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PP 10551/10/2009 (022563) April 3, 2009

MALAYSIA EQUITY Investment Research Daily News STRATEGY
Jeffrey Tan +60 (3) 9207 7633 Jason Yap +60 (3) 9207 7698 Mervin Chow +60 (3) 9207 7668 Norfauzi Nasron +60 (3) 9207 7644 Law Mei Chi +60 (3) 9207 7621
Private Circulation Only

OSK JEWELS - 2009 Edition
The Spirit of Investing
We held an exclusive launch of the Top Malaysian Small Cap Companies Book (2009 Edition) at the Mandarin Oriental on March 31. As with previous launches, the Top 5 companies were invited for presentations in the morning followed by break-out sessions in the second half of the day. The five top companies selected for the latest edition are KPJ Healthcare, Kossan Rubber Industries, QL Resources, Wah Seong Corporation and Hektar REIT. KPJ was represented by Alvin Lee, its Chief Financial Officer, Kossan by Edward Yip, its Senior Manager, Corporate Affairs, Wah Seong by Deputy Managing Director Giancarlo Maccagno, and Hektar by Lim Ye Jhen, GM Strategy, Hektar Asset Management. The companies form part of the 50 small cap stocks with market capitalisation of under RM1bn featured in our popular investment compendium, now in its 5th year of publication.

Fig. 1: Registration and meet the corporates session

Fig. 2: Clients listening attentively during the corporate presentations

Source : OSK

Capacity crowd. The response for the event was overwhelming as more than 80 participants comprising portfolio managers and members of the buy-side community turned up. Most of our clients came by to gather fresh ideas and to learn how the companies are weathering the slowdown in the context of their respective industries. Most of the clients we acquainted with were very supportive of our continued commitment in the small cap space and like our Top 5 picks given their safe haven characteristics, supported by promising dividends and resilient business models. The selection this year provides exposure to the consumer, oil & gas, rubber gloves and healthcare sectors.
OSK Research

See important disclosures at the end of this report

are in our Top 5 and Top 10 picks respectively.80 3. 4: Corporate presentation Source : OSK Good mix of consumer. The 50 stocks. ranked according to their market capitalisation. The top dividend yielding stocks (>10%) . are depicted in Appendix 1-4 of this report. We view the choice of the Top 5 companies as befitting the current uncertain economic environment as their business models are robust enough to withstand external pressures. It currently operates the largest network of hospitals in the country (19 in total) and is looking to See important disclosures at the end of this publication See important disclosures at the end of this report 2 OSK Research . Fig. KPJ is OSK’s top exposure to the healthcare sector given its expanding portfolio of hospitals nationwide and overseas.58 1. has a BUY recommendation on the stock with a target price of RM3. their PER valuations are at an attractive 5-6x FY09/10 EPS. which in our opinion make up the ‘best-of-breed’ that are able to endure the economic storm and emerge from a position of strength. QL is poised for another year of uninterrupted revenue growth. Of the Top 5 companies.99 4. We reduced the number of companies featured in the latest edition to 50.32 1.48.48 4. Kossan remains one of the most efficient manufacturers of nitrile rubber gloves (NRG) for the medical industry and among the biggest in the world. oil & gas and thematic plays. buoyed by the extended growth of its marine product manufacturing (MPM) segment. 3: Group luncheon Fig. Jason Yap.OSK Research KEY HIGHLIGHTS Table 1: OSK Top 10 Small Cap Companies – 2009 Edition Companies Alam Maritim Hai-O Enterprise Hektar REIT Kossan Rubber KPJ Healthcare Malaysia Steel Works Mudajaya Group New Hoong Fatt QL Resources Wah Seong Sector Oil & Gas Consumer REIT Rubber Glove Healthcare Steel Construction Automotive Consumer Oil & Gas PP 10551/10/2009 (022563) April 3.16 0. All companies have been screened based on quantitative and qualitative scorecards with due consideration accorded to their financial and execution track records. Nine companies belong to the top quadrant. valuing QL at 12. FY09 PER and FY09 dividend yields. repeating its untarnished 20-year track record since listing. with the latter providing one of the highest ROE in the consumer sector at 32%. ROE.03 1.32. has a BUY recommendation on the stock with a target price of RM4.93 Companies in bold denote OSK Top 5 picks for 2009 The 50 jewels. The focus on higher margin NBR gloves would underpin its growth going forward with margins set to further expand. Our analyst. 2009 Target price – BUY (RM) 1.40 4. Based on our earnings universe.5x FY09 EPS. returning in excess of 20% in terms of ROE while slightly more than half of the 50 stocks command dividend yields of over 5%. which is not surprising considering that their share prices have lost an average of 36% over the past 12 months.Hektar REIT and Hai-O . Our consumer analyst.00 1. The majority of companies have market capitalisation ranging from RM100m-RM500m. Law Mei Chi. We believe the list of companies would appeal to a broad spectrum of investors with differing risk appetite and risk-reward profiles. and with focus on the quality of earnings. QL and Kossan Rubber are widely followed by the investment community given their recession-proof businesses consisting of mainstream consumables and essential goods.

especially amid the current economic slowdown. specifically over re-financing. The overall response to KPJ Healthcare’s breakout sessions had been above our expectation as the stock has generated great interest among the investment community. we gather that some fund managers had obtained updates from Kossan’s management through recent visits while clients were understandably more apprehensive over Hektar’s outlook given the slowdown in the economy. Our thematic exposure this year is Hektar REIT. Mervin Chow.99. TP. As for Wah Seong.00.OSK Research PP 10551/10/2009 (022563) April 3.RM4. KPJ remains a sound and compelling exposure for investors looking for a strategic long-term investment. Meanwhile. KPJ HEALTHCARE (BUY. 2009 acquire more to drive longer term growth.93 or 9x FY10 EPS. It has been actively looking for acquisition targets and has so far identified some potential candidates with focus in Johor and East Malaysia due to large untapped market potential in those locations. 5: Mr. KPJ. construction on See important disclosures at the end of this publication See important disclosures at the end of this report 3 OSK Research . Our analyst. Part of KPJ’s expansion strategy is to add at least one new hospital every year. Jason Yap sees it as being well poised to capture a bigger slice of the worldwide pipe coating and compressor business. While the sessions for Kossan and Hektar were more subdued. feels that Hektar’s fundamentals are under-appreciated as its business model is inherently more defensive (focusing on the non-discretionary consumer retail segment). Fig. Norfauzi Nasron. especially during the current economic landscape where investors are looking for more conservative and defensive investments. either by building new hospitals or via acquisitions of existing hospitals. Hektar is well supported by a generous dividend yield of 12% and trades at a 30% discount to its net asset value (NAV).00) Good response. the country’s maiden retail focused real estate investment trust (REIT). That said. The investment community may also be more cautious on the Malaysian REIT setting given the flak received by some REITs in the region. recapitalisation and revaluation risks. He values the stock at RM0. our oil and gas analyst. Our healthcare analyst. is of the view that KPJ is a good BUY based on its undemanding and attractive prospective PERs of 6-7x with a target price of RM4. We feel that the prospects of the healthcare sector in the country remains bright due to the scarcity of medical services. with a success rate of 30%-50% Its tenderbook currently stands at US$4bn. This is in line with our view that KPJ is an excellent choice for strategic longer term investment and portfolio balancing. Alvin Lee addressing the crowd of KPJ Source : OSK Hospitals network expansion on track. KPJ is planning to acquire small or medium-sized hospitals with capacity of 30 to 60 beds. Wah Seong and QL attracted the best response for their individual break-out sessions. In line with its last two acquisitions. Wah Seong and QL. We append the key highlights and major takeaways on our Top 5 picks in the following section. Jason’s target price on the stock is RM1. Strong interest for KPJ. the clients who booked their slots with the company were generally positive on its generous dividend yield and relatively more resilient earnings compared with other real estate asset classes. Given its strong fundamentals and relatively defensive business. investors are keen to better understand the company’s business model.

1 658.8 17.2 153. Maintain BUY.3 122. which in turn puts more pressure on the public hospitals.1 157.9 285. However.8 FY08 1270. Apart from its Indonesia operation.8 See important disclosures at the end of this publication See important disclosures at the end of this report 4 OSK Research .3 85.7 1330.6 60.1 22. FYE Dec (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA PBT Net Profit ROE ROA Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds FY06 831. which are already feeling the strain.6 FY07 1108.8 365. KPJ believes the possible downtrading among consumers from private hospital to public hospitals would only prolong the waiting list. Headache in Indonesia to go away soon.8 359.7 286.7 1262.9 250.1 41.9 442.4 37.4 40.2 618.2 586.0 572. which will pave the way for the group to either start operating the hospital or to sell it to a third party. We maintain our forecast and BUY recommendation at an unchanged target price of RM4.3 FY09f 1388. KPJ is eyeing more management contracts for hospitals in the Middle East after having secured two contracts in Saudi Arabia in 2007. The construction of the new building for Tawakal Hospital will be completed in September.9 370. KPJ believes its business will be relatively resilient due to factors such as the scarcity of medical services and the long waiting list in public hospitals.3 84.2 35.3 19.2 137.3 20. It will start operation in a few months. In our previous October ’08 report. was facing difficulty in starting up operation due to friction with the minority interest shareholder and red tape on foreign ownership rules in Indonesia.9 250.3 255. despite its low liquidity we believe KPJ is an excellent choice for portfolio re-balancing and a strategic long-term investment given its steady dividend payout and relatively resilient earnings.6 433.9 15.0 12% 8% 7% 20% 4% 771. while the previous centre would be converted into a nursing college for the northern region.1 11% 9% 6% 18% 6% 704.6 45. trading at a single digit PER compared to its peers’ double-digit PER. 2009 Seberang Perai Specialist centre to replace the Bukit Mertajam Specialist centre has been completed.0 252. KPJ said it is at the final stage of negotiations to acquire the remaining stake in this hospital.OSK Research PP 10551/10/2009 (022563) April 3.7 4. This is backed by its strong brand name and growing medical insurance coverage in Malaysia.1 1204.5 FY10f 1542.2 74. we stated that KPJ’s 75% owned hospital in Jakarta.0 13% 7% 5% 12% 3% 846. Despite the gloomy economic outlook.3 611.00 based on 10x PER of FY09 EPS.8 332.1 366.2 12% 9% 6% 18% 6% 676.6 1101. KPJ is still among the cheapest healthcare stocks in the region. with the existing building to be converted into a day-care and outpatient centre. As we mentioned earlier.0 135. based on past experience.9 1276. This will increase its operating capacity and positively impact on its earnings.9 363.1 78.3 146. Healthy patient growth in 1QFY09. RS Bumi Serpong Damai. According to the management.9 28. KPJ still managed to register healthy growth in the number of in-patients and out-patients for 1QFY09.2 94. the impact of a downturn on the healthcare sector lags by about 6 months and it believes that the full impact of the slowdown would only be reflected in the 2HFY09.3 114.5 105.8 322. Nevertheless. This will result in patients requiring immediate treatment and who can afford treatment in private hospitals to opt for a private hospital instead.5 11% 9% 6% 18% 7% 711.9 300.9 174.4 569.2 508. in updating fund managers.

QL is currently expanding surimi production by installing new lines to produce frozen surimi-based products at its plant in Hutan Melintang in Perak. Its cold rooms store unprocessed fish for the low season. TP. QL is also looking to expand its egg business as the group is targeting 3m eggs per day by 2011.000 acres of oil palm trees will be planted by 2012.RM3. The company has also invested in a new cold room in Endau. Maintain BUY. It is also moving into Vietnam.000 tonnes of surimi per year. a step it is targeting to complete later in 2009. which will be in operation in 2HFY09. which will double the plant’s current capacity of an average 10. The strong demand from Japan had earlier pushed surimi prices to a peak in mid-2008. we do not think the price plunge would have a significant impact on QL’s earnings. Targeting 3m eggs by 2011. the demand slowdown had precipitated a drastic drop in surimi prices. Clients with different fund sizes posed questions on the impact on QL Resources from the drastic fall in surimi prices.32) Good response to breakout sessions. Johor.32 based on the 3-year average of 12. which ensures the production of surimi during this period. Hence. management assured our clients that surimi prices would not fall further as prices have now reverted to the normal level of RM8000/tonne. 6: Mr. Moreover. Tawau and Kuching. The management was able to address concerns over recent rumours of a meltdown in surimi prices.OSK Research PP 10551/10/2009 (022563) April 3. Doubts clarified.5x PER and 2. the group expects a larger flow of palm oil earnings from its Indonesian operation beyond FY2012 as more than 30. 2009 QL RESOURCES (BUY. However.4x PBV. Hence. We received good response to QL’s breakout sessions as all three were fully attended. As there was overstocking in Japan from April to October 2008. Fig. with an unchanged target price of RM3. We recommend a BUY on this stock as we believe that the business model is fairly resilient given QL’s integrated role and its ability to grow during times of crisis. See important disclosures at the end of this publication See important disclosures at the end of this report 5 OSK Research . our BUY recommendation. Freddie Yap of QL Source : OSK Surimi expansion. The group is currently undergoing expansion in Kota Kinabalu.

Wah Seong has only tendered for up to RM4bn worth of jobs. there should preferably be strategic benefits in terms of geographical location and new customer base. To date. Socotherm and Wah Seong.3 169.9 151.2 308.0 87.9% 5.5 113. TP. Wah Seong is expected to replenish its orderbook.4 52.1% 6.7% 10.8 80.7% 7.010.302. Management said it is open to M&A activities but the prospective companies should either be in the pipe coating or gas compressor business so that there is group synergy.8% 4.1 63.2 6.4% 21.0 -81% FY07 1.9% 446.7% 23.7 -55% FY10f 1.9 106.5 364.5 250.93) Eyeing mergers and acquisitions (M&As).5 89.3% 308.425. which is enough to keep the company busy over the next 6 months.5 6.2 19.6 6. whereby the pipe coating and gas compressor business in the global market combined would total some US$4bn.0 931.582.Bredero Shaw.3 278.4% 6.6% 7.9 -80% FY08 1.0 10.9 672.9 283.7 10.7 222. with a success rate of 30%50% since there are only 3 major players in the market .118.5% 495.5 80. Giancarlo Maccagno of Wah Seong Source : OSK Orderbook replenishment still good.3% 22.7 10.1 -74% FY09f 1.3 14.2 508.3 391.6 -43% WAH SEONG (BUY.9 43.1% 9.3 8.2 304.9% 5.4% 6.OSK Research PP 10551/10/2009 (022563) April 3.8 110.8 59.8 583. Also.0 137.8 24.4% 367.9% 540.2 77.2% 24.2 431.8 296.9 274.5% 10.RM1. See important disclosures at the end of this publication See important disclosures at the end of this report 6 OSK Research . Fig.7% 7.5 101.5% 6.2 361.5 118. Currently its orderbook stands at RM1.1 27.7 10.3 859.1 261.3 90.7 95.0 110.0 113.8% 23.0 10.5 110.0 814. 7: Mr.6% 8. 2009 FYE Mar (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA PBT Net Profit ROE ROA Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders' Fund Net Gearing (%) FY06 1.2 90.0 8.5% 9.3 30.4bn. Going forward.3 368.4 59.1 48.

2 813.2% 4.2 811.650 404 253 700 4.8 -37.4 -10.6 0.2 1407.0 646.5% 2.0 183. Maintain BUY. FYE Dec (RMm) Turnover EBITDA Depreciation Net Interest Income Exceptional Items Associates PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA PBT Net Profit ROE ROA Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders Funds Net Gearing (%) FY06 1624.2% FY08 2343.3 -35.3 160.0 75.6 17.2 -6.7% 571.6 281.4 122.9% 4.3% 14.6 6.4% 6.6% 5.7 5.5 464.7 176.7% 720.0 86.3 324.1 18.0 101.8 239.0 21.6 980.0 -5.9% 6.9 -6.2% 6.4 602. rental income yields a higher gross margin of about 40% versus 15%-20% for fabrication. 2009 Table 2: Potential jobs for tender for Wah Seong Project Value Pipe Coating Above US$100m Above US$50m Above US$10m Gas Compressor Jobs Total US$’m 2. from Wah Seong’s perspective.0 13.0 9.2 372.0 1560.0 207.2% FY09f 2306.3 0.4% 5. the rental and fabrication of gas compressors is in the ratio 15%:85% and going forward to 2011.3 761.4% 5. management expects the rental portion to increase to 50%.2% See important disclosures at the end of this publication See important disclosures at the end of this report 7 OSK Research .1 6.7% 7.0 470.7 287.3 5.8 62.8% 15.3 0.2 224. and 2) it is less risky to rent than own the gas compressor.8 2128.6% 5.6 364.1% 10.3 0. renting is more favourable because: 1) it is getting more difficult to obtain new financing in the current economic environment. we understand that management has no intention of liquidating its industrial services division.9 1364.8% 554.9% 18. We like the company for its market leadership in the pipe coating and corrosion protection: it is No. and 2) rentals provide a recurring income since most of the contracts are locked in for more than 2 years.4 21. Our target price for Wah Seong is RM1.4% 20.5 1.4 37.9 725.7 162.9 -29.1 724. 1 in Asia and No.6% 6.1 1276.4 32.8 141.9% 5.4 -46.5 10.5 7.8 86. From a customer’s perspective.8 -59.OSK Research PP 10551/10/2009 (022563) April 3.1 2129.3 790.0 7.8% 729.9 115.0 10.6 876. Disposing of non-core assets.6 7.1 183.0 9.5% 4. 3 in the world. This increases its tender success rate to 30%-50%. which contributed close to 40% of total revenue.9 19.0 5. management would still continue to concentrate on its core businesses and dispose of non-core ones if the offer price is attractive.5 332.93 based on PER of 9x FY10 earnings.9 2094.3% 853.7 639.5% FY07 1950.000 Source: Wah Seong Expanding gas compressor rental business. However. Having said that. Examples of businesses that Wah Seong may consider liquidating are the drill bits business and a few others.6 258.3% 6.7 -1. Currently.3 -56.1 1006.6 210.6% FY10f 2413.3 1384.5 10. Although this is not a priority for Wah Seong given that all its business units are profitable.4 234.0 9.

and prospects depend very much on being in a particular shopping mall.OSK Research PP 10551/10/2009 (022563) April 3. despite its lip-smacking valuation and dividend yield. Well-managed tenancy expiry dates. With the exception of Parkson. which account for >90% of its tenants in Subang and Mahkota Parades. a lower-grade shopping mall may not attract clientele with the same buying power. During a downturn. All assets combined its tenancy expiry dates make up no more than 23% of its monthly rental income for CY09. Hektar REIT has a reasonably well-managed distribution of tenancy expiry dates.RM0. retail tenants usually have relatively lower bargaining power because their main business. or even to another shopping lot. Answering the question on how well the trust will continue to be able to maintain most of its current attractive dividend payout hinges on its relatively more resilient earnings model vis-à-vis those of other non-residential real estate classes during a downturn. compels a retailer to provide management with info on their monthly turnover. It has a well-diversified tenant base and a healthy mix of consumer-driven tenants who are more focused on providing daily necessities to the residents in their vicinity. As expected. 2009 HEKTAR REIT (BUY. The incorporation of turnover rents (a tenancy model which entails fixing a certain percentage of a tenant’s monthly or periodic sales turnover. at least those in prime locations. usually with a specified sales threshold). Fig. the rental rates of shopping malls. no other tenant contributes >3.99) Fair degree of interest. Consumer-driven tenants and diversified tenant base. This indirectly allows management to analyse the See important disclosures at the end of this publication See important disclosures at the end of this report 8 OSK Research . Lim Ye Jhen of Hektar Asset Management Source : OSK Relatively more defensive earnings model. particularly the insurance funds. TP.0% of the REIT’s total monthly income. Moving premises. may significantly disrupt business as customers may not necessarily follow. i. ! ! Ability to pre-empt most adverse situations. Hektar REIT received a fairly good response from the invited guests. Hence. should hold up better relative to those in other real estate sub-segments. Those who were more familiar with Subang and Mahkota Parades since many years ago openly expressed how impressed they were to the improvements done by the management to the malls since they were acquired in recent years. retailing. consumers may cut down on discretionary items but are unlikely to do the same for essentials and daily consumables. questions were raised as to how well the trust would be able to at least maintain most of this dividend payout especially in the face of the current economic downturn. Plus. 8: Mr. as summarised in the following: ! Shopping malls a safer bet? Unlike other real estate sub-segments.e.

However.40 559. No major line expansion.7%. with the commissioning of 22 new lines capable of adding another 2.21 9.21 44.09 39.30 102.34 18.40 60.85 FY09f 86. FYE Dec (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA PBT Net Profit ROE ROA Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities LT Liabilities Shareholders Funds Gearing (%) *FY07 78.30 FY08 84.96 37. According to the management. management prefers to refurbish its existing lines. nitrile gloves are preferred in the medical industry because they are more chemical and oil resistant. We understand that the total nitrile glove production in 2008 came in at 2. Kossan is striving to produce better nitrile gloves thorough continuous improvements in technology. it is lighter and uses less raw material (i.98 29.67 27.60 *13 months results. Increasing production of higher value products.80 102.27 742.04 44. management does not intend to pursue further expansion this year.75 71.51 301. 2009 occupancy cost (i.6m before hitting the statutory gearing limit of 50%.54 9. Hektar REIT can only leverage a further RM67.75 15.59 5.10 40.11 34. Also.8m and RM24. Given its relatively more defensive earnings and attractive dividend yield of 11.50 413. provides better protection and possesses a feel that is closer to that of natural rubber gloves than entry level nitrile gloves.28 713.69 FY11f 90. given its current depressed share price and high dividend yield of approximately 12%.e.43 71. However.09 39. **Gearing is equivalent to Borrowings over Gross Asset Value KOSSAN (BUY.89 80.19 51. representing a 747 basis point spread over the 10-year MGS yield of 4.36 12. Other than yielding a higher margin of 2%-3%. ‘Chemax’.71 57.71 738. We are not concerned over any refinancing risks as all its borrowings are for the long-term and will only mature post 2010.59 40.71 40.48) Concentrating on nitrile gloves. new lines would only be set up if there is recovery in global economy and firmer demand for gloves. Further assets acquisition unlikely in the near-term.86 10.50 405.34 60.11 44.20 56.96 11.14 713. and are also protein-free.RM4.10 713.1m respectively from revaluation of investment properties. Since the 22 new lines will only start to contribute from January 2009. Maintain BUY.44 54. As it also fetches a higher price (about US$1 higher to US$27-29).80 29. it contributes to margin improvement.86 10.41 184.40 53.40 28.75 FY10f 88.89 301. its new nitrile glove. Given its current gearing level of 40.95 301.50 409.40 29. we continue to advocate a BUY on Hektar.52 80. representing only 25% of its product mix.96 37. As for 2010.39 31.70 60.80 43.58 740.40 27.7bn pieces. The possibility of being able to acquire a yield-accretive asset by way of raising capital from the equity market could be very slim.82 40. For example.09 47.52 25. latex).56 739.40 5.09 12.81 5.63 9. Thus. which could effectively improve their production See important disclosures at the end of this publication See important disclosures at the end of this report 9 OSK Research .8%.04 9. once the occupancy cost hits 20%.02 27. this effectively increases Kossan’s product mix of nitrile glove to 40%. this enables Hektar to pre-empt any situation that may adversely affect profitability.36 40.16 10.e. which is insufficient to acquire a decent size neighbourhood shopping mall.44 713.40 24. rental income over tenancy sales) of its tenants. especially those with a length of 60m to 130m.40 26.96 32.23%.0bn pieces of nitrile gloves.75 301. which brings down the cost of production and in turn boosts gross margin.00 374.28 44.63 44.61 11. FY07 and FY08 Net profit include exceptional gains of RM43.33 44.21 11.50 402.45 60.00 60.OSK Research PP 10551/10/2009 (022563) April 3. there is a likelihood of a retailer becoming unprofitable with further rental increases and this limits their future participation in the mall as well as constrain management’s ability to raise rental rates. TP.40 587.05 44.36 40.

8 139.3 55.0 12.4 57.9 190.6 95.1 669.5% 10.5 13.0 12.6 49.9% 20.7 47. the company has the technology and capacity to go up the value chain to produce more nitrile gloves. Fig.5% 20.7 299.8 42.6 39.3 291.8 9. with an average utilisation rate of above 90% over the past 5 years.OSK Research PP 10551/10/2009 (022563) April 3.2% 6.3% 284.1% 7.2 653.6% 10.3% FY10f 1.3 57.1% 9.2 31.0% 8.0 353.5 54.8 185.3 37.8% 24.6 24.0 13.0 79. 9: Mr.5% 6.6% FY08 893.9 312. 2009 by 50%-60%.2% 321.1 34. Edward Yip of Kossan Source : OSK Maintain BUY.4% See important disclosures at the end of this publication See important disclosures at the end of this report 10 OSK Research .5 17.061.9 74.7% 11.5% 6.9% 8. Our target price for Kossan of RM4.8% FY07 702.7 348.8% 10.6 67.0 417.6% 8.0 11. The advantage of refurbishing is that it requires minimal capex spending of RM3m-RM35m compared to setting up a new plant.9% 11.0 202.1 10.2 407.9 71.0 536.6 90.4 48.5% 8.2 42.3% 7.1 42.4 37.3 251.7 434.6% 21.1 59.3 58. which yield margins that are higher than that from conventional natural rubber gloves.5 122.3% FY09f 977.2% 338.9 242.8 82.1 73.5% 232.6 97.9% 22.9 2. We like the company for its manufacturing efficiency.3 64.0% 362.5 8.9 252.5 288.1 107. which would require a minimum capex of RM50-RM60m.8 300.4 12. FYE Dec (RMm) Turnover EBITDA PBT Net Profit EPS (sen) DPS (sen) Margin EBITDA PBT Net Profit ROE ROA Balance Sheet Fixed Assets Current Assets Total Assets Current Liabilities Net Current Assets LT Liabilities Shareholders' Fund Net Gearing (%) FY06 573. Also.1 37.8 13.48 is based on PER of 9x FY10 earnings.8 6.6 745.

2009 APPENDIX 1-4 Market Capitalisation of the Top 50 (RMm) Return on Equity (ROE) of the Top 50 (%) Litrak CCM QL!Resources Wah!Seong! MBM!Resources KPJ!Healthcare! Kian!Joo Hartalega! Kossan! Mudajaya! Lion!Industries! Alam!Maritim! Naim!Cendera! Progressive!Impact! NTPM! Padini! Coastal!Contracts! CCM!Duopharma! Hektar!REIT Hai"O! Hock!Seng!Lee Pelikan! Tanjung!Offshore! TMC!Life!Sciences! Plenitude! Sino!Hua"An TRC!Synergy! Petra!Energy! EPIC Leader!Universal! NV!Multi Eng!Kah! Pantech! Frontken!Corp! Can"One! Adventa! New!Hoong!Fatt! MaSteel! Favelle!Favco! Kawan!Food! Help!International! Yi"Lai! Ajiya! Freight!Management Efficient!E"Solutions! Cheetah! Century!Logistics! TASCO LTKM! CBS!Technology 0 300 600 900 Hai"O! Hartalega! Pantech! Padini! CCM!Duopharma! Coastal!Contracts! QL!Resources Mudajaya! Kossan! NTPM! TRC!Synergy! Hock!Seng!Lee KPJ!Healthcare! Efficient!E"Solutions! Help!International! Alam!Maritim! Freight!Management Progressive!Impact! CBS!Technology Litrak Petra!Energy! Kawan!Food! Wah!Seong! Eng!Kah! Ajiya! Cheetah! MBM!Resources Adventa! New!Hoong!Fatt! Naim!Cendera! Can"One! NV!Multi Kian!Joo Plenitude! Frontken!Corp! Century!Logistics! Hektar!REIT Pelikan! Favelle!Favco! EPIC TMC!Life!Sciences! Tanjung!Offshore! TASCO MaSteel! Leader!Universal! LTKM! Yi"Lai! CCM Sino!Hua"An Lion!Industries! 0% 5% 10% 15% 20% 25% 30% 35% See important disclosures at the end of this publication See important disclosures at the end of this report 11 OSK Research .OSK Research PP 10551/10/2009 (022563) April 3.

2009 FY09 PER of the Top 50 (x) FY09 Dividend Yields of the Top 50 (%) Coastal!Contracts! Pantech! Ajiya! Leader!Universal! MaSteel! TASCO Can"One! Petra!Energy! TRC!Synergy! Efficient!E"Solutions! Naim!Cendera! New!Hoong!Fatt! Freight!Management Pelikan! Alam!Maritim! Cheetah! Adventa! Plenitude! MBM!Resources Century!Logistics! Hai"O! Hock!Seng!Lee Padini! KPJ!Healthcare! Wah!Seong! Mudajaya! Hartalega! EPIC Frontken!Corp! Yi"Lai! Kossan! Help!International! Favelle!Favco! Hektar!REIT LTKM! Kian!Joo NV!Multi CCM!Duopharma! CBS!Technology QL!Resources Sino!Hua"An Tanjung!Offshore! NTPM! Kawan!Food! Litrak Eng!Kah! CCM Progressive!Impact! TMC!Life!Sciences! Lion!Industries! 0 10 20 30 40 Hektar!REIT Hai"O! CCM!Duopharma! Yi"Lai! LTKM! Pantech! NTPM! Padini! Freight EPIC CCM Kian!Joo KPJ!Healthcare! TASCO New!Hoong!Fatt! Century!Logistics! Adventa! Leader!Universal! Wah!Seong! Plenitude! Cheetah! Eng!Kah! NV!Multi Naim!Cendera! Ajiya! Hock!Seng!Lee MBM!Resources Hartalega! Can"One! MaSteel! Kossan! TRC!Synergy! Favelle!Favco! Pelikan! Litrak QL!Resources Kawan!Food! Tanjung!Offshore! Help!International! Progressive!Impact! Coastal!Contracts! Petra!Energy! Lion!Industries! Alam!Maritim! Mudajaya! TMC!Life!Sciences! Sino!Hua"An Frontken!Corp! Efficient!E" CBS!Technology 0% 2% 4% 6% 8% 10% 12% 14% See important disclosures at the end of this publication See important disclosures at the end of this report 12 OSK Research .OSK Research PP 10551/10/2009 (022563) April 3.

However. The company. Ltd. Jl. Plaza 66 No. Plaza OSK Jalan Ampang 50450 Kuala Lumpur Malaysia Tel : +(60) 3 9207 7688 Fax : +(60) 3 2175 3202 Hong Kong Singapore Singapore Office DMG & Partners Securities Pte. All Rights Reserved. its directors. officers. 25. Shanghai China Tel : +(8621) 6288 9611 Fax : + (8621) 6288 9633 Hong Kong Office OSK Securities Hong Kong Ltd. Published and printed by :OSK RESEARCH SDN. Jend. 1266 West Nanjing Road 200040. World-Wide House 19 Des Voeux Road Central.OSK Research PP 10551/10/2009 (022563) April 3.10% over the next 12 months Take Profit: Target price has been attained. and no part of this report is to be construed as an offer or solicitation of an offer to transact any securities or financial instruments whether referred to herein or otherwise. 14th Floor. Hong Kong Tel : + (852) 2525 1118 Fax : + (852) 2537 1332 See important disclosures at the end of this publication See important disclosures at the end of this report 13 OSK Research . 2009 OSK Research Guide to Investment Ratings Buy: Share price may exceed 10% over the next 12 months Trading Buy: Share price may exceed 15% over the next 3 months. Bhd. Jakarta 12920 Indonesia Tel : + (6221) 520 4599 Fax : + (6221) 520 4505 Shanghai Shanghai Office OSK (China) Investment Advisory Co. Look to accumulate at lower levels Sell: Share price may fall by more than 10% over the next 12 months Not Rated: Stock is not within regular research coverage All research is based on material compiled from data considered to be reliable at the time of writing. Ltd Room 6506. however longer-term outlook remains uncertain Neutral: Share price may fall within the range of +/. 12/F. Sudirman Kav. (206591-V) (A wholly-owned subsidiary of OSK Investment Bank Berhad) Chris Eng Kuala Lumpur Malaysia Research Office OSK Research Sdn. No part of this publication may be used or re-produced without expressed permission from OSK Research. information and opinions expressed will be subject to change at short notice. #22-01 Ocean Towers 20 Raffles Place Singapore 048620 Tel : +(65) 6438 8810 Fax : +(65) 6535 4809 Jakarta Jakarta Office PT OSK Nusadana Securities Indonesia Plaza Lippo. 6th Floor. employees and/or connected persons may periodically hold an interest and/or underwriting commitments in the securities mentioned. BHD. We do not accept any liability directly or indirectly that may arise from investment decision-making based on this report. 1201-1203.