PP 7767/09/2011(028730)

6 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
6 October 2010
MARKET DATELINE

Plantation
Recom : Neutral
The Battle Of The Giants - IOIC vs KLK (Maintained)

Table 1 : Plantation Sector Valuations

Fair EPS * EPS growth PER P/NTA P/CF GDY
FYE Price Value (sen) (%) (x) (x) (x) (%) Rec
(RM/s) (RM/s) FY10 FY11 FY10 FY11 FY10 FY11 FY10 FY10 FY10
KLK Sep 17.10 22.05 124.4 131.4 42.1 5.6 13.7 13.0 2.8 13.1 3.8 OP
IOI Corp Jun 5.49 6.75 33.6 34.9 28.3 3.8 16.3 15.7 3.1 14.5 3.1 OP
CBIP Dec 3.65 4.60 52.7 55.1 21.6 4.4 6.9 6.6 1.4 6.1 4.7 OP
First Resources Dec S$1.16 S$1.40 8.8 10.2 30.1 15.1 9.4 8.2 1.7 9.2 2.7 OP
Sime Darby Jun 8.50 9.40 48.6 49.9 9.0 2.6 17.5 17.1 2.3 12.6 3.6 MP
IJMP^ Mar 2.49 2.56 16.1 14.8 2.0 -8.2 15.5 16.9 1.6 13.3 2.4 MP
Genting Plantn Dec 7.75 7.40 46.3 44.5 17.5 -4.0 16.7 17.4 1.9 15.0 1.7 UP
Sector Avg 19.9 3.0 16.1 15.6
^ FY10-11 valuations refer to those of FY11-12 *Normalised

♦ Comparing the two big boys of plantation. In YTD 2010, the share price Chart 1. CPO vs soyoil and rapeseed
performance of big-cap plantation stocks has been relatively dismal, compared to oil prices
the KLCI. Up to 5 Oct, the KLCI has risen 15.4% YTD, Sime Darby has fallen
US$/tonne
CPO Soy Oil Rapeseed Oil

5.5%, IOIC has risen 0.4% and KLK has risen 3.6%. While there have been 1,700

special circumstances surrounding the underperformance of Sime Darby, we

1,500

believe there is no reason for the underperformance of IOIC and KLK. This is due
1,300

1,100

to the fact that CPO prices have actually risen by 6% year-to-date and historically,
900

the share prices of IOIC and KLK have generally followed in tandem. We believe 700

that the share prices of these two big-cap stocks are due for a rerating on the 500

back of continued liquidity in the market and given our view that average CPO 300

prices are expected to be higher on a yoy comparison in 2011. 100

♦
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Quantitative and qualitative analyses yield different results. In this report, Chart 2. CPO vs crude oil prices
we compare these two big-cap plantation stocks on a qualitative and a 160 1400

quantitative basis. From a quantitative perspective, IOIC is the winner, given its 140 Correlation factor of 1200
0.9x in 2007

higher productivity and efficiency in both the upstream plantation division and the narrowed to 0.75x in

C P O s p o t p ri c e s (U S $ / to n n e )
C ru d e o i l p r ic e s (U S $ / b a r re l )

120
1H08, and rose again 1000
Correlation factor started to 0.95x in 2H08.

downstream refinery division. On a qualitative perspective, we believe KLK is the 100 normalising to 0.7x from Dec-
08, but rose again from Sep- 800
09 onwards to close to 1x,

overall winner, given its better corporate governance as well as its improving
80
before falling back to around
0.7x currently. 600
60

corporate transparency and investor access. 400

♦
40

KLK trading at larger-than-historical discount to IOIC now. We note that 20 200

IOIC historically trades at a premium to KLK, of about 1-2x PE, most likely due to 0 0

its superior operational and qualitative efficiencies. At current prices however, we

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highlight that the discount between IOIC and KLK is wider than the historical
Crude Oil (US$/barrel) CPO (US$/tonne)

average, at about 2.5x, which we believe, could mean that KLK is relatively more
undervalued than IOI at the moment. Going forward, we believe the valuation gap
could narrow, as KLK improves its operational efficiencies, as its plantation estates
head towards prime age. As such, our top pick for the sector remains KLK, as we
believe that although it is not the most efficient operationally, it has the biggest
potential in terms of operational efficiency improvement, while valuations remain
inexpensive, trading at a larger-than-deserved discount to IOIC currently.
♦ Risks include: (1) a convincing reversal in crude oil price trend resulting in
reversal of CPO and other vegetable oils price trend; (2) weather abnormalities;
(3) revision in global biofuel mandates and trans-fat policies; and (4) a slower-
than-expected global economic recovery, resulting in lower-than-expected
demand for vegetable oils.
♦ Forecasts and Investment case. Forecasts are unchanged. No change to our
Hoe Lee Leng
NEUTRAL recommendation on the plantation sector as a whole. For IOIC and KL Kepong
(603) 92802184
KLK, we maintain our Outperform recommendations with our SOP-based target hoe.lee.leng@rhb.com.my
prices of RM6.75 and RM22.05, respectively.

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 6 October 2010

♦ Comparing the two big boys of plantation. In the year-to-date 2010, we note that the share price
performance of the big-cap plantation stocks have been relatively dismal, compared to the performance of the
KLCI. Up to 5 Oct 2010, the KLCI has risen by 15.4% YTD, while Sime Darby’s share price has fallen 5.5%, IOIC’s
share price has risen 0.4% and KLK’s share price has risen 3.6%. While there have been special circumstances
surrounding the underperformance of Sime Darby’s shares, we believe there is no reason for the
underperformance of IOIC and KLK’s shares. This is due to the fact that CPO prices have actually risen by 6%
year-to-date and historically, the share prices of IOIC and KLK have generally followed in tandem. We believe
that the share prices of these two big-cap stocks are due for a rerating on the back of continued liquidity in the
market and given our view that average CPO prices are expected to be higher on a yoy comparison in 2011
(versus 2010).

Chart 3. Indexed Performance of CPO Prices vs IOIC and KLK Share Price

120
118
116
114
112
110
108
106
104
102
Index

100
98
96
94
92
90
88
86
84
82
80
01/01/10
08/01/10
15/01/10
22/01/10
29/01/10
05/02/10
12/02/10
19/02/10
26/02/10
05/03/10
12/03/10
19/03/10
26/03/10
02/04/10
09/04/10
16/04/10
23/04/10
30/04/10
07/05/10
14/05/10
21/05/10
28/05/10
04/06/10
11/06/10
18/06/10
25/06/10
02/07/10
09/07/10
16/07/10
23/07/10
30/07/10
06/08/10
13/08/10
20/08/10
27/08/10
03/09/10
10/09/10
17/09/10
24/09/10
01/10/10
CPO IOIC KLK KLCI

Source: Bloomberg, RHBRI

♦ Quantitative and qualitative analyses. In this report, we examine and compare these two big-cap plantation
stocks on a qualitative and a quantitative basis. The quantitative analysis examines the operational efficiencies of
the companies, as we compare FFB production growth during the same period, FFB yield/ha, oil extraction rate,
CPO price achieved, CPO production cost per tonne and profitability per tonne for the manufacturing division. The
qualitative analysis examines factors like RSPO compliance, corporate governance, transparency and
management style.

Quantitative Analysis

♦ KLK wins in terms of FFB production growth... KLK’s FFB growth in the eight months of CY2010 to Aug 2010
was a strong 6.2% yoy, versus IOIC’s -1.9% yoy in the same period. The main reason, we believe, for the higher
production from KLK’s estates was the lower average age profile of its trees (11 years), compared to IOIC’s
average age of an estimated 15+ years, as well as the geographical profile of its estates. Currently, IOIC has
139,352ha of matured plantation landbank, while KLK has 143,249ha. We note that IOIC’s planted landbank is
more skewed towards East Malaysia (approximately 60%), with the rest in Peninsular Malaysia (approx 30%) and
Indonesia (approx. 10%). KLK’s planted landbank is more evenly spread out with approximately 20% in East
Malaysia, 30% in Peninsular Malaysia and the remaining 50% in Indonesia. Given the wetter-than-normal
weather experienced at the beginning of the year in East Malaysia, which resulted in weaker productivity, IOIC’s
estates suffered more as a result, since a larger proportion of its estates are in East Malaysia.

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Chart 4: IOIC Planted Landbank Geographical Breakdown Chart 5: KLK Planted Landbank Geographical Breakdown

Indonesia Peninsular Malaysia

Peninsular Malaysia
11% 28% Indonesia 32%
49%

East Malaysia
61% East Malaysia
19%

Source: Company, RHBRI Source: Company, RHBRI

♦ … but IOIC wins in terms of FFB yield/ha. Nevertheless, given IOIC’s more prime age profile of its trees, FFB
yield at IOIC’s estates is still higher than KLK’s, at 24.3t/ha (achieved in FY06/10), versus KLK’s 22.9t/ha
(achieved in FY09/09). We note that IOIC’s FFB yields were actually higher in previous years, at 26-28t/ha, but
this declined in FY10 due to the impact of the extreme weather conditions. Nevertheless, going forward, we
expect KLK’s FFB production to outpace that of IOIC at least for the next couple of years, growing at 17.2% in
FY09/10, followed by 8.1% in FY09/11, as compared to our projections for IOIC’s FFB production growth of 8.2%
in FY06/11 and 6.4% in FY06/12. Note that our production growth numbers incorporate both companies’
Indonesian JV contributions. Subsequently however, we expect IOIC’s FFB production growth to overtake KLK’s,
as more of its Indonesian estates mature. We note that while IOIC has close to 50,000ha of effective landbank to
be planted up over the next 2-2.5 years, KLK only has about 20,000ha of landbank available to be planted over
the next 1-2 years. As such, unless KLK manages to boost its landbank further via new acquisitions, FFB
production growth will start to slow down from FY09/12 onwards.

Chart 6. IOIC vs KLK Monthly FFB Production

450,000

425,000
400,000

375,000
350,000
Monthly FFB Production ('tonnes)

325,000
300,000
275,000
250,000

225,000
200,000

175,000
150,000
125,000
100,000

75,000
50,000

25,000
-
07

08

09

10
07

08

09

10
7

0
07

07

08

08

09

09

10
l-0

l-0

l-0

l-1
-0

-0

-0
p-

p-

p-
-

-
n-

n-

n-

n-
-

-
ov

ov

ov
ay

ay

ay

ay
ar

ar

ar

ar
Ju

Ju

Ju

Ju
Ja

Ja

Ja

Ja
Se

Se

Se
M

M
N

N
M

KLK IOIC

Source: Bursa Malaysia, RHBRI

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 6 October 2010

♦ No clear winner on OER comparison… In terms of oil extraction rates (OER), IOIC and KLK’s CPO OER are
relatively similar, at about 21-22%. However, we do note that KLK’s OER seems to be improving gradually from a
low of 20.3% in 3QCY08 to current levels, while IOIC’s OER has been relatively stable. Going forward, we expect
OER for both companies to remain at these levels of 21-22% for the next few years.

Chart 7. IOIC vs KLK Quarterly OER Comparison

22.0

21.5

21.0

20.5
OER (%)

20.0

19.5

19.0

18.5

18.0
3QCY07 4QCY07 1QCY08 2QCY08 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10

IOIC KLK

Source: Companies, RHBRI

♦ … or on CPO price trend projection proficiency. In terms of CPO price projections and proficiency of reading
CPO price trends, we note that both companies are relatively proficient, although at different points in time, one
company would achieve higher selling prices than the other. In recent months, we note that both companies have
not been aggressively selling forward, due mainly to two reasons. Firstly, we understand sales volumes on the
futures market for physical volumes have been relatively thin, making it hard to sell large volumes forward.
Secondly, we note that futures prices for CPO have actually been below than the spot prices, thus making it less
attractive to sell forward. While this does not mean that both companies are selling purely on the spot market
currently, we believe it means that forward sales activities are likely to be relatively conservative. In the last
quarter ended 30 June, IOIC achieved an average CPO price of RM2,518/tonne, while KLK achieved an average
price of RM2,562/tonne. Comparing the last few years, we note that IOIC seems to be more proficient in reading
the price trends, having achieved higher average prices than KLK. However, in recent quarters, we note that KLK
seems to have improved, achieving CPO prices which were in line or, in the case of last quarter, slightly higher
than IOIC’s. Going forward, we maintain our CPO price projections for now at RM2,600/tonne and RM2,500/tonne
for IOIC’s FY06/11 and FY06/12, respectively, and at RM2,650/tonne and RM2,500/tonne for KLK’s FY09/11 and
FY09/12, respectively. In FY06/10, IOIC achieved an average CPO price of RM2,372/tonne, while in FY09/10, we
estimate KLK to achieve an average CPO price of RM2,500/tonne (YTD average of RM2,390/tonne). KLK
maintains its view that CPO prices would remain in a tight range of RM2,300-2,600/tonne range, and believes
that any overshooting of these price levels, could be mainly attributed to speculation, given unchanged supply
and demand fundamentals.

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Chart 8. IOIC vs KLK Quarterly CPO Price Achieved

3600
3400
Quarterly CPO Price Achieved (RM/tonne)

3200
3000

2800

2600

2400

2200

2000

1800

1600

1400

1200

1000
1QCY07 2QCY07 3QCY07 4QCY07 1QCY08 2QCY08 3QCY08 4QCY08 1QCY09 2QCY09 3QCY09 4QCY09 1QCY10 2QCY10

IOIC KLK

Source: Companies, RHBRI

♦ IOIC is a clear winner when it comes to CPO production cost per tonne. In terms of CPO production cost
per tonne, IOIC is a clear winner. In FY06/10, we estimate IOIC’s production cost was about RM965/tonne, while
for KLK, production cost for 9MFY09/10 was estimated at RM1,100/tonne. We believe the main reason for IOIC’s
lower production costs is its higher FFB yields, which would translate to better economies of scale, and therefore
lower costs. Going forward, we expect production costs per tonne to be maintained at a similar range of RM900-
1,000/tonne for IOIC and RM1,000-1,100/tonne for KLK for the next few years, given the relative stability of
fertiliser costs currently. However, this could change should there be any drastic shortage of labour in Malaysia,
which would result in higher labour costs. Note that fertiliser makes up the bulk of production costs (c. 25-35%),
while labour is the second largest cost component (c. 15-20%).

Chart 9. IOIC vs KLK Estimated CPO Production Costs Per Tonne

1200

1100

1000
CPO production cost (RM/tonne)

900

800

700

600

500

400

300

200

100

0
FY07 FY08 FY09 FY10

IOIC KLK

Source: Companies, RHBRI

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♦ For manufacturing operations, IOIC’s margins beats KLK by a whisker. IOIC and KLK’s manufacturing
divisions are not entirely alike. IOIC is larger in terms of capacity size and more diversified in terms of the types
of products, while KLK is smaller and more focused in terms of product range. IOIC has an estimated 3.2m
tonnes of refinery capacity, 0.75m tonnes of oleochemical capacity and 0.57m tonnes of specialty fats capacity,
while KLK has 0.77m tonnes of refining capacity and 1.48m tonnes of oleochemical capacity. We estimate IOIC’s
refinery market share (by capacity) in Malaysia is about 16.5%, while KLK’s is about 4%. However, in terms of
oleochemicals, KLK has a larger 57% market share in Malaysia, compared to IOIC’s 27%. As there is no industry
figure for specialty fats capacity in Malaysia, we are unable to assess the market share of IOIC’s specialty fats
plants. When it comes to measuring profitability, we can only estimate the profitability of the refinery operations,
given that IOIC and KLK do not provide a breakdown of their manufacturing division’s revenue and profits. Based
on our estimates, IOIC seems to be slightly more profitable than KLK on a US$/tonne basis, which we believe, is
likely to stem from its larger size, which, if run efficiently, is bound to yield higher margins due to better
economies of scale. Going forward, we expect margins for both IOIC and KLK to improve gradually, as both
companies are in the midst of expanding their capacities, either by way of size expansion or expansion of product
range, which should result in more synergistic benefits and economies of scale. We project IOIC’s refinery
capacity to expand by 8% and its specialty fats capacity to expand by close to 40% in FY06/11, coming from new
plants being built in the Netherlands and Malaysia. For KLK, we project its oleochemical capacity to expand by
34% in FY09/11, coming from new plants being built in Malaysia and the completion of its Uniqema acquisition in
Germany.

Chart 10. Industry Estimated Refining Margins Per Tonne

45
EstimatedRefiningMargins (US$/tonne)

40

35

30

25

20

15

10

0
2007 2008 1H2010

Mew ah Oil IOI KLK Wilmar

Source: Companies, RHBRI

Qualitative Analysis

♦ Both companies actively seeking RSPO compliance. With regards to RSPO compliance, we note that both
IOIC and KLK are founding members of the RSPO and have both committed to achieve full certification in
Malaysia by 2011 for IOIC and by 2012 for KLK and in Indonesia by 2014 (KLK). IOIC currently has four RSPO-
certified mills in Malaysia, which produces 270,692 tonnes of CPO per year, equivalent to around 35% of its
annual CPO production, while KLK currently has five RSPO-certified mills in Malaysia, which produces 204,889
tonnes of CPO per year, equivalent to around 26% of its annual CPO production. On a global scale, IOIC’s RSPO-
certified oil comprises about 12% of the current supply of certified sustainable palm oil (CSPO), while KLK’s
RSPO-certified oil comprises about 9%. While IOIC seems to have the upper hand in RSPO certification in terms
of global market share of CSPO, this could potentially change going forward. This is due to the recent media
highlights on IOIC’s legal battle and supposed “non-RSPO” compliance in relation to its plantation in Sarawak.
IOIC has since clarified that these allegations are incorrect and misleading.

♦ KLK is the winner in corporate governance. When it comes to corporate governance, KLK seems to be
“cleaner”, given its lack of related party transactions, compared to IOIC. IOIC has on several occasions, acquired
assets or companies, belonging to its major shareholder, at prices, considered, at that time, to be relatively
expensive. Although most of these assets have proven, over time, to be invaluable to the company in growing its

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 6 October 2010

earnings base, investors are still not favourable to related party transactions of any sort, particularly foreign
shareholders. As at end-June, we estimate IOIC had foreign shareholding of about 20%, while KLK’s foreign
shareholding was about 17-18% in the same period.

♦ Both equally transparent, although KLK is most improved. Both companies are relatively transparent when
it comes to disclosure on operational and financial statistics now, although we note that both companies have
become increasingly more transparent in their annual reports over the years. We believe KLK has become more
investor friendly as well in recent years, participating in more investor roadshows and conferences of late.

♦ Management style – KLK seemingly more conservative than IOIC, but this is changing. We believe both
companies have management which is equally hands on in managing the business. IOIC seems to have more
direct family members involved in the business, as IOIC’s chairman and substantial shareholder, Tan Sri Lee Shin
Cheng has three of his children working in the company in various roles. KLK’s CEO and substantial shareholder,
Dato’ Seri Lee Oi Hian, on the other hand, does not seem to have any direct family member on board, with only
one brother, Dato’ Lee Hau Hian, sitting on the Board as a non-executive and non-independent director. In terms
of management style, KLK has always been more conservative than IOIC, being less aggressive with its
expansions and acquisitions over the years. While this may not necessarily be the best move on KLK’s part, given
the rising asset and agricultural landbank prices in recent years, we note that this management style has been
beneficial to them in other ways, as we recall IOIC’s debacle with its forward contract hedging using structured
forex products, which resulted in close to RM300m in realised forex loss in FY09. We note that in recent years,
KLK seems to be getting more aggressive in its acquisitions, as seen by its close to doubling of its manufacturing
capacity from FY07 till now.

Table 2. Summary of Quantitative and Qualitative Analysis

IOIC KLK
Quantitative Analysis
FFB production growth 8MCY2010: -1.9% yoy 8MCY2010: + 6.2% yoy
FFB yield/ha FY06/10: 24.3t/ha FY09/09: 22.9t/ha
OER 2QCY10: 21.5% 2QCY10: 21.0%
CPO price trend projection 2QCY10: RM2,518/tonne 2QCY10: RM2,562/tonne
Refining margins (estimate) 1HCY10: US$25/tonne 1HCY10: US$20/tonne

Qualitative Analysis
RSPO compliance Target full RSPO compliance by 2011 Target full RSPO compliance by 2012
Corporate governance Has had history of related party transactions No major related party transactions
Transparency Transparent corporate disclosure Transparent corporate disclosure, becoming more
investor friendly
Management style More aggressive More conservative, but getting more aggressive

Source: Companies, RHBRI

♦ Conclusion – both companies have their strong points. In summary, from a quantitative perspective, it
would seem as though IOIC is a winner, overall, given its higher productivity and efficiency in both the upstream
plantation division and the downstream refinery division. On a qualitative perspective, we believe KLK is the
overall winner, given its better corporate governance as well as its improving corporate transparency and investor
access. Clearly, from our analysis above, we believe both companies are fundamentally sound companies, with
individual strongpoints, both of which, we believe, are of importance to the investing community.

♦ IOIC traditionally trades at 1-2x PE premium to KLK, but premium is wider now. In terms of valuations,
we note that IOIC historically trades at a premium to KLK, of about 1-2x PE (see Chart 11), most likely due to its
superior operational and quantitative efficiencies. At current prices however, we highlight that the discount
between IOIC and KLK is wider than the historical average, at about 2.5x, with IOIC trading at 16.0x CY11 EPS
and KLK trading at 13.5x CY11 EPS, which we believe, could mean that KLK is relatively more undervalued than
IOI at the moment. Going forward, we believe the valuation gap between KLK and IOIC could narrow, as KLK
improves its operational efficiencies, as its plantation estates head towards prime age.

♦ All in, KLK still our favourite. In view of the above, KLK is still our top pick for the sector, as we believe that
although it is not the most efficient operationally, it has the biggest potential in terms of operational efficiency
improvement, while qualitatively, it is a company with high standards when it comes to corporate governance,

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 6 October 2010

environmental responsibility and management quality. Valuations are relatively inexpensive in our opinion,
trading at a larger-than-deserved discount to IOIC of 2.5x CY11, compared to historical averages of 1-2x.

Chart 11. IOIC vs KLK Historical PEs

32

30

28

26

24

22

20
MonthlyPE(x)

18

16

14

12

10

0
3

0
3

0
3

9
3

0
l-0

l-0

l-0

l-0

l-0

l-0

l-0

l-1
0

-0

-0

-0

-0

-0

-0

-0

1
-0

-0

-0

-0

-0

-0

-0

-1
n-

n-

n-

n-

n-

n-

n-

n-
ct

ct

ct

ct

ct

ct

ct
Ju

Ju

Ju

Ju

Ju

Ju

Ju

Ju
pr

pr

pr

pr

pr

pr

pr

pr
Ja

Ja

Ja

Ja

Ja

Ja

Ja

Ja
O

O
A

A
IOIC KLK

Source: Bloomberg, RHBRI

Risks

♦ Main risks include: (1) a significant change in crude oil price trend resulting in significant movement of CPO and
other vegetable oils prices; (2) weather abnormalities resulting in an over- or under-supply of vegetable oils; (3)
change in emphasis on implementing global biofuel mandates and trans-fat policies; (4) significant changes in
trade policies of vegetable oil importing or exporting countries; and (5) sharper-than-expected global economic
slowdown.

Valuations and Recommendations

♦ NEUTRAL sector call unchanged. No change to our NEUTRAL recommendation on the plantation sector as a
whole. For IOIC and KLK, we maintain our Outperform recommendations with our SOP-based target prices of
RM6.75 (see Table 7) and RM22.05 (see Table 10), respectively. Our top pick for the sector remains KLK.

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Table 3. Valuation Bases

Fair Value
Company (RM/share) Valuation Methodology

Genting 7.40 Target 16x PER CY11 earnings.

Plantations
CBIP 4.60 Target PER of 7x CY11 for the oil mill engineering division and 13x CY11 for the plantation division.

IJMP 2.56 Target 16x PER CY11 earnings.

IOIC 6.75 Target PER of 17x CY11 for the plantation division, 11x CY11 for the manufacturing division and 12x
CY11 for the property development and investment property divisions.

KLK 22.05 Target PER of 17x CY11 for the plantation division, 11x CY11 for the manufacturing division, 12x CY11
for the property division and zero value less potential provisions for the retail division.

Sime Darby 9.40 15% discount to SOP comprising: target PER of 17x CY11 for the plantation division and 12x CY11 for
the energy & utilities, heavy equipment, property, motor and other small divisions.

First S$1.40 Target 11x PER CY11 earnings.

Resources

Source: RHBRI

Table 4: Impact of every RM100/tonne increase in CPO price

Genting Plantations +5-7%
KLK +4-6%
IJMP^ +5-7%
IOI Corp +3-5%
Sime Darby +4-6%
First Resources +8-10% (for every US$50/tonne increase)
CBIP +2-4%

Source: RHBRI

Table 5. IOIC Earnings Forecasts Table 6. IOIC Forecast Assumptions

FYE Jun (RMm) FY10a FY11F FY12F FY13F FYE Jun FY11F FY12F FY13F

Turnover 14,600.5 12,543.0 16,742.5 18,790.2 CPO Selling Price (RM/t) 2,650 2,500 2,500
Turnover growth (%) (0.4) (14.1) 33.5 12.2 PK Selling Price (RM/t) 1,750 1,600 1,600
FFB production Growth (%) 4.2 3.3 2.3
Operating Profit 2,376.4 2,219.5 2,884.2 3,001.3
Op Profit Margin (%) 16.3 17.7 17.2 16.0

EBITDA 2,594.1 2,451.3 3,154.3 3,314.4

EBITDA margin (%) 17.8 19.5 18.8 17.6

Depreciation (217.8) (231.8) (270.1) (313.1)

Associates 9.9 88.2 150.3 147.5
Net interest costs (170.5) (174.0) (97.3) (99.3)
Exceptional items (914.2) 416.9 0.0 0.0

Pretax Profit 1,550.1 2,550.6 2,937.1 3,049.5

Tax (486.9) (485.5) (749.8) (782.1)
PAT 1,063.2 2,065.1 2,187.4 2,267.4
Minorities (79.7) (29.5) (43.2) (42.6)
Net Profit 983.5 2,035.7 2,144.2 2,224.8
Net Profit (ex-EI) 1,897.7 1,618.8 2,144.2 2,224.8
Source: Company data, RHBRI estimates

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Table 7. IOIC SOP Calculation

FV
Valuation basis
(RMm)
Plantation earnings 17.0x CY11 earnings 28,037.3

Manufacturing earnings 11.5x CY11 earnings 8763.9

Property investment and devt 9,102.5

12.0x CY11 earnings
earnings

Less: Net debt (4QFY10) (920.02)

SOP (RMm) 44,983.7

SOP/share (RM) 6.74

Table 8. KLK’s Earnings Forecasts Table 9. KLK’s Forecast Assumptions

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

Turnover 6,658.3 7,646.7 9,016.7 9,285.8 FFB Processed (‘000 t) 4,129 4,469 4,688
Turnover growth (%) (15.2) 14.8 17.9 3.0 CPO Production (‘000 t) 888 961 1,008
PKO Production (‘000 t) 202 219 230
Operating Profit 921.6 1,309.9 1,869.6 1,964.3 Average CPO price (RM/t) 2,500 2,650 2,500
Op Profit margin (%) 13.8 17.1 20.7 21.2 Average PKO price (RM/t) 2,700 3,300 3,000

EBITDA 1,210.0 1,555.9 2,123.1 2,241.7

EBITDA margin (%) 18.2 20.3 23.5 24.1

Depreciation (205.5) (229.5) (253.4) (277.4)

Net Interest (68.8) (65.8) (59.5) (51.7)
Associates 34.6 37.6 34.7 34.9
EI (82.9) (16.5) 0.0 0.0

Pretax Profit 887.4 1,281.7 1,844.9 1,947.5

Tax (244.8) (324.5) (461.2) (486.9)
PAT 642.6 957.1 1,383.6 1,460.6
Minorities (30.1) (38.9) (55.3) (58.4)
Net Profit 612.5 918.2 1,328.3 1,402.2
Core Net Profit 753.8 934.7 1,328.3 1,402.2
Source: Company data, RHBRI estimates

Table 10. KLK’s Fair Value Calculation

Valuation basis FV (RMm)

Plantation earnings 17x CY11 earnings 21,991.3

Manufacturing earnings 11.5x CY11 earnings 1,586.0

Property earnings 12x CY11 earnings 236.3

Retail earnings Zero asset value less potential asset write-downs (15.1)

Add/(less): Net cash/(debt) (End-3QFY10) (266.5)

SOP (RMm) 23,531.9

SOP/share (RM) 22.04

Shares (m) 1,067.5

Source: RHBRI estimates

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Chart 12: IOICorp Technical View Point

♦ After a swift recovery from a low of RM4.59 to
above the RM4.85 level in May 2010, the share
price of IOICorp kick-started a sterling uptrend and
topped a high of RM5.65 in Sep.

♦ However, due to constant profit-taking activities,

the stock lost the RM5.60 tough resistance level
again in the recent sessions. It ended Tuesday at
RM5.49.

♦ Technically, with the mixed momentum readings

and the downtick of the 10-day SMA of late, the
stock should ease further in the near term if the
buying momentum fails to pick-up anytime soon.

♦ However, in our view, if the stock manages to

break RM5.60 in another attempt in the near term,
it can still expand its buying momentum and head
towards the next hurdle at RM6.40 or even to
RM7.20 on follow-through buying support.

♦ But investors should keep in mind that the stock’s

medium-term support is only seen at RM4.85.

IMPORTANT DISCLOSURES

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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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

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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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actions of third parties in this respect.

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