PP 7767/09/2010(025354)

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

R e su lts N ot e
26 August 2010
MARKET DATELINE

Emas Kiara Industries Share Price

Fair Value
:
:
RM0.51
RM1.52
1HFY12/10 Net Profit Grows By A Whopping 86% YoY Recom : Outperform
(Maintained)

Table 1 : Investment Statistics (EKIB; Code: 7189) Bloomberg: EKI MK

Net Net
FYE Turnover Profit# EPS# Growth PER C.EPS* P/CF P/NTA ROE Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (sen) (x) (x) (%) (%) (%)
2009 137.5 9.8 11.7 (12.0) 4.7 - (55.2) 0.6 12.6 0.6 2.7
2010f 175.0 11.0 13.1 11.5 4.2 - 4.0 0.5 12.5 0.5 2.7
2011f 164.0 12.8 15.2 16.7 3.6 - 3.4 0.5 12.9 0.4 2.7
2012f 173.9 14.2 16.9 11.1 3.2 - 3.1 0.4 12.7 0.3 2.7
Main Market Listing /Non-Trustee Stock /Non Syariah-Approved Stock By The SC #Excluding EI * Consensus Based On IBES

♦ No issue. 1HFY12/10 net profit came within our expectation at 48% of our
RHBRI Vs. Consensus
full-year forecast.
Above -
♦ Risks to our view. The risks include: (1) Weaker-than-expected pick-up In Line -
in the construction sector; (2) Rising prices of crude oil, and hence Below -

geosynthetics, making geosynthetics less attractive as alternative building

Issued Capital (m shares) 84.0
materials. Market Cap (RMm) 42.8
♦ Maintain Outperform. We are upbeat on the construction sector as we Daily Trading Vol (m shs) 0.008
52wk Price Range (RM) 0.35-0.60
foresee construction stocks to generally outperform the market in 2H2010,
Major Shareholders: (%)
buoyed by news flow, particularly, from: (1) The RM36bn KL MRT project;
Roger Wong and family 30.6
(2) The RM7bn Ampang and Kelana Jaya LRT line extension project; and (3) See Chii Wei 8.5
Federal land deals. Fundamentally, Emas Kiara is well backed by: (1) The
rising acceptance of geosynthetic products as substitutes to, or to be used
along with, conventional building materials; (2) The rising awareness FYE Dec FY10 FY11 FY12
EPS Revision (%) - - -
towards environment protection, and in Malaysia, particularly coastal
Var to Cons (%) na na na
erosion control and preservation of mangrove areas that are niche areas to
geosynthetics; and (3) Emas Kiara’s commanding market position in the PE Band Chart
geosynthetics sector in Malaysia with an estimated market share of 60%,
with an edge over its local competitors by virtue of its vertically-integrated PER = 5x
operation and a wide product range, and over the operations of foreign PER = 4x
PER = 3x
players in Malaysia by virtue of its comparatively low cost structure.
Indicative fair value is RM1.52 based on 10x FY12/11 EPS, in line with our
1-year forward target PER for the construction sector of 10-16x.

Relative Performance To FBM KLCI

Emas Kiara

FBM KLCI

Please read important disclosures at the end of this report.

Joshua CY Ng
(603) 92802151
joshuang@rhb.com.my

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Table 2: Earnings Review (YoY Cumulative)
FYE Dec 2009 2010 YoY Observations/Comments
(RMm) 6M 6M Chg
Turnover 52.3 109.9 >100% Driven largely by lumpy billings from the Brahmaputra Dyke project in Assam,
India, and geodrain supply/installation contracts at the new LCCT.
EBIT 5.5 8.5 54% Grew at a slow pace due to weaker margins.
Net inc/(exp) (2.4) (2.7) 10%
Pretax profit 3.1 5.8 89% Strong topline growth, partially eroded by weaker margins.
Taxation (0.5) (0.5) (2%)
Minority interest 0.3 0.0 (99%)
Net profit 2.8 5.3 86% Strong topline growth, partially eroded by weaker margins.
EPS (sen) 3.4 6.3 86%

EBIT margin 10.5% 7.7% (2.8% pts) Largely due to additional costs incurred under unfavourable weather conditions in
India during 1QFY10, and RM1.44m impairment on machinery in 2QFY10.
Pretax margin 5.8% 5.3% (0.6% pt)
Effective tax rate 17.2% 9.0% (8.3% pts)

Table 3: Earnings Review (QoQ)

FYE Dec 2010 2010 QoQ Observations/Comments
(RMm) 1Q 2Q Chg
Turnover 57.3 52.6 (8%) High base in 1Q due to lumpy billings from the Brahmaputra Dyke project in
Assam, India. 2Q turnover was largely underpinned by geodrain
supply/installation contracts at the new LCCT.
EBIT 3.9 4.5 15% Low base in 1Q due to additional costs incurred at the Brahmaputra Dyke
project in Assam, India.
Net inc/(exp) (1.3) (1.4) 1%
Pretax profit 2.6 3.2 22%
Taxation (0.1) (0.4) >100%
Minority interest 0.0 (0.0) nm
Net profit 2.5 2.8 14% Drive largely by better margins from geodrain supply/installation contracts at
the new LCCT.
EPS (sen) 2.9 3.3 14%

EBIT margin 6.9% 8.6% 1.7% pts As margins normalised.

Pretax margin 4.5% 6.0% 1.5% pts
Effective tax rate 5.5% 11.8% 6.2% pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 137.5 175.0 164.0 173.9 EBIT margin (%) 11.2 13.0 12.8
Turnover growth (%) -8.5 27.3 -6.3 6.0

EBITDA 22.0 26.3 28.7 30.4

EBITDA margin (%) 16.0 15.0 17.5 17.5

Depreciation -6.1 -6.7 -7.4 -8.1

Net Interest -4.8 -4.9 -4.2 -3.3
Associates 0.0 0.0 0.0 0.0
EI 0.0 0.0 0.0 0.0

Pretax Profit 11.1 14.6 17.1 19.0

Tax -2.6 -3.7 -4.3 -4.7
PAT 8.5 11.0 12.8 14.2
Minorities 1.4 0.0 0.0 0.0
Net Profit 9.8 11.0 12.8 14.2
Source: Company data, RHBRI estimates

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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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