You are on page 1of 26


PP 7767/09/2011(028730)

15 October 2010

The 2011 Budget

Setting The Pace Towards Transformation

Executive Summary
◆ The 2011 Budget sets the pace of economic transformation with the right emphasis on reinvigorating private
investment and intensifying human capital development. These are the major positives in the Budget which,
in our view, are critical to chart the direction of the country in moving towards a high income economy.
There are, however, no substantial new information that will likely excite equity investors in the immediate
term, in our view.

◆ Whilst the Budget aims to strike a balance between fiscal consolidation and the need to sustain spending
to cushion the economy against the risk of a sharper-than-expected slowdown in the global economy, the
lack of broader measures to increase revenue, and reduce subsidies and other operating expenditure
suggests that there is limited room for manoeuvre. As a result, despite a less expansionary Budget, the
fiscal deficit is only projected to ease marginally to 5.4% of GDP in 2011, from 5.6% estimated for 2010.

◆ Consequently, our views on the market outlook, earnings and sector calls remain relatively unchanged. In
fact, the Budget speech focused attention primarily on private sector projects that are already in the news.
While there are still lack of details, we believe the news flow will likely come after the Budget speech, now
that the timelines for the major projects have been set and are mostly expected to begin in 2011. This
suggests that the groundwork will accelerate from here on and we believe this will maintain the positive
flow of news to the construction sector and, to a lesser extent, the property sector. Therefore, we believe
any knee jerk to sell would only be temporary as the post-Budget news flow continues to sustain the
liquidity-driven rally.

◆ Whilst market valuations are no longer cheap, the influx of G3 liquidity to Emerging Asia's equity, bond and
currency markets in search for higher returns could still send the market higher in the near term, in our
view. These short-term capital, however, are transient in nature and could reverse out relatively quickly
with changes in outlook. Already, the destabilising capital flows and sharp appreciation of currencies in
Emerging Asia have created concerns and induced policy intervention in the form of short-term capital
control and currency intervention in some countries. As a result, we believe the market may move into
a phase of greater volatility in the months ahead.

◆ Longer term, we believe there is still room for the market to trend higher in 2011. This is primarily
predicated on the view the global economy is more sustainable than feared, which in turn implies sustained
corporate earnings growth (+12.8% projected for 2011) that will continue to create new shareholders' value
for investors. Consequently, our end-2011 FBM KLCI target remains unchanged at 1,640, based on 15x
mid-cycle 2012 earnings. This, however, will not be without volatility as the global economy enters into
a period of slowing growth in an uneven phase of recovery.

◆ Under such circumstances, investors should remain vigilant and do some top slicing on stocks where
valuations have become rich in the run-up of the market. This would then provide more room for investors
to accumulate fundamentally-robust stocks on weakness.

Please read important disclosures at the end of this report.

Key Tax And Expenditure Measures
◆ Fiscal consolidation is not as sharp as earlier expected given that the projected budget deficit comes
in higher than the guidance provided under the Tenth Malaysia Plan. This suggests that the Government
intends to front load its expenditure to facilitate the implementation of the various initiatives proposed for the
NKRAs and NKEAs under the New Economic Model. This is prudent given rising risk of a sharper-than-
expected slowdown in the global economy.

◆ The deficit of the Federal Government is projected to drop slightly to 5.4% of GDP in 2011, from
a deficit of 5.6% of GDP estimated for 2010. Taken together, the impact on the Malaysian economy
is likely to be less expansionary in 2011, but still contributing to growth, albeit by a smaller
magnitude compared with 2010, in our view.

◆ The consolidated public sector is projected to record a smaller deficit in 2011 due mainly to a reduction
in development expenditure by both the general government and the non-financial public enterprises (NFPEs).
As a result, the consolidated public sector is also expected to exert a less expansionary impact on
the economy during the year.

Reinvigorating Private Investment

◆ Given the budget constraints, the Government appears to be even more dependent on Public-Private Partnership
(PPP) initiatives to drive investments.
◆ Although some of the investments were already announced previously, the market has been waiting for
confirmation and more details on:
o RM46bn Kuala Lumpur International Financial District, to be developed by 1Malaysia Development Berhad
(1MDB) and Abu Dhabi’s Mubadala Development Company, commencing next year.
o Mass Rapid Transit (MRT) project within the Greater KL NKEA, which will be implemented between 2011 and
2020 with an estimated private investment of RM40bn.
o Development of the 2,680-acre Malaysian Rubber Board land in Sungai Buloh by EPF, which is estimated
to be worth RM10bn and expected to be completed by 2025.
o PNB’s RM5bn 100-storey Warisan Merdeka to be built on the site of the Stadium Merdeka and Stadium
Negara, and targeted for completion by 2015.
◆ The Government repeated earlier statements for the Government-Linked Investment Companies (GLICs) to
divest their shareholdings in major listed companies. However, the GLICs will now also be allowed to increase
their overseas investments, e.g. EPF’s overseas investments will be allowed to rise to 20%, from 7% currently.
◆ Three new stockbroking licences will be issued to local or foreign players to increase the retail market
participation, while new fixed income and equity products such as Exchange Traded Funds will be facilitated
by the Securities Commission and launched by Bursa Malaysia to meet investors’ demand.
◆ The Government will establish a RM1bn syariah-compliant Bumiputera Property Trust Scheme under the
Bumiputera Property Trust Foundation (BPTF) to enable more bumiputera ownership of prime commercial
properties in the Klang Valley, through a group ownership scheme.
◆ In the oil & gas industry, as previously mentioned in the Economic Transformation Programme (ETP), the
Government will allocate RM146m to help establish an Oil Field Services and Equipment Centre in Johor
although the project will be mainly driven by RM6bn private investments over 10 years.
◆ For green technology, the Government extended the pioneer status and investment tax allowance for renewable
energy and energy efficiency activities until 31 Dec 2015. Import duty and sales tax exemption on related
equipment has been extended until 31 Dec 2012. Full import duty exemption for hybrid cars will be extended
to 31 Dec 2011, while excise duty exemption was raised to 100%, from 50% previously.
◆ The B5 programme to blend biofuels with petroleum diesel will be mandatory from June 2011 in Putrajaya,
Kuala Lumpur, Selangor, Negeri Sembilan and Melaka. The Government also intends to follow up with the Feed
in Tariff (FiT) mechanism under the Renewable Energy (RE) Act, but no timeline was given.
◆ The Government plans to boost the tourism industry via a number of measures including improving infrastructure
and facilities. The Government also mentioned but did not elaborate on the RM3bn integrated eco-nature resort
in Karambunai, Sabah, which will commence in 2011. More importantly, import duties on 300 consumer goods
(including apparel, handbags and shoes) ranging between 5% and 30% were abolished.
◆ For palm oil, plans are to encourage replanting activity by replacing aged trees with high quality new clones,
through a RM297m fund, while RM150m will be allocated to support downstream oleo derivatives and vitamin


gas. Sarawak (RM93m) and Sabah (RM110m) for development of infrastructure and industrial projects. ◆ Basic minimum wages will be enforced for security guards with effect from Jan 2011. hostels.2bn will be allocated to construct new hospitals.9bn will be allocated to implement basic infrastructure such as water and electricity supply and rural roads. East Coast (RM178m). This follows the increase in salaries of postmen on 1 Jul 2010. plus RM170m incentives for fishermen as well as boat owners and workers to increase fish landing. ◆ The rebate for electricity bills of less than RM20 will continue to ease the burden of the low-income group. ◆ RM568m is provided to build houses for the poor and low-income group. The investment tax allowance period for the last mile broadband service providers has also been extended. ◆ RM474m is provided to enhance productivity and skills of non-graduates to meet the demand for skilled workforce in technical fields. The maximum loan eligibility will be raised to RM450. religious leaders and village heads. sugar. THE 2011 3 BUDGET . ◆ The 1Malaysia Training Programme will commence in Jan 2011 with an allocation of RM500m. ◆ Civil servants will be given financial assistance.◆ RM199m will be allocated to multimedia content. ◆ Toll rates for four highways owned by PLUS Expressway will not be raised for the next five years. vernacular schools. while a scheme is open to all Malaysian permanent estate workers to obtain housing loans at 4% interest rate and a repayment period of up to 40 years extending to the second generation.000. including implementing the River of Life Programme (under the ETP) and greening of Kuala Lumpur. RM6. effective immediately. increase the number of doctors and nurses as well as to obtain supplies of medicines and equipment. ◆ RM6. while the import duty and sales tax exemption on broadband equipment will be extended until 2012. missionary schools.9bn will allocated to finance environmental preservation projects. ◆ RM974m will be allocated to increase food production. ◆ RM576m will be allocated for scholarships. while RM213m will be allocated to enhance proficiency in the national and English languages. Intensifying Human Capital Development Measures ◆ The Government will establish a Talent Corporation in early 2011. ◆ Allocations have been given to the economic corridors of Iskandar Malaysia (RM339m). and only for first-time house buyers with household income less than RM3. cooking oil. from RM360. Family and Community Development to carry out various welfare and community programmes. Strengthening Public Service Delivery Measures ◆ The Government will introduce a point system to facilitate applications for permanent residence status. ◆ RM1.000 per month. Enhancing Quality Of Life Of The Rakyat Measures ◆ RM1. All mobile phones will also now be exempted from sales tax. and easier access to housing loans with effect 1 Jan 2011.000. ◆ RM350m will be allocated to various programmes to combat crime. which will provide a guarantee on down payment of 10% for houses below RM220. ◆ RM15. plus RM250m to be allocated for development expenditure to religious schools. and Government-assisted schools nationwide.000 currently. ◆ Cagamas will introduce the Skim Rumah Pertamaku. flour.000.2bn is allocated to the Ministry of Women. ◆ The Government is allocating RM200m to standardise the prices of rice. The service tax will also be imposed on pay-TV services. ◆ First time buyers will also be given stamp duty exemption of 50% on instruments of transfer and loan agreement instruments on a house price not exceeding RM350. ◆ For the rural population. facilities and equipment.4bn is to be allocated for building and upgrading of schools. Northern (RM133m). petrol and diesel in rural areas. ◆ The service tax will be raised from 5% to 6%. ◆ The Government will increase the monthly allowance for various community leaders.

underpinned by rising consumerism and high savings in the country. but still contributing to growth in 2011. together with measures announced in the 2011 in transforming the Budget. The 1% increase is estimated to bring in additional tax consumerism and high revenue of RM0. in our view. investors in particular. believe the 1. the Government intends to spend more in the initial period of introducing the New Economic Model (NEM). power plant and healthcare related projects. In addition. the 2011 Budget will help albeit at a more moderate pace. deficit is not as sharp as As a result. we believe the contributing to growth in Government is committed to reduce its budget deficit. Similarly. albeit by a smaller on the economy.2% provided under the 10MP. As it stands.6% estimated for 2010.4% of GDP in 2011.0bn for the Facilitation Fund to drive the Public-Private Partnership projects. As a result. is also aimed at convincing the general public and. The Government- linked investment corporations such as the 1Malaysia Development Bhd. this will exert a less expansionary impact on the less expansionary impact economy.Impact On The Economy : Less Expansionary But Still Contributing To Growth THE REVENUE AND EXPENDITURE PROPOSALS Federal Government : Less Expansionary Although the Government will continue to reduce its budget deficit in 2011.0% increase in services tax to 6. but still magnitude compared with 2010 (see Table 1). the Federal Government’s budget deficit is projected to only narrow earlier expected in 2011 slightly to 5. the Government has allocated RM1. targeting construction of highways. As a whole. an extension investment growth of tax incentives for another 5 years to 2015 to encourage companies to undertake food production activities. to ensure 2011 that fiscal policy remains supportive of economic growth. from 5.8% in 2011. This. it is The reduction in the not as sharp as earlier expected given that the projected budget deficit Government’s budget comes in higher than the guidance provided under the Tenth Malaysia Plan (10MP). We believe the Government’s initiatives announced in the 2011 Budget to Initiatives announced in reinvigorating private investment will help to sustain the sector’s growth. As a whole. economy by taking the that the Government is serious in transforming the economy by taking the lead lead and putting the money where its mouth is.6% of GDP estimated for 2010 and compared with the guidance of 4. the abolishment of 5-30% savings in the country import duties of approximately 300 goods preferred by tourists and locals and the RM500 Special Financial Assistance money provided for civil servants will help to sustain consumer spending. we expect private investment to moderate to 7.7bn for the Government. we likely remain resilient. in order to instill confidence. particularly to facilitate the implementation of various The Government is serious initiatives under the model. the Employees Provident Fund and Permodalan National Bhd. have also been earmarked to undertake some huge development projects. which will in turn hurt the country’s exports.0%. Infrastructure and property developments are expected to drive private investment in 2011 as well. We view it as a prudent move given rising risk of a sharper-than-expected slowdown in the global economy. It also indicated that the Mass Rapid Transit (MRT) which cost about RM40bn will be implemented in 2011. Furthermore. THE 2011 4 BUDGET . is unlikely to impact consumer underpinned by rising spending significantly. a cut in import duties to boost tourism and incentives to develop green technology. from +8. These measures include an allocation to encourage to sustain private electrical & electronics industry to invest in high value-added activities. Although consumer spending will be affected somewhat by the reinstatement of Consumer spending will employees’ contribution to the Employee Provident Fund back to 11% in 2011. the Government will offer three new stock broking licences to increase retail market participation. we expect consumer spending to remain resilient. given that the Federal Government will spend more than what it Fiscal policy will exert a collects in terms of revenue. Meanwhile. albeit gradually.

8% of GDP or RM60. Table 1 Federal Government Financial Position 2009 2010(e) 20111(f) 2010(e) 2011(f) (RM bil) (%.2 NFPEs current surplus 101.8 2.4 -0.4 Operating expenditure 170.8 -4. which is envisaged to in 2011 narrow slightly to 7.1 9. change) Revenue 134.7 0. which includes the state The consolidated public governments.0 -5.8 7.1 152.0 53.5 54.8 Overall balance -46. Similarly.3 5.1 Public sector current balance 64.0 -6. This is reflected in also be less expansionary a smaller deficit projected for the consolidated public sector.0 % of GDP +9.0 -0. excluding 2011 tax measures e : Estimates f : Forecasts Source : MOF's Economic Report 2010/2011 Consolidated Public Sector : Also Less Expansionary The consolidated public sector’s fiscal spending. on the back of a reduction in development expenditure.6% of GDP or RM63.5bn in 2011.3 48.7 -23.0 176.7 41.2 9.5 0. local governments and non-financial public sector’s fiscal spending will enterprises (NFPEs).8 Net development expenditure 49.0 132.8 -3.5 -10.2 93. the NFPEs development expenditure is projected to slow down and its deficit is projected to record a smaller deficit of 2.6 +6.9 4.1% projected at the general government level for 2011.8 138.0 63.9 -1.5 7.5 8.2 -1.1 165.2 94.1 -63.3 168.5% estimated for 2010.2 -6.8 3.6 -5.0 Current balance 1.5 % to GDP -7.0 Overall balance -47.8 -7.3 Operating Expenditure 157.6 162.5 General government 54.1 118.8 62.1bn estimated for 2010 (see Table 2). compared with a deficit of 2.9 59.2 162.0 55.2 -15. change) Revenue 158.5 57.5 % of GDP -6. Table 2 Consolidated Public Sector Financial Position 2009 2010(e) 20111(f) 2009 2010(e) 2011(f) (RM bil) (%.2 2. from a deficit of 7.6 +7. statutory authorities. compared with a deficit of 5.4 -60.0 Less : Loan recoveries 0.6 1 Budget estimate.0 3.4 1 Budget estimate.2 2.1 NFPEs 56.2% of GDP estimated for 2010.1 -9.9 4.6 Development expenditure 111.6 4.3 -45.4 -43.8 -7.4% in 2011.1 7. will also be less expansionary in 2011.0 Gross development expenditure 49.8 -9. This is on account of a smaller deficit of 5.6 10. excluding 2011 tax measures Source : Ministry Of Finance Economic Report 2010/2011 THE 2011 5 BUDGET .0 49.3 119.1 54.

there were no significant catalysts for other key economic sectors. While key economic sectors there were the usual allocations for healthcare. and EPF’s RM10bn development of the Malaysian Rubber Board land in Sungai Buloh. We note that EPF and UEM Group’s proposal on 15 Oct to jointly acquire PLUS’s assets and liabilities for RM23bn cash could be seen as a contradictory move. FV = RM10.Impact On The Equity Market : Neutral Given the 2011 Budget’s spending constraints. Our preference would thus still be on the mass housing developers like Mah Sing (OP. which was in line with the theme house buyers to assist the lower-income groups. The PM’s call again to the Government-Linked Investment Companies (GLICs) to GLICs called upon to divest divest their shareholdings in listed companies will once again focus attention on the GLC shares key GLCs. and this uncertainty could have a negative impact on the property sector. FV = RM2. While the lack of details on these projects could be a major disappointment for News flow likely to come investors. These included the RM40bn MRT. FV = RM4. we believe the news flow will in fact come after the Budget speech.30) and MAHB (OP. However. which suggest that the groundwork will accelerate from here on. mid-end Incentive for first-time range housing with incentives for first-time buyers. In fact. As for the property sector. FV = RM3. TNB (OP. the MMHE and Petronas Chemicals high-end properties. TM (MP.51) and MRCB (TB. the projects are mostly expected to begin in 2011. the Budget speech focused attention primarily on private sector projects that Focus on private sector are already in the news. FV = RM5.75). we note the Government’s focus on the low. now after the Budget speech that the timelines for each of these projects have been set. FV = RM5. Post-Budget news flow to but this has been the case even with past budget speeches.33). the RM26bn Kuala Lumpur projects International Financial District. We believe this will maintain the positive flow of news to the construction sector. like Axiata (MP. THE 2011 6 BUDGET . we believe sustain liquidity-driven that a knee jerk reaction to sell would only be temporary as the post-Budget news rally flow (relating to the ETP blueprint to be published on 25 Oct. We believe the 2011 Budget has not provided major catalysts for the equity market. but the upshot is that investors will receive a capital repayment that can be redeployed in other stocks. and incentives for civil servants. it is perhaps not surprising that there No significant catalysts for was a lack of major incentives and significant measures from the Government. thereby indirectly improving the market’s liquidity. FV = RM2.49).96). In fact. and the potential Sarawak state election) continues to sustain the liquidity-driven rally. plus the revival of PNB’s proposed 100-storey RM5bn Warisan Merdeka building on the site of the old national stadium. we believe this does not preclude subsequent post-Budget measures to curb speculation on mid. rural development. Therefore.55). and sustain the bullish sentiment for Gamuda (TB.

As a result.0 2.7 15.7 6. our views on the market outlook.2 15.8 Normalised EPS Growth (%)* -14. the destabilising higher in the near term capital flows and sharp appreciation of currencies in Emerging Asia have created concerns and induced policy intervention in the form of short-term capital control and currency intervention in some countries.8 9.0 9. but influx of kets in search for higher returns could still send the market higher in the near term.2 2.6 19. however.5 10.8 Prospective PER (x)* 20.5 1.6 2. the lack of broader measures to increase but with limited room for revenue.8 13.8 2. no substantial new information that will likely excite equity investors in the immediate term. earnings and sector calls remain No substantial new relatively unchanged (see Tables 3 & 4).7 13.3 14. Consequently.8 46.3 7.2 7.3 7.4 37. short-term liquidity could in our view.6 8.4 32.4 33.1 EV/EBITDA (x) 8.5 47.1 8. however.9 Normalised Earnings Growth (%)* -10.1 12.6% estimated for 2010.2 14.Market Outlook : Short-term Liquidity And News Flow Driven The 2011 Budget sets the pace of economic transformation with the right emphasis Setting the pace towards on reinvigorating private investment and intensifying human capital development. These short-term capital.2 9. transformation with the These are the major positives in the Budget which.8 16.7 37.3 2.3 40.3 1.3 Net Interest Cover (x) 7. consolidation with growth expected slowdown in the global economy.4 2. the influx of G3 liquidity to Emerging Asia's equity.7 19.6 8.9 8.6 26. and reduce subsidies and other operating expenditure suggests that there manoeuvre is limited room for manoeuvre. There are.0 15.9 23. bond and currency mar.4 6. the fiscal deficit is only projected to ease marginally to 5.3 6.3 -2.86 2009a 2010f 2011f 2012f 2009a 2010f 2011f 2012f 15/10/2010 EBITDA Growth (%) -6.0 38.7 7.1 -9.1 -6. Whilst the Budget aims to strike a balance between fiscal consolidation and the need Balancing fiscal to sustain spending to cushion the economy against the risk of a sharper-than.4 2.1 2.8 13.4 2.4 11.4 Net Gearing (%) 48.3 10.6 8.3 Pre-Tax Earnings Growth (%) -10.0 23. are transient in nature and could still send the market reverse out relatively quickly with changes in outlook.6 37. in our view.9 Price/Bk (x) 2.8 Price/EBITDA (x) 10.8 7.6 2.4% of GDP in 2011.5 11.0 13.7 13.9 Price/NTA (x) 3.4 6. As a result.9 9. are critical to chart right emphasis the direction of the country in moving towards a high income economy.489.2 11.5 17. despite a less expansionary Budget. Budget. Whilst market valuations are no longer information from the cheap.6 14.0 5.1 5.3 2.9 9.2 30.7 16. Already. we believe the market may move into a phase of greater volatility in the months ahead.8 * Exclude Mas earnings in 09-11 THE 2011 7 BUDGET .8 7. from 5.8 9.3 28. in our view.7 12.7 14.3 8. Table 3 Earnings Outlook And Valuations FBM KLCI RHBRI’s Basket COMPOSITE INDEX @1.9 6.5 ROE (%) 12.0 1.8 9.0 -2.1 14.1 9.

0 Overweight Timber 3.3 11.4 12.4 14.7 13.5 Neutral Consumer 32.7 Neutral Building Materials 12.7 Neutral Oil & Gas 33.4 14. THE 2011 8 BUDGET .3 12.6 8. Table 4 Sector Weightings & Valuations Covered Stocks Mkt Cap Weight EPS Gwth (%) PER (x) Recommendation RMbn % FY10 FY11 FY12 FY10 FY11 FY12 Banks & Finance 213.6 24.2 7.2 0.1 10.5 8.2 Overweight Motor 21.9 7.8 12.8 9.7 7.5 14.9 15.4 2.7 0.0 12.1 100.7 14.9 13.1 12.3 11.7 17.4 Overweight Property 21.9 7.5 Neutral Manufacturing 7.0 13.9 12.4 10.8 8.9 25. based on 15x unchanged at 1. our end-2011 FBM KLCI target remains unchanged at 1.4 8.7 7.3 8.0 Neutral Gaming 64.5 15.4 13.4 68.8 12.5 8.9 -6.0 49.6 13.6 58.5 16.6 3.3 21.0 17.0 1.5 Overweight Insurance 3.2 10.640 mid-cycle 2012 earnings. however.6 -13.6 10.9 10.1 11.9 Neutral 833.1 Neutral Plantation 119.2 17.7 6.0 0.8 40.0 20.2 11.9 4.3 5.4 8.8 10.7 16.9 19.5 17.1 21.0 Overweight Media 15.3 4.3 11.6 0.8% projected and our end-2011 FBM for 2011) that will continue to create new shareholders' value for investors. This.4 41.5 12.5 6.7 16.3 2.4 12.1 15.0 9.3 Neutral Infrastructure 23.4 14.6 32.3 14.9 12.9 17.6 12.0 16.0 * Exclude MAS earnings in 10-11 Note : RHBRI’s basket Longer term.1 18.7 51.3 25.6 14. which in turn implies sustained corporate earnings growth (+12.9 1.8 19.4 10.7 7.9 9.9 10.6 Neutral Transportation* 59.2 23.7 16.2 10.5 2.5 9.9 10.2 11.7 12.7 7.1 9.6 7.8 2. we believe there is still room for the market to trend higher in 2011.5 Neutral Telecommunications 109.9 Overweight Construction 22.3 13.9 2.4 10.8 28.0 9. will not be without volatility as the global economy enters into a period of slowing growth in an uneven phase of recovery.640.2 Overweight Power 63. Con. remains positive feared.6 17.8 17.0 13.0 Neutral Semiconductors & IT 5.8 8. This is primarily predicated on the view the global economy is more sustainable than however.4 9. KLCI target remains sequently.2 44.8 0.9 14.8 14.3 14.7 21.9 3. Longer-term outlook.3 16.

1 27.6 10.7 9.6 14.30 2. Table 5 Top Picks Fair Mkt EPS EPS GWTH PER P/BV P/CF GDY FYE Price Value Cap (sen) (%) (x) (x) (x) (%) 15/10/2010 (RM/s) (RM/s) (RM Mil) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 Tactical Plays Tenaga Aug 8.3 Dialog Jun 1.4 6.2 10.9 Mah Sing Dec 1. A list of our tactical plays and longer-term picks is reflected in Table 5. investors should remain vigilant and do some top slicing on stocks where excessive valuations have become rich in the run-up of the market.2 15.1 MRCB Dec 2.174 16.2 22.283 124.9 Media Prima Dec 2.832 6.605 42.6 IOI Jun 5. we believe the and reposition for the new market will be volatile in the months ahead.3 12. Under such circum.3 16.7 12.5 3.0 12.1 13.1 5.5 7. As key risks are mainly external.4 11.08 3.6 HSL Dec 1.4 AirAsia Dec 2.9 CIMB Dec 7. valuations have become stances.93 10.3 13.7 THE 2011 9 BUDGET .2 1.75 36.7 5.03 1.5 4.3 2.4 0.8 12.9 8.2 38.75 2.4 0.6 3.51 7.9 3.0 12.4 21.012 16.89 4.5 4.6 14.3 16.4 10.94 9.2 11.3 17.9 10.5 16. Under such circumstances.8 2.4 8.6 34.4 Gamuda Jul 3. This would then provide more room for investors to accumulate fundamentally robust stocks on weakness.6 21.36 3.0 20.a.7 3.0 Parkson Jun 5.6 31.7 23.5 3.873 26.7 21.8 23.9 20. Market Strategy Top Slicing On Further Run-up Whilst the long-term economic picture remains positive for the equity market.987 33.5 19.9 26.1 n.1 20.8 47.5 36. there is still room for some should be taken as an tactical plays in the near term given the positive news flow on the award of projects opportunity to pick stocks now that the timelines for major projects have been set.9 2.177 37.1 3.8 3. stock picking is key.5 1.0 2.4 42.2 50.8 1.72 6. 1.96 7.30 38.8 2.3 2.88 10.4 Longer -Term Picks Maybank Jun 8.118 34.9 69.0 5.80 6.2 13.23 1.7 11.0 n. 3.51 1.5 19.33 1.3 47. Meanwhile.561 25.7 50.4 15.01 6.5 87.3 3.0 8. Stock picking is key and we believe investors may find greater price stability in companies that have less or any significant pullback hedged exposure to overseas markets.9 2.1 2.3 4.08 2.4 2.87 2. Overall.4 131.0 Faber Dec 3.00 22.9 32.0 14.4 8.2 17. but any significant pullback in the year market should be taken as an opportunity to pick stocks and reposition for the new year.5 5.9 KLK Sep 19.30 2.3 11.8 10.6 5.6 29.55 4.9 28.49 2.60 58.1 2.8 9.7 12.5 17.1 4.2 10.21 6.6 14.435 8. the Top slicing on further run- revival of a “double-dip” recession fear and destabilising capital flows can have a up of stocks where disproportionate impact on the market in the foreseeable future.82 1.50 62.5 Carlsberg Dec 5.9 11.3 64.05 20.5 4.2 10.849 19.82 1.4 21.0 2.1 10.2 14.212 56.6 28.0 11.3 2.8 1.8 10.2 30.9 KPJ Dec 3.6 15.a.0 4.4 14.4 9.3 14.9 11.555 17.8 17.852 61.95 1.2 1.1 7.698 75.1 12.2 21.

4 14.1 8.7-1%.6 9.2 14.8 1.8 23.6 15. although we do note that these could provide further opportunities for banks to grow non-interest income.24 34.4 10.30 70.8 1.7 12.3 12.8 2.1 0.4 14.6 1.5 11.1 13.60 91.24 27. In our view.9 11.9 9. 2) the issuance of three new stock broking licences.8 72.g.4 5.0 1.9 1.6 2.6 16.9 69.7 99.7 14. These include: 1) the launch of sukuk and capital market and conventional bonds by Bursa Malaysia to help meet demand from retail investors for strengthen Malaysia’s fixed income instruments.0 1.9 11. ^ FY11-12 valuations refer to those of FY12-FY13 THE 2011 10 BUDGET .3 3.0 12.94 56.4 9. in our view.2 5. we would not discount the possibility that BNM may yet still impose such household debt missing measures ahead. but this impact property sales momentum too significantly but harsher measures such as the could still come later discontinuance of incentives by developers.4 3.1 9.0 15.8 4.6 OP Maybank Jun 8.6 4.4 11.1 1.1 13. We estimate every 1%-pt change in our loan growth assumption would impact our net profit projections for the banks by 0.9 NC Sector Avg 13.74 71. given its niche in the civil servant personnel financing of better benefits to civil segment.98 69.6 2.6 23.3 29.8 2.8 51.2 1.9 0.5 17.3 0.7 12.9 14.6 9. Finally.3 80. was the much anticipated measures to reign Much anticipated in household debt (e.91 47.6 9.3 2.5 10.5 OP PBB-L Dec 12.3 13.5 13.3 9.7 2.5 OP HL Bank Jun 9.9 OP Affin Dec 3.6 1.1 13.2 OP RCE^ Mar 0.Banking : Revitalising Domestic Capital Market Overweight And Strengthening Position In Islamic Capital Market Consistent with the recently announced ETP. we are neutral about the incentives and measures mentioned above.8 5.8 MP EON Cap Dec 6.1 12. a 70% or 80% cap per se on LTV ratio is unlikely to from budget.6 2.3 64.5 1.7 1.9 3.9 2.6 15.6 14.6 11.4 1.4 15.3 11.4 1. RCE could be a potential beneficiary of the Government’s move to increase RCE potential beneficiary the benefits to civil servants. and capital market 4) tax deductions for expenses in relation to the issuance of certain Islamic securities. on top of a cap. Table 6 Valuations Of Banking Stocks FYE Price EPS EPS Growth PER P/BV GDY ROE Rec (sen) (%) (x) (x) (%) (%) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY12 CIMB Dec 7.8 11.9 OP AFG^ Mar 3.6 2.2 13. On the whole.4 3.2 11.8 0.6 14.9 4.5 12.9 14.3 3. the Government plans to implement Measures targeted to measures that will revitalise the domestic capital market and strengthen Malaysia’s revitalise the domestic position in the Islamic capital market. We do note that this space is becoming increasingly competitive given servants attractive margins and low default rates (as monthly repayments from civil servants are deducted at source or salary). Missing from the budget.1 9.1 1.88 61.8 14. we think much of such concerns have already been factored in its cheap valuations.3 12.1 15. 3) position in the Islamic development of an international board to enable foreign securities to be listed.7 6.9 1.7 3.5 UP RHB Cap* Dec 7.8 5.0 6.4 35. That measures to rein in said. I/B/E/S estimates are used for companies not covered by RHB Research Institute.3 2.1 1.5 3.1 12.4 75.8 8.62 11.4 1.3 11.2 * Not under our coverage.6 1.0 OP AMMB^ Mar 5.6 12. the imposition of a cap on the loan-to-value (LTV) ratio).1 2. could potentially hit the property sector badly and impact mortgage loan growth.3 10. However.

2 50.91 0.8 7.6 13.6 3.3 24.5 9.6 7.7 6.3 5. We believe net selling prices will also be higher as rebates given by the cement producers will be lower.Building Materials : Positive But Priced In For Neutral Cement.4 0. Lafarge’s (UP.1 10.7 25.5 16.1 15.0 16.6 10.9 7.9 7.6 15.9 0.7 sen).8 6.98 3.4 0. Neutral For Steel Domestic cement producers are expected to benefit from the anticipated pick-up in Cement sub-sector poised domestic cement consumption. its share price is currently close to our fair value of RM4.2 77.3 4.9 0.5 1.8 16.1 7.5 17.m 2.6 7. underpinned by the rollout of large-scale infrastructure to benefit projects and pick-up in property development activities.8 2.94 6.0 OP YTL Cement Jun 4. Table 7 Valuations Of Building Materials Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Hiap Teck Jul 1. Overcapacity (particularly in China) remains a key issue over the medium to long term despite the recent plants closure.3 4.11 1.69 (based on 11x CY2011 fully diluted EPS of 42. We are maintaining the forecasts for cement producers under over coverage (Lafarge Valuation has become rich and YTL Cement) as the pick-up in domestic cement consumption has been widely expected.14 38. For now. We think YTLCement is due for a re-rating given that it has been a laggard despite being the second largest cement producer in Malaysia after Lafarge.26 1. For YTLCement (OP.5 8.8 0.7 7.1 UP Sector Avg 21.8 5.9 9.36 0. Fuel and electricity cost constitute about 50% of cement production cost.2 3.9 0.9 +>100 8.9 7. Although domestic long steel demand is expected to recover with the pick-up in Neutral stance maintained construction activities and infrastructure developments.9 24. An increase in domestic demand will also enable cement producers to sell more domestically (which command a better margin) rather than exporting their excess production. Both Lafarge and YTLCement offer decent dividend yield at 5-6% given their strong free cash flow and healthy balance sheet at net cash position.5 -2.5 THE 2011 11 BUDGET . However.0 OP Ann Joo Dec 2. FV = RM4.4 8.1 18.2 OP Perwaja Hldgs Dec 1.88 49.9 10.1 6.9 41. with the recent run-up in its share prices.7 10.1 30.9 57. we believe the impact is for steel sub-sector likely to be minimal.4 7.4 OP CSC Steel Dec 1.9 4.86 8.0 6.2 9.9 16.8 8.36 3.0 4.69 58. Maintain our Neutral stance on the steel sub-sector.8 1.2 15. Overall.6 5.33 23.1x to our estimated FY11 earnings (as opposed to our PER target of 14x FY11 earnings).4 10.0 4. FV = RM6.63 16. we maintain our recommendation on YTLCement pending a meeting with management.0 12.59 4.83 2.37 13. We believe …but will be partly offset high thermal coal price and potential hike in electricity tariff in the future will partly by higher energy prices offset the benefits of higher net selling price.3 0.0 5. as fortunes of long steel players’ are tied more to the demand- supply balance in the global market.9 0. as the excess capacity in China’s steel sector is still high.1 1. our stance on the cement sub-sector is maintained at Neutral.69).1 4.6 9.0 MP Lafarge Dec 7.6 n.0 UP Kinsteel Dec 0.88) valuation has become very rich at 16.6 2.8 UP Sino Hua Dec 0.4 5.

and (3) The Academic Medical Centre.9bn).Overweight Start In 2010 Gross development expenditure in 2011 is projected at RM49. in 2011 in 2011.35) due to its undemanding valuations. One interesting observation is that the MRT project is regarded as a PPP/privatised MRT to attract RM40bn project “with an estimated private investment of RM40bn”. building/upgrading of schools (RM6.8bn goes to Sabah and Sarawak. We view this positively. This is not consistent with private investment? the Gamuda-MMC JV’s proposal to the Government. and the balance to be financed via an off-balance sheet deferred payment scheme (to keep the budget deficit under control). Ireland. buoyed by news flow from: (1) The infrastructure development for the Greater KL National Key Economic Area (NKEA) under the Economic Transformation Programme (ETP).e. i. FV = RM2. and (3) Federal land deals.Construction : Key Projects Reaffirmed.9bn).2bn. Our top “tactical” pick for the sector is Gamuda (Trading Buy. Our top “value” pick for the sector is Sunway (Outperform. We remain upbeat on construction stocks as we believe they will continue to generally outperform the market from 4Q2010.4% in 2011 from +4.e. These include the RM40bn MRT project. (2) The RM7bn Ampang and Kelana Jaya LRT line extension project. i.51) as we believe its share price will be buoyed by the sustained news flow from the RM40bn MRT project.e.9% estimated for 2010. to kick-start with commencement explicitly spelt out to be during the first year of the 10MP. Of total rural infrastructure spending (comprising largely water. The Government has reaffirmed its commitment towards key large-scale projects. FV = RM4. 70% or RM4. The impact of a lower gross development expenditure will be cushioned by projects to be carried out on a Public-Private Partnership (PPP) or privatised basis. (2) The “River of Life”. the RM40bn MRT project. Three new inclusions that we believe worth highlighting are: (1) The “revived” RM5bn Several new inclusions Warisan Merdeka integrated development comprising a 100-storey tower led by Permodalan Nasional Bhd.4bn) and environmental preservation (RM1. that will bring in RM2bn private investment. electricity and roads). projected to rack up RM12. construction GDP growth is projected to expenditure down 9% ease to +4. as Maintain Overweight well as the speediness of their implementation in Budget 2011. coupled with its strong earnings visibility stemming from its firm construction margins and growing non-construction profits. We view positively that key high-profile projects identified during the announcement Key high-profile projects of the 10th Malaysia Plan (10MP) (2011-2015) in June this year have been reaffirmed. down -9% from Gross development RM54bn estimated for 2010. To Kick. the RM10bn redevelopment of the Rubber Research Board land in Sungai Buloh and six toll roads including the West Coast Expressway. the RM26bn KL International Financial District (KLIFD). the clean-up/beautification of the Klang Valley that can unlock the real estate potential of land parcels along the river. particularly. a JV between Academic Medical Centre.5bn private investment. THE 2011 12 BUDGET . reaffirmed. anchored by RM1bn facilitation fund (see Table 8). Johns Hopkins Medicine International and Royal College of Surgeons. The Gamuda-MMC JV’s position has been not to carry out the project on a PPP/privatised basis as it is fully aware that large public transport projects are generally not commercially viable.9bn allocation under environmental preservation. Key areas of spending (that will generate construction jobs) are rural infrastructure (RM6. funded by part of the RM1. As a result. i. to fund the project with RM10bn allocation each from the 10MP and the 11th Malaysia Plan (11MP).

2 2.3 10.42 5.4 1.3 6.2 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 13 BUDGET . MRCB Warisan Merdeka integrated development with a 100-storey tower 5.1 5.7 21.100 East Malaysia-based contractors ♦ Rural roads in Peninsular Malaysia 696 ♦ Rural water & electricity in Peninsular Malaysia 556 ♦ Housing for rural hardcore poor 300 Building/upgrading of schools.6 15.89 4.3 2.9 17. facilities & equipment 6.2 1.7 11.900 ♦ “River of Life” and greening of KL na YTL ♦ Preservation of marine sources and coastal areas in Melaka.30 16.1 4. Mudabala (Awarded) Development of Malaysia Rubber Board land in Sg Buloh 10.51 19.7 23. Terengganu & Pahang Corridor & regional development 850 ♦ Iskandar Malaysia 339 ♦ East Coast Economic Region (ECER) 178 ♦ Northern Corridor Economic Region (NCER) 133 ♦ Sabah Development Corridor 110 ♦ Sarawak Corridor of Renewable Energy (SCORE) 93 Public housing 568 Aquaculture zones in Sabah & Sarawak 252 East Malaysia-based contractors Drainage & irrigation in Muda Agriculture Development Area. Mudajaya International Islamic University Malaysia Teaching Hospital in Kuantan.2 12.6 3.5 2.1 20.4 50.4 6.37 14.5 4.8 9.000 1MDB (Awarded).2 10.35 25.2 16.5 1.4 15.7 1. Sabah 100 Karambunai Hotels & resorts in remote areas 85 Diagnostic lab at Agriculture College in Kubang Pasu.49 6.8 5.9 OP Gamuda Jul 3.4 0.9 20.6 0.9 16.400 Mid-sized contractors Environmental preservation projects 1. hostels.5 36.0 1.7 3. na Emas Kiara.9 UP Sector Avg 12.Table 8 Key Projects To Be Implemented Project Value Potential Beneficiaries (RMm) Funded By Development Expenditure Rural infrastructure 6.000 Gamuda.8 7.78 1.5 2.7 6.8 17.2 13.52 15.5 7. ornamental 135 fish and herbs & spices ventures Integrated eco-nature resort in Nexus Karambunai.0 UP WCT Dec 3. MRCB Kelantan.24 2.9 32.3 13. aquaculture.5 19.01 32.8 1. Kedah 235 Basic infrastructure for swiftlet nets.7 5. na Ahmad Zaki (Awarded) Pahang Women and Children’s Hospital in KL na Ranhill Integrated Health Research Institute Complex in KL na Table 9 Valuations Of Construction Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 HSL Dec 1.95 16.7 15.6 31.4 8.0 22.4 7.6 OP Sunway Hldgs Dec 1.4 OP Fajarbaru Jun 1.97 2.07 1.3 8.4 -7.7 19. seaweeds.0 2.6 19.000 PNB (Awarded) Academic Medical Centre 2.3 8.900 ♦ Rural water & electricity in Sabah & Sarawak 2.0 1.9 11.5 7.82 1.1 TB MRCB Dec 2.000 Ampang-Cheras-Pandan Elevated Highway na Guthrie-Damansara Expressway na Damansara-Petaling Jaya Highway na Pantai Barat-Banting-Taiping Highway (West Coast Expressway) na Kumpulan Europlus.9 3.2 28.3 5.5 7.0 1.3 16.2 17.7 2.0 16.5 1. MMC Kuala Lumpur International Financial District (KLIFD) 26.700 ♦ Rural roads in Sabah & Sarawak 2.2 -10.1 20.0 20. Sabah na Zelan.000 EPF (Awarded).08 2.6 34.4 OP Emas Kiara Dec 0.0 6. Kedah 70 Shaded walkways in KLCC-Bukit Bintang area 50 Via Public-Private Partnership (PPP)/Private Investment MRT in Greater KL 40.0 TB IJM^ Mar 5.2 18. IJM Sungai Dua-Juru Highway na Paroi-Senawang-KLIA Highway na 300MW combined-cycle gas power plant in Kimanis.

Consumer : Not As Exciting As Previous Budget Neutral This time around. No increase in toll rates for the four highways owned by PLUS for the next five years.4% for 2011 (2010: 5. 2. Imam etc. which will be for the modernisation of small retailers (mom and pop stores). consumers did not get any new tax goodies from the Consumers did not get any Government. we believe this will not have a significant impact on demand. F&B The new policy which will affect F&B players is 1%-point increase to the current Increase in Service Tax to 5% service tax to 6%. The incentives for fishermen will palm oil division THE 2011 14 BUDGET . 4. although we believe there are some measures introduced which new tax goodies would boost overall consumer spending in terms of promoting Malaysia as a tourist destination and also to ease the burden of the rakyat:- 1. we of 5.61) product 6% selling prices.45). In particular. of 5% to 30% be abolished. FV=RM5. FV=RM3. The Government also announced two non-quantitative policies which include: 1) the establishment of a “1Malaysia Smart Consumer” portal to provide information on price movements of goods in about 7k business premises nationwide. Amway (MP. The tax relief amount is maintained at a maximum of RM5k. will benefit from: 1. from just medical treatments previously. This is also extended to retired civil servants. Increasing the rate of Funeral Arrangement Assistance to RM3k from RM1k previously.41) will continue to various incentives for its benefit from the extension of the food production tax incentive to 2015 and the RM170m incentives allocated for fishermen. FV=RM5.72). FV=RM2. the civil servants force. AEON (MP.72). FV=RM7. An extension to the current tax relief for parents to include other expenses such as day care centre. RHBRI projects a consumer spending growth of 5. by 60-78%. Increasing the monthly allowance for various community leaders such as Ketua Kampung. A RM500 assistance for all civil servants grade 54 and below to cope with schooling expenses. and benefit Hai-O (UP.4% for 2011 believe that all the measures above will. 3. Aside from the above. We believe that the 1Malaysia Smart Consumer portal will increase consumer price sensitivity. This will increase KFCH’s (OP.2m people. given that a 6% service tax will only increase the average selling prices of KFCH’s products by 1%. However. while the TUKAR programme would increase competition for department stores cum supermarkets such as AEON’s Jusco as it gives the smaller players more edge to compete with the bigger players. Import duty on approximately 300 goods preferred by tourists and locals.6%). the abolishment of import duty on 300 various products will be one of the key drivers for the retail players’ revenues (like Parkson and AEON). cost incurred to employ caretaker for parents and other daily needs such as diapers. A continuation of a rebate on electricity bill payment for monthly consumption of below RM20. as consumer disposable income is expected to improve together with consumer sentiment. 5.84). QL Resources to enjoy Basic food manufacturer QL Resources (OP. 2. to a certain extent be a driver for growth in consumer spending. as their revenues are generally driven by growth in consumer spending. Although the measures introduced during the 2011 Budget is not as exciting as Consumer spending growth the various income tax goodies introduced in the previous budget tabling. Retail These measures augur well for the retail and MLM players such as Parkson Retail and MLM players to (OP. and 2) introduction of the Retail Shop Transformation Programme (TUKAR). which comprises approximately 1. FV=RM8.

9 OP KPJ Health Dec 3.9 6. Nevertheless.6 10.m 17.2 38.5 2.82 34. which is positive Another year of cheer for for Carlsberg (OP.5 5. it would likely benefit.7 15.7 OP AEON Dec 5.82) currently holds the concession agreement to provide hospital support services in Perak and Sabah.3 OP Faber Dec 3.9 14.9 7.0 18.7 41. Note that the Government has not increased the brewers excise duties on beer since the year 2005.5 16. which in the context of the 2011 Budget outcome.00 4.4 11. However.7 5.0 7.5 7.3 13.0 12. RM=RM3.2 7.0 4.3 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 15 BUDGET .6 2.3 1 0 .4 3.7 1.6 OP QL Resources Mar 5. which allows QL to sell its RE generated from its biomass plant to be sold to electricity utility companies.4 14. 2) Faber’s 14-year track record and technical expertise.51).2 11.5 5. the division will benefit from implementation of the Feed In Tariff (FiT) mechanism under the RE Act.4 5.8 9.8 -1.3 8.5 58. The Government also did not introduce a subsequent hike in excise duty for cigarettes after the increase of 16% earlier this month.1 5.6 32.8 2. RM14.3 2.2 10.5 2.ensure the sustainability of fish supply for its Marine Product Manufacturing (MPM) division given that QL sources 95% of its fishes from local fishermen.5 12.4 UP Sector Avg 11.1 16.7 12.3 OP Daibochi Dec 3. given the lack of details on the incentives.6 12.03 42.6 28. Table 10 Valuations Of Consumer Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 KFC Dec 3. Nevertheless.7 14.7 2. 8 12. 9 9. and 3) reduction of greenhouse gas emission to 2015.90 233. out of the eight hospitals that will be built. FV=RM4.2 2.4 20.3 12.8 6.4 8. we expect that overall Malt Liquor Market (MLM) TIV would not be affected in 2011.51 26.8 1. we maintain our view that the renewal will likely be granted on the back of: 1) continuous effort by management to improve its services.9 35.5 7.3 1. nor did it mention anything regarding the cess issue.6 29. it would be dependent on whether Faber’s application for the concession is renewed by the Government. Brewery and Tobacco The brewers enjoy another year of no increase in excise duty. As Faber (OP.2 n.9 10.5 1.0 8.3 11.85 5.5 4.4 6.1 OP Carlsberg Dec 5.03). FV=RM6.1 4.1 10. We recently highlighted QL’s ultimate aim to manufacture a zero-waste palm oil milling system to palm oil millers using its pelletising and biomass boiler technology.0 47. this could have an impact on private hospital operator KPJ (OP.4 3.84 28.4 MP Hai-O^ Apr 3.2 13. 6 11.7 14.12 31.6 10.1 MP Amway Dec 8. four have been identified.9 14. increase the number of doctors and nurses as well as to obtain supplies of medicines and equipment. Under the 10MP.55 4.61 22.21 6.72 37.21 2.5 26.2bn in 2011 (vs.7 15.0 6.0 2.9 UP BAT Dec 47.72 42.3 47. Healthcare As for the healthcare sector.0 2.2 1 0 . Due to this.08 3.1 13.3 230.41 34. The FiT will further increase the attractiveness and marketability of this system. FV= RM42. the Government has committed to allocate RM15.5 3. We maintain our projected flat TIV growth of 0% for FY11. Besides the above incentives.2 30.45 56.7 4.90).9 7.72 44. with more new government hospitals being built across Malaysia.08 5. we expect this to be minimal due to Malaysia’s rising affluence towards seeking better quality of care.96 7.8bn in 2010) to construct new hospitals.8 13. where two will be in Perak while the other two will be in Sabah.6 10.09 8. although we are unable to gauge the impact of this yet.5 OP Parkson Jun 5.4 9.7 5.5 1 2 . and 3) service benchmarks are consistently met without any unit price increase. In addition. which will be able to generate energy through palm oil wastes.2 5. which is positive for Carlsberg.8 2.0 -7. QL’s palm oil division will benefit from the extension of the application period for tax incentives for: 1) the generation of energy from renewable sources.8 47. Furthermore. 2) energy conservation.5 2.8 1.9 26.26 3. The palm oil division will benefit from these incentives given its venture into renewable energy (RE) such as its palm pelletisers and biomass boilers.1 3. QL’s palm pelletisation is targeted to be commercialised by Dec 2010. is positive for BAT (UP. greater uptake in medical insurance and general dissatisfaction with the service of public hospitals.3 9.5 20.5 14.

9 4.5 -35.9 6.6 12.7 2.3 MP LPI Capital Dec 11.e. i.7 4.7 Insurance : Budget Impact Not Significant Neutral The 2011 Budget will not significantly impact the insurance sector given that there No significant impact to were no new incentives introduced. effective immediately.0 0.0 3.0 14. no new measures were introduced that would boost the segment.9 15.0 3.88 3.1 99.9 11.0 11.2 99.5 29. the proposed takeover will essentially put aside any concern about the potential adverse earnings impact of the toll hike freeze. and MNRB (MP. Impact: We note that the toll hike freeze applies only to PLUS.5 8.5 UP Sector Avg 49.2 82.5 8.40) and Kurnia (MP.6 MP Kurnia Asia Dec 0.2 0.4 38.7 19.3 -36.7 7. We think the takeover offer is fair though not very compelling given our fair value of RM4.60 per share. The sector will also benefit from the government policy to make it mandatory for employers to procure health insurance for their foreign workers as it would provide another avenue of premium growth.40 70. Table 11 Valuations Of Infrastructure Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Puncak Dec 2.6 7.74 2.98). However. Table 12 Valuations Of Insurance Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Allianz Dec 4.60).3 72. we note that on the very same day itself.60 37.8 1.46 4. For motor insurance.6 10. Given that the measures introduced have limited impact for the sector.8 22. The new Private Pension although we believe the new Private Pension Fund (PPF) that was introduced for the Fund (PPF) could pose private sector and self-employed workers could provide competition for life insurance competition for the life existing products.5 OP MNRB^ Mar 2. while the other toll concessionaires remain unaffected.5 2. The PPF is an equivalent of the EPF and the RM6k tax incentive insurance segment for EPF contribution is also extended for the PPF. to grow their other business segments such as workmen compensation and marine.8 8.76 (10% premium to NPV of RM4.0 9. the Government announced Toll hike freeze for next that the toll rates in the four highways owned by PLUS Expressways Berhad will not five years be raised for the next five years.2 1.98 19.0 16.1 -5.8 4.8 7. While the announcement at first appears negative to PLUS. Besides that. we are Maintain Neutral maintaining our current forecasts and assumptions for all four insurance companies under our coverage.0 9.0 27.9 12. UEM and EPF together made a joint offer to buy all the assets and liabilities of PLUS at an aggregate purchase consideration of RM23bn or RM4.Infrastructure : Government Introduces Populist Neutral Measures Measure: To reduce transportation costs in the country.32). we believe that the insurance the sector sector will benefit from the various budget measures for other sectors to boost economic activity. no details on the form of compensation to PLUS were forthcoming. For life insurance.0 5 2 . FV=RM5.1 10.5 14.7 14. there was no update on the reform of the existing Third Party Bodily Injury and Death (TPBID) policy.9 51.32 86.01 36. FV=RM0.4 18. Allianz. FV=RM2. Heightened economic activities will provide opportunities for the general insurers such as Allianz (OP.8 4. aviation and transit insurance.11 5.7 8. LPI. which will be borne by UEM and EPF.9 5.44 4.8 11.1 0. FV=11.5 0. However. 7 1.8 2.9 UP Sector Avg 8.7 3.70 11.2 9.44).8 2.8 5.1 MP PLUS Dec 4. Kurnia.7 21. LPI (UP. indirectly.43 0.1 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 16 BUDGET .2 6.

the Government proposed that full exemption of import and Hybrid car prices could excise duties be given on new CBU hybrid cars. YTD TIV units for the Prius and Honda Civic Hybrid stand at 169 and 107 respectively.68 6.2 0.2 50.7 8.3 0.3 16. At present.2 48.53 50.75 7. Table 13 Duties And Taxes On Motor Vehicles CBU & CKD Engine Capacity (cc) Excise Duties (%) Sales Tax (%) <1.5 n.8 11.8 9. We gather that current on-the-road prices for the Toyota Prius and Honda Civic stand However. franchised holders of hybrid cars are given 100% exemption of import duty and 50% exemption of excise duty on new completely-built-up (CBU) hybrid cars until December 2010.6 6. hybrid car unit at RM175k and RM130k respectively.2 5.85 5.3 67.0 10.4 10.999 80 10 2. electric cars as well as hybrid and potentially be priced electric motorcycles which applied with the Ministry of Finance from 1 January until 14-19% lower 31 December 2011.0 6.30 48.2 7.7 7.3 7. prices could drop to RM141k movements do little to and RM111k respectively based on the Labuan prices (RM128k and RM101k change total TIV respectively) inclusive of the sales tax of 10%. With this incentive.0 OP MBM Dec 3.000 -2.000cc.2 66. We reiterate our Overweight stance for the sector and maintain APM Automotive as our top pick.2 5.800 75 10 1.3 2.0 13.17 5.2 11.6 6.5 6. given its immaterial numbers thus on the sector far. while the incentive is a big plus for interested hybrid car buyers. it will have Maintain Overweight call minimal impact on the total TIV of the industry.1 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 17 BUDGET .2 2.3 57.8 3.800-1.499 90 10 Above 2. Previously.2 80.87 5.Motor : Enticing Hybrid Car Buyers Overweight There was no mention of any incentives for the conventional passenger and commercial Full exemption of import car segments but the Government proposed to make do with the excise duty that and excise duties till 31 is currently being imposed for the hybrid cars.0 1.1 7.1 MP Sector Avg 10.5 8.3 11.6 12.m 0.6 MP Tan Chong Dec 5.4 9.4 Sector Avg(ex-Proton) 9.9 11. Table 14 Valuations Of Motor Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 APM Dec 4.3 5.01 9.8 6. we understand there are December 2011 only two hybrid car models in Malaysia – the Toyota Prius and the Honda Civic.5 3.7 OP Proton^ Mar 4.2 9. Overall.8 8.3 1.2 17.50 75. This meant that hybrid car users previously paid no import duty and around 40% of excise duty.500 105 10 Source: MAA In the current Budget.27 59.7 5.9 3. The incentive was limited to new CBU hybrid passenger cars with engine capacity below 2.3 14.8 OP UMW Dec 6.7 14.16 45.8 2.69 20.

6 1.2 11.7 3.1 12.43 2.5 3.80 12. for now Petronas The listing of Petronas Chemicals Group is expected to be in Nov.0 14.9 75. 4) To meet the increase in gas demand by industries.9 OP P Gas^ Mar 11.2 7. We look to better contract flows in the coming two months.3 3.8 10.79 13.4 9. were mentioned previously in the Economic Transformation Programme Open Day as key projects and measures that the private sector (in tandem with the Government) would undertake for the sector.2 18.8 2.5 MP SapuraCrest^ Jan 2.5 13.4 9.61-3.3 1 1 .7 50.37 3.7 13.6 14. the bookbuilding exercise for MMHE was MMHE listing is completed.7 4.0 0.9 22.2 13.42 11.63 72. closed on 14 Oct with final retail and institutional prices set at RM3.61 20. previously mentioned projects 2) The Government would allocate RM146 million to support the sector.8 2.m 15.5 15.0 11.4 21.8 14.80 respectively.1 22. Again.0 5.8 46.1 8.8 OP Dayang Dec 2.5 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 18 BUDGET .6 9.0 13.50 5.9 11.7 9.1 13.38 2.5 10.8 9.5 Sector Avg (EX P Gas) 46.8 15. 4 13. This is expected to be operational in 2012. Overall. FV= RM1.23 1.4 UP Petra Perdana Dec 0.2 2.5 OP Kencana July 1.1 4.9 10. we reiterate our short-term Neutral call on the sector given that most of the projects have been mentioned before.7 0.7 15.7 5.5 15.9 4. We keep Dialog (OP.9 13.0 12.88 1.5 7. longer-term earnings visibility for O&G service providers remains intact on the back of reserve replenishment activities. 3) Projects to be implemented include the establishment of the Oil Field Services and Equipment Centre in Johor with private investment of RM6bn over a period of 10 years.Oil & Gas : Reiterating Key Measures Neutral Key points highlighted were: 1) The listing of Petronas Chemicals Group (PCG) and Malaysia Marine & Heavy Key highlights were Engineering (MMHE) to offer higher public shareholding this year.9 62. Table 15 Valuations Of Oil & Gas Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Dialog Jun 1. 3 +>100 n.9 MP Wah Seong Dec 2.17 1. and 5) Petronas Gas Bhd constructing a 300-megawatt Combined-Cycle Gas Power Plant in Kimanis.5 7. In regards to the two Petronas listings.2 15.2 8.5 2.6 13.6 2.5 UP KNM Dec 0.9 5.6 11. Petronas will implement a regasification project in Melaka with an investment of RM3bn.5 19.30 8. Chemicals Group listing tentatively set for Nov The rest of the projects above.0 UP Sector Avg 16.3 9.0 2.1 +>100 3 7 . Sabah to increase electricity generation capacity to meet rising demand.30) as our top pick. Petronas Gas is currently undertaking the feasibility study on the RM3bn regasification Neutral call maintained project while we expect the Kimanis Combined-Cycle Gas Power Plant to cost at least RM1bn.8 13.1 1.7 6.0 6.50 0.7 15.7 4.82 0. on the basis of US$1m per MW.7 11.7 3.41 18.0 3.

FV = RM6. This time.75). If this is the case and pricing is based on market prices of CPO. Most of the companies under our coverage have their own research centres and already develop their own high quality clones which would be used for their new planting and replanting activities. as they companies all have oleochemical manufacturing operations. Under incentive (2). the fund of RM297m to encourage replanting activity is different replace aged trees with from the previous replanting incentive.05) and Sime Darby (MP. demand may not be too strong for the B5 blend. is the B5 biodiesel programme mandatory implementation of the B5 biodiesel programme in Putrajaya. again there is no clarity on how the sum of RM127m … and RM127m to be is to be distributed to oleo derivatives companies. .3m incentive to produce vitamins. Encouragement of it is hard to gauge the impact of these measures. it still has not come out with any details on the B5 pricing issue. . this would likely benefit Carotech (Not Rated) and KLK. Although the Government has since come up with a plan which includes the RM43m instigation of depots with inline blending facilities to be placed in Port Klang. As for the RM23. which was mentioned in the Budget. Malacca. Firstly. it would benefit companies like IOIC (OP. would mainly benefit smaller companies and smallholders. ◆ One measure which is not new. the fund is targeted to encourage replanting with high quality new clones. Only two new proposals were made. the Klang Valley Distribution Terminal (KVDT) in Selangor. we note that under replanting activity to incentive (1).40).3m to expand downstream palm oil industries including production of vitamins. given the high price of CPO currently at RM2. domestic oleo derivatives KLK (OP. as the Government first set out its Biofuel Policy … but issue of pricing still 2006. where a sum of money is given to high quality new clones… planters for each hectare of land which is replanted. Kuala mentioned again… Lumpur. although we would not be able to quantify the impact given the lack of details. Negeri Sembilan and Melaka. as they produce nutraceuticals. including: affecting plantation sector . This is not a new policy. we believe. Negri Sembilan and in Tangga Batu. ◆ Other non-plantation related measures introduced in the Budget which Non-plantation related would affect some of the plantation companies include: measures like… … tax incentives for . FV = RM22. Pioneer status and Investment Tax Allowance for the generation of energy renewable energy and from renewable sources and energy efficiency activities for own consumption sale of carbon credits and for sale be extended to 31 Dec 2015 (from 31 Dec 2010). The only mention of pricing made by the Agriculture Minister earlier in the year was to say that the price of biofuel under the plan will not be fixed as it will oscillate depending on the price of palm oil and diesel. which could mean that planters may get a subsidy for buying new clone seedlings from government-backed research centres like MPOB. outstanding while the implementation deadline was pushed back to June 2011 back in March 2010. who do not have their own R&D division. This. and . Selangor. extended… THE 2011 19 BUDGET . FV = RM9. (1) The encouragement of replanting activity to replace aged trees with high quality new clones. Assuming it is in the form allocated to support of a tax incentive. and the rule that the costs of installing the blending terminals are to be borne by the petroleum companies. starting from June 2011. (2) A sum of RM127m to be allocated to support domestic oleo derivatives companies as well as a sum of RM23. Port Dickson. with initial plans to commence nationwide implementation in 2010.Plantation : No Exciting News Neutral ◆ There are not many new measures affecting the palm oil plantation sector in the Two new measures 2011 Budget. through a fund of RM297m. As there were no details as to how the funds allocated will be distributed.890/tonne. . which could be classified as a form of vitamin.

6 49.00 22.5 2.1 5.4 131.8 12.6 UP Sector Avg 19.9 OP CBIP Dec 3.4 OP IOI Corp Jun 5.2 16.5 10. Extension of tax incentive for reduction of greenhouse gas emission via the sale of Certified Emission Reductions (CERs) to year of assessment 2012 (from YA 2010).8 2.0 -8.37 7.6 15.2 MP Sime Darby Jun 8. We maintain our Market Perform recommendations on Sime Darby (FV = RM9.8 10. Table 16 Valuations Of Plantation Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 KLK Sep 19.5 1.40) and IJMP (FV = RM2. but not stance on the sector.75 33.3 15.05 124.7 14.7 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 20 BUDGET . for CBIP in the long term which comes together with a biogas plant.2 1. we believe once it is able to do so.3 OP IJMP^ Mar 2.56 16.0 16.8 2.4 6.5 -4.56 4.1 14.6 4. Although the mill has not been commercialised yet. slight positive although the impact is not expected to be significant.7 10. four of these CPO mills are being tested.40 48.6 12. including IOIC (FV = RM6.60). Currently.0 1.60). Overall.9 9.2 17.7 6.1 11.5 7.0 2.56) and our Underperform recommendation on Genting Plantations (FV = RM7.68 2.2 10.0 3.0 18.3 2.8 OP First Resources D e c S$1.5 9.40 46.4 13.5 6.3 16.40).3 2.80 6.3 3.1 21.4 42.5 MP Genting Plant Dec 8.0 9. it will be able to enjoy the tax incentives given not only for generating renewable energy.2 30. two for Felda and two on its own premises. We maintain our Neutral impact on sector.3 14. but also for the sale of CERs.9 3.1 3.84 9.05).0 4.7 55.1 14.75). . FV = RM4.6 18.4 6.60 52. KLK (FV=RM22. we believe the 2011 Budget is a slight positive for the plantation sector. although we highlight selective stock picks which we have significant Outperform recommendations on. ◆ Overall.1 15.8 17.3 44.40) and CBIP (FV = RM4.3 2.9 28.40 8.5 17.6 34.9 10.25 S$1.1 18.8 3.8 2.0 17.6 1.7 18. who is in the … which could be positive midst of developing and testing its zero discharge “green palm oil mill”. First Resources (FV = S$1. . We believe this is positive for CBIP (OP.5 3.1 16.

8 10.5 MP Sector Avg 12.33 2. Finally. tax incentives in the form of pioneer status and investment tax allowances will be extended until end-2015 for the generation of renewable energy (RE). the exemption is granted for residential property priced less than RM250k. the exemption is granted for residential property priced less than RM250k.93 10.Power : Emphasis On Green Technology Overweight The Government appears to have reaffirmed its commitment towards the development Going green … and adoption of green technology. THE 2011 21 BUDGET . a 100% loan can be obtained without any down payment.4 OP YTL Power Jun 2. effective for sales and purchase agreements executed from 1 Jan 2011 – 31 Dec 2012.3 3. effective for SPA executed from 1 Jan 2011 – 31 Dec 2012. Skim Pembiayaan Perumahan Kos Rendah with first-time home buyers an allocation of RM50m will be open to all Malaysian permanent estate workers to assist them to obtain housing loans with a maximum of RM60k for the purchase of low-cost houses at 4% interest rate and a repayment period of up to 40 years extending to the second generations.3 12. the budget did not hold any significant surprises for the sector. the Government will continue to provide a rebate to households that incur monthly electricity bills of RM20 or less. iv) First time home buyers will also be given stamp duty exemption of 50% on loan agreement instruments for residential properties priced less than RM350k.30 75.3 16.7 11. effective for SPA executed from 30 Aug 2008 – 31 Dec 2010. energy security. iii) First-time home buyers will be given stamp duty exemption of 50% on instruments of transfer on a house priced not more than RM350k.3 7.3 12. i.20 17. a sum of RM568m is provided to build a total of Positive measures for 87.3 4. Secondly.7 1. much would depend on the Government’s will power especially in tackling issues such as the need for electricity tariffs to be raised under the FiT mechanism.3 3.8 18. On the whole.7 9.300 units of low cost houses. Apart from the above. Previously. the Government will also implement the Feed-in Tariff (FiT) mechanism under the RE Act to help promote the generation of electricity from renewable resources.2 15. energy conservation equipment will enjoy exemption from import duty and sales tax. among others.8 3.e.3 13. depend on Government’s which we think would be a key support mechanism in helping the country meet the willpower to implement target of increasing the availability of RE to around 2. At this … but much would still stage.2 7. A guarantee on downpayment of 10% for houses below RM220k will be provided for first-time house buyers with household income less than RM3k per month.9 ^ FY11-12 valuations refer to those of FY12-FY13 Property : Friendly Measures……First… Overweight Measure: Increasing house ownership i) To promote home ownership. Previously. Table 17 Valuations Of Power Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Tenaga Aug 8.0 1.8 7.000MW by 2020 (currently changes around 55MW).1 12. While the move towards RE should be a long-term positive in terms of. Firstly.5 87. it is unclear when the Government plans to implement the FiT mechanism.2 10. ii) The Government will introduce Skim Rumah Pertamaku through Cagamas Berhad. effective for SPA executed from 8 Sept 2007 – 31 Dec 2010. in our opinion.

iii) Another landmark named Warisan Merdeka will be developed by Permodalan Nasional Berhad. and measures are still in we believe the Government is still keeping its agenda to target the “overheating” Government’s agenda? property market. While we believe demand for residential properties will remain strong. we expect the current property sales momentum to continue as we believe that developers will still continue with their aggressive home ownership campaign. to be in line with the tightening measures implemented in the regional markets. We note that the measures introduced during the Budget Credit tightening 2011 are targeted at only the middle-end housing and first-time home buyers. Mid-end housing but it is only for houses priced below RM350k. will kick off next year.Impact: The 50% discount on stamp duty is encouraging for first-time home buyers. Property sales will be adversely affected as the upfront “entry cost” (downpayment) for property buyers will be much higher. IJM Land. such as the imposition of cap on loan-to-value (LTV) ratio. offering attractive rebates that lower the downpayment. Still waiting for more which is worth RM26bn. Mah Sing. commercial. such as LBS and Hua Yang in the Klang Valley. 1% developers to benefit is imposed on the first RM100k. as participating developers will be able to enlarge their development landbank and GDV with this JV project. The development is estimated to worth RM10bn and is expected to be completed by 2025. The 50% exemption will also benefit the secondary housing market as the stamp duty paid by the first-time home buyers who purchase a second-hand house is now cheaper. Our view on the sector. especially in the current property upcycle. We highlight that the story would be different if (i) The Government is to stop Sector will be hit badly if developers from offering innovative scheme in addition to a 70% or 80% cap on LTV incentives offered by ratio. Impact: We remain upbeat on the development plan for the RRI land in Sungai Buloh. we think the Government or Bank Negara Malaysia will still announce some new credit tightening measures to address the issue. we believe the development will contribute to another oversupply wave of office space in future considering the scale of the projects. particularly office towers. and a threshold at above RM350k could be set to target the mid to high-end properties. ii) The EPF will undertake the mixed development comprising affordable houses.680 acres. The total project cost is RM5bn. covering an area of 2. which will be the tallest in Malaysia. As such. and the entire project to be completed by 2020. stamp duty would cost only RM3k (from RM6k) for a house valued at RM350k. Measure: Mega developments i) The development of the Kuala Lumpur International Financial District (KLIFD). for their housing projects in Johor pricing at below RM350k. Under the existing tax structure. KSL. etc. 2% on the next RM400k and 3% on the remaining amount. and to some extent SP Setia. Nevertheless. The project is jointly developed details on RRI land… by 1Malaysia Development Berhad (1MDB) with Mubadala Development Company. We believe the direct beneficiaries under these measures will be the mass housing developers. with the tower expected to be completed by 2015. With the exemption. has yet to be absorbed by the market. industrial and infrastructure facilities of the Malaysian Rubber Board land in Sungai Buloh. THE 2011 22 BUDGET . In any of these two scenarios. This is an integrated development project comprising a 100- storey tower. Although the development of KLIFD and Warisan Merdeka will only be completed in 2015-2020. buying power of property buyers/ investors will be dampened due to lower leverage ability. or (ii) The commercial banks are instructed to adjust the house price for the developers are rebates (offered by developers) as the “real” house price for the application of discontinued mortgage loan. even if a 70% or 80% cap on LTV ratio is implemented. over the intermediate term. at 20% or 30% of the house value. The project will retain Stadium Merdeka and Stadium Negara as national heritage. we note that the oversupply of commercial properties.

88 29.6 4.7 2. Mah Sing (OP. (iii) Strengthening in ringgit and low interest rates in the region that encourage foreigners participation and liquidity flow.0 9.6 20.2 12.18 19.3 0.05 6.8 6.6 11.80 26.3 6.04 1.9 MP YNHB Dec 1.9 5.7 7.2 5.6 OP IJM Land^ Mar 2 .7 6.3 16.2 10.Still positive.9 8. 6 7 3. we continue to like IJM Land (OP.22 2.5 3. and these include: (i) Low measures on the property mortgage rate as commercial banks continue to offer discount to BLR.4 12.8 23.4 -24. and Axis REIT (OP.6 2.8 3.05) for its asset size and liquidity.6 15.6 16.4 13.3 28.48).1 8.98 1.1 8.8 8. FV = RM5.4 6.4 17.8 21.3 18.9 -36.8 11.1 OP Mah Sing Dec 1. FV = RM2.7 2.23 9.9 3.9 1.2 18.8 12.4 11.80 63.4 14.3 OP Sunway REIT Jun 0.9 OP Hunza Prop Jun 1.67) for its strong acquisition track record.1 10.0 ^ FY11-12valuations refer to those of FY12-FY13 THE 2011 23 BUDGET .8 9.58 27.33) and Suncity (OP.5 0.0 0.4 21.2 10.48 41.5 OP Quil Capita Dec 1. suitable for investors who are looking for defensive investments.8 13. Although regulatory Government is unlikely to risk still exists.3 6.79 1. we are hopeful that the recent two additions – Sunway REIT and CapitaMalls Malaysia Trust into the MREITS will boost the liquidity and investibility of MREITs.3 48.87 2.3 10.9 10.85 5.7 OP Paramount Dec 4.2 22.8 9.0 1. as demand will still be driven by the growing young population group. We continue to like Sunway REIT (OP. FV = RM2. Although the current withholding MREITs tax structure will still somewhat shy away foreign investors (especially).2 10.8 7.2 1.8 1.7 6.4 13.1 71.4 0.6 21. (iv) Property is a preferred vehicle to hedge against inflation.86 17.6 5.0 11.8 7. and (vi) Good news flow on the Government’s development plans. (ii) Aggressive sector incentives provided by developers.9 TB SP Setia O c t 4.18).7 3. as the fundamental Remain positive.7 1.88 4.9 0. We remain positive on the property sector.3 4.6 1.5 9.8 11.45 1.5 MP KLCC^ Mar 3. FV = RM1.9 33.8 19. we believe the Government would not want to badly hit the property implement harsh sector.8 5.95 22.3 MP Sector Avg 16.1 3.3 11.33 17. We still see a few strong supports for the sector.2 39.7 8.9 OP Axis REIT Dec 2. as reduction disappointment for or removal of withholding tax was not mentioned.4 0.1 7.6 12.7 3.7 1.2 5.8 8. 6 5 1.1 3. Overall. Table 18 Valuations Of Property Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Glomac^ Apr 1 .9 23.6 20.7 18.3 0.0 7. Yields remained attractive for MREITs at around 7-8%.2 8.17 2. the Budget 2011 is rather disappointing for the REIT sector.4 2.5 8.7 7.00 5.2 2.6 11.9 12.8 8.3 2.3 53.6 19.1 OP Sunrise Jun 2.8 8.7 6.3 9.2 21.32 3.3 27.6 14.9 0.3 11.9 OP Suncity Dec 4. Incentives for REITs are missing.8 27.5 16.72 24.8 6.8 12. FV = RM3.67 18. Having some good news on the mid-end Budget 2011 – a housing.1 11.8 12.

We highlight that these plants will focus on higher technology nodes i.4 4.5 3.e. in our view.2 2. the development is expected to attract around 50 integrated circuit (IC) design companies.2 14. we believe the risks include: 1) capacity glut of wafers that could potentially cause wafer prices to fall as the industry is highly competitive.1 7. The investment will be mainly in key strategic areas i. While we are positive on these developments.1 OP MPI^ Jun 5. analogue (power applications) and mixed signals (wireless applications).8 6.54 21.2 9.9 7.35 53.0 23.9 ^ FY11-12valuations refer to those of FY12-FY13 * Fully Diluted THE 2011 24 BUDGET .95 6.0 1. a JV between QT Hightech Malaysia Sdn Bhd and Lfoundry Gmbh has been established to develop a wafer fab plant in Kulim.0 5.3 8.000 wafers (200mm) a month. Kedah.1 9.5 3.4 MP Notion Sep 1.4 9. Already.6 8.6 11.8 61.69 1.9 11.7 2.1 7.1 7.06 1. With these facilities.32 13.96 2.6 2. Impact: We believe the allocation would support the establishment of five wafer fab plants in Kulim High-Tech Park. major foundry players and hence may lack similar economies of scale.6 OP JCY Sep 1.7 7.0 22. and testing (PAT) players i.2 14. Note that the plant is expected to have a production capacity of 60.8 UP Sector Avg 7.7 2.4 8. Table 19 Valuations Of Semiconductor/IT Stocks FYE Price Fair EPS EPS Gwth PER EV/EBITDA P/NTA P/CF GDY Rec Value (sen) (%) (x) (x) (x) (x) (%) (RM/s) (RM/s) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11 FY11 Unisem* Dec 1.8 1.8 10. 2) wafer fabs are a highly cyclical industry. this augurs well for the industry mainly due to: 1) further business opportunities for packing assembly.8 1.5 5.31 21.3 4.1 3. Penang and Kulim High-Tech Park. Therefore. MPI and Unisem given that IC design companies require these services. The investment is expected to drive the local industry up the value chain and improve its international competitiveness.4 8.e.4 4. and 2) reduction of logistics costs and lead time given that the majority of wafer fabs are sourced from Taiwanese players.e.7 3.Semiconductor & IT : Upping The Ante Neutral Upgrade Mode Measure: A total of RM857m will be allocated to local industry players in order to enhance the electrical and electronics (E&E) sector.4 4.6 7. and 3) the fab facility are small vs.

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. RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading. The securities discussed in this report may not be suitable for all investors. the subsidiaries and subsidiary undertaking of such a holding company and the respective directors. Neither RHBRI. investor client feedback. and may not reflect information known to. banking and financing activities. This report does not provide individually tailored investment advice. The opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice. Underweight = Industry expected to underperform the FBM KLCI benchmark. RHBRI and/ or its associated persons may from time to time have an interest in the securities mentioned by this report. weighted by market capitalisation. and encourages investors to seek the advice of a financial adviser. RHB Group nor any of its affiliates. professionals in other business areas of the “Connected Persons. 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. 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. any member of the RHB Group may at any time hold positions. It is generally for investors who are willing to take on higher risks. over the next 6-12 months. for its own account or the accounts of customers. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The research analysts. employees or agents accepts any liability for any loss or damage arising out of the use of all or any part of this report. in debt or equity securities or loans of any company that may be involved in this transaction. employees and agents of each of them. including quality of research. invitation or solicitation to buy or sell the securities covered herein. and may trade or otherwise effect transactions. over the next 6-12 months Neutral = Industry expected to perform in line with the FBM KLCI benchmark. Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/. banking and financing activities as well as providing investment banking and financial advisory services. brokerage. In the ordinary course of its trading. This report is not to be construed as an offer.” including investment banking personnel. Industry/Sector Ratings Overweight = Industry expected to outperform the FBM KLCI benchmark.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). weighted by market capitalisation. It is for distribution only under such circumstances as may be permitted by applicable law. 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. securities brokerage. officers. over the next 6-12 months. weighted by market capitalisation. economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors. “Connected Persons” means any holding company of RHBRI. Facts and views presented in this report have not been reviewed by. 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. This report has been prepared by the research personnel of RHBRI. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. THE 2011 25 BUDGET . but fundamentals are not strong enough to warrant an Outperform call. competitive factors and firm revenues.five percentage points) over the next 6-12 months. stock picking. RHBRI recommends that investors independently evaluate particular investments and strategies. Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

will be made available upon request. Jalan Tun Razak 50400 Kuala Lumpur P. Malaysia Tel (Research) : (603) 9280 2160 Fax (Research) : (603) 9284 8693 ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ ◆ Lim Chee Sing Director RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Malaysia Tel (General) : (603) 9285 2233 Dealing Office Tel (Dealing) : (603) 9285 2288 Fax (Dealing) : (603) 9284 7467 RHB Research Institute Sdn Bhd Level 10. RHB DEALING AND RESEARCH OFFICES MALAYSIA RHB Investment Bank Bhd Level 10.O. RHB Centre. Box 12699 50786 Kuala Lumpur. . Additional information on recommended securities. Tower One. This report may not be reproduced or redistributed. Tower One. RHB Centre. in whole or in part. subject to the duties of confidentiality. Box 12699 50786 Kuala Lumpur.O. Jalan Tun Razak 50400 Kuala Lumpur P. without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.