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N O MU R A S E C U R I T I E S M A L A Y S I A S D N B H D
Wai Kee Choong
+60 3 2027 6893
waikee.choo ng@ nom ura .com
Action Except for minor elements, the 2011 Budget is consistent with the early announcements on the New Economic Model and the 10th Malaysia Plan. Key initiatives and measures continue to revolve around the plan to transform the country towards a high-income developed nation. From the market’s perspective, the budget is largely a non-event. But there are goodies in store for low- to middleincome households – no toll hikes for 5 years and grants for first-time house buyers. Scrapping of import duties on retail goods could be a boost to services and tourism sectors. Anchor themes We recently introduced Malaysia’s consumption boom story. We believe this is an interesting theme not properly researched and overlooked by the street. While the consensus earnings upgrades cycle is likely to remain in positive territory, we believe the Malaysia consumption boom story will be the next focus.
Stocks for action
We like stocks leveraged on to the consumption theme in Malaysia.
Stock Ma ybank AMMB AFG QSR Genting Malaysia Media Prima Malaysian Airline Systems Rating Buy Buy Buy Buy Buy Buy Buy Price (RM) 8.88 5.91 3.24 5.09 3.52 2.30 2.27 Price target (RM) 10.70 6.70 3.90 6.12 3.94 2.90 2.40
Pricing as at 15 October close
A familiar story
The big picture
After strong 1H GDP growth, the government is projecting 2H GDP growth will moderate, for 7% growth in the full year. This is in line with our expectations. However, the projected 5.4% fiscal deficit is a concern. Coupled with the larger allocations for the Employee Provident Fund to invest abroad, the Ringgit could face some headwinds, we believe.
Wai Kee Choong +60 3 2027 6893 waikee.choo ng@ nom ura .com
Julian Chua +60 3 2027 6892 julian.c hua@ nom ura.co m Jacinda Loh +60 3 2027 6889 Jacinda.lo h@ nom ura.com Ken Arieff Wong +60 3 2027 6895 kenarieff.wo ng@ nom ura.com Muz hafar Mukhtar +60 3 2027 6891 muzhafa r.m uk htar@ nom ura.com Daniel Raats +852 2252 2197 daniel.raa ts@ nom ura .com B. Roshan Raj +65 6433 6961 brosha n.raj@ nom ura.com Andrew Lee +852 2252 6197 andrew.lee @no m ura.com Tanuj Shori +65 6433 6981 tanuj.s hori@ nom ura .com Sai Min Chow +65 6433 6169 minc how.sai@nom ura.com
Contrary to earlier expectations, there were no curbs on property financing, nor tightening of credit card guidelines. These measures would likely have dampened consumer sentiment. Instead, incentives were given to assist first-time home buyers. Removal of 5-30% import duties on 300 retail goods and a freeze in toll rates for five years should boost consumption and tourism income.
The budget reaffirmed projects announced earlier, such as the MRT, the five highways, the Kuala Lumpur International Financial District (KLIFD) and the Malaysia Rubber board land. No fresh details were tabled, however. The proposed 100-storey tower would add supply to office space, in addition to the newly announced KLIFD.
We are maintaining our Bullish stance on the consumption theme. Our top picks in the consumer-related space are Maybank, AMMB, AFG, QSR, Genting Malaysia, Media Prima, and Malaysia Airlines.
Any authors named on this report are strategists unless otherwise indicated. See the important disclosures and analyst certifications on pages 8 to 12.
Nomura 1 18 October 2010
to expedite the process of property registration. Second Strategy: Intensifying Human Capital Development To address the perennial concern of a brain drain and lack of skilled labour. the Government Transformation Plan (GTP) and Economic Transformation Plan (ETP). improving quality of life.000 a month.000 for first-time buyers earning less than RM3. the Stamp Act 1949 was amended to enable the Valuation and Property Services Department to assess properties after the payment of stamp duty to the Inland Revenue Board. Third Strategy: Enhancing Quality of Life of The Rakyat Some RM568mn will be allocated to develop almost 90.000 housing units for the lowincome group. This improvement should reduce the property registration process from 30 days to one day. A total of RM40bn has been allocated for this strategy. First Strategy: Reinvigorating Private Investment To encourage the private sector to take the lead in selected high-impact projects such as the KLIFD. which could potentially boost privatesector investment by 12. For example. Favorable housing loans at a 4% interest rate for a maximum of RM60. according to the government. Fourth Strategy: Strengthening Public Service Delivery The Prime Minister emphasised that the government needs to continuously improve to enhance productivity and make dealings with the Rakyat and businesses more transparent and easy to navigate. Nomura 2 18 October 2010 .000 for low-cost houses.Strategy | Malaysia Wai Kee Choong Drilling down A familiar story The four key strategies — reinvigorate private investment. and strengthening public service delivery — are key elements of the New Economic Model. human capital development.000. government-guaranteed down-payments of 10% for houses below RM220.5% in 2011F. the five highways and the MRT. and a 50% stamp duty exemption for first-time house buyers of houses not exceeding RM350. the 2011 Budget is proposing a long-term strategy to strengthen education at all levels. the 10th Malaysia Plan.
the Malaysia 2011 budget had a strong emphasis on key projects. Public Private partnership initiatives The Government will intensify the Public-Private Partnership (PPP) initiatives. Among the PPP projects are: Construction of highways such as the Ampang-Cheras-Pandan Elevated Highway. water supplies. which includes the development of an Agricultural Products Processing Centre. Several PPP projects identified under the 10MP will be implemented in 2011 through private investment of RM12. development of housing areas as well as providing and improving public transportation services.Strategy | Malaysia Wai Kee Choong Exhibit 1. in our view. which. Sub-total 58. is expected to be fully completed by 2020. among others. In terms of construction companies. Tourism Infrastructure and a Biotechnology Incubator Centre. But execution risks remain. the govt has focused on the PPP model for infrastructure development. order books should have upside. we believe that construction stocks have already run up in light of the expectations. Damansara-Petaling Jaya Highway. Pantai Barat-BantingTaiping Highway. including telecommunication.500 Gamuda. After a long time. agro-industrial precinct and integrated farming centre. Sector measures and impact Sector Construction Measures MRT Project The Mass Rapid Transit (MRT) in Greater KL (Klang Valley) will be implemented beginning 2011.000 biggest beneficiaries of MRT would be Gamuda and IJM.350 In-line with our expectations. For the Sabah Development Corridor. Construction of highways should benefit local construction as well as BOT operators like 12. 850 Mostly would benefit small regional contractors Nomura 3 18 October 2010 .5bn. We think the 40. IJM and PLUS. The government sent out positive signals on the MRT project and at the same time pushed Public Private partnerships and the landmark integrated development project. Corridor and Regional Development The Government allocates RM850mn in infrastructure support for infrastructure around regional corridors including: RM339mn for Iskandar Malaysia for the construction of highways. Source: Budget 2011 Amount (RMmn) Nomura comment In line with our view. RM133mn for The Northern Corridor Economic Region (NCER). This project. Although order book newsflow should remain strong on the back of high profile projects. airport and roads. considering govt wants private investments to be a major portion of the project. Sungai Dua-Juru Highway and Paroi-Senawang-KLIA Highway. for palm oil industry cluster projects. with an estimated private investment of RM40bn. the MRT project may get the go-ahead soon. is a more sustainable model for growth. but earnings would take a long time to materialise. We would wait for fundamental earnings support for the construction names to get positive on the next leg of a rerating. Guthrie-Damansara Expressway. RM93mn for Sarawak Corridor of Renewable Energy (SCORE). a sum of RM110mn is allocated.
This news is not new. and the implementation of a Feed in Tariff mechanism for individual and independent RE gencos. we still view Malaysia’s regulatory ambiguities and TNB’s sub-par ROAs as a more serious obstacle to increased foreign shareholder participation in the name.Strategy | Malaysia Wai Kee Choong Exhibit 2. The Economic Transformation Programme targets the reduction of government stakes in GLCs to 15-30%.6%). Green technology development policies should underpin at least some gains on regional peers in this field. the PM alluded to a continued drive to improve market liquidity through having GLICs divest stakes in corporations. The recent trend (in the last three years) of increasing tobacco duties near to the budget will increasingly be expected going forward. Selangor. Kuala Lumpur. 4) Bursa Malaysia will develop an international board to enable foreign securities to be listed. Nomura comment No real impact. Takeover offer may render this irrelevant. from the power sector’s perspective we believe the market approached this announcement with realistic expectations. 5) Home ownership scheme for firsttime house buyers with household incomes of less than RM3. Also note there were no announcements limiting loan-to-value for third (or more) housing loans. 2010).8% on 4 October. As anticipated. this may suggests that our +4% FY11F volume growth assumption for TNB is somewhat on the light side. Negeri Sembilan and Melaka in June 2011. Malaysia: likely Budget 2011 measures. Astro subscribers will have to pay 6% more for their monthly subscriptions. exemption on import duties and sales for RE and energy efficiency equipment until 2012. where we believe changes anywhere near the magnitude suggested by PEMANDU will be difficult to implement preelections. Power Source: Budget 2011 Speech Nomura 4 18 October 2010 . Housing loans <RM250K accounts for 52% of total mortgages but has been growing at just 2% y-y. 12 October. 6% service tax will be imposed on paid television broadcasting services. No impact on tobacco companies. Taken against that backdrop. Increased competition in the retail stockbroking space No surprise. While these measures may improve liquidity. 2010. Government GDP growth forecasts for 2011 in the range of 5-6% are consistent with our house view of 5. Tobacco No increase in excise duties for tobacco. Overall positive. Loans >RM250K have been the main growth driver for mortgages. The biggest impact on PEB would be from the West Coast Expressway. our preference for Tenaga relative to YTLP — largely on account of the company’s positive leverage to an appreciating ringgit — is unchanged. and with a steady.3x FY11F earnings. cash compensation will be coming under current concession agreement. but we fail to see this making a material impact to industry players under our coverage. Any biofuel blending done is incremental demand. Cagamas provides a guarantee on the down-payment of 10% for houses below RM220. especially syariah-compliant products. 2) Government-linked Investment Companies will divest their shareholdings in major listed companies to increase liquidity and trading velocity in the market. At first glance. Long-term positive for Bursa Malaysia. Media Plantations Mandatory Blending of Biofuels with Petroleum Diesel (B5 Programme) beginning in Putrajaya. income tax exempt trading of CERs until 2012.000. We note that is actually not news: it was mentioned during the NEM speech in March. The reiteration in the budget speech is a positive reaffirmation of the 2011 target. under the same initiative (PPP). foreign or JV companies to increase retail market participation. which may further fuel market interest in the possibility that Khazanah is looking to pare its interest in TNB (currently 35. the budget does not appear to contain any surprises relative to Nomura and the street’s expectations. later shifted to 2011). it was announced previously (with supposed implementation by 2010. nor were credit card guidelines tightened as initially feared (see Asean Bank Check. Policies geared towards stimulating the development of green technologies – including pioneer status and investment tax allowances for RE gencos until 2015. though the impact is to be felt in the long run. and as such would lower supplies available for exports (a positive for prices). the PM’s address gave no further colour on the rationalisation of gas price subsidies to the power sector. though implementation overall may be challenging if the infrastructure (such as blending plants) is not completed in time. expanding at 24% y-y. Mildly positive for Bursa Malaysia. At 13.2%. Despite none of the structural issues facing the industry being addressed. we believe TNB remains an attractive risk-reward prospect. Positive for Bursa Malaysia. volume-led earnings recovery. Beyond this. 3) SC will increase the number of Proprietary Day Traders operating in the market.000. No news of real progress has surfaced since. Positive for banks' mortgage business. given the surprise hike of 15. Sector measures and impact (cont'd) Sector Toll Roads Measures Toll rates at PEB's highways will be frozen for the next 5 years Construction of 6 highways under the PPP initiative Banking & Finance 1) SC will offer 3 new stockbroking licences to eligible local. The government's decision not to increase tobacco duties this budget is largely expected.
import duty and sales tax exemption on broadband equipment are also extended for two years until 2012. Not Rated) has just launched Nusa Bayu.000. 3) Announcement of ‘My First Home Scheme’ to be administered by Cagamas Berhad to guarantee 10% downpayment for houses below RM220. these duties range from 5-30%.000 at 4% interest rate and 40-year repayment period. Currently.to mid-end developments priced within the RM220-350k range benefit. This positive undertone should remove any remaining overhang arising from such fears. This programme involves an allocation of RM119mn.2mn in Malaysia. lower mobile handset prices may not drive new real subs. Source: Budget 2011 Speech Nomura 5 18 October 2010 . Not Rated) Telcos The government will extend the investment allowance period for the last-mile broadband service providers. revenue or earnings as cellular penetration is already high at 108% — implies majority of population already has a mobile handset and. This is only for first-time home buyers with household income of less than RM3. 4) 50% stamp duty exemption for instruments of transfer of residential property for first-time home buyers for houses not exceeding RM350. mobile). to be managed by Bank Simpanan Nasional. Currently. 2) Sales tax of 10% to be exempted on all types of mobile phone. 5)Civil servants.to high-end developers like SP Setia (SPSB MK. Telcos can tap such content.000. This is applicable to sales and purchase agreements executed from 1 Jan. For the purpose of streamlining tax treatment. handbags.000 in the Nusajaya area. the MY Creative Content Programme will be implemented to encourage development of local content creation. Retail 1) Import duty on 300 goods to be abolished. perfumes and footwear. which number 1. apparel. especially in the mid-to-high end range as has been seen over the past few months continue to be seen — benefiting mid. for example. and continue to ensure healthy demand for launches. ordinary mobile phones are subject to 10% sales tax. Schemes to improve affordability for firsttime home buyers are likely to ensure that property developers with lower. 2) Additional RM50mn allocated to assist estate workers to own houses.000 from RM360. 3) Service tax to be raised from 5% to 6%. Importantly. Support for development of local content could benefit the telecom sector in the longer term. For Sarawak Corridor of Renewable Energy (SCORE). Loans may be obtained by estate workers of up to RM60. and increasing the attractiveness of such goods to tourists. however. eg. as this may not drive higher cellular usage. previously the exemption applied only to phones with Internet and PDA applications. 7) Reduce the property registration process at the Valuation and Property Services Department from 30 days to 1 day.000 currently. and Sarawak. Parkson Holdings (PKS MK. these measures are likely aimed at spurring consumption by improving affordability of products for locals. Similarly. Hence.300 units of low-cost affordable housing. Nomura comment Sector incentives were skewed towards incentivising ownership and boosting affordability for the lower-income group and young adults who have newly joined the workforce. notably missing were the earlier-feared measures of potential loanto-value cap of 80% and imposition of a real property gains tax. certain textiles. investment in telecom facilities will be positive for cellular operators and fixed-line operators. Sabah. these developments may be situated outside the major cities. BUY). including telecommunication. Taken together. water supplies. which in turn could drive the uptake of data services. These extensions are a positive but barely exciting — these have been in place for the past few years. but mobile phones with various applications such as Internet and personal digital assistant (PDA) are exempted from sales tax.680 acres to be undertaken by EPF (RM10bn worth) to be completed by 2025. To enhance the potential of the ICT industry. will have the maximum loan eligibility under their housing loan scheme increased to RM450.000 per month. The focus is on creation of an innovative digital economy to achieve the target of a high-income nation. on both cellular and broadband platforms (fixed. the government proposes that sales tax be exempted on all types of mobile phones. the absence of new incentives is unlikely to change the rate of broadband growth. Not Rated) has Saujana Utama (future launches planned of RM280mn). Marginal impact for mobile operators. Telecom and broadband penetration (13-15%) in Sarawak remains lower than in other mainland regions. 2011. Goods benefiting from the import duty abolition are. a medium-cost development (GDV: RM700mn) of terrace homes priced at an average of RM220. Mall / retail operators are likely beneficiaries. eligible citizens will obtain a 100% loan without having to pay the 10% required downpayment.000. hosting local content and unlocking new channels for content.Strategy | Malaysia Wai Kee Choong Exhibit 3. 6) Government confirmed the development of Malaysian Rubber Board land in Sungai Buloh covering 2. a total of RM93mn is allocated for facilities. However. hence. which at 38% penetration level is trending below the 50% target by end-FY10. In addition. in our view. We note that UEM Land (ULHB MK. airport and roads as well as halal food industrial parks. Sector measures and impact (cont'd) Sector Property Measures 1) RM568mn allocated to build 87. data contributes 20-35% of revenue for cellular operators. a Sungai Buloh township comprising mainly terrace homes priced at an average of RM275. In other words. Given the price range. some marginal demand upside could be driven by existing lower-end subs and new subs in underpenetrated areas in East Coast. Glomac Berhad (GLMC MK. Stamp duty exemption of 50% also applicable on loan agreements instruments to finance such first-time purchases of houses. The Multimedia Development Corridor enters its third phase in 2011. it did not name any potential developers.
Our price target of RM10.1x. 2) Bank Negara curbs on mortgage LTV would result in slower growth in the consumer space. Malaysian Airline System: We value MAS by pegging FY11F BVPS to its historical mid-cycle P/BV of 1.2%.90 is derived after imputing a FY12F ROE forecast of 13.75%.48/share (before discounts). and. Applied to our DCF-derived RNAV estimate for FY11F. Our price target implies an FY12F P/BV of 1. Alliance Financial Group: Our Gordon-growth based price target of RM3.3x and terminal growth rate of 2%). Our fair value is based on the average of FY11F-12F fair value. as India's growth is likely to be more meaningful then as the Malaysian operations mature and growth stabilises for Malaysia. Media Prima: Our DCF-based price target is RM2.7x. this translates into a price target of RM3.7x. we have discounted its future cashflow by a weighted average cost of capital (WACC) of 9. AMMB Holdings: Our Gordon Growth-based price target is derived after imputing an ROE forecast of 13. beta of 1.7%.94/share.89. based on the midway of the stock's historical mean and -1SD level. so to speak.9% and FY12F book value of RM3. and 2) delay in further policy rate hikes by Bank Negara would result in slower margin expansion than forecast. as the airline moves away from five to six years of being under the weather. QSR Brands: Our SOTP valuation is arrived at by ascribing: 1) a 22.90. on our estimate. Investment risks Maybank: 1) weaker-than-expected economic growth could result in slower loan growth and higher credit costs. In deriving this value. and 2) weaker-than-expected economic growth could result in slower loan growth and higher credit costs. if measured by the discounted cashflow (DCF) model. GENM shares have traded at a 12% discount to DCF-based RNAV since then.75%.5x and +1 standard deviation level of 2.32 (methodology unchanged).2x multiple to the FY11F PAT of the Indian operations.4x.5x.5% and beta of 1. Alliance Financial Group: 1) higher-than-expected loan charge-offs and sluggish loan growth if the domestic economy recovers more slowly than expected. based on the three-year India consumer stock average multiple. using a discount rate of 10. which is just above its post-crisis average P/BV of 2. and 2) the rest of the businesses at 12x FY11F PAT.7%. AMMB Holdings: key downside risks include: 1) imposition of property loan-tovalue (LTV) caps may be a negative catalyst. comes to RM4. On average. given we believe the company's growth profile is likely to be different by FY12F. equity risk premium of 4. The WACC is derived from a cost of equity of 9. GENM’s intrinsic value.29. This implies an FY12F P/BV of 1. We see room for recovery owing to the turnaround in costs and the rebound in passenger numbers in FY10F. which is midway between the post-crisis mean and +1 std deviation P/BV.8% and rolling forward to FY12F book value of RM2.70 implies a P/BV of 2. risk-free rate of 3.Strategy | Malaysia Wai Kee Choong Valuation methodology Maybank: Our Gordon-growth based price target is derived after imputing a FY12F ROE forecast of 16. Our midcycle valuation for MAS is based on our view that the turnaround in costs is likely to improve its cost competitiveness and that its fleet rejuvenation will drive revenues.40. with its fleet rejuvenation driving more savings as the new aircraft comes into service in FY11F. Nomura 6 18 October 2010 . which is midway between the post-crisis mean of 1.8x to arrive at our price target of RM2. Genting Malaysia: Our price target is based on the stock’s average historical discount to DCF-based RNAV since 1997.3% (risk-free rate 3.
it may result in greater discounting for ad space. 3) fewer-than-expected store openings. a shaper-thanexpected fall in GENM’s revenue would likely see the shares trading at a sharper discount to RNAV. and 4) a sharp and sustained spike in input costs. Another downside risk is in delays of deliveries of its planes. Nomura 7 18 October 2010 .Strategy | Malaysia Wai Kee Choong QSR Brands: 1) non-renewal of the franchise licence with Yum! after the 10+10 year contract period. lesser-than-expected loss in revenue could be an upside risk to our estimates and price target. Genting Malaysia: although we believe that to a large extent fear of potential loss of revenue to the two Singapore casinos has been largely priced in. Media Prima: 1) if the global recovery is slower than expected. the shares have traded at up to a 45% discount to RNAV in 1998 and 34% discount in 2001. oil prices and currency movements from Nomura estimates. 2) deteriorating domestic consumer confidence on worries of a double dip in QSR’s key markets. 2) forex changes – a sharp depreciation in the ringgit would lead to significantly higher costs of programming content and newsprint. and 3) competition – if competitors become more aggressive in gaining TV adex market share. Conversely. consumer demand/sentiment and ultimately advertising spending will follow. Historically. Malaysian Airline System: main price target risks for MAS are possibility of variance in passenger volumes/yields.
are classified as a Buy rating. If you have any difficulties with the website. the fair value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as discounted cash flow or multiple analysis. For clients in Europe. Middle East and Africa. As at 30 September 2010.nomura.com/research). Andrew Kam Wing Lee.current price)/current price. REUTERS.. Nomura 8 18 October 2010 . 41% of companies with this rating are investment banking clients of the Nomura Group*. US and Latin America for ratings published from 27 October 2008 The rating system is a relative system indicating expected performance against a specific benchmark identified for each individual stock. indicates that the analyst expects the stock to outperform the Benchmark over the next 12 months.COM. indicates that the analyst expects the sector to underperform the Benchmark during the next 12 months. 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Japan and elsewhere in Asia it is available on NOMURA. Distribution of ratings (Global) Nomura Global Equity Research has 1878 companies under coverage.Strategy | Malaysia Wai Kee Choong ANALYST CERTIFICATIONS We. A rating of 'RS-Rating Suspended'. Online availability of research and additional conflict-of-interest disclosures Nomura Japanese Equity Research is available electronically for clients in the US on NOMURA. Daniel Raats. salesperson (1-877-865-5752) or email grpsupport@nomura. for purposes of mandatory disclosures. SECTORS A 'Bullish' stance. please email grpsupport-eu@nomura. are classified as a Sell rating. A rating of 'Neutral'. unless otherwise stated in the valuation methodology.com/research/pages/disclosures/disclosures. Benchmarks are as follows: United States: S&P 500.COM. Explanation of Nomura's equity research rating system in Europe. In most cases.nomura. subject to limited management discretion. A 'Bearish' stance.Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. Analysts may also indicate absolute upside to price target defined as (fair value . B. 48% have been assigned a Buy rating which. 16% of companies with this rating are investment banking clients of the Nomura Group*. Conflict-of-interest disclosures Important disclosures may be accessed through the following website: http://www.nomura. Inc. Industry Specialists identified in some Nomura research reports are senior employees within the Firm who are responsible for the sales and trading effort in the sector for which they have coverage. for purposes of mandatory disclosures.com for assistance. BLOOMBERG and THOMSON ONE ANALYTICS. is classified as a Hold rating. indicates that the analyst expects the sector to perform in line with the Benchmark during the next 12 months. indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the company. is or will be directly or indirectly related to the specific recommendations or views expressed in this Research report and (3) no part of our compensation is tied to any specific investment banking transactions performed by Nomura Securities International. Inc. Jacinda Loh. A rating of 'Reduce'. Tanuj Shori and Min Chow Sai. A 'Neutral' stance. Global Emerging Markets (ex-Asia): MSCI Emerging Markets ex-Asia. indicates that the analyst expects the sector to outperform the Benchmark during the next 12 months.com/research or requested from Nomura Securities International. (2) no part of our compensation was. REUTERS and BLOOMBERG. for purposes of mandatory disclosures.com for technical assistance. Ken Wong. Europe: Dow Jones STOXX 600. Wai Kee Choong. 37% have been assigned a Neutral rating which. hereby certify (1) that the views expressed in this Research report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this Research report. STOCKS A rating of 'Buy'. a portion of which is generated by Investment Banking activities. Benchmarks are as follows: United States/Europe: Please see valuation methodologies for explanations of relevant benchmarks for stocks (accessible through the left hand side of the Nomura Disclosure web page: http://www.aspx . please contact your Nomura Securities International. Roshan Raj.. Inc. Julian Chua.
indicates that the analyst expects the stock to underperform the Benchmark by 15% or more over the next six months. which is defined as (Fair Value . subject to limited management discretion. our recommendation is an assessment of the difference between current market price and our estimate of current intrinsic fair value. Benchmarks are as follows: Japan: TOPIX. A 'Buy' recommendation indicates that potential upside is 15% or more. indicates that the analyst expects the sector to underperform the Benchmark during the next six months. A 'Buy' recommendation indicates that upside is between 10% and 20%. A 'Bearish' stance. Communications equipment: FTSE W Europe IT Hardware. Accordingly. indicates that the analyst expects the sector to perform in line with the Benchmark during the next six months. A rating of '5' or 'Sell'. then the fair value may differ from the intrinsic fair value. 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Nomura might not publish additional research reports concerning this company. A 'Neutral' recommendation indicates that potential upside is less than 15% or downside is less than 5%. A 'Bearish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a negative absolute recommendation. In most cases.Current Price)/Current Price. Global Emerging Markets: MSCI Emerging Markets ex-Asia. etc. A 'Reduce' recommendation indicates that potential downside is 5% or more. and it undertakes no obligation to update the analysis. by sector . Ecology Focus: Bloomberg World Energy Alternate Sources. Recommendations are set with a 6-12 month horizon unless specified otherwise. Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published prior to 30 October 2008 STOCKS Stock recommendations are based on absolute valuation upside (downside). therefore. However. projections. SECTORS A 'Bullish' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a positive absolute recommendation. price volatility may cause the actual upside or downside based on the prevailing market price to differ from the upside or downside implied by the recommendation. Middle East and Africa. A rating of '2' or 'Buy'. the Fair Value will equal the analyst's assessment of the current intrinsic fair value of the stock using an appropriate valuation methodology such as Discounted Cash Flow or Multiple analysis etc. within this horizon. Europe. indicates that the analyst expects the stock to outperform the Benchmark by 5% or more but less than 15% over the next six months. A 'Strong buy' recommendation indicates that upside is more than 20%. A rating of 'RS' or 'Rating Suspended' indicates that the rating and target price have been suspended temporarily to comply with applicable regulations and/or firm policies in certain circumstances including when Nomura is acting in an advisory capacity in a merger or strategic transaction involving the subject company. US and Latin America published prior to 27 October 2008) STOCKS A rating of '1' or 'Strong buy'. United States: S&P 500. indicates that the analyst expects the sector to outperform the Benchmark during the next six months. Auto & Components: FTSE W Europe Auto & Parts. In most cases. MSCI World Technology Hardware & Equipment. Stocks labeled 'Not rated' or shown as 'No rating' are not in Nomura's regular research coverage.Hard ware/Semiconductors: FTSE W Europe IT Hardware. Telecoms: FTSE W Europe Business Services. A rating of '4' or 'Reduce'. Explanation of Nomura's equity research rating system in Japan published prior to 6 January 2009 (and ratings in Europe. A 'Neutral' rating means most stocks in the sector have (or the weighted average recommendation of the stocks under coverage is) a neutral absolute recommendation. A rating of '3' or 'Neutral'.Current Price) / Current Price. estimates. conclusions or other information contained herein.Strategy | Malaysia Wai Kee Choong Explanation of Nomura's equity research rating system for Asian companies under coverage ex Japan published from 30 October 2008 and in Japan from 6 January 2009 STOCKS Stock recommendations are based on absolute valuation upside (downside). Nomura 9 18 October 2010 . In most cases. indicates that the analyst expects the stock to outperform the Benchmark by 15% or more over the next six months. Investors should not expect continuing or additional information from Nomura relating to such securities and/or companies.
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