboration (webes domestic roaming on
Celcom and Celcoms 4G fiberisation on TMs high speed broadband (HSBB)
infrastructure make a good case for a union, as both can procure significant capex/opex
savings. The current market dynamics (hyper competition, data monetisation woes,
spectrum challenges etc) are also supportive of an industry consolidation, which would
see a much quicker price repair in the market.
Having said that, we think it would be a potentially difficult exercise to execute due to
commercial challenges, valuations, concerns on over-staffing and the different risks
profiles conveyed by both regional mobile and fixed line plays that may impede
shareholder value accretion. When Axiata (then TM International) was demerged from TM
back in 2008, the underlying motivation was that their differing earnings/capex/risk profiles
would be better addressed via a distinct capital structure that would accord utmost
flexibility on funding. In addition to merger-related costs, concerns over staff redundancies
at government linked companies would also be less desirable in a scenario of a potentially
early general election.
Valuations And Recommendation

Maintain NEUTRAL sector weight
We are NEUTRAL on the sector in view of the poor earnings outlook, regulatory
uncertainties and structural headwinds. Sector valuations remain demanding at a 37% Valuations have eased but still not
premium to the average ASEAN-4 2018F EVEBITDA of 7.7x, while the average dividend attractive when stacked against
yield of Malaysian telcos (~3%) pales against their regional peers. On a positive note, the regional peers
growing vibes on M&As should sustain sentiment on the sector alongside the pick-up in
foreign portfolio inflows, given that the sectors foreign shareholding levels are at a low
ebb. We expect the mid-term prospects for the sector to be hindered by:
i. Market competition;
ii. Potentially higher spectrum payouts from new auctions;
iii. Data monetisation issues.
Risks
Key downside risks would be stronger-than-expected competition, larger-than-expected
capex, and higher-than-expected spectrum payouts. Potential industry consolidation
would be a key upside risk.

98
3 April 2017
TM and OCK are our preferred picks
We maintain our BUY recommendation on TM given its more superior revenue/earnings TM and OCK are our preferred picks
CAGR of 4% for FY17F-19F. This is predicated on the continued growth of its core
internet/data segments (from the expansion of high speed broadband (HSBB2) and
suburban broadband (SUBB) footprints), peaking capex intensity, resilient dividends and
the longer-term upside from its converged mobile value proposition. While we acknowlege
the key risk lies in the proposed 50% cut in broadband pricing in FY19 (announced in
Budget 2017), discussions are ongoing. The final outcome is unlikely to be punitive, in our
view, given that the Government is also a major stakeholder and shareholder.
We like OCK as a small cap exposure to the fast growing towerco business and its
expansion into high growing markets in Indo-China, which offer a new leg up in earnings.
The stock is a good proxy to positive developments resonating within edotco, being the
only Malaysian listed regional towerco group.
Figure 147: TMs 1-year forward EV/EBITDA Figure 148: Axiata Groups 1-year forward EV/EBITDA
EV/EBITDA Mean +1 sd
EV/EBITDA +1 sd +2 sd +2 sd -1 sd -2 sd
11.0
9 -1 sd -2 sd MEAN
10.0
8
9.0
7
8.0
6 7.0
5 6.0
4 5.0
4.0
3
Figure 149: Digis 1-year forward EV/EBITDA Figure 150: TDCs 1-year forward EV/EBITDA
EV/EBITDA MEAN +1 sd EV/EBITDA MEAN +1 sd

20 +2 sd -1 sd -2 sd
18 +2 sd -1 sd -2 sd
18
16
16
14
14
12
12
10 10
8 8
6 6
4 4
Figure 151: Valuations of telecommunication stocks

(x) (%) (x) (x) (%) (%)
TM 6.32 7.50 23,750 27.9 26.5 0.3 5.0 3.1 7.5 11.0 3.2 B
OCK 0.89 1.05 1,011 29.1 26.3 25.4 10.7 2.6 28.0 9.2 2.2 B
Axiata 4.97 4.30 43,053 24.4 21.9 24.8 11.7 1.8 5.7 8.1 2.1 N
Digi 5.15 4.70 40,041 24.4 23.9 13.0 2.1 77.1 10.9 315.5 4.1 N
Time dotCom 8.70 8.20 4,986 23.2 18.1 21.9 28.1 2.0 22.1 9.0 1.1 N
Maxis 6.33 5.10 47,539 25.7 28.8 (5.6) (11.0) 10.7 11.5 40.5 3.3 S
Sector Avg 25.2 24.7 8.1 2.3

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3 April 2017
Timber: Barking Up The Wrong Tree Neutral

Continued clampdown in state regulations. In 2016, we saw the timber companies under
our coverage bogged down by tighter regulations due to implementation of stricter forest-
management procedures. Jaya Tiasa (JT MK, BUY, TP: MYR1.53) continues to adjust to
its coupe permit reduction. Unfavourable weather conditions also did not help. The group
posted a 28% drop in log production for 8MFY17 (Jun) (FY17F: 37% YoY).
Ta Ann (TAH MK, NEUTRAL, TP: MYR3.91), on the other hand, has started its process of
amalgamating its timber licenses into one master license. This has led to tighter harvesting
regulations including an increase in its diameter cutting limit as well as a reduction in
annual coupe size harvestable. The companys log production declined 10% YoY in Jan
2017. Similar to Jaya Tiasa, WTK (WTKH MK, NEUTRAL, TP: MYR0.94) was also affected
by limitations on annual coupes to be harvested. It was also saw higher levels of inventory
carried forward from the previous year.
We believe the continuous clamping down on illegal logging activities by the Sarawak State
Government thus far would only further tighten going forward. Therefore, we continue to
project for log production volumes to decline c.23-27% for FY17-18.
Figure 652: Log production volume (cu m)
1100 Title:
Source:
1000
Please fill in the values abo
900
800
700
600
500
400
300
200
FY14A FY15A FY16A FY17F FY18F FY19F
Jaya Tiasa Ta Ann WTK
Source: Companies data, RHB
Full-year impact of cuts in log export quotas... Recall that the Sarawak log export quota
was slashed to 30% from 40% effective Jul 2016. Going forward, we expect the full impact
from the quota cuts to weigh down on earnings for 2017. We expect log price trends, on the
other hand, to post marginal growth of 2-3%. This is following the tightening of supply. We
note that the log price trend is similar across all the timber companies, given that they share
the same key export market, ie India, with the difference being in the variance in log quality.
translating into a softer plywood outlook. The lower log production going forward
would also weigh down on the sectors plywood sales volume. The sharp decline of 29%
YoY in Jaya Tiasas 1HFY17 plywood sales volume mirrors that of its declining log
production volume of 32% during the same period. Ta Ann posted a marginal 4% decline,
while WTKs sales volume held stable in FY16.
Unlike log prices, the timber companies plywood ASP trend diverges due to the difference
in key export markets for their plywood products. While Ta Ann and WTK ships the bulk of
their exports to Japan (70%), Jaya Tiasas key export markets are more spread out, ie Hong
Kong/China (28%), Taiwan (14%) and not withstanding Japan (11%).
The weakening JPY has led to Japanese importers opting for local plywood suppliers Analysts
instead. This has led to Ta Ann and WTK posting declines of 12% and 9% in plywood ASP Stephanie Cheah
respectively for 2016. Due to Jaya Tiasas diversified plywood export market however, +603 9280 8859
plywood prices fared better, with 1HFY17 seeing ASP growth of 13% YoY. stephanie.cheah@rhbgroup.com
We believe prices have bottomed and forecast for all three timber companies to post
marginal improvements in plywood prices in the region of c.3-4% for FY17-18.

100
3 April 2017
Figure 153: Logs ASP (USD/cu m) Figure 154: Plywood ASP (USD/cu m)
310 Title:
600 Source:
290 580
560 Please fill in the values above to have them entered in your repo
270 540
250 520
500
230 480
210 460
440
190 420
400
170
380
150 360
Jaya Tiasa Ta Ann WTK Holdings Jaya Tiasa Ta Ann WTK Holdings
Raising our CPO forecast for 2017. We raise our CPO price forecast for 2017 to
MYR2,600 per tonne (from MYR2,500 per tonne) on the back of a strong YTD-February.
The first two months of the year have led to a higher 1H17 price assumption of c.MYR2,900
per tonne, while we maintain our 2H17 price assumption at MYR2,400 per tonne.
Having said that, we believe prices are likely to moderate further in 2018, as CPO stock
levels would be fully replenished post El Nino. Therefore, we revise downwards our CPO
price assumption for 2018 to MYR2,400 per tonne (from MYR2,500 per tonne). We maintain
our forecast of MYR2,500 per tonne for 2019. We also revise our PK and PKO price
assumptions, given expectations that PK and PKO prices are expected to moderate post
2017. This would be on the back of a recovery in output.
Expect record FFB production (+c.19-25% YoY) in FY17. Jaya Tiasa and Ta Anns prime
mature trees are increasing and projected to respectively make up 65% and 61% of total
planted areas respectively by FY17. This is on the back of total planted area of 70,000 ha
(Jaya Tiasa) and 50,000 ha (Ta Ann).
We therefore continue to believe that plantations remain a bright spot for both timber
companies and to expect an impressive FFB production growth of c.19-25% in FY17. Key
risk to FFB growth lies in unfavourable weather conditions. The age profile for the two
companies can be referred to in the diagrams below.
Figure 155: Jaya Tiasa age profile FY17F (Jun) Figure 156: Ta Ann age profile FY17F (Dec)
Title:
7% Source:
16%
Please fill in the values above to have them entered in your rep
28%
23%
61%
65%
Immature (%) (<4 years) Young mature (%) (4-7 years) Immature (%) (<4 years) Young mature (%) (4-7 years)
Prime mature (%) (>7 years) Prime mature (%) (>7 years)

101
3 April 2017
WTK on the other hand is expected to continue reporting losses in its plantation division due
to the young age profile of its trees. We estimate that the total planted area currently stands
at approximately 15,000ha as at end Dec-2016. Therefore, we continue to expect for the
groups plantation segment to only break even after 2020.
Revision in earnings for Jaya Tiasa and Ta Ann. All in, our earnings for Jaya Tiasa and
Ta Ann have been revised upwards by c.5-6% for FY17, but -4% for FY18. The changes
are made after:
i. Raising FY17 CPO price assumption for Ta Ann to MYR2,600 per tonne (from
MYR2,500 per tonne). Subsequently, we also raise Jaya Tiasas ASP assumption to
MYR2,700 per tonne (from MYR2,600 per tonne) for its FYE June;
This is after we account for the actual CPO price of MYR2,600 per tonne realised by
the group in Jun-Dec 2016 as well as our assumption of MYR2,900 per tonne for the
January-June period. We maintain our forecast of MYR2,400 per tonne for 2H17;
ii. Lowering FY18 prices to MYR2,400 per tonne (from MYR2,500) for both Jaya
Tiasa and Ta Ann. We believe prices could moderate further in 2018. This is as CPO
stock levels would have been replenished in 2017, and with the commoditys output
continuing on its recovery track post El Nino. For 2019, we have assumed for prices to
go back to MYR2,500 per tonne;
iii. Revising PK and PKO price assumptions, given the expectations that PK and PKO
prices are expected to moderate after 2017 on the back of a recovery in output;
iv. We maintain our earnings forecast for WTK due to the muted impact from changes
in our CPO price assumption given its minimal and young matured areas.
Maintain NEUTRAL on the sector. Our DCF valuation method ascribed to the sectors log
division and replacement value for the plywood unit is unchanged. However, we have
updated our DCF assumptions to incorporate our latest in-house view of an improved risk
appetite globally and adjust for a:
i. Lower risk free rate of 4.15% (from 4.25%);
ii. Lower equity risk premium of 5.1% (from 5.38%).
Despite the upgrade in our CPO price forecast to MYR2,600 per tonne for 2017, we now
attribute a P/E of 16x 2017 (from 17x) for the plantations division across the sector. We
expect valuations to moderate, as we expect CPO prices to decline going forward.
Historically, P/E valuations usually shrink by 1-2SD during a CPO price downtrend.
Our SOP-based valuations are lowered slightly across the timber companies. Jaya Tiasa
remains our Top BUY with a slightly lower TP of MYR1.53 (from MYR1.61). We maintain
our NEUTRAL call for Ta Ann with a slightly lower TP of MYR3.91 (from MYR4.08).
WTKs earnings are relatively unchanged given the small earnings contribution from the
plantation segment. Our TP for WTK is raised slightly to MYR0.98 (from MYR0.95) as we
account for the changes made in our DCF-assumption. Our SOP-derived TP is based on
DCF valuation to the groups log division, replacement value for its plywood unit and 1x
P/BV for its forest plantation and palm oil land bank as the groups plantation division is
expected to be loss-making until 2020.
Our theses on a muted outlook for the timber divisions across the companies under our
coverage remain unchanged. However, the slowdown would be partially mitigated by a
stronger FFB growth trajectory coupled with favourable average CPO prices in 2017.
Overall, we maintain our sector NEUTRAL call, with Jaya Tiasa as our only BUY.
Figure 157: Valuations of timber stocks

(x) (%) (x) (x) (%) (%)
Jaya Tiasa 1.29 1.53 1,256 13.2 11.6 45.8 14.0 0.7 6.7 5.1 1.7 B
Evergreen 0.88 1.24 741 7.0 6.6 42.1 5.9 0.6 8.4 9.1 3.6 B
Ta Ann 3.76 3.91 1,673 11.3 12.2 23.9 (7.9) 1.3 5.8 11.4 3.5 N
WTKH 1.00 0.98 479 14.5 11.9 55.4 21.5 0.3 17.8 2.4 1.4 N
Sector Avg 10.9 10.5 36.2 3.9

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3 April 2017
Utilities: Steady As She Goes Overweight

Dec 2016 quarter sector earnings below expectations
Earnings for Dec 2016 came in below our expectations, with the common theme being Dec 2016s quarterly earnings were
higher maintenance and operational costs. Malakoff Corps (Malakoff) (MLK MK, NEUTRAL, below expectations
TP: MYR1.38) Tanjung Bin Power faced operational issues due to congestion at its jetty.
The plant had to use barges to ease congestion in the near term. Results also came in
below expectations, as only Tanjung Bin Power reached capacity factors above 80%, as
lower priorities were given to Malakoffs other facilities in the power despatch cycle due to
lower efficiency.
Petronas Gas (PTG MK, NEUTRAL, TP: MYR21.30) results disappointed our forecasts.
This was due to higher operational costs associated with its plant rejuvenation and revamp
project. Tenaga Nasionals (Tenaga) (TNB MK, BUY, TP: MYR18.60) results came in line
with our expectations, as demand from both the commercial and residential segments
remained resilient.
Two new power plants to start commercial operation dates (CODs) in 2017
For 2016, maximum electricity demand came in on 20 Apr 2016 at 17,788MW. Total system Petronas cash flow is to improve
availability of 20,202MW which translates into a reserve margin of only 12% is lower following the Saudi Aramco deal. This
than the Energy Commissions target of 25%. allows it to focus on other projects
In 2017, two plants are expected to achieve COD, ie the Pengerang Cogeneration and
Manjung 5 projects, which would add 400MW and 1,000MW of generational capacity
respectively to the national grid. Note that the Pengerang Cogeneration Plant is owned by
Petronas, and is part of the auxiliary facilities in support of the Refinery and Petrochemical
Integrated Development (RAPID) mega project. The Manjung 5 Plant is owned by Tenaga.
Coal and LNG price

Tenaga estimates that 28.1m tonnes of coal are to be imported for generational purposes. Expect LNG to trade at USD7-8 per
The bulk of it is to come from Indonesia, with the balance coming from Australia, Russia mmbtu while coal prices to be at
and South Africa. USD70-75 per tonne in 2017
Meanwhile, the 3.5mtpa Pengerang regasification terminal is expected to be commissioned
in 3Q17, which would complement the Sungai Udang regasification terminals 3.8 mtpa
capacity. This ought to ensure the supply of LNG to cater for West Malaysia demand.
We are expecting coal prices to trade between USD70-75 per tonne in 2017, while LNG is
expected to trade at around USD7-8 per mmbtu. This is following our crude oil price
assumption of USD60 per bbl.
Figure 758: FY16 Newcastle coal price (USD/ton) Figure 159: FY16 LNG export price to Japan
USD/ton USD/mmbtu
115 8.5 Title:
8.0 Source:
105
7.5
95 Please fill in the values above to have them entered in yo
7.0
85
6.5
75 6.0
65 5.5
5.0
55
4.5
45
LNG price
Coal price

Analyst
Wan Mohd Zahidi
+603 9280 8879
wan.zahidi@rhbgroup.com

103
3 April 2017
Key risks
We believe plant efficiency and equivalent availability factor remains a risk to our Lower realised crude oil price remains
recommendation. Lower plant efficiency and equivalent availability factor affects the a key concern for the sector
priorities of the power despatch cycle, which results in lower revenue. Uncertainty over the
opening up of the gas infrastructure would also affect Petronas Gas negatively.
Overweight
We maintain our OVERWEIGHT call on the sector with Tenaga as our industry Top Pick. Maintain Tenaga as Top Pick
We believe the incentive-based regulation is beneficial for the national electricity company,
providing incentives as well as allowing fuel cost pass-throughs. This would enable it to have
more stable profits going forward. As a result of this stability, Tenaga is expected to pay out
50-70% of its bottomline to shareholders in terms of dividends.
We maintain our NEUTRAL recommendation on Malakoff, Petronas Gas and YTL Power
(YTLP MK, TP: MYR1.55). For Malakoff, we believe its operational issues at its Tanjung Bin
power plants would continue to haunt earnings, while its older plants are not being prioritised
in the power despatch cycle.
We believe Petronas Gas would continue to face headwinds due to the uncertainty on its
remuneration structure post third-party access to the gas infrastructure. As for YTL Power,
we believe the sentiment over the company is not likely to turn bullish unless the land lease
issues over its Paka power plant are resolved.
Figure 160: Valuations of utilities stocks

(x) (%) (x) (x) (%) (%)
Tenaga 13.72 18.60 77,430 8.8 8.8 2.6 (0.3) 1.2 6.2 14.8 3.4 B
Pestech 1.72 2.12 1,284 17.2 17.0 11.5 1.0 3.4 (5.2) 21.8 0.6 B
Petronas Gas 19.78 21.26 39,139 20.4 19.0 10.1 7.5 3.1 14.9 15.6 3.5 N
YTL Power 1.53 1.55 11,351 13.4 13.8 16.9 (2.6) 0.9 4.2 6.7 0.6 N
Malakoff 1.18 1.38 5,900 14.4 12.1 (18.5) 19.7 1.0 2.6 6.9 5.2 N
Sector Avg 11.2 11.0 3.8 1.5

104
3 April 2017

105
3 April 2017
Figure 161: Valuations and ratings of individual stocks under coverage

FYE Price Target Core EPS EPS Growth P/E EV/EBITDA
(sen) (%) (x) (x)
(MYR/s) (MYR/s) 16 17F 18F 16 17F 18F 16 17F 18F 16 17F 18F
BUY
Aeon Credit^ Feb 16.50 18.00 173.0 183.6 195.5 9.1 6.1 6.5 9.5 9.0 8.4 14.3 14.4 14.6
AirAsia X Dec 0.41 0.50 5.4 5.6 6.7 n.a. 4.1 18.9 7.5 7.2 6.1 6.2 4.1 3.3
Al-Salam REIT Dec 1.04 1.18 6.2 6.3 6.4 +>100 1.4 2.2 16.7 16.5 16.2 16.7 16.5 16.2
Berjaya Food^ Apr 1.82 2.21 6.5 10.1 12.8 17.1 54.3 26.5 27.8 18.0 14.2 10.1 7.8 6.7
BIMB Dec 4.46 5.20 35.5 37.6 40.0 (0.8) 6.1 6.5 12.6 11.9 11.1 n.a. n.a. n.a.
CBIP Dec 2.14 2.45 16.1 18.6 18.8 8.7 15.6 0.8 13.3 11.5 11.4 7.0 7.7 7.1
CMS Dec 4.20 4.90 18.2 26.3 30.1 (20.2) 44.3 14.5 23.0 16.0 13.9 10.5 9.1 9.0
Datasonic^ Mar 1.25 1.84 5.0 8.2 8.6 7.7 62.7 5.5 24.9 15.3 14.5 15.2 10.9 11.5
Dialog Jun 1.66 1.77 5.1 5.8 6.2 6.4 14.8 5.8 32.6 28.4 26.8 22.8 24.0 24.9
Esthetics^ Mar 0.86 1.05 9.3 9.9 n.m. 7.8 6.6 n.m. 9.3 8.7 n.m. 3.2 2.5 n.m.
Evergreen Fibreboard Dec 0.88 1.24 8.8 12.4 13.2 (47.1) 42.1 5.9 10.0 7.0 6.6 4.8 3.7 3.3
Gadang^ May 1.30 1.55 15.0 16.5 18.2 (6.1) 10.2 9.9 8.7 7.9 7.2 4.9 4.1 4.1
Gamuda Jul 5.14 5.80 25.9 28.8 33.5 (8.7) 11.2 16.5 19.9 17.9 15.3 25.6 20.8 18.7
Heineken Dec 17.64 19.30 90.2 95.7 102.5 14.8 6.2 7.1 19.6 18.4 17.2 12.9 12.2 11.4
Ho Hup Dec 0.79 1.20 22.2 25.3 24.3 8.5 14.0 (4.0) 3.6 3.1 3.3 3.9 3.3 3.2
Hong Leong Ind Jun 9.52 11.11 75.4 81.0 87.0 42.7 7.5 7.4 12.6 11.8 10.9 7.7 8.0 7.3
HSL Dec 1.69 2.18 10.2 14.3 16.7 (26.0) 40.0 16.3 16.5 11.8 10.1 10.2 10.2 9.4
IHH Healthcare Dec 5.98 7.30 9.6 13.3 17.4 (13.1) 39.2 30.4 62.4 44.8 34.4 22.2 19.0 15.5
IJM Corp^ Mar 3.44 3.83 16.3 21.3 22.3 (16.9) 30.9 4.3 21.1 16.1 15.5 12.9 10.0 10.7
Inari Amertron Jun 1.94 2.53 7.3 10.2 13.2 4.1 38.4 30.3 26.4 19.1 14.6 18.2 13.6 10.2
IOI Prop Jun 2.00 2.57 14.9 16.2 15.8 (8.7) 8.3 (2.6) 13.4 12.4 12.7 7.6 15.5 15.6
IQ Group^ Mar 3.32 4.20 26.6 28.0 31.6 11.8 5.4 12.9 12.5 11.8 10.5 5.8 5.2 4.3
Jaya Tiasa Jun 1.29 1.53 6.7 9.8 11.2 39.3 45.8 14.0 19.2 13.2 11.6 9.3 7.6 6.8
Kimlun Dec 2.19 2.57 26.8 27.0 28.6 26.4 0.5 6.1 8.2 8.1 7.7 5.3 4.4 3.5
MAHB Dec 6.94 7.70 15.9 9.8 17.8 +>100 (38.4) 81.4 43.6 70.7 39.0 9.1 8.6 7.9
Maybank Dec 8.90 9.30 61.6 70.4 73.1 (9.8) 14.3 3.8 14.5 12.6 12.2 n.a. n.a. n.a.
Matrix^ Mar 2.49 2.80 35.6 37.6 39.0 (5.5) 5.6 3.7 7.0 6.6 6.4 5.4 5.1 5.0
MISC Dec 7.34 8.72 51.7 59.1 64.9 (23.7) 14.3 9.8 14.2 12.4 11.3 8.7 7.0 5.8
MMC Corp Dec 2.50 3.50 15.2 16.2 18.8 +>100 6.5 16.3 16.4 15.4 13.3 12.3 11.3 10.6
MPI Jun 10.16 12.88 70.1 85.5 96.2 51.0 22.0 12.5 14.5 11.9 10.6 4.4 3.8 3.1
Muhibbah Dec 2.65 3.75 19.2 24.4 25.4 (18.8) 26.8 4.4 13.8 10.9 10.4 4.7 5.3 4.9
OCK Group Dec 0.89 1.05 2.4 3.1 3.4 20.0 25.4 10.7 36.5 29.1 26.3 14.1 8.9 7.6
Oka Corp^ Mar 1.46 1.61 15.4 16.1 17.3 16.9 4.7 7.2 9.5 9.1 8.5 5.2 4.6 4.0
Paramount Dec 1.73 2.24 17.2 18.6 20.4 7.5 8.1 9.6 10.0 9.3 8.5 8.6 8.5 7.9
Pestech Jun 1.72 2.12 9.0 10.0 10.1 9.9 11.5 1.0 19.2 17.2 17.0 13.6 14.8 15.1
Petra Energy Dec 1.09 1.43 3.0 20.2 27.3 (79.4) +>100 35.2 36.0 5.4 4.0 (327.9) 16.0 7.1
Petronas Chemicals Dec 7.43 8.40 36.7 45.3 45.5 5.4 23.5 0.6 20.3 16.4 16.3 9.7 7.4 7.1
Press Metal Dec 2.45 3.27 12.0 16.9 21.4 47.3 40.6 26.7 20.4 14.5 11.4 10.6 8.4 6.7
Prestariang Dec 2.19 2.57 1.9 8.3 11.4 (46.9) +>100 36.7 +>100 26.3 19.2 67.2 22.0 15.8
Public Bank Dec 20.18 22.00 134.7 135.3 141.9 2.7 0.4 4.9 15.0 14.9 14.2 n.a. n.a. n.a.
Sapura Energy^ Jan 1.91 2.25 3.4 5.8 6.6 (79.6) 68.2 13.2 55.5 33.0 29.2 7.0 9.9 9.4
Scientex Jul 7.42 8.40 52.4 68.4 82.5 54.7 30.7 20.6 14.2 10.8 9.0 10.3 7.7 6.1
Sime Darby Jun 9.34 10.15 26.7 35.4 39.6 (5.6) 32.7 11.8 35.0 26.4 23.6 24.2 19.7 19.5
SP Setia Dec 3.40 4.00 29.3 24.3 23.7 (3.4) (17.1) (2.2) 11.6 14.0 14.3 8.5 8.8 8.7
Sunway Bhd Dec 3.25 3.55 26.5 27.0 28.8 (20.0) 1.6 6.7 12.2 12.1 11.3 11.3 10.7 10.2
Sunway Construction Dec 1.76 2.05 9.6 11.6 13.2 (2.9) 21.5 13.3 18.4 15.2 13.4 10.4 7.5 6.1
Tambun Indah Dec 1.41 1.66 26.3 22.9 24.6 17.9 (12.6) 7.1 5.4 6.1 5.7 4.0 4.2 3.9
Tenaga Dec 13.72 18.60 152.3 156.3 155.9 15.9 2.6 (0.3) 9.0 8.8 8.8 5.9 5.5 5.0
TM Dec 6.32 7.50 22.6 22.7 23.8 (8.5) 0.3 5.0 27.9 27.9 26.5 7.8 8.2 8.3
^ FY16, 17 & 18 valuations refer to those of FY17, 18 & 19

106
3 April 2017

P/CF P/BV DIV YIELD ROE % Chg in price Mkt
(x) (x) (%) (%) cap
16 17F 18F 16 17F 18F 16 17F 18F 16 17F 18F 1Mth 3 Mth 12 Mth (MYRm)
BUY
n.m n.m n.m 2.6 2.2 1.9 3.9 4.2 4.4 29.2 26.6 24.6 5.0 15.4 38.2 2,376
4.9 2.7 3.8 1.6 1.3 1.1 0.0 0.0 0.0 27.1 19.2 18.5 0.0 9.5 35.0 1,680
14.4 15.2 16.1 1.0 1.0 1.0 5.8 5.8 5.9 6.0 6.0 6.1 0.0 (1.0) 5.1 603
6.0 2.9 2.4 1.7 1.6 1.5 1.8 2.8 3.5 6.1 9.1 11.0 7.7 14.5 (13.3) 693
n.a. n.a. n.a. 1.8 1.7 1.5 2.9 3.0 3.1 15.4 14.7 14.2 0.9 3.7 18.9 7,086
10.0 9.8 10.1 1.6 1.5 1.4 4.7 4.2 4.2 15.9 13.5 12.8 (2.3) 9.7 (4.5) 1,152
20.0 14.6 12.8 2.1 1.9 1.8 1.5 2.5 2.9 8.0 12.4 13.1 1.7 8.8 (13.4) 4,512
21.5 10.8 9.3 6.0 4.9 4.1 1.8 2.9 3.1 25.7 35.2 31.0 10.6 (0.8) (9.4) 1,688
22.7 78.2 83.0 3.7 3.4 3.2 1.2 1.4 1.5 13.4 12.4 12.2 3.1 9.2 1.8 8,857
7.2 6.9 n.m. 1.0 0.9 n.m. 4.7 4.7 n.m. 11.2 11.2 n.m. 2.4 4.9 0.0 159
3.1 8.4 3.9 0.7 0.6 0.6 1.6 3.6 3.8 6.6 9.1 9.0 (10.7) (11.2) (15.9) 741
15.8 10.3 (21.0) 1.4 1.2 1.1 2.2 2.3 2.5 17.0 16.3 15.7 17.1 26.2 66.7 841
118.3 84.3 36.8 1.8 1.7 1.6 2.3 2.3 2.3 9.5 9.8 10.8 3.6 6.9 6.0 12,434
18.7 12.7 14.9 13.6 13.4 13.2 5.4 5.3 5.7 70.9 73.1 77.2 5.4 3.3 26.7 5,329
(38.5) 13.3 6.1 1.0 0.7 0.6 0.0 0.0 0.0 30.8 26.4 20.1 (3.1) 1.9 (6.5) 296
10.4 11.9 11.1 2.4 2.2 2.0 4.4 4.7 5.0 19.9 19.5 19.2 0.2 1.3 42.4 3,122
21.8 7.5 18.9 1.3 1.2 1.1 1.4 2.0 2.3 8.3 10.8 11.5 (0.6) 0.6 (19.5) 931
17.3 19.3 17.9 2.2 2.1 2.0 0.5 0.5 0.5 2.8 5.9 6.0 (3.4) (6.3) (11.4) 49,176
13.9 14.4 12.6 1.3 1.3 1.2 1.9 2.5 2.6 6.4 8.0 7.9 0.3 4.9 0.6 12,332
23.1 14.0 14.0 5.7 4.8 3.7 4.3 2.1 2.7 24.3 27.2 28.6 3.7 16.9 18.9 3,868
14.2 11.3 7.1 0.6 0.6 0.6 4.0 4.4 4.5 7.4 4.9 4.8 4.1 6.6 (4.3) 9,947
8.1 10.3 9.7 1.9 1.8 1.6 3.0 3.3 3.6 16.3 15.5 15.9 5.4 27.7 70.3 292
8.8 6.7 5.3 0.7 0.7 0.6 1.1 1.7 1.9 3.3 5.1 5.6 (4.4) (5.8) (6.5) 1,256
11.0 4.4 4.1 1.2 1.1 1.0 3.0 3.1 3.3 16.4 14.7 14.0 1.4 0.5 28.1 680
6.5 8.0 6.4 1.5 1.5 1.5 1.2 1.8 2.1 0.2 2.1 3.8 4.7 11.9 (0.4) 11,515
n.a. n.a. n.a. 1.3 1.2 1.2 5.8 6.1 6.3 10.4 10.2 10.2 5.7 12.5 (0.1) 92,251
6.5 7.8 6.5 1.4 1.3 1.1 5.6 6.0 6.4 21.4 20.3 19.0 4.2 0.4 1.6 1,467
3.5 3.3 2.8 0.9 0.8 0.8 2.7 2.4 2.7 7.0 6.8 7.1 (4.7) 0.0 (16.9) 32,764
9.2 4.6 6.1 0.8 0.8 0.7 1.2 1.2 1.2 5.9 5.1 5.7 (3.8) 6.8 34.4 7,613
5.2 6.7 5.2 2.2 1.9 1.7 2.3 2.8 3.0 17.1 17.3 17.3 11.4 33.9 33.7 2,132
7.9 (6.9) 8.3 1.3 1.2 1.1 2.1 2.3 2.4 11.8 11.5 11.0 7.3 18.8 10.4 1,278
19.4 28.0 13.4 2.7 2.6 2.5 0.7 2.2 2.2 7.9 9.2 9.6 7.2 15.6 6.6 1,011
11.0 8.3 7.6 1.5 1.4 1.2 3.8 4.1 4.5 15.8 15.0 14.7 12.3 22.7 53.7 234
13.9 5.0 4.9 0.8 0.8 0.7 4.9 5.2 5.5 8.2 8.3 8.7 1.8 24.5 12.3 733
(8.4) (5.2) (85.2) 4.1 3.4 2.9 0.0 0.6 0.6 26.7 21.8 18.4 1.8 7.5 5.8 1,284
2.1 4.7 14.9 0.6 0.6 0.6 0.7 4.9 6.6 1.8 11.2 13.8 6.9 19.8 (10.7) 350
17.9 14.8 14.7 2.2 2.1 1.9 2.5 3.0 3.1 10.6 13.0 12.2 (0.7) 8.0 7.4 59,440
10.9 7.1 6.3 4.0 3.4 2.8 1.9 2.1 2.6 23.6 25.3 26.7 4.3 45.0 150.4 9,069
2050.2 34.3 19.4 6.6 6.3 5.6 1.4 3.2 3.2 5.5 24.6 31.0 (3.1) 3.3 (20.1) 1,060
n.a. n.a. n.a. 2.3 2.1 1.9 2.9 2.9 3.0 15.9 14.6 14.1 0.7 2.3 6.8 77,925
3.4 7.9 6.2 0.9 0.9 0.8 0.5 0.6 0.6 3.5 2.6 2.9 1.6 18.6 (12.0) 11,445
9.2 14.2 7.7 2.9 2.4 2.1 2.2 2.8 3.3 22.8 24.5 24.8 4.4 9.6 23.7 3,413
15.8 13.6 17.8 1.8 1.8 1.8 2.9 2.7 3.0 7.7 6.8 7.5 1.5 14.9 18.7 59,094
14.4 6.2 6.3 1.0 1.0 1.0 5.9 5.0 5.0 9.7 7.5 7.3 0.3 5.3 7.9 9,807
11.8 9.0 9.0 3.3 3.3 3.3 3.7 4.0 4.3 8.4 7.4 7.7 3.8 9.4 1.6 6,772
(12.8) 8.8 9.8 4.6 3.9 3.2 2.8 2.3 2.6 26.2 27.7 26.3 0.6 3.5 13.5 2,276
(30.0) 5.3 7.1 1.1 1.0 0.9 6.8 5.9 6.4 22.5 17.4 17.0 0.7 1.4 (5.4) 609
5.7 6.2 4.0 1.4 1.2 1.1 2.6 3.4 3.4 15.1 14.8 12.8 1.3 0.0 2.2 77,430
8.4 7.5 7.4 3.1 3.1 3.0 3.4 3.2 3.4 10.0 11.0 11.4 2.3 5.7 (2.6) 23,750

107
3 April 2017

(sen) (%) (x) (x)
BUY
Tune Protect Dec 1.37 1.66 10.6 11.2 12.9 15.7 5.2 14.9 12.9 12.2 10.7 11.4 11.1 9.6
UEM Edgenta Dec 3.23 5.15 27.6 34.1 41.2 (17.9) 23.5 20.9 11.7 9.5 7.8 7.1 5.6 4.6
VS Industry Jul 1.80 2.12 12.4 14.9 15.9 37.1 20.2 6.3 14.5 12.1 11.3 10.3 7.9 7.5
Wah Seong Dec 0.87 0.98 2.4 12.2 13.9 (65.4) +>100 13.4 35.7 7.1 6.3 9.1 6.6 6.1
Yinson^ Jan 3.21 3.91 13.1 11.0 13.5 (4.1) (16.0) 22.4 24.5 29.1 23.8 29.4 12.2 10.8
TRADING BUY
DRB-HICOM^ Mar 1.39 1.83 (24.3) (3.0) 2.0 (9.8) 87.6 n.a. n.m. n.m. 68.7 16.8 8.7 7.6
E&O^ Mar 2.00 2.37 4.7 4.7 5.8 +>100 (1.0) 23.6 42.5 42.9 34.7 23.0 23.1 18.1
NEUTRAL
7-Eleven Dec 1.51 1.40 4.2 4.8 5.6 (6.5) 14.1 15.7 35.7 31.3 27.1 15.1 12.7 11.1
AEON Dec 2.44 2.38 5.6 7.9 8.9 (40.7) 40.8 13.1 43.4 30.8 27.3 10.1 9.4 8.9
AFG^ Mar 4.10 3.80 34.5 33.0 37.3 0.9 (4.5) 13.2 11.9 12.4 11.0 n.a. n.a. n.a.
Alam Maritim Dec 0.29 0.29 0.4 3.2 4.8 (90.9) +>100 49.0 65.5 9.0 6.1 9.1 6.5 3.6
AMMB^ Mar 4.87 4.30 44.2 44.6 46.8 2.0 1.0 4.8 11.0 10.9 10.4 n.a. n.a. n.a.
APM Automotive Dec 3.68 3.37 24.8 26.7 30.6 (19.7) 7.4 14.8 14.8 13.8 12.0 3.9 3.1 2.8
Astro^ Jan 2.86 3.06 12.3 13.9 14.9 3.8 13.4 6.9 23.3 20.5 19.2 5.2 5.3 5.3
Axiata Dec 4.97 4.30 16.3 20.3 22.7 (32.6) 24.8 11.7 30.5 24.4 21.9 8.2 7.4 6.6
Axis REIT Dec 1.64 1.70 8.2 9.4 9.7 (1.3) 14.3 3.0 19.9 17.4 16.9 20.3 19.0 18.5
B-Toto^ Apr 2.95 2.95 20.2 22.2 22.5 (11.7) 10.3 1.1 14.6 13.3 13.1 8.9 8.1 8.0
Bermaz Auto^ April 2.05 2.17 9.8 15.4 20.0 (43.2) 57.1 29.7 20.9 13.3 10.3 12.3 8.4 6.4
Bursa Malaysia Dec 9.50 8.60 37.0 41.0 41.8 (0.5) 10.7 2.1 25.7 23.2 22.7 24.3 22.4 22.2
Carlsberg Dec 14.60 15.40 66.5 76.9 84.9 (5.6) 15.6 10.4 21.9 19.0 17.2 13.7 13.3 12.3
CIMB Dec 5.65 5.00 39.2 46.5 51.3 (2.6) 18.6 10.4 14.4 12.2 11.0 n.a. n.a. n.a.
CMMT Dec 1.67 1.69 8.4 8.4 8.6 (1.3) (0.2) 3.1 19.9 20.0 19.4 20.1 19.9 19.4
Coastal Contract Jun 1.40 1.56 25.6 28.3 35.0 (10.3) 10.4 23.7 5.5 4.9 4.0 8.1 0.8 1.2
Digi.com Dec 5.15 4.70 18.6 21.1 21.5 (21.1) 13.0 2.1 27.6 24.4 23.9 15.3 14.5 14.2
Favelle Favco Dec 2.75 2.25 32.8 33.4 33.3 (44.4) 2.0 (0.5) 8.4 8.2 8.3 2.9 2.7 2.5
Felda Global Dec 1.91 2.15 (3.8) 5.1 6.7 10.4 n.a. 31.8 n.m. 37.4 28.4 10.0 7.2 5.6
Freight Mgmt Jun 1.26 1.30 13.0 13.7 14.6 (0.5) 4.8 6.6 9.7 9.2 8.7 5.7 4.7 4.2
GD Express Jun 1.86 1.63 2.5 3.0 3.5 4.3 18.2 17.0 73.6 62.3 53.3 50.4 46.7 34.1
Genting Bhd Dec 9.79 9.59 55.7 62.3 66.9 (25.7) 11.9 7.3 17.6 15.7 14.6 6.1 5.8 5.5
Genting M'sia Dec 5.47 5.08 26.7 28.5 31.4 27.4 6.5 10.5 20.5 19.2 17.4 13.1 11.8 10.5
Genting Plantations Dec 11.50 12.50 38.1 52.3 47.4 40.8 37.3 (9.4) 30.2 22.0 24.3 19.1 15.7 16.9
GHL Systems Dec 1.12 1.00 2.6 3.6 4.6 44.1 39.2 28.3 43.3 31.1 24.2 14.9 12.7 10.4
Globetronics Dec 4.85 4.79 8.5 24.5 32.0 (62.6) +>100 30.5 57.3 19.8 15.2 27.3 12.0 9.7
Glomac^ Apr 0.72 0.78 7.4 12.4 13.4 (23.4) 67.3 7.9 9.7 5.8 5.4 4.9 6.8 6.5
Hartalega^ Mar 4.81 4.76 16.8 20.9 23.2 7.4 24.2 11.0 28.5 23.0 20.7 18.8 14.8 13.3
Hektar REIT Dec 1.63 1.59 10.4 10.9 11.2 (8.5) 5.2 2.9 15.7 14.9 14.5 17.0 16.2 15.7
Hovid Jun 0.32 0.40 2.3 2.0 3.9 6.0 (16.0) +>100 13.8 16.4 8.1 10.1 9.4 5.4
Hua Yang^ Mar 1.14 1.05 22.6 23.7 28.1 (45.9) 4.9 18.7 5.0 4.8 4.1 5.2 5.0 4.0

108
3 April 2017

(x) (x) (%) (%) cap
BUY
n.a. n.a. n.a. 2.1 1.9 1.7 3.6 3.3 3.8 16.9 16.1 16.8 (4.2) (5.5) 0.0 1,030
6.5 9.1 7.5 1.8 1.7 1.5 6.0 7.4 8.9 16.1 18.5 20.5 (0.9) (3.0) (6.4) 2,628
16.1 10.4 12.4 2.4 2.3 2.2 2.6 3.5 3.7 14.2 19.9 21.0 11.8 28.6 44.0 2,239
2.4 2.4 17.8 0.6 0.6 0.5 1.1 5.6 6.4 2.5 9.0 9.7 (3.9) 12.3 16.0 674
28.6 15.4 12.6 2.9 3.6 3.2 0.6 0.5 0.8 9.4 11.7 12.9 3.2 11.5 21.0 7,059
TRADING BUY
6.9 9.5 6.4 0.4 0.4 0.4 1.1 1.1 1.1 (3.1) (3.1) (0.9) 0.7 14.9 19.8 2,687
10.5 6.2 13.3 1.4 1.4 1.4 1.0 1.0 1.0 3.4 3.4 4.2 7.5 39.9 12.4 2,525
NEUTRAL
2.0 0.7 0.6 52.9 31.6 21.5 3.0 1.9 2.2 50.8 126.4 94.6 (1.3) 3.4 6.3 1,862
0.4 0.5 0.5 1.8 1.8 1.7 1.2 1.6 1.6 4.3 5.9 6.4 15.1 (5.4) (12.2) 3,426
n.a. n.a. n.a. 1.2 1.2 1.1 3.7 3.8 4.0 10.7 9.8 10.5 4.3 10.8 2.2 6,253
3.7 13.4 3.8 0.3 0.3 0.3 0.0 0.0 0.0 0.5 3.3 5.5 (17.1) 13.7 (20.5) 268
n.a. n.a. n.a. 0.9 0.9 0.8 3.3 3.5 3.7 8.5 8.1 8.0 6.3 10.7 4.1 14,634
9.0 3.1 6.1 0.6 0.6 0.6 4.1 4.1 4.1 4.1 4.3 4.8 7.0 7.3 (4.9) 720
8.5 4.7 6.4 18.7 87.4 52.2 4.2 4.4 4.4 91.6 150.2 339.9 2.1 5.5 (1.4) 14,878
10.5 5.7 5.6 1.9 1.8 1.7 1.6 2.1 2.4 6.8 8.1 8.6 2.9 8.5 (15.6) 43,053
10.7 9.4 8.6 1.3 1.3 1.3 5.0 5.7 5.9 6.9 7.5 7.9 (0.6) 1.2 7.2 1,795
12.4 11.6 11.2 4.8 4.5 4.3 5.1 6.4 6.5 34.0 35.1 33.6 0.0 (2.0) (14.0) 3,986
20.6 15.9 11.4 4.7 4.6 4.2 7.3 7.3 7.8 21.7 34.9 43.1 0.0 0.0 (3.2) 2,352
n.a. n.a. n.a. 6.2 6.1 6.0 3.7 4.1 4.2 24.5 26.7 26.8 7.7 8.0 6.1 5,095
17.2 15.9 14.9 14.0 14.0 14.0 4.9 5.3 5.8 62.4 73.7 81.3 1.0 4.6 7.5 4,498
n.a. n.a. n.a. 1.1 1.0 1.0 3.3 3.4 3.9 8.3 8.9 9.3 11.0 22.8 17.1 50,918
13.5 13.9 13.6 1.2 1.3 1.3 5.0 5.2 5.3 6.1 6.3 6.5 6.4 9.2 18.4 3,381
8.2 0.9 5.5 0.4 0.4 0.4 3.8 5.1 6.3 7.0 15.5 5.4 (4.8) 3.7 (20.0) 744
28.3 10.9 16.6 77.1 77.1 77.1 4.1 4.1 4.2 275.2 315.5 322.0 1.2 3.2 5.1 40,041
6.7 6.2 6.2 1.0 0.9 0.8 3.5 3.6 4.8 12.2 11.4 10.6 2.6 18.5 (1.8) 583
5.0 5.6 4.3 1.2 1.2 1.2 2.1 2.1 2.4 4.7 3.2 4.1 6.7 16.5 26.5 6,968
4.9 4.3 4.7 1.0 0.9 0.9 4.0 4.1 4.4 9.0 10.4 10.4 7.7 10.5 (6.0) 222
63.1 97.0 63.5 6.7 6.2 5.8 0.5 0.6 0.7 13.0 10.3 11.3 14.8 8.8 16.3 2,573
5.4 5.0 5.6 1.1 1.0 0.9 0.0 0.6 0.6 9.4 6.5 6.6 9.5 26.2 5.8 36,633
14.0 12.0 10.5 1.6 1.5 1.4 3.0 1.3 1.4 14.8 8.2 8.5 3.1 19.2 25.4 32,481
25.8 17.5 19.3 1.9 1.8 1.8 1.8 0.9 1.0 8.3 8.6 7.4 4.6 8.3 5.6 9,131
15.7 36.2 15.5 2.8 2.6 2.3 0.0 0.0 0.0 7.3 8.6 10.1 0.9 32.5 24.4 719
25.8 15.8 11.7 5.2 5.0 4.9 4.7 4.5 5.9 9.1 25.7 32.5 11.2 39.4 (5.6) 1,362
4.9 2.8 3.5 0.5 0.5 0.5 6.3 6.7 6.7 13.4 8.7 8.9 0.0 5.9 (12.2) 524
19.2 18.7 15.4 4.8 4.4 4.4 1.6 2.0 2.2 17.5 19.9 21.2 1.1 1.3 1.5 7,894
37.5 33.8 29.8 1.0 1.0 1.1 6.4 6.0 5.8 6.6 6.9 7.6 (1.2) 4.5 7.9 653
36.1 10.7 17.6 1.3 1.2 1.1 0.0 0.0 0.0 11.2 7.7 14.6 1.6 (4.5) (27.3) 261
7.3 4.4 3.5 0.6 0.5 0.5 4.4 4.4 5.3 12.9 11.5 12.4 (2.6) 6.5 (20.8) 401

109
3 April 2017

(sen) (%) (x) (x)
NEUTRAL
IGB REIT Dec 1.67 1.69 8.1 8.7 9.2 9.2 7.4 5.7 20.6 19.2 18.1 20.4 18.9 18.0
Karex Jun 2.07 2.30 5.5 5.0 7.6 (42.7) (10.2) 52.9 37.4 41.7 27.2 27.5 30.6 20.0
KLCCSG Dec 8.14 8.40 37.4 36.6 38.7 5.2 (2.0) 5.6 21.8 22.2 21.0 16.1 15.2 14.3
KLK Sep 24.76 25.20 104.6 140.6 148.5 28.4 34.5 5.6 23.7 17.6 16.7 16.4 11.0 10.1
Kossan Dec 6.38 6.80 26.7 33.0 40.9 (15.9) 23.6 23.9 23.9 19.3 15.6 13.9 11.5 9.4
KPJ Healthcare Dec 4.02 4.10 15.5 15.1 17.3 21.3 (2.7) 14.6 25.9 26.6 23.2 13.5 13.5 12.0
Magnum Dec 2.12 2.19 13.7 15.8 16.1 (16.8) 15.5 1.6 15.5 13.4 13.2 10.6 10.2 10.1
Mah Sing Dec 1.52 1.57 15.9 14.5 13.4 7.1 (8.9) (7.5) 9.6 10.5 11.4 6.8 7.5 8.2
Malakoff Dec 1.18 1.38 10.0 8.2 9.8 0.1 (18.5) 19.7 11.8 14.4 12.1 6.4 6.7 6.6
MBM Resources Dec 2.43 2.47 23.6 25.8 32.0 34.1 9.1 24.2 10.3 9.4 7.6 8.4 35.6 19.5
MMHE Dec 0.98 0.96 -0.7 1.9 2.5 n.a. n.a. 34.1 n.m. 51.8 38.6 9.2 7.0 5.8
MRCB-Quill REIT Dec 1.27 1.32 9.0 8.1 8.6 (0.5) (9.6) 5.8 14.2 15.7 14.8 18.2 16.3 15.6
MSM Dec 4.49 4.06 17.2 22.5 26.1 (64.6) 31.3 15.9 26.1 19.9 17.2 14.3 10.1 8.6
Nestle Dec 76.82 72.90 271.5 275.9 291.1 7.9 1.6 5.5 28.3 27.8 26.4 19.6 18.6 17.4
NTPM^ Apr 0.85 0.92 5.2 5.6 6.6 0.4 7.4 17.3 16.2 15.1 12.9 9.2 8.7 7.7
OldTown^ Mar 2.68 2.75 12.4 15.3 17.1 23.4 11.7 12.4 17.5 15.7 13.9 10.7 10.5 9.2
Padini Jun 2.90 2.79 20.9 23.1 25.7 71.3 10.5 11.2 13.9 12.6 11.3 7.2 6.7 6.0
Pantech^ Feb 0.54 0.46 5.3 6.6 7.2 (20.0) 24.9 9.6 10.2 8.2 7.5 5.1 6.0 4.8
Pavilion REIT Dec 1.76 1.90 7.8 9.2 9.6 (2.4) 18.2 3.8 22.6 19.1 18.4 22.2 19.8 19.1
Petronas Gas Dec 19.78 21.26 87.9 96.8 104.0 (20.6) 10.1 7.5 22.5 20.4 19.0 13.1 12.2 10.8
Pintaras Jun 3.58 3.50 10.9 24.4 30.5 (66.1) +>100 25.0 32.8 14.7 11.7 12.1 6.1 5.0
Pos Malaysia^ Mar 4.56 3.00 15.8 16.7 17.4 33.4 5.5 3.9 28.8 27.3 26.3 9.5 8.6 8.0
QL Resources^ Mar 4.60 4.33 16.4 18.1 19.6 6.2 10.9 8.1 28.1 25.3 23.4 16.0 14.4 13.3
SHL Consolidated^ Mar 2.84 3.03 32.0 35.7 34.0 (2.8) 11.5 (4.7) 8.9 8.0 8.4 3.8 3.2 3.2
SKP Resources^ Mar 1.32 1.49 9.1 11.8 13.6 38.8 29.7 14.6 14.5 11.1 9.7 10.3 8.1 7.6
SOP Dec 3.61 3.85 21.9 23.9 26.0 25.9 9.4 8.8 16.5 15.1 13.9 7.6 7.4 6.6
Sunway REIT Jun 1.75 1.84 8.9 9.2 9.7 8.2 3.5 5.6 19.7 19.0 18.0 21.5 20.5 19.9
Supermax Jun 2.01 2.24 14.8 18.4 22.5 (37.4) 24.1 22.6 13.6 10.9 8.9 8.5 6.9 5.8
Syarikat Takaful Dec 4.05 4.10 21.7 23.0 25.0 19.1 6.2 8.4 18.7 17.6 16.2 16.3 15.0 13.7
Ta Ann Dec 3.76 3.91 26.9 33.3 30.7 (36.4) 23.9 (7.9) 14.0 11.3 12.2 6.3 5.8 5.7
T Chong Dec 1.82 1.76 (8.4) (2.0) 1.9 n.a. 75.7 n.a. n.m. n.m. 96.4 19.2 17.2 14.0
TASCO Dec 2.00 1.55 14.7 15.6 16.4 6.0 6.1 5.0 13.6 12.8 12.2 6.1 5.7 n.m.
Time dotCom Dec 8.70 8.20 30.7 37.4 48.0 17.5 21.9 28.1 28.3 23.2 18.1 15.8 13.5 11.2
Top Glove Aug 5.20 4.91 28.9 26.0 29.9 (35.9) (10.0) 15.1 18.0 20.0 17.4 13.3 13.3 11.6
TSH Resources Dec 1.82 1.70 6.8 9.6 9.2 (44.9) 42.4 (4.9) 26.9 18.9 19.9 36.2 15.7 16.0
UEM Sunrise Dec 1.24 1.09 3.2 3.2 3.6 (42.8) (2.1) 13.3 38.3 39.2 34.6 38.5 37.6 37.0
UMW Dec 6.10 5.48 (18.3) 22.0 36.8 n.a. n.a. 67.4 n.m. 27.7 16.6 43.0 17.0 13.3
Unisem Dec 3.08 3.46 22.1 25.7 26.6 1.3 16.1 3.7 13.9 12.0 11.6 5.2 5.2 4.9
UOA Dev Dec 2.53 2.58 41.5 20.5 22.7 51.2 (50.4) 10.5 6.1 12.3 11.1 6.6 6.7 5.9
Westports Dec 3.95 4.10 18.7 18.6 19.0 24.5 (0.6) 2.1 21.1 21.3 20.8 12.9 12.0 10.9
WCT Dec 1.88 1.80 8.1 11.5 13.2 15.7 41.7 14.9 23.1 16.3 14.2 38.2 21.5 20.1
WTK Dec 1.00 0.94 4.4 6.9 8.4 (64.3) 55.6 21.8 22.5 14.5 11.9 3.9 2.6 2.1
YTL Power Jun 1.53 1.55 9.7 11.4 11.1 (17.0) 16.9 (2.6) 15.7 13.4 13.8 9.2 8.7 9.8

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(x) (x) (%) (%) Cap
NEUTRAL
16.8 15.5 14.9 1.6 1.6 1.6 5.4 5.9 6.1 7.6 8.1 8.6 1.8 6.4 9.2 5,729
44.2 27.2 22.1 4.3 4.2 3.8 0.8 0.6 0.9 14.7 10.2 14.7 (12.7) (17.2) (18.3) 2,075
16.9 8.2 16.2 1.1 1.1 1.1 4.4 4.4 4.6 8.2 7.0 7.3 4.4 4.2 16.5 14,695
20.4 14.6 11.5 2.5 2.3 2.2 1.8 2.6 2.6 14.9 13.8 13.6 1.1 4.0 2.3 26,431
17.4 10.9 11.0 3.8 3.5 3.1 1.3 1.6 1.9 16.6 18.7 21.0 (2.0) 0.5 (0.2) 4,080
57.7 9.2 12.9 2.7 2.6 2.4 1.7 1.9 2.2 10.8 9.8 10.7 0.5 (3.4) (6.5) 4,276
14.7 13.8 12.8 1.2 1.2 1.2 6.1 6.7 6.8 8.3 9.3 9.3 (3.2) (2.3) (15.2) 3,048
7.8 13.8 6.2 1.1 1.1 1.0 4.3 4.3 3.6 11.3 10.6 9.5 2.0 4.1 7.8 3,783
3.0 2.6 3.4 1.0 1.0 1.0 4.7 5.2 6.2 8.3 6.9 8.0 (9.2) (17.5) (26.3) 5,900
17.8 102.4 4.6 0.6 0.6 0.5 2.5 3.3 3.3 12.1 6.2 7.3 5.2 12.0 10.5 949
-14.6 8.2 13.9 0.6 0.6 0.6 0.0 0.0 0.0 -5.2 1.2 1.6 0.0 11.4 (3.5) 1,560
14.5 16.0 15.1 0.6 1.0 1.0 6.6 6.1 6.4 5.2 6.3 6.7 (3.8) 1.6 15.1 1,356
5.5 6.5 7.9 1.6 1.5 1.5 2.5 3.0 3.5 6.0 7.9 8.8 1.4 (8.2) (3.9) 3,156
10.7 18.0 15.9 27.8 27.6 27.3 3.5 3.6 3.8 93.9 99.5 103.9 1.1 (1.9) 3.4 18,014
1.2 1.0 1.0 2.2 2.0 1.9 3.4 3.6 4.9 13.8 13.9 15.4 (3.4) 1.8 (18.0) 949
4.3 3.5 3.1 3.0 2.8 2.5 3.1 3.5 3.9 13.8 17.5 18.4 36.0 41.8 80.2 1,194
2.5 2.5 2.5 4.1 3.4 3.0 4.0 3.4 4.1 31.4 29.7 28.1 12.4 12.4 45.2 1,908
3.5 9.2 5.8 0.6 0.6 0.5 3.0 3.8 4.2 5.9 7.0 7.4 13.7 17.4 8.2 310
15.7 13.8 15.0 1.4 1.3 1.3 4.7 5.4 5.5 6.1 7.1 7.3 0.0 1.1 (1.1) 5,320
13.3 14.9 13.8 3.3 3.1 3.0 3.4 3.5 3.8 14.9 15.6 16.0 (4.2) (7.0) (11.9) 39,139
23.8 11.6 11.2 1.8 1.7 1.6 5.6 5.3 5.6 5.3 11.9 14.3 1.1 0.0 (0.6) 585
12.6 11.5 10.7 2.2 2.1 2.0 2.1 2.2 2.3 7.4 7.4 7.5 6.8 19.1 48.5 2,449
1.5 1.4 1.3 3.3 3.0 2.8 1.1 1.2 1.3 12.3 12.4 12.3 1.8 7.2 7.7 5,741
16.9 9.7 14.1 0.9 0.9 0.8 7.4 7.4 6.7 10.5 11.1 10.1 (0.4) (0.4) (2.1) 688
3.1 1.3 0.6 4.2 3.5 3.0 3.5 4.5 5.1 31.3 34.4 33.3 (5.0) 1.5 1.5 1,663
4.6 15.1 9.1 1.0 1.0 1.0 1.5 1.4 1.4 8.0 7.1 7.3 (6.5) (2.7) (19.1) 2,058
18.4 16.3 15.3 1.3 1.3 1.3 5.4 5.3 5.6 6.5 6.7 7.1 (1.1) 4.2 12.2 5,125
4.8 4.7 5.2 1.3 1.2 1.1 2.2 2.7 3.4 9.5 11.3 12.9 (2.9) (4.3) (25.3) 1,367
n.a. n.a. n.a. 4.6 3.7 3.2 2.0 2.3 2.4 25.0 23.1 21.2 (0.2) (2.4) (3.1) 3,314
8.5 5.8 6.4 1.3 1.3 1.2 2.9 3.5 3.3 10.1 11.4 9.9 (8.3) (2.8) (10.8) 1,673
(8.3) 46.8 24.1 0.4 0.4 0.4 1.1 1.1 1.1 (1.9) (0.5) 0.4 7.1 2.2 (23.5) 1,188
7.9 7.4 n.m. 1.2 1.1 n.m. 2.2 2.3 n.m. 8.9 8.9 n.m. 11.7 31.6 25.8 400
36.3 22.1 13.0 2.2 2.0 1.9 2.2 1.1 1.4 15.2 9.0 10.7 8.8 12.1 22.8 4,986
14.0 15.7 12.5 3.6 3.2 3.0 2.8 1.6 2.9 21.1 16.9 17.7 1.0 (0.6) (1.1) 6,514
144.8 49.9 11.8 1.6 1.5 1.5 1.1 1.6 1.5 (0.5) 9.8 8.8 (3.7) (0.5) (13.7) 2,449
(8.4) 9.9 27.0 0.8 0.8 0.8 0.0 1.2 1.6 2.2 2.1 2.3 5.1 15.9 12.7 5,646
(47.2) 9.3 9.9 1.5 1.5 1.4 0.0 2.0 2.5 4.0 5.4 8.9 12.8 26.3 (7.0) 7,127
5.8 7.9 6.1 1.6 1.5 1.4 3.6 3.9 4.2 14.5 12.9 12.5 14.1 29.4 37.5 2,260
16.4 10.4 7.2 1.1 1.1 1.1 5.9 5.5 5.9 19.4 9.1 10.2 2.8 10.0 16.6 4,337
14.3 14.3 13.6 6.5 6.3 5.8 3.3 3.5 3.6 32.1 30.0 29.0 (2.7) (8.1) (1.3) 13,470
(14.1) 6.8 16.5 0.8 0.8 0.8 0.0 3.1 3.5 2.5 5.2 5.8 (1.6) 5.6 15.3 2,373
4.6 3.7 3.6 0.4 0.3 0.3 2.5 3.2 3.7 (0.1) 5.4 5.8 (5.2) 1.0 (23.5) 479
4.4 4.2 4.8 0.9 0.9 0.8 0.5 0.6 0.6 6.1 6.7 6.2 2.0 7.0 2.7 11,351

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(sen) (%) (x) (x)
SELL
Affin Dec 2.85 2.50 29.0 30.3 32.6 52.7 4.3 7.5 9.8 9.4 8.8 n.a. n.a. n.a.
BAT Dec 47.90 43.30 236.4 248.5 268.1 (25.8) 5.1 7.9 20.3 19.3 17.9 15.5 14.5 13.4
Bumi Armada Dec 0.74 0.63 (1.5) 4.3 7.0 n.a. n.a. 62.2 n.m. 17.0 10.5 29.2 10.3 8.5
CARiNG Pharm^ May 1.35 1.35 5.3 6.9 6.9 92.0 28.4 0.0 25.3 19.7 19.7 10.7 9.1 n.m.
HL Bank Jun 13.62 12.00 99.8 100.1 105.8 (21.1) 0.3 5.7 13.6 13.6 12.9 n.a. n.a. n.a.
IJM Plantations^ Mar 3.17 2.70 15.6 17.1 18.1 47.0 9.3 5.9 20.3 18.5 17.5 14.3 13.5 13.0
IOI Corp Jun 4.69 4.20 12.2 19.2 18.7 (24.4) 57.4 (3.0) 38.4 24.4 25.1 21.4 15.4 16.1
Lafarge Dec 6.73 5.05 9.0 18.8 22.5 (69.5) +>100 20.0 74.6 35.9 29.9 19.8 13.9 12.4
Maxis Dec 6.33 5.10 26.1 24.7 22.0 0.5 (5.6) (11.0) 24.2 25.7 28.8 12.6 13.0 13.6
Media Prima Dec 1.21 0.90 7.4 8.9 10.3 (40.7) 20.3 15.8 16.3 13.6 11.7 6.3 3.5 3.3
Perisai Pet Dec 0.07 0.16 0.4 0.4 0.8 n.a. (11.1) +>100 16.2 18.2 7.8 17.4 16.2 13.6

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(x) (x) (%) (%) Cap
16 17F 18F 16 17F 18F 16 17F 18F 16 17F 18F 1 Mth 3 Mth 12 Mth (MYRm)
SELL
n.a. n.a. n.a. 0.6 0.6 0.6 3.0 3.3 3.7 6.6 6.6 6.7 12.2 20.8 22.8 5,537
25.0 19.8 18.0 22.3 21.1 19.9 5.8 4.9 5.3 116.4 112.4 114.6 (5.3) 10.1 (12.5) 13,677
1.7 2.1 2.1 0.8 0.7 0.7 0.0 1.5 2.4 (29.2) 4.4 6.8 (2.0) 20.5 (8.1) 4,312
20.4 18.5 n.m. 2.2 2.1 n.m. 2.0 2.5 n.m. 9.0 11.0 n.m. (4.9) 0.0 (28.2) 294
0.0 1137.4 1813.8 1.2 1.3 1.2 3.0 3.0 3.1 10.0 9.9 9.9 1.2 2.7 2.3 29,524
14.0 14.5 13.1 1.7 1.6 1.6 3.6 3.9 3.5 8.4 9.0 9.2 (6.2) (6.8) (14.3) 2,791
21.0 21.5 20.5 4.1 3.9 3.7 1.7 2.1 2.3 9.4 16.7 15.1 1.3 6.8 (5.6) 30,308
74.6 35.9 29.9 1.9 1.9 1.9 0.7 2.4 2.9 2.5 5.2 6.2 2.3 (5.2) (25.1) 5,725
15.3 11.5 13.6 10.1 10.7 10.2 3.2 3.3 3.0 45.2 40.5 36.2 (1.7) 5.5 1.8 47,539
17.4 11.0 8.1 0.9 0.9 0.9 6.6 4.4 5.1 (3.8) 6.7 7.7 14.2 16.3 (16.0) 1,342
1.3 1.3 1.4 0.1 0.1 0.1 0.0 0.0 0.0 0.7 0.6 1.4 (7.1) 30.0 (75.0) 78

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RHB Guide to Investment Ratings
Buy: Share price may exceed 10% over the next 12 months
Trading Buy: Share price may exceed 15% over the next 3 months, however longer-term outlook remains uncertain
Neutral: Share price may fall within the range of +/- 10% over the next 12 months
Take Profit: Target price has been attained. Look to accumulate at lower levels
Sell: Share price may fall by more than 10% over the next 12 months
Not Rated: Stock is not within regular research coverage
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MARKET DATELINE

Malaysia - Strategy 2Q17

exports, quickening GDP expansion, corporate earnings recovery and 17.0

Global growth on a firmer footing. We see the continuation of investor risk

See important disclosures at the end of this report

FBM KLCI From a Technical Perspective 43

Fixed Income Strategy 44

Optimistic start to the year

Taking cues from the US Federal Reserve (US Fed)

First US rate hike for 2017

Figure 3: Top performers & underperformers under our coverage (YTD)

Source: Various Source: International Monetary Fund (IMF)

EM growth is also projected to pick up, given: Stronger EM growth

Global growth on a firmer footing

Figure 7: World merchandise trade

Emerging Asia Imports

Figure 8: Stronger global growth outlook Figure 9: Firmer commodity prices

Source: IMF, RHB Source: Bloomberg, RHB

In the US, Mr Trumps election victory spurs growing optimism

-2 -1.5 -1.2 Business actual Capital Expenditure (LHS)

Source: Bloomberg Source: Bloomberg

EU on the mend, but faces political uncertainty

Source: Bloomberg, RHB Source: Bloomberg, RHB

Trade balance Current account cpi core cpi

Source: Bloomberg Source: Bloomberg

Figure 18: Details of upcoming elections in Europe

Eurosceptic leader Prime Minister Viktor Orban's October referendum on

Source: Various media

Japans recovery slows, but export outlook improves

Growth momentum in China holding up for now

Group of 20 (G20) drops anti-protectionist pledge

A dovish US Fed boosts equities

Figure 23: US Fed dot plot

The outlook for oil

(USD/bbl) 1Q16 2Q16 1H16 3Q16F 4Q16F 2016F 2017F 2018F

Figure 27: Crude oil inventory in the US

Figure 28: Improving demand and supply situation

Oversupply/Deficit (RHS) Demand Supply

Out of bonds into equities

Source: Bank Negara Malaysia (BNM), RHB Source: BNM, RHB

Source: BNM Source: BNM

Thailand : 2,425.4 USDmil Malaysia : 1,291.1

Indonesia Philippines Thailand Malaysia Indonesia Philippines Thailand Malaysia

Source: Bloomberg, RHB Source: Bloomberg, RHB

Figure 35: Foreign ownership on Bursa Malaysia

in units (LHS) in RM (LHS) FBMKLCI index (RHS)

Source: Bursa Malaysia

MYR remains subdued

USDPHP Curncy USDTHB Curncy USDPHP Curncy USDTHB Curncy

Source: Bloomberg, RHB Source: Bloomberg, RHB

Figure 39: DXY Index

Forex reserves stabilise

Rosier domestic growth outlook helped by export recovery

Export recovery to continue in 2017

Figure 42: Malaysia commodity exports Figure 43: Semiconductor sales

150.0 Malaysia's Commodity Exports 60.0

Modest improvement in domestic demand

Figure 46: GDP by expenditure components (at constant 2010 prices)

GDP 4.7 4.5 4.2 4 4.3 4.5 4.2 4.5 4.7

Improving external activities to drive manufacturing output higher in 2017

Indeed, domestic-oriented industries are likely be supported by the resilient consumer-

Figure 49: GDP by industrial origin (at constant 2010 prices)

Higher oil price relieves fiscal pressures