PP 7767/09/2010(025354)

10 June 2010

Malaysia Corporate Highlights

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

Marke t Upda te
10 June 2010
MARKET DATELINE

Shifting Trends
Six Months On, Focus Is Back On Risk

♦ Six months on. We are nearly six months into 2010, and the focus is
Table 1. Sectoral Performance
clearly back on risk. As we had earlier anticipated, the market has
YTD Abs 2Q Abs Perf
become more volatile partly due to policy changes. We believe investors’
Perf (%) (%)
confidence has been shaken by economic concerns in Europe and the risk
Timber 7.1 -16.9
of a slowdown in China, and this has affected sentiment towards various
Building mats -7.5 -13.3
sectors, and especially the exporters. Moreover, these concerns have also
O&G -7.1 -11.1
filtered down to expectations for the resources sectors, notwithstanding
Plantations -4.2 -8.4
negative news flow such as BP’s deepwater drilling accident in the Gulf of
Insurance -5.0 -7.4
Mexico and Australia’s proposed resources tax.
Manufacturing 9.0 -6.7
♦ Regional review. We note that investors’ concerns about a slow down in Infra -7.8 -3.9
China have already been priced in with the MSCI China index down 10.6% Media 27.0 -3.4
YTD. Comparatively, performance within the EU markets has been Transport 3.1 -3.1
relatively differentiated, with the troubled economies of Greece, Italy, Construction 11.7 -2.9
Ireland and Hungary also reflected in their respective equity markets, Property -1.2 -2.3
while Germany has only dropped 1.5% YTD. On the flip side, Asia Banks 4.2 -2.0
markets ex-Japan, Hong Kong and China remain relatively resilient in the Technology 23.0 -1.9
2Q although we are mindful that a slowdown in global economic activity Telecom 8.1 -1.9
will also filter down to these markets. Consumer 14.2 -1.7
Power -0.5 -0.3
♦ Sectoral review. On a sectoral basis, we also note that the timber sector Gaming -7.6 3.2
has been one of the hardest hit in the 2Q10 so far with all four timber Motor 15.3 3.4
stocks under our coverage posting double-digit losses during the period. As at 8 Jun
The building materials, oil & gas stocks and glove manufacturers Source: Bloomberg, RHBRI
generally also posted double-digit declines for the 2Q. The plantations
sector was a weak performer but further pulled down by Sime Darby’s
provisions for the energy and engineering division. We note that these Table 2. Domestic Plays
sectors are heavily driven by external factors. Price FV Rec
(RM) (RM)
♦ China and Europe – quantifying the exposure. Among the companies
Maxis 5.29 6.20 OP
under our coverage, we note that Sino Hua An, ILB, Parkson, Unisem and
Tenaga 8.29 10.40 OP
MPI have the highest earnings exposure to China, while YTL Power, KNM
PLUS 3.32 4.13 OP
and MPI have the highest earnings exposure to Europe (see Table 4).
Allianz 4.75 6.68 OP
However, we note that YTL Power’s earnings from wholly-owned Wessex
AEON 4.90 5.80 OP
Water in the UK are relatively secure and regulated, and therefore
KFC 8.35 9.63 OP
unlikely to pose a risk to the group. For now, we do not anticipate any
KPJ 3.03 3.50 OP
significant downgrades to our earnings forecasts for these companies.
B-Toto 4.30 4.95 OP

♦ Focus on the domestic plays. We reiterate our view that domestic As at 8 Jun
plays with little or no exposure to overseas markets are likely to be more Source: Bloomberg, RHBRI
resilient in the current market environment. In our view, these stocks
include Maxis, TNB, PLUS, Allianz, AEON, KFC, KPJ and B-Toto.

♦ Risk premiums likely to drift in the near term. In the absence of

major catalysts, risk premiums will likely continue to drift in the near
term. We downgraded our sector call on oil & gas today, and the
plantation stocks are also under review. With shortened investment
horizons, and expected volatile markets over the next 3-4 months, the
key would be to re-balance portfolios during market pullbacks. We have Yap Huey Chiang
highlighted the more risky sectors where we see potential earnings (603) 92802171
yap.huey.chiang@rhb.com.my
disappointment, and we continue to advocate a bottom-up investment
strategy in the near term.

♦
Please read important disclosures at the end of this report.
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 10 June 2010

1H 2010 Review

♦ Volatile markets. As we approach the end of the 1H 2010, and look forward to the next six months of the year,
we note that sentiment towards a range of topics has clearly changed. As we earlier anticipated, the market has
become more volatile partly due to policy changes. But we believe investors’ confidence has also been shaken by
economic concerns in Europe and the risk of a slowdown in China, and this has affected sentiment towards
various sectors, and especially the exporters. Other external events such as Australia’s proposed Resource
Super-Profit Tax has already resulted in re-evaluation of resource-based projects there, while the effects of BP’s
deepwater drilling accident in the Gulf of Mexico on offshore assets, let alone the regulatory environment, will
not be isolated to the US and will likely spread to other areas of the world where there is offshore oil & gas
exploration activity. (We highlight that our oil & gas sector call was downgraded to Neutral today).

♦ Regional review. We note that investors’ concerns about a slow down in China have already been priced in
with the MSCI China index down 10.6% YTD. Comparatively, performance within the EU markets has been
relatively differentiated, with the troubled economies of Greece, Italy, Ireland and Hungary also reflected in their
respective equity markets, while the larger and more resilient markets like Germany only dropping 1.5% YTD
(see Table 3). On the flip side, it appears that Asia markets ex-Japan, Hong Kong and China appear to remain
relatively resilient in the 2Q although we are mindful that any slow down in global economic activity will likely
filter down to these markets as well.

Table 3. Performance Of Regional Equity Markets

2Q10 Performance YTD Performance YoY Performance
Company (31 Mar-8 Jun) (31 Dec 09-8 Jun 10) (8 Jun 09-8 Jun 10)
Philippines 3.6 7.3 21.2
Indonesia 0.1 9.7 23.2
Korea (2.4) (1.9) 20.8
Malaysia (2.5) 1.2 18.6
Thailand (3.9) 3.1 22.4
Germany (4.6) (1.5) 19.0
Singapore (4.9) (5.2) 24.2
India (5.7) (4.7) 22.7
Ireland (6.2) (2.3) 6.4
Hong Kong (8.2) (10.9) 19.8
US DJIA (8.4) (4.7) 19.0
MSCI China (9.3) (10.6) 18.3
MSCI AC Asia (10.1) (6.5) 13.9
UK (11.5) (7.1) 22.9
MSCI Asia Pac Ex Japan (12.7) (11.4) 28.5
MSCI World (12.9) (10.5) 19.8
France (14.9) (14.1) 19.7
Hungary (17.9) (3.6) 39.2
Italy (18.6) (19.9) 15.4
Greeece (35.0) (40.1) (6.3)
Source: Bloomberg

♦ Sectoral review. On a sectoral basis, we also note that the timber sector has been one of the hardest hit in the
2Q10 so far with all four timber stocks under our coverage posting double-digit losses during the period. The
building materials, oil & gas stocks and glove manufacturers generally also posted double-digit declines for the
2Q. The plantations sector was a weak performer, but the average performance for the plantation stocks under
coverage was further pulled down by Sime Darby’s provisions for the energy and engineering division in May.
We note that these sectors are heavily driven by external factors and therefore will remain volatile at least over
the next quarter. Nevertheless, the 2Q performance suggests that the market has already begun to price in the
negative sentiment for sectors that are most affected.

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 10 June 2010

Table 4. Sectoral Performance

YTD Abs 2Q Abs YTD Rel 2Q Rel Outlook
Perf (%) Perf (%) Perf# (%) Perf# (%)
Timber 7.1 -16.9 5.9 -14.5 Plywood price outlook remains uncertain in the
absence of a convincing recovery in demand.
Building mats -7.5 -13.3 -8.7 -10.9 The steel sub-sector was downgraded to Neutral on
26 May on weaker steel price outlook.
O&G -7.1 -11.1 -8.3 -8.7 The sector was downgraded to Neutral on 10 Jun on
uncertain crude oil price outlook.
Plantations -4.2 -8.4 -5.4 -6.0 Our sector call is under review.
Insurance -5.0 -7.4 -6.2 -5.0 Potential delay in the Government’s motor 3rd party
insurance proposal may weigh down on the sector.
However, the long-term outlook remains positive.
Manufacturing 9.0 -6.7 7.8 -4.3 Driven mainly by the rubber glove manufacturers,
which should benefit from long-term demand
growth. However, exporters to Europe may be
affected by economic concerns in the region.
Infrastructure -7.8 -3.9 -9.0 -1.4 Although PLUS is a defensive play, Puncak’s outlook
remains uncertain.
Media 27.0 -3.4 25.8 -0.9 A relatively resilient sector given gross adex growth
of 14.3% in 2010. We like MCIL and Media Prima.
Transport 3.1 -3.1 1.9 -0.6 We believe the airline sector is poised for improved
prospects in the near term and we recently
upgraded AirAsia to Outperform. Upside remains
limited for MAS and MISC.
Construction 11.7 -2.9 10.5 -0.5 While we see better sector news flow and new
expectations, the construction stocks remain
generally over-valued, except for HSL and Sunway.
Property -1.2 -2.3 -2.4 0.2 We remain bullish on strong take-up rates for new
developments, with well-sustained property prices.
Our top picks are IJM Land, Suncity and Mah Sing.
Banks 4.2 -2.0 3.0 0.4 Underlying fundamentals for the banks remain
robust, while both PER and PBV valuations remain
below their peak levels. Maybank is our top pick,
although we also like CIMB, AMMB and Public Bank.
Technology 23.0 -1.9 21.8 0.5 Despite fears over the sector’s exposure to overseas
markets, we note that recent chip sales remain
strong and the book-to-bill ratio remains above 1.
Our top pick is Unisem, and we also like Notion.
Telecom 8.1 -1.9 6.9 0.6 Seen as a relatively defensive sector, with attractive
dividend yields, we believe the outlook will be driven
by non-voice revenue growth. Our top pick is Maxis.
Consumer 14.2 -1.7 13.0 0.8 We believe the consumer sector is relatively
sheltered given the higher savings rate, growing
consumption spending and young demographics.
The focus however should be on the domestic
consumer plays such as KPJ, KFC and AEON.
Power -0.5 -0.3 -1.7 2.2 Fundamentally, we see TNB as an excellent proxy to
a recovering economy, but the long-delayed tariff
review will likely remain the key catalyst.
Gaming -7.6 3.2 -8.8 5.7 Upside to the Singapore casino market will benefit
Genting Spore and Genting Bhd. The Government’s
stance on the sports betting licence appears
favourable (notwithstanding the political backlash)
and should draw attention back to the NFOs.
Motor 15.3 3.4 14.0 5.9 TIV for 2010 is on track to register a strong 8.9%
growth yoy before pulling back to 2.8% in 2011. The
outlook however remains positive.
# Relative performance vs. FBM KLCI Source: Bloomberg

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 10 June 2010

China And Europe

♦ Quantifying the exposure. Among the companies under our coverage, we note that Sino Hua An, ILB,
Parkson, Unisem and MPI have the highest earnings exposure to China, while YTL Power, KNM and MPI have the
highest earnings exposure to Europe (see Table 5). However, we note that YTL Power’s earnings from wholly-
owned Wessex Water in the UK are relatively secure and regulated, and therefore unlikely to pose a risk to the
group. For now, we do not anticipate any significant downgrades to our earnings forecasts for these companies.

Table 5. Companies With Exposure To China And Europe

China exposure % of Revenue % of Pre-Tax Profit
Sino Hua An 100 100
ILB 94 86
Parkson 70 95
Unisem 30 35
MPI 25 40
Hong Leong Bank - 10
Sime Darby 17 8
YTL Cement 11 Breakeven
Genting Bhd 7 5
KLK (manufacturing only) 5 2

Europe exposure
MPI 32 24
MAS 28 Losses
YTL Power 25 58
Genting Singapore 25 13
KNM 24 27
IOI Corp (manufacturing only) 23 6
Genting Bhd 9 4
Sime Darby 9 Marginal losses
Unisem 4 2
KLK (manufacturing only) 4 1
Tanjong 3 Minimal
Source: RHBRI estimates

♦ Focus on the domestic plays. We reiterate our view that domestic plays with little or no exposure to overseas
markets are likely to be more resilient in the current market environment. In our view, these stocks include
Maxis, TNB, PLUS, Allianz, AEON, KFC, KPJ and B-Toto.

Conclusion

♦ Risk premiums likely to drift in the near term. In the absence of major catalysts, risk premiums will likely
continue to drift in the near term. We downgraded our sector call on oil & gas today, and the plantation stocks
are also under review. With shortened investment horizons, and expected volatile markets over the next 3-4
months, the key would be to re-balance portfolios during market pullbacks. We have highlighted the more risky
sectors where we see potential earnings disappointment, and we continue to advocate a bottom-up investment
strategy in the near term.

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 10 June 2010

Table 6. Forecasts And Valuations

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
8 Jun FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Domestic Plays
Maxis Dec 5.29 6.20 33.2 36.2 6.6 9.1 15.9 14.6 3.8 10.0 6.5 OP
Tenaga Aug 8.29 10.40 70.7 80.9 42.0 14.4 11.7 10.2 1.3 4.4 3.5 OP
PLUS Dec 3.32 4.13 23.6 36.3 -0.3 53.5 14.1 9.1 2.7 8.4 5.5 OP
Allianz Dec 4.75 6.68 71.9 86.2 -7.0 19.9 6.6 5.5 1.2 7.2 0.4 OP
AEON Dec 4.90 5.80 41.4 45.2 8.7 9.4 11.8 10.8 1.6 11.0 2.4 OP
KFC Dec 8.35 9.63 77.1 89.5 17.2 16.2 10.8 9.3 1.9 7.0 3.1 OP
KPJ Dec 3.03 3.50 21.9 23.2 17.3 6.0 13.8 13.1 1.9 11.1 5.2 OP
Media Prima Dec 2.14 2.55 16.3 18.0 +>100.0 10.1 13.1 11.9 2.0 6.3 4.9 OP
B-Toto^ Apr 4.30 4.95 32.4 34.0 5.5 5.0 13.3 12.6 12.3 17.4 5.6 OP
^ FY10-11 valuations refer to those of FY11-FY12 Source: RHBRI, Bloomberg

Table 7. RHBRI’s Top Picks

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
8 Jun FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Maybank Jun 7.39 8.96 51.3 60.7 35.7 18.1 14.4 12.2 1.8 n.a. 4.1 OP
CIMB Dec 6.87 8.12 47.8 56.3 20.1 17.8 14.4 12.2 2.1 n.a. 1.4 OP
Maxis Dec 5.29 6.20 33.2 36.2 6.6 9.1 15.9 14.6 3.8 10.0 6.5 OP
Tenaga Aug 8.29 10.40 70.7 80.9 42.0 14.4 11.7 10.2 1.3 4.4 3.5 OP
Genting Bhd Dec 6.91 8.95 45.8 56.1 38.9 22.5 15.1 12.3 1.5 5.6 1.5 OP
Top Glove Aug 12.44 15.50 89.0 96.2 55.3 8.1 14.0 12.9 3.6 11.1 3.7 OP
IJM Land^ Mar 2.10 3.19 18.4 34.4 88.5 87.2 11.4 6.1 1.2 4.2 1.0 OP
Media Prima Dec 2.14 2.55 16.3 18.0 +>100 10.1 13.1 11.9 2.0 6.3 4.9 OP
Sunway City Dec 3.78 5.33 34.8 38.8 9.8 11.6 10.9 9.7 0.7 6.3 2.4 OP
Unisem Dec 2.92 4.06 27.1 36.1 134.8 33.5 10.8 8.1 1.2 3.0 2.0 OP
Kossan Dec 7.20 10.74 82.6 103.0 10.3 24.7 8.7 7.0 2.4 7.5 1.5 OP
Faber Dec 2.62 3.40 26.5 24.2 16.4 -8.8 9.9 10.8 1.6 5.0 3.3 OP
Evergreen Dec 1.47 2.35 21.3 23.3 26.1 9.4 6.9 6.3 0.9 8.8 3.8 OP
Notion Vtec Sep 2.70 4.68 34.7 46.8 35.3 35.1 7.8 5.8 2.0 5.6 2.5 OP
Daibochi Dec 2.97 4.20 35.1 38.0 16.9 8.3 8.5 7.8 1.5 6.5 8.3 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
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing
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
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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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