PP 7767/09/2010(025354)

4 October 2010

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

Se ctor Up dat e 4 October 2010

MARKET DATELINE

Property Recom : Overweight

(Maintained)
Still In Hot Flavour

Table 1 : Property Sector Valuations

EPS # EPS growth PER P/NTA P/CF GDY
FYE Price (sen) (%) (x) (x) (x) (%) Rec
(RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
SP Setia Oct 4.51 19.9 22.8 24.1 14.6 22.6 19.7 2.16 30.7 3.2 MP
IJM Land Mar 2.40 12.1 17.3 32.1 43.2 19.9 13.9 1.84 6.3 0.9 OP
Suncity Dec 3.96 34.8 41.3 9.0 18.6 11.4 9.6 0.80 3.2 9.1 OP
Mah Sing Dec 1.81 14.0 17.2 23.6 22.8 12.9 10.5 1.64 34.2 3.1 OP
Sunrise Jun 2.14 29.9 33.2 10.6 11.1 7.2 6.4 0.87 10.3 2.3 OP
YNH Dec 1.73 15.8 17.6 22.6 11.6 11.0 9.8 0.94 17.2 2.3 MP
Paramount Dec 4.52 57.7 63.1 9.0 9.4 7.8 7.2 0.99 8.1 6.5 OP
Glomac Apr 1.52 19.7 24.3 44.0 23.3 7.7 6.2 0.78 19.5 7.8 OP
Hunza Jun 1.40 27.6 20.9 3.4 -24.2 5.1 6.7 0.59 4.9 4.0 TB
Sector simple Avg 11.7 10.0 1.18 14.9 4.4
* price at 1 Oct 10 # Normalised

♦ Regulatory measures unlikely to be harsh. While we believe the property

sector will be imposed with tighter rules, any new measures are likely to be Table 2. Fair values
(RM/share)
moderate as the Government would not want to dampen the whole property sector. Company Price FV
In line with our view, the PM has also recently indicated that new measures are SP Setia 4.51 4.95
likely to target at home buyers who own more than two houses. Undoubtedbly the IJM Land 2.40 3.00
Suncity 3.96 5.48
proposed measures could reduce some speculative acitivies due to lower leverage Mah Sing 1.81 2.06
ability, we think the overall impact on the property sector would be moderate, as: Sunrise 2.14 2.88
YNH 1.73 1.86
(i) Young populations are typically the first or second home owners; and (ii) Buyers Paramount 4.52 5.80
who own more than two homes are generally the affluent group. Glomac 1.52 1.72
Hunza 1.40 1.58
♦ Strong support for demand. There are still a few strong catalysts to drive
demand for properties going forward: (i) Faster growing of young demographics to
drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate
as commercial banks continue to offer discount to BLR; (iii) Aggressive
promotions/incentives being offered by developers; (iv) Strengthening in ringgit
that encourages foreigners participation; and (v) Property is a preferred vehicle to
hedge against inflation.

♦ Property prices continue to hold well until 2012/13. Based on our analysis
on the relationship between young population growth and ARPP (Average
Residential Property Price), ARPP will continue to hold well over the next 2 years
until 2012/13. Property prices in general have appreciated by 10% from last year
(from industry sources). Apart from the driving forces for demand mentioned
above, given the increasingly higher replacement cost for landbank borne by
developers, as well as stable building material prices, property prices for primary
market will be supported even though developers’ margins remain the same.

♦ Risks. Our view is formed based on the assumption that first and second home
buyers are exempted from lower LTV ratio. However, if this is not the case, our
investment thesis can be derailed. Key risks for the property sector are: 1) lower-
than-expected cap on lending rate imposed by Bank Negara Malaysia; 2) higher
tax bracket for real property gain tax (RPGT); and 3) country risks.
Loong Kok Wen, CFA
♦ Maintain Overweight. We maintain our Overweight stance on the property sector. (603) 92802237
Our top picks remain unchanged: IJM Land (OP, FV = RM3.00), Mah Sing (OP, loong.kok.wen@rhb.com.my
FV = RM2.06), and Suncity (OP, FV = RM5.48).

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 4 October 2010

Still In Hot Flavour

♦ Regional markets started to tighten. Since last year, regional markets such as China, Hong Kong and
Singapore have started to implement various measures to curb speculations in the property market. In our
opinion, generally the Asian countries are more prone to the formation of speculative bubble (compared to
western countries), given the current low interest rate and high savings rate environment. As such, in line with
other regional countries, we believe Malaysia is likely to follow suit, following the re-imposition of RPGT
announced in Budget 2010 last year.

Table 3: Various measures implemented by regional countries

Country Measures
Singapore 1. Increase the holding period for imposition of seller's stamp duty from the current 1 year to 3 years.
Aug-10 2. For property buyers who already have one or more outstanding housing loans at the time of the new housing purchase:
(i) Increase the minimum cash payment from 5% to 10% of the valuation limit; and
(ii) Decrease the loan-to-value limit for housing loans granted by financial institutions regulated by Monetary Authority of
Singapore to these buyers from the current 80% to 70%.

China 1. Downpayment for second homes increased from 40% to 50%.

Apr-10 2. Mortgage rate for second home loans cannot be lower than 110% of benchmark rates.
3. Increase in downpayment on first homes of over 90sqm to 30% from 20%.
Oct-10 4. Commercial banks to suspend offering loans to buyers of third homes.
5. Downpayment for first home puchases (for >900sqf) increased to 30% or higher.

Hong Kong 1. Stamp duty on transactions of properties valued more than HK$20m will be increased to 4.25% from 3.75% previously
Aug-10 2. Buyers will no longer be allowed to defer payment of stamp duty on such transactions.
3. Deposit requirement for a property costing HK$12m or more is increased to 40% from 30%.

Source: News agencies, Starbiz

Chart 1: China NDRC Property Price Index YOY Chart 2: Singapore URA Property Price Index All Residential
% %
14 50
12
40
10
30
8
20
6
10
4
0
Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10
Sep-05

Sep-06

Sep-07

Sep-08

2 Sep-09
-10
0
Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- Feb- Aug- -20
-2 05 06 06 07 07 08 08 09 09 10 10
-30
-4

NDRC: National Development and Reform Commission URA: Urban Redevelopment Authority
Source: Bloomberg Source: Bloomberg

♦ New regulatory measures are likely to be more accommodative. While the concerns on lowering loan-to-
value (LTV) ratio has overshadowed the performance of most property stocks, our Prime Minister has recently
indicated that new measures are likely to target at home purchasers who own more than two houses. Meanwhile,
first and second home buyers will still be entitled to 90% LTV ratio. While we welcome some measures to be
implemented to curb the “overheating” property market, we think any measures are likely to be on a gradual
basis, taking a cue from the neighbouring countries, i.e. 80% LTV cap for third and subsequent house purchases,
and gradually lower to 70% after some period of time; or 80% LTV cap for second house, 70% for third house
and so on. A tiering system can also be used, such as a LTV cap to be imposed only for residential properties
priced above RM500k, for example. Undoubtedbly the proposed measures could reduce some speculative acitivies
due to lower leverage ability and hence lower “Return On Equity”, we think the impact on the property sector

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 4 October 2010

would be moderate, due to the following reasons: (i) Young populations are typically the first or second home
owners; and (ii) Buyers who own more than two homes are generally the affluent group.

♦ Strong support for demand. Apart from the negative headwind from tightening regulatory measures, we think
there are still a few strong drivers to lead demand growth for properties going forward: (i) Faster growing of
young demographics to drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate as
commercial banks continue to offer discount to BLR; (iii) Aggressive promotions/incentives being offered by
developers; (iv) Stregthening in ringgit that encourages foreigners participation; and (v) Property is a preferred
vehicle to hedge against inflation.

(i) Faster growing of young demographics to drive big-ticket purchases

We believe the faster growing young demographics (relative to other age groups of 0-14 and >65) in Malaysia
are the key driving force for property demand. Historically, the cycle of private consumption roughly coincides
with the cycle of growth in young demographic increase lagged by 19/20 years. Hence, given the strong growth
in population aged 15-64 in year 1992, we reasonably believe that this will then translate to high private
consumption growth in 2010-2012, and hence stable increase in ARPP (see charts below) until 2012/2013. Our
view is reinforced, as the increase in the middle-aged population will lead to the formation of higher number of
households, and this group of population typically has higher propensity to spend. In addition, the younger
population generally has lower risk aversion, due to the lack of experience in the past rounds of economic crisis
(in the mid 1980’s and 1997 Asian Financial Crisis). Based on RHBRI’s economics team’s projections, private
consumption is estimated to grow by 5.6% in 2010 and 5.4% in 2011. Note that the strong growth in private
consumption is already seen from the substantial pick-up in property as well as motor vehicle sales since late
2009.

Chart 3: Correlation between % change in population aged 15-64 increase and private consumption
growth

17%
15.9%
14%
12.5%
12%

9%
7.4%
7% 6.0% 6.4%

4% 4.4% 4.3% 4.2%

3.7%
3.1%
2.3%
2%
0.9% 1.0% -0.4% 0.9% 1.0%
-1% -0.7%
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010f

2011f

-2.2% -2.7%
-4%
-3.1%
-6% -5.1%

-9%

-11%

Growth in young demographic increase (lagged 19 years) Private consumption growth

Source: BNM, DOS, RHBRI

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 4 October 2010

Chart 4: % change in ARPP in tandem with private consumption growth

15%

13.4%
12.0%
13%
11.5%

10% 9.0%
9.4%
9.2% 8.8% 7.8%
7.4%
8%
7.2% 4.7% 6.0%
5%
3.9% 4.2% 4.2%
3.4%
3% 2.4% 3.2% 3.8%

1.3% 1.7%
0%
1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010f

2011f

2012f

2013f

2014f
-1.8%
-3%

-3.1%
-5%

-8% -7.7%

-10%

ARPP Private consumption growth

Source: Property Market Report, DOS, RHBRI

Chart 5: Monthly auto TIV and Yoy growth Chart 6: Annual auto TIV and Yoy growth

Source: MAA, RHBRI Source: MAA, RHBRI

(ii) Cheap financing in addition to innovative developers’ incentives

Given the prevailing (relatively) low interest rate environment, the system is still flushed with liquidity, which
encourages property buying. Competition among banks have also kept discount to BLR at around 1.8-2.2%,
compared to a premium above BLR prior to 2005, which partly explains the “cooler” property market during that
period. We opine that, even if 70% cap on LTV is to be implemented on buyers who own more than two houses,
developers are likely to continue with their aggressive incentives/rebates to lower the “entry price” to boost the
affordability of potential buyers. A check on the ground, depending on negotiations with developers, currently
some developers even allow buyers to make their downpayment by using credit cards and split into few tranches.
Some, for instance, offer 10% rebate and buyers only need to fork out RM5,000 as “downpayment” for a terrace
house priced at RM500k, and pay nothing until completion. Note that mortgage loan is still based on 90% of the
value of property i.e. RM500k, which would effectively mean almost 100% financing for the house. While the
incentives offered are good for developers as they can generate strong sales over the short-term, it would also
encourage more “speculative” buying due to availability of high leverage.

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Chart 7: Current ALR is at discount to BLR Chart 8: Malaysia’s CPI

% %
8.0 1.5
7.5
1.0
7.0
0.5
6.5

6.0 0.0

5.5
-0.5
5.0
-1.0
4.5

4.0 -1.5
Jan-00

Jan-01

Jan-02

Jan-03

Jan-04

Jan-05

Jan-06

Jan-07

Jan-08

Jan-09

Jan-10
BLR ALR Premium/(Discount) RHS

Source: BNM Source: Bloomberg

(iii) Strengthening in ringgit to spur foreign participations.

We believe the direction of ringgit will also play a role in the Malaysian property market. Thus far in 2010,
MYR/USD has strengthened by about 10.5%, stimulated mainly by Bank Negara Malaysia’s recent liberalisation
policy for international trade purpose. The continued strengthening in ringgit is likely to attract higher foreigners’
participation in the Malaysia property market, due to higher expected return from investment (eg. 4-5% rental
yield + 10% YTD currency gain). While the returning of foreigners to the Malaysian property scene is still not
prevalent at this juncture, Ireka – a high-end residences developer, already saw foreign buyers coming back, as
more than 50% of the company’s ongoing SENI Mont’ Kiara project is taken up by foreigners. We also think that,
only certain properties, such as selective high-rise residences and commercial/purpose-built buildings in certain
locations, may benefit, as the sector-wide recovery for high-end high-rise residences will still depend on the inflow
of expats, which is tied to the inflow of Foreign Direct Investments into the country. We note that over the past
few months, some foreign-based funds (ADF Tiger III and ARA Asia Dragon Fund) have also acquired properties in
Malaysia - AEON Melaka Mall and 1 Mont’ Kiara, showing increasing interests in Malaysian properties.

(iv) Property – a preferred vehicle to hedge against inflation.

Last but not least, property is always seen as a preferred vehicle to hedge against long-term inflation. Hence, the
sector will continue to be an asset reflation play. While the current inflation shown by CPI is still moderate,
according to BNM’s sensitivity study, the gradual removal of subsidies would push inflation to 4% in 2011-12,
before easing to 3% in 2013. Therefore, we believe the cost-push factors would make real estate a preferred
inflationary hedge to preserve values, given limited alternative choices.

Chart 9: YTD Ringgit strengthened by 9.4% Chart 10: Foreign direct investment in Malaysia
RM / USD
RM bn
3.80 9

3.70 8

3.60 7

6
3.50
5
3.40
4
3.30
3
3.20
2

3.10 1

3.00 0
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: BNM Source: UNCTAD

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♦ Higher land replacement cost to support property prices. Apart from the fundamental drivers from
demand, other supporting factors that sustain property prices include increasing land replacement costs. Land
is one of the scarce resources. As developers continue to replenish their landbank, land replacement costs will
become higher, partially due also to the competitive biddings. Hence, even though building material (steel
bars, sand and cement) prices have remained stable thus far, property prices in the primary market, in
general, are likely to sustain at high levels even if developers maintain their margins. Or, it at least suggests
that, downside for property prices (in primary market) will not be overly substantial. Since early 2010, many
developers have also stepped-up their landbank replenishment effort, and therefore landbank acquisition
activities are rather vigorous this year. Below are some recent land acquisitions by selective developers:

Table 4: Land acquisitions/proposed acquisitions by some developers over the past six months

Company Date of announcement Location Area (acres) Cost (RM m) Price psf (RM)
Mah Sing 22nd Apr 2010 Ampang 1.4 53.8 857
9th Jul 2010 Kinrara 125.8 178.4 33
9th Jul 2010 Sg Buloh 17.8 65.9 85
9th Jul 2010 Bukit Jelutong 11.0 31.8 66

Suncity 27th Sept 2010 Sg Ara Penang 80.9 38.8 11

Plenitude 27th Sept 2010 Balik Pulau Penang 52.6 40.1 18

Paramount 1st Jun 2010 Cyberjaya 50.0 78.4 36

SP Setia 9th Sept 2010 Setia Indah, JB 259.1 169.3 15

Glomac 30th Aug 2010 Cyberjaya 7.0 27.4 90

KSL 14th Jun 2010 U-Thant 0.8 25.4 713

Bolton 10th Aug 2010 Ukay Perdana 23.0 72.0 72

Note: Transaction prices could be different for the same area, depending on the tenure and type of the land, as well as plot ratio.
Source: Bursa Malaysia

Chart 11: Iron and steel China export prices

US$/mt

1400

1200

1000

800

600

400

200

0
Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Aug- Oct- Dec- Feb- Apr- Jun- Aug-
07 07 07 08 08 08 08 08 08 09 09 09 09 09 09 10 10 10 10

Source: Bloomberg

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♦ Sector still fueled with good news on Government’s development plans. Apart from the recent mulls on
lowering cap on LTV, the property sector is still fueled with good news with the announcement on government
development plans. These include the 3,300-acre Rubber Research Institute land in Sungai Buloh as well as the
Sungai Besi Financial Centre. Especially the RRI land which is worth an estimated GDV of RM10bn, many
developers have shown their interest to participate in the big scale development together with EPF. We
understand that, MRCB is currently “assisting” EPF in drawing up the masterplan, and dividing the sub-parcels of
land. On another front, the proposed MRT lines (Red line: Kota Damansara-Golden Triangle-Serdang; Green line:
Sg Buloh-Kepong-Kg Baru-KLCC-Cheras-Kajang) will also benefit certain developers which have landbank along
the affected areas. We gather that, a number of areas have also been identified as MRT stations in future, such
as Pusat Bandar Damansara, Dataran Sunway, 1 Utama/The Curve, Subang Bestari, Balakong, Sg Besi Financial
Centre, Matrade etc). Although the proposed MRT network will take 8-10 years to be completed, we nevertheless
think that, over the longer term, values of properties located in the selected areas will appreciate. Companies
that stand to benefit include SP Setia (KL EcoCity), Mah Sing (Icon Residence and Star Avenue), Suncity (Sunway
Velocity) and Glomac (Damansara and PJ projects).

Chart 12: MRT network

Source: PEMANDU

The ability to pay a 20% downpayment upfront

♦ High-end properties would be more susceptible. As a rough indication (refer to Table 4), the proportion that
a typical 10% downpayment to household net financial asset (financial asset minus total debt; financial assets
comprise saving deposits, unit trust funds, life insurance funds and EPF) is about 16-18%. However, if a 20%
downpayment is required, it would then make up about 32-36% of household net financial asset. Therefore, on
the surface, the impact on the property sector is rather minimal. However, there are a few caveats here: (i) The
average value of property transacted is about the range for middle-end properties but most properties that are
sold by many of the property companies under our coverage are priced at above RM500k; and (ii) Net financial
asset per household in the following table appears on the high side, as low income group’s household financial
asset typically consists of only EPF and savings, and EPF makes up about 25-30% of total household financial

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assets. As such, the proportion of downpayment to household financial net asset may not be very accurate to
reflect the impact on the property sector, once lending cap is imposed.

Nevertheless, we are of the opinion that, high-end property segment will be more supceptible (relative to other
sub-segments) to changes in lending policy, as many speculative buyings are mainly concentrated on this
segment. As lending cap is lowered, “return on equity” will therefore be reduced, making property investment
less attractive. In addition, we are also aware that, the current strong sales of properties priced above RM500k
are very much supported by easy financing and attractive incentives offered by developers (e.g. no payment until
completion). Hence, depending on the extent of developers’ ability to come out with innovative marketing
scheme, we think generally impact on high-end property segment will be relatively significant, compared to
middle and low-end housing segment.

Table 5: Ability to pay 20% downpayment upfront if a blanket imposition is implemented

2003 2004 2005 2006 2007 2008 2009

Household debt RMm 275,176 316,158 361,029 395,466 429,483 472,088 516,559

Household financial assets RMm 595,573 790,453 856,850 977,617 1,158,805 1,107,592 1,272,380

HH financial asset to debt ratio x 2.16 2.50 2.37 2.47 2.70 2.35 2.46

HH net financial assets RMm 320,397 474,295 495,821 582,151 729,323 635,504 755,821
Growth 48.0% 4.5% 17.4% 25.3% -12.9% 18.9%

Total number of households m 5.50 5.62 5.97 5.85 5.97 6.09 6.22

Total debt per HH RM 49,996 56,236 60,504 67,601 71,976 77,506 83,048

Total financial asset per HH RM 108,207 140,600 143,598 167,114 194,202 181,841 204,563

Net financial assets per HH RM 58,212 84,364 83,094 99,513 122,226 104,335 121,515
Growth 44.9% -1.5% 19.8% 22.8% -14.6% 16.5%

Total value of property transacted RMm 23,011 29,296 28,407 28,697 36,491 41,304 41,841

No of property 164,723 195,243 181,762 176,277 199,482 216,702 211,600

Avg value of property transacted RM 139,697 150,048 156,289 162,796 182,927 190,603 197,736
Growth 7.4% 4.2% 4.2% 12.4% 4.2% 3.7%

Impact on property priced at RM 500,000

Assume 10% growth in net financial assets per HH 133,666

10%

10% downpayment 10% 13,970 15,005 15,629 16,280 18,293 19,060 19,774 50,000
% of HH net financial asset 24.0% 17.8% 18.8% 16.4% 15.0% 18.3% 16.3% 37.4%

20% downpayment 20% 27,939 30,010 31,258 32,559 36,585 38,121 39,547 100,000
% of HH net financial asset 48.0% 35.6% 37.6% 32.7% 29.9% 36.5% 32.5% 74.8%
Source: BNM, MCMC, Property Market Report, RHBRI

Key Risks for the sector

♦ Risks. Our view is formed based on the assumption that first and second home buyers are exempted from lower
LTV ratio. However, if this is not the case, our investment thesis can be derailed. Key risks for the property sector
are: 1) Lower-than-expected cap on lending rate imposed by Bank Negara Malaysia; 2) higher tax bracket for
real property gain tax (RPGT); and 3) country risks.

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Valuations and Recommendations

♦ Valuations still attractive. Although property stocks, on average, have done quite well in 3Q2010 (+17%), in
our opinion, valuations are still attractive at the current level. While developers such as SP Setia, Mah Sing,
Glomac, and Suncity are generating record sales, P/B for many property stocks are still below their +2 stdev level
or their previous peak in 2007-08 (see Charts 15-23). We believe once the regulatory risk is cleared (pending
announcement from the authority) and if the new measures are in line with our expectations, we see the strong
potential for property stocks to outperform going forward.

Chart 13: SP Setia’s sales trend Chart 14: Mah Sing’s sales trend
RM m RM m
1,900 1,100
1,795 1,020
1,800 1,000
1,700 1,652
900
1,600
800
727 727
1,500
1,413 1,431
700
1,400
600
1,300 1,235 509 509
500
1,200
394
1,100 400

1,000 300
FY06 FY07 FY08 FY09 9MFY10 2005 2006 2007 2008 2009 7M2010

Source: Company Source: Company

♦ Maintain Overweight. We maintain our Overweight stance on the property sector. To re-iterate, Average
Residential Property Price will continue to hold until 2012-2013, supported by: (i) Faster growing of young
demographics to drive big-ticket purchases i.e. homes and motor vehicles; (ii) Low mortgage rate as commercial
banks continue to offer discount to BLR; (iii) Aggressive promotions/incentives being offered by developers; (iv)
Stregthening in ringgit that encourages foreigners participation; and (v) Property is a preferred vehicle to hedge
against inflation. In addition, higher land replacement cost will also hold up property prices in the primary market.
Our top picks for the sector remained unchanged: IJM Land (OP, FV = RM3.00), Mah Sing (OP, FV =
RM2.06) and Suncity (OP, FV = RM5.48).

Table 6: Valuations and key highlights for developers

Company Rating Fair Value Valuations Key Highlights

SP Setia MP RM4.95 In line with RNAV/share ♦ The company is well-ahead to meet its sales target of
RM2bn for FY10. Going forward, the KL EcoCity project,
which is worth a GDV of RM6bn, will be the key
development for FY11. We are positive on the project,
given the infrastructure and public transport plan in
place, as well as the full occupancy for office blocks in
Mid Valley City area. Valuations, however, are rich for SP
Setia, trading at about 2.5x P/B, close to +2 stdev level.

IJM Land OP RM3.00 In line with RNAV/share ♦ Valuations wise, we prefer IJM Land to SP Setia. Given
IJM Land’s diversed range of properties and locations,
we believe the company is well-positioned to capture the
continued upcycle in the property sector. In addition, the
2,000-acre Canal City land will be the key township
development in Klang Valley for the company over a
period of 20 years. The development, which is worth
over RM4bn GDV, is likely to kick off in end 2011 or
early 2012. Over the short term, the company still has
RM700m GDV worth of projects lining up until the end of
FY11 (March 2011).

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Continue Table 6

Company Rating Fair Value Valuations Key Highlights

Suncity OP RM5.48 15% discount to RNAV/share ♦ Suncity will have RM2.6bn worth of projects to be rolled
out next year: (i) South Quay condo and commercial
component; (ii) Melawati garden villas; (iii) Sunway
Velocity service apartment; and (iv) Overseas projects –
Jiangyin and Tianjin SSTEC project. Besides that, after
the injection of 8 properties into Sunway REIT, the
company also plans to strengthen its recurring income
portfolio by building 6 new commercial properties: (i)
Sunway SOHO and office suites; (ii) The Pinnacle; (iii)
Sunway Velocity shopping mall; (iv) Sunway Monash
University Residence; (v) Sunway Medical Cancer
Centre; and (vi) Lost World Hotel in Tambun. We believe
Suncity will unlock the values of these properties as they
are injected into the REIT over the next 3-5 years, once
tenancy is stable.

Mah Sing OP RM2.06 In line with RNAV/share ♦ New launches and landbanking effort have been
aggressive for Mah Sing. Recently, the company
proposed to raise RM325m through convertible bond,
preparing to acquire more landbank going forward. The
company’s quick turnaround model has worked well.
Sales performance for recent new launches – M Suites,
Icon Mont’ Kiara and Kinrara Residence has been
encouraging, with a take-up rate of 60-75%. Over the
next 1-2 years, Mah Sing has over RM2bn worth of
projects in the pipeline. Unbilled sales of RM1.17bn are
sufficient to underpin earnings for another one year.

Sunrise OP RM2.88 30% discount to RNAV/share ♦ In line with other developers, Sunrise has also ramped
up their new launches. About RM6.6bn worth of new
projects are lining up for 2010-11, including Menara
Solaris, the Canadian project, MK20, Solaris 3, Jelutong
JV project with Sime Darby Property, Lot 149, Kajang
project and MK 22. While we are positive on other
projects, we are concerned on the take-up for its Menara
Solaris (Sunrise may opt for en-bloc sale), as office
segment is rather lacklustre in the KL city centre area.
Furthermore, given Sunrise’s exposure to the high-end
high-rise residences segment, we believe the impact on
its sales will be more significant once the imposition of
cap on lending rate is implemented.

YNH MP RM1.86 40% discount to RNAV/share ♦ Relative to other developers, YNH is less aggressive in
its launches. Apart from its ongoing township projects in
Perak, only Fraser Residence and Kiara 163 service
apartments will be launched in 2010-11. Furthermore,
the company is still looking for an en bloc buyer for its
Menara YNH, after the pull-out of KFH 2 years ago.
Landbank turnaround is therefore rather slow, and hence
the stock is justified for a higher discount to RNAV.

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Continue Table 6

Company Rating Fair Value Valuations Key Highlights

Paramount OP RM5.80 35% discount to RNAV/share ♦ Paramount is attractive for its yield angle, which is
amplified by the recent disposal of Jerneh Insurance
Bhd. Even at our current DPS forecast of 29 sen for FY10
before including a special dividend, the yield is already
at about 7%. To re-iterate, proceed from the disposal
translates into a cash per share of RM1.08. Hence, in
addition to our FY10 DPS forecast, assuming a 30 sen
special dividend is paid, this would translate into a
generous yield of 14%. The company is also
strengthening its property development going forward,
pending the completion of its acquisition of landbank in
Cyberjaya and Glenmarie. As for its education division, a
new international school will be set up. Upon opening in
Sept 2011, it will have a capacity of 600 students with
an estimate fees of RM25-30k p.a., translating into an
additional earnings of about RM3m p.a.

Glomac OP RM1.72 30% discount to RNAV/share ♦ Unbilled sales for Glomac remained high at RM585m,
giving one year of earnings visibility. Looking ahead,
about RM521m worth of projects will be rolled out
progressively in FY11. The impending one would be
Glomac Damansara service apartments (GDV RM385m),
pricing at about RM600 psf. Beyond FY11, there is still
RM2bn worth of projects in the pipeline. The company
has also recently acquired another piece of 7-acre land
in Cyberjaya, to expand its landbank for Glomac
Cyberjaya. Landbanking effort is likely to continue.

Hunza MP RM1.58 50% discount to RNAV/share ♦ New launches are rather slow for Hunza, as compared to
its peers. Apart from its ongoing Gurney Paragon
project, Hunza is bringing forward Alila II (GDV
RM300m) to end 2010, from 3Q11 previously.
Meanwhile, the low-cost component for the Bayan Baru
land is likely to kick off in end 2011.

Chart 15: Forward P/B for SP Setia Chart 16: Forward P/B for IJM Land

3.0 2.3

2.0
2.5
1.8

2.0 1.5

1.3
1.5
1.0

0.8
1.0
0.5

0.5 0.3
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-08 Jan-09 Jan-10

Average P/B = 1.65x; +2 stdev = 2.62x; -2 stdev = 0.68x Average P/B = 1.14x; +2 stdev = 1.93x; -2 stdev = 0.34x
Source:Bloomberg, RHBRI Source: Bloomberg, RHBRI

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Chart 17: Forward P/B for Suncity Chart 18: Forward P/B for Mah Sing

1.5 2.3

2.0
1.3
1.8
1.0
1.5

0.8 1.3

1.0
0.5
0.8

0.3 0.5
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Average P/B = 0.68x; +2 stdev = 1.19x; -2 stdev = 0.18x Average P/B = 1.1x; +2 stdev = 1.86x; -2 stdev = 0.34x
Source: Bloomberg, RHBRI Source: Bloomberg, RHBRI

Chart 19: Forward P/B for Sunrise Chart 20: Forward P/B for YNH

2.5 2.0

2.3
1.8
2.0
1.5
1.8

1.5 1.3

1.3 1.0

1.0
0.8
0.8
0.5
0.5

0.3 0.3
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Average P/B = 1.1x; +2 stdev = 1.84x; -2 stdev = 0.35x Average P/B = 0.87x; +2 stdev = 1.36x; -2 stdev = 0.39x

Source: Bloomberg, RHBRI Source: Bloomberg, RHBRI

Chart 21: Forward P/B for Paramount Chart 22: Forward P/B for Glomac

0.9 1.8

0.8 1.5

0.7 1.3

0.6 1.0

0.5 0.8

0.4 0.5

0.3 0.3

0.2 -
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Average P/B = 0.48x; +2 stdev = 0.69x; -2 stdev = 0.26x

Average P/B = 0.61x; +2 stdev = 1.06x; -2 stdev = 0.16x
Source: Bloomberg, RHBRI
Source: Bloomberg, RHBRI

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Chart 23: Forward P/B for Hunza

1.8

1.5

1.3

1.0

0.8

0.5

0.3
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

Average P/B = 0.72x; +2 stdev = 1.19x; -2 stdev = 0.26x

Source: Bloomberg, RHBRI

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