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

RHB Research Institute

RHB Equity 360°

28 June 2010 (Telecom, Insurance, Gamuda, B-Toto, MISC, Hai-O; Technical: Berjaya Corp, Genting
Msia)

Top Story : Telecom – Non-voice revenue the key driver; upside potential to dividends too Overweight
Sector Update
- Looking forward, we expect voice revenue growth to continue to decline, as voice minutes are increasingly
becoming commoditised and tariffs would continue to be under pressure. However, we see strong growth
ahead for the non-voice services.
- We expect EBITDA margins to remain stable mainly due to: 1) mid-to-high single digit revenue growth; 2)
greater economies of scale; 3) players’ ongoing cost management initiatives; and 4) the shift in players’
focus towards the provision of non-voice services, in particular, the wireless broadband and data value-
added services, which would help mitigate pricing pressures and higher subscriber/retention costs.
- We are keeping our view that with the exception of Axiata, the telcos will continue to offer generous
dividend yields to investors on the back of: 1) stable EBITDA margins; 2) capex spending likely to trend
down further; and 3) clean balance sheets. On top of regular dividends, we believe there is a strong chance
that the telcos would supplement these further with specials.
- The current Mandatory Standard on Access Pricing is expiring on 30 Jun 2010 and we believe the review
may see the gap between mobile and fixed termination rates narrow further.

Sector Call

Insurance : Growth drivers for the life insurance business Overweight

Sector Update
- As of FY09, there are 16 life insurance companies operating in Malaysia generating annual premiums of
about RM17b, with Great Eastern, AIA, ING and Prudential as leaders in terms of total assets.
- Our view is that life insurance premium growth will be driven by: 1) low penetration rate; 2) life insurance as
a form of savings; 3) rising healthcare costs; and 4) encouragement by the government via tax relief.
- Market penetration rate in Malaysia is 3.0%, which low compared to Singapore (7.9%), Taiwan (13.9%) and
South Korea (9.1%).
- We believe consumers will look to health insurance to finance their rising healthcare costs, which has risen
by a CAGR of 14.8% (vs. GDP CAGR of 5.4%). Health insurance is usually packaged together with life
insurance policies, offering additional avenues for cross selling.
- In light of rising negative external factors, i.e. European debt crisis etc., we are optimistic on the growth
prospects of the insurance industry, which is largely a domestic play. We believe that growth in life
insurance premiums will be around 12-13% for the industry as whole, and 12% for Allianz, the only
insurance company in our coverage. We thus maintain our Overweight stance on the sector, and Allianz
(OP, FV=RM6.68) as our top pick for the sector.

Corporate Highlights

Gamuda : A "tactical" construction play in a news flow driven market Trading Buy (up from UP)
Company Update
- We are upgrading Gamuda to Trading Buy from underperform as we foresee strong performance in its
share price in 2H2010, buoyed by news flow, primarily, from the RM3.6bn KL MRT project.
- The news flow will include: 1) The expected almost daily doses of news and commentaries on the project;
2) The green light for the project from the Cabinet; 3) The thumbs up for the project from businesses and
the public; and 4) The commencement of actual physical works ahead of the formal award of the contract.
- Based on our estimate, the project could boost Gamuda's valuation by RM1,825m or 80sen/share.
- Fair value is raised by 40% from RM2.74 to RM3.85, after having reflected the potential enhancement from
the KL MRT project.

Berjaya Sports Toto : BCorp aborts sports betting deal Outperform

News Update
- Berjaya Corp has aborted its plan to acquire a 70% equity stake in Ascot Sports for RM525m from Tan Sri
Dato’ Seri Vincent Tan. BCorp stressed that the government had backtracked on its decision to issue the
licence despite having granted its approval for the reissuance. This statement comes after confirmation
from the Government that it will not issue any sports betting licence to Ascot Sports.
- Although the impact to BToto’s earnings from this sports betting licence would have been very minimal at
this stage (adding 2-3% to net profits), we believe sentiment on the stock would be affected negatively.
- We maintain our earnings forecasts as we had not imputed the sports betting revenue into our forecasts.
- No change to our Outperform call and our DCF-based fair value of RM4.95 (WACC 9.8%). Although we
expect sentiment to be negatively affected, we expect this to have a short term impact on BToto, given that
the earnings impact for BToto would have been minimal and that BToto’s core NFO business is still stable.
At current valuation levels, we believe BToto continues to provide decent dividend yield prospects and is
now trading at the lower-end of its 10-year historical PE range of 11-19x.

MISC : Buying four Suezmax petroleum tankers for RM880m Underperform

News Update
- MISC has placed an order for four new 158,500-dwt Suezmax petroleum tankers for US$271.2m
(RM880m), to be delivered in Apr-Oct 2012.
- This is in line with MISC’s on-going efforts to grow and re-organise its petroleum tanker fleet. Forecasts
are maintained.
- Ceteris paribus, the acquisition will raise MISC’s net debt and gearing of RM4.9bn and 0.21x as at 31 Mar
2010 to RM5.8bn and 0.25x.
- Fair value is RM8.02. Maintain Underperform.

Hai-O : MLM division slows down Market Perform (under review)

4QFY10 Results
- FY10 core net profit of RM70.3m (+34.4% yoy) was in line with our but below consensus. Final dividend of
10 sen (less tax) and single tier dividend of 4.5 sen were proposed, bringing FY10 gross dividend to 21.7
sen, below our expectations of 24.2 sen. This translates to net payout of 46.6%, below the company’s
guidance of 50%.
- 4Q10 MLM division results came in below management’s internal target, due to the company’s more
stringent rules on new membership recruitment coupled with the hike in interest rates, which affected the
growth of new membership recruitment (this was highlighted in our report dated 21 May).
- We thus cut our MLM division’s net membership growth to 0/mth (from 1,500) for FY11 and 1,000/mth
(from 1,500) for FY11. We have also cut our revenue/distributor growth to -5% (from flat) in FY11 but
maintained at 1% for FY12.
- Following the above changes, adjusting for FY10 results and reducing our net dividend payout to 45%
(from 50%), our FY11-12 earnings forecasts are lowered by 13-23% p.a..
- We roll forward our valuation base year to CY11 (from FY11). As such, our fair value has now been
reduced to RM4.06 (from RM4.30) based on unchanged 10x CY11 EPS. Our Market Perform call is under
review pending a company briefing later today.

Technical Highlights

Daily Trading Strategy : The lukewarm trading sentiment to prevail…

- Technically, although the FBM KLCI has managed to record a positive candle on Friday, and it may
suggest a possible quick technical rebound today, we are keeping our cautious view on the market,
blaming to the poor momentum readings and the pathetic trading volume in recent sessions.
- Any fresh selling momentum in the early part of this week will threaten the supportive 10-day and 40-day
SMAs near 1,316 and 1,310.
- That, if happens will put pressure on the key psychological support at 1,300, for it is a support that uphold
the short- to medium-term trading sentiment. Losing 1,300 will refresh the bearish sentiment on the market.
- As the regional markets, as well as the local bourse are severely lack on interesting trading leads, investors
are expected to stay calm and shying away from making any aggressive move in the near term.
- As a result, we see the lukewarm trading sentiment to prevail this week.
Daily Technical Watch: Berjaya Corporation – Losing RM1.33 will confirm an uptrend derailment…
- 10-day SMA: RM1.421
- 40-day SMA: RM1.504
- Support: IS = RM1.33 S1 = RM1.20 S2 = RM1.06
- Resistance: IR = RM1.55 R1 = RM1.78

Weekly Trading Idea: Genting Malaysia – Further upside will confirm the upswing… Bargain Buy
- Strategy: Bargain buy from RM2.68 to current level.
- Resistance: IR = RM2.68 R1 = RM2.44 R2 = RM2.20
- Support: IS = RM2.96 S1 = RM3.20 S2 = RM3.60
- Exit: Cut loss if it loses the key support at RM2.68.

Commodities & Currencies – Potential weakness on the commodities this week…

- Light Sweet Crude Oil futures: Crude may struggle to sustain at above key resistance level of US$78.
- Crude Palm Oil futures (CPO): The CPO is likely to see further pullback this week.
- Ringgit (RM)/US$: It will likely to trade closer to the 3.29 region and the 35-week SMA this week.
- Japanese Yen (JPY)/US$: Likely to appreciate and revisit crucial DRL and key chart support at 87 soon.
- Euro Dollar (EUR)/US$: Chart pattern suggests a likely rebound this week.
- US Dollar Index (DXY): A likely continuous decline ahead.

Bulletin Board

Co/Sector News Impact Recom

BToto Berjaya Corporation announced that it has Neutral, as this move would have no impact on OP, FV =
purchased 56.74m (4.24%) BToto shares during BToto itself. We believe the increased stake RM4.95
the period from 25 June 2009 to 24 June 2010 would serve to bring more cash to the holding
for RM247.93m cash, or an average price of company level via BToto’s generous dividend
RM4.37/share. Together with BLand’s 43.5% payouts. However, we believe this move could
stake in BToto, this brings BCorp’s effective spark privatisation rumours again, although we
stake in BToto to 48.4%. BLand is a 53.8% do not really think it is a possibility for the
subsidiary of BCorp. In addition, Tan Sri Dato’ moment, given that Bland and BCorp need to
Seri Vincent Tan directly owns 7.24% and 4.57% conserve their cash for their many other
stake in B-Land and BToto respectively, as at 24 expansionary ventures and projects which are
June. (Bursa). currently ongoing.
MAHB MAHB through its Saudi-Malaysian consortium Positive as this would help MAHB to expand its OP, FV =
has prequalified to bid for the US$1.5bn overseas airport services. However, as the bid is RM5.45
(RM4.86bn) first phase of the expansion of still in its preliminary stage, we are keeping our
Prince Mohammed bin Abdulaziz Airport in earnings forecasts unchanged for now.
Medina, Arab Saudi along with 8 other
consortias. The award is expected to be given by
Nov and work will begin in 1QFY11. (BT)
QL QL has allocated RM600m in capex for the next The capex guidance is currently above our OP, FV =
Resources 3 years for organic expansion and to position assumption of RM430m for the next 3 years. RM4.60
itself for potential acquisition opportunities. Nevertheless, we maintain our capex
(Financial Daily) assumptions for now, pending further clarification
from management.
Hai-O Hai-O targets to enter the China market for its This is not new to the market. While China has MP, FV =
MLM business end-2010 or early-2011 through banned MLM operations, Amway has RM4.06
partnership with local parties. (BT) successfully penetrated into the market by (under
adopting a retail store model. We believe Hai-O review)
would adopt a similar model. Pending further
details from management, we view this plan
neutral to positive.
 Petra Petra Perdana has proposed to issue the entire Positive. This is an endorsement from Nam UP, FV =
Perdana 10% placement shares to Nam Cheong, as it is a Cheong which is one of the largest shipyards in RM1.15
strategic iinvestor. (Bursa) the region specialising in oil & gas offshore
support vessels. In fact, some of Petra Perdana’s
AHTS and accommodation barges were built by
Nam Cheong. However, we are still concerned
about the ongoing tussle between the current
management and the former CEO.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Multi Sports Holdings Renounceable rights issue on the basis of 1-for-4 7-Jul-10 -
D&O Green Technologies Bonus issue on the basis of 1-for-3 8-Jul-10 -
WTK Holdings Final gross dividend of 3 sen less 25% tax 14-Jul-10 12-Aug-10
Eastern & Oriental 4th interest payment for 8% ICULS 2006/2011 14-Jul-10 23-Jul-10
Kossan Rubber Bonus issue on the basis of 1-or-1 26-Jul-10 -
Tek Seng Holdings Final dividend of 2 sen less 25% tax 6-Aug-10 1-Sep-10

Going “ex” on 29 Jun

Lysaght Galvanized Steel Final tax exempt dividend of 5% 29-Jun-10 19-Jul-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
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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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