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

RHB Research Institute

RHB Equity 360°

29 July 2010 (Hai-O, APM, PLUS, WCT, Daibochi; Technical: E&O)

Top Story : Hai-O – FY04/11 membership to contract Underperform (down from MP)
Visit Note
- We believe that due to the revised Direct Selling Act (DSA), Hai-O’s membership drive as well as its
retention of existing members will be affected.
- We have adjusted our forecasts to include a net membership contraction of 1,200/mth, which consequently
reduces our FY11-13 Core Distribution Force (CDF) assumption by 5.1-10% p.a..
- The revised DSA has tightened the regulations in the MLM industry so as to stop MLM members from front
loading stocks, as this could subsequently lead to its members not being able to sell the excess stocks.
- We are thus cutting our FY11 revenue/member growth assumption to -10% (from -5% previously) because
we believe that member productivity will decline as they are no longer able to front load their stocks.
- Recently announced cancellation of its proposed private placement is positive news in our view, as the
private placement would have diluted FY11 EPS by 6.9% and reduced FY11 projected dividends to 15.6
sen, from 17.1 sen currently.
- We are reducing our FY11-13 earnings forecasts by 8.0-11.8% p.a. after incorporating the contraction in
membership numbers and a reduction in revenue/member.
- We are downgrading our call on the stock to Underperform, as we have reduced Hai-O’s fair value to
RM3.63 from RM4.06 previously, based on unchanged 10x CY11 EPS.

Corporate Highlights

APM Auto : Riding on motor sector’s growth cycle Outperform

New Coverage
- APM is one of the leading automotive parts manufacturers among over 650 players in Malaysia with an
estimated market share of 12.6% based on revenue. The company operates in three major divisions: 1)
Suspension; 2) Electrical and heat exchange; and 3) Interior and plastics.
- The bases of our investment case for APM are: 1) APM is a good proxy to the motor sector that is currently
into its second year of a new 3-year cycle that has started since 2009; 2) APM’s strong market position in
the autoparts sector, being the leading player; and 3) APM’s strong growth prospects underpinned by Tan
Chong’s entry into the small car segment and expansion into Indochina and APM’s facility expansion.
- Fair value is RM5.21 based on 11x FY11 PER. We thus initiate coverage on APM with an Outperform call.

PLUS : Disposes 60% stake in Cimanggis-Cibutung Tollways Outperform

News Update/Briefing Note
- PLUS had on 28 Jul 10 entered into a conditional sale and purchase agreement with PT Bakrie & Brothers
TBK to dispose of its 60% stake in PT Cimanggis Cibutung Tollways for RM20.2m.
- We believe the latest development is unlikely to affect its long-term KPI on oveseas operations (i.e.
overseas operations to account for 15% of Group’s total turnover by FY12/15).
- Latest development aside, management is now comfortable at raising its FY12/10 traffic volume guidance
for its core expressways from 3-4% to 5%, due to the encouraging 9.8% growth registered in 1HFY12/10.
- We are raising our FY12/10-12 net profit forecasts by 1.5-1.7%, to reflect a 1%-pt raise in our FY12/10
traffic volume growth assumption at PLUS’s core expressways from 4% to 5%.
- Correspondingly, DCF-derived fair value for PLUS has been revised upward by 2.4% from RM4.23 to
RM4.33 based on WACC of 7.7%.

WCT : Proposes RM600m bonds, 1-for-8 warrant issue Underperform

News Update
- WCT has proposed the issuance of RM600m nominal value of 5-year serial fixed rate bonds and 181.1m
new warrants of which 121.1m will be offered to existing WCT shareholders on a 1-for-8 basis and 60m to
senior management of WCT at an issue price to be determined later.
- Based on our calculation, at an indicative strike price of RM3.00, the new warrants will dilute WCT’s
existing fully-diluted FY12/11 EPS by another 2.9% that is immaterial.
 - We are neutral on the exercise that represents part and parcel of WCT’s day-to-day financial management.
- Fair value is RM2.30. Maintain Underperform.

Daibochi : Rising raw materials costs weigh down earnings Outperform

2QFY10 Results
- 2QFY10 net profit of RM4.2m (-16.5% yoy) was below our and consensus expectations, resulting in
1HFY10 profits accounting for only 34% of our and consensus full year net profit forecasts, due to lower-
than-expected operating margins and higher-than-expected effective tax rates.
- Daibochi declared a second interim tax-exempt dividend of 2.5 sen, bringing the YTD dividend to 6 sen.
- We have revised upwards our raw material costs projections to be on the conservative side, effectively
reducing our forecast FY10-12 operating margins to 11.8-12.7% p.a., from 14-14.5% p.a. previously, thus
reducing our corresponding earnings forecasts by 13.3-16.9% p.a..
- We are rolling forward our valuation base year to FY11 (from FY10 previously) based on revised FY11 EPS
pegged to an unchanged target PER of 12x, arriving at a fair value of RM3.83 (from RM4.20 previously).
- Although we have aggressively trimmed our forecasts, we maintain an Outperform call on the stock due to
its current low valuations, which implies a 15% upside to our fair value.

Technical Highlights

Daily Trading Strategy : More follow-through upside momentum ahead…

- Instead of taking a breather, the local sentiment staged a timely recovery with the FBM KLCI extending its
uptrend for a fourth straight day yesterday.
- On another positive development, daily turnover and the market breadth also recovered on the back of
renewed rotational plays across the board.
- Though yesterday’s positive candle appears relatively small, it is enough to shrug off nervousness on a
potential further rally on the FBM KLCI in the near term, in our view.
- A further penetration of the recent high of 1,357.23 will provide an additional boost to the recent breakout
pattern from the major technical threshold of 1,350.
- Overall, we are of the view that the sentiment will turn more bullish, and the index will head towards the
next upside resistance level at 1,390.
- The key resistance-turned-support level of 1,350 will buffer the index’s downside pressure.

Daily Technical Watch: E&O – Poised to extend rebound towards RM1.20 soon, if it holds above RM1.07 …
- 10-day SMA: RM1.002
- 40-day SMA: RM0.943
- Support: IS = RM1.07 S1 = RM0.92 S2 = RM0.74
- Resistance: IR = RM1.20 R1 = RM1.40 R2 = RM1.56

Bulletin Board

Co/Sector News Impact Recom

Measat Measat Global Network Systems yesterday made
Global a conditional takeover offer for all Measat Global
shares it does not already own, at a cash offer
price of RM4.20/share. MGNS currently owns
59.56% of Measat Global. (Bursa)
The offer is around 11% above the latest price of -
RM3.80. Assuming the remaining 40.44%
minority shareholders with 157.7m shares accept
the offer, the takeover would cost around
RM662m cash. The offer values the stock at
0.85x book value. Against the FY12/09 net profit
of RM53.2m (13.6 sen), after stripping out a
RM124.4m deferred tax asset for the M3a
satellite deployed in Jul 2009, the offer values the
stock at 30.9x PER.

Important Dates
 Company Entitlement details Ex-date Payment date
New entitlements
MISC Final dividend of 20 sen tax exempt 6-Aug-10 30-Aug-10
Alliance Financial Group First interim dividend of 3.3 sen tax exempt 11-Aug-10 27-Aug-10
Daibochi Plastic Second interim tax exempt dividend of 2.5 sen 11-Aug-10 3-Sep-10
Degem Final dividend of 2 sen less 25% tax 16-Aug-10 1-Sep-10

Going “ex” on 30 Jul

Notion Vtec Rights issue of free warrants on the basic of 1-for-5 30-Jul-10 -
Biosis Group Renounceable two-call rights issue of shares and detachable warrants 30-Jul-10 -
Tasek Corporation Capital repayment and share consolidation 30-Jul-10 6-Aug-10
Kretam Holdings Final semi-annual interest payment on 1% ICULS 2003/2010 30-Jul-10 10-Aug-10
Petronas Gas Final dividend of 30 sen single tier + 5 sen tax-exempt 30-Jul-10 17-Aug-10
Kim Loong Resources Single tier final tax exempt dividend of 6 sen 30-Jul-10 18-Aug-10
Crescendo Corporation Final dividend of 4 sen less 25% tax 30-Jul-10 18-Aug-10
Starhill REIT Final Income Distribution of 3.1990 sen 30-Jul-10 24-Aug-10
Axis REIT 2nd interim dist. of 3.95 sen taxable + 0.05 sen non taxable 30-Jul-10 30-Aug-10

...For more details, see individual reports attached

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