Malaysia

PP 7767/09/2010(025354)

Corporate Highlights
Sector Upda te

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

MARKET DATELINE

2 April 2010 Recom : Overweight (Maintained)

Banking
HL Bank Ups Offer For EON Cap
PER (x) Price FV 13.12 8.96 16.24 6.13 8.07 3.03 9.05 3.27 NR Rec OP OP OP OP OP MP MP OP NR CY08 15.2 17.0 26.4 15.8 36.5 14.3 16.6 16.7 11.6 17.3 CY09 15.6 16.4 18.3 13.2 14.3 11.3 15.2 17.7 10.1 15.1 CY10 13.7 13.3 15.3 11.1 13.1 10.2 15.3 13.2 9.7 12.7 CAGR (%) 10.6 21.7 18.1 13.7 11.2 8.4 1.5 21.5 7.8

Table 1: Sector Valuations P/BV (x) CY08 4.1 2.2 3.0 1.6 1.5 1.0 2.5 1.6 1.6 2.3 CY09 3.6 1.8 2.5 1.4 1.4 0.9 2.3 1.5 1.4 2.0 CY10 3.1 1.9 2.4 1.2 1.3 0.9 2.1 1.4 1.3 1.8 FY08 27.3 9.9 11.9 11.6 4.2 6.8 16.7 16.8 13.3 ROE (%) FY09 24.5 12.1 15.0 11.8 10.1 8.1 14.8 8.6 12.3 FY10 24.2 12.8 16.1 12.1 10.0 8.6 13.4 9.1 13.0 *I/B/E/S Estimates

Public Bank – L Maybank CIMB Grp AMMB EON Cap Affin Holdings Hong Leong AFG RHB Cap* Sector Wt Avg

11.70 7.47 14.38 4.99 7.05 2.91 8.67 2.88 5.66

HL Bank ups offer to RM5.1bn ... HL Bank (MP, FV=RM9.05) has upped its cash offer to acquire EON Cap’s (OP, FV=RM8.07) assets and liabilities to RM5,060.4m from RM4,921.8m (Offer). The revised Offer translates into RM7.30/EON Cap share (from RM7.10/share) or 1.42x FY09 BV/share (1.39x previously). According to press reports, the sweetened deal was made as EON Cap’s independent directors were of the view that they could not present the same offer to shareholders. The Board of EON Cap has until 5 Apr to reply to the Offer. … but conditions tightened? We highlight two differences between the terms of yesterday’s offer and that made on 30 Mar. Firstly, the condition on distributions has been revised such that any dividend declared or paid from the date of the revised Offer shall be deducted from the Offer price and this, we believe, would include EON Cap’s FY09 final TE DPS of 10 sen. In contrast, this DPS would not have been deducted from the previous offer price. Secondly, in addition to the condition that HL Bank has the right to withdraw the Offer if EON Cap enters into M&A talks with other parties, the revised Offer now includes an additional exclusivity clause whereby EON Cap can only negotiate solely with HL Bank. This clause, we believe, is to avoid unwelcomed distractions from potential “noises” such as competing bids. Impact to HL Bank. In our view, the revised Offer price is still a good deal for HL Bank, especially when viewed relative to the full takeover transaction P/BV multiple of above 2x during the second round of consolidations. As highlighted previously (see HL Bank report dated 31 Mar), we estimate the deal would be EPS and ROE enhancing. From a qualitative perspective, the acquisition would help lift the bank’s market share in the HP and SME segments as well as propel the bank to become the fourth largest bank in Malaysia in terms of total assets (from sixth position currently). This could help ensure HL Bank’s long-term status as an anchor bank. Impact to EON Cap. As for EON Cap, we are maintaining our view that the takeout offer is too low given improving fundamentals and does not recognise the Group’s hidden value such as unabsorbed tax losses at MIMB and Section 108 tax credits (available to frank dividends) at EON Bank. In addition, after years of low single-digit expansion, we expect loan growth to accelerate post transformation, on the back of a doubling in loan approvals and double-digit growth in undrawn commitments. Likely to boil down to EON Cap’s shareholders. As with the previous offer, we believe EON Cap’s “new board” is likely to accept the offer and table it to the shareholders. The smooth appointment of the new directors also suggests that the shareholders would prefer to deliberate on any offers, although approval is still uncertain.

Chart 1. Industry NPL
(RMm ) 69,000.0 64,000.0 59,000.0 54,000.0 49,000.0 9.0 44,000.0 7.0 39,000.0 34,000.0 29,000.0 24,000.0 Jun-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 5.0 G NPL(LHS ross ) G NPLratio (RHS) ross Net NPLratio (RHS ) (% ) 1 7.0

1 5.0

1 3.0

1.0 1

3.0

1 .0

Chart 2. Industry LLC
95 90 85 80 75 70 65 60 55 50 45 40 35 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-1 0

(%)

David Chong, CFA (603) 9280 2186 david.chong@rhb.com.my

Please read important disclosures at the end of this report.
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com

Page 1 of 2

2 April 2010

IMPORTANT DISCLOSURES
This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank (previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report. This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity securities or loans of any company that may be involved in this transaction. “Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports. This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel. The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues. 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. RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. securities, subject to the duties of confidentiality, will be made available upon request. Additional information on recommended

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.

Page 2 of 2
A comprehensive range of market research reports by award-winning economists and analysts are exclusively available for download from www.rhbinvest.com