Market Dateline PP 7767/09/2010(025354) RHB Research Institute

RHB Equity 360°
10 March 2010 (Plantation, Perwaja, Kinsteel, KPJ, Gamuda, WCT; Technical: Faber) Top Story : Plantation – All for CPO prices crossing RM3,000/tonne mark Overweight Sector Update - We came away from the first day of the 2010 POC (Palm and Lauric Oils Conference) with a “bullish vibe”, as three of the speakers who made price forecasts had relatively bullish expectations, projecting CPO prices to cross the RM3,000/tonne mark this year. - We admit most of the price forecasts given today were slightly more bullish than our expectations. While we believe it is possible for CPO prices to touch or cross the RM3,000/tonne mark, based on the current bullish momentum, we do not discount the potential for prices to fall back down in the normal seasonal peak period in 2H2010, assuming normal weather conditions. We believe Dorab Mistry’s projection for stronger CPO prices in 2H2010 would only come through if the impact of El Nino on production is relatively severe. As such, we maintain our average CPO price assumptions of RM2,500/tonne for 2010 and RM2,700/tonne for 2011. YTD average spot prices of CPO of approximately RM2,550/tonne is in line with our projection, which assumes stronger CPO prices in the first half of the year versus the second half, following the CPO production cycle. - No change to our earnings forecasts. We maintain our Overweight stance on the sector as a whole and reiterate our recommendation for investors to stick with the more liquid stocks given the anticipated volatile market conditions in 2010. We maintain our Outperform recommendations on IOIC, KLK, Sime Darby and CBIP, and Underperform recommendation on Genting Plantations and IJMP.

Corporate Highlights Perwaja : Better quarters ahead Outperform Visit Note - Perwaja anticipates iron ore benchmark prices in 2010 to rise by 20-40%, given the global iron ore miners’ improved bargaining power amidst sustained steel consumption in China. Given its relatively flat production cost curve in 1HFY12/10 (as the company has already locked in iron ore pellets at low prices in anticipation of higher iron ore prices going forward), Perwaja anticipates a steep margin expansion in 1HFY12/10 from the rising global steel price trend. - While higher iron ore pellet price will increase Perwaja’s billets production cost, management feels that it will still have an edge over the other upstream steel producers (which use alternative feedstock in their steelmaking process), as prices of alternative feedstock have increased even more substantially. - Perwaja is on track to expand the capacity at both its DRI and steelmaking plants by 20% and 55% to 1.8m tonnes/annum and 2.1m tonnes/annum by mid-2010. However, management hinted that its blast furnace investment project will remain shelved. - Perwaja believes the presence of iron ore distribution hub will help reducing its working capital requirement (and hence reducing finance cost) as it can then stock up less iron ore pellets. - Indicative fair value is RM1.79 based on 12x FY12/10 EPS of 14.9 sen. Kinsteel : Better demand ahead Outperform Visit Note - Kinsteel feels that demand for downstream steel products will pick up in 2HFY12/10, underpinned by: 1) The implementation of the remaining projects under the two stimulus packages; 2) Increased property development activities; and 3) More intense restocking activities by steel stockists ahead of the announcement of 10MP. - Kinsteel is confident about reporting better financial performance in 1HFY12/10, as its 37.3%-owned Perwaja is bracing for a steep margin expansion in 1HFY12/10. While the higher iron ore pellet prices will increase Perwaja’s billet production cost (as iron ore pellets acquired at cheap prices will run out by Jul 10), the associate’s management feels that it will still have an edge over other upstream steel producers. - Kinsteel will gradually relocate Perfect Channel’s production facilities (which produce wire rod and channels) from Gurun to Kemaman from FY12/11. Kinsteel projects that the relocation of these two

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production facilities will result in an operating cost saving of RM35m per annum (translating to a payback period of 3 years), as the relocation will result in lower transportation and energy cost. Indicative fair value is RM1.22 based on 12x FY12/10 fully-diluted EPS of 10.2 sen.

KPJ : Injecting another three hospitals into KPJ REIT Outperform News Update - Selling of three hospital buildings to KPJ REIT for RM138.8m to be satisfied with RM83.3m cash and 56.6m new units in KPJ REIT at an issue price of RM0.98. - The transaction will: 1) Result in a one-off gain of RM3.36m; 2) Increase KPJ’s stake in KPJ REIT from 42.8% to 50.9%; and 3) Reduce KPJ’s net gearing from 0.36x as at Dec 09 to 0.23x. - Positive on KPJ’s latest move as it is consistent with its strategy to continuously “recycle” its capital to drive growth. - Tweaked our earnings forecasts up by 0.2-0.3% for FY10-12. We do not factor the RM3.36m one-off gain in our forecast as it is an EI. - Maintain our Outperform call on the stock with fair value of RM3.20 based on 14.5x FY12/10 EPS. Gamuda : Served A Request For Arbitration Amounting To RM51.5m Underperform News Update - Bahrain Asphalt Establishment (BAE), a sub-contractor to the 51:49 JV between Gamuda and WCT for the Dukhan Highway project in Qatar, has served the Gamuda-WCT JV a request for arbitration, claiming a total sum of QAR109.3m (RM101.1m), coupled with unquantified sums for legal, arbitration and interest costs. - Gamuda is of the opinion that it has a good defence against the claims. - Based on Gamuda’s 51% share of the total sum claimed (before legal, arbitration and interest costs) of RM51.5m, the potential loss to Gamuda is 2.6sen/share that will put an 18% dent to our projected FY07/10 EPS of 14.4sen for Gamuda. - Forecasts are maintained pending the outcome of the arbitration. - Fair value is RM2.12. Maintain Underperform. WCT : Served A Request For Arbitration Amounting To RM49.5m Underperform News Update - Bahrain Asphalt Establishment (BAE), a sub-contractor to the 51:49 JV between Gamuda and WCT for the Dukhan Highway project in Qatar, has served the Gamuda-WCT JV a request for arbitration, claiming a total sum of QAR109.3m (RM101.1m), coupled with unquantified sums for legal, arbitration and interest costs. - WCT is of the opinion that it has a good defence against the claims. - Based on WCT’s 49% share of the total sum claimed (before legal, arbitration and interest costs) of RM49.5m, the potential loss to WCT is 6.4sen/share that will put a 35% dent to our projected FY12/10 EPS of 18.2sen for WCT. - Forecasts are maintained pending the outcome of the arbitration. - Fair value is RM2.10. Maintain Underperform.

Technical Highlights Daily Trading Strategy : Outlook Remains Positive If It Sustain At Above 1,300… - Instead of heading higher towards the upper technical gap near 1,354.79, the FBM KLCI took a breather on strong profit-taking pressure yesterday. - The selling is expected to persist today based on the short-term weakness on the technical picture. The index could go lower to cover a technical gap at the 1,300.74 - 1,312.18 region. - However, the 1,300 psychological level should cap further downside. - We are keeping our bullish short- to medium-term technical outlook on the FBM KLCI, so long as it sustains above 1,300. - We expect the underlying market sentiment to cool down slightly and the trading volume to dwindle again in

the next few sessions. We foresee bargain-buying support to return if the index can form a solid base near 1,300. Daily Technical Watch: Faber Group – Poised to head higher towards RM2.10 and RM2.29 soon… - 10-day SMA: RM1.803 - 40-day SMA: RM1.672 - Support: IS = RM1.85 S1 = RM1.65 S2 = RM1.54 - Resistance: IR = RM2.10 R1 = RM2.29

Bulletin Board
Co/Sector Semicon News Impact Recom

February revenues for Advanced Semiconductor While February was a shorter working month, OW Engineering (ASE) & United Microelectronics the mom growth suggests stronger chips Corporation (UMC) grew 1.1% and 0.4% mom (vs. demand in 2010. +1.1% and -7.5% in January) respectively (Digitimes).

Important Dates
Company New entitlements None Going “ex” on 11 Mar Fiamma Holdings Merge Holdings UAC CIMB Krisassets Holdings Hong Leong Bank Sarawak Plantation Taliworks Corporation Bertam Alliance IGB Corporation Tomypak Holdings Symphony House Symphony House Genetec Technology Maxis Entitlement details Ex-date Payment date

Final single tier dividend of 4 sen Share dividend of 1 treasury share for every 14 shares held 3rd interim dividend of 8 sen less 25% tax Interim single tier dividend of 18.5 sen Single-tier interim dividend of 7.5 sen Interim dividend of 9 sen less 25% tax Single tier dividend of 5.5 sen 2nd interim gross dividend of 4 sen less 25% tax Interim dividend of 1.75 sen less 25% tax Interim dividend of 2.5 sen less 25% tax Tax exempt interim dividend of 3 sen Share dividend on basis of 1 treasury share for 40 shares held Single tier interim dividend of 0.5 sen Interim tax exempt dividend of 0.5 sen Interim single-tier tax exempt dividend of 6 sen

11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10 11-Mar-10

09-Jan-10 30-Mar-10 12-Apr-10 30-Mar-10 30-Mar-10 08-Apr-10 29-Mar-10 31-Mar-10 15-Apr-10 02-Apr-10 02-Apr-10 02-Apr-10 29-Mar-10 30-Mar-10

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