PP 7767/09/2010(025354)

24 May 2010

Malaysia Corporate Highlights

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

R e su l ts / B ri e f i ng N o t e
24 May 2010
MARKET DATELINE

EON Capital Share Price

Fair Value
:
:
RM6.92
RM8.07
Starting Off On A Strong Note Recom : Outperform
(Maintained)

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

Net EPS Net Net
FYE PBT Profit EPS Gwth PER BVPS P/Book C.EPS* DPS Div Yld ROE
Dec (RMm) (RMm) (sen) (%) (x) (RM) (x) (sen) (sen) (%) (%)
2009 421.9 341.1 49.2 155.0 14.1 5.13 1.3 - 10.0 1.4 10.1
2010f 497.4 373.1 53.8 9.4 12.9 5.59 1.2 56.2 10.0 1.4 10.0
2011f 563.2 422.4 60.9 13.2 11.4 6.12 1.1 62.8 10.0 1.4 10.4
2012f 625.0 468.8 67.6 11.0 10.2 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

RHBRI Vs. Consensus

♦ 1QFY10 results in line … EON Cap’s 1QFY10 net profit of RM97.8m Above
(+22.9% yoy; +58.8% qoq) was at the higher end of our and consensus In Line
expectations, making up 25-26% of our and consensus full-year net profit Below
forecasts. As expected, EON Cap did not declare any dividend.
Issued Capital (m shares) 693.2
♦ … with stronger net profit qoq and yoy. QoQ, net profit jumped 58.8% Market Cap (RMm) 4,797.0
Daily Trading Vol (m shs) 0.5
largely due to lower overheads (-14.9% qoq on account of lower personnel
52wk Price Range (RM) 3.74 - 7.19
and admin costs) and effective tax rate (25.8% vs. 4Q09: 39.6%). YoY,
Major Shareholders: (%)
net profit growth was 22.9% led by stronger net interest income (+11.8%
Primus Pacific Partners 20.2
yoy) and non-interest income (+25.5% yoy). R.H. Development Corp 16.3
EPF 12.0
♦ Results highlights. After the initial impact of the OPR cuts, net interest
Kualapura 11.1
income has now registered qoq growth for three consecutive quarters. This Khazanah 10.0
was on the back of 2.4% qoq (9.3% yoy) loan growth, which continued to
be driven by mortgage (+6% qoq; +18% yoy), personal use (+9% qoq, FYE Dec FY10 FY11 FY12
+34.5% yoy), credit cards (+0.6% qoq; +19% yoy) and SMEs (+4.9% EPS chg (%) - - -
Var to Cons (%) (4.2) (2.9) (2.5)
qoq, +16.6% yoy), while NIMs were roughly stable. Non-interest income
remained healthy, supported mainly by sustainable transactional fee PE Band Chart
income while CIR improved to 54.3% (4Q09: 64.6%; 1Q09: 57.1%).
Impairment allowances for loans were higher qoq and yoy, but this was
PER = 25x
largely a reflection of higher collective impairment allowance. PER = 20x
PER = 15x

♦ Impact of FRS139. Following the adoption of FRS139, EON Cap’s gross

PER = 10x

impaired loans ratio as at end-Mar’10 stood at 4.2%, as compared to the

gross NPL ratio of 3.8% as at end-Dec’09 (4.3% based on FRS139). LLC
stood at 76.6% as at end-1Q10 (4Q09: 78.5%; 1Q09: 70.6%) as the
adoption of FRS139 led to the restatement of opening balances for
Relative Performance To FBM KLCI
individual and collective impairment allowances of RM386.6m and
RM784.7m respectively (vs. SP and GP balances of RM592.1m and
RM487.8m respectively as at end-Dec ’09). Overall, the adoption of
EON Capital
FRS139 has resulted in opening retained earnings being restated
downwards by RM35m or 1% of shareholders’ equity as at 1 Jan 2010.
Core capital ratio at end-1Q10 was 10.8% (4Q09: 11.2%; 1Q09: 9.5%).

♦ Risks to our view. The risks include: 1) slower-than-expected loan

FBM KLCI

growth; 2) deterioration in asset quality; and 3) changes in market

conditions that may adversely affect investment portfolios.

♦ Forecasts. Our earnings forecasts remain unchanged.

♦ Investment case. Maintain Outperform and indicative fair value of David Chong, CFA
RM8.07 (at 15x FY10 EPS). (603) 9280 2186
david.chong@rhb.com.my

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 24 May 2010

Highlights From Analyst Briefing

♦ Business as usual thus far but resolution needed with respect to HL Bank’s offer. According to
management, notwithstanding HL Bank’s offer, it has been business as usual for the group. In fact, the offer has
not deterred new hires from joining the group with senior level positions such as a new head for treasury and
chief credit officer having been filled up recently. Nevertheless, one way or the other, the issue of HL Bank’s offer
would need to be resolved as soon as possible as management believes the longer the issue drags on, it could
potentially impact operations. Hence, the Board’s decision to proceed with the EGM.

♦ Adoption of FRS139 – impact not too significant. The adoption of FRS139 on 1 Jan 2010 has resulted in
changes to the group’s accounting policies for impairment of loans and advances as well as the recognition of
interest income on loans and advances. As mentioned above, the adoption of FRS139 has resulted in opening
retained earnings being restated downwards by RM35m or 1% of shareholders’ equity as at 1 Jan 2010. In terms
of the impact of FRS139 to 1Q10 income statement, management said that pre-tax profit was around 4.7% lower
as compared to the pre-tax profit under the previous BNM/GP3 guidelines.

♦ Non-interest income – putting foundation in place for stronger contribution ahead. Non-interest income
is another area that management is working on for improved contribution ahead. Potential growth areas include
bancassuarance (currently evaluating several offers for exclusive partnership), treasury and wealth management.
Management targets to grow its non-interest income by around 20% this year (vs. our projection of 12%).

♦ FY10 targets unchanged. Although annualised loan growth stood at 9.6%, management believes the group is
on track to achieve its full-year target of 13-14% given that: 1) 1Q tends to be a slower quarter; 2) undrawn loan
commitments expanded by RM755m, or at an annualised growth rate of 20.1%; and 3) economic recovery would
continue to help drive loan growth to the SME segment. Key growth drivers for loans are the mortgage (~20%),
credit card (~15%) and SME (~19-20%) segments. 1Q annualised ROE of 10.9% is on track to achieve the 11%
target.

♦ OPR hike should be positive for NIMs. While the actual impact from the hike in OPR to income statement
would be difficult to determine given that assets and liabilities would be re-priced differently, on the whole,
management expects the hike in OPR would be positive for NIMs. This is consistent with our sensitivity analysis,
which suggested that EON Cap would be one of the bigger beneficiaries from the hike in interest rates due to the
high percentage of positive gap in the one-month bucket to total assets and high LD ratio (please see our sector
report dated 5 Mar 2010 for further details).

Risks

♦ Risks to our view. The risks include: 1) slower-than-expected loan growth; 2) deterioration in asset quality; and
3) changes in market conditions that may adversely affect investment portfolios.

Forecasts And Assumptions

♦ Forecasts. Our earnings forecasts remain unchanged.

Valuations And Recommendation

♦ Fair value and recommendation maintained. In the near term, investors focus would likely be on the offer by
HL Bank to acquire the assets and liabilities of EON Cap and this could cap EON Cap’s share price performance.
That said, EON Cap’s 1QFY10 results have helped to reinforce our view that its fundamentals are improving. Our
assumptions (e.g. loan growth) and forecasts (e.g. ROE) are currently more conservative than management’s
targets, which suggests upside potential to our numbers if management executes its plans well. Thus, we
continue to hold the view that HL Bank’s offer is too low and we do not discount the possibility that EON Cap’s
shareholders may reject the offer, thereby “forcing” HL Bank to increase its offer price. Maintain Outperform and
indicative fair value of RM8.07 (at 15x FY10 EPS).

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Table 2 : Quarterly Results

QoQ YoY
FYE Dec (RMm) 1Q09 4Q09 1Q10 Comments
(%) (%)
Net Interest Income 270.1 296.4 302.1 1.9 11.8 Higher mainly due to +2.4% qoq and +9.3% yoy loan growth
(+ Islamic Banking) (see Table 4) and higher contribution from Islamic income.
YoY and qoq unadjusted NIM (excluding Islamic income) was
broadly stable and has yet to fully reflect the OPR hike in Mar.

Non-interest Income 62.1 79.4 77.9 (1.9) 25.5 Higher yoy mainly due to:
(+ Impairment 1. Higher fee income of RM67.4m (1Q09: RM61.2m);
losses on securities) 2. Higher MTM gains of RM10.3m (1Q09 gain: RM6.2m);
and
3. Lower impairment losses on securities of RM4.2m (1Q09
loss: RM8m).

Slightly lower qoq due to impairment gain of RM1.9m in 4Q

and lower forex gain (4Q09: RM9.6m vs. 1Q10: RM0.3m),
partly mitigated by higher fee income (4Q09: RM60.8m) and
MTM gains (4Q09 loss: RM1.5m).
Operating Income 332.2 375.8 380.0 1.1 14.4

Less: Overheads (189.6) (242.6) (206.5) (14.9) 8.9 YoY and qoq changes mainly due to personnel (+7.8% yoy; -
13.5% qoq) and admin (+15.7% yoy; -24.9% qoq) costs.
Pre-impairment 142.6 133.2 173.5 30.2 21.7
Profit

Less: Impairment (35.6) (31.3) (41.6) 32.9 16.9 Higher yoy and qoq generally reflects higher net collective
losses on loans, impairment allowance of RM71.4m due to expansion in loan
advances and portfolio (vs. GP of RM2.4m and RM16.4m for 1Q09 and 4Q09
financing respectively), partly offset by lower individual impairment
allowance of RM21m (vs. SP of RM116.6m and RM119.7m for
1Q09 and 4Q09 respectively).

Operating Profit 107.0 101.9 131.9 29.4 23.2

Associates 0.0 0.0 0.0 nm nm

Pre-tax Profit 107.0 101.9 131.9 29.4 23.2

Less: Tax (27.5) (40.3) (34.1) (15.5) 24.1

Effective Tax Rate 25.7 39.6 25.8 Higher ETR in 4Q09 due to under provision in prior years of
(%) RM18.9m and deferred tax charge of RM24.5m.
Net Profit 79.6 61.6 97.8 58.8 22.9
Source: Company, RHBRI

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Table 3 : Ratio Analysis

FYE Dec 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10
Asset Quality (%)
Gross impaired loans/NPL Ratio 5.26 4.81 5.23 4.45 4.27 3.76 4.17
Net impaired loans/NPL Ratio 2.92 2.51 3.06 2.64 2.46 2.31 3.35
Individual allowance/impaired loans (SP / NPL) 53.0 53.5 49.1 49.5 51.8 47.6 27.7
Collective allowance/net loans (GP / Net Loans) 1.50 1.50 1.49 1.49 1.49 1.50 2.36
Loan Loss Coverage 73.7 79.6 70.6 74.7 77.8 78.5 76.6
Core Capital Ratio 8.3 9.2 9.5 9.7 10.9 11.2 10.8
RWCAR 12.0 12.6 12.0 12.3 13.5 14.4 14.9

Margins (%)
Yields On Earning Assets 4.83 5.15 4.43 4.14 4.13 4.08 3.94
Avg. Cost of Funds 2.66 2.65 2.37 2.12 2.07 2.05 1.92
Interest Spread 2.17 2.51 2.06 2.02 2.06 2.03 2.01
Net Interest Margins (ex-Islamic Inc) 2.27 2.62 2.19 2.16 2.20 2.17 2.16
Adjusted Net Interest Margins (+ Islamic Inc) 2.71 3.10 2.64 2.73 2.76 2.70 2.69

Profitability (%)
ROE 9.0 8.3 9.8 14.9 8.8 7.0 10.9
ROA 0.65 0.61 0.74 1.17 0.69 0.54 0.84
Cost / Income Ratio 60.2 54.2 57.1 56.1 57.3 64.6 54.3
Expenses / Avg. Assets 1.75 1.85 1.77 1.84 1.91 2.14 1.78
Provisions / Avg. Net Loans 0.38 0.87 0.48 0.55 0.73 0.40 0.51

Liquidity (%)
Loan Deposit Ratio 100.6 91.5 99.3 93.8 96.4 92.9 93.8
Net Loan Growth (qoq) 3.2 1.2 1.1 1.2 2.6 3.4 3.4
Deposit Growth (qoq) 3.5 11.3 (7.3) 7.2 (0.3) 7.5 1.4
Source: Company, RHBRI

Table 4 : Gross Loan Book Breakdown

FYE Dec 1Q09 2Q09 3Q09 4Q09 1Q10 qoq (%) yoy (%)
Purchase of securities 529.8 490.9 482.7 503.8 477.7 (5.2) (9.8)
Purchase of transport vehicles 10,700.4 10,781.7 10,833.0 10,733.7 10,797.2 0.6 0.9
Purchase of residential property 6,084.4 6,199.0 6,400.8 6,769.9 7,178.7 6.0 18.0
Purchase of non-residential property 2,514.7 2,257.1 2,388.4 2,608.1 2,845.7 9.1 13.2
Purchased of fixed assets 277.9 324.2 360.3 396.2 423.5 6.9 52.4
Personal uses 899.1 947.9 1,024.0 1,109.2 1,209.0 9.0 34.5
Credit cards 1,221.9 1,292.8 1,364.0 1,446.0 1,454.8 0.6 19.1
Purchase of consumer durable goods 0.5 0.4 0.3 0.4 0.3 (12.9) (39.7)
Construction 844.3 805.1 776.3 781.5 784.4 0.4 (7.1)
Working capital 7,150.5 7,371.3 7,621.6 7,694.6 7,639.3 (0.7) 6.8
Other purpose 803.4 854.5 887.2 1,069.3 1,086.3 1.6 35.2
Total 31,027.1 31,324.9 32,138.8 33,112.6 33,896.9 2.4 9.2
Source: Company, RHBRI

Table 5 : Impaired Loans/NPLs By Sector

FYE Dec Gross Impaired Loans/NPLs (RMm) Gross Impaired Loans/NPL Ratio (%)
Jun 09 Sep 09 Dec 09 Jan 10 Jun 09 Sep 09 Dec 09 Jan 10
Purchase of securities 16.6 16.0 16.0 15.7 3.4 3.3 3.2 3.3
Purchase of transport vehicles 225.2 210.2 202.8 203.0 2.1 1.9 1.9 1.9
Purchase of residential property 426.4 355.1 332.0 325.4 6.9 5.5 4.9 4.5
Purchase of non-residential property 95.9 87.1 68.2 83.6 4.2 3.6 2.6 2.9
Purchased of fixed assets 16.1 16.7 15.3 14.1 5.0 4.6 3.9 3.3
Personal uses 42.6 38.1 36.8 39.0 4.5 3.7 3.3 3.2
Credit cards 30.2 29.4 30.6 34.3 2.3 2.2 2.1 2.4
Purchase of consumer durable goods 0.0 0.0 0.0 0.0 2.4 2.0 3.3 2.2
Construction 14.6 16.7 26.6 23.1 1.8 2.2 3.4 2.9
Working capital 524.4 600.1 505.9 668.1 7.1 7.9 6.6 8.8
Other purpose 25.9 25.6 19.6 27.5 3.0 2.9 1.8 2.5
Total 1,418.0 1,394.9 1,253.8 1,433.8 4.5 4.3 3.8 4.2
Source: Company, RHBRI

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Table 6 : Earnings Forecasts Table 7 : 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
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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.

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the
actions of third parties in this respect.

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