Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

20 April 2010 (Kencana; Technical: Maybank)

Top Story : Kencana – Going into IPF Outperform

Visit Note
- While contract flow has been slow since early 2009, the company now expects to be awarded sizeable
contracts given the pick-up in E&P activities stemming from rising demand for energy. Given the orderbook
replenishment of around RM1-1.2bn by 4Q 2010 and burn-rate of around RM300m/quarter, we expect
Kencana’s orderbook to remain above RM1.9bn going into 2011. With the upgrade in the Lumut yard (i.e.
tonnage handling capability increased to 30,000 tonnes from 20,000 tonnes previously) nearing completion,
we believe Kencana stands a good chance of securing higher-margin deepwater jobs.
- Recently, Kencana secured a 1+1 contract worth RM33m to provide an offshore support vessel to Petronas
Carigali Vietnam. We understand that the 8k AHTS (KPV Gemia), which Kencana took delivery two weeks
ago, will be deployed for the contract. The contract sum suggests that an average long-term charter rate of
around US$1.63/HP/day vs. spot charter rates of US$2.1/HP/day.
- Recall in Jan 2010, a US$70m IPF contract was awarded to Global Offshore, in which Kencana is planning
to have 45% equity participation, higher than the 30% local content requirement. We understand that
Kencana is expected to invest around RM63m for the 45% equity stake in Global Offshore which owns the
DLB 264, the pipelay barge that will be used to perform work for the above contract.
- No change to our forecasts. Nevertheless, we highlight potential upside to FY11-12 earnings projections
arising from stronger orderbook replenishment stemming from overseas contracts and demand for
deepwater structures as well as stronger contribution from its marine division.
- Maintain Outperform and fair value of RM1.88.

Technical Highlights

Daily Trading Strategy : Any rebound would likely be capped by the 10-day SMA…
- If not for the mild afternoon recovery in some regional peers, like Hang Seng and a firm start in the early
European markets, the FBM KLCI would probably have closed the day with another bearish candle that
could press the sentiment even more bearish today.
- However, with a potential “hammer” candle recorded yesterday, there is a chance of technical recovery
today.
- But, investors should be aware that the short-term technical outlook has turned negative after the index lost
the 10-day SMA of 1,336 late last week.
- As a result, the rebound, if any, could be brief and a clear resistance can be expected near the key
support-turn-resistance level of the 10-day SMA.
- Surrounded with the probe on Goldman Sachs and potential similar probes in Europe, China’s tightening
moves and fears of economic repercussions from the volcanic ash cloud in European skies, trading
sentiment in the local bourse could remain lukewarm in the near term.
- Without reclaiming the 10-day SMA, the short-term target of the FBM KLCI should stay at the 40-day SMA
of 1,312, a 2.6-pts technical gap near 1,305 and the 1,300 level.

Daily Technical Watch: Maybank – A technical rebound underway, but the cap is at the RM7.50 region …
- 10-day SMA: RM7.492
- 40-day SMA: RM7.328
- Support: IS = RM7.32 S1 = RM6.86 S2 = RM6.26
- Resistance: IR = RM7.70 R1 = RM8.15

Bulletin Board

Co/Sector News Impact Recom

Insurance The government is looking at limiting the liability Although this appears to be positive, we believe OW
 of motor insurers to third party claimants to
RM2m, with insurers and the government acting
as co-owners of a new company (newco) that will
underwrite third party injury risks. (Business
Times)
Timber The Sarawak Timber Association (STA) and
Sarawak Timber Industry Development Corp
(STIDC) will jointly refute the accusation made by
the Korean Trade Commission (KTC) that eight
plywood exporters from the state were dumping
their products in South Korea. The KTC alleged
that nine Malaysian plywood suppliers (eight in
Sarawak and one in Peninsular Malaysia) had
been selling their products at about 88% below
the local market price. (The Star)
Sime Darby Sime Darby has finally completed that acquisition
of Ramunia’s assets for purchase price of
RM515m, upon the completion of the asset
tagging exercise. (Bursa Malaysia)
TNB TNB is undertaking studies to expand the
capacity of its coal-fired plant in Manjung
(currently 2,100MW). This is in anticipation of the
possibility that power generated from Bakun may
not arrive in Peninsular Malaysia by 2015.
(StarBiz)
Affin Affin does not rule out the possibility of making a
bid for EON Cap if the opportunity arises. At this
stage, however, the group has not yet sought
BNM’s approval. Affin is also targeting loan
growth to improve to 13-15% this year, from
12.7% last year. (Business Times)
Important Dates
Company Entitlement details
New entitlements
Genetec Technology Bonus issue on the basis of 1-for-1
insurance companies are looking for lower limits
to reduce their losses. In any case, the issue is
still at the proposal stage and is expected to be
implemented by third quarter of this year.
Negative, as South Korea is a significant market N
for Malaysian timber products, with Sarawak
exporting >530k m3 of plywood products worth
RM570m in 2009. If Sarawak timber players are
not able to prove these allegations are untrue,
the possible consequence is that South Korea
would ban imports of Malaysian plywood. We
believe there could potentially be a
misconception that dumped plywood products
are coming from Malaysia, as we understand
from the latest ITTO that exports from Indonesia
to South Korea had more than doubled in the first
two months of 2010, which could indicate that the
dumped products are from Indonesia.
Nevertheless, we note that the companies under
our coverage which would be affected by a
potential ban of exports to South Korea include
Jaya Tiasa (UP) and WTK (OP).
Positive, as Sime would finally be able to utilise OP, FV =
Ramunia’s assets and bid for larger-scale RM9.85
Petronas fabrication projects with the enlarged
yard capacity post-completion of the acquisition.
Note that post-acquisition, Sime Darby’s yard
capacity will rise by 190% to 105,000 tonnes.
Just assuming the only new additional capacity OP, FV =
over the next 5 years comes from the Ulu RM9.90
Terengganu (250MW) and Ulu Jelai (372MW)
hydroplants, we estimate the reserve margin
could fall to 20-21% by 2015. With the 1st
generation PPAs also close to their expiry by
then, more plant-ups may be required.
Alternatively, a short-term measure may be to
extend the 1st generation PPAs.
As highlighted previously, a key question, in our MP, FV =
view, is whether Affin’s financials would be able RM3.03
to digest the acquisition. Just assuming Affin
matches HL Bank’s cash offer, we estimate that
Affin’s Tier-1 capital ratio could fall to 3% from
12%. In order to boost this up to, say 8%, Affin
may need to raise as much as RM3.3bn in terms
of Tier-1 capital. As for its loan growth target, this
is stronger than our 8.3% net loan growth
projection. Execution would be key but for now,
we are keeping our numbers unchanged.
Ex-date Payment date
29-Apr-10 -
 Malaysia Smelting Corp Final dividend of 3 sen less 25% tax 10-May-10 28-May-10
WCT Final dividend of 5 sen less 25% tax 14-May-10 1-Jun-10
Pos Malaysia First and final dividend of 12.5 sen less 25% tax 18-May-10 11-Jun-10
United U-Li Corp Final tax exempt dividend of 1.5 sen 24-May-10 18-Jun-10
Lii Hen Industries Final single tier div of 1.5 sen and special single tier div of 3 sen 25-May-10 10-Jun-10
White Horse Final tax exempt dividend of 5 sen 21-Jun-10 8-Jul-10
Aeon Credit Service (M) Final dividend of 12 sen less 25% tax 25-Jun-10 13-Jul-10

Going “ex” on 21 Apr

SLP Resources Bonus issue on the basis of 1-for-6 21-Apr-10 -
SLP Resources Share Split 1-into-2 21-Apr-10 -
NCB Holdings Final div of 10 sen less 25% tax + special div of 11 sen less 25% tax 21-Apr-10 7-May-10
YTL Cement 9th Interest Payment on ICULS 2005/2015 21-Apr-10 10-May-10
MY E.G. Services First interim tax-exempt dividend of 0.5 sen 21-Apr-10 21-May-10

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