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

RHB Research Institute

RHB Equity 360°

21 July 2010 (MRCB, Motor, Public Bank, Digi, MISC, Zhulian; Technical: MyEG)

Top Story : MRCB – Actively “assisting” EPF in drawing up masterplan for RRI land Trading Buy
Visit Note
- MRCB is actively “assisting” parent Employees Provident Fund (EPF) in drawing up the masterplan for the
3,300-acre Rubber Research Institutue (RRI) land in Sungai Buloh.
- The race for the 150-acre Federal land along Jalan Cochrane has now been thrown wide open as it
appears that the Government may auction the land.
- The key KL Sentral components currently under construction, i.e. CIMB Tower (Lot A), Nu Sentral, hotel &
office towers (Lot G), GSB Sentral (Lot 348) and KL Sentral Park (Lot E) are progressing well.
- FY12/10-12 net profit forecasts are reduced by 5-16% largely to reflect slower profit recognition from
certain external construction jobs as well as slower construction orderbook replenishment.
- Fair value is reduced by 7% from RM2.10 to RM1.96. Maintain Trading Buy.

Sector Call

Motor : TIV growth momentum continues Overweight

Sector Update
Proton - Fair value is RM5.50 based on stripped down book value Outperform
Tan Chong - Fair value at RM6.16 Outperform
MBM - Fair value at RM5.31 Outperform
UMW - Fair value at RM7.50 Outperform
- Total industry volume (TIV) increased by 19.4% yoy in Jun 2010 (vs. +15.6% yoy in May 2010) which
shows that interest rate hikes have not materially affected TIV performance. TIV for 1H10 of 301k
accounted for 51.2% of our full-year forecast.
- Mom, TIV grew 6.2% (vs. 4.2% mom in May 2010), as consumers continued to rush to buy new cars ahead
of the expected rise in interest rates on car loans on the heels of a third hike in OPR to 2.75% (previously
2.50%) by Bank Negara on 8 Jul. We however believe the impact would be minimal as interest rates are
still much lower vis-à-vis >8% five years ago.
- Perodua and Proton maintained their market leadership in Jun 10 with market shares of 30.1% and 27.1%
respectively (vs. 29.5% and 27.8% in May).
- We note that MAA revised its FY10 forecast to 570k units (previously 550k) on stronger-than-expected
19.8% growth in TIV YTD. The revised forecast means that MAA is anticipating FY10 sales to surpass its
all-time high of 552k units in FY05. This however is still 3.01% lower from our forecast of 588k units.
- Maintain 2010-12 TIV projections of 9.5%, 4.0% and 3.2% p.a. growth, following 2% contraction in 2009.
- We believe it is now the best time to invest in local motor stocks as the motor sector is currently into its
second year of a new 3-year cycle that started in 2009. We believe the 2010 automotive sector earnings
growth will continue to gain traction on the back of: 1) strong industry’s TIV growth ahead; and 2) sustained
strengthening of the RM against US$ and yen which would help to reduce costs of imported materials.

Corporate Highlights

Public Bank : On track to achieve targets Outperform

2QFY10 Results
- Public Bank’s 2QFY10 results were within our and consensus expectations.
- Annualised loan growth stood at 14.6% and is well is on track to achieve our FY10 growth assumption of
14% as well as management’s targeted 15% growth.
- Public Bank declared an interim gross DPS of 25 sen. While this is lower as compared to 2Q09 gross DPS
of 30 sen, management said that full-year cash dividend would not be lower than FY09’s gross DPS of 55
sen and retained their dividend payout guidance of 50-55%.
- Management estimates it has excess collective impairment allowance of around RM1bn sitting in its books
but would need BNM’s approval to write back this excess allowance. At this stage, management has yet to
decide whether to pursue the matter further.
- Assuming: 1) minimum core equity capital ratio of 8%; 2) 15% annual loan growth; and 3) annual dividend
 payout ratio of 50-55%, management estimates Public Bank could require around RM3-3.5bn in additional
capital (7-8% of current market capitalisation), but this is unlikely to occur in the near term. Although
management thinks there is a strong likelihood Basel III would be implemented in its current form rather
than a watered-down version, in mitigation, management believes this would require a longer time period
for full implementation (around 5-10 years) and this could help the group beef up its capital base.
- No change to forecasts. Fair value of RM13.75 (13x CY11 EPS) and Outperform call maintained.

Digi : No surprises Outperform

2QFY10 Results/Briefing Note
- Digi's reported 1H10 net profit of RM556.7m came in within our and consensus expectations.
- Management highlighted that the net debt:equity ratio in end-2Q10 was affected by timing differences and it
would go back up in the subsequent quarters.
- Management continues to target revenue growth of “above industry”, with key revenue drivers being mobile
internet and mobile broadband. In terms of margins, management believes EBITDA margin will remain
stable, as management expects revenue growth, coupled with ongoing cost-saving measures, would help
offset the impact of increased handset subsidies.
- While the new termination rate is expected to have a slight negative impact on its top line, Digi expects the
reduction in revenue to be more than offset by the reduction in interconnect cost.
- No change in our DCF-derived fair value of RM25.70 and Outperform recomemndation on the stock.

MISC : Buying four VLCCs for US$430m Underperform

News Update
- MISC has placed an order for four new 320,000-dwt Very Large Crude Carriers (VLCCs) with Daewoo
Shipbuilding & Marine Engineering Co for US$430m (RM1.4bn), to be delivered by Dec 2012 - Oct 2013.
- This is on the heels of its last month’s order for four new 158,500-dwt Suezmax petroleum tankers with
Samsung Heavy Industries Co Ltd for US$271.2m (RM868m), to be delivered in Apr-Oct 2012.
- We have no issue with the latest moves by MISC as they are in line with MISC’s on-going efforts to grow
and re-organise its petroleum tanker fleet.
- Fair value is RM8.02. Maintain Underperform.

Zhulian : Expanding its presence in South East Asia Not Rated

Visit Note
- Malaysia operations expected to remain stable in CY2010 and near-term growth for Malaysia may not be
as attractive as Thailand or Indonesia, given greater competition.
- Thailand’s growth is still expected to be attractive (+10% yoy in FY10). However, management intends to
double or triple Indonesia’s contribution within the next 2-3 years, which we believe is achievable given: 1)
the new equity participation by Zhulian; and 2) the fact that it is coming off from a low base.
- Currently looking to expand its operations to Philippines and Vietnam and acquiring an additional 4 acres of
land in Bayan Lepas to set up a production facility to produce nutritional and home care products to
accommodate additional demand from Indonesia, Philippines and Vietnam.
- In FY10, management is guiding for conservative revenue growth of high single-digit supported by an
expected growth of +10% yoy in Thailand and +30% yoy in Indonesia. Meanwhile, PBT margins are
expected to hold above the 30% level. We believe that management’s growth target is achievable
- Dividend policy remains at a payout of 60%. Based on consensus estimates, this implies an attractive net
dividend yield of 6-7% p.a. for FY10-11.
- Currently trading at FY11/10 PER of 9.6x and FY11/11 PER of 8.2x on consensus estimates, we value
Zhulian at RM2.40/share based on 10x consensus estimates FY11/11 EPS, which is the target PER that
we have assigned for Hai-O, representing a potential upside of >23%.

Technical Highlights

Daily Trading Strategy : The 10-day SMA should cap short-term downside…
- Chart wise, yesterday’s rebound with a positive candle has confirmed the previous day’s “hammer-like”
candle formation. The chart also suggests the current rebound momentum still has legs in the near term.
- In fact, if the average daily turnover can maintain at around 800m-1.0bn shares mark, the strong rotational
interests should persist, with trading activities centred on the lower liners in sessions to come.
 - In our opinion, the short-term trading sentiment remains bullish, as long as the index sustains at above the
10-day SMA of 1,329.
- Critically, however, the FBM KLCI must continue to climb higher before the medium-term chart outlook can
turn bullish. This means it must clear out the recent high of 1,341.96 and solid obstacle at 1,350 soon.
- Failure to inch higher will dampen sentiment, hence triggering a sharper profit-taking dip ahead. This
occurrence will prompt a potential T+3 and T+4 selling pressure in sessions ahead.
- Medium term, the critical support region is near the 40-day SMA of 1,307 and psychological level of 1,300.

Daily Technical Watch: My E.G. Services – Retesting RM0.875 likely if it sustains at above RM0.80…
- 10-day SMA: RM0.7655
- 40-day SMA: RM0.6946
- Support: IS = RM0.80 S1 = RM0.695 S2 = RM0.62
- Resistance: IR = RM0.875

Bulletin Board

Co/Sector News Impact Recom

O&G China overtook the U.S. as the world’s biggest
energy user last year including crude, coal,
natural gas, nuclear and renewable sources,
according to the US-based International Energy
Agency (IEA). The data was however disputed by
the head of China’s National Energy
Administration’s general office. (Bloomberg)
Plantations According to IOI Corp’s Tan Sri Lee Shin Cheng,
the brewing La Nina weather event is expected to
have a major impact on palm oil production in
South-east Asia as heavier rainfall may hamper
harvesting. “If La Nina sets in during the second
half, it will coincide with seasonally higher
production months. If this happens, palm oil
prices, for sure, will surge upwards.” Tan Sri Lee
expects palm oil output to rise 7.1% to 22.5m
tonnes in Indonesia and to remain flat at 17.6m
tonnes in Malaysia in 2010. (Singapore BT)
TM Khazanah Nasional yesterday placed out 5% of After the placement, Khazanah now owns 37% of MP, FV =
TM to local and foreign institutional investors at a TM. We estimate annual gross dividend yield of RM3.55
placement price of RM3.25/share. (BT)
China’s underlying economic growth vs. the N
economic downturn in US and Europe suggests
that energy demand has been largely supported
by China over the last two years. More
importantly, concerns of a sharper-than-expected
slowdown in global economic growth may in the
near term, dampen the growth in energy demand
and in turn, any uptrend in crude oil prices.
Positive. If the La Nina phenomenon does gather N
pace and set in in the second half of the year,
this will have a negative effect on CPO supply
and a positive effect on CPO prices. However,
we are not imputing this into our price forecasts,
given that the weather is an external risk which
we are unable to predict with any certainty.
8.1% at the placement price of RM3.25 based on
RM700m payout.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Notion Vtec Rights issue of free warrants on the basis of 1-for-5 30-Jul-10 -
Tasek Corp Capital repayment and share consolidation 30-Jul-10 -
Pharmaniaga Interim gross dividend of 10 sen less 25% tax 2-Aug-10 19-Aug-10
Public Bank First interim dividend of 25 sen less 25% tax 3-Aug-10 13-Aug-10
Digi.Com Second interim dividend of 35 sen single tier tax exempt 26-Aug-10 24-Sep-10

Going “ex” on 22 Jul

Seg International Renounceable rights issue of warrants on the basis of 1-for-2 22-Jul-10 -
WCT 3rd dividend payment for 13.5% non-cumulative ICPS 22-Jul-10 6-Aug-10
Scientex Interim dividend single tier interim dividend of 3 sen 22-Jul-10 10-Aug-10
...For more details, see individual reports attached

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Industry/Sector Ratings

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