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

RHB Research Institute

RHB Equity 360°

10 May 2010 (Kurnia Asia, Insurance, CSC Steel; Technical: Supermax, MPHB)

Top Story : Kurnia Asia – Business strategy still on track Market Perform
Visit Note
- Regardless of the outcome of the new motor insurance scheme proposed by BNM, Kurnia is on track to
improve its profitability through various measures
- For 1HFY09, third party gross premium dropped by 64.9% while third party policies fell to 276k from 848k
previously, suggesting Kurnia is on track with its strategy to more selective in underwriting third party
liability policies. Similarly, management expense ratio fell to 17.9% from 20.5% in the same period, as the
company moves towards its target management expense ratio of 15%.
- Management indicated that Kurnia has surpassed the 130% minimum Capital Adequacy Ratio (CAR) set
by BNM. Kurnia aims to further strengthen its CAR to a target of 150%. We believe it is achievable by the
end of FY10 through the retention of earnings.
- We are maintaining our earnings forecasts, pending the announcement of 1Q numbers on 11 May.
- Maintain Market Perform with an unchanged fair value of RM0.74. Assuming the company meets our full-
year forecast, there appears to be upside to its share price.

Sector Call

Insurance : BNM seeks feedback from the public Overweight

Sector Update
- BNM posted a discussion paper to gauge public feedback on two proposed motor insurance schemes, A &
B. The proposals have been posted on its website since 23 Apr.
- One key proposal is the setting up of a NEWCO to take on the industry’s third party bodily injury and death
insurance scheme. NEWCO will be jointly owned by industry players and the Government where the
players will act as agents and collect premiums to fund the NEWCO.
- The two scenarios do not offer a full de-tariff pricing structure, as scenario B only plans to increase the tariff
amount while scenario A leaves the current tariff unchanged. The tariff system would continue to provide
imbalance as they are unable to price their products under a risk-based system, despite being required to
maintain a risk-based capital structure.
- We believe that the two proposed scenarios are not sufficient to address the current issues of escalating
claims. We expect the outcome of BNM’s discussion may lead to a different scheme from that proposed.
- Maintain Overweight as we believe BNM’s feedback session is a step towards implementing a viable motor
insurance framework and ultimately full liberalisation of the industry. Top pick is Allianz (OP, FV = RM6.68).

Corporate Highlights

CSC Steel : 1Q net profit soars on improved margins, near-term outlook remains positive Outperform
1QFY10 Results
- 1QFY12/10 net profit came in above expectations, at 28.5-34.3% of our full-year forecast and market
consensus. We believe the variance against our forecast came largely from better-than-expected margins.
- We raise our FY12/10-12 net profit forecasts by 7.6-8.7%, largely to account for selling price assumptions.
- Correspondingly, indicative fair value is raised by 8.6% from RM2.55 to RM2.77 based on 9x revised
FY12/10 EPS of 30.7sen.

Technical Highlights

Daily Trading Strategy : “Sell-into-strength” before a major “sell” wave ahead …

- If not for the last-minute push-up on selective heavyweights, the FBM KLCI would have closed negative
alike other regional bourses on Friday.
- Though Friday’s closing may suggest mild follow-through buying today, it still holds high risk of falling below
 the 40-day SMA of 1,327, which could trigger a bearish corrective wave.
- As a result, we are unconvinced on Friday’s short recovery. To reiterate, we maintain the warning that a fall
below 10-day and 40-day SMAs will trigger a correction phase on the 13-month old uptrend on FBM KLCI.
- Going forward, given the bearish scenario in global markets as well as negative overseas developments
such as the escalating European debt crisis, volatile trading in US markets as well as further tightening
measures in some Asian economies will continue to dampen investors’ sentiment in coming weeks.
- Upon resumption of selling activities, the FBM KLCI is set to give up the 40-day SMA and to head towards
the immediate support zone near a technical gap at 1,305 and the psychological level of 1,300.
- Therefore, short-term investors should avoid the current volatility, while medium-term investors should
continue to sell-into-strength before the markets spiral into a major “sell” wave.

Daily Technical Watch: Supermax – Bearish medium-term trigger if 10-day SMA cuts below 40-day SMA …
- 10-day SMA: RM6.738
- 40-day SMA: RM6.735
- Support: IS = RM6.18 S1 = RM4.97 S2 = RM3.90
- Resistance: IR = RM6.60 R1 = RM7.20

Weekly Trading Idea : Multi-Purpose – Potential reversal of the recent “sell” mode … Bargain Buy
- Strategy: Bargain Buy above the RM1.97 strong support level.
- Target: IR = RM2.20 R1 = RM2.43 R2 = RM2.70
- Support: IS = RM1.97 S1 = RM1.80 S2 = RM1.60
- Exit: Cut loss if the stock loses the RM1.97 stronghold.

Commodities & Currencies – The US$ may see further strength this week …
- Light Sweet Crude Oil futures (Crude): Crude is likely to threaten the UTL near US$71 this week.
- Crude Palm Oil futures (CPO): Rangebound trading between RM2,500 and 10-week SMA of RM2,572 will
continue.
- Ringgit (RM)/US$: Ringgit is likely to weaken further against the greenback.
- Japanese Yen (JPY)/US$: Yen could strengthen below the DRL and to retest the immediate support of 87.
- Euro Dollar (EUR)/US$: US$ to strengthen further to the 0.80 level soon.
- US Dollar Index (DXY): Index could extend its upside to above the immediate resistance at 85 this week.

Bulletin Board

Co/Sector News Impact Recom

Sime Darby Sime has put in a claim for an additional
RM700m to the Government in relation to the
Bakun dam civil works project. This is in addition
to the earlier claim of RM708m which had been
earlier disbursed to the consortium. The
consortium is also asking for a waiver of the
RM360m penalty for late delivery as the
completion delay was beyond its control. The
handover date for the dam was originally
supposed to be June 2010 but the consortium is
now seeking to hand over the dam in Dec. (The
Edge)
Puncak According to Kuala Lumpur High Court, Syabas
Niaga (a 70%-subsidiary of Puncak) is required to pay
Konsortium Abass RM70.1m for non-payment of
water invoices (which includes a RM7m of
interest expense arising from the non-payment of
water invoices). Recall, Konsortium Abass filed a
suit against Syabas for non-payment of water
invoices in Oct 09. (Bursa)
Neutral, as we are unsure if the government OP, FV =
would entertain such a claim. Nevertheless, even RM9.70
if the government does not give the additional
RM700m to the consortium, the maximum
additional provision Sime would have to make for
this project, as mentioned in our earlier reports, is
RM227m, assuming the late delivery charge is
waived. This would shave off 7-9% from our
estimated FY10 earnings and 3 sen/share from
our SOP-based fair value.
Negative, as the additional interest expense of UP, FV
RM7m arising from the suit will lower Puncak's = RM2.55
DCF-derived NPV by 0.3% from RM3.65 to
RM3.64. No change in our forecast for now,
pending for further clarification from the
management.
Important Dates

Corporate Results Quarter Expected date of announcement

HL Bank 3QFY06/10 Week beginning 10 May
EON Cap 1QFY12/10 Week beginning 10 May
AMMB 4QFY03/10 Week beginning 10 May
Kurnia Asia 1QFY12/10 11-May
Hartalega 4QFY03/12 11-May
Dialog 3QFY06/10 11-May
Sunrise 3QFY06/10 13-May
Genting Singapore 1QFY12/10 13-May
Maybank 3QFY06/10 13-May
Wellcall 2QFY09/12 14-May

Company Entitlement details Ex-date Payment date

New entitlements
CIMB Bonus issue on the basis of 1-for-1 19-May-10 -

Going “ex” on 11 May

Cepatwawasan Group Final single tier dividend of 1 sen 11-May-10 20-May-10
MMC Corporation Final single-tier dividend of 3 sen 11-May-10 27-May-10
MHC Plantations First and final dividend of 3 sen less 25% tax 11-May-10 27-May-10

...For more details, see individual reports attached

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