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

RHB Research Institute

RHB Equity 360°

26 April 2010 (Fajarbaru, Construction, HL Bank, Genting Malaysia, Notion Vtec; Technical: CMS, MPI)

Top Story : Fajarbaru – 9MFY06/10 results to beat our expectation Outperform

Results Preview
- We expect Fajarbaru’s 9MFY06/10 net profit to come in above our expectation driven largely by higher-
than-expected margins from key on-going construction projects.
- However, it appears that Fajarbaru is unlikely to meet our FY06/10 new orderbook target of RM400m. So
far in FY06/10, Fajarbaru has only managed to secure RM70m.
- We are raising FY06/10 net profit forecast by 9% largely to reflect a higher blended margin of 15% vis-à-vis
11.3% previously. However, FY06/11-12 net profit forecasts are cut by 11-13% largely to reflect the impact
of the shortfall in new contracts secured in FY06/10.
- Fair value is trimmed slightly from RM1.35 to RM1.31. Maintain Outperform.

Economic Highlights

CPI : Inflation rate inched up marginally to +1.3% yoy in March

Economic Highlights (published 23 Apr 2010)
- The headline inflation rate inched up slightly to 1.3% yoy in March, from +1.2% in February. This was the
fourth consecutive month of increase but it has been hovering around 1.2-1.3% in the 1Q, indicating that
price pressure remained not strong, as traders might have difficulties raising prices due to keen
competition. Stronger growth was due to a pick-up in food & non-alcohol beverage prices, while the core
inflation rate remained stable during the month.
- Going forward, inflation will likely increase at a faster pace and we expect it to trend up to 2.0% in 2010,
from +0.6% in 2009, in line with a pick-up in domestic demand and the Government’s move to gradually
remove some of its subsidies.
- Given Malaysia is already ahead of the curve, we believe Bank Negara will not be in a hurry to increase
interest rates further. Future rate hikes will likely occur at a measured pace. As a result, we expect the
Central Bank to pause in May’s meeting but will likely raise the overnight policy rate (OPR) by another 25
basis points to 2.5% in July. Thereafter, the OPR will likely stay at this level for the rest of this year.

Sector Call

Construction : Twelve bidders shortlisted for Langat 2? Neutral

Sector Update
- Business Times, quoting “a source familiar with the plan”, reported that PAAB has shortlised 12 bidders for
the Langat 2 water treatment plant, from 30 bidders originally.
- The 12 shortlisted bidders may include Gamuda-Biwater International, MMC-Salcon, Loh & Loh-UEM,
WCT-Sinohydro, Gent Kent, Taliworks, Puncak Niaga, IJM and Kumpulan Perangsang Selangor.
- It was reported that PAAB will call for the tender in May/June 2010.
- Maintain Neutral.

Corporate Highlights

Hong Leong Bank : Proposing capital raising exercise of up to RM3.4bn Market Perform
News Update
- HL Bank announced details on the proposed acquisition of the entire assets and liabilities of EON Cap for
RM5.06bn. This is essentially the same as the revised offer HL Bank made on 1 Apr 2010.
- HL Bank also announced two capital raising exercises, i.e.: 1) a renounceable rights issue to raise gross
proceeds of up to RM1.6bn; and 2) issuance of up to RM1.8bn of capital qualifying securities.
- Assuming the maximum amount is raised from the capital raising exercise, we estimate this would bring HL
Bank’s Tier-1 and RWCAR ratios back up to 11% and 13%, from 6.3% and 8.3% respectively after the
 Proposed Acquisition.
- Based on the last closing price and assuming the rights shares are priced at a 30-40% discount to the
theoretical ex-rights price, we estimate the above proposals could enhance HL Bank’s FY11-12 EPS by
5.5-12%. As for the impact on ROAE, our analysis suggests a potential dilution of up to 160bps.
- The Proposed Acquisition is expected to be completed by 4QFY06/10 while the Proposed Rights Issue is
expected to be completed by 1QFY06/11.
- No change to our fair value of RM9.05 (target CY10 PER of 16x) and Market Perform call.

Genting Malaysia : Another MGM Notes investment of US$48m Market Perform

News Update
- Genting Malaysia has subscribed to US$48m (RM153.4m) of MGM Mirage’s new US$1.15bn 4.25%
convertible senior notes due 2015. The Notes will pay interest semi-annually at a rate of 4.25% p.a. and
are convertible at an initial conversion price of approximately US$18.58/share of MGM and a conversion
premium of approximately 27.5% based on MGM’s last closing price on the NYSE on 15 April of US$14.57.
- This is GM’s fourth investment in US gaming bonds which will entitle GM to 2.58m shares of MGM (or
0.59% stake) if fully converted. We believe this investment indicates that GM is still unable to find any
regional expansion opportunities which would be earnings-accretive and therefore generate excitement for
the stock, although these investments would provide better returns than current fixed deposit rates for its
RM5.3bn net cash hoard.
- No change to our forecasts. We maintain our SOP-based fair value of RM2.90, applying an unchanged
15% holding company discount to GM’s SOP, taking into account the weak investor sentiment due to the
perceived cannibalisation caused by the Singaporean IR’s, the corporate governance risk and the lack of
additional capital management from its abundant cash hoard. Maintain Market Perform.

Notion Vtec : Stronger demand ahead Outperform

Results Preview
- 2QFY10 results will be released on the 29 Apr. We estimate net earnings to fall marginally to around
RM13m due to: 1) seasonal factors; 2) strengthening of RM against the dollar; and 3) higher expenses
stemming from the capacity ramp up in 2Q.
- 1HFY10 net earnings would then account for around 54-55% of our FY10 revised net profit forecast and
around 53-54% of consensus estimates.
- However, we expect a strong qoq growth in 3Q-4QFY10 mainly driven by higher volume loading of base
plats from Samsung and strong contribution from higher margin spindle motor hub.
- We have raised our FY10 net profit forecast by 8.6%, while keeping our FY11-12 forecasts unchanged.
- Maintain Outperform and fair value of RM4.59.

Technical Highlights

Daily Trading Strategy : Uncertainties remain for the near-term trend…

- Though the FBM KLCI was unable to confirm a technical rebound last Friday, its ability to hold at above the
10-day SMA of 1,335 suggests that hope for a technical rebound in the near term still alive.
- But clearly, a “doji” candle proposes a prolonged sideways consolidation ahead. Added further with the
pathetically thin daily trading volume of late, rangebound trading will likely be the best scenario for the next
few sessions, in our view.
- Technically, it must still acquire a positive candle at above the SMA to kick off the buying momentum.
- On the other hand, investors should be aware that renewed selling pressure, if it occurs, will sink the index
back to below the 10-day SMA hence pressing the index into the short-term negative trend again.
- The benchmark by-election win by Barisan Nasional on the Parliamentary seat of Hulu Selangor yesterday
may spark some buying support on political reasons, but we do not expect a big movement overall.
- As such, we expect sideways rangebound trading to continue in the near term, especially amidst the
current uncertainties in Greece’s deficit problem, China’s looming tightening measures and global markets’
choppy trend ahead of US President Obama’s pledge to regularise its financial industry.
- Downside supports are seen near the 40-day SMA of 1,319, a 2.6-pts technical gap near 1,305, and the
1,300 psychological level.
Daily Technical Watch: CMS – “Double sell” signal on momentum indicators point to more selldown ahead…
- 10-day SMA: RM2.902
- 40-day SMA: RM2.493
- Support: IS = RM2.41 S1 = RM2.10 S2 = RM1.87
- Resistance: IR = RM2.71 R1 = RM2.93 R2 = RM3.12

Weekly Trading Idea : MPI – An opportunity to collect on weakness… Buy On Weakness

- Strategy: Buy on weakness near the RM6.82 support level.
- Target: IR = RM7.33 R1 = RM7.50 R2 = RM8.00
- Support: IS = RM6.82 S1 = RM6.15
- Exit: Cut loss if the stock loses the 40-day SMA at RM6.70

Commodities & Currencies – Potential technical rebound on the commodities this week…
- Light Sweet Crude Oil futures (Crude): Last week’s recovery has refreshed hope for a technical rebound.
- Crude Palm Oil futures (CPO): It must sustain at above RM2,500 to remain positive, otherwise, it will
reinvite the sellers.
- Ringgit (RM)/US$: The previous buy mode on the ringgit has run out of steam, but the buying on the
greenback has yet to begin strongly.
- Japanese Yen (JPY)/US$: The pair should see strong resistance at the recent high of 94.69 and the 95.5
chart hurdle.
- Euro Dollar (EUR)/US$: A higher chance for the US$ to strengthen further against the EUR this week.
- US Dollar Index (DXY): If it manages to sustain at above 81, buying support would increase.

Bulletin Board

Co/Sector News Impact Recom

Plantation According to Oil World’s Thomas Mielke, palm oil Negative, as India overtook China to become the OW
imports by India may fall 2.9% to 6.7m tonnes in largest importer of palm oil in 2009. However, we
Oct/Sept 09/10, as buyers switch to soybean oil believe the impact of this may be offset by an
to profit from China;s ban on Argentinean increase of imports of CPO from China, given the
soybean oil. (Star) ban on Argentinean soyoil. Net-net, the impact
would likely be neutral.
Building The price of bagged cement is due to rise by 10 Positive. The price increase is needed as local OW
Materials per cent to between RM15.50 to RM16.50 per cement manufacturers in Malaysia face higher
bag from May 1. (Business Times) costs due to escalating oil prices globally. We will
be reviewing our forecasts for both companies
but our sensitivity analysis indicates that a 10%
increase in domestic selling prices would improve
Lafarge and YTL Cement FY10 EPS to 67.7 sen
(+31.3%) and 72.9 sen (+36.1%) respectively.
Affin Affin Bank will work with its parent company to As mentioned previously, we suspect PT Ina MP, FV =
convert PT Ina Perdana into a syariah bank once Perdana could be a small one with asset size of RM3.03
the acquisition is concluded (expected by 3Q10). less than RM450m (vs. RM40bn for Affin). Thus,
In addition, for 2010, Affin targets to grow its it may take time before the new venture starts to
loans and deposits by 13-15% and 10% contribute more meaningfully to the Group. As for
respectively. Affin is also targeting a ROE of 12- its loan growth and ROE target, these are above
13%. (Business Times) our 8.3% net loan growth and 8.6% ROE
projections. Execution would be key. For now, we
are keeping our numbers unchanged.
BToto BToto’s subsidiary, Prime Gaming Philippinnes Neutral, as we believe this hotel has already OP, FV =
(PGP), acquired a 40% stake in a 212-room hotel been up and running and profitable for a number RM4.95
in Makati, Philipinnes, for Peso370m of years, as it was running as a Best Western
(RM26.49m). (Bursa) Hotel previously. Not much detail was given as
to the rationale behind the decision, although we
 believe this hotel would prove synergistic to
BToto’s gaming and leisure operations in
Philipinnes currently. Not much impact to
earnings, given that we believe this should be
funded directly by PGP, via a combination of
internal cash and debt.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Aliran Ihsan Resources Single tier first interim dividend of 15 sen 6-May-10 25-May-10
Amfirst REIT Final income distribution of 4.88 sen 12-May-10 27-May-10
ECM Libra Distribution of 1 treasury share for every 52 shares held 21-May-10 7-Jun-10
ECM Libra Single tier interim dividend of 2.3 sen 21-May-10 7-Jun-10
Globetronics Final dividend of 2 sen less 25% tax 21-May-10 9-Jun-10
Pacificmas Final dividend of 15 sen less 25% tax 26-May-10 15-Jun-10
Esso Malaysia Final dividend of 12 sen less 25% tax 27-May-10 21-Jun-10
Faber Group Final dividend of 6 sen less 25% tax 4-Jun-10 23-Jun-10
AEON Co (M) First and final dividend of 12 sen less 25% tax 10-Jun-10 7-Jul-10
Evergreen Fibreboard Tax exempt final dividend of 4 sen 3-Aug-10 16-Aug-10

Going “ex” on 28 Apr

Gamuda Renounceable rights issue of warrants 28-Apr-10 -
Wong Engineering Corp 1st and final tax exempt dividend of 1 sen 28-Apr-10 10-May-10
NSTP Final dividend of 5 sen per share less 25% tax 28-Apr-10 14-May-10
OSK Property Holdings Final dividend of 2.5 sen less 25% tax 28-Apr-10 18-May-10
OSK Holdings Final dividend of 5 sen less 25% tax 28-Apr-10 18-May-10
EPIC Second interim dividend of 2.5 sen less 25% tax 28-Apr-10 18-May-10
Grand Central Enterprises First and final dividend of 3 sen less 25% tax 28-Apr-10 19-May-10
Hai-O Enterprise Second interim dividend of 4 sen less 25% tax 28-Apr-10 20-May-10

...For more details, see individual reports attached

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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.

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