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RHB Research Institute

1

12 March 2011 Vistana Hotel Kuantan

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2March 2011

Capital Flows, The Economic Outlook

and Equity Market

2011 Market Outlook & Strategy


3

Market outlook

� Rising confidence on the sustainability of global economic recovery.

� As developed countries are mired in debt problems, emerging markets that are with stronger economic fundamentals and growth prospects attracted significant inflow of capital.

� Foreign flows into the Malaysian capital markets, however, may have peaked with potential reversal of capital in the months ahead.

Foreign holdings of fixed income instruments in M’sia

RMbn RMbn

Source: RHBRI

Net Foreign buying into M’sian equity

RMbn

2.9

2011

Source: Bursa M’sia

2010

2.63.1

-2

-1

0

1

2

3

4

5

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

2.0

0

10

20

30

40

50

60

70

80

Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10

0

10

20

30

40

50

60

70

MGS/GII

PDS

Money Market


4

Push-and-pull effect : a volatile year ahead

� Whilst optimism abounds, liquidity-driven rallies seldom last and sometimes unexpected events could cause the reversal of capital flow earlier than expected.

� Relative market valuations.

� Rising inflation, the building of asset bubble and more significant policy tightening in the emerging world could also cause jitters among investors.

� Strengthening of US dollar.

� Worsening political crisis in the Middle East and prolonged increase in oil prices.

� Domestically, news flow continue to be positive, but may still be clouded by global developments.

� Impending award of projects/contracts under the various economictransformation programmes.

� Sarawak state elections and the possibility of early general elections.


5

Upward-trending market in 2011, but expect more volatility

� Nevertheless, beyond the short-term volatility, we believe there is still room for the market to trend higher in 2011.

� Predicated on the view that there would be no “double-dip” recession for the global economy.

� Resilient growth of the local economy (projected to normalise to 5.0% in 2011), which would in turn imply sustained corporate earnings growth (+13.3% projected for 2011) that will continue to create new shareholders’ value for investors.

� End-2011 FBM KLCI target : 1,700 based on 15x mid-cycle 2012 earnings (bottom-up methodology: 1,740).


6

Economic worries persist, but recovery is building momentum

� Despite the lack of confidence, the US economy will unlikely fall back into a recession, in our view.

US economic recovery stronger than expected

Weak labour market conditions, but consistent job creation since Jan 2010

% yoy(‘000) % of labour force

Source: Bloomberg, RHBRI Source: Bloomberg, RHBRI

-1000

-800

-600

-400

-200

0

200

400

600

00 01 02 03 04 05 06 07 08 09 10 11

0

2

4

6

8

10

12

Non-farm payrolls (LHS)

Unemployment rate (RHS)

-8

-6

-4

-2

0

2

4

6

8

10

05 06 07 08 09 10

GDP

Exports

consumer spending


7

Eurozone economy also unlikely to fall off the cliff, despite the debt problems

� Relatively sound economic conditions in Germany and its immediate neighbours, the Nordic countries and Poland.

� UK has more flexibility to undertake additional measures to steer its economy out of the doldrums.

Fiscal austerity in Europe

Country 2009 2010 2014

Budget Deficit (% of GDP)

Greece 15.4 8.1 <3.0

Portugal 9.4 7.3 4.61

Italy 5.3 3.9 2.72

Spain 11.2 7.3 3.0

Ireland 14.3 11.7 2.9

Germany 3.3 n.a 3.0

UK 11.5 12.6 4.7

1 for year 20112 for year 2012

Source: Various news reports

Germany a key stabiliser

% yoy % yoy

Source: Bloomberg, RHBRI

Exports(LHS)

GDP(LHS)

DisposableIncome(RHS)

-30

-20

-10

0

10

20

30

05 06 07 08 09 10

-2

-1

0

1

2

3

4

5


8

Japan continues to be export-dependent, recovery has stalled

� Japan’s recovery remains weak and is still mired in deflation

Japan still mired in deflation

Source: Bloomberg, RHBRI.

(The core inflation)% yoy

Economy contracted by 1.1% for the 1st time in 5 qtrs in 4Q2010

% yoy

Source: Bloomberg, RHBRI.

-25

-20

-15

-10

-5

0

5

10

15

05 06 07 08 09 10

-50

-40

-30

-20

-10

0

10

20

30

40

50

GDP annualised (LHS)

Household spending (LHS)

Exports (RHS)

% yoy

-3

-2

-1

0

1

2

3

00 01 02 03 04 05 06 07 08 09 10 11


9

5

7

9

11

13

15

17

19

21

23

25

05 06 07 08 09 10

China still tightening in earnest, but growth has stabilised

IPI and retail sales inching up of late

Manufacturing PMI

Index

Source: Bloomberg, RHBRISource: Bloomberg, RHBRI

% yoy

IPI

Retailsales

35

40

45

50

55

60

65

05 06 07 08 09 10 11


10

China: Economic growth bounced back in 4Q2010 despite continued credit tightening

GDP growth picked up in 4Q2010 China’s export growth bounced back in 4Q2010

% yoy


% yoy

Totalexports

Exports to Europe

0

2

4

6

8

10

12

14

16

05 06 07 08 09 10

-40

-20

0

20

40

60

80

05 06 07 08 09 10 11


11

China: Rising asset prices and inflation two key problem areas

Surging asset prices creates fear of unsustainable asset bubble

China’s rising food prices and inflation a key concern

% yoy


% yoy

China

Hong Kong

Total cpi

Food

-5

0

5

10

15

20

25

06 07 08 09 10 11

-20

-10

0

10

20

30

40

06 07 08 09 10 11


12

A new global economic cycle

� Global economic recovery is more sustainable than feared, in our view. It is, however, entering into a period of slowing growth in an uneven phase of recovery.

e estimates

f forecasts

*: Total OECD

Global Economy -0.6 5.0 4.4 4.5 3.9 3.3 3.6 4.6 4.2 4.6

2.8* 2.3* 2.8*

US -2.6 2.8 3.0 2.7 2.8 2.8 2.9 2.7 2.2 3.1

Euroland -4.1 1.8 1.5 1.7 1.7 1.4 2.0 1.7 1.7 2.0

UK -4.9 1.7 2.0 2.3 0.5 2.0 n.a 1.8 1.7 2.0

Japan -6.3 4.3 1.6 1.8 4.4 1.8 2.0 3.7 1.7 1.3

Canada -2.5 2.9 2.3 2.7 1.5 2.5 n.a 3.0 2.3 3.0

China 9.2 10.3 9.6 9.5 10.0 8.7 8.4 10.5 9.7 9.7

India 5.7 9.7 8.4 8.0 9.2 8.5 8.7 9.1 8.2 8.5

Asia ex-Japan 7.0 9.3 8.4 8.4 6.6 7.8 n.a n.a n.a n.a

Malaysia -1.7 6.7 5.3 5.2 5.7 5.3 5.5 n.a n.a n.a

Advance economies -3.4 3.0 2.5 2.5 2.8 2.4 2.7 - - -

Emerging & developing 2.6 7.1 6.5 6.5 7.0 6.0 6.1 - - -

economies

IMF World Bank OECD

2009 2010f 2011f 2012f 2010f 2011f 2012f 2010f 2011f 2012f


13

M’sian economic growth likely to be resilient, underpinned by domestic demand

� Sustained increase in consumer spending on the back of rising consumerism and high savings.

� Supported by rising rural household incomes on the back of sustained high palm oil and rubber prices.

� Expect some projects under the various economic transformation programmes to kick-start and the economic growth to gain momentum in 2H2011.

Domesticdemand

GDP

Exports

% yoy

-20

-15

-10

-5

0

5

10

15

20

25

00 01 02 03 04 05 06 07 08 09 10


14

M’sia: slowing growth, but will likely regain momentum in 2H2011

� Global electronic cycle anticipated to turn up from 2H2011.� Implementation of ETP projects and resilient consumer spending.

Consumption Public 10.7 9.4 0.7 6.3 6.9 -10.2 -0.3 3.1 0.1 4.5 4.6Private 8.5 1.3 1.6 5.1 7.9 7.1 6.5 0.7 6.6 5.4 6.3

Fixed capital formation 0.7 -7.9 8.2 5.4 12.9 9.8 9.2 -5.6 9.4 6.3 5.3

Public 0.5 n.a n.a n.a n.a n.a n.a 8.0 9.9 4.9 0.6

Private 1.0 n.a n.a n.a n.a n.a n.a -17.2 8.9 7.8 10.2

Agg. domestic demand 6.8 0.1 2.8 5.3 9.0 5.0 5.7 -0.5 6.3 5.4 5.8

Exports of goods andnon-factor services 1.6 -12.9 6.0 19.3 13.8 6.6 1.5 -10.4 9.8 7.6 6.7

Imports of goods and non-factor services 2.2 -13.2 7.0 27.5 21.9 11.0 3.3 -12.3 14.7 7.8 7.2

GDP 4.7 -1.2 4.4 10.1 8.9 5.3 4.8 -1.7 7.2 5.0 5.0-6.0

f: forecasts

Source: Dept of Statistics, Ministry of Finance and RHBRI.

Agriculture 4.3 -0.4 5.9 6.8 2.4 2.7 -4.3 0.4 1.7 3.5 4.5

Manufacturing 1.3 -8.6 5.0 17.0 16.0 7.5 6.2 -9.4 11.4 8.0 6.7

Mining & quarrying -2.4 -3.6 -2.8 2.1 1.1 -1.0 -1.3 -3.8 0.2 2.3 2.9

Construction 4.2 7.9 9.3 8.7 4.1 2.8 5.6 5.8 5.2 4.5 4.4

Services 7.4 3.4 5.2 8.5 7.3 5.4 6.2 2.6 6.8 4.6 5.3

GDP 4.7 -1.2 4.4 10.1 8.9 5.3 4.8 -1.7 7.2 5.0 5.0-6.0

2008 2009 2010 2009 2010f 2011f 2011f

Q3 Q4 Q1 Q2 Q3 Q4

RHBRI MOF% Growth in Real terms


15

Sustained earnings growth to underpin market performance

� With sustained earnings growth, valuations improve in 2011.

EBITDA Growth (%) -6.6 25.1 12.8 9.0 -1.0 21.0 12.2 8.8

Pre-Tax Earnings Growth (%) -10.0 35.3 21.2 10.9 -2.2 28.1 18.3 11.6

Normalised Earnings Growth (%)* -10.0 30.7 13.3 11.1 -6.1 28.6 14.0 11.9

Normalised EPS Growth (%)* -15.8 25.5 12.6 11.0 -10.3 21.2 13.0 11.5

Prospective PER (x)* 21.0 17.2 15.2 13.7 20.1 16.9 14.7 13.1

Price/EBITDA (x) 11.5 9.2 8.1 7.4 8.6 8.8 7.8 7.2

Price/Bk (x) 2.6 2.4 2.5 2.1 2.0 2.3 2.1 1.9

Price/NTA (x) 3.3 2.9 2.9 2.4 2.3 2.6 1.7 1.6

Net Interest Cover (x) 8.2 6.2 7.9 8.6 7.6 8.0 9.8 11.0

Net Gearing (%) 42.7 36.4 33.5 32.1 43.8 36.4 32.6 28.3

EV/EBITDA (x) 8.6 7.0 6.1 5.6 8.4 7.1 6.3 5.8

ROE (%) 12.0 14.3 15.1 15.6 11.6 13.4 14.2 14.7

COMPOSITE INDEX @ 1,523.69 FBM KLCI RHBRI 9th March 2011 2009a 2010f 2011f 2012f 2009a 2010f 2011f 2012f


16

Regional comparisons

* as at 9th March 2011

FactSet Asian Consensus Trends report dated 1 March 2011

2010 Net EPS (%) 33.3 13.8 24.6 18.3 26.9 32.8 78.3 57.8

2011 Net EPS (%) 14.8 7.9 9.9 12.5 24.4 15.1 14.0 17.9

2012 Net EPS (%) 10.4 10.8 14.9 10.2 16.0 14.8 12.5 12.4

2010 PER (x) 16.5 15.7 13.7 15.0 18.3 14.2 14.0 10.4

2011 PER (x) 14.2 13.7 11.9 12.3 13.5 12.4 13.0 9.4

2012 PER (x) 12.9 12.3 10.4 11.1 11.6 10.8 11.6 8.3

IBES Consensus dated 17 February 2011

2010 Net EPS (%) 29.6 23.8 20.4 40.3 19.1 26.6 90.8 180.7

2011 Net EPS (%) 17.2 11.9 18.1 10.9 26.6 12.0 14.3 15.6

2012 Net EPS (%) 11.9 11.7 16.4 12.9 17.3 14.0 15.3 14.2

2010 PER (x) 16.3 14.5 13.7 13.2 17.1 14.7 15.1 11.5

2011 PER (x) 13.9 12.2 11.5 11.9 13.5 13.2 13.2 10.0

2012 PER (x) 12.5 11.0 10.0 10.6 11.4 11.6 11.4 8.7

Performance* (%)

2009 (YOY) +45.2 +64.5 +63.2 +63.0 +87.0 +52.0 +78.3 +49.7

2010 (YOY) +19.3 +10.1 +40.6 +37.6 +46.1 +5.3 +9.6 +21.9

2011 (YTD)* +0.3 -3.0 -1.5 -6.5 -2.8 +3.4 -2.5 -2.4

M'sia S'pore Thai’d P’pines Indon H.Kong Taiwan Korea


17

Non-strategic foreign ownership of the M’sian market has picked up, but still below recent highs

� Still room for greater foreign participation.

Source: Bursa Malaysia

Note: based on market capitalisation, as at month end.

%

21.9

20.420.3

20.520.6

20.3

20.6

20.8

21.2

21.721.8

22.1

19.0

19.5

20.0

20.5

21.0

21.5

22.0

22.5

Ja

n-1

0

Fe

b-1

0

Ma

r-1

0

Ap

r-1

0

Ma

y-1

0

Ju

n-1

0

Ju

l-1

0

Au

g-1

0

Se

p-1

0

Oct-

10

No

v-1

0

De

c-1

0

%

0

5

10

15

20

25

30

98 99 00 01 02 03 04 05 06 07 08 09 10

23.1

21.8

19.518.5

18.1 18.1

21.221.6

24.2

26.2

21.3

20.4

21.9


18

Major events and potential catalysts for the market

� Award of infrastructure projects and privatisation of government land.

� Sarawak state elections and the possibility of early general elections.

� Iskandar development corridor is also building momentum

� Rising FDIs as well as land and property values.

� Creation of a regional oil & gas storage and trading hub by 2017.

� Initiatives to make the country a preferred Asian hub for oil field services by 2015.

� Greater M&A activities would provide some cheers to the market from time to time.

� More aggressive reform of the GLCs and the reduction of its holdings by GLICs could also attract new focus into the Malaysian market.


19

Value*(RMm)

KL MRT 40,000

Ampang & Kelana Jaya LRT line extension 7,000

Gemas-JB double tracking 5,000

Flood mitigation programmes 5,000

Expansion of airports 3,300

3,580km of paved roads, of which 72% in Sabah and Sarawak n.a.

Remaining work for East Coast Expressway (Phase 2) n.a.

Kuala Lipis – Cameron Highlands road n.a.

Jerantut – Sungai Lembing road n.a.

Sewerage treatment plant in Lembah Pantai, KL n.a.

Eight hospitals (including specialist hospitals), 197 clinics and 50 1Malaysia clinics n.a.

78,000 units of affordable public housing n.a.

Repair and maintenance of public/private low-cost housing 500

Source: The 10MP

*The 10 MP & various news reports

Key public projects earmarked for implementation under the 10MP

� KL MRT and LRT line extension projects the near-term focus.


20

“High-Impact” Projects Via PFI Under The 10MP

Value* (RMm)Seven toll highways including West Coast Expressway, Guthrie-Damansara Expressway,Sungai Juru Expressway and Paroi-Senawang-KLIA Expressway 19,000Two coal-fired power plants 7,000Development of the Malaysian Rubber Board’s 2,680 acres of land in Sungai Buloh 10,000 (GDV)Five Universiti Teknologi MARA (UiTM) branch campuses n.aRedevelopment of Angkasapuri into a “Media City” n.aIntegrated transport terminal in Gombak n.aPrivatisation of Penang port n.aSenai Hi-Tech Park in Iskandar, Johor n.aThe raw water supply project for industrial complex in Tanjong Langsat, Johor n.aLand reclamation in Westport, Port Klang n.aMalaysia Truly Asia Centre in KL n.a

Source: The 10MP

*The 10 MP & various news reports

� Toll roads, power plants, property development, ports, etc.


21

Federal land to be privatised for re-development

Land Area GDV Potential Master (acres) (RMm) Developer(s)

Matrade Jalan Duta 65 15,000 Naza TTDI (Awarded)

Rubber Research Institute, Sungai Buloh 2,680 10,000 EPF, MRCB

Royal Malaysian Air Force, Sungai Besi 400 Multi-billion 1Malaysia Development Bhd(1MDB), Qatar Investment Authority

Jalan Cochrane 150 Multi-billion To be auctioned

KL International Financial District 85 Multi-billion 1MDB, Mubadala

Batu Cantonment army base, Jalan Ipoh, KL 245 - 1MDB, LTAT (Boustead)

KLCC, Jalan Ampang & U-Thant vicinity - - MRCB

Source: Various news reports

Federal land parcels for re-development

� Catalyst for the property sector, though could create fears of impending oversupply.


22

Near-term risk mainly external

� Destabilising capital flow is a key risk to watch up for in the foreseeable future.

� Rising inflation, the building of asset bubble and more significant policy tightening in the emerging world could also cause jitters among investors.

� Worsening political crisis in the Middle East and prolonged increase in oil prices.

� Potential domestic credit tightening, however, is not expected to dampen the market significantly.


23

Market Strategy

� Stick to fundamentals, trim stocks where valuations have become rich.

� Take advantage of any significant pullbacks in the market to accumulate fundamentally-robust stocks on weakness.

Stocks FYE Price Fair Mkt Cap EPS Eps Growth PER P/BV P/CF GDY(9/3/11) Value (sen) (%) (X) (x) (x) (%)(RM/s) (RM/s) RM mil 11f 12f 11f 12f 11f 12f 11f 11f 11f

CIMB Dec 8.15 9.80 60,577 57.4 66.6 17.2 16.1 14.2 12.2 2.3 n.a. 3.8

PChem^ Mar 6.70 7.27 53,600 43.2 49.4 22.5 14.3 15.5 13.6 2.8 10.9 3.2

Genting Dec 10.32 12.40 38,324 79.3 88.6 -3.1 11.7 13.0 11.7 2.0 5.9 1.3

KLK Sep 20.86 25.85 22,268 139.8 139.2 65.1 -0.5 14.9 15.0 3.4 14.3 4.1

MAHB Dec 6.08 7.67 6,688 36.9 37.9 36.4 2.8 16.5 16.0 1.8 8.7 3.0

Affin Dec 3.44 4.30 5,141 35.9 39.1 9.7 9.0 9.6 8.8 0.9 n.a. 2.9

Dialog Jun 2.36 2.82 4,693 7.8 11.4 34.2 45.5 30.1 20.7 7.6 27.2 1.8

Mah Sing Dec 2.46 3.03 1,580 17.8 22.2 25.2 24.7 13.8 11.1 2.1 n.m 3.6

Jaya Tiasa^ Apr 4.85 6.30 1,370 54.5 62.6 35.7 14.7 8.9 7.8 1.0 9.7 0.0

Unisem Dec 1.86 2.65 1,254 24.1 28.8 1.9 19.6 7.7 6.5 1.1 4.5 3.8

HSL Dec 1.80 2.27 1,001 16.2 17.7 21.2 8.9 11.1 10.2 2.4 13.1 1.7

TH Plant Dec 1.97 2.70 962 24.4 25.8 32.9 5.9 8.1 7.6 1.8 6.1 6.6

KSL Dec 1.76 2.60 687 23.4 28.2 42.0 20.6 7.5 6.2 0.7 n.m 3.1

^ FY11-12valuations refer to those of FY12-FY13


24

Key sectors to focus

� Construction : Order book expansions to underpin earnings.

� Property : Experiencing changing industry dynamics and is heading into exciting times.

� Banking : Continue to see values in the early stage of the recovery upcycle.

� Oil & gas : Contract flow and earnings prospects are looking up; expect potential M&As.

� Plantation : Tight global supplies in edible oils, increasingly extreme and unpredictable weather conditions, translating into rising CPO prices.

� Timber : Rising contribution from CPO, cheaper valuations than plantationstocks with improving timber division’s outlook.

� Gaming : Stable Malaysian gaming contributions combined with still growing Singapore market will provide the backdrop for robust earnings growth for undervalued Malaysian gaming stocks.


25

Sectors weightings & valuations

Banks & Finance 220.4 24.8 26.1 13.3 11.0 13.3 12.1 Overweight

Plantation 122.7 13.8 6.8 26.0 4.2 16.4 15.9 Overweight

Oil & Gas 96.9 10.9 12.9 21.4 14.5 15.8 13.8 Overweight

Gaming 63.8 7.2 62.0 0.5 9.0 13.1 12.1 Overweight

Property 35.4 4.0 12.5 21.3 11.7 16.1 14.8 Overweight

Media 14.8 1.7 47.2 9.2 9.7 11.9 10.7 Overweight

Timber 3.8 0.4 91.1 36.6 16.1 8.6 7.4 Overweight

Telecommunications 118.6 13.3 29.4 10.2 7.4 15.9 14.8 Neutral

Utilities 51.6 5.8 9.4 3.5 23.2 12.8 10.4 Neutral

Consumer 32.1 3.6 -9.3 12.8 11.0 16.9 14.7 Neutral

Construction 22.5 2.5 33.2 13.7 5.8 18.8 17.8 Neutral

Motor 21.2 2.4 31.1 10.5 14.7 10.7 9.3 Neutral

Healthcare 9.2 1.0 17.6 4.0 14.8 11.2 9.7 Neutral

Insurance 4.2 0.5 1.7 0.4 32.7 12.2 9.2 Neutral

Semiconductors & IT 4.0 0.5 20.5 -25.7 21.5 10.5 8.6 Neutral

Transportation* 55.5 6.2 23.3 5.6 23.3 21.8 14.7 Underweight

Building Materials 12.4 1.4 -1.4 53.2 11.4 10.7 9.7 Underweight

889.0 100.0

* Exclude MAS earnings in 09-11

Note : RHBRI's Basket

FY10a FY11f FY12f FY11f FY12f

Covered Stocks MktCap Weight EPS Growth PER Recommendation(RMbn) (%) (%) (x)


26

High dividend yielding stocks

^ FY11 & FY12 refer to FY12 & FY13 forecasts.

Share Price Gross Div. Yield (%) P/NTA (x) ROE (%) Recommendation(9/3/11)(RM/shr) FY11f FY12f FY11f FY11f

CSC Steel 1.72 8.7 8.7 0.8 9.3 OutperformVS Industry 1.81 8.7 10.7 1.2 13.3 OutperformDigi 27.80 8.3 8.8 25.5 90.0 OutperformDaibochi 2.44 8.2 8.7 2.7 16.2 OutperformAXIS Reit 2.35 8.1 8.2 1.0 8.8 OutperformParamount 5.19 7.3 7.7 0.9 13.9 OutperformGlomac^ 1.74 7.0 8.3 0.8 12.1 OutperformP Gas^ 11.72 6.9 7.2 3.7 23.9 OutperformAmway 8.44 6.6 6.9 6.7 41.7 OutperformTH Plantation 1.97 6.6 6.6 1.8 22.5 OutperformSTAR 3.58 6.4 6.4 3.0 20.1 OutperformMCIL^ 0.96 6.3 6.5 1.5 14.2 OutperformMedia Prima 2.25 5.8 6.7 2.3 14.9 OutperformFreight 1.00 5.5 5.5 1.1 16.6 OutperformMaybank 8.81 5.4 6.0 2.0 14.6 OutperformQuil Capita 1.06 7.9 8.2 0.8 6.7 Market performMaxis 5.51 7.7 8.0 n.m 26.1 Market perform YTL Power 2.32 7.5 7.5 1.8 16.7 Market perform Sunway REIT 1.02 6.6 7.2 1.0 6.9 Market perform B-Toto^ 4.09 6.4 6.6 n.m 78.6 Market perform


27

Construction

^ FY11 & FY12 refer to FY12 & FY13 forecasts

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)

RM RM 11f 12f 11f 12f 11f 12f 11f 11f 11f 3 mths

HSL OP 1.80 2.27 16.2 17.7 21.2 8.9 11.1 10.2 6.5 2.4 1.7 1.7

Fajarbaru OP 1.13 1.37 14.4 15.2 -10.8 5.5 7.8 7.4 1.9 1.3 5.3 0.9

MRCB TB 2.17 2.65 7.6 7.9 45.9 4.1 28.6 27.5 18.7 2.2 0.7 2.4

Gamuda MP 3.76 4.03 19.0 20.5 36.5 7.9 19.8 18.4 21.8 2.3 3.2 -0.8

IJM Corp^ UP 6.12 6.39 32.6 34.2 2.7 5.0 18.8 17.9 10.0 1.4 1.8 -0.8

WCT UP 3.07 2.52 18.8 19.3 -9.0 2.7 16.3 15.9 13.2 1.7 3.3 3.9

� Neutral. Over the immediate term, we expect the construction sector in general to only perform in line with the broarder market due to “news

flow fatigue”. We suspect the market is already tired of the same old news flow from the same old projects such as the LRT extension, MRT, “River of Life” and those under the 10MP.

� We believe, the market has very much gone past, if not substantially gone past, the “news flow” phase of the cycle for construction stocks. We believe the next round of re-rating will not take place until the market is more sure about the exact timing of the “first oil” from these key public infrastructure jobs, particularly, the MRT project.

� For the MRT project, we believe this could well be 4-6 quarters away given the still preliminary and tentative nature of various aspects of the project such as alignment, funding (including the still undefined “rail-plus-property” model and how to entice the private sector to partially help funding the project), commencement of compulsory acquisition of private properties, enactment of new laws governing the land use rights underground, integration with the masterplan of the Rubber Research Institute development in Sungai Buloh, etc.

� Our top “tactical” pick for the sector is MRCB (FV=RM2.65) as we believe that it is likely to be offered a signifcant role by parent EPF in the redevelopment of the 2,680-acre RRI land in Sungai Buloh. Our top “value” pick for the sector is Fajarbaru (FV=RM1.37) given its ability to gartner a slice in action in the high-profile LRT extension job, i.e. the RM150m contract to build five stations, its glaring discount to peers in terms of valuations, coupled with a strong balance sheet with a net cash of RM118.8m as at 31 Dec 2010, translating to a whopping 69sen/share.


28

Property


* NAV per share

Recom Price Fair EPS EPS Growth PER ROE P/NTA RNAV GDY Price Chg(9/3/11) Value (sen) (%) (x) (%) (x) (%) (%)

SP Setia OP 6.38 7.30 24.1 27.6 17.7 14.4 26.4 23.1 11.5 2.9 6.17 2.8 14.3IJM Land OP 2.69 3.50 19.4 21.3 53.0 9.8 13.9 12.6 11.3 1.8 3.18 1.1 -11.5Glomac^ OP 1.74 2.19 24.3 28.9 23.3 18.8 7.1 6.0 12.1 0.8 2.53 7.0 4.2Sunway City OP 4.23 5.85 41.3 48.2 18.6 16.8 10.3 8.8 8.0 0.8 6.50 2.0 -6.0Axis REIT OP 2.35 2.71 19.0 19.3 18.2 1.5 12.4 12.2 8.8 1.0 1.82* 8.1 0.0Mah Sing OP 2.46 3.03 17.8 22.2 25.2 24.7 13.8 11.1 15.5 2.1 2.27 3.6 37.4Paramount OP 5.19 5.92 76.0 87.4 8.4 15.1 6.8 5.9 13.9 0.9 8.46 7.3 3.8KSL OP 1.76 2.60 23.4 28.2 42.0 20.6 7.5 6.2 10.0 0.7 3.98 3.1 -1.1YNH Prop MP 2.02 2.31 17.5 20.1 24.6 15.2 11.6 10.0 9.1 1.0 3.10 3.2 16.8Quill Capita MP 1.06 1.20 8.8 9.2 5.7 3.8 12.0 11.6 6.7 0.8 1.40* 7.9 -2.8KLCC Property MP 3.40 3.82 29.1 29.9 4.6 3.0 11.7 11.4 4.9 0.6 4.49 3.2 -2.0Sunway REIT MP 1.02 1.05 6.7 7.3 10.1 8.6 15.1 13.9 6.9 1.0 1.07 6.6 2.0UEM Land MP 2.82 2.80 7.1 8.5 52.3 19.7 39.9 33.4 8.9 3.3 3.19 0.5 9.3

RM RM 11f 12f 11f 12f 11f 12f 11f 11f RM 11f 3 mths

� Overweight. Positive but less bullish, and we expect a mediocre performance for the sector in 2Q11:(1) The sector is known for its cyclical and high beta nature, hence it will not be in favour in a choppy and weakening equity market; (2) News flow will still underpin the sector, with announcement of awards likely to come in 2H2011. These include the MRCB JV development for the RRI land in Sg Buloh(best bets are SP Setia, IJM Land and Mah Sing), and Prasarana JV for the commercial development surrounding the upcoming MRT stations, and the official award and equity structure for the development of the land parcels in Singapore jointly owned by Khazanah and Temasek; (3) M&A stories are still brewing, with key focus centered on “who’s next” to merge with MRCB after the deal to merge with IJM Land was lapsed. Besides, we also do not discount big players with strong balance sheet such as UEM Land to acquire other property developers at a later stage after the re-integration with Sunrise is done.

� Sector fundamentals: Slightly mixed. (1) Sales are still strong for most developers but we see difficulties for further price increase, especially on property hotspots within the Klang Valley area (prices in suburbs such as Kajang, Melawati and Rawang are still catching up). Developers may have to face margin pressure going into 2H2011 due to price increase in building materials.(2) Potential rate hike in May / Jul 2011 as regional central banks started tightening. Impact on real property demand will be minimal as developers are still offering “interest free/no installment until completion”, but sentiment on property stocks will be negatively affected as the sector is perceived to be sensitive to changes in mortgage rates.

� Our picks for big caps: Mah Sing – low beta (0.76) and cheaper valuations with strong earnings prospects; and Paramount – low beta (0.83) and strong dividend angle due to the potential listing of KDU.

� MREITs may turn into favour in the midst of volatile equity market due to resilient nature and sustainable yields. Our picks for MREITs: Axis REIT – strong acquisition track record, and Sunway REIT – private consumption and retail spending growth driven by rising young population group.


29

^ FY11 & FY12 refer to FY12 & FY13 forecasts # Not under our coverage, IBES estimates are used.

Recom Price Fair EPS EPS Gwth PER P/BV GDY Price Chg(9/32/11) Value (sen) (%) (x) (x) (%) (%)RM RM 11f 12f 11f 12f 11f 12f 11f 11f 3mths

Banking & Finance

� We believe the sector is the best proxy to the economy and would help take the lead in lifting the market to higher grounds.

� We project system-wide loan growth of 8-9% this year. We expect consumer spending to remain resilient on the back of high savings and rising consumerism and this would help support household loans. Fund raising activities by corporates could also pick up as key projects under the 10MP and Federal land deals get implemented.

� Near term, we expect BNM to raise the SRR by 1%-pt in the upcoming 11 Mar policy meeting. However, we do not expect this to impact our earnings projections too significantly (estimated up to 1.6%). Further out, we expect another 50-75bps hike in OPR in 2H2011. By our estimates, most of the banks should be beneficiaries from a rate hike and this would also help cushion competitive pressures on NIMs..

� Amid positive GDP growth and ample liquidity, capital market activities could continue to remain buoyant and this would help sustain non-interest income ahead. This could be further supported by potential M&A exercises in sectors such as property, oil and gas as well as automotive and the need for some GLCs to diversify their non-core assets and streamline core businesses.

� The Prime Minister’s recent statement that he will consider allowing ANZ to raise its stake in AMMB to 49%, i.e. above the current 30% cap that strategic partners can hold in local banks, could spur talks regarding M&A. We see Affin as a potential beneficiary given: 1) BEA is already a strategic partner and, we believe, would be interested to raise its stake in Affin further; and 2) the BEA-Affin relationship is still young, leaving much scope for the two to collaborate further.

� CIMB is our top pick for large cap stocks while Affin is our pick for the small-mid sized banks. Maybank, Public Bank, AMMB and HL Bank are also rated Outperform for bigger cap and liquidity exposure.

AMMB^ OP 6.46 7.42 51.3 55.3 16.7 7.7 12.6 11.7 1.7 4.1 -0.6Maybank OP 8.81 10.20 60.5 66.5 12.2 9.8 14.6 13.3 2.0 5.4 4.5PBB-F OP 13.20 15.40 96.3 106.5 10.4 10.6 13.7 12.4 3.2 5.1 2.6PBB-L OP 13.16 15.40 96.3 106.5 10.4 10.6 13.7 12.4 3.2 5.1 2.8CIMB OP 8.15 9.80 57.4 66.6 17.2 16.1 14.2 12.2 2.3 3.8 -8.4Affin OP 3.44 4.30 35.9 39.1 9.7 9.0 9.6 8.8 0.9 2.9 7.8HL Bank OP 9.40 11.50 74.8 78.4 9.7 4.9 12.6 12.0 1.9 2.6 0.4RCE^ OP 0.52 0.92 12.3 12.7 1.3 3.0 4.2 4.1 0.7 3.9 -5.5AFG MP 3.12 3.60 28.2 30.0 8.9 6.3 11.1 10.4 1.4 3.0 -0.3EON Cap UP 7.11 7.30 74.6 82.3 17.5 10.3 9.5 8.6 1.1 0.0 1.7RHB Cap# NR 8.01 NR 71.7 81.5 12.2 13.7 11.2 9.8 1.4 3.2 -5.4


30

� The oil and gas sector looks vibrant going forward due to: : 1) Long-term uptrend in crude oil prices bolsters oil and gas majors’ confidence in spending; 2) Petronas and the Government continue to focus on developing domestic reserves and 3) Petronas’ commitment to spend around RM250bn for the next five years.

� Key themes for 2011 are Increased news flow from: 1) Marginal and deepwater oilfield development; 2) Enhanced oil recovery measures and 3) Brownfield maintenance projects.

� Local fabricators will be the first beneficiaries as all new and rejuvenation projects will need new structures. Going forward we also foresee the whole oil and gas value chain to benefit from the new contracts awards.

� Petronas Chemicals is our top pick for the sector given that it is one of the main beneficiaries of the crude oil price run-up due to its competitive cost structure. We also like Dialog for its long-term positive fundamentals and its stronghold on the oil storage segment in Malaysia.

Oil & Gas


Dialog OP 2.36 2.82 7.8 11.4 34.2 45.5 30.1 20.7 33.1 7.8 1.8 47.5Petra Perdana OP 0.98 1.16 5.2 9.1 138.6 73.5 18.8 10.8 7.9 0.8 2.0 10.7SapuraCrest ^ OP 3.67 4.37 21.9 27.7 27.4 26.6 16.8 13.3 5.9 2.9 1.9 27.4P Gas^ OP 11.72 13.76 76.4 79.1 2.6 3.6 15.3 14.8 8.2 3.7 6.9 3.7KNM Group OP 2.85 3.45 23.0 30.5 +>100 32.7 12.4 9.3 8.3 4.3 0.7 29.5Dayang OP 2.09 2.60 15.3 16.7 23.3 9.4 13.7 12.5 8.0 2.2 2.2 8.2P Chemical^ OP 6.70 7.27 43.2 49.4 22.5 14.3 15.5 13.6 8.7 2.9 3.2 20.9RH Petrogas OP S$0.87 S$1.55 1.5 1.9 +>100 23.0 56.9 46.2 7.2 2.7 0.0 55.9Kencana MP 2.63 2.85 12.7 16.4 55.3 29.3 20.7 16.0 12.1 3.5 0.3 18.5Wah Seong UP 2.04 2.02 12.6 14.6 89.5 15.9 16.1 13.9 6.1 1.6 2.3 4.1

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(9/311) Value (sen) (%) (x) (x) (x) (%) (%)

RM RM 11f 12f 11f 12f 11f 12f 11f 11f 11f 3mths


31

Plantation

^ FY11 & FY12 refer to FY12 & FY13 forecasts * Normalised

KLK OP 20.86 25.85 139.8 139.2 65.1 -0.5 14.9 15.0 23.7 3.5 4.1 -4.7Sime Darby OP 9.12 10.60 51.8 53.9 16.3 4.1 17.6 16.9 14.6 2.5 3.4 4.5TH Plantation OP 1.97 2.70 24.4 25.8 32.9 5.9 8.1 7.6 22.5 1.8 6.6 23.1CBIP OP 4.04 5.30 59.8 63.0 20.8 5.3 6.8 6.4 25.1 1.5 5.0 13.8First Resources OP S$1.31 S$1.65 9.9 10.1 38.0 2.3 11.7 11.4 19.0 2.1 2.2 -15.5IOI Corp MP 5.74 6.70 31.9 35.2 21.8 10.4 18.0 16.3 18.1 3.3 3.0 -0.7Genting Plant MP 7.90 9.20 57.6 56.9 38.8 -1.2 13.7 13.9 14.4 1.9 2.0 -8.8IJM Plantation^ MP 2.89 3.20 20.0 17.1 2.6 -14.7 14.4 16.9 11.9 1.6 2.6 -2.4

Recom Price Fair EPS * EPS Growth PER ROE P/NTA GDY PriceChg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)


� These days, there is a minefield of variables to consider when projecting the direction of vegetable oil prices with unpredictable weather patterns, changing geopolitical situations and economic policies affecting prices. In 2011, we believe that one of the more dominant factors which are likely to affect prospects of vegetable oil prices is the weather, or more specifically, the impact of La Niña on vegetable oil producing countries. Although global CPO production is still expected to outpace global CPO consumption in 2011, resulting in a flat stock/usage ratio of 15.6%, the shortages expected in other vegetable oils like rapeseed oil, sunflower oil and to a certain extent, soyoil, would result in global consumption of the 17 oils & fats outpacing global production, leading to a weaker stock/usage ratio of 10.9% in 2011 (from 11.7% in 2010).

� We reiterate our view that CPO prices are likely to remain at high levels potentially until 1H2011, before falling in 2H2011, as productivity recovers. Our CPO price assumptions are RM3,100/tonne for CY2011, RM2,900/tonne for CY2012 and RM2,700/tonne for CY2013. would be maintained as long as the weather normalises and La Niña ends within the next few months, resulting in “normal” production levels for global vegetable oil crops in the second half of the year.

� We believe cherry-picking should be the strategy for the sector, as most plantation companies would be earning fat margins based on the current high prices and low production costs. However, companies who may have made a wrong call on the price direction of CPO and sold forward aggressively may not benefit as much as those who have ridden the wave by selling mostly on the spot market. We maintain our Outperform calls on KLK, Sime Darby, TH Plantations, CBIP and First Resources and our Market Perform recommendations on IOIC, Genting Plantations and IJM Plantations. For Sime Darby, we believe the time has come for management to make some bold changes to the group’s portfolio mix which could lead to a sale of some of its core divisions / operations.


32

Timber

^ FY10& FY11 refer to FY11 & FY12 forecasts

Ta Ann OP 4.80 6.36 49.7 59.1 65.8 18.8 9.7 8.1 6.3 1.4 3.5 5.0Jaya Tiasa^ OP 4.85 6.30 54.5 62.6 35.7 14.7 8.9 7.8 7.1 1.1 0.0 18.3WTKH OP 1.22 1.54 12.8 15.8 82.0 23.3 9.5 7.7 6.1 0.7 3.8 4.3Evergreen MP 1.36 1.56 21.5 23.9 3.4 11.1 6.3 5.7 5.1 0.8 4.4 0.7

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY PriceChg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)


� Japan housing starts recorded an improvement of +2.7% yoy in January 2011, the eighth consecutive month of positive growth .

� For logs, we believe the tight supply situation in Sarawak is likely to continue for a few more months due to seasonal factors, before log production starts to normalise. Nevertheless, we believe tropical log prices would remain firm even when log production starts to pick up, largely thanks to the huge and robust demand from India and China.

� For plywood, we believe selling prices and demand for plywood will remain firm, underpinned by improving housing starts in Japan. In our view, the improved and stable outlook for plywood would keep the plywood division of timber players at a profitable level in 2011 unlike previous years, when losses were incurred due to stagnating plywood prices.

� In the near term, rising crude oil price would result in higher glue cost for plywood producers (i.e. Ta Ann, Jaya Tiasa and WTKH) andMDF producer (i.e. Evergreen). Evergreen, which uses rubberwood logs for its MDF production, is facing margin squeeze problem dueto the sharp rise in rubberwood log costs (owing to rainy season that hamper harvesting and high latex prices currently).

� Our top pick is Jaya Tiasa. We expect strong earnings growth for Jaya Tiasa going forward due to the sharp increase in FFB production owing to increasing mature hectarage, coupled with higher CPO prices. There will be a significant change in the earnings profile of Jaya Tiasa, where 70-75% of earnings from FY04/11 onwards will be contributed by the plantation division. In addition, earnings from its timber division are also expected to improve on the back of higher selling price for logs (due to strong demand from India) and firmer selling prices for plywood.


33

Gaming

^ FY11 & FY12 refer to FY12 & FY13 forecasts * Normalised

Genting Bhd OP 10.32 12.40 79.3 88.6 -3.1 11.7 13.0 11.7 5.0 2.5 1.3 -6.7Genting M'sia OP 3.37 4.45 25.6 26.9 3.0 5.2 13.2 12.5 7.0 1.6 2.2 -0.9B-Toto^ MP 4.09 4.45 28.7 29.6 26.9 3.1 14.2 13.8 9.6 n.m 6.4 -3.1Genting S'pore MP S$2.00 S$2.30 9.5 11.5 29.2 21.6 21.1 17.4 19.6 5.1 0.0 -9.1

Recom Price Fair EPS * EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)


� We believe it is time to bring investors’ attention back to the Malaysian space, which has been largely ignored over the last year. Longer-term upside potential of Genting Malaysia’s (GM) new projects in UK and US (with estimated ROI of about 9-10%) has not been taken into account by the market, overshadowed by tremendous growth seen in neighbouring Singapore. Previous concerns over possibility of a casino tax hike have disappeared, as no such ruling was implemented in the 2011 Federal Budget, while the Malaysian operations have just completed two of the most lucrative quarters of the year, the year-end festive season and the Chinese New Year period in February 2011. We believe that GM has been punished enough already, given its lagging share price versus its sister companies in Malaysia and Singapore and downside risk is limited. Downside risk is capped further by GM’s plan to buy back 10% of its issued capital within the next 6 months. We maintain our Outperform on GM with fair value of RM4.45.

� In Singapore, as novelty effect wears off and market matures, we believe there will be less swings in market share movements, with each IR creating its own niche and target market (At 4Q10 – RWS had c. 58% share). With RWS continuing to ramp up operations, we expect to see consistent topline growth over the next year, although margins may settle at a more stable theoretical level. While we continue to be positive on prospects of RWS, we maintain our Market Perform recommendation on GS (FV = S$2.30), as we believe valuations are close to fair levels at current price.

� Genting will continue to be a beneficiary of GS’ growing profits, which results in an earnings contribution of 50-55% to the group; stronger earnings growth from the plantation division on the back of high CPO prices; and any longer-term potential upside from GM’s new projects. In addition, the valuation gap between Genting and Genting Singapore provides investors with an arbitrage opportunity, as Genting is a much cheaper entry point into GenS, both on a PE (by 40-50%) and an EV/EBITDA (by 60-70%) basis. Maintain Outperform on Genting with fair value of RM12.40.

� For BToto, earnings outlook remains rather unexciting on the back of the full year impact of the pool betting duty hike and the weaker sales per draw growth due to the 20 overlapping special draws slated for CY2011. However, the potential of a corporate exercise like a privatisation or stake sale to a private equity investor and/or higher dividends given Berjaya Land’s need for RM711m in cash for its convertible bonds maturing in Aug 2011, is expected to provide support for its share price in the near term. Maintain Market Perform on BToto with fair value of RM4.45.


34

Media


Media Prima OP 2.25 3.20 18.1 21.3 16.3 17.6 12.4 10.6 6.8 2.3 5.8 -3.4Star OP 3.58 4.23 26.4 27.9 5.6 5.5 13.5 12.8 7.8 3.0 6.4 5.3MCIL^ OP 0.96 1.32 10.6 11.2 6.4 5.5 9.0 8.5 4.3 1.5 6.3 9.7



� Overweight

� For 2011, we project adex growth of 10.5% as consumer sentiment improves further. This is based on projected 2011 GDP growth of 5% (+7.3% estimated for 2010) and the average multiplier of 2.1x (between 1989-2009).

� At the cost side, newsprint prices have crept up recently, but the weakening US$ against RM should help to improve margins for the companies moving forward.

� Media Prima (FV=3.20) remains our preferred pick given its position as the largest fully integrated media company, covering the full spectrum of media platforms in Malaysia.

� We also like MCIL as its valuations are currently trading at a higher discount to Star’s despite both companies offering roughly similar earnings growth.


35

Semiconductor & IT

� The outlook for semiconductor is gaining strength on the back of stronger pick-up in demand from US and EU and still resilient demand from the emerging markets.

� Furthermore, the new wave of technology will likely drive the rising demand for mobile devices and internet connectivity.

� Unisem is poised for higher-volume loading for a Tier-1 customer for its communication chips which not only provides longer-term earnings growth but sets a precedent for more opportunities with other major customers.

� With the growing demand for smartphones, MPI is a key beneficiary with its voltage suppression technology (X3-MLP) that are mainly used in space constraint devices.

� Notion’s earnings are picking up thanks to the strong demand for its camera lens barrel business.

� While we note that the HDD industry continues to face price pressure and a perceived shift to solid state drives, Western Digital and Seagate have turned positive on projected 2Q shipments. Nevertheless, we are concerned JCY’soutlook as operational issues and rising raw materials could continue to affect its earnings.

� While we are concerned about the earnings visibility for the HDD players, we have a more positive view on the semiconductor industry. Overall, we reiterate our Neutral call on the sector.

Unisem OP 1.86 2.65 24.1 28.8 1.9 19.6 7.7 6.5 4.1 1.3 3.8 -4.6MPI MP 5.44 5.96 50.0 58.4 -0.3 16.7 10.9 9.3 2.8 1.1 3.7 -0.4Notion Vtec MP 1.94 2.17 30.4 35.9 25.4 18.2 6.4 5.4 4.0 1.4 2.8 21.6JCY Intl UP 0.64 0.22 2.2 3.0 -76.5 37.0 29.2 21.3 8.5 1.4 0.2 -20.5




36

Telecommunications

Digi.Com OP 27.80 29.10 173.9 182.7 14.8 5.1 16.0 15.2 8.3 25.5 8.3 13.3Axiata MP 4.92 5.75 38.2 42.4 18.5 10.9 12.9 11.6 5.9 2.8 3.1 3.4Maxis MP 5.51 5.65 31.9 33.1 16.5 3.8 17.3 16.7 10.1 n.m 7.7 2.6TM UP 3.98 3.84 13.5 14.6 -14.9 8.5 29.5 27.2 3.3 3.1 6.6 15.4

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY PriceChg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)


� Industry revenue growth of mid-to-high single digit for 2011 may not look too exciting for the telco sector, but as a defensive play, telco stocks are the best bet to ride out any unpleasant volatility amid escalating unrest in the Middle East, which may jeopardise the global economic recovery. Despite our Neutral call on the sector, we still like telco stocks for their strong cash flow, healthy balance sheets and well articulated dividend policies that translate into attractive yields.

� We believe competition should remain rational in 2011, as a price war, particularly in the broadband segment will not really benefit anyone except YTL Communications (YTL Comms). Usually a new entrant has an incentive to underprice its products, but YTL Comms is still acting rationally.

� We expect non-voice revenue, in particular wireless broadband and data value-added services, to provide growth to the cellcos. Longer term, the margin erosion will be mitigated by: 1) active network sharing by selected cellcos; 2) greater economies of scale; and 2) ongoing cost management initiatives.

� Our top pick is DiGi as a high dividend yield play and good earnings growth prospects from data-led revenue growth and scope for margins improvement due to ongoing cost management initiatives.

� We are taking a more cautious view on Axiata, whereby regulatory risks among its foreign subsidiaries (in particular India and Bangladesh) could outweigh its strong earnings growth prospects in the short term. TM remains a dividend story, and we believe further upside is now limited since management has just recently declared its intention to return excess cash in the form of 29 sen/share via capital distribution to be paid in Jun 2011. As for Maxis, FY11 earnings growth look tepid due to competitive pressure on margins and gestation costs for its new home business (quad play services) to be launched in Mar 2011.


37

Consumer


� Retail and MLM players to be driven by consumer spending. RHBRI’s economics team forecasts that consumer spending will likely grow at a softer rate of 5.4% in 2011 (vs. 5.6% estimated for 2010) as it is coming from a slightly higher base. We expect consumer spending growth to continue to drive topline growth for AEON, Hai-O and Amway. Parkson’s core driver would be its China department stores (95% of PBT), especially as China recently announced measures to gradually double its minimum wage by 2015.

� Consumer spending growth will also drive F&B. Consumer spending growth will drive revenues for both KFC and QL Resources. However, in the longer run, we believe KFC’s expansion locally and overseas, mainly India, will likely be the revenue driver. For QL, we are positive on its outlook given its recent acquisition of a 23.29% stake in Lay Hong, which has a similar business activity, i.e. eggs, broiler farming and feedmill. We believe the acquisition will provide synergistic benefits and incremental earnings.

� For CI Holdings, our new coverage, we believe that revenue growth will mainly come from its non-carbonated drinks segment, especially its Tropicana Twister fruit juices, as CI has just recently almost doubled up the non-carbonated drinks production capacity through the installation of a new production line. However, due to unfavorable sugar price conditions, we expect to face significant margin pressures for FY11-13.

� We expect Daibochi’s margins to improve given that PET film prices has stabilised and supply would further be boosted by the expected new capacity coming on stream in 2HFY11. Demand wise, we expect its continuous product innovation and foray into the non-F&N sector will continue to drive revenue growth.

� Excise duty on cigarettes were increased in early October, effectively increasing cigarette prices by 7.5%, which would put further downward pressure on TIV. However, the brewers were spared another year of an excise duty hike, which augurs well for Carlsberg.

Amway OP 8.44 9.35 53.4 67.8 12.0 27.0 15.8 12.5 9.9 6.7 6.6 3.9Carlsberg OP 6.87 7.87 2.0 2.2 18.8 9.8 13.4 12.2 8.9 3.4 3.7 7.0Parkson OP 5.37 6.55 29.2 38.7 11.9 32.6 18.4 13.9 4.5 2.7 1.9 -6.8VS Industry OP 1.81 2.44 37.3 42.6 47.5 28.4 6.2 4.9 4.2 1.2 8.7 1.7Daibochi OP 2.44 3.50 29.1 34.0 21.6 16.8 8.4 7.2 5.3 2.7 8.2 0.4AEON MP 6.00 6.47 53.6 57.1 13.8 6.6 11.2 10.5 2.2 1.7 2.0 -3.2KFCH MP 3.71 3.85 22.5 26.0 13.8 15.7 16.5 14.2 8.7 1.9 1.9 -2.6QL R MP 3.08 3.08 17.1 18.6 18.7 8.4 18.0 16.6 8.8 3.9 1.9 9.2C.I. Hldgs MP 3.07 3.88 29.8 29.9 10.9 0.6 10.3 10.3 5.7 3.0 2.9 -19.8BAT UP 47.64 43.15 237.9 234.8 -7.1 -1.3 20.0 20.3 13.6 68.5 4.5 0.7Hai-O^ UP 2.40 1.35 13.6 15.5 1.0 14.0 17.7 15.5 9.8 0.9 3.8 -18.6




38

Motor

MBM OP 3.10 3.95 60.4 63.0 5.0 4.3 5.1 4.9 9.5 0.7 4.2 -0.6APM OP 5.00 6.10 71.8 85.1 12.8 18.5 7.0 5.9 2.3 1.2 4.4 -4.8T Chong OP 4.83 6.00 47.8 56.6 35.9 18.5 10.1 8.5 7.3 1.6 2.7 -11.7UMW MP 7.22 7.85 60.9 67.6 10.3 11.1 11.9 10.7 5.6 1.8 3.4 4.6Proton^ UP 3.45 4.00 20.8 28.2 -26.2 35.2 16.5 12.2 1.9 0.4 0.0 -27.7




� Following the record sales in 2010, we retain our view that growth will continue in 2011 albeit at a slower pace. RHBRI is forecasting total industry volume (TIV) growth of +4.0% and +2.1% for 2011 and 2012 respectively, that is broadly in line with the Malaysia Automotive Association’s (MAA) forecast for 2-2.3% yoy TIV growth in 2011-14. Although the macroeconomic environment remains positive, we believe that much of the current replacement cycle has already passed

� Although TIV for January 2011 of 54,646 units showed respectable yoy growth of 8.0%, this reflects a rush to complete vehicle registrations ahead of the Lunar New year holidays and is not a reflection of latent auto demand for the remainder of the year. With vehicle registrations flat mom (-0.1%), we believe yoy growth performance will gradually taper off.

� We reiterate our Neutral view on the sector on the back of relatively tepid industry growth prospects in 2011. The key risks for the industry are: 1) Inflationary pressures amid economic recovery; 2) Higher interest rates; and 3) Availability of financing. We see Proton remaining in a period of under performance, dragged lower by restructuring costs at 100%-owned Group Lotus. UMW is close to being fairly valued as it struggles to turnaround its oil & gas division. Our Outperform call on MBM is predicated on valuation grounds (large discount to peers) while we like Tan Chong and APM for its regional growth prospects.


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Healthcare

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)RM RM 11f 12f 11f 12f 11f 12f 11f 11f 11f 3 mths


� Neutral.

� Malaysia’s healthcare industry is expected to grow at a resilient 8-10% p.a. driven by: 1) approximately 2% p.a. steady population growth; and 2) greater affluence and awareness of healthcare standards to fuel strong demand for healthcare services.

� We remain cautious on the near-term outlook for the glove manufacturers largely due to: 1) slowdown in demand for rubber gloves as customers opt to run down their inventory levels due to high latex price; 2) high latex price; and 3) weakening US$ against RM. The slow-down in orders has adversely affected some glove manufacturers to adjust prices for the higher costs. Given the challenging near-term outlook for the sector, we maintain our Neutral stance on the rubber gloves sub-sector.

Adventa OP 2.37 3.00 30.1 38.8 28.4 29.1 7.9 6.1 6.6 1.5 5.1 15.6

Kossan OP 3.04 4.23 44.5 46.9 20.4 5.3 6.8 6.5 4.6 1.7 4.1 -8.9

KPJ Health OP 3.90 4.42 26.1 29.7 17.0 13.9 14.9 13.1 8.4 1.8 4.1 4.6

Hartalega^ MP 5.63 6.14 61.5 69.9 24.0 13.8 9.2 8.1 6.3 2.2 4.8 8.3

Faber MP 1.93 2.22 23.0 22.1 5.8 -3.9 8.4 8.8 2.8 1.5 4.1 -28.3

Top Glove UP 4.89 4.10 29.6 38.3 -28.9 29.5 16.5 12.8 8.4 2.5 1.4 -11.3


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Insurance

� Neutral. BNM has announced a gradual removal of the motor insurance tariff, which will begin from 2012 and having the tariff completely removed by 2016. We believe this would ease claims ratio for the motor segment, and it would benefit Kurnia more than the other players, given Kurnia’s heavy motor portfolio.

� Foreign workers medical insurance would provide the general insurance companies with a new market to penetrate into, albeit a small one. We estimate that based on an estimated 1.8m foreign worker in Malaysia, the business is expected to generate RM200m in gross premiums in 2011 for the industry as a whole.

� Four new family takaful licences were awarded to four JV’s: AIA-Alliance Bank, AMMB-Friends Provident Group Plc, ING-Public Bank-Public Islamic Bank, and Great Eastern-Koperasi Angkatan Tentera. The new licences will increase competition in the life insurance segment.

� Life insurance growth will be backed by the low penetration rate relative to other countries in the region, higher medical costs, additional disposable income, the tax relief announced in the 2010 Budget and increased awareness on life products. Competition is expected to heat up as four new family takaful licences were issued.

� General insurance growth will be backed by increase in demand following increase in business activities from the economic recovery, and improving Motor TIV growth. Recent merger between HLA’s general insurance arm and MSIG Insurance indicates a changing competitive landscape, as MSIG will be the second largest general insurer in the country, with the biggest fire and marine cargo portfolio.


* Price and fair value are ex-rights. EPS is not diluted until conversion of ICPS to shares.

Recom Price Fair EPS EPS Gwth PER P/NTA GDY Price Chg

(9//3/11) Value (sen) (%) (x) (x) (%) (%)

RM RM 11f 12f 11f 12f 11f 12f 11f 11f 3 mths

MNRB^ OP 2.69 3.41 19.5 29.5 -60.6 51.0 13.8 9.1 0.5 3.7 -2.5Allianz* MP 5.04 5.34 38.9 45.2 4.3 16.2 12.9 11.1 1.9 3.4 17.5Kurnia Asia UP 0.35 0.25 2.8 6.0 +>100 n.m 12.7 5.9 1.8 1.6 -2.8LPI Capital UP 13.90 12.37 77.3 93.6 24.1 21.1 18.0 14.8 1.8 5.5 9.4


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Utilities



Tenaga MP 6.30 6.90 48.7 62.4 4.1 28.1 12.9 10.1 6.0 1.1 3.1 -10.3

YTL Power MP 2.32 2.57 17.8 18.3 3.3 3.3 13.1 12.6 9.6 1.8 7.5 -4.9

Puncak UP 2.34 2.44 29.8 66.0 -6.6 +>100 7.9 3.5 3.0 0.6 2.6 -9.7

� Neutral – In our view, the main focus for the power sector in 2011 would be on industry reforms, which potentially include: 1) ongoing renegotiations on the first generation power purchase agreements (PPAs) with the independent power producers (IPPs), 2) the reduction of subsidies for natural gas; and 3) a formal fuel cost pass-through for TNB.

� As for the water sector, we believe it would still take a while to see any progress, as several uncertainties remain. These include: 1) pricing issue; and 2) the tussle for the lucrative operation and maintenance (O&M) contract post-restructuring. Also, we continue to believe that the long overdue 37% scheduled tariff hike is unlikely to happen any time soon without the blessing from the Selangor state government.

� TNB, in our opinion, lacks catalysts in the short term. The PPA renegotiations and gas subsidy are neutral in impact, while a formal fuel cost pass-through formula, though positive, lacks a clear timeline. Also, we forecast TNB facing lower electricity demand growth of 5.5% for FY11 (FY10: 8.8%).

� Apart from the above, we note that a base tariff review is past due for TNB, i.e. mid-2009. We believe that a tariff review is unlikely in 2011 given the possibility of elections. Raising tariffs in 2011 will be seen as a very unpopular move, after the government reduced subsidies for fuel (petrol, diesel, liquefied petroleum gas) and sugar in Dec 2010.

� For YTL Power, the recent surprise shortfall in dividends declared casts some doubt to the key investment thesis for the stock, i.e. attractive dividend yields. This we believe could be due to increasing capex for the WiMAX business. If dividend payouts continue to disappoint in the short term, the stock may lose some of its appeal..


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Transport / Logistics


ILB OP 1.01 1.40 10.8 13.3 79.0 23.5 9.4 7.6 9.6 0.5 3.0 -1.0Freight Mgmt OP 1.00 1.59 15.2 16.6 12.5 8.9 6.6 6.0 3.6 1.1 5.5 0.0MAHB OP 6.08 7.67 36.9 37.9 36.4 2.8 16.5 16.0 10.4 3.2 3.0 1.2AirAsia UP 2.51 2.10 17.5 18.2 -40.0 4.3 14.4 13.8 11.1 1.7 0.0 -6.3MAS UP 1.85 1.91 13.6 16.1 n.a. 18.1 13.6 11.5 9.8 1.6 0.0 -10.6MISC ^ UP 7.91 7.59 29.8 41.2 32.0 38.4 26.6 19.2 13.3 1.5 4.7 -6.4



� Underweight. The turnaround in the global aviation sector could be cut short by the surging crude oil prices on the back of the unrest in North Africa and the Middle East. MAS has only hedged forward 25% of its FY12/11 fuel requirement at US$88/bbl WTI. For every US$1/bbl increase in jet fuel cost, MAS’s FY12/11 net profit will be eroded by 7%. Similarly, AirAsia has only hedged forward 21% its group fuel requirement for 2QFY12/11 at an effective average price of US$92.31/bbl Jet. For every US$1/bbl increase in jet fuel cost, AirAsia’s FY12/11 net profit will be eroded by 3%.

� Also, the outlook for the local low-cost air travel sector has turned cloudy with MAS’s decision to expand its 100%-owned Firefly into a full-fledged low-cost carrier, backed by a fleet of 30 fuel-efficient 189-seater Next Generation 737-800 aircraft by 2015 that gives Firefly the firepower to compete head-on with AirAsia’s A320 fleet. We expect Firefly, a new entrant (to the jet segment), to go all out to capture market share at the expense of profitability by heavy price discounting while AirAsia may also want nip the competition in the bud by dropping fares. A full-scale price will weigh down on yields of both players.

� MAHB offers investors exposure to the booming air travel sector. It stands to gain from the price war between AirAsia and Firefly as passenger volume increases as airlines drop fares.

� The shipping sector will continue to be weighed down by weak freight rates on the back of just a mild recovery in volumes while new capacity continues to flood the market. Not helping either, is the rising bunker cost on the back of the surging crude oil prices.


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Building Materials

CSC Steel OP 1.72 2.01 20.1 23.1 10.6 14.7 8.5 7.5 2.1 0.8 8.7 -2.8YTL Cement OP 4.93 5.85 60.1 59.8 19.8 -0.4 8.2 8.2 4.3 1.3 3.0 3.6LM Cement MP 7.40 7.87 49.2 58.7 41.5 19.4 15.1 12.6 8.5 1.9 5.1 -1.3Hiap Teck UP 0.99 1.18 16.4 17.6 6.1 7.4 6.0 5.6 5.9 0.5 1.5 -16.8Kinsteel UP 0.83 0.75 7.5 7.7 n.a. 2.7 11.0 10.7 5.5 0.9 1.2 1.2Ann Joo UP 2.90 3.02 37.4 40.5 63.1 8.3 7.7 7.2 6.0 1.1 5.2 -0.3Sino Hua An UP 0.34 0.35 3.5 3.8 +>100 10.8 9.8 8.9 6.8 0.5 0.0 -1.4Perwaja Holdings UP 0.94 0.85 8.5 12.0 n.a. 42.4 4.9 4.4 8.3 0.5 0.0 1.6

Recom Price Fair EPS EPS Growth PER EV/EBITDA P/NTA GDY Price Chg(9/3/11) Value (sen) (%) (x) (x) (x) (%) (%)RM RM 11f 12f 11f 12f 110f 12f 11f 11f 11f 3 mths

� Underweight.

� Cement: Domestic cement consumption is expected to be strong in 2011 given the implementation of large-scale public construction projects and robust property development activities. In addition, domestic net selling prices for cement are also expected to be higher due to lesser rebates given by the cement producers. However, this will be partly offset by higher production costs (in particular, coal, diesel and electricity).

� Steel: Increase in construction activities and infrastructure developments are expected to sustain the domestic demand for long steel products in 2011, although situation in the global steel sector might not be rosy due to the overcapacity issue, particularly in China. We believe volume and topline growth of steel producers are not likely to translate to significantly improved profitability as margins will continue to come under pressure due to rising feedstock prices (i.e. iron ore,coke coal and scrap). While there has been an encouraging sign of late in the form of rising steel prices globally since early 2011, we view these increases as cost-push in nature and not demand-pull. Nevertheless, steel producers are still expected to post decent results in 1H11, underpinned by cheap raw material inventory against higher average selling prices.


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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 Berhad (previously known as RHB Sakura Merchant Bankers Berhad). 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 aresult 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 upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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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Thank You


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Key Contact Information

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