PP 7767/09/2010(025354)

9 August 2010

Malaysia Corporate Highlights

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

Marke t Upda te
9 August 2010
MARKET DATELINE

Shifting Trends
Potholes And Speedbumps

♦ Results season ahead – potholes and speedbumps. The results

Table 1. Sectoral Performance
season thus far has been relatively bumpy in our view with major
YTD Abs 1m Abs Perf
potholes for some companies (Notion Vtec), while others have warned of
Perf (%) (%)
speedbumps ahead (Kossan). Some results have come in within
FBM KLCI 7.0 4.8
expectations (e.g. Faber and Amway) or above (e.g. Unisem). We expect
Power 17.4 16.3
the remaining results to be relatively mixed, although investors should be
Water & Infra 5.9 9.9
wary of more potential earnings disappointments for some sectors, which
Insurance 20.7 9.6
are not yet reflected in the share price performance over the last month.
Motor 27.6 9.4
♦ The potholes. Gaming 3.0 8.8
Transport 14.0 7.1
o Impact of weaker USD on revenue – Some of the negative issues
Telecom 12.8 7.1
we should anticipate include the impact of the weaker USD vs. RM for
Building Mats 2.2 6.6
the year to date (-8.1%), and on a yoy (-10.0%) basis. Likewise, the
Timber 17.7 6.4
Euro has weakened by 15.3% YTD and by 17.4% yoy while the GBP
O&G 1.4 5.9
has weakened by 9.0% YTD and by 15.7% yoy. This will likely have
Construction 19.2 5.8
an impact on exporters who cannot re-price their sales immediately,
Plantations 0.4 5.4
such as the rubber glove manufacturers and semiconductor players,
Media 23.1 4.7
although the lag period is likely to be only 1-2 quarters.
Property 4.9 4.6
o Translation effects for overseas subsidiaries – We also highlight Consumer 13.0 3.5
companies with major overseas subsidiaries that may be affected by Banks 9.9 2.5
translation from the foreign currency to RM. These include YTL Power Manufacturing 21.3 (0.2)
(for Wessex Water), Axiata (for its foreign operations) and KNM (for Semicon & IT 7.7 (9.3)
Borsig). However, we note also that there will be beneficiaries such as As at 5 Aug
the motor assemblers (whose imported costs would be lower) and Source: Bloomberg, RHBRI
TNB (due to lower imported costs of coal).

o Significant provisions. Although Sime Darby was quick to deny

news reports of significant losses for FY6/10, we are still wary that
the new CEO and revamped senior management may seek to “kitchen
sink” the results. Provisioning may also affect companies that have
invested heavily during this period of economic normalisation,
including Ann Joo (for the blast furnace), Notion Vtec (for its 2.5”
baseplate project) and the glove companies (for their new lines).

♦ Speedbumps. Looking ahead, we believe there will a number of

speedbumps or profit warnings if there is a sharper-than-expected global
economic slowdown. As it stands, the semiconductor and hard disk drive
(HDD) producers have begun to warn of slower demand growth and price
competition. In oil & gas, the offshore support vessels continue to warn of
soft charter rates, while for the plantation sector, seasonally higher CPO
production levels in the 2H could result in lower CPO prices. Timber
players could also be affected by the slower-than-expected recovery in
demand as well as the tight supply of logs.

♦ We remain positive on the longer-term outlook. In the near term,

we see the potential for more negative rather than positive news flow,
which suggests that the market will continue to be volatile. This will likely
persist until a clearer picture emerges on the strength of the global
Yap Huey Chiang
economic recovery. Nevertheless, beyond the 2Q potholes, and the (603) 92802171
potential 2H2010 speedbumps, we remain positive about the longer-term yap.huey.chiang@rhb.com.my
outlook given our expectation of sustained economic earnings growth.

Please read important disclosures at the end of this report.

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 9 August 2010

Table 2. Quarterly Outlook By Sector

Sector Recom 2Q Results Expectations
Banks Overweight We believe the upcoming quarterly results for the banks would be well supported by the strong loan
growth momentum seen thus far, aided by the OPR hikes in Mar and May. Any earnings surprise, we
think, would likely come from either lower-than-expected loan provisioning and/or stronger-than-
expected non-interest income.

Power Overweight With demand growth and coal cost virtually “in-the-bag” for TNB’s 4QFY08/10, earnings are unlikely to
surprise, barring lumpy provisionings. As for YTL Power, while utility assets tend to generate stable
earnings, Wessex Water’s RM-reported earnings could be adversely impacted by the strengthening of RM
vs. GBP.

Construction Overweight There is a risk that the margin recovery that started 1-2 quarters ago could lose momentum mainly due
to rising prices of diesel and other inputs which correlate closely to crude oil prices.

Telecom Overweight For Axiata, we believe earnings could come in above consensus (although in line with our expectations)
given the strong 2Q performance reported by overseas subsidiaries XL and Dialog, notwithstanding the
potential negative effects of the USD to RM translation. As for Maxis, although voice revenues will
remain under pressure, earnings will likely be supported by growth in subscribers in East Malaysia as
well as non-voice revenue. This would be in line with our expectations.

Motor Overweight The motor sector will likely see another strong quarter as car sales continue to be strong. However due
to the higher base effect, we believe the yoy growth will begin to moderate as compared to the 1Q. We
believe UMW will likely report weaker results for its oil & gas but we note that the division contributes
less than 5% to revenue vs. the automotive division which accounts for 80% of its revenue.

Rubber gloves Overweight For Kossan and Hartalega, we expect slightly weaker qoq numbers due to margin contraction on account
of the time lag in passing on the higher latex cost (which was at an all-time high in Apr). We have
already assumed the margin contraction in our forecasts.

Plantation Neutral We expect the plantation companies to mostly report earnings in line with expectations, given the spot
CPO price of RM2,500-2,600/tonne during the quarter. We note that Sime Darby and IOI Corp may miss
expectations due to weaker-than-expected production numbers.

Oil & Gas Neutral The oil and gas sector will likely report weaker-than-expected quarterly results due to the decline in
offshore greenfield activities and price competition, which has affected the vessel owners (Petra
Perdana) and equipment suppliers (KNM, Wah Seong), although sustained brownfield activities and
previously-secured orderbooks will support the fabrication and engineering earnings for the likes of
SapuraCrest and Dialog. We expect the quarterly results to reaffirm our cautious view on the sector,
although longer term, we expect crude oil demand to pick up in line with global economic growth, and
this will drive investments and revive the positive outlook for the service providers.

Airlines Neutral The recovery in traffic and yields may come in stronger than expected during the quarter. While this
may be partially offset by high-than-expected fuel bills, all in there is still a fair chance that the results
will come in better than expectations.

Gaming Neutral The gaming sector could surprise on the upside, particularly in Singapore, where anecdotal evidence of
win per table and market share seem to be stronger than our expectations. As expected, after the
1QFY10 numbers were released, there was a rash of upgrades to earnings and recommendations, which
we expect to continue for Genting Singapore, after this upcoming set of results. On the Malaysian front,
earnings should be in line for both the casino and NFO operators, as the impact of the more intense
competition is felt on visitor numbers for the casino and sales per draw for the NFOs.

Media Neutral For media players, earnings would likely be in line on the back of strong 1HFY10 adex growth. We
expect 2HFY10 adex growth to slow down largely due to the higher base effect.

Steel Neutral Most of the steel players will likely report flattish 2Q results on qoq basis as both demand and prices
were still strong in the first two months of the 2Q. We believe the 1H results will thus account for more
than 50% of our full-year forecasts, but we anticipate the 2H to be significantly weaker due to lower
demand and prices.

Timber Neutral The timber players could be affected by slower-than-expected recovery in sales, while operations could
be affected by tight supply of logs (due to poor weather) and shortage of labour.

Source: RHBRI

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Table 3. RHBRI’s Top Picks

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
5 Aug FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Maybank Jun 7.74 9.66 51.3 60.7 35.7 18.1 15.1 12.8 2.0 n.a. 3.7 OP
CIMB Dec 7.38 8.40 47.8 56.3 20.2 17.9 15.4 13.1 2.4 n.a. 1.7 OP
Maxis Dec 5.31 6.20 33.2 36.2 6.6 9.1 16.0 14.7 3.9 10.3 6.3 OP
Tenaga Aug 8.68 10.20 68.0 78.7 36.6 15.8 12.8 11.0 1.3 5.0 3.1 OP
PLUS Dec 3.79 4.33 24.5 37.4 3.3 52.7 15.5 10.1 3.1 9.5 4.7 OP
Gamuda Jul 3.31 3.85 13.6 16.1 40.4 17.9 24.3 20.6 2.0 113.7 3.6 TB
MRCB Dec 1.76 1.96 6.0 7.3 57.3 21.8 29.4 24.2 1.9 18.4 0.0 TB
Media Prima Dec 2.19 2.80 16.3 18.0 136.4 10.1 13.4 12.2 2.2 6.8 4.6 OP
KPJ Dec 3.56 4.51 24.0 26.6 14.6 10.7 14.8 13.4 2.5 14.2 3.9 OP
Mah Sing Dec 1.80 2.09 13.1 18.3 15.8 39.3 13.7 9.8 1.6 9.8 3.9 OP
Faber Dec 2.79 3.82 26.3 26.4 15.3 0.5 10.6 10.6 2.2 6.6 2.5 OP
HSL Dec 1.56 1.95 13.4 16.2 30.8 21.4 11.7 9.6 2.4 14.1 1.6 OP
^ FY10-11 valuations refer to those of FY11-FY12 Source: RHBRI, Bloomberg

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
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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.

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