PP 7767/09/2010(025354)

6 August 2010
Malaysia Corporate Highlights
RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Sector Upda te
6 August 2010
MARKET DATELINE

Healthcare
The Wealth Effect

♦ Rising income levels. In our view, the wealth effect will be one of the
Table 1. Healthcare-Related Stocks
primary drivers for growth in healthcare expenditure in Malaysia. The
Price FV Rec
Government has already stated its long-term plans under the New
(RM)# (RM)
Economic Model to raise per capita income from US$7.6k currently to
KPJ 3.57 4.51 OP
US$15k in 10 years.
Faber 2.84 3.82 OP
♦ Insurance coverage. Higher income levels will likely promote the Kossan 3.86 5.81 OP
awareness for better levels of healthcare. We believe this will go hand-in- Hartalega 8.18 9.29 OP
hand with an increase in medical insurance coverage, resulting in: 1) shift Adventa 2.95 4.92 OP
in patients numbers from public to private healthcare; and 2) increase in Top Glove 6.62 6.90 MP
patients paying for themselves to those covered by medical insurance. Allianz 4.13 5.32 OP
Statistics show that insurance has increased its contribution to total # As at 4 Aug
national healthcare expenditure from 5% (RM410m) in 1997 to 8.5% Source: Bloomberg, RHBRI
(RM2.97b) in 2008, or a CAGR of 19.7%.

♦ More incentives. Going forward, as the Government becomes Chart 1. Total Health Expenditure By
increasingly conscious of the subsidies (estimated at RM8.5bn in 2006 by Private Spending (from 1997-2008)
the Economic Planning Unit) given to the public for healthcare, we expect
20000

more tax incentives for higher income individuals to seek healthcare 18 0 0 0

services from the private sector. 16 0 0 0

♦
14 0 0 0

Medical tourism. The added boost will likely come from medical tourism, 12 0 0 0

and Pantai, Gleneagles and KPJ have upgraded their facilities in some of 10 0 0 0

their hospitals for this market. Malaysia’s medical tourism industry could 8000

also indirectly benefit from Thailand’s political troubles. 6000

4000

♦ Scarcity premium. Khazanah Nasional’s takeover of Parkway has 2000

brought the healthcare sector into the limelight. Although sceptics may
0

19 9 7 19 9 8 19 9 9 2 0 0 0 2001 2002 2003 2004 2005 2006 2007 2008

dismiss the high takeover PER of 27.6x based on FY10 EPS, the
aggressive takeover suggests that there is significant growth potential for Source: Malaysia National Health Accounts
the sector, and in particular for large well-run hospital groups with a 2010
regional foothold. Moreover, with the takeover and privatisation of
Parkway, we believe there will be a scarcity premium attached to the
remaining and broadly comparable hospital groups like KPJ (OP, FV =
RM4.51).

♦ Non-medical support services, also a growth industry. In our view,

there is growing demand for non-medical support services, i.e. with
regards to disposal of bio-medical waste, maintenance of hospital
equipment, laundry, etc.. We highlight that Faber (OP, FV = RM3.82) is
the largest provider of such services in Malaysia under a Government
concession which is up for renewal in Oct 2011. Nevertheless, the
company has already expanded to India (working with Apollo group
hospitals) and the United Arab Emirates.

♦ Long-term positive outlook intact for the glove manufacturers.

Although the near-term picture for the rubber glove manufacturers is
negative, and there could be some earnings disappointment ahead in the
upcoming quarterly results, we believe the long-term outlook remains
positive given rising awareness for health safety, as well as in response to Yap Huey Chiang
disease outbreaks. Our top pick is Kossan (OP, FV = RM5.81). (603) 92802179
yap.huey.chiang@rhb.com.my
* Excerpt from the Healthcare Sector Report published on 6 Aug 2010.

Please read important disclosures at the end of this report.

Page 1 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 6 August 2010

Table 3. Healthcare-Related Stocks

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
4 Aug FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
KPJ Dec 3.57 4.51 24.0 26.6 14.6 10.7 14.8 13.4 2.5 14.2 3.9 OP
Faber Dec 2.84 3.82 26.5 24.2 16.4 -8.8 10.5 11.5 2.2 6.6 2.5 OP
Kossan Dec 3.86 5.81 37.2 44.7 -0.8 20.3 10.5 8.7 2.7 8.4 1.3 OP
Hartalega^ Mar 8.18 9.29 71.5 83.6 21.0 16.9 11.4 9.8 4.0 10.5 2.9 OP
Adventa Oct 2.95 4.92 27.4 37.8 24.4 38.1 10.8 7.9 2.0 7.5 4.0 OP
Top Glove Aug 6.62 6.90 40.9 46.0 >100 12.4 15.9 14.1 3.8 12.8 3.5 MP
Allianz Dec 4.13 5.32 71.9 86.2 -7.0 19.9 5.7 4.8 1.0 6.2 0.5 OP
^ FY10-11 valuations refer to those of FY11-FY12
* Based on consensus estimates
Source: RHBRI, Bloomberg

Chart 2: KPJ Technical View Point

♦ After rangebound consolidation at between RM2.70
and RM3.10 for more than 10 weeks, KPJ finally
engineered a bullish breakout from the RM3.10
tough hurdle in mid-Jun 2010.

♦ And despite facing a temporary setback to below

the supportive 10-day SMA at one stage, the stock
managed to regain its upward momentum and
scaled higher to its all-time high of RM3.85 in late
Jul on steady buying momentum.

♦ Thereafter, a mild correction set in, and it breached

the 10-day SMA and the RM3.60 support level to
hit a low of RM3.52 in recent trading.

♦ Yesterday, it bounced back with a positive candle

on higher volume, suggesting a possible rebound
underway.

♦ But in our view, a further recovery to above the

RM3.60 level and the 10-day SMA of RM3.63 is
crucial to fend off the sellers, as well as to resume
its upswing momentum.

♦ Next key level to challenge is the RM3.85 high.

♦ Failure to cross the 10-day SMA will encourage a

further consolidation towards the 40-day SMA at
RM3.48, followed by the lower support at RM3.40
and the long-term uptrend line near RM3.30 region.

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
(previously known as RHB Sakura Merchant Bankers). 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

Page 2 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com
 6 August 2010

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.

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.

Page 3 of 3

A comprehensive range of market research reports by award-winning economists and analysts are exclusively
available for download from www.rhbinvest.com