rhbri’s monthly stock watch : special focus :market volatility amidst gradual normalisation of...

8/14/2019 RHBRIs Monthly Stock Watch : Special Focus :Market Volatility Amidst Gradual Normalisation Of Policies -03/03/2010

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RHBRI'S MONTHLY STOCK WATCH2

A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download fromwww.rhbinvest.com

Changes In Recommendation And Forecast From

Last Stock Watch For February 2010

Recommendation Adjustment Reasons For Changes In

Company Current Previous Date Recommendation And Forecast

AFG Outperform New Coverage 9 Feb 2010

AirAsia Market Perform Market Perform 1 Mar 2010

Allianz Outperform Outperform 1 Mar 2010

Malaysia

Allianz Outperform Outperform 2 Mar 2010

Malaysia

AMMB Outperform Outperform 9 Feb 2010

Amway Outperform Outperform 18 Feb 2010

Initiating coverage with OP call and

fair value of RM3.27 based on 15x(1x discount to sector benchmark)

CY10 EPS.

FY12/10-11 net profit forecasts raised

by 26% and 59%, having raised our

assumptions on yields that more

than offset a lower annual capacity

growth assumption of 12.5% vis--

vis 14% previously.

FY10-11 forecasts were raised by

7.2-7.5% to reflect higher-than-

expected gross premium growth and

profit transfers.

Our FY10-12 earnings were raised by

14-14.5%, as we have: 1) raised our

investment return assumption to

4.0% from 3.4% p.a., in line with its

FY09 return; and 2) cut our claims

ratio assumptions to 60% from 61%

p.a. previously

FY10-12 forecasts raised by 6-7% to

reflect higher loan growth as well as

net interest and non-interest income.

Fair value raised to RM6.13 based

on the sector benchmark of 16x CY10

EPS, from RM5.64.

Our earnings forecast is reduced by

0.9% for FY09 and increased by 1.5-

1.9% p.a. for FY10-11 after adjusting

for: 1) higher increase in CDF; 2)

lowering our capex for FY10-11; and

3) increasing our RM vs. US$

assumption to RM3.60/US$ in FY09from RM3.55/US$. Our DCF-derived

fair value is increased to RM8.50

(from RM8.25) following our earnings

adjustment, using an unchanged

WACC of 8.1%.


3/106







Amway Outperform Outperform 25 Feb 2010

Axiata Outperform Outperform 25 Feb 2010

BAT Underperform Underperform 12 Feb 2010

BP Plastics Outperform Outperform 9 Feb 2010

We reduced our FY10-11 forecasts

by 2.9-3.3% after adjusting for FY09results. We have introduced our FY12

forecasts with the following

assumptions: 1) 2% growth in CDF

yoy; 2) 1.5% growth in turnover per

distributor given its more saturated

market position; and 3) exchange

rate assumption of RM3.30/US$. We

expect Amway to continue its net

dividend payout of 90-95%,

translating to a respectable net

dividend yield of c.7% for FY10-12.

Our DCF-derived fair value is reduced

to RM8.45 (from RM8.50) using an

unchanged WACC of 8.1%.

We have tweaked our FY10-11 net

profit projections upwards by 2.5%

p.a. post release of the full-year

results. SOP-derived fair value raised

to RM4.05 from RM3.85, which takes

into account an update in valuation

parameters and, especially, the year-

end cash and debt balances of the

holding company.

We increased our earnings forecasts

by 2.3-2.4% p.a. for FY10-11 after

updating for FY09s results. We have

also introduced our FY12 earnings

forecast with a TIV growth assumption

of 2% in view of recovery in

consumption ahead coming from

economic growth as well as recovery

from the initial knee-jerking impact

after the small packs ban. Our DCF-

derived fair value is revised up to

RM38.95 (from RM38.53) based onunchanged WACC of 7.9%.

Tax rate assumptions were cut to

20% p.a. from 25% previously

following the tax incentives given to

its subsidiary. This resulted in 4.0-

6.6% increase in our FY12/10-11

earnings forecasts. Fair value has

been increased to RM0.80 (based on

unchanged 8x FY12/10 EPS which is

in line with its 3-year average PE)

from RM0.77 previously, following the

earnings upgrades.


4/106







Carlsberg Outperform Outperform 25 Feb 2010

CIMB Group Outperform Outperform 24 Feb 2010

CSC Steel Outperform Outperform 8 Feb 2010

Cuscapi Underperform Underperform 25 Feb 2010

Daibochi Outperform New Coverage 4 Feb 2010

Digi Outperform Outperform 4 Feb 2010

We introduced our FY12 earnings

forecast assuming flattish TIV growthin view of the saturated market in

Malaysia and a 4% growth in

Carlsberg Singapore. We maintain

our DCF-based fair value of RM5.90

using an unchanged WACC of 9.2%.

FY10-11 forecasts raised by 9-14%

to reflect more robust loan growth

projection and capital market

prospects as well as positive

adjustment to end-FY09 NPLs. Fair

value has been raised from RM14.70

to RM16.24 (following the upward

revision in our forecasts) based on

unchanged 17x CY10 EPS.


by 22.9-40.9% to reflect higher

selling prices. Correspondingly,

indicative fair value is raised by

23.1% from RM1.64 to RM2.02

based on 9x revised FY12/10 EPS of

22.4 sen.

We have raised our FY10-11

earnings projections by 57% and 25%

respectively after factoring in: 1)

overseas expansion to target

international growth; and 2) lower

operating expenses. Accordingly, we

have raised our fair value to RM0.09/

share (from RM0.06/share)

previously based on unchanged 9x

FY10 EPS.

We initiated coverage on Daibochi

with a target price of RM4.40 basedon target 12x FY12/10 EPS.

We have fine-tuned and made some

minor adjustments to our FY10-11

earnings projections post release of

Digis 4QFY09 results. The changes,

however, are not too significant. Our

DCF-derived fair value has been

lowered marginally to RM23.90 from

RM24 (WACC=8.3%).


5/106







Dialog Outperform Outperform 1 Mar 2010

EON Cap Outperform Outperform 22 Feb 2010

EPIC Outperform Outperform 23 Feb 2010

Euro Underperform Underperform 1 Mar 2010

Evergreen Outperform Outperform 23 Feb 2010

Faber Outperform Outperform 1 Mar 2010

Post adjustment for bonus issue, our

SOP fair value has been lowered toRM1.29/share (from RM1.80/share

previously), which is based on

unchanged 16x FY11 PER, i.e. at a

premium to the sector target PER of

13x.

FY10-11 forecasts raised by 11-14%

from higher loan growth and lower

NPL assumptions as well as fine-

tuning NIM assumption. Fair value

raised from RM7.76 (at 16x FY10

EPS or sector benchmark) to RM8.07

(15x to remove the M&A premium).

We have raised our FY10-11 EPS

forecasts by 19.6% and 17.3%

respectively after factoring in lower

operating expenses, lower tax rate

as well as higher contribution for its

Kemaman Port. Accordingly, our fair

value was raised to RM2.69 (vs.

RM2.25 previously) based on

unchanged 10x FY10 PER.

We have tweaked our FY10 and FY11

earnings forecasts slightly to reflect

Euros year-end balance sheet. Our

fair value has been lowered slightly

to RM0.28 (from RM0.30), which is

based on unchanged target FY10 PER

of 8.5x.


for FY09-11 by 1.6%-11.0% p.a. after

adjusting for FY09 results as well as

an increase to our FY11 average

selling prices. We also introduced ourFY12 earnings forecasts with the

following assumptions: 1) 90%

utilisation capacity; 2) 8% increase

in average selling prices yoy; and 3)

exchange rate assumption of

RM3.30/US$. We value Evergreen at

RM2.35 (from RM2.30) based on

unchanged target PER of 11x FY12/

10 earnings (which is at a 3x PE

discount to the timber sector).

Our fair value has been raised slightly

to RM3.01 (from RM2.94) previously

after updating for Fabers net cash

position as at Dec09.


6/106







Freight Outperform Outperform 1 Mar 2010

Management

Furniweb Market Perform Market Perform 23 Feb 2010

Furniweb Outperform Market Perform 3 Mar 2010

Genting Outperform Outperform 1 Mar 2010

Genting Market Perform Market Perform 1 Mar 2010

Malaysia


by 0.7-11.1%, largely to reflect lowereffective rate assumptions in FY06/

10-12. Correspondingly, indicative

fair value is raised by 10.2% from

RM1.27 to RM1.40 based on 10x

revised CY2010 EPS of 14.0 sen.

We have revised our FY10 and FY11

effective tax rate assumptions to

17.5% p.a. respectively (vs. 28.5%

p.a.). Consequently, our FY10 and

FY11 earnings forecasts have been

raised by 15.4% respectively. Our fair

value has been raised to RM0.66

(from RM0.57) based on unchanged

target FY12/10 PER of 8.5x.

Following the recent correction in

share price, valuations have become

attractive and we have thus,

upgraded our call on the stock to

Outperform. Fair value of RM0.66

(based on target CY10 PER of 8.5x)

remains unchanged.

Post-FY09 results, we revised our

forecasts down by 3.2-3.5% p.a. for

FY10-11 and introduced our FY12

forecasts. Post-earnings revision and

after updating our revised fair value

for Genting Malaysia (to RM2.90 from

RM3.00), the latest market value of

Landmarks, and the latest company

net debt level for Genting (ex-GM

and GS), our SOP-based fair value

for Genting is reduced to RM8.90

(from RM9.45).

Post-FY09 results, we revised our

forecasts downwards slightly by

between 3.6-5.3% for FY10-11 and

introduced our FY12 forecasts, based

on a 2% visitor growth assumption,

revenue per visitor growth of 2% and

hotel occupancy rate of 90%. Post-

earnings revision and after rolling

over our DCF period by one year,

adjusting for the latest market value

for Genting HK and updating for GMs

end-FY09 net cash balance, we

reduced our SOP-based fair value to

RM2.90 (from RM3.00).


7/106







Genting Underperform Underperform 5 Feb 2010

Plantations

Genting Outperform Outperform 8 Feb 2010

Singapore

Genting Outperform Outperform 1 Mar 2010

Singapore

Post-company visit, we revised our

forecasts downwards by 3.4-6.9% for

FY09-11, after: (1) revising our CPO

price assumption for FY09 down to

RM2,240/tonne (from RM2,300/t);

(2) adjusting our FFB production

numbers for FY09 to be in line with

the actual numbers (i.e. -6% yoy

from -5% yoy) and to project growth

of 4-6% p.a. of FY10-11

(unchanged); (3) revising our

production cost estimates to reflect

a 0-1% decline in production costs

in FY10 (from 4-5% decline

previously), and a 3-4% increase in

FY11 (unchanged), translating to

production costs of between

RM1,300-1,400/tonne for FY10-11;

(4) raising total new planted areas

in FY09 to 11,000ha (from 8,500ha)

and for FY10-11 to 15,000ha (from

10,000ha previously); and (5)

increasing our projected loss from

the biotech division to RM15m p.a.

for FY10-11 (from -RM5m loss

previously). Post-earnings revision,

we have lowered our fair value to

RM5.85 (from RM6.05), based on an

unchanged 14.5x CY10 target PE

multiple.

We raised our forecasts by 16.6%

for FY10, but leave our FY11 and

beyond forecasts relatively

unchanged, after taking into account

the gaming monopoly RWS will have

in the first one-and-a-half months

of its operations, assuming Marina

Bay Sands opens beginning April

2010. No change to our fair value of

S$1.35.

We have tweaked our forecast

downwards slightly for FY10-11 by -

2.5-2.6% p.a., after taking into

account adjustments made after

FY09s full year financial results and

introduced our FY12 forecasts. No

change to our fair value of S$1.35.


8/106







Hai-O Outperform Outperform 1 Mar 2010

H-Displays Underperform Underperform 1 Mar 2010

HL Bank Underperform Trading Buy 25 Feb 2010

Hock Seng Lee Outperform Outperform 24 Feb 2010

Hunza Market Perform Market Perform 3 Feb 2010Properties

We have increased our target PE of

Hai-O to 11.5x (from 9x), which is a20% discount (from 38% discount

previously) to the 14.5x target PE

for the consumer sector, due to

improved liquidity, as over the past

6 months, average daily volume has

increased to 150,000 from 100,000

previously. As such, our target price

is increased to RM12.70 (from

RM9.90).

We have reduced our FY10-11

earnings projections by 26% and 22%

after factoring in lower demand for

ESL. Accordingly, we have lowered our

fair value to RM0.06/share (from

RM0.08/share previously), which is

based on unchanged 6x FY10 PER.

FY10 forecast raised by 2.6% to

account for the low tax rate in 1H.

The takeover saga (of EON Cap) may

prevent any value enhancing

exercise. Thus, we changed our

valuation method from P/B to PER

and cut our fair value from RM9.07

(2.5x P/B) to RM8.48 (15x CY10 EPS)

and recommendation from Trading

Buy to Underperform as potential

upside is more than 5% below the

market.


by 10-11% largely to reflect stronger

profit recognition from the Kuching

Sewerage Project (Package 1).

Downgraded our FY10-12 EPSforecasts by 17.1-17.3% to factor in:

a) larger share capital after recent

rights issue; and b) better operating

margin assumption from 25%

previously to 27%. We had also

lowered our FD RNAV/share from

RM3.08 to RM2.85 after factoring in

the rights issue and free warrants as

well as change in land price

assumptions for its Penang land.

Following the downgrade in RNAV/

share estimate, we had lowered ourindicative fair value from RM1.54 to

RM1.43 (based on unchanged 50%

discount to RNAV/share).


9/106







Hunza Market Perform Market Perform 8 Feb 2010

Properties

IJM Plantation Underperform Underperform 5 Feb 2010

IJM Plantation Underperform Underperform 1 Mar 2010

IOIC Outperform Outperform 11 Feb 2010

Downgraded our FY10-12 earnings

forecasts by 3.1-10.4% to factor inthe change in take-up rate

assumption for Gurney Paragon. Our

indicative fair value is maintained at

RM1.43, 50% discount to its RNAV/

share of RM2.85.

Post-company visit, we revised our

forecasts downwards by 1.6% for

FY03/10, but upwards by 9.3-10.3%

for FY03-11/12, after: (1) lowering

our CPO price projection for FY03/10

of RM2,200/tonne (from RM2,350/

t); (2) increasing our FFB production

forecasts to reflect a negligible

decline in production for FY03/10

(from a 3.7% yoy drop), and a 3-

4% yoy increase for FY03/11-12

(unchanged); (3) raising CPO

production costs to RM1,350-1,400/

tonne for FY03/10 (from RM1,250-

1,300/t), but lowering it to RM1,300-

1,350/tonne for FY03/11-12 (from

RM1,350-1400/t); (4) lowering new

planting areas to 4,000ha (from

5,000ha) for FY03/10, butmaintaining our assumptions of

4,000ha for FY03/11-12; and (5)

reducing our capex assumptions for

FY03/10 to RM150m (from RM160m

previously). Post-earnings revision,

we raised our fair value to RM1.95

(from RM1.80), based on unchanged

target PE of 14.5x CY10 earnings.

Post-3QFY03/10 results, we raised

our forecasts by 10.2% for FY10, and

by 3.7-4.2% for FY11-12, after: (1)

raising our OER estimates for FY10-

12 to 21.6-22% (from 21-21.8%);

(2) lowering our FY10 production cost

estimates slightly by 5%, and by 1-

2% for FY11-12; and (3) reduced

our effective tax rate for FY10 to

26.5% (from 27%). Post-earnings

revision, our fair value is raised to

RM2.05 (from RM1.95).

Post-1HFY06/10 results, we

maintained our forecasts. However,

we have adjusted our SOP-based

target price downwards slightly to

account for actual issued shares

post-rights issue to RM6.65 (from

RM6.70).


10/106







KFCH Market Perform Outperform 25 Feb 2010

Kinsteel Outperform Outperform 1 Mar 2010

KL Kepong Outperform Outperform 25 Feb 2010

KNM Market Perform Outperform 7 Jan 2010

Kossan Outperform Outperform 1 Mar 2010

Tweaked earnings forecasts post-

results, resulting in a cut of 0.3%p.a. for our FY10-11 forecasts. The

stock price has moved up and the

potential upside is now closer to

market return and as a result, we

have downgraded our call on the

stock.

FY12/10-11 net profit forecasts cut

by 4.6% and 2.9% respectively to

reflect lower earnings contributions

from Perwaja in FY12/10-11 and

higher interest cost assumptions.

Correspondingly, indicative fair value

is cut by 4.6% from RM1.28 to

RM1.22 based on 12x revised FY12/

10 fully-diluted EPS of 10.2 sen.

Post-1QFY09/10 results, we left our

forecasts unchanged, but raised our

SOP-based fair value for KLK to

RM19.50 (from RM19.25) after

updating our latest net debt balance.

We have cut our FY10-11 core EPS

forecasts by 17% and 16.3%

respectively after factoring in: 1)

higher operating costs; and 2) lower

contribution from China and Middle

East. However, with share price

performance likely to be capped by

the effective offer price of RM0.90/

share from the asset buyout, we

have downgraded our call on the

stock to Market Perform (from

outperform previously).

We have lowered our FY10 and FY11revenue forecasts by 10.2% and

7.2% respectively. At the same time,

we have raised our FY10 and FY11

EBITDA margin projections by 2.5%-

pts and 2.4%-pts respectively to

reflect the better-than-expected

EBITDA margin achieved by Kossan

thus far. As a result, our FY10 and

FY11 earnings projections have been

raised by 5.1% and 8.0%

respectively. Consequently, our fair


(from RM10.22), which is based on

unchanged target CY10 PER of 13x.


11/106







KPJ Outperform Outperform 1 Mar 2010

Kurnia Asia Market Perform Outperform 24 Feb 2010

Kurnia Asia Outperform Market Perform 1 Mar 2010

Lafarge Underperform Underperform 1 Mar 2010

Lion Forest Outperform Underperform 24 Feb 2010

We tweaked down our earnings

forecasts by 1.2-1.8% after FY09sresults. We introduced our earnings

forecast for FY12 with the following

assumptions: 1) opening of 2 new

hospitals; and 2) revenue per patient

increase of 2%. We maintain our fair

value of RM3.20 based on unchanged

14.5x FY12/10 EPS, in line with our

14.5x target PE for the consumer

sector.

Our FY12/10-11 forecasts have been

cut by 18.7-28.8%, after taking into

account: 1) post results adjustment;

2) higher claims ratio of 67% instead

of 64-64.5% in FY12/10-11; and 3)

lower gross premium base for FY12/

10-11. Fair value was cut to RM0.74

from RM1.04 (based on unchanged

11x FY12/10 EPS). Downgraded to

Market Perform.

Share price is now trading below its

fundamental value. Given the

potential upside of 20% vs. KLCI

benchmark of 9%, we upgraded our

call on the stock to Outperform.


by 8.9-11.4% to reflect a lower

effective tax rate of 10-12% vis--

vis 19% previously and lower finance

costs. Correspondingly, indicative fair

value is raised by 11.4% from


revised FY12/10 EPS of 51.5 sen.

We have raised our FY06/10-12 netprofit forecasts by 43.4-51.5% on the

back of better-than-expected sales

volume at the tyre manufacturing

division. Consequently, indicative fair


(from RM1.23) based on 7x CY10

EPS. As a result, we have upgraded

our call to Outperform from

Underperform.


12/106







MAHB Outperform Outperform 25 Feb 2010

Mah Sing Outperform Outperform 9 Feb 2010

Mah Sing Outperform Outperform 23 Feb 2010

MAS Underperform Underperform 23 Feb 2010

Maxis Outperform Outperform 1 Mar 2010


by 7.0-7.6% to reflect: (1) Higherretail revenue per passenger; and

(2) Lower depreciation expenses.


is raised from RM5.17 to RM5.45

based on 16x revised FY12/10 EPS

of 34.1 sen.

Fine-tuned our FY10 earnings

forecast by -0.3% to factor in the

recent land purchase, but upgraded

our FY11 earnings forecast by 6.1%

to factor in earnings contribution

from iParc 2@ Shah Alam. As a result,

our RNAV per share was raised from

RM2.15 to RM2.18. We now value

Mah Sing at RM2.18 (from RM2.15),

based on RNAV valuation method.

We adjusted our FY10-11 earnings

forecasts by -2.8-+1.6% to factor in:

a) the new commercial project in

Cyberjaya; and b) changes on

balance sheet item and interest rate

assumptions post 2009 result. As a

result, our fair value, which is based

on estimated RNAV/ share, had been

raised from RM2.18 to RM2.45.


by 43-60%, largely to reflect

earnings accretion from the

acquisition of aircraft from parent

PMB. However, FY12/10-11 EPS

forecasts cut by 19-28%, having

reflected dilution from the 1-for-1

rights issue.

We have toned down our FY10-11

net profit projections by 3.6-3.8%

following the release of the full-year

results. Our FY10-11 net DPS

projections have also been lowered

to 24.9-27.1 sen from 25.8-28.2

sen, based on unchanged 75%

payout ratio. Following the earnings

revisions, our DCF-derived fair value

has been lowered to RM6.20 from

RM6.30.


13/106







Maybank Outperform Market Perform 10 Feb 2010

Media Chinese Outperform Outperform 1 Mar 2010

Media Prima Outperform Outperform 25 Feb 2010

MISC Market Perform Market Perform 25 Feb 2010

MNRB Market Perform Market Perform 1 Mar 2010

FY10-12 forecasts upgraded by 17-

23% to account for higher loan growthand non-interest income as well as

more sanguine outlook in FY11-12.

Fair value has been raised from


(benchmark) CY10 EPS.

Recommendation upgraded from

Market Perform to Outperform.

We have raised our FY10-12 EBIT

margins to reflect the better-than-

expected 9M EBIT margins achieved.

At the same time, we have lowered

our FY10-12 effective tax rate

assumptions to 27.3-27.9% (from

29.8-30.7%). As a result, our FY10-

12 earnings forecasts have been

revised upwards by 32.1-36.2%.

Consequently, our fair value has

been revised to RM0.92 (from

RM0.71).

We have raised our FY10-11 net

profit projections by 6-10% largely

after lowering our newsprint cost

assumptions for NSTP to US$580-

625/tonne (US$650/tonne flat

previously). Following the earnings

revision above, our indicative fair

value has been revised upwards to

RM2.23 from RM2.02, based on

unchanged target FY10 PER of 15x.

FY03/10 net profit forecast cut by

20% largely to reflect a larger full-

year loss of RM1bn at the container

liner division.

We have adjusted downward FY10-

12 reinsurance claims ratio to 67%

from 68% in view of better claims

experience, albeit higher than

normalised claims ratio of 65% and

reversed the claims reserving

provision of RM51.8m. As a result,

our earnings forecasts were raised

by 19.1-400.9% for FY10-12.


14/106







Parkson Outperform Outperform 3 Feb 2010



Parkson Outperform Outperform 2 March 2010

Perwaja Outperform Outperform 1 Mar 2010

Our FY10-12 earnings forecasts are

increased by 1.0-1.7% p.a. after: 1)adjusting our minority interest

assumptions to take into account the

increase in stake; and 2) increasing

our capex by RM92.5m to take into

account the acquisition cost of

Qingdao No. 1 Parkson. Maintain our

SOP-derived fair value of RM6.07.

We reduced our earnings forecasts

for Parkson by 5-9% p.a. for FY06/

10-12 after adjusting for FY09s

results. We reduced our SOP-derived

fair value to RM5.75 (from RM6.07)

after adjusting for PRGs FY09

results.


by 3-5% p.a. for FY10-12 after

adjusting our tax assumptions to be

in line with 1H10 results. We

increased our SOP-based fair value

to RM6.00 (from RM5.75) after

updating our net cash position of

Parkson (ex-PRG).

We increased our SOP-based fair

value to RM6.40 (from RM6.00) after

increasing our target PER for PRG to

24x (from 22x) based on average

one year forward PER for China

department store operators for FY10.


by 3.1-9.0% to reflect higher raw

material cost assumptions, in

particular, scrap and iron ore pellets,

which more than offset our higherselling price assumptions.


is lowered by 7.3% from RM1.93 to

RM1.79 based on 12x revised FY12/

10 EPS of 14.9 sen.


15/106







Petra Perdana Underperform Underperform 5 Feb 2010

Petra Perdana Underperform Underperform 1 March 2010

Petronas Gas Underperform Underperform 19 Feb 2010

PMB Tech Outperform Outperform 1 Mar 2010

Puncak Niaga Market Perform Underperform 1 Mar 2010


forecasts by 51% and 23%respectively after adjusting for: 1)

New FY10-11 average utilisation rate

assumptions of 75% and 79%

respectively (vs. 80-85% previously);

and 2) lower contribution from Petra

Energy. Accordingly, our fair value

was cut to RM1.02/share (from


based on unchanged 13x FY10 PER.


forecasts by 3.6% and 3.3%

respectively after adjusting factoring

in lower contribution from brownfield

services. Accordingly, our fair value

was lowered to RM1.00/share (from


based on unchanged 13x average

FY10 PER.

We have raised our FY10-12

earnings forecasts by 5.4%, 4.7%

and 4.4% after factoring in lower

operating expenses as well as higher

contribution from associates.

Accordingly, our fair value was raised

to RM10.08/share (vs. RM9.81/share

previously).

We have raised our EBIT margin

assumptions for: 1) construction and

fabrication division to 4% from 3.5%

for FY10; and 2) 4.7-5.1% for FY10-

11 from 4-4.9% previously, for

manufacturing and trading division.

Consequently, our FY10-11 earnings

forecasts were raised by 2.3-10.6%p.a..


by 13.6% and 11.8% respectively to

reflect a higher depreciation

expense. Indicative fair value

remains unchanged at RM2.95, as

the adjustments made are non-cash

in nature. Upgraded from

underperform to Market Perform as

valuations have become attractive

following the recent share price

correction.


16/106







RCE Cap Outperform Outperform 11 Feb 2010

Seacera Underperform Underperform 1 Mar 2010

Sime Darby Outperform Outperform 24 Feb 2010

Sime Darby Outperform Outperform 1 Mar 2010

FY10-12 forecasts have been raised

by 6-7% to reflect the better marginin 3QFY03/10. Fair value has been

raised from RM1.08 to RM1.15 (11x

CY10 EPS or 5x discount to our

market and banking sector

benchmark to reflect its small market

capitalisation).

Our earnings forecast for FY10-11

were cut by 39.5-44.3%, due to lower

revenue base in FY09, even though

we have assumed higher revenue

growth of 5% (vs. 3% previously) for

FY11.

Post-company visit, we reduced our

core net profit forecasts for Sime by

6-8.8% p.a. for FY10-12, after: (1)

revising our EBIT projections for the

heavy equipment division downwards

by 25-30% for FY10-12; (2) revising

our EBIT forecasts for the property

division down by 15-20% p.a. for

FY10-12; (3) raising our energy &

utilities division EBIT projections by

40-50% p.a.; and (4) raising our

EBIT forecasts for the motor division

by 14-16% p.a. for FY10-12. Post-

earnings revision, we reduced our

SOP-based fair value for Sime to

RM10.00 (from RM10.60). We have

also raised our target PE valuation

for the energy and utilities division

to 15x CY10 (from 12.5x), to be in

line with the oil and gas and power

sector target PEs.

Post-1HFY06/10 results, wemaintained our forecasts, but reduce

our SOP-based fair value for Sime

to RM9.85 (from RM10.00), after

imputing Simes end-2QFY10 net

debt of RM2.1bn (from RM1.38bn at

end-1QFY10).


17/106







Star Market Perform Underperform 12 Feb 2010

Suncity Outperform Outperform 1 March 2010

Sunway Outperform Outperform 10 Feb 2010

Ta Ann Outperform Market Perform 19 Feb 2010

Following the better-than-expected

revenue contribution from Cityneon,we have revised upwards our FY10

and FY11 revenue by 11.7% and

11.8% respectively. We have also

revised our FY10 and FY11 EBITDA

margin assumptions to 28.6% and

30.0% (from 26.1% and 30.1%) as

we cut our FY10 and FY11 newsprint

price to US$650 from US$675

previously. As a result, our FY10 and

FY11 earnings projections have been

revised upwards by 17.6% and 15.7%

respectively. Our indicative fair value

have been raised to RM3.60 (from

RM3.07) based on unchanged target

FY10 PER of 16x. As a result, we

have upgraded our call on the stock

to Market Perform from

Underperform previously.

No change to our earnings forecasts.

However, we had raised our RNAV

per share from RM5.07 to RM6.27

to factor in the asset revaluation

exercises (excluding hotel assets

which are under the property, plantand equipment category). Our

indicative fair value has been raised

from RM4.31 to RM5.33, based on

15% discount to its RNAV.


by 3-4% largely to reflect the change

in our FY12/10 new construction

orderbook target to RM1.5bn from

RM1bn previously.

We increased our FY09-11 forecastsby 0.5-32.3% p.a. after adjusting for

expected better contributions from

the plantation division. Our SOP-

based fair value is increased to

RM6.00 (from RM5.18) based on

unchanged 14x FY10 timber division

earnings and 12x FY10 plantation

division earnings. Following the

increase in target price, we upgraded

our recommendation for the stock

to an Outperform (from Market

Perform).


18/106







Ta Ann Outperform Outperform 24 Feb 2010

TM Market Perform Outperform 23 Feb 2010

Toyo Ink Underperform Underperform 19 Feb 2010

Our earnings forecasts for FY12/10-

11 have been tweaked by -0.8% to+0.1% p.a. after updating our

assumptions following FY09 results.

We introduced our FY12 earnings

forecast with the following

assumptions: 1) plywood utilisation

capacity of 85%; 2) 5% increase in

plywood prices yoy; 3) CPO and log

prices of US$2,500/t and US$180/

mt respectively. Our SOP-based fair

value is tweaked down to RM5.95

(from RM6.00) based on unchanged

14x FY10 timber division earnings

and 12x FY10 plantation division

earnings.

We have trimmed our FY10-11 net

profit forecasts by 4.4-5.8% after

updating our numbers for the full-

year results as well as an upward

revision in our effective tax rate

assumptions to 26% p.a. (25%

previously). While our indicative fair

value of RM3.55 is unchanged, the

stocks strong share price

performance relative to the FBM KLCI

means that TM now offers a total

potential return that is broadly in line

with our expected returns from the

market. Hence, we downgraded our

recommendation to Market Perform

from Outperform.

FY10-12 assumptions for revenue

growth forecasts were revised

downwards to 2-10% from 8-13%

previously. However, operating

margin assumptions were increasedfor FY10-12 to 7.2-10.5% from 4.5-

7% previously. Consequently,

earnings forecasts were revised

upwards by 27.8-47.7% for FY10-12.

New fair value is RM1.25 (based on

11x CY10 EPS, a 50% discount to its

5-year historical PE average) from

RM0.65 (based on 9.5x previously),

following rising investors risk appetite

for small to mid cap stocks coming

from a recovering economy.


19/106







Unisem Outperform Outperform 23 Feb 2010

Wah Seong Outperform Outperform 12 Feb 2010

WTK Market Perform Market Perform 1 Mar 2010

We have raised FY11-12 EBITDA

margin assumptions to 29% and28.5% (from 28% and 27.5%

previously) after factoring: 1) higher

contribution from Unisem Chengdu;

and 2) stronger demand for its

higher-margin QFN and module

packages; and 3) lower operating

expenses due to cost-cutting

measures As such, we have revised

up our FY11-12 earnings by 7.4%

and 6.7% respectively. Accordingly,

our fair value was raised to RM3.07/

share (from RM2.86/share

previously).

We have cut our FY09-11 earnings

projections by 8.2%, 8.0% and 4.4%

respectively to reflect lower earnings

contribution from GSI. Accordingly,

our fair value was cut to RM3.09/

share (from RM3.35/share

previously).

We tweaked our earnings forecasts

by +0.3% and -0.2% for FY10 and

FY11 after adjusting for FY09 results.

We have also increased our gross

dividend payment for FY10-11 to 6

sen p.a. (from none) in view of WTKs

operating cash flow of RM50m-

RM100m and low gearing position of

0.1x. This translates to a net payout

of >100 and net yield of 3%. We

introduced FY12 earnings forecasts

with the following assumptions: 1)

85% plywood utilisation rate; and 2)

5% increase in average plywood

prices yoy. No changes to ourindicative fair value for WTK of

RM1.18 based on 14x CY10 EPS.


20/106







YNH Prop Market Perform Outperform 24 Feb 2010

YTLP Market Perform Market Perform 1 Mar 2010

Downgraded our FY10-11 earnings

forecasts by 15.8-27.1% to factor in:a) delay in commencement of

construction works for Kiara 163,

Pantai Hospital and Menara YNH-

retail portion; b) change in margin

assumptions; and c) changes on

balance sheet item assumptions post

FY09 results. We had also reduced

our FY10-11 dividend forecast from

8 sen previously to 6.4 sen. As a

result, our estimated RNAV had been

reduced from RM3.13 to RM3.11. We

had lowered our indicative fair value

to RM1.86, based on 40% discount

on our estimated RNAV (from

RM2.19, 30% discount to RNAV).

Higher discount is justified to reflect

its slower speed in crystalising its

land values as compared with peers.

Downgraded our rating to Market

Perform.

We have raised our SOP-derived fair

value marginally to RM2.12 from

RM2.10 after an update for the latest

cash and debt balances as well as

share base.


21/106



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22/106



Market Volatility Amidst Gradual Normalisation

Of Policies

Sustained Momentum In 4Q CY09 Earnings

The earnings reporting season that has just ended showed that the bulk of the

corporate results that we covered (84.5%) came in either within or above

our expectations. The recovery in earnings that started from 2Q 2009 was

sustained into the 4Q, with earnings upgrades continued to exceed downgrades.

The upgrade to downgrade ratio remained strong at 1.8, similar to the situation in

the previous quarter, although the magnitudes of upgrade in earnings are smaller

now. More companies are reporting better margins from improving demand, better

product mix and lower operating expenses on the back of the implementation of

cost-cutting measures. Of the 103 companies that we covered, more than half of

it, i.e. 55 of the results (53.4% of the total) were within our expectations. In addition,

32 companies (31.1% of the total) reported earnings that exceeded our projections

and only 16 results that we covered (15.5% of the total) came in below forecasts

(see Table 1). A fairly similar picture was reflected in the consensus numbers, where

75.7% of the reported earnings were either in line or above expectations (46.6%

within consensus numbers and 29.1% above projections) and 24.3% of the results

disappointed (see Table 2). This suggests that there is still room for earnings upside

surprises in the quarters ahead as the economic recovery gains momentum, even

though it may not be as significant relative to what we have seen during the previous

three quarters.

Sequentially, net EPS for the FBM KLCI stocks under our coverage has eased to

+4.2% qoq in the 4Q, after having surged to +39.1% in the 3Q (see Chart 1).

However, on a yoy comparison, net EPS for the FBM KLCI stocks under our

coverage continued to trend up and registered a double-digit growth of 11.7% in

the 4Q, from +4.0% in the previous quarter. This suggests that the recovery

in corporate earnings is still gaining momentum. This view is reinforced by

our company visits and corporate briefings attended by analysts where corporates

are generally more confident on their business prospects and many of them are

guiding for improving outlook in the quarters ahead. Overall, the stronger earningsmomentum in the recently concluded reporting seasons was consistent with the

recovery in the economy, where real GDP registered a stronger-than-expected

growth of 4.5% yoy in the 4Q, from -1.2% in the 3Q.

Chart 1Net EPS Changes On A Sequential And Yoy Comparisons

%

+4.2

+11.7

+4.0

-39.4

Net EPS Changes For RHBRI Covered Stocks In FBM KLCI

Exclude Astro

+39.1

-10.2

-6 0

-4 0

-2 0

0

2 0

4 0

6 0

1QCY06

2QCY06

3QCY06

4QCY06

1QCY07

2QCY07

3QCY07

4QCY07

1QCY08

2QCY08

3QCY08

4QCY08

1QCY09

2QCY09

3QCY09

4QCY09

%

q o q y o y

Continued to have more

upside than downside

earnigns surprises,

resulting in slight further

upgrade in earnings

Recovery in corporate

earnings is still gaining

momentum, in tandem

with the economic

recovery


23/106



Table 1Comparison Of Actual Earnings Reported For 4QCY09 Against RHBRIs Forecast

Covered Stocks Covered In Line Above Below Total reported % reported

Building Material 1 1 3 2 4 9 8 2

Semiconductor/ IT 4 1 2 1 4 100

Oil & Gas 8 3 2 1 6 7 5

Timber 4 1 2 3 7 5Consumer 1 2 8 2 1 1 1 9 2

Gaming 4 2 1 3 7 5

Media 4 1 2 3 7 5

Motor 4 3 1 4 100

Construction 8 7 7 8 8

Infrastructure 2 1 1 2 100

Transportation 6 4 2 6 100

Telecommunication 4 3 1 4 100

Power 3 2 2 6 7

Banks & Finance 9 5 4 9 100

Insurance 4 3 1 4 100

Property 1 1 7 1 1 9 8 2

Plantation 6 5 1 6 100

Manufacturing 1 3 3 6 2 1 1 8 5

Total 117 55 32 16 103 88

% of total reported 53.4 31.1 15.5 100

Table 2Comparison Of Actual Earnings Reported For 4QCY09 Against Market Consensus

Covered Stocks Covered In Line Above Below Total reported % reported

Building Material 1 1 1 4 4 9 8 2

Semiconductor/ IT 4 1 2 1 4 100

Oil & Gas 8 4 2 6 7 5

Timber 4 1 2 3 7 5Consumer 1 2 8 3 1 1 9 2

Gaming 4 2 1 3 7 5

Media 4 1 2 3 7 5

Motor 4 3 1 4 100

Construction 8 4 1 2 7 8 8

Infrastructure 2 1 1 2 100

Transportation 6 1 2 3 6 100

Telecommunication 4 3 1 4 100

Power 3 2 2 6 7

Banks & Finance 9 7 2 9 100

Insurance 4 3 1 4 100

Property 1 1 6 2 1 9 8 2

Plantation 6 3 1 2 6 100

Manufacturing 1 3 3 5 3 1 1 8 5

Total 117 48 30 25 103 88

% of total reported 46.6 29.1 24.3 100.0

Amongst the bigger cap companies, earnings of Malayan Banking, Petronas

Gas and Genting Malaysia were above expectations, while that of MISC and

TM were below our forecasts. The stronger-than-expected earnings of Malayan

Banking came from better-than-expected non-interest income and lower loan loss

provisioning arising from an improvement in its asset quality. The key variance

of Petronas Gas earnings against our forecast came largely from lower operating

expenses stemming from cost-cutting measures and stronger-than-expectedassociate contribution from Gas Malaysia. The main deviation of Genting Malaysias

earnings vis--vis our forecast, we believe, came from higher-than-expected

investment income from gain on sale of investments.

Amongst big cap

companies, earnings of

Maybank, Petronas Gas

and Genting Malaysia were

above expectations ...


24/106



MISCs earnings, in contrast, continued to be dragged down by the larger-than-

expected losses at the container liner division on the back of falling volumes and

freight rates, amidst rising operating cost. The key variance of TMs results

against our forecast came largely from higher-than-expected effective tax rate,

although both its FY09 revenue and EBITDA were in line with our estimates.

Earnings Of Banks, Manufacturing, Insurance, Transportation And

Media Above Expectations

The banking and finance sector continued to report better-than-expected

earnings in the 4Q despite the significant upward revision in earnings after the

previous two results reporting seasons. This indicates that analysts are still

conservative on their forecasts and there could be room for further upward revision

in earnings in the quarters ahead. Indeed, the banking systems loans have picked

up over the last two consecutive months with improving asset quality. At the same

time, fee-based activities and hence, income has picked up substantially to boost

earnings of the banking institutions. Consequently, three out of the eight banks we

covered (Malayan Banking, AMMB and Hong Leong Bank) reported earnings that

were above our expectations and results of the other five banks were within

expectations. In addition, RCE Capital also reported earnings that were aboveforecast on account of better margins. Apart from better-than-expected non-interest

income, AMMB also benefitted from stronger-than-expected loan growth and Hong

Leong Banks better-than-expected results came largely from lower effective tax

rate.

Apart from the banks, the manufacturing, insurance, transportation and Media

sectors also continued to report earnings that were generally above our

forecasts. Within the manufacturing sector, six out of the 11 results that we covered

were above expectations (i.e. Kossan Rubber, Hartalega, Lion Forest, Furniweb, Toyo

Ink and Axis Inc.), three in line (Wellcall Holdings, Euro Holdings and BP Plastics) and

two below forecast (VS Industry and Texchem resources). In general, earnings of

the glove manufacturers and other manufacturing companies were booster by bettermargins on the back of improving demand and higher capacity utilisation rates.

In the insurance space, three out of the four results that we covered came in above

our expectations (i.e. Allianz, MNRB and LPI Capital) while Kurnia Asias earnings

were below forecast on account of higher-than-expected tax rate. Allianzs net profit

was boosted by higher-than-expected life and general insurance gross premium

growth and higher profit transfer from the general and life insurance businesses,

while that of MNRB from higher-than-expected general reinsurance transfer due to

lower claims and the reversal of claims reserving made in 1HFY10. Similarly, LPI

Capital also benefited from higher surplus transfer from its insurance subsidiaries

and lower effective tax rate.

The transportation sector also reported better-than-expected earnings as four out of

the six reported earnings (MAS, AirAsia, MAHB and Freight Management) were above

our expectations and the other two results were below forecasts (MISC and ILB).

We believe the variance of MAS results against our forecast came largely from

slightly better load factors and yields, while that of AirAsia from stronger topline

growth and lower fuel cost. The main deviation of Malaysia Airports results came

from higher-than-expected airport services revenue and lower-than-expected

depreciation charges. Earnings of Freight Management, on the other hand, were

boosted by lower-than-expected effective tax rate.

For the media sector, two out of the three reported earnings (Star Publications and

Chinese Media International) were above expectations and one (Media Prima) in line

with forecast. The earnings of both Star Publications and Chinese Media International

were boosted by better-than-expected margings from better cost control and lower-

than-expected effective tax rate.

Banking earnings

continued to exceed

expectations on account

of higher fee-based

income, stronger loan

growth and improved

asset quality

... while that of MISC and

TM were below froecasts

Manufacturing companies

continued to benefit from

improved margins on the

back of improving demand

and higher capacity

utilisation rates

Higher surplus transfer

boosted earnings of

insurance companies

The transportation sector

experienced stronger-

than-expected topline

growth

Earnings of media

companies were boosted

by better margins and

lower tax rate


25/106



Overall, only the building material sector and in particular the steel products

sub-sector reported earnings that were generally below expectations. Four

out of the nine earnings were below forecasts (Ann Joo Resources, Kinsteel, Perwaja

Holdings and Sino Hua An), three in line (Lafarge Malayan Cement, YTL Cement and

CSC Steel) and the other two were above expectations (PMB Tech and Seacera

Tiles). Earnings of the steel products sub-sector were generally weighed down by

a combination of lower-than-expected average product selling prices, lower-than-

expected sales volume, higher-than-expected input cost or higher-than-expecteddepreciation charges.

The other sectors reported earnings that were generally within our expectations.

Further Upward revision In Earnings

Reflecting largely the better-than-expected earnings, net EPS for the FBM KLCI

stocks under our coverage has been revised up slightly to -14.2% and +15.7%

for 2009 and 2010, respectively (see Table 3), from the corresponding rates of

-15.7% and +15.0% two months ago (as reflected in our 2010 Market Outlook &

Strategy report dated 17 December 2009). Given the improving earnings growth

prospects, 2010s normalised net EPS growth for the banking sector was revised upsignificantly from +11.2% previously to +19.5% after the results reporting season.

Similarly, 2010s earnings projections for the motor, transportation, media, oil & gas,

manufacturing and building material sectors were also revised upwards after the

results reporting season (see Table 4). These upward revisions in earnings were,

however, offset partially by downward revision in earnings for the plantation,

telecommunications, gaming, property, insurance, semiconductor & IT, consumer,

and construction sectors.

FBM KLCI RHBRIs Basket

COMPOSITE INDEX @ 1,283.40

2008a 2009a 2010f 2011f 2008a 2009a 2010f 2011f

1 March 2010

Table 3Earnings Outlook And Valuations

EBITDA Growth (%) 3.4 -5.6 19.8 11.9 4.6 -1.4 18.3 11.6

Pre-Tax Earnings Growth (%) -7.9 -9.2 31.3 15.2 -6.2 -3.7 28.5 15.2

Normalised Earnings Growth (%)* 1.0 -9.4 20.2 14.9 -0.4 -6.3 22.0 15.0

Normalised EPS Growth (%)* -1.6 -14.2 15.7 14.9 -3.4 -9.9 17.5 15.0

Prospective PER (x)* 16.3 17.9 15.6 13.6 16.1 17.5 14.7 12.8

Price/EBITDA (x) 8.7 9.3 7.8 6.9 8.6 8.6 7.3 6.5

Price/Bk (x) 2.4 2.3 2.1 2.0 2.3 2.0 2.0 1.7

Price/NTA (x) 2.8 2.8 2.5 2.3 2.7 2.3 1.2 1.1

Net Interest Cover (x) 6.5 5.9 6.0 7.6 6.2 6.8 7.0 7.8

Net Gearing (%) 71.3 61.3 48.2 42.0 64.9 47.0 45.7 40.4

EV/EBITDA (x) 6.8 7.6 6.5 5.7 7.0 7.4 6.5 5.7

ROE (%) 15.3 12.7 14.2 15.0 13.7 11.8 13.3 14.1

* For FBM KLCI, earnings are adjusted to exclude Astro from 2009-10

2010s net EPS revised up

slightly to +15.7%, from

+15.0% previously

Earnings of the steel

products sub-sector, in

contrast, were generally

weighed down by lower-

than-expected average

product selling prices


26/106



Based on the latest FactSet Asian and IBES consensus numbers, the local market is

now trading at comparable valuations vis-a-vis the Singapore and Indonesian markets

(see Table 5). It is, however, still a very under-owned market by foreign

investors and non-strategic foreign equity ownership of the Malaysian market is

estimated at below 21% currently, a sharp drop from a recent high of 27.5% at end-April 2007.

Table 4Sector Weightings & Valuations

EPS Growth EPS Growth PER

(%) (%) (x)

Covered Stocks Mkt Cap Weight Before After Before After Recom

RMbn % FY10 FY10 FY11 FY11 FY10 FY11

Banks & Finance 178.2 25.1 11.2 19.5 11.1 14.5 13.5 11.8 Overweight

Plantation 111.5 15.7 11.6 5.1 22.4 22.0 19.4 15.9 Overweight

Telecommunications 102.8 14.4 19.4 15.9 10.1 10.5 17.0 15.4 Overweight

Power 56.4 7.9 24.4 24.4 9.0 9.0 11.6 10.7 Overweight

Gaming 45.5 6.4 19.6 8.6 11.0 14.2 13.3 11.6 Overweight

Oil & Gas 29.5 4.1 19.5 21.3 11.3 11.3 15.5 13.9 Overweight

Property 16.0 2.2 19.2 17.9 25.0 24.9 12.1 9.7 Overweight

Motor 15.9 2.2 35.0 44.1 7.0 7.0 10.1 9.4 Overweight

Semiconductors & IT 2.5 0.4 113.4 81.7 69.2 77.5 10.7 3.8 Overweight

Insurance 2.5 0.4 23.5 1.0 11.0 11.5 7.6 6.8 Overweight

Transportation* 51.9 7.3 2.1 22.3 6.6 -3.5 20.3 15.2 Neutral

Consumer 28.2 4.0 13.5 8.9 9.9 7.9 14.4 13.4 Neutral

Infrastructure 18.4 2.6 -0.9 -1.4 46.5 47.6 14.0 9.5 Neutral

Media# 12.0 1.7 37.5 38.4 8.0 5.9 11.8 11.1 Neutral

Building Materials 11.5 1.6 41.9 58.0 9.5 7.4 9.4 8.8 NeutralManufacturing 8.3 1.2 34.9 35.8 16.9 17.3 11.1 9.5 Neutral

Timber 3.2 0.4 71.5 69.7 37.3 40.7 10.4 7.4 Neutral

Construction^ 17.4 2.4 29.7 22.6 9.4 9.7 15.5 14.1 Underweight

711.9 100.0

# Exclude Astro * Exclude MAS earnings in 2010

Note : RHBRIs basket

Table 5

Regional Comparisons

Malaysia Singapore Thailand Philippines Indonesia Hong Kong Taiwan Korea

FactSet Asian Consensus Trends report dated 29 January 2010

Net EPS (%)

2008 Net -16.2 -18.1 -28.0 -9.5 -25.7 -23.1 -61.4 -38.0

2009 Net -0.8 -7.5 32.4 26.0 54.2 11.4 43.5 47.4

2010 Net 27.4 14.1 12.7 4.4 13.6 21.8 53.2 44.1

PER (X)

2008 11.4 7.8 8.8 10.1 7.3 9.6 14.7 11.8

2009 18.2 16.3 11.8 13.0 16.0 16.1 22.5 14.2

2010 14.3 14.3 10.5 12.5 14.1 13.2 14.7 9.8

IBES Consensus dated 18 February 2010

Net EPS (%)

2008 -20.6 -11.9 26.6 17.8 8.6 15.5 86.5 56.0

2009 27.4 19.7 15.1 16.1 21.6 14.4 81.6 48.4

2010 14.6 12.7 16.5 10.5 20.5 16.0 21.4 13.0

PER (X)

2008 17.8 16.4 11.9 14.3 16.3 15.8 26.7 14.5

2009 13.6 13.5 10.3 12.1 13.4 13.8 14.7 9.6

2010 11.9 12.1 8.9 11.0 11.3 12.0 12.3 8.5

Performance (%)

2008 (YOY) -39.3 -49.2 -47.6 -48.3 -50.6 -48.3 -46.0 -40.7

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

2010 (YTD)* 0.8 -4.3 -1.8 0.9 0.8 -3.7 -7.5 -5.2

* as at 1 March 2010 closings

It is still a very under-

owned market by foreign

investors


27/106



Recovery Gaining Strength, But Policy Normalisation Points To Market

Volatility

In tandem with the sustained recovery in corporate earnings, the Malaysian economy

has turned around to register a stronger-than-expected growth of 4.5% yoy in 4Q

2009, from -1.2% in the 3Q. Apart from the Governments stimulus expenditure,

consumer spending continued to strengthen on the back of improving employment

outlook and rising confidence. The overall growth was, however, lifted by therecovery in external demand for the countrys exports, which have turned around

to record a positive growth of 7.3% in 4Q 2009, from -13.4% in the 3Q (see Chart

2). We project the economy to bounce back and expand by 4.5% in 2010 ,

from -1.7% in 2009.

Chart 2Economy Turning Up Strongly In 4Q2009

In our view, the prospects of a sustainable global economic recovery

have improved significantly in recent months despite the emergence of

sovereign debt worries of late, particularly in some of the European countries,

such as Portugal, Ireland, Greece and Spain (PIGS). This is primarily on account

of a combination of aggressive policy stimulus around the globe where policymakers

are in no hurry to implement exit strategies, significant improvement in financial

markets and risk appetite of investors and more importantly, asset prices have

reached a favourable inflection point. Unlike during the crisis, investors are no

longer fearful of catching a falling knife and more substantial weakness in asset

prices will be taken as investment opportunities and this suggests that a double

dip in the global economic recovery will unlikely occur. The global economic

recovery, however, will remain gradual and uneven, in our view. As the EuropeanUnion (EU) governments are putting together a possible rescue package for Greece,

we believe any further fallout of other European Union member countries would

likely be addressed by the EU governments as well. Consequently, the European

debt problems will unlikely snowball into a much bigger issue that could jeopardise

the global economic recovery, in our view.

Meanwhile, a number of countries, such as China, India, Taiwan, Hong Kong,

South Korea and Singapore, have experienced further asset-price reflation, fuelled

by excess liquidity and an extremely low interest rates. The policymakers in

these countries have taken measures to tighten credit conditions to prevent asset

bubbles from building up. At the same time, the US Federal Reserve has

started to normalise monetary conditions by raising its discount rate,

the rate it charges banks for emergency loans, by 25 basis points to 0.75% with

effect from 19 February. In a prepared testimony for the House Financial Services

Committee, the Fed chief said that it may use the interest rate paid to banks on

excess reserves held at central bank to replace the Federal funds rate as the main

Economic recovery gaining

momentum

Meanwhile, external

events are likely to cause

the market to be voilatile

and these include gradual

normalisation of policies

by more and more

countries around the

globe

Good prospects of

sustainable global

economic recovery despite

a number of global issues

and concerns

-2 0

-1 5

-1 0

-5

0

5

1 0

1 5

2 0

0 5 0 6 0 7 0 8 0 9

G D P

E x po rts

P r ivate Co ns um pt ion

Fix ed c api ta l in ves tm ent


28/106



operating target for policy. Raising the rate would give banks an incentive to park

more funds at the Federal Reserve instead of lending them out to companies or

households. As part of the Feds plans to wind down its emergency liquidity

measures, Mr. Bernake is also looking at using reverse repurchase agreements

(repos) to siphon of excess liquidity from the system. In this way, the Fed seeks

to gradually normalise the extremely loose monetary conditions to engineer for

a more balanced and suatainable recovery moving forward.

Domestically, the Central Bank has also indicated that it is ready to

begin normalising monetary conditions to prevent the building up of financial

imbalances. Given the stronger-than-expected recovery of the economy in the

4Q, we believe Bank Negara Malaysia will begin normalising interest rates by

raising its overnight policy rate by 25 basis points to 2.25% on its next Monetary

Policy meeting on 4 March 2010 and will likely raise it by another 25 basis points

to 2.5% on 8 July.

Whilst these are normalisation measures from an extremely loose monetary

conditions and low interest rate levels, and are not deemed to be tightening per

se, financial markets around the globe will still likely react negatively given that

policymakers could before long begin to tighten policies more significantly toengineer for a more sustainable economic recovery. As valuations of the equity

market are no longer cheap and are back to normal levels, we expect greater

volatilities in stock prices in the coming months. Our year-end FBM

KLCI target, however, remains unchanged at 1,400 or 15x 2011 earnings.

We expect the market to come back and trade up to our target level in the latter

part of the year when there is more certainty on the strength of the global

economic recovery. This implies a potential upside of about 10% from end-2009

level, which is consistent with the historical performance where returns are always

lower in the second year of a recovery.

Market Strategy : Accumulate On Weakness And Ride The Volatility

In our view, the current correction/market volatility is an opportunity to accumulate

quality stocks for longer-term performance given that the concerns are not new, i.e.,

re-regulation of the banks in the US, credit tightening in China, debt problems in

Europe and normalisation of policies from an extremely loose conditions. Nevertheless,

investors would have to factor in the anticipated global policy changes in

the months ahead, rebalance their portfolios and prepare for greater market

volatility for the greater part of the year. We believe global trends and uncertainties

created by policy tightening/normalisation across Asia ex-Japan will continue to weigh

on financial markets in the months ahead.

In our view, stock picking is key. The challenge is to look for stocks that could

generate capital upside from earnings growth as well as have attractive divided yieldto outperform the market. The focus would include recovery leadersandquality

cyclicals for an early reflation trade. The key is to avoid companies with poor

fundamentals and high valuations. Overall, we continue to be positive on the

banking sector as an economic recovery play given the strong earnings recovery.

The semiconductor industry would also be exciting given the strong pent-up demand

with new applications, and hence strong earnings recovery. In addition, we believe

commodity/asset reflation theme could gradually emerge as a catalyst for greater

market performance, while the telecommunications sector also appears to be

interesting, given stronger-than-expected earnings growth emerging from the data

services sub-sector as well as stronger cash flow and attractive divided yields. A

list of our top picks is reflected in Table 6.

Stock picking is key and

we like recovery leaders

and quality cyclicals

Need to factor in the

anticipated global policy

changes in the months

ahead

Our year-end FBM KLCI

target remains unchanged

at 1,400 despite

expectations of greater

market volatility ahead

Domestically, Bank

Negara will also begin to

normalise interest rates

from an extremely low

level soon


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Short-Term/Long-Term Drivers

Consistency in earnings over the last five

quarters with improvements in underlying

trends (loan growth, NIM and asset quality).

Below industry asset quality but the gap has

narrowed significantly since 3Q08 (in a

space of 12 months). Recent 4Q results

showed the asset quality has improved,

more than reversing the deterioration in 3Q.

Surprise special dividend in 3Q. Given its

strong capital ratios, there is potential of

higher dividend. Valuations are the lowest in

our banking universe (single-digit PER and

20% discount to book).

Value proposition from ANZ is expected to

improve competitiveness, augment ROE and

raise cross-border opportunities over the

longer run. Will benefit from the revival of

the capital markets. Will be the worst hit

when interest rate rises. However, it has

gradually changed its loan portfolio to

position for any eventual interest rate hike.

Earnings sensitivity to rising NPLs is the

highest among mid-cap banks and high

percentage of HP loans means higher

delinquency risk. However, recent results

have shown that its much improved risk

management was able to contain NPLs,

mitigating earlier concerns about asset

quality. Potential more active capital

management in FY03/10. Likely to

announce new dividend policy in terms of

percentage payout rather than in terms of

sen.

Post transformation of CIMB Niaga and

CIMB Thai, it is now ready to further scale

up its regional platforms for the next phase

of earnings growth. Lower earnings

volatility from smaller trading book,

consumer bank gaining traction (and has

room to improve further) and fast growing

contribution from CIMB Niaga. Among

domestic banks, it is best placed regionally

to benefit from western banks retreating

resources in the region. Excellent asset-

liabilities management and best proxy to

non-interest income growth under economicrecovery scenario. More aggressive capital

management temporary on hold pending

Basel III but it does not need additional

equity capital.

Earnings Comment/Fair Value

Fair value of RM3.03 is based on 11x CY10

EPS or 5x discount to sector benchmark of

16x to account for lower ROE as well as low

liquidity and market capitalisation.

Guiding for higher dividend of at least 10

sen in FY03/10 vs. 8 sen in FY03/09.

Fair value of RM6.13 is based on sector

benchmark of 16x CY10 EPS.


EPS or 1x premium to sector benchmark of

16x to reflect its status as a growing

regional universal bank.

There are multiple positive factors to take valuations to higher levels. These are earnings

growth gaining momentum (continue loan growth, stable NIM, booming non-interest income

and stable NPLs), M&A excitement, potentially more active capital management (barring

Basel III), low foreign shareholding, largest sector weighting in FBM KLCI and valuations

that are still below recent peaks. It is the best proxy to the economic recovery.

Banking Overweight

Sector Rating :

Company

Affin

Market Perform

RM2.75

AMMB

Outperform

RM4.96

CIMB

Outperform

RM13.46


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31 December *

2009(a) 1274.2 371.8 24.9 27.0 11.1 n.a. 0.9 8.5 3.1 3.1

2010(f) 1354.3 411.0 27.5 10.5 10.0 n.a. 0.8 8.5 3.1 11.1

2011(f) 1418.7 442.1 29.6 7.6 9.3 n.a. 0.8 8.5 3.1 108.4

2012(f) 1491.3 473.6 31.7 7.1 8.7 n.a. 0.8 8.5 3.1

Issued capital of 1,494.4m ordinary shares of RM1.00 each

Average daily volume (000) : 1,573.9 shares

Market capitalisation (RMm) : 4,110

31 March (Fully Diluted)

2009(a) 3184.4 860.8 31.1 +28.7 16.0 n.a. 1.7 8.0 1.6 +2.1

2010(f) 3772.2 1010.0 33.5 +7.8 14.8 n.a. 1.7 10.0 2.0 +1.2

2011(f) 4092.9 1202.1 39.9 +19.0 12.4 n.a. 1.6 10.0 2.0 +100.0

2012(f) 4388.3 1377.3 45.7 +14.6 10.9 n.a. 1.4 10.0 2.0fully diluted EPS (sen)




31 December

2009(a) 10592.7 2806.8 79.5 +37.4 16.9 n.a. 2.3 18.5 1.4 +6.3

2010(f) 11865.8 3373.2 95.5 +20.2 14.1 n.a. 2.2 18.5 1.4 +4.5

2011(f) 12951.7 3976.6 112.6 +17.9 12.0 n.a. 2.0 18.5 1.4 +95.1

2012(f) 14164.6 4619.1 130.8 +16.2 10.3 n.a. 1.8 19.5 1.4




FYE TURNOVER NET NET % NET EV/ P/ GROSS DIV % CHANGE

(RMm) PROFIT EPS GROWTH PER EBITDA BV DIV YIELD IN PRICE

(RMm) (SEN) (x) (x) (x) (SEN) (%) 1 MTH

3 MTHS

12 MTHS

Note : Stock prices @ 1 March 2010

* Stock Prices @ 3 March 2010

Sector Average

2009 (3.1) 16.3 2.0 2.3

2010 +19.5 13.5 2.0 3.22011 +14.5 11.8 1.7 3.6


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Short-Term/Long-Term Drivers Earnings Comment/Fair Value


EPS or 1x discount to sector benchmark to

reflect smaller market capitalisation andliquidity.

The ongoing takeover saga may cap share

price performance but we reiterate that HL

Banks offer price of 1.4x book is too low.


EPS or 1x discount to sector benchmark to

account for lower liquidity and smaller

market capitalisation.



Banking (Cont'd)

Company

EON Cap

Outperform

RM7.00

HL Bank

Underperform

RM8.40

Maybank

Outperform

RM7.03

Transformation under new shareholder

gradually showing results with net profit now

sustainable at above RM300m and shouldexceed previous peak of RM328m in FY03.

Loan growth has also accelerated. Kitchen

sinking in 2QFY08 took its LLC and NPL ratios

closer to industry average. Improved risk

management managed to contain NPLs.

Potential internal restructuring - if successful,

potential of reporting at least two years of tax-

free profits and ability to pay higher dividend.

Coupled with maiden issuance of Hybrid capital,

more professional management and new

collateral management system, we see

potential of more active capital management

(i.e. higher dividend) to enhance ROE and

reward shareholders. It has already declaredhigher dividend for FY09.

Although it has the second strongest asset

quality in our universe, its ROE is weighed

down by the highest capital ratios in our

universe. Desire to use excess capital for

regional expansion may hit a snag given rising

asset prices and conservative stance whereby

it is unlikely to pay a high price for any

acquisition. Merger saga with EON Cap is likely

to drag on and prevent any value enhancing

corporate exercise. Due to conservative stance

during the economic downturn, its loan growthis now lagging behind peers and industry.

Given that it may have lost traction in the

market, it would also take time to regain

market share. Treasury operations under

pressure as forex profits have declined

significantly while there was also sizeable swing

in MTM position (into the red) in 2QFY06/10.

Earnings have significantly surprised RHBRI

and consensus on the upside for two

consecutive quarters on the back of strong

increase operating income (both interest and

non-interest) and lower LLP. We now expect its

ROE to jump back to the 15% level (matchingFY08 ROE), albeit just a tad lower than the 16-

17% achieved during FY04-07. With strong

organic growth from domestic operations,

Singapore and especially BII, the negative

impact from the expensive acquisitions (of BII

and MCB) would be more than nullified as FY11

EPS is expected to exceed pre-acquisition

levels. Thus, its PER and P/B no longer

deserve to be the only stock trading near one

standard deviation below their post Asian

financial crisis means. We expect some heavy

catch up in share price performance and now

prefer Maybank as our top pick in the sector.


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31 December

2009(a) 1423.3 305.5 49.2 +>100.0 14.2 n.a. 1.4 7.7 1.1 +0.9

2010(f) 1577.4 373.1 53.8 +9.4 13.0 n.a. 1.3 10.0 1.4 +20.72011(f) 1678.6 422.4 60.9 +13.2 11.5 n.a. 1.1 10.0 1.4 +138.1

2012(f) 1780.4 468.8 67.6 +11.0 10.4 n.a. 1.0 10.0 1.4

Issued capital of 693.2m ordinary shares of RM1.00 each

Average daily volume (000) : 569.0 shares


30 June

2009(a) 2066.0 849.2 53.7 +14.5 15.6 n.a. 2.3 24.0 2.9 +3.1

2010(f) 2125.6 892.7 56.5 +5.1 14.9 n.a. 2.1 24.0 2.9 +5.7

2011(f) 2227.3 894.2 56.6 +0.2 14.8 n.a. 1.9 24.0 2.9 +60.0

2012(f) 2326.9 945.9 59.9 +5.8 14.0 n.a. 1.7 24.0 2.9




30 June

2009(a) 10321.5 2180.6 37.8 (39.7) 18.6 n.a. 1.6 8.0 1.1 +3.5

2010(f) 12608.2 3634.4 51.3 +35.7 13.7 n.a. 1.8 29.0 4.1 +2.2

2011(f) 13425.1 4292.7 60.7 +18.1 11.6 n.a. 1.7 35.0 5.0 +53.5

2012(f) 14442.6 4823.4 68.2 +12.4 10.3 n.a. 1.5 39.0 5.5




FYE TURNOVER NET NET % NET EV/ P/ GROSS DIV % CHANGE

(RMm) PROFIT EPS GROWTH PER EBITDA BV DIV YIELD IN PRICE

(RMm) (SEN) (x) (x) (x) (SEN) (%) 1 MTH

3 MTHS

Note : Stock prices @ 1 March 2010


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Fair value of RM1.15 is based on 11x CY10 EPS or

5x discount to sector benchmark of 16x to reflect

its non-deposit taking status and small market

capitalisation.

Earnings Comment/Fair Value

Banking (Cont'd)

Company

Public Bank

Outperform

RM11.02 (F)

RM11.04 (L)

RCE

Outperform

RM0.67

Superiority in all areas (loan growth,

asset quality, profitability as measured

by ROE and dividend payout ratio orgenerous capital management policy)

means that it deserves premium

valuations vis--vis peers.

Will be one of the main beneficiaries of

the eventual hike in interest rate.

Well placed to penetrate the China

market for longer-term earnings driver

through its Hong Kong arm.

Should benefit from regulatory adoption

of FRS139 and Basel II IRB

approach.Despite uncertainties about

Basel III on capital ratios and lowerdividend guidance, dividend yield is still

attractive at above 5% and it is the best

p

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