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

RHB Research Institute

RHB Equity 360°

25 March 2010 (KLK, Infra, Plantation, Insurance, Gamuda, Tanjong, SapCrest, Jaya Tiasa; Technical:
TDC)

Top Story : KLK – Benefitting from its young age profile Outperform
Visit Note
- Six key points: 1) Strong FFB growth so far in FY09/10, but this may moderate if affected by El Nino; 2)
Better CPO prices to come in next few quarters as we believe KLK has already sold some of its FY10
production forward earlier, at more attractive prices; 3) No labour shortage problems yet, although this may
materialise in the medium term, once labour permits start expiring; 4) Delay in new methyl ester sulfonate
plant completion by 6-9 months to either 3Q/4Q FY09/10; 5) (5) Good news from the retail division - coming
from lower provisions to be made for its US store closures, and from the property division - coming from
approval to start development for a new township development; and (6) Higher new land planting targets of
15,000ha p.a. (from 10,000ha).
- All in, we revised our forecasts down by 7.1% for FY10, 1.5% for FY11 and 18.7% for FY12.
- Post-earnings revision, we lower our SOP-based fair value for KLK to RM18.40 (from RM19.50) and
maintain our Outperform rating. We continue to like KLK for its inexpensive valuations (as it remains the
cheapest amongst the big-cap plantation stocks currently) and for its strong management with a good track
record. Further catalysts could come from better-than-expected FFB production growth as well as potential
return to profitability of the retail division.

Sector Update

Infrastructure : SPLASH offers to acquire water assets in Selangor Neutral

Sector Update
- SPLASH has offered to take over the water assets in Selangor state for a total sum of RM10.75bn.
- We believe this is unlikely to go through, as: 1) The proposed acquisition by SPLASH defeats the purpose
of the Government initiated water sector restructuring; 2) A big question mark arises as to SPLASH’s ability
to raise enough funding to finance the proposed acquisition; and 3) Puncak is likely to reject the offer.
- We reiterate our cautious view on the water sub-sector as we believe that the water sector consolidation in
Selangor state is unlikely to materialise in the near term.
- We are lowering our indicative fair value for Puncak by 13.6% from RM2.95 to RM2.55, at 30% discount to
its revised DCF-derived NPV of RM3.65 (based on higher WACC of 11.5% vis-à-vis 10.9% previously to
reflect its higher beta). Hence, we are downgrading Puncak from Market Perform to Underperform.

Plantation : Closer to B5 biodiesel mandate implementation Overweight

Sector Update
- Commodities minister Bernard Dompok said Malaysia will roll out its biodiesel mandate in phases
beginning June 2011. The government is also ensuring that this time the programme is a success, by
agreeing to bear the cost of constructing six petroleum depots at a cost of RM43.1m and by instructing the
petroleum companies to subsidise palm-based biofuel blends at the pump, which is estimated to cost
another 5 sen/litre, assuming the petroleum companies agree.
- Although this is positive for the plantation industry, we believe there are still some issues to be resolved.
Although the implementation of the mandate is a one and a half year delay from its original target of Jan
2010, we believe the government is getting closer to its goal of implementing a B5 mandate. The B5
mandate would reduce CPO supply in the country by 500k tonnes p.a., which is a significant 28% of current
stock levels. We believe the other outstanding issue yet to be addressed is the issue of subsidies, given
that at current CPO and crude oil price, it is still less profitable to produce biodiesel than diesel.
- No change to our Overweight stance on the sector as a whole and reiterate our recommendation for
investors to stick with the more liquid stocks given the anticipated volatile market conditions in 2010. We
maintain our Outperform calls on IOIC, KLK, Sime Darby and CBIP, and Underperform on Genting
Plantations and IJMP.

Insurance : Capping 3rd party claims Overweight

Sector Update
- Capping 3rd party claims to RM100k.
- BNM – still work-in-progress and will get feedback from all stakeholders.
- We understand that the new scheme will involve insurers accepting all kinds of motor insurance (3rd party
and comprehensive) and thereafter will carve out the 3rd party premium (including the 3rd party cover in
comprehensive insurance) to a pool (shared by all insurers). Insurers will charge a higher premium while at
the same time introduce a cap on 3rd party bodily injury and death benefits.
- Positive for general insurers. This is because the new scheme will make even the 3rd party coverage
profitable (or at least break even) in a separate pool rather than under the current cross-subsidy from
comprehensive coverage. Insurers will only have the profitable comprehensive coverage in their books.
Insurers will also benefit from capital requirement under the RBC regime because risk charge will be lower.
Kurnia will benefit the most given its motor heavy portfolio while others will also benefit.
- Maintain Overweight. Top pick is Allianz.

Corporate Highlights

Gamuda : Splash offers to take over Klang Valley water assets for RM10.75bn Underperform
News Update
- Gamuda’s 40%-owned water concessionaire Splash has offered to take over all water assets in the Klang
Valley for RM10.75bn.
- We do not believe Gamuda is so naïve that it thinks it will have its way. Even if the offer is acceptable to all
concessionaires, we doubt if the blessing of both the Federal Government and Selangor state government
is forth-coming.
- We are more inclined to see this move by Gamuda as a tactic to pressurise the governments into speeding
up their actions.
- Fair value is RM2.05. Maintain Underperform.

Tanjong : 4Q hampered by poor luck factor but dividend surprise Outperform

4QFY10 Results
- Excluding the revaluation surplus of RM11.1m on Menara Maxis, 4QFY01/10 results were within our and
consensus expectations.
- 4Q EBIT fell 23% qoq largely due to a higher prize payout for the NFO division (4QFY10: 72% vs. 3Q:
67%). Power EBIT was down 7% on higher staff cost and depreciation charges while contribution from
Tropical Islands was seasonally weaker.
- Tanjong declared a 4th interim gross DPS of 17.5 sen (4QFY09: 17.5 sen) and a final gross DPS of 30 sen
(4QFY09: 20 sen). The final DPS surprised on the upside as we were only expecting a DPS of 22 sen.
- We have updated our forecasts for the full-year results, although the changes are not too significant. We
have also raised our FY11-12 gross DPS projections to RM1.02-1.04 from RM0.94-0.96.
- We have updated and raised our SOP-derived fair value marginally to RM19.20, from RM19.10.
Outperform call reiterated.

SapuraCrest : Looking forward to FY11 Market Perform

4QFY10 Results
- FY01/10 core net profit was largely in line, accounting for 103% and 95% of our full-year forecast and
market consensus respectively. 4Q revenue was down 53% qoq, mainly due to lower revenue from marine
division (-47% qoq) on account of declining charter rates and lower utilisation rates as well lower
contribution from IPF division (-71% qoq) due to seasonal factors.
- Including the latest PSCs’ IPF contract worth RM1.5bn, SapuraCrest’s current effective orderbook now
stands at RM7.4bn. We note that the PSC’s IPF contract is for 2010 with additional contract sums to be
awarded for 2011-12.
- No change to our forecasts for now. Potentially, as we see more contracts secured, there may be upside to
our fair value of RM2.66/share, which is based on 16x FY11 EPS. Maintain Market Perform.

Jaya Tiasa : Gradual recovery expected Underperform

3QFY10 Results
- 9M10 net profit of RM17.6m (+33.3% yoy) were within our and consensus expectations, coming in at 64%
and 61% of forecasts, respectively. We consider this to be in line as we expect 4Q10 to remain firm qoq
 due to gradual recovery in the timber division coupled with higher CPO prices (+4-5% qoq). No dividend
was declared in 3Q10.
- Given RHBRI’s CPO assumptions of RM2,350/t, RM2,550/t and RM2,700/tonne for FY04/10-12, we
believe that going forward, Jaya Tiasa’s earnings will be more plantations-driven than timber-driven, with
the plantations division potentially contributing 65-75% to group earnings in FY10-11 (from c.30% in FY09).
Further upside would be driven by the plywood division.
- No changes to earnings forecasts. Maintain SOP fair value of RM2.35 based on unchanged 14x FY10
timber division earnings and 12x FY10 plantation division earnings. Maintain Underperform.

Technical Highlights

Daily Trading Strategy : Short-term volatility likely to persist…

- Despite another positive closing yesterday, the FBM KLCI registered a “doji-like” candle. This suggests a
possible extension of yesterday’s profit-taking leg.
- Therefore, a clear immediate-term challenge to the index is to sustain at above the 10-day SMA near
1,304. Otherwise, it will prove to be another false breakout signal on the chart.
- Nevertheless, we expect the index to linger near to the psychological level of 1,300 in the near term, on
sustained buying support on the index-linked counters.
- But, we maintain that short-term market volatility will persist, while stress that the medium-term outlook will
remain intact if the index stays at above the 1,250 – 1,300 major resistance zone..

Daily Technical Watch: Time dotCom – Must sustain at above RM0.47 to avoid a sharp pullback…
- 10-day SMA: RM0.429
- 40-day SMA: RM0.3934
- Support: IS = RM0.47 S1 = RM0.41 S2 = RM0.345
- Resistance: IR = RM0.54 R1 = RM0.60

Bulletin Board

Co/Sector News Impact Recom

Gaming - Pakatan Rakyat intends to urge the Federal
NFO Government to revoke approvals given to NFOs
to hold special draws to curb gambling in the
country. (Edge Financial Daily)
IOI Corp Finnish refiner, Neste Oil wants IOIC to
investigate accusations from NGO Friends of the
Earth, that IOIC’s estates in Indonesia were not
following RSPO guidelines. IOIC currently
supplies CPO to Neste’s biofuel plats in Finland,
which have a vegetable oil requirement of
350,000 tonnes a year. (Financial Daily)
TM TM launched its “UniFi” next-generation High The launch of HSBB service is within the time MP, FV =
Neutral, as we believe this would not necessarily OW
have any impact on the special draws, as it has
already been allocated and is midway through
being implemented. In reality, abolishing the
overlapping special draws may actually be
positive to the NFOs bottomline, given that
overlapping draws tend to lead to lower revenue
per draw for each NFO.
Negative, although we cannot actually say this is OP, FV =
unexpected. We believe most CPO producers RM6.65
with greenfield land to develop in Indonesia
would be hard pressed to state unequivocally
that they were following RSPO guidelines, given
the very “fluid” government approval structure
and land title transfer procedures in Indonesia.
Although we believe Neste Oil may not
necessarily cancel IOIC’s contract given that
IOIC is supplying Neste with CPO from its
Malaysian estates, which are RSPO certified, we
believe that IOIC, the RSPO and all the other
plantation companies with developing landbank
in Indonesia would, however, have to do
something to address these concerns, in order to
avoid this happening with other customers.
 Speed Broadband (HSBB) service yesterday.
TM’s UniFi packages comprise triple-play
services of high speed Internet, video (IPTV) and
phone, at speeds of 5Mbps, 10Mbps and
20Mbps. Pricing details for the new packages will
be announced later. (Star)
Astro TM launched its triple-play of high-speed internet, No significant impact in near term given that the UP, FV =
IPTV and phone yesterday. (Financial Daily)
frame management had guided. Our earnings RM3.55
forecasts do not include revenue contribution
from HSBB, pending pricing details. In any case,
management had previously said that near-term
contribution from HSBB would not be significant.
initial offering of 22 channels by TM appears not RM4.30
to overlap with channels offered by Astro except
for the FTA channels. Furthermore Astro is very
well established in the market and enjoys
exclusivity with popular channels like HBO and
currently holding the rights to broadcast the EPL
and World Cup matches.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Formis Dividend in specie of ISS Consulting shares to Formis shareholders 6-Apr-10 -
Mah Sing Bonus issue on the basis of 1-for-5 5-Apr-10 -
Tanjong plc Final gross dividend of 30 sen less 25% tax 28-Jul-10 13-Aug-10
Tanjong plc Fourth interim gross dividend of 17.5 sen less 25% tax 14-Apr-10 30-Apr-10

Going “ex” on 26 Mar

Grand-Flo Solution Renounceable rights issue of new warrants on the basis of 1-for-2 26-Mar-10 -
Malaysian Airline Systems Final tax-exempt dividend of 3 sen 26-Mar-10 8-Apr-10

...For more details, see individual reports attached

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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.

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