Market Dateline PP 7767/09/2011(028730)

RHB Research Institute

RHB Equity 360°

7 October 2010 (IJM Land, Consumer, Construction, Dialog, Top Glove; Technical: WCT)

Top Story : IJM Land – Canal City land to kick off end 2011 Outperform
Visit Note
- Canal City land will be the next major township development for IJM Land in coming years. The company
recently signed a termination agreement with the state government for the construction of canal. Including
all necessary costs to be incurred for relocation of squatters, effective land cost would be around RM4-6
psf, which is attractive, as it is getting very difficult to secure a large parcel of land in the Klang Valley. The
leasehold development will have a GDV of RM4bn, but we believe there is upside potential given IJM
Land’s track record on stepping up pricing in its property launches.
- It is widely speculated in the market that IJMLD may be the takeover target by its parent company – IJM
Corp. In our view, as liquidity is not a big issue, and valuations are not overly cheap either for IJM Land, we
think the most possible reason for IJM Land to be taken private is the potential inclusion of IJM Corp into
the FBMKLCI top 30 stocks, following the inclusion of Gamuda last month. By taking over IJM Land, IJM
Corp’s market cap will then be enlarged to RM8.2bn vs. Gamuda’s RM7.9bn. While it is still premature to
confirm the deal, we believe the privatisation angle is nevertheless a strong catalyst for IJM Land.
- All in all, we raise our FY11-13 forecasts by 5-12% to reflect the potential earnings contribution from the KK
condo and Canal City project.
- Maintain Outperform. Fair value raised to RM3.18, from RM3.00, after we update latest landbank and GDV.

Sector Call

Consumer : Rising consumerism Neutral

Sector Update
- RHBRI forecasts a consumer spending growth of 5.4% p.a. for 2011. Although this is a slower growth
compared to the forecast consumer spending growth for 2010 of 5.6%, we believe the growth is still
relatively resilient, given the rising consumerism and high savings of the Malaysian population.
- We expect the growth in consumer spending to drive topline growth for the retail players such as AEON
(MP, FV = RM5.72) and Amway (MP, FV = RM8.45), and to a certain extent, Parkson (OP, FV = RM7.72).
- The margins of plastic packaging player Daibochi (OP, FV = RM4.12) will be boosted by an expected
oversupply of plastic resin, its main raw material. We understand that the oversupply is expected to come
at the end of 2010 due to new capacity from the Middle-East.
- The resilient growth in consumer spending will also be a factor for KFC (OP, FV = RM3.61) and QL
Resources (OP, FV = RM5.25) revenue growth. However, for KFC, our view is that moving forward, its
revenue will likely be more driven by its expansion plans locally and overseas, mainly India
- For QL Resources, we continue to like its outlook given its recent acquisition of a 23.29% stake in Lay
Hong, which is involved in the production of eggs, broiler farming and feedmill activities, similar to QL.
- In terms of valuations, we have in our recent 4Q 2010 strategy increased most of our target PERs by 1-
1.5x, given improving growth prospects.
- Maintaining Neutral. Our top picks are Parkson and Carlsberg.

Construction : An alternative MRT proposal by IJM-UEM? Overweight

Sector Update
- There has been a strong rumour in the market that a JV between IJM and UEM has submitted or will be
submitting an alternative MRT proposal to the Government, competing head-on with the Gamuda-MMC JV.
- While theoretically open bidding should ensue best value for money, we suspect “urgency” may take
precedence in the case of the MRT project. We are unsure if the Government can afford to spend a few
extra months to evaluate an alternative proposal.
- We are not taking the rumour seriously.
- Maintain Overweight for the construction sector. Our top “tactical” pick is Gamuda (Trading Buy, FV =
RM4.51) while “value” pick is Sunway (Outperform, FV = RM2.35).
Corporate Highlights

Dialog : Contract awarded Outperform

News Update
- Yesterday Dialog announced it had been awarded a RM60.7m EPCC contract from Petronas Carigali
(PCSB) for a new condensate tank and associated facilities for Bintulu Crude Oil Terminal (BCOT). Work
will start immediately, while completion is expected within 20 months.
- This is Dialog’s second win for the year and lifts cumulative wins to RM95m. We expect the contract to
fetch EBITDA earnings of at least RM4.8m based on margin assumption of 8% for EPCC contracts.
- Dialog was in the spotlight during the Economic Transformation Programme Open Day in Sep, as it was
highlighted as one of the companies that would spearhead the government’s aim of turning Malaysia into a
regional oil storage and trading hub by 2017.
- We leave our forecasts unchanged for now as we have already incorporated about RM120-150m new
contracts for FY11. We however introduce FY13 earnings which incorporate a 20.6% increase in net
earnings mainly on the back of earnings accretion from the Tanjung Langsat terminal’s ongoing expansion.
- The company remains our favourite for the sector given its conservative and asset-light strategy. Moreover,
it is the leading tank terminal player in Malaysia. We maintain our Outperform call on the stock with
unchanged SOP fair value of RM1.30/share based on 15x FY06/11 PER for the core operating business.

Top Glove : FY10 net profit grew 45% yoy Underperform

4QFY10 Results
- 4QFY08/10 net profit of RM45.1m was within but below consensus expectations with full-year net profit of
RM245.3m accounting for 102% and 96% of our and consensus estimates respectively
- Qoq, revenue fell 2.6% as a result of lower sales volume (-2.0% qoq) while net profit slipped by 30.1% as
EBITDA margin contracted by 7%-pts qoq, resulting from the time lag in passing on the weaker US$, partly
offset by tax savings of RM4.1m and lower interest cost during the quarter
- Top Glove declared a final tax-exempt DPS of 9 sen, slightly below our expected net DPS of 10 sen. Full-
year DPS stood at 16 sen, which translates to a net payout ratio of 40.3% and net yield of 2.8%
- We have fine-tuned and updated our FY11-12 earnings forecasts post the full-year results. We introduce
our FY13 numbers.
- Our fair value has been raised slightly to RM5.40, which is based on unchanged target CY11 PER of 12.5x.
Maintain Underperform call on the stock.

Technical Highlights

Daily Trading Strategy : Bullish near-term scenario ahead…

- As the FBM KLCI has removed the Sep high of 1,479.59 yesterday, it is ready for a more bullish near-term
scenario ahead.
- While the “star” candle could stir some profit-taking activities today, we are of the view that the index would
remain supported. Yesterday’s technical gap at 1,472.32 – 1,476.05 and the 10-day SMA of 1,464 are
expected to provide some bargain-hunting opportunities in the near term.
- In fact, we remain bullish and expect more upside, should the index add another positive candle on the
chart today.
- Next resistances are set at a technical gap near 1,490.5 – 1,497.64 and the psychological level of 1,500.
Thereafter, the index is on its way to revisit the all-time high level of 1,524.69.
- Going forward, investors are likely to focus on the US earnings reporting season, which will begin on
Thursday and the US monthly jobs report on Friday.

Daily Technical Watch: WCT – Removing RM3.20 will mark more “buy” signals on the stock…
- 10-day SMA: RM3.041
- 40-day SMA: RM2.911
- Support: IS = RM2.80 S1 = RM2.40 S2 = RM1.95
- Resistance: IR = RM3.20 R1 = RM3.74 R2 = RM4.40
 Bulletin Board

Co/Sector News Impact Recom

O&G The listing of Malaysia Marine and Heavy Neutral. After the IPO, MISC would still retain Neutral
Engineering Holdings Bhd (MHB) may raise around 65% stake in the company. This implies a
some RM2bn. The IPO consists of a public issue small free float of just 25% (excluding Technip’s
of 262m shares for institutional and retail 8-9.9%), which could lead to aggressive bidding
investors, an allocation by parent MISC to French by institutional investors, notwithstanding the fact
oilfield services group, Technip SA, and an offer that the company by full market cap will unlikely
for sale of MHB shares by MISC. Only about be large enough for inclusion into the FBM KLCI.
RM946m of the proceeds will go to MHB, while The indicative IPO price for institutional investors
MISC will pocket the remainder. The proceeds is RM3.80, while retail investors will pay RM3.61.
will be used for the expansion and upgrading of We understand that the company has an order
its yards in Pasir Gudang in Johor and book of RM5.9bn as at June 2010 which will last
Turkmenistan. The retail and institutional offers them till 2010, and a tender book or some
close on 14 Oct, the same day the price of the RM9bn. However, the management did not guide
shares for both investors will be decided. the tentative award dates of these bids. 1QFY11
(Business Times) net profit stood at RM110.3m.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Berjaya Corp Final dividend of 1% single tier exempt 3-Dec-10 30-Dec-10

Going “ex” on 8 Oct

George Kent Interim dividend of 2 sen less 25% tax 8-Oct-10 11-Nov-10

...For more details, see individual reports attached

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