PP 7767/09/2010(025354)

18 May 2010

Malaysia Corporate Highlights

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

New s Upda te
18 May 2010
MARKET DATELINE

EON Capital Share Price

Fair Value
:
:
RM7.05
RM8.07
Independent Adviser Says HL Bank Offer Too Low? Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (EONCAP; Code: 5266) Bloomberg: EON MK

Net EPS
FYE PBT Profit EPS Gwth PER Book P/Book C.EPS* Div Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 421.9 341.1 49.2 155.0 14.3 5.13 1.4 - 10.0 1.4 10.1
2010f 497.4 373.1 53.8 9.4 13.1 5.59 1.3 56.2 10.0 1.4 10.0
2011f 563.2 422.4 60.9 13.2 11.6 6.12 1.2 62.8 10.0 1.4 10.4
2012f 625.0 468.8 67.6 11.0 10.4 6.72 1.0 69.4 10.0 1.4 10.5
Main Board Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

Issued Capital (m shares) 693.2

Market Cap (RMm) 4,887.1
♦ HL Bank offer too low? According to StarBiz, EON Cap’s independent
Daily Trading Vol (m shs) 0.5
financial adviser has deemed HL Bank’s offer for the assets and liabilities of 52wk Price Range (RM) 3.68 - 7.19
EON Cap as too low. No announcement was made by EON Cap except that Major Shareholders: (%)
its board meeting yesterday had been adjourned “pending further Primus Pacific Partners 20.2
clarification from its independent financial adviser”. R.H. Development Corp 16.3
EPF 13.1
♦ More provisions for EON Cap? Separately, the daily also reported that Kualapura 11.1
HL Bank may ask EON Cap to make some additional provisions as a Khazanah 10.0
condition to the deal, stemming from what HL Bank deems as
FYE Dec FY10 FY11 FY12
unrecovereable loans. If this materialises, potentially, the offer price could
EPS chg (%) - - -
be adjusted downwards. For every RM70m additional provision required,
Var to Cons (%) (4.2) (2.9) (2.5)
this could shave off around RM0.10 from the offer price, by our estimates.
PE Band Chart
♦ Maintain our view that the takeout offer is too low. If the news
report on the independent financial advisers is true, this would help PER = 25x
reaffirm our view that HL Bank’s offer for EON Cap is too low given PER = 20x
PER = 15x
improving fundamentals and does not recognise the Group’s hidden value PER = 10x
such as unabsorbed tax losses at MIMB and Section 108 tax credits
(available to frank dividends) at EON Bank. In addition, after years of low
single-digit expansion, we expect loan growth to accelerate post
transformation, on the back of a doubling in loan approvals and double-
digit growth in undrawn commitments. Relative Performance To FBM KLCI

♦ Deal still depends on EON Cap’s shareholders. Notwithstanding the

independent financial adviser’s opinion above, we think that it is unlikely
EON Capital
that this would affect the board’s decision to present the deal to
shareholders to decide upon. However, the independent financial adviser’s
findings could potentially put the board in a quandary given that they had
earlier deemed the offer to be credible. The board is reported likely to be FBM KLCI
meeting again sometime this week and we await further details.

♦ Investment case. While the potential appreciation in EON Cap’s share

price will likely be capped at HL Bank’s offer price (RM7.30/share) in the
near term, nevertheless, this does not alter our view that EON Cap’s
fundamentals are improving with potential positive impact from an internal
restructuring. There is also the possibility of shareholders rejecting the
offer in an EGM, thereby “forcing” HL Bank to increase its offer price if the
latter views EON Cap as an integral part of its long-term plan. Maintain
Outperform and indicative fair value of RM8.07 (15x FY10 EPS). David Chong, CFA
(603) 9280 2186
Please read important disclosures at the end of this report. david.chong@rhb.com.my

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Table 2. Earnings Forecasts Table 3. Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income 1,139.5 1,258.6 1,334.9 1,409.8 Asset Quality (%)
(+ Islamic Banking) Gross NPL 3.26 2.76 2.26
Non-interest Income 283.7 318.8 343.7 370.6 Net NPL 2.0 1.6 1.3
Operating Income 1,423.3 1,577.4 1,678.6 1,780.4 SP / NPL 49.0 50.5 52.0
GP / Net Loans 1.5 1.5 1.5
Less: Overhead Loan Loss Coverage 85.6 94.5 106.6
Expenses (837.8) (904.9) (950.1) (997.6) Core Capital Ratio 11.1 11.2 11.4
Pre-provision RWCAR 14.3 14.2 14.4
Profit 585.4 672.5 728.5 782.8
Margins (%)
Less: Loan Loss Yields On Earnings Assets 4.40 4.35 4.30
Provisions (163.5) (175.1) (165.3) (157.8) Avg. Cost Of Funds 2.40 2.41 2.42
Operating Profit 421.9 497.4 563.2 625.0 Interest Spread 2.00 1.94 1.88
Un-adj NIM (ex-Islamic Inc) 2.17 2.11 2.05
Adj to goodwill 0.0 0.0 0.0 0.0 Adjusted NIM (+Islamic Inc) 2.69 2.63 2.59
Pretax Profit 421.9 497.4 563.2 625.0
Profitability (%)
Less: Tax (80.8) (124.4) (140.8) (156.3) ROE 10.0 10.4 10.5
Effective Tax Rate 19.2 25.0 25.0 25.0 ROA 0.77 0.81 0.83
(%) Cost / Income Ratio 57.4 56.6 56.0
Profit After Tax 341.1 373.1 422.4 468.8 Expenses / Avg. Assets 1.87 1.81 1.77
Provisions / Avg. Net Loans 0.52 0.45 0.39
Minorities 0.0 0.0 0.0 0.0
Net Profit 341.1 373.1 422.4 468.8 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 93.1 93.3 93.5
Net / Gross Loan Growth 10.2 9.2 8.2
Deposit Growth 10.0 9.0 8.0
Source: RHBRI estimates

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
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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 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 KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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