Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

1 October 2010 (Strategy, Banks, Fajarbaru, Hiap Teck; Technical: Sime Darby)

Top Story : 4Q2010 Market Outlook And Strategy – Volatility as economic worries persist
Strategy Update
- The impending release of the 2011 Budget, detailed ETP blueprint, award of major infrastructure contracts
and Federal land deals, and the Sarawak state elections would likely create news flow and spur investors’
interest on the construction and property sectors.
- Nevertheless, as valuations of the local bourse are no longer cheap, it is susceptible to any adverse
developments in the external sector and cause volatility to the market.
- Although we are less sanguine on the near-term outlook, we believe there is still room for the market to
trend higher in 2011. This is primarily predicated on the view that the global economic recovery is more
sustainable than feared, which in turn implies sustained corporate earnings growth (+12.9% projected for
2011) that will continue to create new shareholders’ value for investors.
- Our end-2011 FBM KLCI target remains unchanged at 1,640, based on 15x mid-cycle 2012 earnings.
This, however, will not be without volatility as the global economy enters into a period of slowing growth in
an uneven phase of recovery.
- Whilst we acknowledge that the long-term economic picture remains positive for the equity market, the
revival of a “double-dip” recession fear can have a disproportionate impact on the market in the foreseeable
future. Under such circumstances, it may be timely for investors to do some top slicing on stocks where
valuations have become rich in the run-up of the market. This would then provide more room for investors
to accumulate fundamentally-robust stocks on weakness.

Sector Call

Banks : Aug ‘10 system data – Monthly applications at another high and broad-base Overweight
Sector Update
- Aug ’10 loan growth remained stable at +11.8% yoy vs. +11.9% yoy in Jul ’10. Overall system-wide loan
growth was driven by the household segment (+13.4% yoy) with growth still broad-based.
- Aug ’10 loan applications reached another new high of RM62.6bn (+44.6% yoy; +7.2% mom). Loan
applications from households rose by 28% yoy while applications from businesses surged 70% yoy.
Absolute loan approvals also rose to RM31.4bn (+40.3% yoy) vs. RM28.9bn (+7.9% yoy) in Jul ’10 with the
main driver being approvals for working capital loans.
- Industry asset quality was relatively unchanged mom. Absolute gross impaired loans/NPLs was lower by
1% mom but individual and collective impairment provisions rose by 0.8% mom. On the whole, system-
wide gross and net impaired loan ratios remained stable mom at 3.5% and 2.2% respectively.
- Commercial banks’ BLR remained stable mom at 6.27% but ALR in Aug ‘10 rose by 3bps to 5.22% as
assets were repriced following Jul’s 25bps increase in OPR. The 3-month overnight interbank rate
remained stable at 2.88% and consequently, interest spread rose to 2.34% (Jul ’10: 2.31%).
- As at end-Aug, LD ratio for the banking system stood at 81.4%, relatively stable as compared to 81.7% as
at end-Jul. Industry capital ratios were broadly stable and healthy with the core capital ratio and RWCR at
13.3% (Jul ‘10: 13.3%) and 15.1% (Jul ‘10: 15.1%) respectively.
- No change to our Overweight rating on the sector.

Corporate Highlights

Fajarbaru : Lands RM62.4m automotive industrial park infrastructure job Outperform

News Update
- Fajarbaru has been awarded by the ECER Development Council a RM62.4m contract for earth and
infrastructure works for Phase 2, Automotive Industrial Park, Pekan-Peramu, Pahang.
- This is the first key contract Fajarbaru has secured so far in FY06/11, boosting its outstanding construction
orderbook by 16% from RM397m to RM459m.
- Assuming an EBIT margin of 10-12%, the contract will fetch RM6.2-7.5m EBIT over the 18-month
construction period commencing Oct 2010.
- Forecasts maintained as we assumed Fajarbaru to secure RM250m worth of new jobs p.a. in FY06/11-12.
- Fair value is RM1.37. Maintain Outperform.

Hiap Teck Venture : FY07/10 results boosted by better margins Outperform (up from MP)
4QFY10 Results
- FY07/10 net profit beat our forecast by 21%, but was in line with the consensus.
- Despite an 8.1% yoy drop in revenue to RM1.07bn as a result of lower demand from both local and
international markets, Hiap Teck still managed to record a 16.5% rise in net profit from RM43.4m in FY09
to RM50.7m in FY10. This was mainly driven by improvement in margins and lower finance costs.
- 4QFY10 revenue and net profit declined by 18.4% and 33.0% respectively, mainly due to lower sales
volume and a drop in operating margins.
- We are raising our FY11-12 net profit forecasts by 6.5-7.1%. Fair value for Hiap Teck has been raised to
RM1.63 (from RM1.51). Upgrade to Outperform as valuations have become more attractive.

Technical Highlights

Daily Trading Strategy : Optimism on a technical rebound persists…

- From a positive perspective, heavy T+4 force-selling pressure from last Friday’s 1.73bn shares transacted
has been well absorbed by yesterday’s improved trading volume, amid a mild gain on the FBM KLCI.
- But due to the index’s failure to overcome the key resistance of the 10-day SMA near 1,465 for a fourth
consecutive day, the short-term technical readings on the index have gradually turned negative.
- In fact, we expect the current consolidation to continue with a further dip on the index to cover a small
technical gap at 1,453.99 and to retest the 1,450 critical support soon.
- However, as we reiterated earlier, as long as the index can sustain at above 1,450, the short-term outlook
on the FBM KLCI will remain positive.
- As such, aggressive investors can prepare to bargain for value stocks that have retraced significantly from
their recent tops, for a technical rebound in the near term should the index sustain at above 1,450
eventually.

Daily Technical Watch: Sime Darby – Poised to challenge the RM9.00 resistance soon…
- 10-day SMA: RM8.365
- 40-day SMA: RM8.037
- Support: IS = RM8.00 S1 = RM6.70 S2 = RM5.40
- Resistance: IR = RM9.00 R1 = RM10.00 R2 = RM10.80

Bulletin Board

Co/Sector News Impact Recom

Power According to Malaysia Building Integrated The move towards renewable energy (RE) was OW
Photovoltaic (MBIPV), the renewable power sector recently emphasised again in the ETP and the FiT
is expected to generate an estimated RM70bn in mechanism would be crucial to encourage a more
revenue by 2020 following implementation of the wide-spread adoption of RE. In our opinion, much
feed-in tariff scheme next Jul. There would also be would still depend on the Government’s will power
some RM19bn of loan values for renewable energy given that tariffs would have to be raised to help
projects by 2020. (Starbiz) subsidise the higher generation cost of RE.
Consumer- According to GAB MD Charles Ireland, based on Positive. Having a low per capita consumption as OP FV =
Brewery/ research obtained from Delloite Research, compared to other countries across the region RM6.03
Carlsberg Euromonitor and The Economist Intelligence implies further room for growth. We note that the
Unit, Malaysia has the lowest per capita consumption per capita is based on legal
consumption of alcohol in South East Asia at 21 drinkers i.e. non-muslim above 18. We believe
litres per adult per year, whereas Thailand is this augurs well for Carlsberg as there is still
three times that. (The Edge Financial Daily) room to grow in the overall market.
Hai-O In a media interview, Hai-O’s MD said that the Positive, if it is true that the problems in the MLM UP, FV =
company is ready with various strategies to division have been cleaned up and that the RM2.84
strengthen its business, including introducing downturn is just temporary. As for the prospects
new creative products like technology products of the energy division, we believe earnings
 under its new Energy division and adding new contribution may take some time to materialise,
distributors to its MLM division. He added that the given that this is a new technology and a new
current downturn was just temporary due to business for Hai-O. We leave our forecasts and
some negative newsflow and internal matters, recommendation unchanged for now, pending
but that the company had cleaned up the matters our meeting with management next week.
already. Going forward, he said that the new
energy division would help to offset the slowdown
in MLM business and would be the growth driver
in the future. (The Star)

Changes To Foreign Shareholdings (%)

Stock Aug-10 Sep-10 Chg (%)
Gamuda 32.0 36.0 4.0
Genting 37.0 35.0 -2.0
Genting M'sia 33.0 35.0 2.0

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Evergreen Fibreboard Tax exempt interim dividend of 2 sen 18-Oct-10 15-Nov-10
Asia Poly Holdings Tax exempt interim dividend of 2% 27-Oct-10 22-Nov-10
United Malacca Bonus issue on the basis of 1-for-2 28-Oct-10 -
WZ Steel Single tier final dividend of 1 sen 28-Oct-10 15-Nov-10
Eurospan Holdings First and final single tier dividend of 8 sen 11-Nov-10 6-Dec-10
Hai-O Enterprise Final div of 10 sen less 25% tax + single tier div of 4.5 sen 26-Nov-10 10-Dec-10

Going “ex” on 5 Oct

United Malacca Final div of 11 sen less 25% tax + 4.5 sen TE + 9.5 sen single tier 5-Oct-10 26-Oct-10

...For more details, see individual reports attached

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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
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Industry/Sector Ratings

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