Market Dateline PP 7767/09/2011(028730)

RHB Research Institute

RHB Equity 360°

11 October 2010 (Market, AirAsia, WCT, BAT; Technical: KPJ, AirAsia)

Top Story : Benchmarking – GLC domination

Market Update
- We expect MMHE to be included in the FBM 100 at the 37th position by full market cap, and with an
estimated index weight of around 0.31% based on the indicative institutional IPO price of RM3.80. As for
Petronas Chemicals, the stock will likely qualify for inclusion into the FBM KLCI given its indicative size.
- After completion of both IPOs, Petronas-related stocks will have combined weightings of 8.77% and 7.49%
on the FBM KLCI and FBM 100 respectively, vs. 5.51% and 4.45% currently.
- GLC stocks owned by EPF, PNB, Petronas and LTAT will have combined FBM KLCI and FBM 100
weightings of 55.07% and 47.82% respectively. The market will thus likely remain relatively well-supported.
- Importantly, the combined market cap of the FBM KLCI would rise from RM943bn to RM989bn, potentially
drawing new foreign funds into the market, although we highlight that the two IPOs would be competing
with upcoming major IPOs in Hong Kong. At worst, the two listings could divert liquidity away from key
sectors, with banks, plantation, telecom and gaming sectors most affected.
- In any case, we expect the market to remain volatile due to uncertain external factors, and we recommend
rebalancing portfolios on market dips and top slicing on spikes.

Sector Call

Trade : Exports weakened in August, in tandem with a slowdown in global demand

Economic Highlights (published 8 Oct 2010)
- Exports weakened to 10.6% yoy in August, from +13.5% in July and a high of +36.4% in March. This was
the fifth consecutive month of slowing down and the weakest growth in nine months, suggesting that
exports are slowing down, on the back of a more moderate expansion in global demand. A sharp
appreciation of the ringgit also contributed to a slowdown in exports during the month. The slowdown in
August’s exports was broad-based, from the exports of electronic & electrical (E&E) products to non-E&E
manufactured goods and major commodity products.
- Going forward, the slowdown in the world’s major economies, from the US to Japan and China, has
become more widespread since the 2Q and the slowing growth in these economies will likely soften further
in the 2H of the year and extend into 1H 2011.As a whole, we expect the country’s exports to slow down in
2011, after recording a strong pick-up in 2010.

Corporate Highlights

AirAsia : Yields the story now Outperform

Visit Note
- Capacity expansion at its Malaysian operation will be moderate in FY12/11-12.
- Limited capacity growth means enhancement in overall yields will ensue as only the fastest-growing and
highest-yielding routes will be allotted additional capacity.
- The tentative timing of the IPO of its units is Thai AirAsia by 1HFY12/11, Indonesia AirAsia by 2HFY12/11
and AirAsia X by end-FY12/11 or early-FY12/12.
- We are raising FY12/10-12 net profit forecasts by 15-28%, largely to reflect stronger yields that more than
offset lower capacity growth.
- Fair value is raised by 17% from RM2.57 to RM3.01. Maintain Outperform.

WCT : Secures RM486m BOT concession for “Integrated Complex” at KLIA2 Underperform
News Update
- WCT, via a 70:30 JV with Malaysia Airports, has been awarded by Malaysia Airports a 25+10 year BOT
concession for a new “Integrated Complex” at KLIA2.
- The latest contract has boosted WCT's YTD new contracts secured to RM596m and its outstanding
construction orderbook by 21% to RM2.8bn. Assuming an EBIT margin of 8-10%, the latest contract will
 fetch RM38.9-48.6m EBIT.
- For WCT’s 70% stake in the concession, assuming a project IRR of 8.0-10.0%, we estimate that WCT’s
investment will yield an enhancement of RM34.0-114.5m, translating to 3.7-12.6 per WCT share on a fully-
diluted basis that is immaterial.
- We believe the market has priced in the latest development. Forecasts are maintained as we have
assumed in our forecasts that WCT will secure RM1.5bn worth of the new jobs in FY12/10 and we do not
expect meaningful contribution from the concession within our forecast period.
- Maintain Underperform, fair value is RM2.30.

BAT : Selling land in Shah Alam for RM36m Underperform

News Update
- BAT has entered into an SPA with Nestle to dispose of a piece of leasehold land measuring approximately
40.6k sq m located in Shah Alam for RM36m. The land carries with it an office building and manufacturing
block. The lease on the land ends on 8 Sept 2066
- Based on its carrying value of RM20.6m, BAT will record a gain of disposal of approximately RM15.4m. We
have adjusted our FY10 forecast to include the one-time gain on disposal of RM15.4m
- After the gain on disposal, our FY10 earnings forecast were increased by 1.6%. The small increase in net
earnings also increased our DCF derived fair value to RM42.90 (from RM42.60 previously) based on
unchanged WACC of 7.6%. Maintain Underperform.

Technical Highlights

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

- Chart wise, the closing with another “doji” candle shows uncertainties in the immediate direction. Still, we
continue to stay bullish over the FBM KLCI’s near-term outlook.
- In our view, the market still has upside room, judging from its ability continue to chalk up a fresh year high
on the back of the upbeat momentum readings as well as the improved trading volume on Friday.
- In fact, from the way of the market absorbing the heavy T+4 forced selling pressure from last Monday’s
1.37bn shares high volume and the ongoing solid rotational plays in selected second liner stocks, the
trading sentiment is clearly staying bullish for now.
- Coupled with the recent upturn on the 10-day SMA of 1,469, we believe another round of bullish leg could
be underway, once last Friday’s year-high level of 1,484.48 is being removed.
- The next upside target is set at the technical gap near 1,490.5 – 1,497.64, followed by the psychological
level of 1,500 and the historical high level of 1,524.69.

Daily Technical Watch: KPJ Healthcare – A fresh buying lead on the current technical rebound…
- 10-day SMA: RM3.517
- 40-day SMA: RM3.472
- Support: IS = RM3.37 S1 = RM3.10 S2 = RM2.70
- Resistance: IR = RM3.80

Weekly Trading Idea : AirAsia – Current congestion an opportunity to bargain buy … Bargain Buy
- Strategy: Bargain buy near RM2.14 for a further rally ahead.
- Target: IR = RM2.26 R1 = RM2.75
- Support: IS = RM2.14 S1 = RM2.00 S2 = RM1.90
- Exit: Cut loss if it falls to below the psychological level of RM2.00

Commodities & Currencies : The CPO may see a fresh chart breakout soon…
- Light Sweet Crude Oil futures (Crude): We stay bullish on outlook of the crude.
- Crude Palm Oil futures (CPO): It will head towards the next resistance zone of RM3,000-3,300 region soon.
- Ringgit (RM)/US$: Our technical outlook on the ringgit remains bullish.
- Japanese Yen (JPY)/US$: We remain bullish on the yen’s technical outlook.
- Euro Dollar (EUR)/US$: The EUR is poised to strengthen further towards 0.695.
- US Dollar Index (DXY): We expect further downside towards the support zone of 74 – 76 soon.
 Bulletin Board

Co/Sector News Impact Recom

Oil and Gas Over the weekend The Edge mentioned that Neutral. News of these tenders is not new and Neutral
there have been a slew of tenders by Petronas while we do agree that tenders have picked up,
for jobs to upgrade facilities in existing oilfields the timeline of the awards is still uncertain. We
over the past six months. It also commented on are inclined to review our call once contracts pick
how E&P spending is now moving towards EOR up pace beyond 4QFY10, but for now, we
projects to improve the extraction rate at the maintain our Neutral call on the sector.
existing oilfields. The article also cited projects in
excess of RM18bn over the next four years.
(Edge)
Auto Perodua mentioned it is expecting a record year Positive. The company’s sales projection is in UMW -
in sales and anticipates investing RM1bn in the line with our view, as we have forecast the MP; FV =
next few years on newer models and a plant company‘s TIV to be around 195,090 for FY10. RM7.27
upgrade to compete in a more liberalised As at Aug, the company had already achieved
automobile business in Malaysia. In terms of TIV of 128,652, hence this implies an annualised MBM -
expansion the company mentioned that it had TIV of 192,978, i.e. close to our estimates. In OP: FV =
land to expand its factory floor space but current regards to a potential merger with Proton, we RM5.30
capacity is sufficient to cope with demand at this believe it will be more of a push from Proton’s
juncture. Perodua mentioned sales for the year is end instead of Perodua.
projected to come in at a record 185,000 units,
with main seller being the Myvi. They also
mentioned that should there be no unforeseen
circumstances they could do more than 185,000
units. In regards to the potential merger between
Perodua and Proton Holdings Bhd, the company
mentioned that the Government is not studying
the process and Perodua was providing whatever
data needed. (The Starbiz)

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
Mikro MSC Final single tier dividend of 1 sen 4-Nov-10 26-Nov-10

Going “ex” on 13 Oct

Superlon Holdings Final single-tier dividend of 1.75 sen 13-Oct-10 11-Nov-10
Metro Kajang Hldgs First interim dividend of 5 sen less 25% tax 13-Oct-10 28-Oct-10
SBC Corporation First and final dividend of 1.5% less 25% tax 13-Oct-10 29-Oct-10
Tekala Corporation First and final tax exempt dividend of 4% 13-Oct-10 29-Oct-10

...For more details, see individual reports attached

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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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