PP 7767/09/2010(025354

)

Malaysia

2 April 2010

Corporate Highlights
Sector Upda te

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

2 April 2010 Recom : Overweight (Maintained)

MARKET DATELINE

Property
Bullish Outlook For Developers

Table 1 : Property Sector Valuations FYE Sunrise Glomac^ Sunway City Axis REIT IJM Land^ Mah Sing Quil Capita Hunza Prop YNHB KLCC^ SP Setia Jun Apr Dec Dec Mar Dec Dec Jun Dec Mar Oct Price (RM/s) 2.08 1.42 3.33 2.00 2.39 1.93 1.03 1.25 1.54 3.30 4.13

EPS (sen) FY10 FY11 32.9 15.4 34.8 16.4 18.4 15.8 8.9 24.2 16.1 26.3 18.6 36.2 19.4 38.8 17.3 34.4 21.1 9.3 24.7 18.0 29.7 21.7

EPS growth (%) FY10 FY11 17.6 24.7 9.8 2.6 88.5 8.3 7.3 27.4 15.8 2.5 16.4 18.0 19.0 10.1 26.5 11.6 6.0 87.2 33.7 4.7 2.1 11.6 12.6 16.7 25.6 27.0

PER (x) FY10 FY11 6.3 9.2 9.6 12.2 13.0 12.2 11.6 5.2 9.5 12.5 22.2 12.3 12.3 5.7 7.3 8.6 11.5 6.9 9.1 11.0 5.1 8.6 11.1 19.0 9.8 9.7

P/NTA (x) FY10 0.9 0.7 0.7 1.2 1.4 1.5 0.8 0.6 0.8 0.6 1.9

P/CF (x) FY10 6.7 11.2 6.1 6.0 4.9 9.1 2.9 4.9 7.1 6.8 18.0

GDY (%) FY10 2.4 6.3 2.4 8.2 0.8 4.4 8.0 6.0 4.2 3.3 2.2

Rec OP OP OP OP OP OP OP MP MP MP MP

Sector Avg (ex-REIT and KLCCP) ^ FY09 & 10 refer to FY 10- FY11

Maintain bullish stance. The continuous strong take-up / booking rate recorded by developers have again confirmed our bullish view on the sector. The sector, which is currently driven by the improving economic outlook, easy monetary conditions and rising inflationary expectation, is on track to recover from the global economic downturn in 2008-2009.

Strong sales despite rate hike. Although the recent 25bps rate hike in BLR will likely
reduce home buyer’s affordability, demand for properties remains strong. We believe the strong demand is well supported by: a) high affordability due to still cheap mortgage rates and attractive financial packages offered by developers; and b) home buyers are rushing to buy properties to capitalise on current cheap financial packages before further rate hike amidst the economic recovery. We believe the current strong sales momentum would filter into 2H10 in view of the abovementioned positive issues.

Table 2. (RM/share) Company Glomac Hunza Prop IJM Land Mah Sing SP Setia Sunrise Sunway City YNH Prop Axis REIT Quill Capita KLCCP

Fair Price 1.42 1.25 2.39 1.93 4.13 2.08 3.33 1.54 2.00 1.03 3.30

values FV 1.56 1.43 3.19 2.45 4.66 2.76 5.33 1.86 2.34 1.17 3.64

Stronger developers’ confidence level.

As the economy is back on the recovery

path, developers’ confidence is getting stronger. This can be seen in their aggressive launching and land acquisition plans. Many of them are lining up new launches for 2010 and some have even adopted an aggressive landbanking exercises. Meanwhile, most developers have indicated their intention to withdraw some of their existing financial packages. The gradual withdrawals of housing incentives suggest lower interest expenses to be borne by developers, and hence, stronger margins in the coming periods.

House prices are well supported by the locals. We understand that most of the
recent property transactions were done by local buyers. With continued buying interest by the locals, prices are expected to be well supported. However, we expect increasing participation of foreign buyers ahead given: a) relatively cheap property prices in Malaysia compared to regional peers; b) anticipation of stronger exchange rate; and c) expect more active foreign participation as confidence in the new economic model gathers momentum. Moreover, there is no housing bubble in the local property market, hence lesser policy risk to foreigners vs. its regional peers. Risks include: 1) competition from peers; 2) delays in launches and approvals; 3) rising raw material prices; and 4) country risk; and 5) non-renewal of tenancy after expiry. Maintain Overweight on the property sector. Our top picks are IJM Land (OP, FV = RM3.19), Suncity (OP, FV = RM5.33) and Mah Sing (OP, FV = RM2.45). Please read important disclosures at the end of this report.

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Joshua Ng (603) 92802237 joshuang@rhb.com.my

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2 April 2010

Maintain bullish stance on the property sector. The continuous strong take-up / booking rate recorded by developers (under our coverage) have again confirmed our bullish view on the sector. The sector, which is driven by the improving economic outlook, easy monetary conditions as well as rising inflationary expectation, is on track to recover after the global economic downturn in 2008-2009. Strong sales despite rate hike. Although the recent 25bps rate hike in BLR will likely reduce home buyer’s affordability by 2.5-3%, demand for properties remains strong (e.g. strong booking rate of about 70% recorded by Sunway SPK 3 Harmoni townhouse during a recent soft launch and 3,000 registrants for the soon-to-be launched 378 units service apartment @ Glomac Damansara). We believe the strong demand is well supported by two key factors, i.e: a) high affordability due to still cheap mortgage rates and attractive financial packages offered by developers; and b) home buyers are rushing to buy properties to tap into current cheap financial packages (offered by both bankers and developers) before a further rate hike and withdrawal of housing packages by developers during the economic recovery. We believe the current strong sales momentum would be carried into the 2H10 in view of abovementioned positive issues. Stronger developers’ confidence level. As the economy is back on the recovery path, developers’ confidence is getting stronger. This can be seen in their aggressive launching and land acquisition plans. Many of them are lining up new launches for 2010, e.g. Sunway City for its Sunway SPK 3 Harmoni, Sunway Rymba Hills and Sunway Velocity, Sunrise for its Solaris Tower, Mah Sing for its Garden Residence, Icon Residence, iParc 2 @ Shah Alam and One Legenda @ Cheras, SP Setia for its KL EcoCity, Brook Residences, Reflections Condominium @ Setia Pearl Island and Setia Sky Residences –phase 2, IJM Land for its Light Collection, YNH Property for its Fraser Residence and Kiara 163 – service apartment, Glomac for its Glomac Damansara service apartments, Magna Prima for its Magna City, Selayang and Shah Alam gated and guarded housing projects, and etc. Aggressive launches are to ride on the coming property upcycle. The strong confidence level is also reflected in developers’ landbanking exercises. Developers with strong balance sheet like Mah Sing (net cash of 27 sen as at Dec 09) and Glomac (with net gearing of 0.3% as at Jan 10) are actively replenishing their landbank. The former had proposed to acquire a 19.2-acre freehold industrial land in Shah Alam for its iParc 2 as well as 6.32-acre freehold commercial land in Cyberjaya early this year, whilst the latter is now in talks to acquire prime land in the city centre which will be developed into a RM4-5bn iconic integrated commercial project, with a similar concept as Glomac Damansara. Meanwhile, Sunrise (with net gearing of 0.36x as at 2Q10) has started its “Stage 3 Growth” strategy (i.e. further widening product range, targeting new markets and new areas) via a JV with Sime Darby to develop a freehold commercial land in Bukit Jelutong for a total purchase consideration of RM114.1m (or RM125 psf). The company believes the JV will diversify its products and landbank location as well as pave the way for future collaboration between Sunrise and Sime Darby. The confidence level does not stop at the Malaysian shore. Big property players like SP Setia, Suncity and Mah Sing have spread their wings via JV or direct land purchase in foreign countries i.e. Vietnam, China and Australia. Early this week, SP Setia penetrated the Australian property market by acquiring a 4,340 sq.m. land (with purchase cost of AUD30m) in the central spine of the Melbourne’s CBD. The land, which will be developed into a high-density inner city integrated residential and commercial project, is said to have an estimated GDV of about AUD470m(RM1.4bn). House prices are well supported by the locals. Our recent discussions with developers revealed that most of their property launches were mainly snapped up by local buyers over the past three months. With continued interest by local buyers, prices are expected to be well supported. However, we expect increasing foreign participation due to: a) relatively cheap property prices in Malaysia compared to its regional peers. It will likely attract buying interest from international buyers. According to Global Property Guide, Malaysia average property buying price is currently trading at 50%, 87% and 91% discount to China, Singapore and Hong Kong prices, respectively; b) stronger exchange rate could attract buying interest of international investors. Our economist expects the ringgit to strengthen by 184bps from the current RM3.26/USD to RM3.20/USD by end-2011; and c) expect more active foreign participation in the coming months as confidence in the new economic model gathers momentum. Moreover, we do not expect more government measures to curb speculation activities after the reintroduction of real property gains tax (RPGT) in end-2009 as there are no signs of a housing bubble in the local property market given the Malaysia House Price Index only grew by merely 3.1% CAGR in 1999-2Q09. This further enhances the attractiveness of local properties from the international perspective.

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2 April 2010

Chart 1:
140.0 130.0 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 40.0

The Malaysian House Price Index grew by 3.1% CAGR between 1999-2Q09.

Source: NAPIC

Expect better margins due to potential withdrawals of housing incentives. Given improving economic outlook and strong property demand, most developers have indicated their intention to not continue existing financial packages and only provide housing incentives to certain property projects (particularly on high-end projects). For e.g. Suncity discontinued its Triple Z series housing package and is in the midst of formulating a new housing package for its high-end projects, Glomac’s housing schemes are only offered to Glomac Damansara – phase one commercial units, whilst SP Setia is unsure for now if it will continue its “Best For The Best” financial packages after Apr 10. The gradual withdrawals of housing incentives suggest lower interest expenses to be borned by developers, and hence, stronger margins in the coming periods. More opportunities from government land. The Government has indentified several parcels of land in Jalan Stonor, Jalan Ampang and Jalan Lidcol in Kuala Lumpur to be tendered out for development by the private sector. Apart from that, it is also forming a JV with the EPF to promote the development of 3,000 acres in Sungei Buloh into a new hub for the Klang Valley. These land parcels are expected to bring in over RM5bn new investments with opportunities for the private sector to participate. In our view, local property players would benefit as the land parcels are strategically located and have great development potential. We believe government-linked / PNB / EPF-owned companies like MRCB, UEM Land, Sime Darby, SP Setia and Mah Sing stand a good chance of winning the bids. Forecasts. No change to our earnings forecasts. Risks. The risks include: 1) competition from peers; 2) delays in launches and approvals; 3) rising raw material prices; and 4) country risk. Investment case. We are maintaining our Overweight stance on the property sector as a whole. Our top picks for the sector (in order of preference) are IJM Land (huge unbilled sales of close to RM1bn, a proxy to the property sector with relatively high liquidity versus other property stocks as well as potential earnings surprise from the disposal of commercial properties; OP, FV = RM3.19), Suncity (would benefit from both property development and investment property divisions under the current asset reflation environment; OP, FV = RM5.33) and Mah Sing (for its fast turnaround strategy; OP, FV = RM2.45).

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2 April 2010
Chart 2: IJMLand Technical View Point

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IJMLand’s upward momentum accelerated in Aug 2009, and reached its highest level since Jan 2008 in Oct last year at RM2.68. Thereafter, streams of profit-taking activities returned, pressing the share price constantly to below the RM2.50 level. Since early Mar 2010, it regained its momentum and reclaimed the RM2.18 support level, and closed Thursday handsomely at RM2.39, with consistent positive candles on the chart. Given the upbeat momentum readings and the uptrend resumption of the 10-day SMA of late, we are of the view that the stock is poised to retest RM2.50 soon. A successful removal of RM2.50 will lead to a retest of RM2.68 high and a tougher resistance level near RM2.74 in the near term.

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 Berhad (previously known as RHB Sakura Merchant Bankers Berhad). 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. 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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. Additional information on recommended securities, subject to the duties of confidentiality, will be made available upon request. 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.

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