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

RHB Research Institute

RHB Equity 360°

21 April 2010 (TM, Infra, TNB, Axis REIT, Quill Capita, MAS, Gamuda, Formis; Technical: Faber)

Top Story : TM – Higher dividend, possibly Market Perform

Visit Note
- TM’s UniFi packages has registered a take-up of 600 households as of 5 Apr 10. Although most of these
subscribers were previously Streamyx users, nevertheless, UniFi would generally help TM both in terms of
customer retention and acquisition in the rollout areas over the long run.
- Net adds for broadband has improved yoy since Dec 09, thanks to lower churn rate and the introduction of
the “super upgrade deal” since Nov 09. While the “super upgrade deal” would result in higher ARPU, the
accretive effect would only be felt from May onwards.
- Management did not rule out the possibility of paying shareholders in excess of the minimum of RM700m
dividend, but neither did management provide a firm commitment to do so. Between special dividends and
a higher minimum dividend policy, we sensed management’s preference would be for special dividends.
- Indicative fair value remains unchanged at RM3.55, which is based on a required net yield return
assumption of 5.5% on the minimum RM700m dividends.

Economic Highlights

Interest rates : Monetary conditions to be normalised at a measured pace

Economic Highlights (published 21 Apr 2010)
- Countries across the Asia Pacific have stepped up their efforts to normalise their monetary conditions. The
normalisation of monetary conditions, in our view, aims to prevent asset prices and financial imbalances
from building up in some countries and to address rising inflationary pressures in others.
- In anticipation of emerging and developing economies normalising their monetary conditions at a faster
pace than that of developed economies and improving currency yields, Asian ex-Japan currencies have
been appreciating against the US dollar. Among the regional currencies, the ringgit is running ahead, as
Bank Negara Malaysia was the first country in this region that has started to normalise its monetary
conditions and investors are expecting more to come.
- Given that Malaysia is already ahead of the curve, we believe Bank Negara Malaysia will not be in a hurry
to increase its interest rates further. Future rate hike will likely occur at a measured pace. As a result, we
expect the Central Bank to pause in May’s meeting but will likely raise the overnight policy rate (OPR) by
another 25 basis points to 2.5% in July. Thereafter, the OPR will likely stay at this level for the rest of this
year. In this respect, we expect the ringgit to fluctuate at around RM3.20-3.30/US$ for the rest of 2010
before settling at RM3.20/US$ by end-2011.

Sector Call

Infrastructure : SPLASH re-aligns offer Neutral

Sector Update
- SPLASH re-aligned its earlier offer to take over Selangor state’s water assets. While maintaining its total
offer price of RM10.75bn for the state’s water assets, SPLASH proposed that ownership of the state’s
water assets will be carried by PAAB, if SPLASH succeeds in its takeover offer. SPLASH will pay PAAB
lease rentals of 6% per annum with an annual escalation of 2.5%.
- We believe that SPLASH’s take over is likely to fall through, as: (1) We remain doubtful on SPLASH’s
ability to raise enough funding to finance the proposed acquisition; (2) We are highly doubtful as to the
Federal Government’s willingness to buy back the water assets from SPLASH at higher price; and (3)
Puncak is likely to reject the offer, the combined effective offer price for Puncak’s 100% stake in PNSB and
70% stake in Syabas is worth significantly lower than our DCF-derived NPV.
- We reiterate our cautious view on the water sub-sector as we believe that the water sector consolidation in
Selangor is unlikely to materialise in the near term. Maintain Underperform on Puncak.
Corporate Highlights

TNB : Demand growth turning out stronger-than-expected Outperform

2QFY10 Results
- 2Q core results came in at the top-end of our and consensus estimates with 1HFY10 core net profit of
RM1.6bn (+24% yoy) accounting for 54-55% of our and consensus FY10 net profit forecasts.
- QoQ, revenue was flat but core pre-tax profit rose 9% qoq mainly due to lower staff cost and better
generation mix, partly offset by a higher depreciation charge.
- TNB declared an interim gross DPS of 6 sen (2QFY09: 2 sen gross and 2 sen TE), below our expected 10
sen gross DPS. Nevertheless, we have retained our full-year gross DPS forecast of 27 sen on expectations
TNB would make good the shortfall in its final dividend.
- Management has upped their FY10 demand growth guidance to 7-8% (previously 2-3%). However, given
the current high spot prices for coal, guidance for FY10 average coal cost was also raised to US$90/tonne
(from US$85/tonne).
- Plans to import electricity from Sarawak may not materialise given that the state needs power to develop
SCORE. Potentially, the above could be a positive for both TNB (eases concerns on the undersea cables
project) and the IPPs (new power opportunities and potential extension of 1st generation PPAs).
- We have raised our FY10 electricity demand growth assumption to +7% (+5.5% previously). In addition, we
have also raised our FY10-12 coal cost assumptions to US$90/tonne flat from US$88/tonne, partly
mitigated by a downward revision in our FY10-12 RM/US$ exchange rate assumptions to RM3.20-
3.40/US$ from RM3.30-3.50/US$. Overall, we have raised our FY10-12 net profit projections by 4.9-5.3%.
- Fair value raised to RM10.40 (from RM9.90) based on unchanged target CY10 PER of 14x.

Axis REIT : Buys property in Perlabuhan Tanjung Pelepas (PTP) Outperform

1QFY10 Results
- 1QFY12/10 normalised net profit was within expectations. The company proposed an interim dividend of
3.7 sen for 1Q10, which was also in line with our expectation.
- The company has proposed to acquire an office building and warehouse in PTP for RM30m (100%
occupancy rate; 10-year lease agreement with fixed step-up rental). We like the deal as: a) it is a yield-
accretive and earnings-enhancing acquisition as the properties fetch a triple net yield of 9.2% (vs. its
trading yield of 8.2%) with an interest cost of 4%; and b) the attractive purchase price results in a capital
gain of RM0.5m. The properties will boost our FY10-12 earnings forecasts by 0.3-8.1% assuming the
acquisition are completed by Oct 2010.
- We thus upgrade our FY10-12 earnings forecasts by 0.4-8.1% p.a. to factor in earlier-than-expected
completion of the acquisition of industrial building in Seberang Prai as well as the new acquisition in PTP.
We raise our fair value slightly from RM2.34 to RM2.35 after the earnings upgrade (based on 7%
benchmark yield). Maintain Outperform.

Quill Capita : Lower occupancy risk in 2010 Outperform

1QFY10 Results
- 1QFY12/10 normalised net profit was within expectation. No dividend was declared during the quarter.
- No change to our FY10-12 earnings forecasts and fair value of RM1.17.
- Maintain Outperform.

MAS : Flights to europe to resume today Underperform

Briefing Note
- MAS’s flights to Europe will resume from today, with the threat of volcanic ash cloud from Iceland
subsiding.
- MAS took the trouble to highlight again the fleet renewal plan it has put in place, but did acknowledge for
the first time that the move is not pre-emptive but to pace itself with its competitors.
- MAS guided that it will cap its net gearing at 2x over the next three years despite the heavy new aircraft
delivery.
- Fair value is RM1.60. Maintain Underperform.

Gamuda : Splash sweetens takeover offer for water assets Underperform

News Update
- Splash has sweetened its RM10.75bn takeover offer for water assets by foregoing the ownership of the
assets to bring the offer in line with “the spirit of the Water Services Industry Act 2006”.
- We still do not believe Gamuda will have its way. While the revised offer does resolve the ownership issue,
it does not settle the control issue.
- Also, even if the governments give their blessing, the offer may still not be acceptable to all
concessionaires.
- Fair value is RM2.05. Maintain Underperform.

Formis : Major contract on the platter Not Rated

Company Update
- Recall on 12 Oct 09, Formis Resources (FR) acquired 59.3% of ISS Consulting (ISS) via a reverse
takeover i.e. disposal of Diversified Gateway (a wholly-owned subsidiary of FR) in exchange for ISS
shares. While ISS reported a net loss of RM0.7m in FY12/09, we expect the company to be in the black in
2010 mainly due to: 1) maiden contribution from Diversified Gateway (DGB); and 2) stronger contribution
from higher-margin proprietary products.
- According to management, the pilot implementation of software solution (i.e. billings and scheduling
software) for shipping terminals at the Port of Tanjung Pelepas (PTP) is on track with the major contract
(worth US$400-500k) likely to be awarded in early May-10. With the successful roll-out of the job at PTP,
FR is expected to implement its software solution to two shipping terminals in Oman and Morocco.
- We have cut FY10 earnings projection by 25% given slower-than-expected contribution from the ports’
system solution. However, we are keeping our FY11-12 earnings forecasts unchanged as we have now
factored in contribution from ISS as well as higher minority interest. In addition, we highlight the potential
upside to FY03/11-12 earnings due to stronger contribution from ISS as well as margin expansion from roll-
out of the ports system solution as development cost would likely be recognised in FY03/10.
- We believe FR is the key beneficiary to the strong recovery in corporate IT spending stemming from the IT
replacement cycle. We value FR at RM2.00/share, based on 13x 03/FY11 PER.

Technical Highlights

Daily Trading Strategy : Removal of the 10-day SMA crucial to regain upside momentum…
- Technically, the formation of a positive candle and the better momentum readings suggest a possible
further rebound today, if the FBM KLCI crosses to above the 10-day SMA of 1,336.
- However, the continued fall in the daily turnover and the failure to completely remove the 10-day SMA
yesterday implied that there is still risk ahead for the index to regain its upward momentum.
- Only if the index chalks up a positive confirmation candle to above the 10-day SMA and manages to
increase the daily trading volume to above the 1.0bn shares mark, will it see a strong return in trading
momentum. Otherwise, we expect sellers to resume their activities soon.
- Chart wise, the short-term downside targets for the FBM KLCI have remained unchanged at the 40-day
SMA of 1,314, a 2.6-pts technical gap near 1,305 and the 1,300 level.
- On the upside, a removal of the 10-day SMA will boost the trading sentiment and hence, leading the index
to the recent high of 1,347.61, before resuming its previous medium-term target at 1,390

Daily Technical Watch: Faber Group – Still shying away from recrossing the RM2.29 important level…
- 10-day SMA: RM2.45
- 40-day SMA: RM2.176
- Support: IS = RM1.98 S1 = RM1.81 S2 = RM1.65
- Resistance: IR = RM2.29 R1 = RM2.60

Bulletin Board

Co/Sector News Impact Recom

Proton Proton is expecting a 6-7% growth in sales for Positive. We believe Proton’s product strategy OP, FV =
FY10 on the back of: 1) improved consumer (i.e. a replacement model a year) would enable RM5.48
sentiment; 2) higher demand for its core models; Proton to stay competitive in the market going
 and 3) launch of improved version of existing forward.
models and all new models. The company is
expected to unveil two facelift models and a
replacement model for Proton Waja in
4Q10. (Business Times)

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Axis REIT 1st interim income dist. of 3.65 sen less tax + 0.05 sen non taxable 30-Apr-10 27-May-10
KAF-Seagroatt Interim dividend of 7.5 sen less 25% tax 3-May-10 19-May-10
New Hoong Fatt Final single tier div of 8 sen + final special single tier div of 1 sen 18-May-10 17-Jun-10

Going “ex” on 26 Apr

Sime Darby Interim single tier dividend of 7 sen 26-Apr-10 10-May-10
Puncak Niaga Holdings Semi annual coupon payment No 17 for 15-year RUJN 26-Apr-10 20-May-10

...For more details, see individual reports attached

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 a result 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.