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

RHB Research Institute

RHB Equity 360°

5 March 2010 (Economy, Banks, Market; Technical: Maybank)

Top Story : Interest rates – BNM begins to normalise monetary conditions by raising its key policy rate
Economic Highlights (published 5 Mar 2010)
- As expected, Bank Negara Malaysia’s (BNM) Monetary Policy Committee (MPC) raised the Overnight
Policy Rate (OPR) by 25 basis points to 2.25% on 4 March. This was the first increase in more than a
year, after leaving it unchanged for the seventh time and since February 2009, in a move to normalise
interest rates from the current unprecedented low levels to prevent financial imbalances from building up.
This is especially the case given that the economy has turned around in the 4Q of last year and at a
stronger-than-expected pace, and is expected to improve further in 2010.
- Following a rate hike by the Central Bank today, we believe it will do it again, albeit at a measured pace.
As a result, we expect Bank Negara to raise its OPR by another 25 basis points in July 2010 to 2.5% and
the OPR will likely stay at this level until the end of the year.

Banks : BNM begins normalising interest rate – OPR increased by 25bps Overweight
Sector Update
- OPR raised by 25bps as part of BNM’s efforts to normalise interest rate.
- Banks with higher variable rate loan and high LD ratio would benefit.
- Interest rate sensitivity gap suggest positive impact.
- Banks with high percentage of CASA to total deposits will also benefit.
- EON Cap, AFG, HL Bank and Public Bank (in order of impact) will benefit most while AMMB will be a loser.
- Slightly positive due to the immediate positive impact on NIM and earnings (albeit temporary) while
economic recovery will mitigate potential impact on loan growth and NPLs.
- Maintain Overweight. Top pick is Maybank. We also like CIMB, AMMB and Public Bank for big cap
exposure. AFG, EON Cap and RCE Cap are also rated as Outperform while Affin is Market Perform and
HL Bank is rated Underperform.

Shifting Trends – Higher interest rates

Market Update
- We believe the rising interest rate trend will be seen as negative for highly-geared companies.
Nevertheless, we believe expectations for this rate hike have been priced into equity prices.
- We highlight that most of the companies under our coverage have generally robust balance sheets, with
manageable levels of gearing relative to their industries. Even sectors which are normally capex heavy, e.g
oil & gas and telecoms are estimated to have FY10 net gearing of around 0.3-0.6x and 0.3-0.7x
respectively. Property companies are likely to be on the lookout for new landbank to ensure long-term
earnings growth, but even these are estimated to have FY10 net gearing of 0.1-0.8x.
- We highlight four key exceptions: AirAsia, Puncak Niaga, Kinsteel, and Hiap Teck which are estimated to
have net gearing of above 1x. However, we note that for Kinsteel and Hiap Teck, this is balanced by the
improving steel outlook in terms of product prices and demand.
- While we do not expect significant reaction to this rate hike, we are cognisant of the fact that this is only the
first increase. In any case, we expect subsequent rate hikes to be managed in relation to economic growth
expectations. For now, we expect Malaysia’s GDP to improve by 4.5% in 2010, and potentially to
strengthen further in 2011.

Technical Highlights

Daily Trading Strategy : Continuous buying momentum on the blue chips…

- Yesterday’s tight trading pattern and the slower trading volume of late have pointed out that the underlying
trading sentiment on the broader market has remained lethargic.
- But, in view of the constant buying supports on selective heavyweights, we expect continuous buying
momentum on the key bluechips going forward.
- Although the daily chart pattern suggests a mild pullback is still possible, we expect strong support near the
40-day and 10-day SMAs from 1,273 to 1,276 region.
 - Moreover, the likely crossover of the 10-day and 40-day SMAs in the near term would boost the chart
outlook on the FBM KLCI, and lifted it towards the psychological level of 1,300 and the Jan high of 1,308.52
on renewed bargain hunting supports soon.
- All said, we keep our medium-term uncertainty outlook on the FBM KLCI, until and unless it manages to
remove the medium-term resistance zone from 1,250 – 1,300 region convincingly.
- Except mild trading interests on the banking stocks today, following the announcement of the Central
Bank’s OPR hike yesterday, we believe investors would also focus more on the upcoming US monthly jobs
data due on Friday, to assess the near-term sentiment on the market..

Daily Technical Watch: Maybank – Bargain-hunting activities to return near RM6.86 and the 10-day SMA …
- 10-day SMA: RM6.892
- 40-day SMA: RM6.79
- Support: IS = RM6.86 S1 = RM6.26 S2 = RM5.90
- Resistance: IR = RM7.32 R1 = RM7.70 R2 = RM8.15

Bulletin Board

Co/Sector News Impact Recom

Steel Industry analysts in China believes the rumoured Short term positive, local steel producers with OW
50% hike in 2010 iron ore benchmark high inventory level (including Perwaja and Ann
price struck between the Chinese steel miller and Joo Resources) will experience a margin
global miners looked low and predicted a higher expansion as higher iron ore prices will result in
rise of 65-70% instead, given the soaring spot higher steel prices.
prices and recent comments from mining
companies about the gulf between the
benchmark and the market. (Starbiz)
TNB Reported Jan total demand growth of 13.2% yoy. Positive. For the first five months of FY08/10, the OP, FV =
(TNB) company has averaged total demand growth of RM9.50
5.9% yoy. This compares to our current demand
growth assumption of 3.8% for the year.
Media Prima NSTP has entered into a Sale and Purchase Neutral. NSTP would recognise a one-off gain on OP, FV =
Agreement to dispose off a piece of freehold disposal of around RM4.8m from the disposal. In RM2.23
industrial land measuring 217,807.7 sq ft held addition, the cash raised from the sale has been
under Lot No 64217, Mukim of Damansara, for earmarked by NSTP for working capital
RM15.9m. (Bursa Malaysia) purposes.
AEON Tesco plans to open 5 new stores in 2010 Potentially slight negative impact to AEON as it OP, FV =
including Kulim, Old Klang Road, Melaka, Bukit has malls in Melaka and Bukit Indah, but hard to RM5.85
Indah. (The Star) quantify impact at the moment until there are
more details about the location and size of these
competitors. Nevertheless, we note that the
largest contributor to Aeon’s sales are their
outlets located in the central Klang Valley area
like Mid Valley and 1U, and not in the outskirts or
in the smaller towns.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Metro Kajang Bonus issue on the basis of 1-for-20 17-Mar-10 19-Mar-10
UMS Holdings Final dividend of 4.98% tax exempt 7-Apr-10 23-Apr-10

Going “ex” on 8 Mar

Wijaya Baru Global Fifth interest payment on 7% 5-year ICULS 2007/12 8-Mar-10 17-Mar-10
...For more details, see individual reports attached

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