PP 7767/09/2010(025354)

21 May 2010

Malaysia Corporate Highlights

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

Marke t Upda te
21 May 2010
MARKET DATELINE

Market Momentum
Pick And Choose

♦ A turn for the worse. As anticipated in our 30 Apr Market Update

Table 1. Top Picks
(Taking Stock – Position For More Volatility Ahead), the market has taken
Rel. Price FV Rec
a negative turn. Notwithstanding the 1Q2010 GDP growth of 10.1% yoy,
YTD* (RM)# (RM)
the next few quarters will likely be more meaningful as growth begins to
(%)
normalise. We do not see any good news in the near term:
Maybank 6.6 7.48 8.96 OP
o No more double-digit GDP growth – As highlighted by RHBRI’s CIMB 12.5 7.07 8.12 OP
economics team (see Economic Highlights dated 13 May), GDP Maxis (4.3) 5.27 6.20 OP
growth for 2H 2010 is expected to weaken to 4.8% vs. 8.8% in 1H. Tenaga (3.2) 8.34 10.40 OP
Genting (11.9) 6.65 8.95 OP
o No major corporate earnings surprises – We highlight that major
KLK (3.4) 16.34 18.40 OP
earnings upgrades have already been factored into analysts’
Top Glove 20.6 12.38 15.50 OP
estimates, and therefore we are unlikely to see any significant
IJM Land (6.3) 2.26 3.19 OP
positive surprises from the companies under coverage. In fact, the
Media Prima 16.7 1.99 2.55 OP
risk is that there could be earnings disappointment due to: 1)
Sunway City 8.9 3.62 5.33 OP
stronger RM vs. USD and Euro; 2) weaker demand as global stimulus
Unisem 65.2 2.75 4.06 OP
spending packages wind down; and 3) unforeseen writedowns similar
Kossan 36.0 7.52 10.74 OP
to Sime Darby’s cost overruns for its engineering and utilities division.
Faber 34.2 2.20 3.40 OP
o Delay in unpopular measures – The recent political setback in Evergreen (0.3) 1.43 2.35 OP
Sarawak may dent the Government’s will to remove subsidies e.g. for Notion Vtec (3.6) 2.69 4.68 OP
petrol and electricity. We believe that this is just delaying the Daibochi 21.4 2.85 4.20 OP
inevitable as market forces will continue to drive input costs higher. * Relative performance vs. FBM KLCI
# As at 20 May
♦ Downdraft of fear. Malaysia appears caught in a downdraft of fear
Source: Bloomberg, RHBRI
sparked off by macroeconomic concerns in the EU as well as mounting
doubts about the sustainability of China’s growth. Under such fearful
Table 2. Fallen Stars
conditions, the risk of more downside is likely to be greater than the
1M Price FV Rec
potential for upside. Clearly, losers from the strong ringgit have been
Perf (RM)# (RM)
among the hardest hit, including resources (plantations, oil & gas and
(%)
timber), semiconductor, rubber gloves and steel. The GLCs and M&A plays
Notion (19.5) 2.69 4.68 OP
could also slip further if confidence continues to falter.
Daibochi (13.6) 2.85 4.20 OP

♦ Value re-emerging. According to RHBRI’s technical research, the next Kinsteel (13.3) 0.85 1.22 OP

support level for the FBM KLCI could be around 1,229, i.e. 6% lower than Evergreen (11.7) 1.43 2.35 OP

current levels, last seen in Oct 2009. The corresponding 2010-2011 PERs Unisem (11.6) 2.75 4.06 OP

would then fall to 14.0x and 12.2x respectively, from 15.1x and 13.1x Media Prima (11.6) 1.99 2.55 OP

currently. At 1,154 i.e. the next support level down, 2010-2011 PERs SapCrest (11.1) 2.01 2.66 OP

would fall to 13.3x and 11.5x. Kencana (10.9) 1.39 1.88 OP

MPI (10.7) 6.28 8.46 OP
♦ Longer-term catalysts are intact. Looking beyond this downshift, we Allianz (10.3) 4.80 6.68 OP
believe the long-term picture is still intact with sustained economic and Wah Seong (9.4) 2.30 3.09 OP
corporate earnings growth. We expect the Government to push forward Parkson (9.3) 5.26 6.40 OP
with liberalisation policies and reduction of subsidies later. M&A activities Tan Chong (9.2) 4.05 5.26 OP
are likely to continue in the industrial space, as well as banks and IOI Corp (8.7) 5.01 6.80 OP
insurance. In addition, we expect Malaysian corporates to look overseas # As at 20 May
for new growth opportunities, and especially given their pricing power Source: Bloomberg, RHBRI
have improved with the stronger ringgit.

♦ Pick and choose. Under current volatile market conditions, we highlight

that this is an opportunity to pick and choose stocks (see Table 1 – Top Yap Huey Chiang
Picks) and especially those that have fallen hard in the last month such as (603) 92802171
Notion, Daibochi, Evergreen and Unisem (see Table 2). yap.huey.chiang@rhb.com.my

Please read important disclosures at the end of this report.

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 21 May 2010

Turning Down

♦ A turn for the worse. As anticipated in our 30 Apr Market Update (Taking Stock – Position For More Volatility
Ahead), the market has taken a negative turn. Notwithstanding the 1Q2010 GDP growth of 10.1% yoy, the next
few quarters will likely be more meaningful as growth begins to normalise. We do not see any good news in the
near term:

o No more double-digit GDP growth – As highlighted by RHBRI’s economics team (see Economic Highlights
dated 13 May), GDP growth for 2H 2010 is expected to weaken to 4.8% vs. 8.8% in 1H.

o No major corporate earnings surprises – We highlight that major earnings upgrades have already been
factored into analysts’ estimates, and therefore we are unlikely to see any significant earnings surprises
from the companies under coverage. In fact, the risk is that there could be earnings disappointments due
to: 1) stronger RM vs. USD and Euro; 2) weaker demand from the EU, China and other countries as global
stimulus spending packages wind down; and 3) unforeseen writedowns similar to Sime Darby’s cost
overruns for its engineering and utilities division.

o Delay in unpopular measures – The recent by-election loss in Sibu, Sarawak for Barisan Nasional may
dent the Government’s will to remove subsidies e.g. for petrol and electricity. We believe however that this
is just delaying the inevitable as market forces will continue to drive input costs higher. In fact, we believe
the new pricing structures for both petrol and electricity have already been formulated and are just awaiting
the signal to be implemented.

♦ Downdraft of fear. Malaysia appears caught in a downdraft of fear sparked off by macroeconomic concerns in
the EU as well as mounting doubts about the sustainability of China economic growth. Under such fearful
conditions, the risk of more downside is likely to be greater than the potential for upside. Clearly, losers from the
strong ringgit have been among the hardest hit, including resources (plantations, oil & gas and timber),
semiconductor, rubber gloves and steel. The GLCs and M&A plays could also slip further as confidence continues
to falter.

Look Beyond The Downshift

♦ Value re-emerging. According to RHBRI’s technical research, the next support level for the FBM KLCI could be
around 1,229, i.e. around 6% lower than current levels, and last seen in Oct 2009. The corresponding 2010-
2011 PERs would then fall to 14.0x and 12.2x respectively, from 15.1x and 13.1x currently. Worse still, if the
FBM KLCI falls to 1,154 which is the next support level down, 2010-2011 PERs would fall to 13.3x and 11.5x
based on our earnings estimates. In our view, value will begin to emerge either from a more immediate market
correction, or more gradually when corporate earnings catch up with valuations. As we approach the tail end of
the 1H and move into the 2H, we expect investors to begin looking forward to 2011 earnings.

♦ Longer-term catalysts are intact. Sustained economic growth (5% for 2011) and robust corporate earnings
growth (+17.2% for 2010 and +15.6% for 2011 for stocks under our coverage) thus remain key long-term
positive catalysts. We also expect the Government to push forward with liberalisation policies and the reduction
of subsidies later. M&A activities are likely to continue in the industrial space (e.g. consolidation of mid and
downstream steel players), as well as banks (involving Hong Leong Bank, EON Capital, and potentially Affin
Holdings and AFG) and insurance (with larger players taking over smaller ones). In addition, we expect
Malaysian corporates to look overseas for new growth opportunities. This has already happened among the
larger banks (CIMB, Maybank, Public Bank and Hong Leong Bank), as well as power (TNB, Tanjong, YTL Power),
telecom (Axiata), consumer (Parkson and Hai-O), healthcare (KPJ and Faber) and manufacturing (Top Glove and
Adventa) companies. We expect more companies to look overseas as their pricing power has improved with the
stronger ringgit.

♦ Pick and choose. Under current volatile conditions, we believe the urge is to continue trimming investments,
and potentially these could involve the still-resilient stocks which are still up relative to the FBM KLCI over the
last month (see Table 3). However we highlight that this is also an opportunity to pick and choose among the
many attractive stocks that have pulled back more than the FBM KLCI. In our view, stocks that are worth
accumulating include our top picks especially those that have fallen hard in the last month including Notion,
Daibochi, Evergreen and Unisem (see Table 4). We reiterate our view that investors should focus on the
fundamentally robust stocks with visible earnings growth.

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 21 May 2010

Table 3. Resilient Outperformers Over The Last Month

1 Month Absolute Price (RM)# FV Rec
Performance (%) (RM)
LPI 9.0 15.30 16.70 OP
Genting Singapore 6.2 S$0.95 S$1.35 OP
Hartalega 4.3 7.80 8.89 OP
Star 4.0 3.40 3.60 MP
KFC 3.6 8.28 9.63 OP
KPJ 3.6 2.86 3.20 MP
Tanjong 2.3 17.98 19.20 MP
Digi.Com 1.8 22.98 25.70 OP
Genting 1.5 6.65 8.95 OP
Amway 1.4 7.45 8.45 OP

FBM KLCI (2.4) 1,304.16 1,400.00 -

# As at 20 May
Source: Bloomberg, RHBRI

Table 4. Forecasts And Valuations

Price FV EPS PER PBV PCF GDY
FYE (RM/s) (RM/s) (sen) EPS Growth (%) (x) (x) (x) (%) Rec
20-May FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
Top Picks
Maybank Jun 7.48 8.96 51.3 60.7 35.7 18.1 14.6 12.3 2.0 n.a. 3.9 OP
CIMB Dec 7.07 8.12 95.5 112.6 20.2 17.9 7.4 6.3 1.2 n.a. 2.6 OP
Maxis Dec 5.27 6.20 33.2 36.2 6.6 9.1 15.9 14.6 3.9 10.3 6.3 OP
Tenaga Aug 8.34 10.40 70.7 80.9 42.0 14.4 11.8 10.3 1.3 4.6 3.4 OP
Genting Dec 6.65 8.95 45.8 56.1 38.9 22.5 14.5 11.9 1.6 5.9 1.4 OP
KLK Sep 16.34 18.40 87.5 123.3 23.7 40.8 18.7 13.3 2.9 15.0 2.8 OP
Top Glove Aug 12.38 15.50 89.0 96.2 55.3 8.1 13.9 12.9 3.6 11.4 3.7 OP
IJM Land^ Mar 2.26 3.19 18.4 34.4 88.5 87.2 12.3 6.6 1.4 4.6 0.9 OP
Media Prima Dec 1.99 2.55 16.3 18.0 +>100.0 10.1 12.2 11.1 2.0 6.1 5.0 OP
Sunway City Dec 3.62 5.33 34.8 38.8 9.8 11.6 10.4 9.3 0.7 6.7 2.2 OP
Unisem Dec 2.75 4.06 27.1 36.1 134.8 33.5 10.2 7.6 1.3 3.3 1.8 OP
Kossan Dec 7.52 10.74 82.6 103.0 10.3 24.7 9.1 7.3 2.5 8.0 1.4 OP
Faber Dec 2.20 3.40 26.5 24.2 16.4 -8.8 8.3 9.1 1.7 5.2 3.2 OP
Evergreen Dec 1.43 2.35 21.3 23.3 26.1 9.4 6.7 6.1 1.0 9.4 3.5 OP
Notion Vtec Sep 2.69 4.68 34.7 46.8 35.3 35.1 7.8 5.7 2.0 5.7 2.4 OP
Daibochi Dec 2.85 4.20 35.1 38.0 16.9 8.3 8.1 7.5 1.6 6.8 7.9 OP

Fallen Stars
Notion Sep 2.69 4.68 34.7 46.8 35.3 35.1 7.8 5.7 2.0 5.7 2.4 OP
Daibochi Dec 2.85 4.20 35.1 38.0 16.9 8.3 8.1 7.5 1.6 6.8 7.9 OP
Kinsteel Dec 0.85 1.22 10.2 11.7 877.5 15.2 8.4 7.3 0.9 2.8 1.2 OP
Evergreen Dec 1.43 2.35 21.3 23.3 26.1 9.4 6.7 6.1 1.0 9.4 3.5 OP
Unisem Dec 2.75 4.06 27.1 36.1 134.8 33.5 10.2 7.6 1.3 3.3 1.8 OP
Media Prima Dec 1.99 2.55 16.3 18.0 +>100.0 10.1 12.2 11.1 2.0 6.1 5.0 OP
SapCrest^ Jan 2.01 2.66 16.6 18.4 40.9 10.3 12.1 11.0 2.0 5.2 2.0 OP
Kencana July 1.39 1.88 10.2 11.7 42.9 15.0 13.6 11.8 2.6 10.1 0.5 OP
MPI Jun 6.28 8.46 45.1 67.6 735.6 49.8 13.9 9.3 1.4 3.4 3.2 OP
Allianz Dec 4.80 6.68 71.9 86.2 -7.0 19.9 6.7 5.6 1.2 7.2 0.4 OP
Wah Seong Dec 2.30 3.09 19.3 20.8 46.1 8.0 11.9 11.0 2.3 4.3 3.3 OP
Parkson Jun 5.26 6.40 29.2 36.3 15.0 24.3 18.0 14.5 2.8 7.1 1.3 OP
Tan Chong Dec 4.05 5.26 39.0 45.3 72.0 16.2 10.4 8.9 1.7 8.8 2.8 OP
IOI Corp Jun 5.01 6.80 26.8 33.1 -16.5 23.7 18.7 15.1 3.4 16.3 2.4 OP
^ FY10-11 valuations refer to those of FY11-FY12 Source: RHBRI, Bloomberg

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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
(previously known as RHB Sakura Merchant Bankers). 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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