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

RHB Research Institute

RHB Equity 360°

5 May 2010 (IOI, Digi, Sime Darby; Technical: Unisem)

Top Story : IOI Corp – Good news from property division Outperform
Visit Note
- Six key takeaways: (1) FFB production weaker-than-expected; (2) landbank planting progress on target; (3)
positive CPO price view; (4) cost of production flat; (5) manufacturing operations running at high utilisation
rates, expansion completed; and (6) good news from property division – in both Malaysia and Singapore.
- Despite weaker-than-expected FFB production caused by the dry weather in the first two months of the
year, tree stress in its estates in Peninsular Malaysia, as well as mild labour shortage problems, which saw
IOIC’s FFB production in 3QFY06/10 production falling 6.4% yoy, thus resulting in a YTD 9MFY06/10 FFB
production decline of 9.1% yoy, we are more positive on IOIC’s earnings prospects after our recent visit.
This is due to good news in the property development division, which is expected to see a 71% yoy rise in
operating profits in FY10, on the back of recovery in the property markets in Malaysia as well as Singapore.
- All in, we have raised our forecasts by 2.9-13.6% for FY10-12. Post-earnings revision and after raising our
target PE for property to 14x CY10 (from 13.5x previously) to be in line with the recently raised target PE
for the sector, we have raised our SOP-based target price to RM6.85 (from RM6.65). Maintain Outperform.

Economic Highlights

Trade : Exports picked up strongly in March

Economic Highlights (published 4 May 2010)
- Exports bounced back to expand strongly by 36.4% yoy in Mar, from +18.4% in Feb but off a peak of
+37.1% in Jan, as workers returned to work after the Chinese New Year holiday break. This was the fourth
consecutive month of increase and it came in better than consensus and our estimate of 31% and 13%
respectively, on the back of a sustained increase in global demand.
- As a result, we have revised up our nominal exports forecast for 2010 to 17.5%, from +8.5% projected
previously. In the same vein, we are in the midst of revising our real GDP forecast for 2010, on the back of
stronger-than-expected growth in exports and the proposed RM12bn supplementary budget for 2010.
- Stronger growth in Mar’s exports was driven by a rebound in exports of electronic & electrical (E&E)
products and non-E&E manufactured goods. These were aided by stronger growth in exports of major
commodity products due partly to higher prices.

Corporate Highlights

Digi : Better visibility on future dividends Outperform

1QFY10 Results/Briefing Note
- 1Q10 net profit of RM278.3m (+1% yoy; +13% qoq) accounted for 25.7-26.0% of our and consensus full-
year estimates. Revenue rose by 3.4% qoq, largely driven by stronger data revenue (+15.4% qoq on higher
mobile internet and VAS revenue). Qoq, net profit grew by 12.9% to RM278.3m mainly due to: 1) higher
topline; 2) EBITDA margin expansion of 2%-pts qoq due to lower cost of materials, staff costs and bad
debts; and 3) lower net interest expense.
- Digi declared a first interim single-tier DPS of 35 sen for FY10, which translates to a net yield of 1.5% and a
payout ratio of 98%, based on 1Q net profit.
- Management revealed their target capital structure yesterday, i.e. net debt/equity of between 35:65 and
45:55. With better clarity on Digi’s capital structure coupled with 1Q dividend payout of close to 100%, we
have raised our FY10-12 net payout assumptions to 100% p.a. from 80% p.a., resulting in 25% p.a. uplift to
our FY10-12 net DPS projections to RM1.39/RM1.52/RM1.60 respectively. Management retained their
revenue growth target of 5% vs. high-single digit industry growth estimated by peers.
- Our DCF-derived fair value has been raised to RM25.70 from RM23.90 after adjusting for a lower WACC of
7.7% (vs. 8.3% previously). The revision in WACC incorporates a debt/equity ratio of 30:70 (10:90
previously), which is more conservative vs. management’s target capital structure mentioned above.
Sime Darby : Cost overruns at Bakun? Outperform
News Update
- According to a media report, Sime Darby has incurred over RM1bn in total cost overruns from carrying out
the RM1.8bn civil works contract for the Bakun hydro-electric project, with one estimate putting the overrun
figure in the region of RM1.7bn. The cost overrun is believed to be among the findings of the special
taskforce within the group that was set up late last year to probe losses in its energy and utilities division.
- We note that Sime has already made some RM130m in provisions for its share of the cost overrun for this
project while it is understood that the Government has agreed to reimburse Sime for around RM700m. If
this is the case, this would mean Sime would only have to provide another RM170m assuming the cost
overrun is RM1bn. This would negatively affect Sime’s bottomline by approximately 5-7%.
- Forecasts unchanged for now until we get further clarification from management. We believe there is a
likelihood that the Government would reimburse Sime for additional cost overruns, should it be proven that
the cost overruns were caused by higher material or construction costs, rather than cost mismanagement.
- No change to our SOP fair value for Sime of RM9.70. Maintain Outperform call given its potential upside
from GLC reforms, additional merger synergies and yield improvements from its Indonesian plantations.

Technical Highlights

Daily Trading Strategy : A “double top” formation likely…

- Despite the early run-up to the 26-month high of 1,349.92, sellers took the opportunity to trim their positions
on prolonged uncertainties on Europe’s credit risks and the global economic recovery pace.
- The “hangman” and “bearish engulfing” candles registered on the FBM KLCI’s chart this week, further
dampened sentiment from the overnight rebound on the US DJIA.
- Moreover, as we warned earlier, the risk of a potential bearish “double top” formation on the FBM KLCI has
put off optimism amongst investors, resulting in thinner trading volume yesterday.
- Added to the negative market breadth, a further decline to below the 10-day SMA of 1,339 and the 40-day
SMA of 1,326 looks possible in the near term.
- If the SMAs fail to curb selling, extended profit-taking pressure could press the index towards a technical
gap near 1,305 and the 1,300 psychological level.
- As such, medium-term investors should consider locking-in profits, while shorter-term traders should
prepare to cut losses if the index falls below the SMAs in the short term.

Daily Technical Watch: Unisem – Likely to trim lower on follow-through selling momentum…
- 10-day SMA: RM3.35
- 40-day SMA: RM2.872
- Support: IS = RM3.00 S1 = RM2.60 S2 = RM2.27
- Resistance: IR = RM3.42 R1 = RM3.90

Bulletin Board

Co/Sector News Impact Recom

Power The Cabinet and NEAC have approved plans for
the country’s first nuclear power plant, which is
targeted to be ready by 2021, as the reserve
margin will reach critical levels of 20% by 2017,
according to the Energy Minister. A consortium of
local companies will be involved, although the
nuclear technology will come from China, South
Korea, Japan or France. The power plant also
has to be approved by the International Atomic
Energy Agency, in relation to the supply of
uranium. The Minister added that 1,000MW of
nuclear power capacity would cost US$10bn
We believe nuclear is only one of the options to OW
address long-term concerns on power generation
capacity and the country’s over-reliance on gas
and coal for fuel, and especially given the
cancellation of the Bakun undersea cables
project. The other options are: 1) renewable
energy (which underscores the importance of the
proposed Renewable Energy Act); and 2)
electricity demand management. However, near-
term capacity plans include new coal-based
power plants, including expansion of TNB’s
Janamanjung, and potentially for Tanjung Bin
 (equivalent to around US$3.1m per MW (MMC) and Jimah Power (privately-owned).
compared to around US$0.8-1.2m for gas- or
coal--fired power plants). (Business Times)
Power The bill for the Feed-in Tariff (FiT) mechanism is While the news to table the FiT bill in 2H10 is not OW
expected to be tabled in parliament in Oct and new, we were surprised by the news that the FiT
could be implemented by next year. According to cost would only be 1% for every RM1. We had
the Energy Green Technology and Water previously understood that customers would
Minister, the FiT cost is equivalent to only 1% for need to make a contribution of 2% to the fund.
every RM1 electricity consumed and would not Possibly, the lower FiT rate could be
affect the lower-income group. (Financial Daily) accompanied by a sharper degression rate (as
compared to our earlier understanding).

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Digi.Com First interim dividend of 35 sen single tier tax exempt 8-Jun-10 18-Jun-10
Malaysia Airports Final dividend of 14.9 sen less 25% tax 10-Jun-10 28-Jun-10
Delloyd Ventures First and final tax exempt dividend of 6 sen 14-Jun-10 1-Jul-10

Going “ex” on 6 May

Poh Huat Resources First and final dividend of 2 sen less tax 6-May-10 21-May-10
TH Plantations Final gross dividend of 8.5 sen less 25% tax 6-May-10 21-May-10
Aliran Ihsan Resources Single tier first interim dividend of 15 sen 6-May-10 25-May-10
Zhulian Corporation First interim single tier dividend of 3 sen 6-May-10 27-May-10

...For more details, see individual reports attached

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