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PP 7767/09/2010(025354)

13 July 2010
Corporate Highlights
Malaysia RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
MARKET DATELINE Sector Upda te Company No: 233327 -M

13 July 2010
Plantation
Recom : Neutral
Peak Production Period To Start Soon (Maintained)

Table 1 : Plantation Sector Valuations


Fair EPS * EPS growth PER P/NTA P/CF GDY
FYE Price Value (sen) (%) (x) (x) (x) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
KLK Sep 16.48 20.55 87.4 123.1 23.5 40.8 18.8 13.4 3.0 15.1 2.7 OP
IOI Corp Jun 5.09 6.65 26.8 33.1 -16.3 23.3 19.0 15.4 3.7 16.6 2.4 OP
CBIP Dec 2.71 3.70 41.2 49.7 37.5 20.6 6.6 5.4 1.3 5.2 5.2 OP
First Resources Dec 1.08 1.35 7.9 9.5 +>100 19.9 9.8 8.2 1.8 9.7 2.3 OP
IJMP^ Mar 2.40 2.30 13.5 14.6 20.5 8.2 17.7 16.4 1.7 14.0 2.3 UP
Gent Plantation Dec 6.85 6.50 40.2 45.0 29.3 11.9 17.0 15.2 1.9 15.3 1.6 UP
Sime Darby Jun 7.73 8.15 39.7 48.0 5.9 20.9 19.4 16.1 2.2 13.7 2.8 UP
Sector Avg 0.3 24.2 18.9 15.2
^ FY10-11 valuations refer to those of FY11-12 *Normalised

♦ Higher production and exports, but lower stocks. Malaysia’s CPO Chart 1. CPO vs soyoil and rapeseed
production rose in June 10 by a minimal 2.5% mom, while exports rose by oil prices
US$/tonne

a larger 5.5% mom. As a result of the larger rise in exports versus CPO Soy Oil Rapeseed Oil

1,700

production, closing CPO stock levels fell to 1.45m tonnes in June (from 1,500

1.56m tonnes in May) and stock/usage ratio fell further to 7.8% (from 1,300

8.5% in May and versus the 7-year average of 9.1%). However, going 1,100

forward, notwithstanding any effects of adverse weather, we expect this to 900

potentially start reversing from next month onwards, as it approaches the 700

peak seasonal production period. 500


300

Three short-term negative and long-term positive developments. 100

We noted a few main developments in the sector in the form of three long
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Chart 2. CPO vs crude oil prices


term positives and three short-term negatives. Long-term positives are: 160 1400

(1) a continued decline in stock/usage ratios for the 8 vegetable oils 140 Correlation factor of 1200
0.9x in 2007

expected in 2011; (2) an increase in the biodiesel mandate in Argentina for narrowed to 0.75x in

C P O s p o t p ri c e s (U S $ / to n n e )
C ru d e o i l p ri c e s (U S $ /b a r re l )

120
1H08, and rose again 1000
Correlation factor started to 0.95x in 2H08.

4Q2010 and 2011; and (3) a continuation of La Niña temperatures which 100 normalising to 0.7x from Dec-
08, but rose again from Sep- 800
09 onwards to close to 1x,

could have a longer-term impact on production. Short-term negatives are:


80
before falling back to around
0.7x currently. 600
60

(1) the possibility of a reduction of Argentine export tax; (2) the USDA 40
400

planting data report – which showed increased soybean acreage; and (3) 20 200

the reduction in competitiveness of CPO vs soyoil. 0 0


O cu l- 0 0

O c l- 0 1

O c l- 0 2

O c l- 0 3

O c l- 0 4

O cu l- 0 5

O c l- 0 6

O c l- 0 7

O c l- 0 8

O c l- 0 9

0
r 0

r 1

r 2

r 3

r 4

r 5

r 6

r 7

r 8

r 9

r 0
A p n -0 0

A p n -0 1

A p n -0 2

A p n -0 3

A p n -0 4

A p n -0 5

A p n -0 6

A p n -0 7

J a t- 0 8

A p n -1 9
J - 00

J u- 0 1

J u- 0 2

J u- 0 3

J u- 0 4

J - 05

J u- 0 6

J u- 0 7

J u- 0 8

J u- 0 9

J u- 1 0
l- 1
A p n -0

J a t- 0

J a t- 0

J a t- 0

J a t- 0

J a t- 0

J a t- 0

J a t- 0

J a t- 0

A p n -0

J a t- 0


Ja

Risks: (1) a significant change in crude oil price trend; (2) weather Crude Oil (US$/barrel) CPO (US$/tonne)

abnormalities; (3) change in emphasis on implementing global biofuel


mandates and trans-fat policies; (4) significant changes in trade policies of
vegetable oil importing or exporting countries; and (5) a sharper-than-
expected global economic slowdown.
♦ Forecasts. No change to our forecasts.
♦ Investment Case. We are maintaining our Neutral recommendation on
the plantation sector, as we believe there are not many positive catalysts
which would move CPO prices up in the near term, and therefore expect
plantation companies’ share prices to remain lacklustre until this scenario
changes. Despite this, we continue to have Outperform recommendations
on some stocks within the sector including SGX-listed First Resources (FV
= S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV =
RM3.70), while we maintain our Underperform recommendations on Sime Hoe Lee Leng
Darby (FV = RM8.15), Genting Plantation (FV = RM6.50) and IJMP (FV = (603) 92802184
hoe.lee.leng@rhb.com.my
RM2.30).

Please read important disclosures at the end of this report.

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13 July 2010

Monthly Statistics

♦ Production rising, but exports rising higher... Malaysia’s CPO production rose in June 10 by a minimal 2.5%
mom to 1.42m tonnes, while exports rose by a larger 5.5% mom to 1.44m tonnes. On a yoy basis, production
was slightly lower, falling 1.8% yoy, but exports rose by a higher 12.6% yoy. As a result of the larger rise in
exports versus production, closing CPO stock levels fell to 1.45m tonnes in June (from 1.56m tonnes in May).
Most notably, the mom increase in exports was to China (+13.8%), India (+54.3%), Egypt (+75.3%), Pakistan
(+21.1%), Ukraine (+20.3%) and the EU (+22.8%); offset by a decrease to Benin (-50.4%), Iran (-22.3%), UAE
(-25.8%) and the US (-57.9%).

♦ … stock/usage ratio fell back further. As a result of the lower CPO stock levels, stock/usage ratio fell further
to 7.8% (from 8.5% in May and versus the 7-year average of 9.1%). However, going forward, notwithstanding
any effects of adverse weather, we expect this to potentially start reversing from next month onwards, as it
approaches the peak seasonal production period.

Table 2: Monthly CPO Statistics

('000 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10
tonnes)
Opening
stocks 1,408.3 1,332.2 1,416.4 1,579.3 1,974.5 1,934.6 2,239.3 2,003.2 1,789.2 1,655.7 1,622.6 1,562.3
Imports 82.4 84.9 109.9 73.3 47.4 153.8 139.4 50.5 35.4 105.3 110.6 60.3
Productn 1,492.2 1,496.1 1,557.8 1,984.0 1,595.6 1,520.1 1,321.0 1,156.8 1,387.2 1,306.2 1,385.4 1,420.1
Total
supply 2,982.9 2,913.1 3,084.2 3,636.6 3,617.5 3,608.5 3,699.7 3,210.5 3,211.8 3,067.3 3,118.6 3,042.7
Exports 1,454.5 1,317.6 1,322.9 1,478.5 1,501.5 1,224.4 1,461.7 1,294.9 1,396.9 1,285.5 1,365.6 1,440.9
Domestic
use 196.2 179.1 182.0 183.6 181.4 144.9 237.3 126.3 159.1 159.3 190.7 150.4
Total
offtake 1,650.7 1,496.7 1,504.9 1,662.1 1,682.9 1,369.2 1,699.0 1,421.3 1,556.1 1,444.7 1,556.3 1,591.3
End mth
stocks 1,332.2 1,416.4 1,579.3 1,974.5 1,934.6 2,239.3 2,000.7 1,789.2 1,655.7 1,622.6 1,562.3 1,451.4

Productn
YTD 9,412.9 10,909.0 12,466.7 14,450.8 16,046.3 17,566.4 1,321.3 2,478.1 3,865.4 5,171.6 6,557.0 7,977.1
Mom (%) 3.2 0.3 4.1 27.4 (19.6) (4.7) (13.1) (12.4) 19.9 (5.8) 6.1 2.5
YoY (%) (4.4) (6.5) (1.4) 20.1 (3.8) 2.5 (0.7) (2.6) 8.7 1.6 (0.7) (1.8)
YTD (%) (3.6) (4.0) (3.7) (1.0) (1.3) (1.0) (0.7) (1.6) 1.9 1.8 1.3 0.7

Exports
YTD 9,030.2 10,347.8 11,670.7 13,149.2 14,650.7 15,875.0 1,461.7 2,756.6 4,153.6 5,439.1 6,804.7 8,245.6
Mom (%) 13.7 (9.4) 0.4 11.8 1.6 (18.5) 19.4 (11.4) 7.9 (8.0) 6.2 5.5
YoY (%) 3.7 (10.2) 2.0 10.7 10.2 (24.2) 8.0 3.0 10.8 7.7 11.0 12.6
YTD (%) 8.4 5.6 5.2 5.8 6.2 3.0 8.0 5.6 7.3 7.4 8.1 8.8

Stocks
Mom (%) (5.4) 6.3 11.5 25.0 (2.0) 15.7 (10.5) (10.7) (7.5) (2.0) (3.7) (7.1)
YoY (%) (32.6) (23.4) (19.1) (5.6) (14.6) 12.3 9.3 14.3 21.2 25.5 13.9 3.1

Source: MPOB, RHBRI

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Recent Developments

♦ Three short-term negative and long-term positive developments. We noted a few main developments in
the sector in the form of three long-term positives and three short-term negatives. Long-term positives are: (1) a
continued decline in stock/usage ratios for the 8 vegetable oils expected in 2011; (2) an increase in the biodiesel
mandate in Argentina for 4Q2010 and 2011; and (3) a continuation of La Niña temperatures which could have a
longer-term impact on production. Short-term negatives are: (1) the possibility of a reduction of Argentine export
tax; (2) the USDA planting data report – which showed increased soybean acreage; and (3) the reduction in
competitiveness of CPO vs soyoil.

♦ Long-term positives in the form of a continued decline in stock/usage ratio for 2011 for 8 oils;... Oil
World has released its latest estimates for Oct/Sept 2010/2011, which continues to see a decline in stock/usage
ratio of the 8 global vegetable oils to 10.6% in Oct 2011 (from 10.9% in 2010), on the back of a 4.4% yoy
growth in production and a 4.1% yoy growth in consumption. The growth in production is mainly expected to
come from palm oil (+5.6% yoy) and soybean oil (+7.1% yoy), although this is offset somewhat by an expected
decline in rapeseed oil production (-2. 7% yoy). On the demand front, the consumption growth is expected to be
driven mainly by soybean oil (+7.5% yoy), followed by palm oil (+4.8% yoy), while rapeseed oil consumption is
projected to fall by 1.4% yoy. Out of the total projected consumption for 2011, 50% of this is expected to come
from the biofuels sector, based on the global mandates in place. With these new projections, Oil World sees the
global market for vegetable oils to remain tight, with the world market struggling to increase production
sufficiently to meet requirements, and consumers becoming more reliant on the supply of palm oil and soya oil.
As a result, Oil World expects to see vegetable oil prices remaining firm and strengthening in the year ahead.

Chart 3 : Eight Vegetable Oils Stock/Usage Ratio

140 12.4%
130 12.2%
120 12.0%
110

Stock/usageratio (%)
11.8%
Usage('000tonnes)

100
90 11.6%
80 11.4%
70 11.2%
60 11.0%
50 10.8%
40
10.6%
30
20 10.4%
10 10.2%
0 10.0%
2005 2006 2007 2008 2009 2010F 2011F

Disappearance Stocks/Usage Ratio

Source: Oil World, RHBRI

♦ …an increase in the biodiesel mandate in Argentina; and... China’s ban on Argentinean soyoil is still in
place, despite many naysayers saying it would not last. The government has finally responded to this by
increasing the admixture mandated for biodiesel to 7%, most likely to be implemented from Sep 2010 onward
(from 5%, which was mandated from Mar 2010 onwards). It is likely that this mandate will be raised further to
10% by Jan 2011, while the government is also building more power plants to be fueled by biodiesel so as to
increase domestic demand for soyoil. This will serve to reduce soyoil supply from Argentina in the longer term,
and therefore result in increasing reliance on palm oil for the food industry.

♦ … a continuation of La Niña temperatures which could have a longer-term impact on production.


According to the climatic models, sea surface temperatures in the central equatorial Pacific have continued to cool
over the past fortnight, and are consistent with the developing stages of a La Niña event. The majority of climate
models surveyed by the Bureau suggest current patterns and trends will continue, with a significant likelihood of
further ocean cooling beyond La Niña thresholds, and the chance of a La Niña in 2010 is now clearly more likely
than not. The Southern Oscillation Index (SOI) remains in positive territory, and was around +1.8 in June (+10.0

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13 July 2010
in May). Should this sustain at above +5.0 for another few consecutive months, this would be a confirmation of
La Niña, the impact of which, would be felt on harvesting immediately, and on production 9-12 months later.

Chart 4 : Southern Oscillation Index Chart


4000 25

3800
20
3600

3400 La Nina: SOI > +5


15
3200

3000 10

2800
5
2600

Souther Oscillation Index (SOI)


2400
CPO Price (RM/tonne)

0
2200

2000 -5

1800
-10
1600

1400
-15
1200

1000 -20
El Nino: SOI < -5
800
-25
600

400
-30
200

0 -35
Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr-
00 00 00 00 01 01 01 01 02 02 02 02 03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10

SOI CPO Price El Nino La Nina

Source: Australian Bureau of Meteorology

♦ Short-term negatives in the form of a possibility of reduction of Argentine export tax;… In Argentina, at
the end of August, the special power given by Congress to the Argentine government ends and the opposition is
expected to enforce changes to export taxes. Some of the scenarios being put forth include the elimination of
export taxes on wheat, corn, sunflowerseed and products and a reduction in soybean export tax for the smaller
farmers. Although this is still very preliminary and a very politically-sensitive situation, we are wary of the
negative consequences of such a move on the global vegetable oil market and prices.

♦ … USDA planting data report – which showed increased soybean acreage; and… The USDA planting data
report released at end-June showed an increase in the soybean acreage estimates of 1% from end-Mar’s
intentions, while corn acreage showed an opposite 1% decline from end-Mar’s intentions. For corn, the planted
acreage was 1.7% (or almost 1.5m acres) below consensus expectations, while for soybean, the planted acreage
was 0.8% (or about 0.6m acres) above consensus expectations. All in, this would mean a 2% yoy increase in
both soybean acreage (to 78.9m acres) and corn acreage (to 87.9m acres) in 2010. This indicates the US
farmers’ expectations that margins for soybean would continue to be better than that of corn going forward into
the next crop year. With the larger soybean crop expectations based on planted acreage, and near-record global
soybean stocks of an estimated 69.9m tonnes as at end-Sep 2010, this could see global soybean stocks rising by
7% yoy in Sep-2011 to as high as 74.8m tonnes. While this would seem to have a bearish impact on CPO prices,
we note that this depends very much on how much soybean is actually crushed and exported out, which in turn
would depend on the crushing margins at the time of harvesting.

♦ … the reduction in competitiveness of CPO vs soyoil. In the last month, the discount between CPO and
soyoil has narrowed to US$82/tonne and is now lower than the average historical levels of US$100/tonne (from
an average of US$89/tonne last month), while the discount between CPO and rapeseed oil has widened to
US$103/tonne (from US$87/tonne last month) (see Charts 1 & 5). Given the narrower discount between CPO and
soyoil, we expect to see demand rebalancing happening again in the more price-sensitive markets like China and
India. This is already expected to be seen in India, where a shift in Indian import demand towards soyoil in the
second half of the Oct/Sep 2009/10 crop year would result in imports of CPO falling by 7.3% yoy in Oct/Sep
2009/10, as compared to a 57.5% yoy projected increase in soyoil imports. This can already be seen happening
in YTD June 2010, as Indian imports of Malaysian CPO have fallen 18.1% yoy to 566.8m tonnes.

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Chart 5 : Discount between CPO and Soyoil and CPO and Rapeseed Oil in US$

690
660
630
600

570
540
510
480
450

420
390
US$/tonne

360
330
300
270

240
210
180
150
120
90
60
30
0
-30 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr-
03 03 03 03 04 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10

CPO v soyoil CPO v rapeseed oil

Source: Bloomberg, RHBRI

♦ Cautious ST outlook maintained, although LT outlook still positive. Based on the recent developments
noted above, we summarise that the near-term outlook remains cautious with no significant positive catalysts for
CPO prices at the moment. In the longer-term however, supply and demand statistics remain positive, while
weather uncertainties remain an upside risk to prices, all of which would support CPO prices above
RM2,000/tonne for the long term.

Forecasts

♦ CPO price forecasts maintained. No change to our forecasts as we maintain our CPO price forecasts of an
average of RM2,500/tonne for CY2010, RM2,700 for CY2011 and RM2,500 for CY2012.

Risks

♦ Main risks include: (1) a significant change in crude oil price trend resulting in significant movement of CPO
and other vegetable oils prices; (2) weather abnormalities resulting in an over- or under-supply of vegetable
oils; (3) change in emphasis on implementing global biofuel mandates and trans-fat policies; (4) significant
changes in trade policies of vegetable oil importing or exporting countries; and (5) sharper-than-expected
global economic slowdown.

Valuations and Recommendations

♦ Neutral maintained. We are maintaining our Neutral recommendation on the plantation sector, as we believe
there are not many positive catalysts which would move CPO prices up in the near term, and therefore expect
plantation companies’ share prices to remain lacklustre until this scenario changes. Despite this, we continue
to have Outperform recommendations on some stocks within the sector including SGX-listed First Resources
(FV = S$1.35), KLK (FV = RM20.55), IOIC (FV = RM6.65) and CBIP (FV = RM3.70), while we maintain
our Underperform recommendations on Sime Darby (FV = RM8.15), Genting Plantation (FV = RM6.50)
and IJMP (FV = RM2.30).

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Table 2. Valuation Bases


Fair Value
Company (RM/share) Valuation Methodology

Genting 6.50 Target 14.5x PER CY11 earnings.


Plantations
CBIP 3.70 Target PER of 6x CY11 for the oil mill engineering division and 12x CY11 for the plantation division.

IJMP 2.30 Target 14.5x PER CY11 earnings

IOIC 6.65 Target PER of 16x CY11 for the plantation division, 10.5x CY11 for the manufacturing division and 12x
CY11 for the property development and investment property divisions (on fully diluted basis).

KLK 20.55 Target PER of 16x CY11 for the plantation division, 10.5x CY11 for the manufacturing division, 12x
CY11 for the property division and zero value less potential provisions for the retail division.

Sime Darby 8.15 25% holding company and corporate governance risk discount to SOP comprising: target PER of 16x
CY11 for the plantation division and 12x CY11 for the energy & utilities division, heavy equipment,
property, motor and other small divisions.

First S$1.35 Target 10.0x PER CY11 earnings


Resources

Source: RHBRI

Table 3: Impact of every RM100/tonne increase in CPO price

Genting Plantations +5-7%


KLK +4-6%
IJMP^ +5-7%
IOI Corp +3-5%
Sime Darby +4-6%
First Resources +8-10% (for every US$50/tonne increase)
CBIP +2-4%

Source: RHBRI

Table 4. Regional Peer Comparison


Company FYE Price * Currency PER (x) EV/EBITDA (x) P/NTA (x)
FY10f FY11f FY10f FY11f FY10f FY11f
WIL SP Equity Dec 6.03 SGD 15.3 13.8 8.6 7.7 2.2 1.9
IFAR SP Equity Dec 2.08 SGD 13.5 11.1 4.4 3.9 1.9 1.6
GGR SP Equity Dec 0.54 SGD 14.2 9.6 6.4 5.5 0.9 0.9
FR SP Equity Dec 1.08 SGD 10.6 9.6 5.8 5.7 1.7 1.5

Average (Singapore) 13.4 11.0 6.3 5.7 1.7 1.5

AALI IJ Equity Dec 18,700 IDR 12.6 11.2 9.2 8.2 4.0 3.4

LSIP IJ Equity Dec 7,750 IDR 11.0 10.4 7.7 7.6 2.2 1.9

SGRO IJ Equity Dec 2,275 IDR 10.4 9.4 6.9 6.1 2.0 1.7

UNSP IJ Equity Dec 360 IDR 6.0 5.3 2.9 2.6 0.5 0.5

Average (Indonesia) 11.3 10.3 7.9 7.3 2.7 2.3

Average (ex-Malaysia) 12.5 10.7 7.0 6.4 2.1 1.8

Malaysia Ave 18.9 15.2 12.0 10.0 2.6 2.4

Msia's % premium/(discount) over peers 50.8% 41.8% 71.2% 56.7% 23.1% 30.7%

* @ 12 July, in respective currencies

Source: Bloomberg, IBES Consensus & RHBRI

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Chart 6: IOICorp Technical View Point


♦ The share price of IOICorp enjoyed a smooth
uptrend, from a level below RM2.96 in late 2008 to
a high of RM5.60 in Jan 2010.

♦ However, after failing its attempts to penetrate the


tough resistance at RM5.60, it pulled back on mild
profit-taking activities.

♦ The stock relaunched another attempt to remove


the resistance in Mar 2010, but again, it was
snapped with another round of profit-taking
pressure. By May, it was already trading at below
the RM4.85 key level.

♦ But, the stock managed to recover to above the


RM4.85 level in early Jun, and immediately kicked
off a fresh recovery leg.

♦ It surpassed both the 10-day and 40-day SMAs in


recent trading and ended yesterday at RM5.09.

♦ Technically, its short-term technical readings have


improved, and it is ready to climb higher towards
the heavy resistance of RM5.60 in the near term.

♦ However, due to the muted daily average turnover


in recent months, the stock is still likely to be
trapped within the current trading range of RM4.85
– RM5.60 for the medium term, in our view.

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.

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13 July 2010
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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