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

RHB Research Institute

RHB Equity 360°

20 May 2010 (Notion Vtec, Kencana, Media Prima, Amway; Technical: IOI, FBM KLCI)

Top Story : Notion Vtec – Set to deliver Outperform

Visit Note
- Construction work on its new 150k sq ft plant is set to commence production by Sep-10. Note that
management expects capex of around RM80m to ramp up the base plate capacity to 1m/month, 5m/month,
and 7m/month by FY10-12 respectively from 350-400k/month (currently) vs. 100k/month in Jan-10.
- Also, the company expects stronger volume loading in 2H2010 from WD on the back of strong demand for
HDD components. Recall that WD overtook Seagate as the No. 1 HDD vendor in 1Q10. WD now expects
to increase its total HDD shipments by more than 20%. While currently capacities for these components
are 800-900k/month, management is expecting to increase capacity to 1.5-2.0m/month by end-2010.
- In the anticipation of higher costs this year stemming from higher start-up costs and product testing, we
have trimmed our FY10 net profit forecast by 4.3% to RM53.6m. However, given stronger volume loading
as well as lower cost stemming from tight cost control and higher utilisation rate, we have tweaked upwards
our FY11-12 net profit by 0.8% respectively.
- Separately, assuming completion of the proposed 10% placement and rights issue of free warrants, we
estimate FY11 fully-diluted EPS of 38.5 sen, i.e. a dilution of 17.7% from our current forecast, while our fair
value would fall to RM3.85. Nevertheless, this would still imply 41% upside from current levels.
- After revision in earnings, our fair value is raised to RM4.68 from RM4.64. Maintain Outperform.

Corporate Highlights

Wah Seong : Socotherm’s setback Outperform

Company Update (published 19 May 2010)
- According to management, Wah Seong has failed in its bid to acquire the assets of Socotherm (an Italy-
based pipe coater). Socotherm announced that it has accepted an offer for a share capital investment from
a consortium group comprising: 1) ShawCor Ltd (Canada-listed holding company of Bredero Shaw); and 2)
two private equity firms (4D Global Energy Advisors, France and Sophia Capital, Argentina).
- While the acquisition is valued at around 0.94x of Socotherm’s NTA, this does not take into account its
huge net debt position of around 210m Euros as well as the contingent liability (arising from ongoing law
suits) and working capital requirements going forward. We believe Wah Seong’s refrain from raising the bid
is justified given the potential higher investment cost as well as limited upside to earnings contribution over
the medium term from Socotherm due to its low orderbook.
- While ShawCor’s successful acquisition would further strengthen its near global monopoly of specialist
pipe-coating, we highlight that Wah Seong is in a strong position to acquire other pipe coaters which
currently do not have deepwater pipe coating assets and have limited geographical reach.
- We highlight that our FY10-12 earnings projections have not factored in any contribution from Socotherm.
Maintain Outperform and fair value of RM3.09/share, which is based on 16x FY10 PER.

Kencana : Termination of proposed collaboration with Global Offshore Outperform

News Update
- Kencana Petroleum (Kencana) announced that both the jv agreement and MOA with Global Offshore has
been terminated as both parties could not arrive at mutually agreed terms. While we have not been able to
contact the management, we believe the termination is largely due to the higher investment cost required
for the 45% equity stake in Global Offshore.
- Given the termination, Kencana’s strategy of moving into the IPF business would likely be delayed or
deferred. Nevertheless, we believe Kencana is in a strong position to enter into jvs with other IPF players
(i.e. Saipem, Sigurros, PBJV and Master Offshore) given its ownership of two AHTS and expertise in
conversion and refurbishment of marine assets.
- We highlight that our forecasts have not factored in any contribution from the jv with Global Offshore.
- We reiterate our Outperform call with an unchanged fair value of RM1.88 (based on 16x FY11 PER).

Media Prima : Expecting stronger earnings ahead Outperform

1QFY10 Results
- 1Q10 core of RM29.3m accounted for 16.8% and 20.3% of our and consensus expectations respectively.
We consider this to be within expectations as 1Q is typically a slower period. We also expect stronger
earnings in coming quarters as a result of the economic recovery and sporting events lined up.
- 1Q revenue grew 48.1% qoq and 129.3% yoy, although the numbers are not strictly comparable as 1Q10
benefited from the full consolidation of NSTP. Excluding NSTP, revenue fell 18.2% qoq due to seasonality
while yoy, revenue jumped 26.8% with growth reported by all segments. Another positive factor we note
was that TV discount fell to 69.3% in 1Q10 vs. 71.0% in 4Q09 (1Q09: 67.8%).
- Meanwhile, NSTP reported 1Q10 core net profit of RM10.6m, vs. net loss of RM2.9m for 1Q09. Revenue
rose 10% yoy due to a combination of stronger advertising and circulation. The swing in profitability was
further aided by lower newsprint cost partly offset by losses incurred by MNI as a result of the weak
newsprint prices.
- We have maintained our FY10-12 earnings forecast unchanged for now. Our fair value is maintained at
RM2.55 (fully diluted), based on unchanged target FY10 PER of 15x. Reiterate Outperform.

Amway (M) : Attractive yield Outperform

1QFY10 Results
- 1Q10 net profit of RM16.7m (-13.7% yoy) was in line with our and consensus expectations, accounting for
18% and 20% of our and consensus earnings forecasts respectively. We consider this to be in line as we
expect stronger earnings ahead from weakening US$ against RM. For every 1% depreciation in US$
against RM, this would lead to a 0.2-0.4%-pt gain in gross profit margin for Amway.
- In 1Q10, Amway has declared a first single tier interim dividend of 9 sen, which was above our
expectations of 8 sen. As such, we revised up our net dividend assumption to 54 sen (from 51 sen) which
represents a net payout of 99% and net yield of 7% in FY10.
- No changes to our earnings forecasts.
- DCF-derived fair value is unchanged at RM8.45 using an unchanged WACC of 8.1%. Maintain Outperform.

Technical Highlights

Daily Trading Strategy : Expect more correction ahead!

- With yesterday’s double-digit slump, the FBM KLCI has turned more bearish on the chart.
- The index is poised to test the critical psychological threshold at 1,300 today, as we had expected earlier.
- However, given the current negative signs in most of the indicators, plus the breakdown of the recent low at
1,315.63, the index might overshoot the key support at 1,300 soon, in our view.
- In fact, the 10-day SMA will cut below the 40-day SMA near 1,334 on further downside today, to trigger a
“dead cross”, reflecting a major “sell” signal for the medium-term outlook on the FBM KLCI.
- All said, we expect the index to breach 1,300 today and gear up for further retracement towards the next
support region near 1,250 and the lower psychological level at 1,200 in the near term.
- As such, investors should cut market exposure, pending more correction ahead.

Daily Technical Watch: IOI Corporation – Could overshoot the immediate support at RM4.85…
- 10-day SMA: RM5.331
- 40-day SMA: RM5.423
- Support: IS = RM4.85 S1 = RM3.88 S2 = RM2.96
- Resistance: IR = RM5.60 R1 = RM6.40 R2 = RM7.20

Chart Surveillance: FBM KLCI – “Sell In May, Go Away!”

- We are of the view that the FBM KLCI will cut a “Dead Cross” indicating a medium-term bearish sign on the
chart soon.
- A fall below 1,300 psychological level will confirm a technical correction phase for the 13-mth old uptrend.
- The FBM KLCI is expected to head towards 1,200 and a lower support of 1,160, near the 23.6%FR –
38.2%FR target range from 1,154-1,229 in the next one-to-three months period.
- As a result, we expect investors to cut market exposure pending an imminent correction phase ahead, and
continue to “sell in May, go away”.
 Bulletin Board

Co/Sector News Impact Recom

Axiata Idea (a 20%-owned associate of Axiata) has Neutral. Although the 3G spectrum cost of OP, FV =
been successful with its 3G spectrum bid in 8 out US$1.3bn is 30% higher than Idea's initial budget RM4.05
of 22 circles, with a total cost of US$1.3bn. of US$1bn and could result in a cash call, this is
(Department of Telecommunications, India) mitigated by: 1) the possible equity injection of
US$60.5m required by Axiata (based on its 20%
stake in Idea) is lower than the worst case
scenario of US$200-300m guided by
management; and 2) recent XL stake selldown
which raised US$563.3m.
Tan Chong Despite anticipation of interest rate hikes, Tan Positive. We believe ongoing launches to replace OP, FV =
Chong is confident that FY10 car sales will old models and entering into the A, B, C and D RM5.26
improve 8-10% given stronger-than-expected segments are crucial for Tan Chong in order to
demand in the Jan-Apr 10 period (+20.1% yoy) sustain and create new demand. We are also
as well as new model launches. Note that the expecting earnings to rebound strongly for Tan
company is expected to roll out a facelift version Chong in FY10 as the strengthening of the ringgit
of Nissan X-Trail and CKD version of Teana in against US$ and yen would be favourable to the
3Q-4Q10 respectively to improve demand on company.
Nissan’s luxury model. (Business Times)
Amway Amway will be launching 7 new products that will No changes to our earnings forecast as we have OP, FV =
help contribute to about 6% of total sales in already factored the new product launches into RM8.45
FY10. (Business Times) our assumptions.
Astro About 84% of Astro’s shareholders have We believe Astro’s minorities are likely to accept MP, FV=
accepted Astro Holdings' general offer to the privatisation offer. This is not a surprise given RM4.30
privatise Astro. This means that EPF, which that the privatisation exercise would allow the
holds around 8.6% stake in Astro, appears to be value of the overseas investments to be unlocked
the deciding factor on the success of the immediately, which, if status quo, would have
privatisation exercise. (StarBiz). taken time for the value for these loss-making
overseas assets to be reflected in the share price
as well as valuations.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Amway (M) Holdings First interim single tier dividend of 9 sen 2-Jun-10 18-Jun-10
UMS-Neiken Group First and final single tier dividend of 1.05 sen 16-Jun-10 30-Jun-10
Bina Darulaman First and final dividend of 7 sen less 25% tax 28-Jun-10 19-Jul-10
Formosa Prosonic Inds. Second interim single tier dividend of 7 sen 28-Jun-10 22-Jul-10
Acoustech Second interim single tier dividend of 3 sen 28-Jun-10 22-Jul-10
Encorp Single tier final dividend of 5 sen 14-Jul-10 30-Jul-10

Going “ex” on 21 May

ECM Libra Financial Distribution of 1 treasury share for every 52 shares held 21-May-10 7-Jun-10
ECM Libra Financial Single tier interim dividend of 2.3 sen 21-May-10 7-Jun-10
Brite-Tech Final single tier dividend of 0.48 sen 21-May-10 8-Jun-10
Globetronics Technology Final dividend of 2 sen less 25% tax 21-May-10 9-Jun-10
DFZ Capital First interim dividend of 5 sen less 25% tax 21-May-10 10-Jun-10
TDM 1st and final div of 4 sen less 25% tax + 9 sen single tier tax exempt 21-May-10 15-Jun-10

...For more details, see individual reports attached

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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.

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