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

RHB Research Institute

RHB Equity 360°

16 April 2010 (Rubber gloves, Banks, Public Bank; Technical: Berjaya Corp)

Top Story : Rubber Gloves – Still positive on glove manufacturers Overweight

Sector Update
Top Glove : Fair value at RM15.50 Outperform
Kossan : Fair value at RM10.74 Outperform
Adventa : Fair value at RM4.34 Outperform
Hartalega : Fair value at RM7.93 Market Perform (up from UP)
- Despite yesterday’s pullback, YTD share prices of the glove manufacturers are still up 9.2-46.8% compared
to 4.9% for the FBM KLCI and 5.8% for the FBM100. We believe the pullback was largely over concerns
such as escalating raw material prices (e.g. latex) and the weakening US$ (against RM).
- While such concerns are valid, we believe glove manufacturers would be able to pass on the higher raw
material prices and weaker US$ against RM to their customers, leaving growth prospects relatively intact.
- We expect demand to remain strong given that gloves are the most basic and affordable form of protection
against viruses in the healthcare industry and coupled with rising awareness in healthcare standards for
highly-populated countries (e.g. China and India), should help boost demand for medical gloves.
- No change to our earnings forecasts for now.
- We continue to like Top Glove (FV = RM15.50) for its position as world’s largest glove producer and
Kossan (FV = RM10.74), which is currently trading at CY10 PER of 9.5x. This, in our view, is undemanding
given that Kossan’s FY09-12 net profit CAGR is 13.1%.
- We have retained our Overweight stance on the sector as demand prospects for medical gloves remain
favourable. We maintain our Outperform call on Top Glove, Kossan and Adventa. We upgraded our call on
Hartalega to Market Perform from underperform previously as the recent correction in share price means
that valuations are now not overly stretched.

Economic Highlights

MIER : Business conditions and consumer sentiment improved, in line with brighter economic prospects
Economic Highlights (published 16 Apr 2010)
- The Malaysian Institute of Economic Research’s (MIER) business conditions and consumer sentiment
indices improved in 1Q 2010, suggesting that businesses and consumers are feeling more upbeat as
economic prospects improve.

Sector Call

Banks : Affin entering into the fray for EON Cap? Overweight
Sector update
EON Cap : Fair value at RM8.07 Outperform
HL Bank : Fair value at RM9.05 Market Perform
Affin : Fair value at RM3.03 Market Perform (down from OP)
- According to the Financial Daily, Affin is believed to have submitted a rival bid for EON Cap. While the daily
did not mention the offer price, the offer was believed to be higher than HL Bank’s offer (of RM5.06bn,
cash) and includes a share equity element.
- A key question to this deal, in our view, is whether Affin’s financials would be able to digest the acquisition.
Just assuming Affin matches HL Bank’s cash offer, we estimate that Affin’s Tier-1 capital ratio could fall to
3% from 12%. In order to boost this up to, say 8%, Affin may need to raise as much as RM3bn in terms of
Tier-1 capital.
- Apart from that, under the terms of HL Bank’s revised offer, HL Bank has the right to withdraw the offer if
EON Cap enters into M&A talks with other parties. In addition, the revised offer also includes an additional
exclusivity clause whereby EON Cap can only negotiate solely with HL Bank. Thus, it is unclear at this
stage whether EON Cap’s Board would be able to consider Affin’s offer and HL Bank’s reaction to the latest
development.
- The latest development could raise further uncertainties as to the HL Bank-EON Cap deal and whether a
bidding war would emerge for EON Cap. EON Cap’s shareholders would stand to benefit from such an
event and hence, no change to our fair value of RM8.07 and Outperform call. As for HL Bank, we believe it
has the balance sheet strength to raise its offer further should a bidding war erupt. No change to our fair
value of RM9.05 and Market Perform call on the stock for now. As for Affin, its strong share price
performance means that there is now limited upside to our fair value. Coupled with potential uncertainties if
today’s news is accurate (e.g. sizeable equity injection required), we downgrade the stock to Market
Perform from Outperform (FV=RM3.03).

Corporate Highlights

Public Bank : Starting off on strong footing Outperform

1QFY10 Results
- Public Bank’s 1QFY10 results were within our and consensus expectations with 1Q10 net profit of
RM685.3m (+1% qoq; +16.3% yoy) making up 23.7-23.9% of our and consensus full-year estimates.
- Annualised loans growth stood at 14% and is on track to meet management’s targeted 14-15% growth and
is in line with our FY10 growth assumption of 14%.
- Asset quality remains largely intact and superior to peers. Capital ratios also improved yoy but, more
importantly, new impaired loans formation in 1Q improved further as the Group’s overseas impaired loans
showed improvement.
- No change to our earnings forecasts.
- Fair value of RM13.12 (based on target FY10 PER of 16x) and Outperform call on the stock maintained.

Technical Highlights

Daily Trading Strategy : Expect more cautious sentiment ahead…

- Although yesterday’s late push-up managed to lift the FBM KLCI back above the 10-day SMA and pushed
the daily turnover above the 1.0bn share mark, we remain unconvinced that the efforts can win back the
much-needed buying support and refresh the current lukewarm sentiment.
- The overall market sentiment will stay sluggish with negative market breadth going forward, in the absence
of fresh buying leads. In other words, this indicates more investors will adopt a more cautious approach for
the market’s near-term trading strategy.
- Technically, the FBM KLCI must first sustain above the critical 10-day SMA of 1,338, before it can gear-up
to rechallenge the recent high of 1,347.61. Only by removing this hurdle can it win back the buying
momentum, in our view.
- Failure to defend above the 10-day SMA will signal a fresh consolidation phase ahead, with potential
downside towards the 40-day SMA of 1,309, the 2.6-pts technical gap near 1,305 and the psychological
level at 1,300.

Daily Technical Watch: Berjaya Corp – Losing RM1.78 and the 10-day SMA will trigger a correction phase …
- 10-day SMA: RM1.771
- 40-day SMA: RM1.522
- Support: IS = RM1.78 S1 = RM1.55 S2 = RM1.33
- Resistance: IR = RM1.98 R1 = RM2.19 R2 = RM2.59

Bulletin Board

Co/Sector News Impact Recom

Insurance ISM Insurance Services Malaysia expects 2010 Neutral. We believe the market is waiting for OW
premium growth of between 9.0% and 11.0% for news on de-tariff of the motor insurance pricing
general insurance and takaful. (Bernama) structure, which is expected around mid-2010.
TNB President/CEO, Datuk Seri Che Khalib’s contract Positive and ensures continuity in the OP, FV =
 has been extended by one more year to 30 Jun management of the company at a critical time as RM9.50
2011. (Bursa) decisions are being made on the electricity tariff.
Kencana KWAP has emerged as a substantial shareholder We understand from management that Mr. OP, FV =
after it acquired a 5.6% stake in the company. Chong Hin Loon has pared down his stake to 5% RM1.88
(Bursa) (vs. 11% previously) since early-April. According
to management, Mr.Chong is still actively running
the operation in Kencana HL
Kencana The company announced that it had secured a 1 We understand that the 8k AHTS will be OP, FV =
+ 1 contract worth RM33m to provide offshore deployed for the contract. No change to our RM1.88
support vessel in Vietnam. (Bursa) forecasts as we have already assumed RM1-
1.3bn new orders p.a. flowing in over the next 24
months to replenish existing one.
UMW UMW has revised up its Toyota Vios FY10 unit Positive. This is slightly more than the 30,120 units OP, FV =
sales projection Toyota to 32.4k units (vs. 29k that we have forecast. Nevertheless, we believe this RM7.52
previously) given stronger demand for its face-lift is achievable given the pent-up demand as well as
model since early 2010. Note that UMW sold 7,600 the popularity of Vios in the passenger car segment.
units of Vios in 1Q10 and has 2,600 confirmed
bookings for the new Vios. (Financial Daily).

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Gamuda Renounceable rights issue of warrants 28-Apr-10 -
Hai-O Enterprise Second interim dividend of 4 sen less 25% tax 28-Apr-10 20-May-10
Brite-Tech Final single tier dividend of 0.48 sen 21-May-10 8-Jun-10
Rock Chemical First and final dividend of 7 sen less 25% tax 2-Jun-10 16-Jun-10
Century Logistics Single tier final dividend of 4 sen 2-Jun-10 18-Jun-10
Mega First Corp Final dividend of 5 sen less 25% tax 28-Jun-10 15-Jul-10

Going “ex” on 19 Apr

Digistar Corporation Share dividend on 1-for-20 basis 19-Apr-10 -
Digistar Corporation Interim dividend of 1 sen less 25% tax 19-Apr-10 4-May-10
British American Tobacco Final dividend of 62 sen tax exempt 19-Apr-10 7-May-10

...For more details, see individual reports attached

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Stock Ratings

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Industry/Sector Ratings

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