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PP 7767/09/2010(025354)

22 June 2010

Malaysia Corporate Highlights

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

New s Upda te
22 June 2010

EON Capital Share Price

Fair Value
Primus Serves Petition Against EON Cap And Recom : Market Perform
Table 1 : Investment Statistics (EONCAP; Code: 5266) Bloomberg: EON MK
Net EPS Net Net
Dec (RMm) (RMm) (sen) (%) (x) (RM/s) (x) (sen) (sen) (%) (%)
2009 421.9 341.1 49.2 155.0 14.3 5.13 1.4 - - - 10.1
2010f 497.4 373.1 53.8 9.4 13.1 5.59 1.3 56.2 10.0 1.4 10.0
2011f 563.2 422.4 60.9 13.2 11.6 6.12 1.1 62.8 10.0 1.4 10.4
2012f 625.0 468.8 67.6 11.0 10.4 6.72 1.0 69.4 10.0 1.4 10.5
Main Board Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

Issued Capital (m shares) 693.2

♦ Primus serves petition against EON Cap and Directors ... EON Cap Market Cap (RMm) 4,880.2
announced yesterday that it had received a petition containing several Daily Trading Vol (m shs) 0.5
complaints brought by Primus against the company and its directors 52wk Price Range (RM) 4.32 - 7.22
(except for Mr. Ng Wing Fai). The petition seeks relief of the High Court of Major Shareholders: (%)
Malaya under Section 181 of the Companies Act on the grounds that: 1) Primus Pacific Partners 20.2
R.H. Development Corp 16.3
the affairs of the company are being conducted or the powers of the
EPF 13.1
directors are being exercised in an oppressive manner to shareholders;
Kualapura 11.1
and 2) some acts of the company have been done or some resolutions of Khazanah 10.0
the shareholders have been passed or proposed to be passed which
unfairly discriminate the shareholders. FYE Dec FY10 FY11 FY12
EPS chg (%) - - -
♦ … seeking court’s decision whether HL Bank’s offer is lawful. We Var to Cons (%) (4.2) (2.9) (2.5)
understand Primus’ decision to file the petition is based on legal opinions it
PE Band Chart
sought, which concluded that the manner in which HL Bank’s (MP,
FV=RM9.05) offer was proposed to be implemented is unlawful. Thus
PER = 25x
rather than seeking an interim injunction, which would only be a PER = 20x
PER = 15x
temporary remedy, Primus is seeking a decision from Court as to whether PER = 10x
the offer has been done in a lawful manner. A hearing has been fixed on 6
Jul and this appears likely to take place before EON Cap’s EGM for
shareholders to decide on HL Bank’s offer (to be held not later than 14
clear days from the date of dispatch of the circular).

♦ Deal could go back to drawing board if Court rules in favour of Relative Performance To FBM KLCI
Primus. If the Court decides in favour of Primus, this could potentially
mean that the offer would need to go back to the drawing board. Also, HL
EON Capital
Bank may possibly decide to walk away from the deal. Otherwise, it will be
up to shareholders to decide on the matter.
♦ Investment case. We are maintaining our indicative fair value of RM8.07
(15x FY10 EPS) and Market Perform call on the stock. In the near term,
we believe the potential appreciation in EON Cap’s share price would likely
be capped at HL Bank’s offer price (RM7.30/share). The offer aside,
fundamentally, EON Cap’s 1QFY10 results have helped to reinforce our
view that its fundamentals are improving. Our assumptions (e.g. loan
growth) and forecasts (e.g. ROE) are currently more conservative than
management’s targets, which suggests upside potential to our numbers if
management executes its plans well. Thus, we continue to hold the view
David Chong, CFA
that HL Bank’s offer is too low and we do not discount the possibility that (603) 9280 2186
EON Cap’s shareholders may reject the offer, thereby “forcing” HL Bank to
increase its offer price.
Please read important disclosures at the end of this report.

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Table 2. Earnings Forecasts Table 3. Ratio Analysis & Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Net Interest Income Asset Quality (%)

(+ Islamic Banking) 1,139.5 1,258.6 1,334.9 1,409.8 Gross NPL 3.26 2.76 2.26
Non-interest Income 283.7 318.8 343.7 370.6 Net NPL 1.97 1.64 1.34
Operating Income 1,423.3 1,577.4 1,678.6 1,780.4 SP / NPL 49.00 50.50 52.00
GP / Net Loans 1.49 1.49 1.49
Less: Overhead Loan Loss Coverage 85.57 94.54 106.64
Expenses -837.8 -904.9 -950.1 -997.6 Core Capital Ratio 11.13 11.23 11.43
Pre-provision RWCAR 14.26 14.25 14.36
Profit 585.4 672.5 728.5 782.8
Margins (%)
Less: Loan Loss Yields On Earnings Assets 4.40 4.35 4.30
Provisions -163.5 -175.1 -165.3 -157.8 Avg. Cost Of Funds 2.40 2.41 2.42
Operating Profit 421.9 497.4 563.2 625.0 Interest Spread 2.00 1.94 1.88
Un-adj NIM (ex-Islamic Inc) 2.17 2.11 2.05
Adj to goodwill 0.0 0.0 0.0 0.0 Adjusted NIM (+Islamic Inc) 2.69 2.63 2.59
Pretax Profit 421.9 497.4 563.2 625.0
Profitability (%)
Less: Tax -80.8 -124.4 -140.8 -156.3 ROE 10.05 10.40 10.53
Effective Tax Rate 19.2 25.0 25.0 25.0 ROA 0.77 0.81 0.83
(%) Cost / Income Ratio 57.37 56.60 56.03
Profit After Tax 341.1 373.1 422.4 468.8 Expenses / Avg. Assets 1.87 1.81 1.77
Provisions / Avg. Net Loans 0.52 0.45 0.39
Minorities 0.0 0.0 0.0 0.0
Net Profit 341.1 373.1 422.4 468.8 Liquidity (%)
Source: Company data, RHBRI estimates Loan Deposit Ratio 93.06 93.25 93.46
Net / Gross Loan Growth 10.23 9.20 8.22
Deposit Growth 10.00 9.00 8.00
Source: RHBRI estimates


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
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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
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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 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 KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

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Overweight = Industry expected to outperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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