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

RHB Equity 360°
9 July 2010 (Allianz, Banks, KNM, LPI; Technical: Magna Prima) Top Story : Allianz – ICPS rights to commence trading Outperform Company Update - The rights to purchase Allianz ICPS will start trading on 9 Jul and will cease trading at 5pm 16 Jul. We estimate the rights will trade at an estimated price of 61 sen. - Based on our estimates of 35% and the assumption that the ICPS are worth the same as the ordinary shares, together with the 1.2x dividend payout for the ICPS, we believe the ICPS should trade at a premium of 20% from the ordinary share, or at RM4.55 after neutralizing the yield impact. This implies that the rights could trade up to RM1.37. - We are maintaining our earnings forecast while adjusting our fair value after taking into account: 1) the fully diluted EPS after adjusting for ICPS; 2) the rollover of our base valuation year to FY11. Our new fair value for Allianz is RM5.32. Maintain Outperform.

Macro View IPI : Industrial production bounced back in May, GDP growth to remain resilient in the 2Q Economic Highlights (published 8 July 2010) - Industrial production rebounded to increase by 12.5% yoy in May, after slowing down to 10.7% in Apr but off a high of +14.2% in Mar, suggesting that industrial activities are moderating but remained resilient. The pick-up was reflected in a faster increase in manufacturing production. This was, however, offset partially by a slowdown in electricity output and a decline in mining output during the month. - Stronger growth in May’s industrial and manufacturing production suggests that economic activities will likely to have remained resilient in the 2Q. We expect real GDP growth to soften to 7.5-7.8% yoy in the 2Q, from the strongest growth of +10.1% in a decade in the 1Q, as exports moderate. - We expect real GDP growth to slow down to 4.8% yoy in 2H 2010, from +8.8% estimated for the 1H. For the full-year, real GDP will likely expand by 6.8% in 2010, a rebound from -1.7% in 2009. Interest rates : Bank Negara raised its key policy rate by 25 basis points to 2.75% Economic highlights (published 9 July 2010) - Bank Negara raised the Overnight Policy Rate (OPR) by another 25 basis points to 2.75% on 8 Jul. - This was the third increase in a row for this year, in a move to prevent financial imbalances from building up and given that the economy has turned around since the 4Q of last year. - Following the hike, the MPC considers “the new level of the OPR to be appropriate and consistent with the current assessment of the growth and inflation prospects”. The remark suggests that the Central Bank is likely to be done with its rate hike this year. - As a result, we believe the Central Bank is likely to hold its key policy rate unchanged at 2.75% for the rest of this year, given that there is no urgency to raise interest rates rapidly and the country’s economy will likely slow down in the 2H of the year, as the global economy weakens.

Sector Call Banks : BNM raises OPR by 25bps to 2.75% Overweight Sector Update - BNM yesterday raised the Overnight Policy Rate (OPR) by another 25bps to 2.75%, the third time that it has raised rates thus far this year (25bps each time). With that, we think BNM is likely to keep the OPR unchanged for the rest of the year. - Typically, banks with higher variable rate loans to total loans would benefit more given a higher proportion of assets would be re-priced faster. Banks with higher CASA ratio would also benefit more as CASA rates, unlike fixed deposit rates, are not expected to be adjusted by the same magnitude as the hike in OPR. - We do not expect the higher interest rate to slow loan growth or impact NPLs as we are of the view that this hike in OPR is merely a move to normalise the interest rate. Moreover, the economic recovery would

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mitigate the potential impact on slowing loan expansion and impact on asset quality. By our estimates, most of the banks (except for AMMB and Maybank) should be beneficiaries from a rate hike (up to 3%, full-year impact) and this would also help cushion competitive pressures on NIMs. No change to our Overweight call on the sector.

Corporate Highlights KNM : Good, but not enough Underperform News Update - KNM announced that its subsidiaries in Malaysia, Australia and Europe had won new contracts worth RM288.8m, which will contribute positively to FY12/10-12 i.e. spread over the next 2½ years. - While these contracts should be viewed positively for KNM, we are concerned that this may not be enough. We note that the company has already secured RM1bn worth of orders for the 1H2010 (including the RM288.8m), but still needs another RM1bn in 2H to ensure growth in FY11 revenue. - We were previously too optimistic on our FY10-12 revenue assumptions, and after speaking with management, we have cut our projections by 14%, 23% and 25% respectively. While we have also adjusted our cost assumptions for the respective years, our FY11-12 core EPS forecasts are sharply reduced by 26% and 21% respectively. - Accordingly, our fair value is cut to RM0.36 (from RM0.49) based on unchanged 10x FY11 PER. We reiterate our view that the near-term outlook for the oil and gas industry is uncertain, and contract flows are unlikely to pick up substantially within the next six months. Maintain Underperform. LPI Capital : Below expectations; proposed bonus issue and rights issue Outperform 2QFY10 Results - 1HFY12/10 net profit of RM64.8m (+11.2% yoy) accounted for 42% of our and 44% of consensus full-year estimates respectively. However, we note that 2Q earnings have consistently been weakest, mainly due to the lower investment income at group level as dividends from Public Bank are recognised in 1Q and 3Q. - LPI declared a single-tier interim net dividend of 10 sen for 2QFY12/10, which is low, compared to the dividend in the same period last year of 26.25 sen. - As highlighted in our previous report, we expected LPI to undertake a corporate exercise to increase its shares liquidity. LPI proposed a 1-for-2 bonus issue, which will result in an issuance of up to 69.4m new shares. LPI also proposed a 1-for-10 rights issue at an issue price of RM7.00, - We are leaving our forecasts unchanged until the approval of the proposals, which we understand would be by the end of the 3Q. - Maintain Outperform call, with a new fair value of RM19.23 after rolling forward our valuation base year to FY11 (from FY10 previously) with an unchanged target PER of 15x.

Technical Highlights Daily Trading Strategy : Volume growth crucial to sustain this rebound … - As we highlighted earlier, the removal of the 10-day SMA of 1,314 with another positive candle on the chart, has confirmed a technical rebound is underway for the FBM KLCI. - Buoyed further by upbeat momentum readings, the benchmark stands a good chance to extend its upside towards June’s high of 1,335.31 and even to the extent to retest the tough hurdle of 1,350 in the near term. - But critically, the index must sustain at above the 10-day SMA in the near term in order to avoid a sudden pullback on profit-taking pressure. - Also, crucially, the daily turnover should grow in the coming sessions for the trading sentiment to improve further and ultimately to sustain the current recovery leg. - Otherwise, the index will risk falling below the 10-day SMA, which will threaten this rebound, in our view. Daily Technical Watch: Magna Prima – Not bullish without removing RM0.87 and 40-day SMA of RM0.86… - 10-day SMA: RM0.81 - 40-day SMA: RM0.862 - Support: IS = RM0.75 S1 = RM0.60 S2 = RM0.485

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Resistance:

IR = RM0.87

R1 = RM1.05

R2 = RM1.15

Bulletin Board
Co/Sector Gaming News According to a media report, industry sources and analysts were quoted as saying that the NFOs were lobbying the government for a reduction in the first prize pool for 4D games to offset the impact of the duty tax hike. (The Star) Impact Recom

This is not true, as we understand that the NFOs N will NOT lobby for a decline in the first prize pool, but rather a decline in the prize pool for the other secondary prizes. This will have a less significant impact to sales volume than a reduction in the first prize pool, if any, given that the most important indicator for punters is usually the size of the first prize and not the secondary prizes. Neutral. While recent positive news flow will MP, FV = boost trading sentiment of Puncak, we are RM2.92 keeping to our view that it will still take a while before the long-awaited water sector restructuring can materialise, given that several issues remain unresolved. These include: 1) the fragmented industry structure; 2) the pricing issue; and 3) the O&M ownership issue.

Puncak Niaga

According to sources, the bondholders of Syabas (a 70% subsidiary of Puncak Niaga) are concerned over the deadlock in Selangor water asset consolidation and may ask the Federal Government to step in to resolve this once and for all. (Starbiz)

Important Dates
Company New entitlements LPI Capital WCT NPC Resources Kretam Holdings Going “ex” on 12 Jul Seg International Seg International Nilai Resources Group Oriental Holdings Puncak Niaga Entitlement details Single tier interim dividend of 10 sen 3rd dividend payment for 13.5% non-cumulative ICPS Final single tier dividend of 3 sen Final semi-annual interest payment on 1% ICULS 2003/2010 Ex-date 21-Jul-10 22-Jul-10 26-Jul-10 30-Jul-10 Payment date 29-Jul-10 6-Aug-10 10-Aug-10 10-Aug-10

Share split on the basis of 1-into-2 Bonus issue on the basis of 2-for-5 First and final dividend of 2.5 sen less 25% tax Final dividend of 5 sen less 25% tax Final single tier dividend of 10 sen

12-Jul-10 12-Jul-10 12-Jul-10 12-Jul-10 12-Jul-10

30-Jul-10 30-Jul-10 3-Aug-10

...For more details, see individual reports attached IMPORTANT DISCLOSURES
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