PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
27 April 2010
MARKET DATELINE

EPIC Share Price

Fair Value
:
:
RM1.64
RM2.69
No Surprises Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (EPIC; Code: 8265) Bloomberg: EPIC MK

Net Adj Adj EPS Net
FYE Turnover Profit EPS EPS# Growth# PER C.EPS* P/NTA Gearing ROE GDY
Dec (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009 184.0 42.3 24.9 24.9 81 6.6 - 0.9 0.4 13.4 5.3
2010f 222.7 45.6 26.9 26.9 8 6.1 28.0 0.8 0.4 13.3 5.7
2011f 232.9 46.1 27.2 27.2 1 6.0 28.0 0.7 0.4 12.3 5.8
2012f 271.5 50.8 30.0 30.0 10 5.5 30.0 0.7 0.4 12.5 6.4
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC # Excl. EI * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ No surprises. Results were in line with our expectations. Although core Above
net profit accounted for only 21.5% of our full-year forecast, the 1Q is In Line
seasonally a weak quarter for the core business under Kemaman Supply Below
Base (KSB) with offshore activity slowing down during monsoon season.
Issued Capital (m shares) 169.5
12% and 27% yoy growth in 1QFY12/10 revenue and pre-tax profit
Market Cap(RMm) 278.0
respectively were mainly attributed to stronger contribution from Daily Trading Vol (m shs) 0.1
Kemaman Port East Wharf (+74% yoy) arising from the pick-up in 52wk Price Range (RM) 1.23-1.76
Perwaja’s activities as well as cost-cutting measures. Overall 1QFY12/10 Major Shareholders: (%)
operating margin increased 6.1%-pts qoq to 30.4% mainly due to lower Terengganu State Govt 38.2
operating expenses as well as higher contribution from Kemaman Port East AZRB 21.0
Wharf and liquid chemical berth.

♦ Kemaman Supply Base – key earnings driver in FY10. Management FYE Dec FY10 FY11 FY12
EPS revision (%) - - -
highlighted that the company will focus on the expansion of KSB under
Var to Cons (%) (3.9) (2.8) (0.1)
Phase 3. The land-clearing work started in 3Q 2009 and Phase 3 would be
operational in early-3Q10. The addition of 97 acres for Phase 3 is expected PE Band Chart
to increase KSB’s landbank to 419 acres. The company already has one
confirmed customer (i.e. Total) for Phase 3 and expects another three PER = 15x
more in the short term. PER = 10x

♦ Risks. 1) Execution risks - The pressure will be on management to deliver

earnings from new businesses, which thus far remain unproven; 2) Political
risk – EPIC is majority-owned by the Terengganu state government; and
3) Business risks – although KSB is relatively stable, the fabrication
business may be unable to contain rising costs.
Relative Performance To FBM KLCI

♦ Forecasts maintained. No change to our forecasts for now. However, we EPIC

highlight that there could be upside to our FY11-12 earnings driven mainly
by stronger contribution from KSB stemming from the stronger pick-up in
O&G activities. FBM KLCI

♦ Investment case. We estimate 64% further upside to our fair value of

RM2.69/share based on 10x FY10 PER or 23% discount to our target sector
PER of 13x. We believe our target price has adequately discounted the
execution risks as well as the company’s relatively small market cap. At Wong Chin Wai
current levels, the stock is attractively priced for exposure to Terengganu’s (603) 92802158
offshore brownfield oil and gas activity. We thus maintain our Outperform wong.chin.wai@rhb.com.my
call on the stock.
Yap Huey Chiang
(603) 92802171
Please read important disclosures at the end of this report. yap.huey.chiang@rhb.com.my

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 27 April 2010

Table 2. EPIC Quarterly Review

QoQ YoY
FYE Dec (RMm) 1Q09 4Q09 1Q10 Comments
(%) (%)
42.2 50.1 47.4 (5) 12
Revenue Stronger yoy due to higher contribution from Kemaman
Port East Wharf (+74% yoy) arising from the pick-up in
Perwaja’s activities. Lower qoq due to seasonally lower
revenue for Kemaman Supply Base (-8% qoq).
10.8 12.2 14.4 18 34
Operating profit Operating margins higher qoq and yoy due higher
contribution from Kemaman Port East Wharf and liquid
chemical berth as well as cost-cutting measures.
25.5 24.3 30.4
Op margin (%)
- -
Exceptional items
1.0 0.2 0.5 125 (48)
Other op income
11.8 12.4 14.9 20 27
Pre-tax profit Filtered down from operating profit and partially lifted by
higher rental income.
(3.7) (0.6) (4.4) 600 19
Tax
31.3 5.0 29.3 Higher than statutory tax rate due to certain non-
Effec tax rate (%)
deductible expenses.

(0.2) (2.1) (0.8) (62) 336

Minority interest
7.9 9.7 9.8 1 24
Net profit
7.9 9.7 9.8 1 24
Core net profit Filtered down from PBT but dragged down by higher
taxation.
4.7 5.7 5.8 1 24
EPS (sen)
4.7 5.7 5.8 1 451
Core EPS (sen)
Source: Company, RHBRI

Table 3. Earnings Forecasts Table 4. Forecast Assumptions

FYE Dec (RMm) FY09 FY10f FY11f FY12f FYE Dec FY10F FY11F FY12F
KSB 107.3 113.8 120.7 127.6 Cargo handling (m tonnes) 845,445 853,713 859,914
Property 2.0 2.0 2.0 2.0 Utilisation rate (%) 70.5 71.1 71.7
Environmental Mgmt 1.0 1.0 1.0 1.0
Tubex 15.9 16.7 18.4 20.2 Source: Company data, RHBRI estimates
Kemaman Port 30.0 33.0 34.6 36.4
Fabrication 27.8 56.3 56.3 84.4
Revenue 184.0 222.7 232.9 271.5

EBITDA 65.1 79.7 84.9 94.5

EBITDA margin (%) 35.4 35.8 36.4 34.8

Other operating inc 1.5 3.5 2.0 3.7

Dim. in invt value - - - -
Depreciation (18.0) (20.2) (20.7) (21.2)
Pre-tax profit 54.6 63.1 66.2 77.1
Tax (5.5) (9.5) (11.9) (15.4)
Effective tax rate (%) 10.1 15.0 18.0 20.0
Minority interest (6.8) (8.0) (8.2) (10.9)
Net profit 42.3 45.6 46.1 50.8

Core net profit (RMm) 42.3 45.6 46.1 50.8

Source: Company data, RHBRI estimates

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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 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.

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