PP 7767/09/2010(025354)

30 March 2010

Malaysia Corporate Highlights

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Company No: 233327 -M

Marke t Upda te
30 March 2010
MARKET DATELINE

New Economic Model

Broad Framework Unveiled

♦ New Economic Model framework unveiled. The Prime Minister

Table 1. NEM Beneficiaries
unveiled the broad framework for the New Economic Model (NEM) today
Price# FV Rec
at the InvestMalaysia 2010 conference. We had anticipated the launch in
(RM) (RM)
our Market Update on 28 Jan and as expected, the NEM outlined plans to
Resources-
raise per capita income from US$7.6k currently to US$15k in 10 years,
Related
and 6.5% p.a. GDP growth or higher to achieve developed nation status
Sime Darby 8.70 9.85 OP
by 2020. The NEM essentially shifts the ethnic focus of the previous
IOI 5.40 6.65 OP
National Economic Policy to one that focuses on the bottom 40% of
KLK 16.44 18.40 OP
households by income levels. The PM also highlighted six national key
CBIP 2.93 3.60 OP
economic activities (NKEA) to be the engines of growth, including oil and
Jaya Tiasa 3.94 2.35 UP
gas, electronics, electrical, tourism, agriculture and financial services.
Ta Ann 5.95 5.95 OP
♦ As expected. While the PM talked about relooking at the subsidy system, WTK 1.40 1.18 MP
introduction of the GST and also pledged to carry out economic reforms, Evergreen 1.71 2.35 OP
we note that the market may be disappointed by the lack of actual policy QL Resources 3.45 3.93 OP
changes. More detailed plans are expected to be launched in Jun Top Glove 13.66 15.50 OP
(together with the 10MP) after a consultative period with the public. Kossan 8.08 10.74 OP
Adventa 3.77 4.34 OP
♦ GLCs to drive public-private partnerships. The safety net for the Hartalega 8.40 7.93 MP
GLCs will be removed but we believe this will be difficult to implement for Removal Of
all given the social impact. More importantly, GLCs will drive collaboration Subsidy
with private companies especially to drive regional and global expansions. System

♦ Resources. We believe resources are a key focus in moving up the value

TNB 8.02 9.50 OP
Pos Malaysia 2.22 NR NR
chain. We note that larger planters like IOI, KLK and Sime Darby, and
PLUS 3.41 4.13 OP
major timber companies like Jaya Tiasa, Ta Ann, WTK and Lingui are
Puncak 2.63 2.55 UP
already involved in downstream activities.
GLCs
♦ Petronas to list two subsidiaries. The PM highlighted that Petronas MRCB 1.50 1.66 TB
had identified two subsidiaries for listing but did not elaborate. In our 19 Proton 4.77 5.48 OP
Jan Market Update, we highlighted the possibility of Petronas’ oil & gas Faber 2.43 3.30 OP
trading company (Mitco) and the petrochemical plants being listed. Media Prima 2.11 2.23 OP
CIMB 14.00 16.24 OP
♦ Addressing the subsidy system? Assuming the Government follows Maybank 7.50 8.96 OP
through with plans to address and possibly end or shrink the subsidy TM 3.43 3.55 MP
system, we believe this will be positive for TNB (although we expect any Axiata 3.84 4.05 OP
hike in electricity tariffs to be announced separately). The PM mentioned Electronics/
Pos Malaysia with regards to a wage increase and Khazanah Nasional’s Electrical
potential sale of its 32.2% shareholding to a new investor. We believe this Unisem 2.75 3.39 OP
can only happen if postal rates are raised (and we note management MPI 6.79 8.15 OP
proposed a plan to raise rates as a means of paying higher salaries). Notion Vtec 3.49 4.59 OP

♦ Key hurdles. Certain underlying structural issues will still need to be D&O 0.81 - NR
ETI Tech 0.45 1.00 NR
addressed including: 1) Improvement in education standards; 2)
Balancing higher incomes with the likelihood of higher costs; 3) Shortage # As at 29 Mar * RHBRI estimates

of local and foreign workers; 4) Neighbouring countries may appear Source: Bloomberg, RHBRI

friendlier to foreign investors; and 5) Local players may not be ready for
foreign competition, leading to a risk of policy flip flop later.

♦ Getting there will be key. Other than the quick wins from the potential
Yap Huey Chiang
ending of the subsidy system, we believe the NEM is a long-term plan (603) 92802171
which will likely encounter resistance due to its potential impact on the yap.huey.chiang@rhb.com.my
social structure. At the end, consistent implementation will still be crucial.

Please read important disclosures at the end of this report.

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Table 2. Beneficiaries Of The NEM

Price FV EPS EPS Growth PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) (%) (x) (x) (x) (%) Rec
29 Mar FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Resources-
Related
Sime Darby Jun 8.70 9.85 40.7 51.6 8.5 26.8 21.4 16.9 2.3 15.4 2.5 OP
IOI Corp Jun 5.40 6.65 27.9 31.5 -13.0 13.0 19.4 17.1 3.7 17.0 2.2 OP
KLK Sep 16.44 18.40 87.5 123.3 23.7 40.8 18.8 13.3 2.9 15.1 2.7 OP
CBIP Dec 2.93 3.60 41.2 49.7 37.5 20.6 7.1 5.9 1.4 5.6 4.8 OP
Jaya Tiasa^ Apr 3.94 2.35 24.2 54.6 +>100 +>100 16.3 7.2 0.9 10.2 0.0 UP
Ta Ann Dec 5.95 5.95 46.1 62.9 61.8 36.4 12.9 9.5 1.5 8.3 1.2 OP
WTK Dec 1.40 1.18 8.4 13.5 +>100 60.0 16.6 10.4 0.6 n.m 4.3 MP
Evergreen Dec 1.71 2.35 21.3 23.3 26.1 9.4 8.0 7.3 1.1 11.3 2.9 OP
QL^ Mar 3.45 3.93 31.3 36.9 16.2 17.7 11.0 9.4 2.3 11.8 3.0 OP
Top Glove Aug 13.66 15.50 89.0 96.2 55.3 8.1 15.3 14.2 4.0 12.5 3.3 OP
Kossan Dec 8.08 10.74 82.6 103.0 10.3 24.7 9.8 7.8 2.6 8.6 1.3 OP
Adventa Oct 3.77 4.34 31.5 42.8 43.2 35.7 12.0 8.8 2.5 8.4 3.2 OP
Hartalega^ Mar 8.40 7.93 63.5 65.7 18.3 3.6 13.2 12.8 4.9 12.0 2.8 MP
Removal Of
Subsidy
System
TNB Aug 8.02 9.50 64.9 73.6 30.4 13.4 12.4 10.9 1.2 4.2 3.2 OP
Pos Malaysia Dec 2.22 NR 12.70 11.4 0.3 -9.7 17.5 19.4 1.5 10.3 4.5 NR
PLUS Dec 3.41 4.13 23.6 36.3 -0.3 53.5 14.4 9.4 2.8 8.7 5.3 OP
Puncak Dec 2.63 2.55 31.1 28.8 -10.4 -7.4 8.5 9.1 0.6 2.5 2.3 UP
GLCs
MRCB Dec 1.50 1.66 7.1 7.6 86.4 8.0 21.2 19.6 1.6 21.8 0.0 TB
Proton Mar 4.77 5.48 65.3 70.2 39.0 7.5 7.3 6.8 0.5 n.m 0.0 OP
Faber Dec 2.43 3.30 24.5 29.8 7.5 21.6 9.9 8.2 1.9 6.0 2.9 OP
Media Prima Dec 2.11 2.23 14.8 15.8 +>100 6.7 14.2 13.3 2.1 6.9 4.7 OP
CIMB Dec 14.00 16.24 95.5 112.6 20.2 17.9 14.7 12.4 2.3 n.a. 1.3 OP
Maybank Jun 7.50 8.96 51.3 60.7 35.7 18.1 14.6 12.4 2.0 n.a. 3.9 OP
TM Dec 3.43 3.55 13.5 14.4 1.9 6.6 25.4 23.8 1.8 4.1 7.7 MP
Axiata Dec 3.84 4.05 23.6 27.1 28.8 14.8 16.2 14.2 1.6 6.3 0.0 OP
Electronics/
Electrical
Unisem Dec 2.75 3.39 20.5 31.0 77.6 51.5 13.4 8.9 1.7 5.1 1.8 OP
MPI Jun 6.79 8.15 42.6 66.0 +>100 54.9 15.9 10.3 2.0 4.2 7.7 OP
Notion Vtec Sep 3.49 4.59 33.4 45.9 40.9 37.5 10.4 7.6 2.6 7.4 1.9 OP
D&O Dec 0.81 - 2.9 4.8 45.0 66.3 27.9 16.9 - - - NR
ETI Tech Aug 0.45 1.00 5.8 8.5 81.0 48.0 7.7 5.2 2.8 - - NR
* #
^ FY10-11 valuations refer to those of FY11-FY12 RHBRI estimates IBES estimates
Source: RHBRI, Bloomberg

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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 strong enough to warrant an Outperform call. It is generally for investors who are willing to take
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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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