Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

22 September 2010 (Market, Dayang, HSL, Glomac; Technical: Kencana)

Top Story : Government Measures – Transforming the economy

Market Update
- While we were impressed by Datuk Seri Idris Jala’s energy, and would like to share his optimism, after five
economic corridors and three years with nothing much to show, we believe the ETP implementation will be
an equally hard trek.
- The 133 initial entry point projects (EPPs) identified for the 12 National Key Economic Areas (NKEAs) are a
mix bag of large projects and smaller initiatives. Other projects are expected to follow. Some are more
certain in terms of timeline, while others remain largely at conceptual stage.
- The NKEAs and EPPs are in some parts interlinked. For example, education initiatives are being drawn up
hand-in-hand with the electrical & electronics, palm oil, and oil & gas industries, in order to reduce the
dependence on foreign labour, and to move these industries up the value chain. Broadly therefore, the
success of the ETP could depend on the implementation of certain NKEAs.
- In our view, the Greater KL NKEA holds great potential as an enabler for the construction and housing
sector, but it is also cross-linked to other NKEAs such as financial services, tourism, and education.
Conceptually the plan is sound, and is ready to go in our view, but the execution risk from political and
social perspectives is relatively high.
- PEMANDU has its work cut out to implement as well as secure the buy-in from the private sector (excluding
the GLCs) which will provide 53% of the funding. Nevertheless, investors are starved for good news and
therefore, the ETP will likely continue to provide news flow for the market and certain key stocks.

Corporate Highlights

Dayang : In an industry sweet spot Outperform

New Coverage
- Miri-based Dayang Enterprise has been in the oil and gas services since 1980. It currently provides
maintenance services, minor fabrication operations and offshore hook-up and commissioning. The
company’s latest foray is into the charter of marine vessels via: 1) charter of one of its workboats to Brunei
Shell; and 2) purchase of 40% stake in Borcos.
- Investment case. 1) Premium net margins of above 20%; 2) Few notable competitors improve Dayang’s
chances of winning contracts; 3) Earnings lift from Borcos venture as the industry improves going forward
to FY11; and 4) Potential regional expansion, to countries like Brunei.
- We forecast EBIT margins of 26% for the topside-maintenance division and 23% for marine charter, which
would lead to FY10-12 EBIT earnings of RM63.6m, RM79.4m and RM89.8m respectively. For Borcos we
are conservative and forecast FY10-12 net earnings to be RM20-45m respectively which will result in RM8-
18m associate contributions for Dayang.
- We value Dayang Enterprise at RM2.61/share based on FY11 PER of 13x (inline with the target PER for
Kencana Petroleum and Sapuracrest Petroleum). Our fair value estimate implies a 26.6% upside to the
stock’s current share price of RM2.06.

HSL : Lands RM99m Gedong-Simunjan road project Outperform

News Update
- HSL has been awarded a RM98.7m construction contract for the Gedong-Simunjan Road in Samarahan,
Kuching.
- The latest contract has boosted its YTD new orderbook secured to RM444m and its outstanding
construction orderbook to RM1.32bn.
- Assuming an EBIT margin of 12-15%, the contract would fetch RM11.8-14.8m EBIT over the construction
period ending Mar 2013.
- No change to our forecasts that assume HSL to secure RM600m worth of new contracts p.a. in FY10-12.
- Fair value is RM1.95. Maintain Outperform.

Glomac : Exceeded expectations again Outperform

1QFY11 Results/Briefing Note
- Glomac’s 1QFY11 net profit of RM15.6m (+87% yoy; +25% qoq) beat our expectations and consensus by
36-38%, on an annualised basis. Stronger earnings were mainly due to the full swing of Glomac Tower, in
addition to the faster progress of newer projects – Glomac Damansara and Glomac Cyberjaya.
- Unbilled sales remained strong at RM585m (vs RM588m in the previous quarter). Main contributors are
Glomac Tower, Glomac Damansara, Glomac Cyberjaya and Bandar Saujana Utama.
- A total of RM521m worth of new properties will be put into the market in FY11. The impending one will be
Glomac Damansara service apartments, with an indicative pricing of about RM600 psf. To-date, about
3,000 interested potential buyers have registered. Other projects include Bandar Saujana Utama and
Saujana Rawang. Beyond FY11, there is still RM2bn worth of properties in the pipeline.
- In view of stronger-than-expected earnings as well as better guidance from the management, we revise our
FY11-13 net profit by 25-30%, after fine-tuning our margin assumptions and timeline for property launches.
- Following our adjustments, our RNAV/share estimate is revised to RM2.46. Based on an unchanged
discount rate of 30%, our indicative fair value is raised to RM1.72 (from RM1.56). Maintain Outperform.

Technical Highlights

Daily Trading Strategy : Rotational interests on the mid-caps and lower liners to pick up…
- In line with our expectation, the local market made a new attempt to refresh its rally by rechallenging last
Friday’s high of 1,479.59 yesterday.
- Though it failed in its attempt to surpass the recent high, we are optimistic that 1,479.59 will be taken out as
soon as today amid improving market confidence and robust trading volume of late.
- Breaking Friday’s high will enhance our bullish short-term outlook on the FBM KLCI and lift it over to cover
the technical gap at 1,490.50 - 1,497.64, before challenging the all-time high level of 1,524.69.
- Given the increased participation from the retailers, we expect rotational interests on the mid-caps and
lower liners to pick up in sessions ahead.
- This uptrend will be supported by the 10-day SMA of 1,456 and the breakout point at 1,450.

Daily Technical Watch: Kencana Petroleum – Revisiting the RM1.72 tough hurdle soon…
- 10-day SMA: RM1.598
- 40-day SMA: RM1.542
- Support: IS = RM1.50 S1 = RM1.23 S2 = RM1.05
- Resistance: IR = RM1.72 R1 = RM1.90

Bulletin Board

Co/Sector News Impact Recom

Banking According to the Prime Minister, the government will This would help ease fears that loan growth ahead OW
not introduce measures to make it difficult for first could be crimped by tighter lending conditions for
and second time house buyers, i.e. these buyers mortgages, a key driver for loan growth. As at end-
would still be able to borrow up to 90%. However, Jul ’10, system-wide loan growth rose 11.9% yoy
the government will monitor signs of speculative with loans for the purchase of residential property up
buying in the property market. (Business Times) 12% yoy.
Oil and Gas MMHE is expected to be listed end-Oct with an Positive. Based on the expected market cap N
indicative IPO price of RM3.80. It said it expected expected from the IPO exercise, no. of shares
to receive gross proceeds of between RM1.04bn outstanding could be around 1.6bn. This
and RM1.16bn if the offer shares were sold at translates to the IPO shares being priced at a
IPO price. The proceeds will be mainly utilised for PER around 20-22x based on the company’s
capital expenditure and working capital. Based FY10 net profit of RM279.2m. This would be a
on the IPO price MMHE’s total market significant premium to our sector benchmark of
capitalisation is expected to be RM6.08bn upon 13x. However, a higher valuation may be justified
the proposal. (The Star) due to the company’s position as the premier
fabrication yard in Malaysia. Moreover it is a
subsidiary of Petronas, which will likely mean that
it will get first look at any future contracts. We
await more details at the IPO launch on 6 Oct.
 Property During the ETP yesterday, the PM said that We think this measure would make more sense, as OW
authorities may tighten rules on housing loans for first time home buyers should be exempted from
more than two properties. There is no intention of lower LTV ratio, in our view. However, whether the
reducing the loan-to-value (LTV) ratio to first and limit will also be imposed for properties above
second time buyers, but for third and fourth home certain price was not mentioned. As the exemption
buyers (for speculative reasons), a limit will be is likely to be up to second home, the impact on the
imposed by Bank Negara. (StarBiz) property sector would not be significant, as the
fundamental demand for properties will still be
continued to be supported by growing young
demographic in Malaysia, who are mostly genuine
buyers. We expect more detailed measures to be
announced in the upcoming 2011 Budget.
Genting Post-audit, Genting Malaysia has announced that Neutral, as this has no impact to the total MP, FV =
Malaysia the net debt in Genting UK as at 20 June was enterprise value of the acquisition of RM3.25
lower at GBP74.4m (not GBP85.9m as originally GBP425.9m.
disclosed). As such, Genting Msia’s purchaser
price has been revised up accordingly from
GBP340m to GBP351.5m to reflect the
difference. (Bursa)

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
MISC Entitlement to IPO 1-Oct-10 -
Aeon Credit Services Interim dividend of 11.50 sen less 25% tax 1-Oct-10 20-Oct-10

Going “ex” on 23 Sep

Fitters Diversified Bonus issue on the basis of 1-for-2 23-Sep-10 -
Fitters Diversified Bonus issue of new warrants on basis of 1 warrant-for-2 23-Sep-10 -
IOI Corporation Second interim single tier dividend of 10 sen 23-Sep-10 7-Oct-10
Nationwide Express Courier Final dividend of 4.0% less 25% tax 23-Sep-10 25-Oct-10
Padiberas Nasional Interim dividend of 12% less 25% tax 23-Sep-10 26-Oct-10

...For more details, see individual reports attached

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers
Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are
subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as
an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall
give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this
report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The
appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for
any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the
ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors
should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s
previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of
the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor
client feedback, stock picking, competitive factors and firm revenues.

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

Stock Ratings

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

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

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

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

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

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

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made
available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.