Market Dateline PP 7767/09/2011(028730)

RHB Research Institute

RHB Equity 360°

8 October 2010 (Ann Joo, Dialog, Paramount, LPI; Technical: Affin)

Top Story : Ann Joo – Mini blast furnace plant to start operation soon Market Perform
Visit Note
- AJR’s mini blast furnace is expected to commence its full operation by end-Nov/Dec 2010 after going
through cold commissioning currently.
- Management said that the average cost of its current inventory of scraps is below US$400/tonne and is
sufficient to last them till Feb 2011. So far, AJR has secured roughly 60k tonnes of iron fines domestically
and has imported about 50k tonnes of coking coal from Russian and Indian sources.
- Indications from AJR are pointing towards weak 3QFY12/10 results due to a lower sales volume. We
understand that sales volumes for Aug and Sep 2010 were the lowest so far this year, as both export and
domestic tonnages declined.
- We have tweaked our FY12/10-12 earning forecasts by -2.6%, -0.5%, and +2.2%. Indicative fair value for
AJR is revised slightly to RM3.14 (from RM3.16 previously) based on 10x revised FY12/11 fully-diluted
EPS of 31.4 sen. Maintain our Market Perform call.

Corporate Highlights

Dialog : Exclusivity to develop Pengerang Terminal Outperform

News Update
- Yesterday, the company announced that the State Government of Johor Darul Ta’zim had awarded it the
exclusivity to develop an independent deepwater petroleum terminal at Pengerang, Johor for a period of 60
years. We had already mentioned that the Pengerang deepwater terminal is a near certainty as both the
project and Dialog was in the spotlight during the “Economic Transformation Programme” Open Day.
- While one part of the study is done, there is still the commercial part of the feasibility study and the
environmental impact assessment (EIA) to be completed. We believe the two studies could take some
time, and post that the actual construction of the tank terminal will be over 18-24 months, implying
contributions from the deepwater terminal to come in end of CY12 at the earliest.
- The Pengerang tank terminal is purported to be approximately 5m m3 once fully completed, but we
understand that it will be built in phases. Phase One is expected to be 1-1.2m m3 of storage capacity, and
cost approximately RM1-1.2bn (based on a rule-of-thumb of RM1k for every 1 m3).
- We maintain our forecasts as the approval does not have any near-term financial impact as yet.
- We are upbeat on Dialog’s prospects, hence we maintain our Outperform call on the stock with unchanged
SOP fair value of RM1.30/share based on 15x FY06/11 PER for the core operating business.

Paramount : Officially entered into SPA for the disposal of Jerneh Outperform
News Update
- Paramount announced that, together with Jerneh Asia, it had entered into a conditional share purchase
agreement with ACE INA for the disposal of their respective equity interest in Jerneh Insurance Bhd. The
total cash consideration amounted to RM654m – RM130.8m for Paramount (20%) and RM523.2m for
Jerneh Asia (80%).
- Tentatively, Paramount would realise a gain on disposal of about RM76.6m in 4QFY10, which is when the
deal is expected to be completed.
- While Paramount’s Board is still assessing the optimal utilisation of cash proceeds, we continue to believe
that the proceeds, which translate to RM1.08 cash per share, would give scope for a special dividend.
Assuming a 30 sen special dividend is paid, in addition to our FY10 DPS forecast of 29 sen, this would
translate to a generous yield of 13%.
- Normalised earnings remained unchanged, but a gain on disposal of RM76.6m is now included in our
headline net profit forecast.
- Fair value kept at RM5.80, based on an unchanged 35% discount to RNAV. Maintain Outperform.

LPI Capital : Below expectations Underperform (down from MP)

3QFY10 Results
- 3QFY12/10 net profit of RM36.2m (+36.9% qoq) brought 9M10 earnings to RM100.8m (+10.8% yoy). This
 accounted for 68.6% and 60% of our and consensus full year expectations respectively.
- As 9M10 management expenses came in below our expectation (71% of our full year estimate) we believe
the main deviation was due to: 1) lower-than- expected premium growth; 2) higher-than-expected claims
ratio; and 3) lower-than-expected investment income from its GI account.
- We thus adjust our FY10-12 assumptions as follows: 1) lower gross premium growth of 18%; 2) higher
claims ratio of 51.5%; and 3) lower insurance fund investment income of 2.1%.
- After adjusting our assumptions, our FY10-12 EPS forecasts have been cut by 10.6-14% p.a.. Despite the
reduced earnings, we still expect a stronger fourth quarter based on historical trends.
- After our earnings revision, our fair value is now lower at RM11.40 (from RM12.82 previously) based on
unchanged target 16x FY11 EPS. We thus downgrade our call on the stock to Underperform.

Technical Highlights

Daily Trading Strategy : Upside intact despite short-term uncertainties…

- Saved by the last-minute push-up yesterday, FBM KLCI managed to close with a “doji” candle to extend its
attempt to stage further upside in the near term although the overall trading sentiment remained cautious.
- Apart from the improved short-term momentum readings, the rising 10-day SMA of 1,466 should continue
to buffer the current uptrend, in our view.
- If the index overcomes the recent high of 1,483.25, it will revisit the technical gap near 1,490.5-1,497.64
and the psychological level of 1,500 soon.
- Breaching those levels will turn the sentiment even more bullish, as buyers are likely to lift the FBM KLCI
towards the all-time high level of 1,524.69 next.
- However, we still expect some profit-taking activities to continue as investors remained generally cautious
and unwilling to take extra risks ahead of the weekend.

Daily Technical Watch: Affin Holdings – The current uptrend appears sustainable …
- 10-day SMA: RM3.134
- 40-day SMA: RM3.09
- Support: IS = RM3.08 S1 = RM2.70 S2 = RM2.40
- Resistance: IR = RM3.45 R1 = RM3.80

Bulletin Board

Co/Sector News Impact Recom

Proton Proton announced a recall of its Gen.2 and Satria
Neo models made between 2004 and 2008
because of potential safety concerns over a clock
spring malfunction. The clock spring connects
switches and airbags to the radio, horn and
cruise control. The recall, according to a
statement by Proton is part of the company’s
Global Quality Assurance (GQA) programme. It
affects 15,911 cars out of a total of 660,000
produced and sold by Proton over the four-year
period. (NST)
Negative. The recall of the cars will likely result in OP, FV =
a knee-jerk reaction in the stock’s share price, RM5.50
however, we expect the impact to the company
to be minimal given that the recall affects only
2% of the total Gen.2 and Satria Neo cars
produced during the period. No change to
earnings estimates from this news, for now
pending further clarification with management.

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Puncak Niaga 4th mandatory partial redemption of 15-year RUJN 25-Oct-10 19-Nov-10
Puncak Niaga Semi-annual coupon payment for 15-year RUJN 25-Oct-10 19-Nov-10
YTL E-solutions First and final div of 0.745 sen less tax + 0.255 sen single tier 3-Dec-10 23-Dec-10
YTL Power Final single tier dividend of 1.875 sen 3-Dec-10 23-Dec-10
YTL Cement Final single tier dividend of 1.875 sen 3-Dec-10 23-Dec-10
 YTL Corp Final dividend of 10 sen less 25% tax 3-Dec-10 23-Dec-10

Going “ex” on 11 Oct

Advance Information Bonus issue on the basis of 1-for-3 11-Oct-10 -
ES Ceramics Technology 1-for-1 rights issue of free warrants and 1-for-1 bonus issue 11-Oct-10 -
GPA Holdings First and final single tier dividend of 2% 11-Oct-10 27-Oct-10
OSK Property Interim dividend of 2.5 sen less 25% tax 11-Oct-10 27-Oct-10
Sunchirin Industries (M) Interim tax exempt dividend of 5 sen 11-Oct-10 28-Oct-10

...For more details, see individual reports attached

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