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

RHB Research Institute

RHB Equity 360°

7 May 2010 (Timber, Unisem, Sime Darby, Muda, MISC; Technical: Faber)

Top Story : Timber – Highlights from timber conference Neutral

Sector Update
- We recently hosted a Timber and Furniture Day with management from Samling Global/Lingui and WTK.
- Low inventory in Japan is shoring up selling prices in near term. There is a risk that the Japan market could
remain weak in the near term, unless construction activities start picking up more aggressively.
- In the medium to longer term, given that Japan’s housing starts are at such a low level, downside risk in
sales volumes would be relatively limited.
- Cost of production is on a rising trend, mainly due to higher logging costs, caused by higher fuel, labour
and machinery costs but would be offset by rising economies of scale, given the high fixed costs involved.
- We reiterate our Outperform call on WTK based on unchanged fair value of RM1.55 (14x CY10 EPS).
- We also derive Lingui’s fair value of RM0.80 based on 14x CY10 consensus EPS. However, we note that
consensus numbers may not have factored in the potential upside from the rising plywood prices. There is
also a possibility of privatisation by Samling Global which could generate further interest in the stock.
- Maintain Neutral call on timber sector.

Corporate Highlights

Unisem : High on growth Outperform

Briefing Note
- Management expects 2Q revenue to increase by 5-8% qoq (vs. 3-5% qoq in 1Q10) driven mainly by strong
demand for analog, RF and mixed signal devices as well as resilient demand for its legacy packages i.e.
SOIC, PDIP, and MSOP. We have forecast 20% and 30% qoq revenue growth for Unisem Chengdu and
UAT respectively. We highlight that capacity utilisation rates in 2Q10 in Chengdu, Batam, and Ipoh are
expected to be 95%, 75%, and 75% respectively (vs. 90%, 70%, and 70% in 1Q10 respectively) on the
back of stronger-than-expected chips demand stemming from stronger PCs and smartphone sales.
- Unisem is expecting better margins going forward, mainly driven by: 1) higher contribution from ASP
packages (i.e. BGA); and 2) higher utilisation rate for QFN capacity given added capacity of 9m/day by
4Q10. While currently Unisem Wales’ production volumes for higher-margin Micro-electro-mechanical-
systems (MEMS) packages and System-in-Package (SiP) are still low, management expects to ramp up
production of these packages in Chengdu by end-2Q. Note that Chendu’s EBITDA margin is circa 35-40%
(vs. 25-30% in Ipoh) given lower overhead costs (labour plus utilities) as well as higher equipment
efficiency (new machines with lower breakdown rates).
- No changes to our forecasts. Maintain Outperform call with an indicative fair value of RM4.06.

Sime Darby : Clarification on cost overrun at Bakun Outperform

Company Update
- Following from our recent comments on media reports of cost overruns for the Bakun project, we highlight
that Sime has a 35.7% stake in the Malaysia-China Hydro JV consortium and that construction works are
already 96% completed. We understand that Sime has made provisions of RM130m for its share of cost
overruns so far and that the task force set up to investigate the oil and gas division is closing next week (12
May) and any further provision that needs to be made will likely be done in the upcoming 3QFY06/10
results (due end-May). While Sime has not finalised the total cost overrun figure yet, the figure is likely to
be lower than the RM1.7bn quoted in the press.
- As the government has given RM700m to the consortium for part of the cost overruns already and
assuming the remaining RM1bn is provided for, Sime’s share is RM357m, based on its 35.7% stake.
Deducting the RM130m provision already made, this would mean another RM227m in provisions, which
would shave off 7-9% from Sime’s bottomline in FY10 and 3 sen/share from its SOP-based fair value.
- Forecasts are unchanged, as we deem the potential provision as an EI. While we understand the current
selldown of Sime’s shares may be due to lack of transparency, we believe the taskforce and management
changes in the division are a sign that the company is taking these issues seriously. Sime’s share price has
fallen by RM0.18/share (from RM8.76 when the news broke), or a loss in market value of RM1.08bn. This
 is 4-5x higher than the amount of provision required for the project and is, we believe, an overreaction. We
would advise investors to wait out the storm and take the opportunity to buy the shares on weakness at a
later stage. Maintain Outperform with unchanged fair value of RM9.70/share.

Muda : New paper mill plant to boost capacity by 47.4% Not Rated
Visit Note
- Muda, an integrated paper mill and corrugated paper manufacturer is embarking on an expansion of its
Kajang mill, which will increase capacity by 140,000 tonnes, from 155,000 tonnes currently. Total capex for
this new expansion is approximately RM180m, of which RM60m has spent so far. The management
expects the new plant to be fully operational by 4QFY10.
- According to industry sources, Malaysia consumed 1.1m tones of medium and test liner paper in 2009,
which 23% was imported from other countries. The management believes that with the new expansion
plan, the company would be able to replace the imports by fully leveraging on its past track record,
expanded capacity, quality of its services and pricing of its products.
- Over the last four year, Muda has chalked up a commendable earnings CAGR of 35.5% (from 2005-2009)
driven by continuous expansion in both its paper mills division as well as paper packaging division.
- We expect FY12/10 earnings to increase by 50.7% yoy on higher revenue as a result of: 1) higher selling
prices; and 2) improving demand for its products driven by the economic recovery.
- We apply 25% discount to the regional peers’ average of 10.7x to reflect Muda’s smaller size, i.e. revenue
and market cap. Pegging a target FY10 PER of 8x suggests a fair value of RM1.37/share.

MISC : FY03/10 a washout Underperform

4QFY10 Results
- Normalised FY03/10 net profit of RM703.3m missed our forecast and the market consensus by a whopping
13% and 32% respectively.
- The variance came largely from the wider-than-expected losses at the container liner division of RM1.2bn,
against our forecast of RM1bn on the back of the persistent triple-whammy of reduced volumes and freight
rates, but increased operating cost.
- Forecasts are maintained as we continue to give the company the benefit of the doubt that it will be able to
cut losses at the container liner division in FY03/11-13.
- Having updated net debt, fair value is trimmed from RM8.06 to RM8.02. Maintain Underperform.

Technical Highlights

Daily Trading Strategy : Potential test to the 1,300 psychological level today…
- As we suspected, the FBM KLCI failed to climb above the 10-day SMA of 1,339 yesterday, due to the
return of selling activities before the SMA.
- Combining the “negative harami” candle with the poor momentum readings on the chart, the odds are
higher now for the index to retract the lower support of the 40-day SMA near 1,327.
- If the 40-day SMA fails to halt selling activities, it will spell more downside towards a technical gap near
1,305 and the psychological support level of 1,300, in our opinion.
- The renewed selling pressure on the favourite sectors like the glove makers and the technology sectors
have also revived signs that the FBM KLCI is preparing for a further correction, following the recent “double
top” chart formation recently.
Moreover, given the crash on the US DJIA to its biggest intraday loss in history, falling 998pts before
closing off by 3.2%, markets worldwide will expect further sell down today.
- We expect a wild swing today, with a potential test to the critical psychological level of 1,300.

Daily Technical Watch: Faber Group – A bearish scenario for the near-term trend …
- 10-day SMA: RM2.26
- 40-day SMA: RM2.304
- Support: IS = RM1.98 S1 = RM1.81 S2 = RM1.65
- Resistance: IR = RM2.29 R1 = RM2.60
 Bulletin Board

Co/Sector News Impact Recom

Gaming - According to a report in The Edge Financial Even if sports betting licences are issued, we do OW
NFO Daily, the government is studying the possibility not think there will be enough time to put it in
of issuing sports betting licences to prevent place before the World Cup starts. As mentioned
illegal gaming before the World Cup begins on in our report dated 8 Apr, we believe a sports
June 11. This issue was brought up after a betting licence may not necessarily be a good
comment made by Deputy Finance Minister that thing, depending on how it is implemented due to
if licences were issued, the government could four main issues; 1) the traditionally high prize
regulate the betting and the returns could be payout ratios involved; 2) gaming taxes; 3) agent
used for sports development purposes. (Financial commissions; and 4) implementation, as sports
Daily) betting is far more complicated than normal 4D or
lotto betting.
Maxis Maxis is testing the 4G LTE (fourth generation Neutral. We believe Maxis' latest move is just to OP, FV =
long term evolution) technology and at the same ensure that it will have a head start as soon as RM6.30
time conducting trials for its IPTV (Internet the Government allocates spectrum for 4G.
Protocol TV) offering in the Klang Valley as part However, we believe it would take a while before
of its growth strategy. (Starbiz) Maxis can roll out the 4G LTE technology, given
that: 1) spectrum for LTE has not been allocated
yet; and 2) There are still limited devices that
support LTE in the market.
TM TM aims to maintain its dividend payout policy of Neutral. This is not surprising although we
a minimum RM700m, or up to 90% of normalised believe that TM has the capacity to supplement MP, FV =
profit after tax and minority interests (whichever its minimum RM700m dividend payout with RM3.55
is higher) for FY12/10. (Starbiz) special dividends given: 1) TM's healthy cash pile
of RM3.5bn as at end-2009; 2) gross
debt/EBITDA of 2.2x as at 31 Dec 09 (vs. comfort
zone of 2-2.5x); and 3) 200m Axiata shares held
that could raise another RM766m upon
monetisation.

Important Dates

Corporate Results Quarter Expected date of announcement

Kurnia Asia 1QFY12/10 11-May
Dialog 3QFY06/10 11-May
Hartalega 4QFY03/12 11-May
Sunrise 3QFY06/10 13-May
Genting Singapore 1QFY12/10 13-May
Wellcall 2QFY09/12 14-May

Company Entitlement details Ex-date Payment date

New entitlements
F&N Holdings Interim dividend of 18 sen gross + 3 sen tax exempt 6-Jul-10 4-Aug-10

Going “ex” on 10 May

Guan Chong Second interim dividend of 0.75 sen sen less 25% tax 10-May-10 19-May-10
Titan Chemicals Final tax exempt dividend of 4.5 sen 10-May-10 25-May-10
Nestle (M) Final dividend of 100 sen single tier tax exempt 10-May-10 26-May-10
Atrium Reit First interim income distribution of 2.1 sen 10-May-10 27-May-10
Malaysia Smelting Corp Final dividend of 3 sen less 25% tax 10-May-10 28-May-10

...For more details, see individual reports attached

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