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

RHB Research Institute

RHB Equity 360°

9 July 2010 (Allianz, Banks, KNM, LPI; Technical: Magna Prima)

Top Story : Allianz – ICPS rights to commence trading Outperform

Company Update
- The rights to purchase Allianz ICPS will start trading on 9 Jul and will cease trading at 5pm 16 Jul. We
estimate the rights will trade at an estimated price of 61 sen.
- Based on our estimates of 35% and the assumption that the ICPS are worth the same as the ordinary
shares, together with the 1.2x dividend payout for the ICPS, we believe the ICPS should trade at a
premium of 20% from the ordinary share, or at RM4.55 after neutralizing the yield impact. This implies that
the rights could trade up to RM1.37.
- We are maintaining our earnings forecast while adjusting our fair value after taking into account: 1) the fully
diluted EPS after adjusting for ICPS; 2) the rollover of our base valuation year to FY11. Our new fair value
for Allianz is RM5.32. Maintain Outperform.

Macro View

IPI : Industrial production bounced back in May, GDP growth to remain resilient in the 2Q
Economic Highlights (published 8 July 2010)
- Industrial production rebounded to increase by 12.5% yoy in May, after slowing down to 10.7% in Apr but
off a high of +14.2% in Mar, suggesting that industrial activities are moderating but remained resilient. The
pick-up was reflected in a faster increase in manufacturing production. This was, however, offset partially
by a slowdown in electricity output and a decline in mining output during the month.
- Stronger growth in May’s industrial and manufacturing production suggests that economic activities will
likely to have remained resilient in the 2Q. We expect real GDP growth to soften to 7.5-7.8% yoy in the 2Q,
from the strongest growth of +10.1% in a decade in the 1Q, as exports moderate.
- We expect real GDP growth to slow down to 4.8% yoy in 2H 2010, from +8.8% estimated for the 1H. For
the full-year, real GDP will likely expand by 6.8% in 2010, a rebound from -1.7% in 2009.

Interest rates : Bank Negara raised its key policy rate by 25 basis points to 2.75%
Economic highlights (published 9 July 2010)
- Bank Negara raised the Overnight Policy Rate (OPR) by another 25 basis points to 2.75% on 8 Jul.
- This was the third increase in a row for this year, in a move to prevent financial imbalances from building up
and given that the economy has turned around since the 4Q of last year.
- Following the hike, the MPC considers “the new level of the OPR to be appropriate and consistent with the
current assessment of the growth and inflation prospects”. The remark suggests that the Central Bank is
likely to be done with its rate hike this year.
- As a result, we believe the Central Bank is likely to hold its key policy rate unchanged at 2.75% for the rest
of this year, given that there is no urgency to raise interest rates rapidly and the country’s economy will
likely slow down in the 2H of the year, as the global economy weakens.

Sector Call

Banks : BNM raises OPR by 25bps to 2.75% Overweight

Sector Update
- BNM yesterday raised the Overnight Policy Rate (OPR) by another 25bps to 2.75%, the third time that it
has raised rates thus far this year (25bps each time). With that, we think BNM is likely to keep the OPR
unchanged for the rest of the year.
- Typically, banks with higher variable rate loans to total loans would benefit more given a higher proportion
of assets would be re-priced faster. Banks with higher CASA ratio would also benefit more as CASA rates,
unlike fixed deposit rates, are not expected to be adjusted by the same magnitude as the hike in OPR.
- We do not expect the higher interest rate to slow loan growth or impact NPLs as we are of the view that this
hike in OPR is merely a move to normalise the interest rate. Moreover, the economic recovery would
 mitigate the potential impact on slowing loan expansion and impact on asset quality.
- By our estimates, most of the banks (except for AMMB and Maybank) should be beneficiaries from a rate
hike (up to 3%, full-year impact) and this would also help cushion competitive pressures on NIMs.
- No change to our Overweight call on the sector.

Corporate Highlights

KNM : Good, but not enough Underperform

News Update
- KNM announced that its subsidiaries in Malaysia, Australia and Europe had won new contracts worth
RM288.8m, which will contribute positively to FY12/10-12 i.e. spread over the next 2½ years.
- While these contracts should be viewed positively for KNM, we are concerned that this may not be enough.
We note that the company has already secured RM1bn worth of orders for the 1H2010 (including the
RM288.8m), but still needs another RM1bn in 2H to ensure growth in FY11 revenue.
- We were previously too optimistic on our FY10-12 revenue assumptions, and after speaking with
management, we have cut our projections by 14%, 23% and 25% respectively. While we have also
adjusted our cost assumptions for the respective years, our FY11-12 core EPS forecasts are sharply
reduced by 26% and 21% respectively.
- Accordingly, our fair value is cut to RM0.36 (from RM0.49) based on unchanged 10x FY11 PER. We
reiterate our view that the near-term outlook for the oil and gas industry is uncertain, and contract flows are
unlikely to pick up substantially within the next six months. Maintain Underperform.

LPI Capital : Below expectations; proposed bonus issue and rights issue Outperform
2QFY10 Results
- 1HFY12/10 net profit of RM64.8m (+11.2% yoy) accounted for 42% of our and 44% of consensus full-year
estimates respectively. However, we note that 2Q earnings have consistently been weakest, mainly due to
the lower investment income at group level as dividends from Public Bank are recognised in 1Q and 3Q.
- LPI declared a single-tier interim net dividend of 10 sen for 2QFY12/10, which is low, compared to the
dividend in the same period last year of 26.25 sen.
- As highlighted in our previous report, we expected LPI to undertake a corporate exercise to increase its
shares liquidity. LPI proposed a 1-for-2 bonus issue, which will result in an issuance of up to 69.4m new
shares. LPI also proposed a 1-for-10 rights issue at an issue price of RM7.00,
- We are leaving our forecasts unchanged until the approval of the proposals, which we understand would be
by the end of the 3Q.
- Maintain Outperform call, with a new fair value of RM19.23 after rolling forward our valuation base year to
FY11 (from FY10 previously) with an unchanged target PER of 15x.

Technical Highlights

Daily Trading Strategy : Volume growth crucial to sustain this rebound …

- As we highlighted earlier, the removal of the 10-day SMA of 1,314 with another positive candle on the
chart, has confirmed a technical rebound is underway for the FBM KLCI.
- Buoyed further by upbeat momentum readings, the benchmark stands a good chance to extend its upside
towards June’s high of 1,335.31 and even to the extent to retest the tough hurdle of 1,350 in the near term.
- But critically, the index must sustain at above the 10-day SMA in the near term in order to avoid a sudden
pullback on profit-taking pressure.
- Also, crucially, the daily turnover should grow in the coming sessions for the trading sentiment to improve
further and ultimately to sustain the current recovery leg.
- Otherwise, the index will risk falling below the 10-day SMA, which will threaten this rebound, in our view.

Daily Technical Watch: Magna Prima – Not bullish without removing RM0.87 and 40-day SMA of RM0.86…
- 10-day SMA: RM0.81
- 40-day SMA: RM0.862
- Support: IS = RM0.75 S1 = RM0.60 S2 = RM0.485
 - Resistance: IR = RM0.87 R1 = RM1.05 R2 = RM1.15

Bulletin Board

Co/Sector News Impact Recom

Gaming According to a media report, industry sources This is not true, as we understand that the NFOs N
and analysts were quoted as saying that the will NOT lobby for a decline in the first prize pool,
NFOs were lobbying the government for a but rather a decline in the prize pool for the other
reduction in the first prize pool for 4D games to secondary prizes. This will have a less significant
offset the impact of the duty tax hike. (The Star) impact to sales volume than a reduction in the
first prize pool, if any, given that the most
important indicator for punters is usually the size
of the first prize and not the secondary prizes.
Puncak According to sources, the bondholders of Syabas Neutral. While recent positive news flow will MP, FV =
Niaga (a 70% subsidiary of Puncak Niaga) are boost trading sentiment of Puncak, we are RM2.92
concerned over the deadlock in Selangor water keeping to our view that it will still take a while
asset consolidation and may ask the Federal before the long-awaited water sector
Government to step in to resolve this once and restructuring can materialise, given that several
for all. (Starbiz) issues remain unresolved. These include: 1) the
fragmented industry structure; 2) the pricing
issue; and 3) the O&M ownership issue.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
LPI Capital Single tier interim dividend of 10 sen 21-Jul-10 29-Jul-10
WCT 3rd dividend payment for 13.5% non-cumulative ICPS 22-Jul-10 6-Aug-10
NPC Resources Final single tier dividend of 3 sen 26-Jul-10 10-Aug-10
Kretam Holdings Final semi-annual interest payment on 1% ICULS 2003/2010 30-Jul-10 10-Aug-10

Going “ex” on 12 Jul

Seg International Share split on the basis of 1-into-2 12-Jul-10 -
Seg International Bonus issue on the basis of 2-for-5 12-Jul-10 -
Nilai Resources Group First and final dividend of 2.5 sen less 25% tax 12-Jul-10 30-Jul-10
Oriental Holdings Final dividend of 5 sen less 25% tax 12-Jul-10 30-Jul-10
Puncak Niaga Final single tier dividend of 10 sen 12-Jul-10 3-Aug-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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