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

RHB Research Institute

RHB Equity 360°

29 June 2010 (Banks, B-Toto, Hai-O, AEON, Sunway, Kencana; Technical: Time Eng)

Top Story : Banks – Valuations still decent with potential for earnings to surprise Overweight
Sector Update
- In our view, the banking sector represents the best proxy to the economic recovery. We believe the sector
can help lift the market to higher grounds, underpinned by factors such as: 1) earnings growth gaining
momentum; 2) valuations remain decent relative to the market and historical levels; and 3) relatively low
foreign shareholding levels.
- Looking ahead to 2H2010, we expect the sector’s earnings growth momentum to pick up steam. We also
do not discount the possibility of earnings surprises ahead and believe the areas that could surprise on the
upside include: 1) interest income; 2) non-interest income; and 3) impairment allowances.
- Valuation-wise, we find that the sector is still compelling with the sector weighted average FY11 PER of
12.3x as compared to the FBM KLCI’s 2011 PER of 13.8x. More importantly, the historical trading bands of
the banks suggest that there is still room for valuations to expand.
- Finally, although foreign shareholding of most banks are now off their lows, the levels are still well below
peaks as well as below levels at the time of the entry of strategic partners.
- Competition, we think, will remain intense. In addition, BNM had also recently announced that five new
commercial banking licences will be issued. While we believe that increasing competition would put
pressure on margins and overheads (e.g. staff cost), domestic banks would still be able to hold their ground
and maintain their market share at around the current level.
- We maintain our Overweight rating on the sector. Maybank remains as our top pick for the sector.

Corporate Highlights

Berjaya Sports Toto : Of sports betting and more Outperform

Briefing Note
- Berjaya Corp held an analyst briefing to explain in more detail the circumstances surrounding the aborted
sports betting deal. Tan Sri Dato’ Seri Vincent Tan Chee Yioun (TSVT) continued to stress that the
Government had backtracked on its decision to issue the licence despite having granted its approval for the
reissuance. This appeared to be backed up by a letter issued by the Ministry of Finance.
- Other topics touched on included BCorp’s plans for its other divisions, including a possible flattening of the
BToto ownership structure to get rid of the BLand layer, the imminent listing of the retail and food division
and potential developments in the Vietnam (under BToto) and Jeju Island, Korea (under Berjaya Land)
gaming space in the longer term. Another positive point was TSVT’s admission that higher dividend
payouts from BToto in future would be “very likely”.
- Our forecasts and Outperform call with DCF-based fair value of RM5.05 (WACC 9.8%) are unchanged.

Hai-O : Short-term pain for longer term gain Market Perform

Briefing Note
- Hai-O has recently complied with a more stringent Direct Selling Act (DSA) w.e.f. Apr. Coupled with an
increasing interest rate environment, management expects this to lead to a slowdown in its membership
recruitment drive in the next 3-6 months and may even result to total MLM members dropping on yoy basis.
- To mitigate the negative impact from this ruling, management intends to help its current members by: 1)
conducting product roadshows and events; 2) providing mentoring, training and support; and 3) introducing
a new range of products to appeal to a wider customer base.
- Despite the short-term bearish outlook for the company, Hai-O has affirmed that it will maintain its net
dividend payout policy of 50%. This would translate to net dividend yield of 5-6% p.a. for FY11-13.
- We have introduced our FY13 forecast.
- The next two quarters will be critical for Hai-O to test its success in maintaining its current membership
base and even attracting new members despite the short-term negative environment. Maintain our Market
Perform call for the stock with unchanged fair value of RM4.06, based on unchanged 10x CY11 PER.

AEON : Acquisition of land in Kinta, Perak for RM27.1m Outperform

News Update
- Entered into S&P agreement to purchase 17.3 acres of land in Kinta, Perak (consisting of 3 pieces of
leasehold land and 2 pieces of state land), which will be combined into one to construct a shopping mall.
The acquisition is expected to be concluded within 6 months and we expect construction to be completed
around 3Q/4Q2011. We expect operations to begin earliest by 4Q11.
- Purchase consideration (RM36psf) is at the higher end based on previous transactions. We believe there is
still demand for shopping malls in the Kinta area given its population size and high mall occupancy rate.
- No change to our FY10-12 earnings forecasts as we have already projected 2 new stores in our FY11
forecast. AEON will have no problem funding the transaction.
- Fair value maintained at RM5.80 based on unchanged 14x FY10 PER (average PER for retail sector).

Sunway Holdings : Secures a RM129m contract to build a dairy factory in Klang Outperform
News Update
- Sunway has secured a RM129m contract for the construction of a dairy product factory in Klang, Selangor.
- The contract boosted Sunway’s YTD new contracts secured to RM537m and its outstanding construction
orderbook by 6% to RM2.4bn.
- We are positive on the development. Assuming an EBIT margin of 5-7%, the contract will fetch a total EBIT
of RM6.5-9.0m.
- No change to our forecasts that already assume Sunway will secure RM1.5bn new jobs in FY12/10.
- Fair value is RM2.35, maintain Outperform.

Kencana : A disappointing quarter Underperform (down from MP)

3QFY10 Results
- 9MFY07/10 core net profit of RM94.3m (+7.2% yoy) was below our expectations, accounting for 55.8% and
67.3% of our and consensus full-year estimates respectively. We note that 3Q revenue was up 12.4% qoq
and reflects the strong orders in hand, while gross margins were sustained at 20% vs. 2QFY10 of 22%.
However, pre-tax profits were dragged down by higher operating expenses.
- While we still expect the 4Q to be stronger, we believe our revenue assumptions for FY10-12 are now
overly optimistic. We have thus cut our FY10-12 EPS forecasts by 21.9%, 16.8% and 14.7% respectively.
- The disappointing 3Q results will intensify the market’s concerns about the slow pick up in oil & gas activity,
despite the 12-month earnings visibility provided by Kencana’s orderbook of around RM1.9bn.
- Having lowered our FY10-12 EPS forecasts, our fair value estimate has also been cut to RM1.27/share
based on unchanged 13x FY11 PER (i.e. in line with the sector benchmark). We thus downgrade our
recommendation on the stock to Underperform, from market perform.

Technical Highlights

Daily Trading Strategy : Negative-biased view remains …

- Although the FBM KLCI seemed to be supported at the current level, the index’s technical landscape is fast
deteriorating due to the sluggish sentiment and the poor level of participation of late, in our view.
- As such, we see a looming fear that the index may slowly drift to below the ascending 10-day SMA in the
next few sessions, should there be no fresh buying momentum.
- Not only that, the weak momentum readings and the candlestick pattern point to a risk of a fresh “sell”
signal to be triggered soon.
- As a result, we maintain our negative-biased view on the FBM KLCI, despite expectation of further
sideways movement due to continuous buying support on selected heavyweights for mild mid-year window-
dressing activities ahead.
- Immediate support levels are seen at the supportive 10-day and 40-day SMAs near 1,319 and 1,309,
followed by the stronghold psychological level at 1,300.
- For the market to regenerate strong upward momentum, it must retake the 1,350 resistance zone with
strong volume participation.

Daily Technical Watch: Time Engineering – Failure to retake RM0.40 will lure in the profit-taking pressure …
- 10-day SMA: RM0.362
- 40-day SMA: RM0.3599
- Support: IS = RM0.355 S1 = RM0.295 S2 = RM0.26
- Resistance: IR = RM0.40 R1 = RM0.445 R2 = RM0.50
 Bulletin Board

Co/Sector News Impact Recom

Media Prima Media Prima has extended its voluntary general Neutral. Currently, Media Prima owns 89.6% of OP, FV =
offer for the remaining shares of NSTP. NSTP and the exit offer is on similar terms with RM2.80
Separately, NSTP’s shareholders yesterday its privatisation proposal, i.e. 1.2 new Media
approved the proposed delisting from Bursa Prima shares and 0.2 new Media Prima warrant
Malaysia, which is expected to be completed by for every 1 NSTP share held.
3Q10 (BusinessTimes).
UMW UMW clarified that the RM15.1m losses incurred UMW"s O&G division has suffered losses since OP, FV =
in its O&G division in 1Q10 is a temporary 4Q09 mainly due to lower drilling services and RM 7.52
setback and are properly accounted for in their utilisation rates of pipe manufacturing plants.
financial statement. (Financial Daily ) However, this is seen as temporary as the
company has a number of greenfield projects
which are expected to show positive numbers in
2H10 as well as are in negotiations for the
charter of their jack up rigs - Naga 2 and Naga 3.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Signature International Bonus issue on the basis of 1-for-2 9-Jul-10 -
CYL Corporation Final tax exempt dividend of 8% 12-Aug-10 30-Aug-10
Sapura Industrial First and final tax exempt dividend of 5 sen 27-Jul-10 19-Aug-10

Going “ex” on 30 Jun

Daya Materials Bonus issue on the basis of 1-for-5 30-Jun-10 -
Advanced Packaging Gross final dividend of 7 sen less 25% tax 30-Jun-10 15-Jul-10
Salcon First and final single tier dividend of 1.5 sen 30-Jun-10 23-Jul-10

...For more details, see individual reports attached

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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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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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