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PP 7767/09/2010(025354)

15 March 2010

Malaysia Corporate Highlights


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

New Coverage
MARKET DATELINE

15 March 2010

Notion Vtec Share Price


Fair Value
:
:
RM3.09
RM4.59
Moving Up The Value Chain Recom : (Outperform)

Table 1 : Investment Statistics (NOTION; Code: 0083) Bloomberg: NVB MK


Net EPS Net
FYE Revenue Profit EPS Growth PER C.EPS* P/NTA P/CF ROE Gearing GDY
Sep (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (x) (%)
2009 172.6 36.0 25.6 8.5 12.0 - 2.6 8.1 24.0 0.2 1.6
2010f 223.0 51.6 33.4 30.4 9.2 34 2.3 6.5 28.0 0.1 2.1
2011f 295.1 71.0 45.9 37.5 6.7 41 1.8 4.9 30.4 Net Cash 2.9
2012f 384.5 96.6 62.5 36.1 4.9 50 1.4 3.7 32.1 Net Cash 3.9
Main Market Listing / Non-Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ Global Supplier. Notion Vtec Berhad (Notion) supplies high precision Issued Capital (m shares) 154.6
components to the world’s biggest manufacturers such as Western Digital, Market Cap (RMm) 462.1
Seagate, Hitachi, Nikon, and Continental. The company drives on Daily Trading Vol (m shs) 299.5
52wk Price Range (RM) 3.52–0.80
technology-based equipment. The company has 3 main business
Major Shareholders: (%)
segments: 1) hard disk drives (HDD); 2) Camera; and 3) Auto &
Choo Wing Hong 14.2
Industrial.
Nikon 10.0
♦ Strategic partner with the second-largest maker of SLR. Recall that Choo Wing Onn 9.5

Nikon recently acquired 8.98% via a private placement exercise which


raised about RM33.8m. The proceeds will be used for the purchase of CNC FYE Sep FY10 FY11 FY12
machines and working capital for its plant Ayuthaya, Thailand. Notion EPS chg (%) - - -
plans to expand its Thai plant’s floor space of 25K sq ft with the plan to Var to Cons (%) -1.8 +10.7 +20
expand it further to 225K sq ft by end-2010. Accordingly, the company
PE Band Chart
would increase its CNC machines to 500 units (from 100 units currently).

♦ New impetus: Samsung. Notion is expected to produce 2.5’’ base plates PER = 14x
PER = 11x
components extensively with initial production of 100K units per/month PER = 8x
rising sharply to 1m units per/month by June and 2m pieces per/month
by end 2010. Although orders for the higher-margin spindle motor hub
are currently in smaller scale, we expect this to grow significantly in
FY11-12 as Notion steps-up its capability to produce higher-value
components. Management expects Samsung to be a key customer
beginning FY10 given volume loading of 2.5’’ base plates as well as Relative Performance To FBM KLCI

production ramping of higher margin spindle motor hub. We project


Samsung to contribute 10% of its revenue in FY10, rising up to 15% in
FY11 and 20% in FY12. Notion Vtec

♦ Our investment case. We like Notion for the following reasons: 1)


growing demand in the PC & consumer electronics segment; 2) FBM KLCI
partnership & technological enhancement in the entrance of a corporate
shareholder; 3) high earnings & stable margins; and 4) high technical
capabilities.

♦ RM4.59 indicative fair value. We estimate FY10-12 EPS CAGR of


34.6% on good earnings for the next 24 months given the strong demand
outlook for all business segments. We have derived a target PER of 10x
which implies a 29% discount to the peers’ weighted average FY11 PER of
14x as historically the share has been trading at these levels. Therefore, Wong Chin Wai
we estimate a fair value of RM 4.59 based on 10x FY11 EPS. We thus (603) 9280 2158
initiate coverage on Notion with an Outperform recommendation. wong.chin.wai@rhb.com.my

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♦ Background. Notion Vtec (Notion) is an integrated precision engineering specialist and tools maker. The
company has since diversified its production into three main areas; hard disk drive (HDD), digital single-lens
reflex (DSLR) camera and interchangeable lens components, and industrial parts.

♦ Started 15 years ago. Notion began as a family business with four computer numerical control (CNC) machines
and 2K sq ft of floor space, initially to supply automotive & air conditioner sintered parts. The company started
manufacturing HDD components in 1997 and the business took off in 2002 when it was approved as a certified
vendor for Western Digital, in the same year it qualified as a camera component supplier to Canon. In 2006,
Notion started producing DSLR components for Nikon and is now an approved vendor for Nikon and Canon.
Notion was listed on the Mesdaq market in 2005 and later to the Main Market in 2008. Currently, the company is
equipped with 1,100 CNCs with 1,500 employees in two production facilities (Klang and Ayuthaya, Thailand).

Table 2: Subsidiaries
Company Shareholding Principal Activities
%
Notion Venture 100 HDD, camera, consumer electronic & automotive components
Autic Mekki Electrolyses nickel plating
Intech Precision 100 Precision jigs & fixtures, tools & dies, gauges
NV Technology 100 Custom cutting tool, marketing of abrasive products i.e. Polycrystalline Cubic
Boron Nitride (PCBN) inserts
Diaphragm Tech 100 Air chuck assembly system for soft clamping, tool-holders, lathe chucks for use
by CNC machining
Kaiten Precision 90 High precision micro parts
Source: Company

Hard Disk Drive Segment

Outlook

♦ Global HDD shipments to jump 11-12% in 2010-2012. According to Trendfocus, global HDD unit shipments
are expected to reach 771.3m in 2012 (vs. 694.65m in 2009) driven mainly by the growing demand in mobile
computing and consumer electronics (CE).

♦ The demand for 2.5’’HDD is set to be the key driving force in mobile computing. Given stronger sales
for notebooks and mobile computing, we expect demand for smaller form factor 2.5’’ HDD (vs. 3.5’’ HDD for
desktop) to pick up momentum going forward. Trendfocus forecasts the notebook market to reach a CAGR of
21.2% for 2009-2012, which would account for more than three-quarters of PC shipments in three years.

♦ CE industry. With technological advancement and more affordable pricing for HDDs, we understand CE
producers are beginning to roll out TVs and DVD players with memory storage capability. We understand that
unit shipments in 2008 of CE HDD have more than doubled since 2004 and are expected to maintain double-
digit growth in 2011.

Chart 1: Global HDD Unit Shipments (m) Chart 2: Global 2.5'' HDD Shipments (m)

771.3 518.2
694.65
624.81 427.45
540.28 555.6
501.88 345.36
435.45
379.98 267.9
222.97
173.18
122.01
83.65

2005 2006 2007 2008 2009 2010f 2011f 2012f 2005 2006 2007 2008 2009 2010f 2011f 2012f

Source: Trendfocus, various Source: Trendfocus, various

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Table 3: Key Customers for HDD


Company Component
WD, Malaysia & Thailand Disk clamps, spacer rings & anti-disk
Hitachi Global Storage Technologies (HGST) Disk clamps & spacer rings
Panasonic Shikoku Electronics Singapore Co Ltd Optical disk drive components
Samsung Electro Mechanics Co Ltd 2.5’’ baseplate and spindle motor hub
Source: Company

Chart 3: HDD Supplier Market Share

Samsung Others
8% 1%
Seagate
Toshiba
31%
16%

HGST
17%
WD
27%

Source: Trendfocus

♦ A vendor for WD, world’s second largest HDD producer, we highlight that Notion supplies approximately
30% of anti disk, 30% of disk clamps and 17% of spacer rings of Western Digital (WD) requirements. In FY09,
this contributed to 35-40% of total revenue. We highlight that WD achieved record shipments in 4QFY09,
indicating a sustainable growth in 2010. WD’s shipments rose 12.2% qoq to 49.5m units driven by strong
demand for 3.5’’ and 2.5” HDD as well as stronger-than-expected market share gains in the enterprise HDD
segment stemming from stronger IT spending as well as consumer electronics demand. With demand outlook
remaining robust and capacity expected to remain tight till end-2010, WD expects unit shipments to register
strong double-digit growth. As such, the company has raised its 2010 capex guidance to US$650-750m (from
US$650m previously).

♦ Samsung to provide new impetus. Notion is expected to produce 2.5’’ base plates components extensively
with initial production of 100K units per/month rising sharply to 1m units per/month (by June) and 2m pieces
per/month by end-2010 respectively. Although orders for the higher-margin spindle motor hub are currently
smaller scale, we expect this to grow significantly in FY11-12 as Notion steps-up its capability to produce higher-
value components. Management expects Samsung to be a key customer beginning FY10 given volume loading of
2.5’’ base plates as well as production ramping of higher margin spindle motor hub. We project Samsung’s
revenue contribution of 10% to rise to 15% in FY11 and 20% in FY12.

Table 4: Product offering of various vendors

WD HGST Samsung
Desktop 3.5’’
Enterprise 3.5’’
Enterprise 2.5’’
Notebook 2.5’’
Notebook <1.8’’
CE 3.5’’
CE 2.5’’
CE <1.8’’
Source: Trendfocus

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♦ HDD revenue to grow 40% yoy in 2010. We expect the HDD segment to be the main revenue contribution
accounting for 45-47% (vs. 43% and 44% in FY08 and FY09 respectively). We expect FY11-12 revenue growth of
30% and 25% respectively driven mainly by; 1) robust order from Samsung and WD; and 2) stronger global HDD
demand stemming from rising PC and CE sales.

CAMERA SEGMENT

Outlook

♦ Robust growth in SLR & interchangeable lens shipments. According to Camera & Imaging Products
Association (CIPA), while total shipments of digital cameras in 2009 fell by 11.6% yoy mainly due to the decrease
in shipments of standard digital cameras, shipments for the SLR cameras with interchangeable lens recorded an
increase of 2.3% yoy and shipments of interchangeable lenses reached 16.1m units, rising 2.8% yoy. Note that
CIPA forecasts 2010 total shipment of standard digital cameras, SLR cameras, and interchangeable lenses to
increase by 3.0%, 11.1% and 11.2% respectively.

Charts 4 & 5: Global Shipments for Lens & SLR

Interchangable lens for SLR cameras (m units) SLR for Interchangeabl e l ens (m uni ts)
12
19 11
18 10
16 10
16
13 7
5
9
7 4
5 2

2004 2005 2006 2007 2008 2009 2010F 2011F 2004 2005 2006 2007 2008 2009 2010F 2011F

Source: CIPA

Chart 6: Global Market Share: SLR

Pentax Others
Olympus 6%
2%
4%
Sony
8%

Canon
47%

Nikon
33%

Source: Various, CIPA

Table 5: Key Customers for Camera Segment


Company Component
Nikon (Thailand) Co Ltd Camera Barrels, digital camera, & SLR Accessories
Konica Minolta Optical Products (Shanghai) Co Ltd Digital camera components & SLR Accessories
Konica Optical Technologies (Shanghai) Co Ltd Digital camera components & SLR Accessories
Sony Precision Engineering (M) Sdn Bhd Digital camera components & SLR Accessories
Canon Opto (M) Sdn Bhd Digital camera & SLR Accessories
Source: Company

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♦ Strategic partner with the second-largest maker of SLR. Recall that Nikon acquired a 8.98% via a private
placement exercise which raised about RM33.8m. The proceeds will be used for the purchase of CNC machines
and working capital for its plant Ayuthaya, Thailand. Notion plans to expand its Thai plant’s floor space of 25K sq
ft with the plan to expand it further to 225K sq ft by end-2010. Accordingly, the company would increase its CNC
machines to 500 units (from 100 units currently).

♦ Riding on Nikon’s growth. Nikon expects 10% growth of its digital SLR camera sales to be driven mainly by
strong demand from Asia and emerging markets. In the longer term, Nikon expects revenue contribution from
the camera division to grow significantly given stronger-than-expected demand for cameras and growing camera-
related services due to strong demand in emerging markets. While Nikon only currently contributes about 25-
30% of revenue, we expect Notion to further develop its expertise and technical know-how in order to service
Nikon which will further improve production efficiently. We also note that Nikon is in the process of outsourcing
50% of its components, and therefore revenue from Nikon is expected to increase by 35-40% (vs. 30% in FY09).

♦ Additional boost from Canon. In tandem, Canon also forecasts a strong recovery in 2010 with net profit to
double in 2010. The company plans to boost its capacity in Thailand given stronger demand for its digital cameras
in South East Asia. While Canon contributed only 10% of Notion’s revenue in FY09, mainly from its operations in
Malaysia, we believe Notion could also ride on Canon’s Thailand expansion plans going forward. Note that Nikon
has not been given a board seat in Notion, thus mitigating the risk of loss of business from rival camera
manufacturers.

♦ Camera segment to eventually lead revenue growth. We forecast sales for the camera segment to grow by
25%, 37%, and 40% in FY10, FY11, and FY12 respectively given volume loadings from Nikon. Also, we believe
this segment will eventually overtake HDD’s revenue contribution in 2012 due to: 1) higher volume growth for
cameras given volume loadings from Nikon; and 2) camera ASP to remain stable, supported by a growing
proportion of camera barrel lens that are more complex. We highlight that camera margins are significantly
higher than HDD i.e. 45% vs. 30% given higher levels of customisation and value-added services for camera
products.

Auto/Industrial

Table 6: Key Customers for Auto/Industrial


Company Component
JVC (M) Sdn Bhd Video camera & Audio components
PMG (Klang) Sdn Bhd Automotive and air conditioner sintered parts
Eaton Fluid Power Automotive Fluid Systems for Power steering, Air-con &
braking systems
Continental Teves Electronic Braking System components
Source: Company

♦ Producer for EBS. We understand that electronic braking systems (EBS) are gaining popularity in the
automotive industry as technology advancement has reduced overall cost without compensating performance.
Notion manufactures components to JVC, PMG, and Continental for the automotive and industrial segment. This
segment remains the smallest revenue contributor, i.e. 10% of total revenue with the bulk of components
distributed to Continental (representing 20% of Continental’s requirements). We expect strong demand for EBS
given greater adoption of EBS in the mass-market segment (vs. high-end models previously).

♦ Revenue contribution to remain at 10%. While the earnings in this segment are closely tied to the global
auto industry outlook, medium-term earnings growth remains bright as Notion is on the verge of securing
sizeable contracts from TRW (the world’s second-largest producer of auto safe components) and Valeo.

Other significant points

♦ Capex. The company plans to spend more than RM100m of capex for FY10-12 of which RM77m would be for its
Malaysian expansion and the balance for its Thailand operations. Management is also looking at a third factory of
about 150K sq ft of floor space which is expected to be in operation by 2H2010. In addition, there are plans for
further expansion into Southern China to service Samsung’s strong orders as early as 2011.

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♦ Risks. We believe the company faces a number of risks, which include:

• Fluctuations in the price of raw material. In general, rising aluminium price pose a threat to HDD
fabrication margins given the significant amount of aluminium alloy used for HDD components. According to
management, aluminium costs account for 16% of total costs. Nevertheless, this is partly mitigated by
Notion’s effective cost-cutting measures and roll-out of higher-margin products. We estimate that a 10% hike
of price of aluminium would reduce Notion’s earnings by 7-8%.

• Threat of solid state drives (SSD). SSD is said to be the future of data storage with new CE such as tablet
PCs and smart phones, especially for smaller form factor devices. However, we do not believe SSD will
overtake HDD for products where size is not the determining factor given the still huge price differentiation.
Note that the premium per GB of SSD computing applications is 15-20x the cost per GB of HDDs in 2009.

• Foreign exchange fluctuations. Notion’s revenue is mostly denominated in US$. The main raw material in
the manufacture of HDD components and camera barrels is aluminium. We estimate 1% appreciation of RM
against US$ would reduce Notion’s earnings by 2%.

• Competition to intensify. We expect competition in the HDD component industry to increase as producers
expand market share within HDD vendors. However, unlike other pure HDD component manufacturers, 45%
of Notion’s revenue is derived from the camera business.

♦ The tool maker. An important aspect we like about Notion is the in-house cutting tools R&D. Notion puts
emphasis to develop its own cutting tools, ultimately to reduce the machinery costs vs. purchasing expensive tool
and die sets. Furthermore, we believe the in-house capability contributes to shorter turnaround time for new
products vis-à-vis its competitors.

♦ Dividend policy. Notion has not indicated any dividend policy but it is likely to maintain its minimum 20%
payout of net profits. We forecast FY10-12 dividend payment of 20% as dividend payout would be capped by high
capex spending for the next three years.

♦ Potential acquisition target. Notion has a healthy balance sheet giving rise to the possibility of M&A
opportunities and business tie-ups for further expansion and development. In addition, given its expertise in the
production of camera components, we believe Notion may be a potential acquisition target by highly concentrated
and large industry players that are seeking to diversify their earnings base.

Earnings Assumptions

♦ Forecasts. We estimate net profit to grow by 34-37% p.a. in FY10, FY11, and FY12 respectively driven mainly
by: 1) stronger demand in the 2.5’’ HDD segment particularly the robust orders from Samsung; and 2) stronger
contribution from its camera division given volume loading from Nikon. We expect FY10-12 EBITDA margins of
around 37% p.a. supported by 1) stronger contribution of higher-margin camera segment; 2) continuous stable
HDD ASP; and 3) cost-cutting measures via efficient in-house tooling capability. Furthermore, we highlight the
potential upside to our FY11-12 earnings driven mainly by; 1) higher-than-expected sales of higher margin
spindle motor and camera barrels; and 2) stronger contribution from its Thailand operations stemming from
expansion of WD and HGST in Thailand.

♦ Valuations. We estimate FY10-12 EPS CAGR of 34.6% on good earnings for the next 24 months given the strong
demand outlook for all business segments. We have derived a target PER of 10x which implies a 29% discount to
the peers’ weighted average FY11 PER of 14x as historically the share has been trading at these levels. Therefore,
we estimate a fair value of RM 4.59 based on 10x FY11 EPS. We thus initiate coverage on Notion with an
Outperform recommendation.

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Table 7: Peers Comparison

Company Bloomberg ticker Market Cap FY11 PER

(US$) (x)

Adampak Ltd AMPK SP 49.2 5.3

Broadway Industrial BWAY SP 132.0 4.4

CalComp Electronics CCET TB 334.1 5.8

Cheung Who Tech CWM SP 52.4 5.3

ENG Teknologi ENG MK 99.4 4.2

Innovalues Ltd IP SP 34.3 7.1

Minebea Co 6479 JP 2352.5 18.3


Market cap-weighted
average 3053.8 14

Source: RHBRI, Bloomberg

Table 8. Earnings Forecasts Table 9. Forecast Assumptions


FYE Sep (RMm) FY09 FY10F FY11F FY12F FYE Sep FY10F FY11F FY12F
HDD 76.0 106.4 143.7 179.6 Revenue growth (%) 29.2 33.2 30.4
Camera 78.9 98.6 133.1 186.4 HDD 40.0 35 25
Others 17.7 18.0 18.2 18.5 Camera 25.0 37 40
Turnover 172.6 223.0 295.1 384.5 Auto/others 1.5 2 2

Cost of sales (112.4) (141.1) (186.4) (241.2) Gross profit margin (%) 36.7 36.9 37.3
HDD 30.0 30.0 30.0
EBITDA 64.3 86.5 114.3 150.3 Camera 45.0 45.0 45.0
EBITDA margin (%) 37.2 38.8 38.7 39.1 Auto/others 31.0 31.0 30.0

Depreciation (18.2) (22.2) (26.9) (32.7) RM:US$ exchange rate 3.30 3.25 3.20

EBIT 46.1 64.4 87.3 117.6


EBIT margin (%) 26.7 28.9 29.6 30.6

Interest income 0.2 0.4 0.7 1.2


Interest expense (3.6) (2.4) (2.6) (2.9)
Others income/exp 0.0 0.0 0.0 0.0
Exceptionals 0.0 0.0 0.0 0.0

Pretax profit 43.0 61.4 84.4 114.9


Taxation (7.0) (9.8) (13.5) (18.4)
Minority interest 0.1 0.1 0.1 0.1

Net profit 36.0 51.6 71.0 96.6


Source: Company data, RHBRI estimates

Appendix

Description of products

Table 10: HDD Segment


Components: Description:
HDD disk clamps A clamping component to hold the media platter and disk spacer rings in place
on the motor hub
Anti disk It is a stationary disc separator plate to suppress turbulence near a disk drive
Spacer rings A spacer between platters to control the disk-to disk of the dick stack in the
HDD
Spindle motor hub The spindle motor provides the hub for attachment of the media, spacers, and
disk clamp as well as the armature and bearings to spin the media under the
sliders at high rotational speeds
HDD 2.5’’ base plates* Provides the frame for the HDD

Table 11:Camera Segment


Component: Description:
Camera Cam Barrel Cam barrel is a the zoom component in cameras to change the focal length of
its lenses
Digital Camera Body Lens Ring An external component used for reinforcing the lens hole and provides
aesthetic value
Camera parts - Kolo pins are internal zoom lens guide mechanism
- Kolo Pins - Lens locking ring is used to lock the lens of the camera
- Lens Locking Ring

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Table 12: Auto/Industrial


Component: Description:
Compressor bearings Internal components for air conditioners
Automotive components Engine components such as gears, couplings

Table 13: Global HDD Unit Shipments, by Form Factor (M)

2007 2008 2009 2010F 2011F 2012F CAGR

3.5'' 306.98 298.05 276.95 272.06 261.55 248.4 -0.90%

% 7.8% -2.9% -7.1% -1.8% -3.9% -5%

2.5'' 173.18 222.97 267.9 345.36 427.45 518.2 29.80%

% 41.9% 28.8% 20.2% 28.9% 23.8% 21.2%

<1.8'' 21.72 19.26 10.75 7.39 5.65 4.7 23.70%

% -23.9% -11.3% -44.2% -31.3% -23.5 -16.8%

Total 501.88 540.28 555.6 624.81 694.65 771.3 10.60%

% 15.3% 7.7% 2.8% 12.5% 11.2% 11%

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Image of Products:

Picture 1: Camera barrels

Picture 2: Base plates and Spindle motor

Picture 3: Anti-disk

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Picture 4: Interior of the HDD

Picture 5: EBS valve

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Chart 7: Notion Technical View Point


♦ After staging a mild consolidation just above the
RM1.80 resistance-turn-support level in Sep 2009,
the share price of Notion kicked off a steadily sharp
uptrend in early Oct 2009.

♦ Thereafter, it sustained its uptrend by trading


constantly at above the UTL.

♦ In a correction move in Jan 2010, after failing its


attempt to remove the RM3.50 strong resistance
level, it rebounded slightly from the UTL, and
ended last Friday at RM3.09.

♦ Registered with negative candles in late last week,


added to the negative momentum readings, the
stock could see further weakness in the near term.

♦ However, armed with the firm UTL near RM2.95, it


could form a base at between RM2.95 and RM3.11
in the near term before regaining its previous
upward momentum. A firmer support is at RM2.75.

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.

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