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KDN : PP 10744/06/2012


- what beckons





A. 2011 Review and 2012 Outlook

i. ii. iii. iv. Performance, comparisons and assessment .........................................................................3 Macro economics performance and outlook...........................................................................6 Corporate earnings ................................................................................................................8 Market commentary, valuation and stock selection .............................................................. 11

B. Sectors We Like
i. Oil and gas ...........................................................................................................................22 ii. Healthcare ............................................................................................................................24 iii. Telecommunications .............................................................................................................25

C. Sectors To Be Cautious Of
i. ii. iii. iv. Automotive............................................................................................................................26 Transport: Seaports ..............................................................................................................27 Transport: Shipping ..............................................................................................................28 Property ................................................................................................................................29

D. Our Neutral-View Sectors

i. Banking.................................................................................................................................32 ii. Construction .........................................................................................................................34 iii. Plantation..............................................................................................................................36 v. Glove ....................................................................................................................................37 vi. Semiconductor ......................................................................................................................38 vii. Media ....................................................................................................................................39 viii. Consumer (Fast-moving Consumer Goods and Services) ................................................... 40 ix. Tobacco ................................................................................................................................41 x. Utility: Power .........................................................................................................................42 xi. Utility: Water .........................................................................................................................44 xii. Transport: Aviation ................................................................................................................44 xiii. Building Material: Steel .........................................................................................................46 xiv. Building Material: Cement ....................................................................................................48 xv. Building Material: Timber.......................................................................................................49

MIDF Research Stock Universe ............................................................................... 50-53




A. 2011 REVIEW & 2012 OUTLOOK

i. Performance, comparisons and assessment

2011 in review a bipolar year. This year may well be remembered as a bipolar one as far as the equity market is concern. The first half was moderately calm with the benchmark FBM KLCI steadily inching up and nonchalantly chalked a new all-time high of 1,597 points in early July. The condition turned rough not long thereafter as the market was first spooked by the downgrade of US credit rating to AA+ from AAA by S&P. The US Fed then warned of significant downside risks to the US economic outlook and even declared its commitment to keep the key interest rate at near zero through mid-2013. Adding to the glum, the worsening sovereign debt situation in Europe had investors bracing for a prospect of either a double-dip recession or a marked slower than expected growth. Market volatility rose as attested by the key benchmark index which swung rather stridently as it plunged to a low of 1,310 points before rebounded as sharply, in tune with the fluidity of the external developments particularly in Europe. Average daily volume traded on Bursa Malaysia declined to 1.18b in 2H11 as compared to 1.33b in the preceding half. FBM KLCI ranked third relative to eleven Asian peers. In terms of local currency, Southeast Asian markets dominated the top positions among major Asian bourses in 2011. The top three Asian performers were the Jakarta Composite, Philippines Composite and FBM KLCI which recorded 0.3%, 0.2% and -3.1% returns respectively. All regional bourses, save Jakarta and Philippines,
Table 1: Performance of various markets (% change) In Local Currency Jakarta Composite Philippines Composite Dow Jones FBM KLCI SET Index KOSPI Straits Times Shanghai Composite Nikkei 225 Mumbai Sensex 30 Hang Seng Taiwan Weighted In US Dollar Philippines Composite Dow Jones Jakarta Composite FBM KLCI SET Index KOSPI Nikkei 225 Shanghai Composite Straits Times Hang Seng Taiwan Weighted Mumbai Sensex 30 Index point 3,715.08 4,211.04 11,555.63 1,472.10 995.33 1,847.51 2,702.46 2,333.41 8,434.61 16,123.46 17,989.35 6,904.12 Index point 96.58 11,555.63 0.40 463.36 31.92 1.61 108.07 365.86 2,083.30 2,310.56 227.75 308.21 1Q11 -0.7% -3.5% 6.4% 1.7% 1.4% 2.7% -2.6% 4.3% -4.6% -5.2% 2.1% -3.2% 1Q11 -2.5% 6.4% 2.5% 3.5% 1.1% 5.7% -5.9% 4.9% -0.8% 2.1% -4.0% -4.9% 2Q11 5.7% 5.8% 0.8% 2.2% -0.6% -0.3% 0.5% -5.7% 0.6% -3.1% -4.8% -0.4% 2Q11 5.7% 0.8% 7.3% 2.5% -2.0% 2.5% 3.5% -4.4% 3.1% -4.9% 1.5% -3.0% 3Q11 -8.7% -6.8% -12.1% -12.2% -12.0% -15.8% -14.3% -14.6% -11.4% -12.7% -21.5% -16.5% 3Q11 -7.7% -12.1% -11.2% -17.0% -13.3% -23.8% -7.4% -13.5% -19.1% -21.5% -20.9% -20.5% 4Q11* 4.7% 5.3% 5.9% 6.1% 8.6% 4.4% 1.0% -1.1% -3.1% -2.0% 2.3% -4.4% 4Q11* 5.9% 5.9% 0.3% 6.6% 8.6% 7.7% -4.2% -1.0% 1.4% 2.3% -3.9% -8.3% 2010 46.1% 37.6% 11.0% 19.3% 40.6% 21.9% 10.1% -14.3% -3.0% 17.4% 5.3% 9.6% 2010 45.1% 11.0% 53.4% 33.3% 55.7% 25.6% 9.6% -11.2% 20.5% 5.1% 20.2% 22.2% 2011* 0.3% 0.2% -0.2% -3.1% -3.6% -9.9% -15.3% -16.9% -17.5% -21.4% -21.9% -23.1% 2011* 0.7% -0.2% -2.1% -6.1% -6.8% -11.1% -13.6% -14.1% -16.2% -22.0% -26.0% -32.8%

Source : Bloomberg, * end 30 Nov 2011



Table 2: Performance by sector (% change) Index point Consumer Services & Trading Plantation Finance Property Industrial Construction Technology FBM 100 FBM Emas FBM KLCI FBM Small Cap 457.35 189.19 7,690.02 13,157.76 956.15 2,635.21 239.20 13.65 9,876.82 10,063.99 1,472.10 11,517.60 1Q11 2.4% 2.6% -2.8% 1.1% 7.3% 0.0% -1.0% -4.0% 2.2% 2.3% 1.7% 2.9% 2Q11 2.0% 2.1% 0.5% 6.3% 0.4% -0.3% 0.6% -10.0% 2.6% 2.2% 2.2% -2.1% 3Q11 -7.5% -12.2% -9.9% -14.9% -20.8% -9.9% -24.1% -24.3% -12.8% -13.3% -12.2% -18.3% 4Q11* 5.2% 7.7% 8.7% 3.9% 9.7% 3.5% 11.0% 13.0% 6.7% 7.1% 6.1% 10.8% 2010 21.0% 18.8% 26.3% 25.4% 30.6% 6.7% 27.1% 1.8% 21.8% 21.9% 19.3% 24.2% 2011* 1.5% -1.0% -4.3% -5.0% -6.3% -7.0% -16.1% -26.1% -2.4% -3.0% -3.1% -8.8%

Source : Bloomberg, * end 30 Nov 2011

registered negative returns during 2011 as market sentiment was overwhelmed by negative external factors particularly the ongoing European debt issue. It is noteworthy to highlight the glaring performance variance between the best and the worst markets with a best-worst spread of 23.4%. This is quite reflective of the varying degree of sensitivity of their economies to the state of affairs in US and Europe. FBM KLCI remained third in USD terms. When measured in terms of US Dollar, the FBM KLCI remained at third out of the eleven Asian markets. The Malaysian Ringgit began the review year at 3.06 against the US Dollar and strengthened to 2.94 in late July before it lost ground to close at 3.18 as some funds began flowing westwards. The Jakarta Composite was bumped to second place as the Philippines Composite ascended to top spot in the regional ranking. In USD terms, the best-worst spread was even wider at 33.5%. Consumer sector took the lead, supported by its recession-resistance attribute. The Consumer Index was the top performer and the sole gainer among all the indices after having registered a gain of 1.5% in 2011. It is not at all surprising that the Consumer sector managed to outperform all the other sectors due to its well-known recession-resistance attribute. During a period of heightened economic uncertainties, investors generally put more faith in companies with are expected to be least subjected to the cyclicality of the economy. We have a Neutral recommendation on the Consumer sector. Technology Indexthe biggest loser. The Technology Index recorded the worst performance of -26.1% in 2011. That makes it two successive years at the chart bottom. Nonetheless we reiterate our view that the semiconductor sub-sector is expected to outperform its broader sector as we believe that the growth in tablets will have a positive impact on the semiconductor industry. We have a Neutral recommendation on the Semiconductor sector. Construction Indexthe second biggest loser. The Construction Index recorded the second worst performance amongst all local indices with a loss of 16.1% in 2011. The cyclical nature of the Construction sector exposes it to the possible deceleration in the economy. The slew of already announced and on-going ETP-related projects may nevertheless provide a downside buffer to the Construction sector. However we expect a slowdown in the property-related construction activities as well as stiffer competition for jobs among construction companies that may directly impact



Table 3: Performance of MIDF Research's stocks under coverage Share price (RM) TOP GAINERS MBSB AirAsia DiGi TSH Sapuracrest Jaya Tiasa Dialog Group Sarawak Oil Palm Ta Ann Telekom F&N Nestle Petronas Gas Hong Leong Bk Alliance Financial AEON Co. QSR Kulim KPJ Kencana Petronas Chem Axiata JT International Hartalega Parkson Maxis BAT TH Plantation Mah Sing NCB WTK Sime Darby Media Prima MBM Kossan Malaysia Airports MNRB Maybank Wah Seong MRCB KL Kepong Star Bumi Armada MSM Sunway 30/11/11 31/12/10 1.66 3.69 3.52 2.00 4.27 6.33 2.39 5.10 5.18 4.32 18.16 51.90 13.20 10.46 3.55 7.10 5.89 3.65 4.21 2.65 5.99 5.10 6.40 5.63 5.62 5.50 46.50 2.14 1.89 3.78 1.29 9.00 2.57 3.30 3.12 6.19 2.65 8.30 2.02 1.94 21.50 3.21 4.04 5.00 2.36 1.11 2.53 2.46 1.41 3.10 4.70 1.79 3.87 4.00 3.51 15.00 43.34 11.10 8.83 3.04 6.09 5.06 3.19 3.72 2.41 5.52 4.75 6.05 5.34 5.39 5.30 45.00 2.08 1.84 3.68 1.26 8.80 2.60 3.34 3.16 6.28 2.69 8.50 2.07 1.99 22.10 3.31 n/a n/a n/a % change 49.1% 45.8% 43.1% 41.8% 37.7% 34.7% 33.5% 31.8% 29.5% 23.1% 21.1% 19.8% 18.9% 18.4% 16.8% 16.6% 16.4% 14.6% 13.2% 10.0% 8.5% 7.4% 5.8% 5.4% 4.3% 3.8% 3.3% 2.9% 2.7% 2.7% 2.4% 2.3% -1.2% -1.2% -1.3% -1.4% -1.5% -2.4% -2.4% -2.5% -2.7% -3.0% n/a n/a n/a TP Share price (RM) UNDER% PERFORMERS change 30/11/11 31/12/10 -65.3% -55.2% -51.3% -50.1% -45.4% -41.0% -40.9% -39.1% -36.6% -33.0% -32.9% -32.4% -32.0% -29.7% -27.1% -26.2% -24.6% -24.4% -24.1% -19.7% -16.2% -16.0% -16.0% -15.8% -15.6% -15.5% -13.8% -12.8% -12.6% -11.5% -10.2% -9.8% -9.5% -7.6% -7.4% -6.3% -5.1% -5.1% -4.8% -4.2% -3.7% -3.2% -3.1% -3.1%

TP 0.85 0.95 1.32 1.77 1.39 0.51 1.52 0.54 1.78 1.35 2.20 2.70 1.14 5.40 0.46 2.10 2.50 1.44 0.90 3.20 9.20 4.50 7.50 5.90 6.70 6.03 4.72 2.71 3.15 2.36 2.00 2.14 5.93 8.87 3.29 4.72 5.65 5.28 6.90 4.07 13.00 3.90 1.91

2.00 KNM Group 0.99 2.84 4.20 Unisem 1.03 2.30 3.40 Puncak Niaga 1.12 2.30 2.25 Naim 1.68 3.37 3.90 Maybulk 1.54 2.82 7.79 Kinsteel 0.51 0.87 2.80 Faber 1.50 2.54 3.41 Ahmad Zaki 0.67 1.10 7.15 Ann Joo 1.84 2.90 4.45 MAS 1.40 2.09 14.20 WCT 2.14 3.19 47.35 Proton 3.04 4.50 14.40 Lion Industries 1.34 1.97 10.50 MISC 5.88 8.36 3.84 Silk 0.26 0.35 7.60 IJM Land 2.11 2.86 5.25 YTL Power 1.84 2.44 3.20 Hock Seng Lee 1.30 1.72 4.60 Globetronics 0.88 1.16 2.70 Gamuda 3.06 3.81 5.60 RHB Cap 7.31 8.72 5.85 Tan Chong 4.35 5.18 6.00 CIMB 7.14 8.50 6.36 Bursa Malaysia 6.57 7.80 6.42 Tenaga 5.65 6.70 5.50 AMMB 5.94 7.03 44.84 IOI Corp 5.01 5.81 2.51 IJM Plantations 2.60 2.98 1.71 KFC 3.34 3.82 3.75 Sarawak Plants 2.30 2.60 1.11 Century Logs 1.68 1.87 11.00 UEM Land 2.20 2.44 2.80 Lafarge 6.94 7.67 3.60 Genting Plants 8.13 8.80 3.59 Top Glove 4.61 4.98 7.30 YTL Cement 4.46 4.76 2.81 IJM Corp 5.91 6.23 8.80 Malaysia Marine 5.60 5.90 2.66 UMW Holdings 6.68 7.02 1.94 Litrak 3.41 3.56 18.90 Public Bank 12.54 13.02 3.50 SP Setia 3.84 3.97 3.25 Lingui 1.25 1.29 5.25 2.28 FBM KLCI 1472.10 1518.91


MALAYSIA EQUITY RESEARCH overall margins going forward. We have a Neutral recommendation on the Construction sector. Forty nine percent of stocks under coverage outperformed the market. 49% of the stocks under MIDF Research coverage outperformed the FBM KLCI in 2011. The top five outperformers came from five distinct sectors namely (i) Finance, with MBSB at the helm chalking 49.1% gain, (ii) Airline, represented by AirAsia which recorded 45.8% return, (iii) Telecommunications, topped by Digi with 43.1% gain, (iv) Plantation, lead by TSH Resources with 41.8% return, and (v) Oil & gas, with emerging stalwart SapuraCrest advanced by 37.7%. Underperformers. The top five underperformers were a mixture of companies in the Oil & gas, Semiconductor, Water, Construction and Shipping sectors. KNM fared the worst among the stocks under our coverage with a loss 65.3% in 2011. The stock was heavily sold down following the lackluster results performance and delay in revenue/earnings recognition from its projects. Unisem share price lost 55.2%, a victim of the beleaguered Semiconductor sector which was beset by high inventory issue. Puncak Niaga, a Water company, retreated by 51.3% due to lower than expected earnings compounded by the still unresolved takeover saga of water assets in Selangor. Additionally, sluggish property sales and a slower pace of project completion coupled with the lower construction revenue affected Naim which registered losses of 50.1%. Finally, Maybulk retreated by 45.4% as sluggish freight rates affecting both revenue and bottomline.


Macroeconomics: Performance and outlook

Ruling out recession in our base case growth. Our base case growth for 2012 is 4.8% from an estimated 5.0% in 2011. Here, we acknowledge that Malaysia will be the second most affected within ASEAN, after Singapore, due to its openness. In drawing out our 2012 economic outlook for Malaysia, we went back to the top-down approach, given that the Malaysian economy is vulnerable to global events in view of its highly open economy in nature, with its openness at 2.2x, the second most vulnerable economy to global events after Singapore in ASEAN. For a start, we are of the view that the global economy is in a dangerous new phase. Global activity has weakened and become more uneven. Confidence has eroded sharply recently.

Table 4: Macroeconomic forecasts

Quarter 1Q11 5.2 5.5 7.0 7.6 6.5 1.4 8.4 25.9 2.8 2.75 3.12 3.06 2Q11 4.3 2.1 6.8 6.4 3.2 4.1 3.2 23.4 3.3 3.00 3.30 3.05 3Q11 5.8 5.1 7.0 9.9 6.1 4.2 3.2 26.6 3.4 3.00 3.30 3.00 4Q11f 4.8 5.0 7.1 9.0 6.4 5.7 5.0 27.5 3.3 3.00 3.25 2.95 2010 7.2 11.4 6.8 5.3 9.4 9.8 14.7 116 1.7 2.75 3.12 3.06 Annual 2011e 5.0 4.4 7.0 8.4 5.5 3.9 5.0 103.4 3.2 3.00 3.12 3.12 2012f 4.8 5.0 5.7 7.9 8.5 4.5 6.5 100 2.7 2.75 3.00 3.00

GDP growth (real) Manufacturing sector Services sector Consumption Investment Exports Imports Current Account Balance Inflation (CPI) average (At the end of) Overnight Policy Rate MGS 3-year USD/MYR (end period)

%yoy %yoy %yoy %yoy %yoy %yoy %yoy RMbn %yoy % % RM

Variance in forecasts 2011 0.0 0.0 0.7 -0.1 0.0 0.0 0.0 -10.6 0.0 0.0 0.0 0.0


MALAYSIA EQUITY RESEARCH Downside risks are accelerating. Against a backdrop of unresolved structural fragilities, we saw barrage of shocks hurting the global economy in 2011. Amongst them are: (1) Japan struck by the devastating earthquake, tsunami and nuclear issues; (2) unrest swelled in some oil-producing countries; (3) handover from public to private demand in US economy stalled; (4) euro encountered by major financial turbulence; (5) global markets hurt from major sell-off of risky assets; and (5) growing signs of spillovers to the real economy. And the headwind from the structural issues experienced by the crisis-hit advanced economies appears to be stronger than expected. More so is the process of devising and implementing reforms, which has become more complicated than envisaged. Hence, we believe global outlook remains weak and with bumpy expansion for the advanced economies. We are of the view that the prospects for Asia ex-Japan (AxJ) have also become more uncertain, although growth is expected to remain solid for economies that can counter the effect on weaker exports with less policy tightening. Meanwhile, our base case growth projection rules out a recession. We reiterate our 2011 global outlook of 3.9% from 5.1% in 2010 and project global growth would expand albeit moderately in 2012 by 3.7%. We expect growth in G3 to remain anemic, averaging at 1.5% in 2011 and 1.8% for 2012. Meanwhile, we project a still solid growth for AxJ although it will not be immune to G3s slowdown, expected to expand by 6.0% in 2012 from a projected 6.4% in 2011. Our 2012 growth projection is based on the following assumptions: European policymakers will be able to contain the crisis in euro area and that periphery; US policymakers will strike a judicious balance between supporting the economy and mediumterm fiscal consolidation; Volatility in global financial markets does not escalate; Removal of monetary accommodation in G3 is expected to pause; and Capacity constraints and policy tightening, much of which has already happened, would lower growth rates in AxJ but to a still very solid pace. Also, we think US and euro will not fall into recession due to: Companies are sitting on a huge cash pile and display healthy profit margins; Decline in oil prices from the peaks early 2011 acts as a partial stabiliser, lowering headline inflation and supporting household real disposable incomes; and Expect the central banks to lend additional support i.e. both ECB and the Fed cutting interest rates and implementing additional non-standard easing measures. If our assumption falls short, we expect the global growth to be lowered in 2012. Risk of errors could emerge from a policy-induced slowdown, i.e. policy errors. The US and Europe are hovering dangerously close to a recession, which is defined as two consecutive quarters of contraction. Risk of it happening is more likely in 1H2012. The most critical period for US will be between 4Q2011 and 1Q2012 where we could see some fallout from the policy issues and the heightened volatility of risk markets. We expect the same scenario for Europe, impacted by ECBs past rate hikes, sovereign crisis, additional fiscal policy tightening and banking sector funding.


MALAYSIA EQUITY RESEARCH On the same note, we are playing down the possible repeat of 2008 scenario. In our view, for a repeat of 2008 to happen, there will have to be a major policy error like the Lehmans brother. This we think can happen if there is a major euro sovereign default that can bring down the financial system. At this point in time, we are ruling out such possibilities. Meanwhile, the slower growth from developing Asia due to inflationary pressure and tighter monetary policy will continue into 2012. With inflation probably having reached its peak in view of weaker global growth and softening commodity prices, the central banks now have room to hold rates at current level. This will avoid hard landing while at the same time allow the policy makers focus on growth. On that platform, we believe Malaysia will be running a one-legged race. Our 2011 growth is still pegged at 5.0% as the base case with possibilities of growth slipping to 4.8% should the drag on exports outweigh the pick-up in private expenditure. Looking ahead into 2012, we expect Malaysia will be the second most affected economy within ASEAN, after Singapore, due to its openness. With slower global outlook, we expect potential weakness coming from commodities and manufactured exports for Malaysia, being the largest net commodity exporter in AxJ and strongly exposed to the fluctuation in the terms of trade. Earnings from commodity depend on how its prices suffer from a collateral impact from the demand shock. Malaysias trade linkages are high. Also, the lack of competitiveness in manufactured exports means it is likely to suffer a steeper deceleration than some of its Asian counterparts. That leaves the economy focusing on public sector as well as private investment in the area of construction, oil & gas, telecommunication as well as health care. If General Election is anyway between 2012 and 2013, that could mean fiscal consolidation may not be aggressive in order to support the economy. To reduce the role of the government and make the private sector the engine of growth, fiscal consolidation has been one of the key policy agendas outlined in the New Economic Model. However, the pace of such reforms has been slow and plans to roll back on subsidies have been slower than what has been laid out by PEMANDU. Rising inflation in 1H2011 has predominantly been on the back of tradable inflation, notably food and energy. We found the rise in domestic and core inflation (excludes food and energy) due to pricing power and lesser of purchasing power. Inflationary pressure is now coming off, with the need to focus on growth. That means we can expect policy normalization will give way to policy easing in 1H2012. This explains as to why BNM decided to hold its Overnight Policy Rate (OPR) at 3.00% and Statutory Reserves Ratio (SRR) at 4.0%. We now expect OPR to be reduced between 25bps-50bps in 1H2012 as the global growth slowdown sets in. Possibilities for SRR to be reduced between 50bps-100bps will depend much on the liquidity outlook. Normalization of the policy rate could start sometime 2H2012. Our base case growth for 2012 is 4.8%


Corporate Earnings

Aggregate earnings depressed by fuel-related losses. The aggregate earnings of 88 stocks under MIDFR coverage for the 3-month ended September 2011 were depressed largely by the incessant fuel-related losses at MAS and Tenaga Nasional which totaled more than RM900 million this quarter alone. Nonetheless sequential earnings improvements particularly among the oil & gas (O&G) and banking counters help supported the aggregate performance of our stock universe. The Transport sector continued to be plagued by high fuel prices. In contrast, the O&G sector benefited


MALAYSIA EQUITY RESEARCH from the elevated crude oil prices coupled with a steady stream of contract awards. Overall, 40% of stocks under coverage reported lower-than-expected earnings. Of the rest, only 11% posted earnings that were better than expected versus 49% which came in within expectations. Sequential decline in aggregate net profit. MIDFR Universe aggregate quarterly net profit of RM12.11 billion in CY3Q11 was -1.9% lower as compared to the immediate preceding quarter figure of RM12.35 billion. On a year-on-year basis the aggregate net profit was lower by -9.8% vis--vis CY3Q10 aggregate quarterly net profit of RM13.43 billion.
Quarterly Net Profit of MIDFR Universe (RM billion) 16
13.91 13.43 12.25 11.53 10.10 10.11 11.25 12.41 12.35 12.11

14 12 10 8


6 4 2 0








Highest level of negative surprises since 2009. The percentage of companies in the MIDFR Universe which reported earnings at below expectations climbed to 40% in CY3Q11, the highest level since at least early 2009. Furthermore, the proportion of positive surprises in CY3Q11 declined to 11% vis--vis the 16% level recorded in the prior quarter. The remaining 49% of stocks under our coverage performed within expectations in CY3Q11. The performers. O&G, Banking and Tobacco were the sectors which recorded higher total earnings in CY3Q11 both sequentially and when compared to the corresponding period last year. Higher earnings growth for the O&G sector was mainly driven by (i) Better Petronas Chemicals sales volume and average selling price, (ii) Strong growth in Kencanas drilling business, and (iii) Rising contribution from Wah Seongs pipe-coating division. Satisfactory earnings performance among the Banks was underscored by: (i) Higher net interest income despite pressure on margin, and (ii) Lesser provision with improved asset qualities. The positive performance of Tobacco sector was attributed to higher cigarette prices following the 15.8% excise duty hike in Oct10. Additionally, TIV rose due to pre-budget trade loading activities as industry was expecting an excise duty hike in Budget 2012 which did not materialize.


MALAYSIA EQUITY RESEARCH The laggards. On the other hand, sectors such as Semiconductor, Construction, Transport and Utilities were those that showed substantial percentage earnings decline both sequentially and on year in CY3Q11. The Semiconductor industry was confronting higher than normal inventory level as demand weakened. Semiconductor stockpiles stood at an unusually elevated 83.4 Days of Inventory (DOI) as at end CY2Q11, higher than the normal levels of 40-45 DOI. In addition, margin eroded due to higher raw material prices such as gold. Most of the Construction companies under our coverage have reported lower than expected earnings due to (i) thinner margins as many of the projects undertaken were still in the early phases of construction, (ii) replenishment of order books were not up to expectations, and (iii) lower property segment sales. The Transport sector was pulled down by persistently high operating cost as well as depressed

Table 5: Sectoral Valuation

EPS Growth (%) KLCI: 1,472.10 CY10 Telecom Healthcare Oil & Gas Construction Media Semiconductor Plantation Tobacco Glove Consumer Banking Finance Insurance Aviation Toll Utilities Steel Cement Timber Water Property Ports Shipping Auto MIDFR Universe FBM KLCI 2/ 40.2 2.1 6.6 30.8 31.5 172.6 6.2 1.2 31.4 22.0 51.0 10.3 (24.0) 15.5 48.7 35.5 (406.8) (10.7) 197.6 (16.0) 75.2 3.7 194.9 104.2 36.0 35.6 CY11E CY12F CY10 18.6 15.1 20.3 18.6 11.4 4.4 23.0 17.3 11.4 16.9 14.7 21.3 7.5 13.7 15.7 9.9 5.8 13.8 15.3 4.7 16.7 11.4 10.8 13.0 16.1 16.4 PER (x) 1/ CY11E CY12F Recom dation Positive Positive Positive Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Neutral Negative Negative Negative Negative

Previous Revised Previous Revised 10.1 3.8 14.1 11.6 (14.6) (58.7) 65.9 1.4 (15.6) (8.0) 13.5 41.9 21.8 (88.2) (7.5) (58.4) (26.6) 11.0 68.2 (12.6) (9.8) (70.9) 32.0 2.4 6.2 1.8 (22.7) 14.2 6.8 (17.5) (71.8) 72.8 1.4 (19.3) (16.3) 12.5 81.9 21.8 (134.3) 0.9 (61.2) (53.7) 3.7 68.2 (15.6) (9.8) (105.7) 12.2 (3.0) 3.0 6.8 11.0 14.0 27.9 11.1 40.1 (10.4) 2.1 29.6 7.6 9.3 24.9 (31.3) 432.4 69.0 132.3 25.4 10.0 7.9 24.5 (2.6) 44.8 18.7 14.0 11.4 7.1 39.3 12.6 29.0 15.0 74.5 (3.3) 2.1 (22.9) 9.8 5.5 3.3 (31.3) (223.4) 63.2 124.2 69.8 10.3 7.9 20.8 (2.6) (633.1) 16.4 15.6 11.5

Previous Revised Previous Revised 16.9 14.6 17.8 16.7 13.4 10.6 13.9 17.0 13.5 18.4 13.0 15.0 6.2 115.5 17.0 23.8 7.9 12.4 9.1 (13.6) 19.1 12.7 37.1 9.9 15.8 15.4 18.3 19.6 17.8 17.4 13.9 15.6 13.3 17.0 14.1 20.2 13.1 11.7 6.2 (39.8) 15.6 25.5 12.5 13.3 9.1 (4.8) 19.8 12.7 (190.6) 11.6 16.6 15.9 15.8 13.1 15.6 13.1 12.1 7.6 15.5 16.7 10.4 17.1 11.9 12.0 9.0 21.7 10.1 10.3 6.3 11.3 8.4 5.0 15.3 13.0 25.6 8.3 13.8 13.8 17.1 14.0 15.8 13.5 12.1 8.9 13.8 16.7 18.3 18.4 12.4 11.3 9.0 32.3 9.6 11.4 7.4 12.1 8.4 5.0 16.4 13.0 35.8 10.0 14.4 14.2

(134.8) (198.5) (372.1) (196.0)

1/ As at 30 November 2011 2/ Only 22 FBM KLCI component stocks covered under the MIDFR Universe 10


MALAYSIA EQUITY RESEARCH fare rates. National airline MAS posted a larger than expected -RM478m net loss in CY3Q11, its third consecutive quarters of losses, which was blamed on higher fuel costs. Additionally, MISC underperformed due to continued weak shipping rates and high bunkering cost. The Utilities sector continued to be dragged by Tenaga Nasional as it reported its second consecutive quarters of losses. These losses were attributable to lower gas volume due to gas curtailment which leads to higher fuel cost, i.e. coal, oil and distillate. In addition, YTL Power disappoints due to poor contribution from YES Wimax which reported a pre-tax loss of RM94.4m. CY11 and CY12 earnings forecasts revised by -5.3% and -4.0% respectively. Pursuant to the recent results season of CY3Q11, the calenderized earnings estimates of MIDFR Universe for CY2011 and CY2012 were revised downward by -5.3% and -4.0%, respectively. We also made 13 changes to our stock recommendations with 5 upgrades and 8 downgrades. Additionally target price changes involved 20 upward adjustments and 19 downward adjustments. CY11 and CY12 earnings growth forecasts adjusted to -3.0% and +15.6% respectively. In tandem with the downward revision to our aggregate MIDFR Universe earnings forecast for CY2011, the universe calenderized earnings growth for this year dropped from +2.4% to -3.0%. Conversely, the revision to MIDFR Universe earnings forecast for CY2012 has resulted in higher calenderized earnings growth of +15.6% from +14.0% previously.


Market commentary, valuation and stock selection

USA: HASTENING ECONOMIC RECOVERY MAY BE STEMMED BY THE EVENT IN EUROPE US GDP expanded at less than estimated 2.0% annual rate in 3Q11, as the significant downside risks to the economy steered companies to reduce inventories for the first time since 2009. However, the all-important consumer spending (which represents 70% of the economy) grew higher by 2.3% during the period. Despite the gains in consumer spending, sluggish wage growth mean it has been propped up by reductions in savings. Inflation-adjusted net income decreased by 2.1% annual rate, the biggest drop since 3Q09. In addition, the US savings rate dropped to 3.8% in 3Q11, the lowest since 4Q07. The recent record-breaking Black Friday shopping spree may add further strain to the already low savings rate. The whole dynamics cast doubt on whether the consumer spending gains will be sustained into 2012. The risks of negative shock on US banks from European contagion are rising... Fitch Ratings recently warned that it may reduce its stable rating outlook for US banks with large capital markets businesses because of contagion from problems in the perturbed European markets. A protracted debt crisis could jeopardize US banks capital market income since around one-third of it comes from Europe. Unless the Eurozone debt crisis is resolved in a timely and orderly manner, the broad outlook for US banks will darken, according to Fitch. The risks of a negative shock are rising. as the US banks actual exposures may be higher than reported net figures. While US banks do not clearly revealed their holdings of European debt or their trading positions with European counterparties, the disclosed net exposures seem manageable. Nevertheless the worry is over the effectiveness of hedges through derivative instruments, notably via credit default swaps (CDS), as it may materially alter the actual exposures. As an example, voluntary debt haircuts may not trigger CDS contracts and result in defective hedges hence much higher actual exposures.



MALAYSIA EQUITY RESEARCH US credit rating intact (for now) as mandatory budget cut remains in force. Standard and Poors reiterated its AA+ credit rating for the US despite failure by the super committee to cut $1.2 trillion from the federal deficit, as it expects the caps on discretionary spending as laid out in the Budget Control Act of 2011 to remain in force., i.e. a $1.2 trillion in mandatory cuts will take place anyhow. However it warned of a downward pressure on the ratings, from any easing in the mandatory spending cuts. To be fair, recent US economic data show some underlying improvements On the employment front, the unemployment rate fell to 8.6% in November, the lowest since March 2009. Initial jobless claims continued to moderate, sliding to below the 400K mark recently and hitting their lowest level since April this year. The Institute for Supply Management said its business barometer increased to 62.6 in November from 58.4 the prior month. Industrial production was 3.9% higher in October 2011 against corresponding period last year. External trades improved with the September exports came in at a record $180.4 billion, and the trade deficit narrowed albeit slightly. On the property front, housing starts in October 2011 jumped by 16.5% from a year ago. The Conference Boards leading economic indicator increased by 0.9% in October 2011 from a 0.1% rise a month earlier. but all roads lead back to Europe. Nevertheless, while the is little doubt that the US economy is going to skirt another recession, the main concern going forward is with the impact of Europe sovereign debt crisis on global economic growth and how that weighs on the economic recovery in the US. Furthermore, the heightened risk of a negative shock on US banks from European contagion is another source of concern.

EUROPE: SOVEREIGN DEBT CRISIS RISKS MORPHING INTO A BANKING FIASCO The root causes of the debt crisis. The PIIGS current account got deeper into the deficits during the past decade as they were spending more than their income. These external imbalances were kindled by the Euros strength since 2002. Credit was easy and money aplenty. In Greece, Portugal and Italy, it was excessive fiscal deficits that aggravated the external imbalances. While in Ireland and Spain, a housing bubble fueled a consumption boom. Furthermore, the divergence in competitiveness within the Eurozone help propelled the imbalances. Unit labor costs increased in PIIGS as productivity lagged that of wage growth, leading to real exchange rate appreciation and mounting current account deficits. The reverse happened in core countries such as German where productivity drove unit labor costs down, leading to real exchange rate depreciation and burgeoning current account surpluses. The European sovereign debt crisis, in essence In the ongoing saga of the European sovereign debt crisis, in the final analysis, it is not the sovereigns that are in particular need of all the help they Europeans can muster, as sovereigns need no savior. Even in default, barring a total breakdown in diplomacy (which is an unlikely scenario), none of the sovereigns are at risk of being liquidated. At the most, their governments (or more likely the successive ones) would be expected to adhere to austere spending habits or risked the country being shut out from the international capital markets. looks rather like a looming banking fiasco. As the banks are the main financiers to the governments, in the end, bulk of the sovereign debt brunt shall be shouldered by the banking system. Unlike the sovereigns, distressed banks are exposed to the risk of being liquidated. More importantly, being a vital economic organ, a distressed banking system spells doom to the broader


MALAYSIA EQUITY RESEARCH economy. EFSF to the banks rescue Recall the October 26 measures announced by the EU, whereby (i) EFSF recapitalization fund to be boosted to 1 trillion (by leveraging via an SPV), and (ii) banks are to take 50% haircut losses on their holdings of Greek debt in return for EFSF fund to recapitalize its core capital. We are of the view that had the above measures being executed speedily and in totality, they would have been sufficient to help resuscitate the banks which are affected by the Greek debt. Nonetheless the interbank market was not convinced either of the measures itself or its implementation, as attested by the spread between Euro benchmark interbank rates and its swap rates which climbed higher soon after the announcement. but progress is at snail pace on the EFSF front. While S&P has affirmed the AAA rating of EFSF, its borrowing capacity is nonetheless constrained by the guarantees of its AAA backers. France, a major backer, is at risk of having its rating downgraded. Hence since the EFSF fund is not joint and several in nature, the cold reception of the market towards the EFSF bonds has hampered its fundraising efforts. Even the new ECB chief, Mario Draghi, lamented at the slow pace on the EFSF front. And the EFSF money has strings attached. Additionally, the EFSF recapitalization fund comes with some strings attached to it. As a pre-condition of disbursements, the domicile countries of the recipient banks are expected to accept package of austerity and structural reforms. Austerity and reform are painful remedies hence domestic public resentment is wholly predictable rather than viewed as a revelation. Each successive step taken by the authorities is going to be a struggle as the affected parties will try to limit their pains. Why hast thou abandoned us, they cried Thus the ECB has been urged to defend the troubled Eurozone economies by (i) buying up distressed sovereign bonds on a major scale (the amount is capped to only 20 billion a fortnight by ECB guidelines), and (ii) becoming the lender of last resort (in violation of Article 123 of EU Treaty). It was argued that acting as the lender of last resort is not unusual among other central banks thus there is no reason for the ECB to refuse that role. but the ECB remains steadfast and showed them the veritable path. The ECB chief is very unambiguous and methodological about the whole situation (i) stop the bleeding, and (ii) revive the vital organ. He asserted that the first line of defense for the Eurozone economies are austerity packages, structural reforms, solid public finances, and robust economic governance (i.e. stop the bleeding). Secondly, the European leaders should deliver on the EFSF recapitalization fund to ailing banks (i.e. revive the vital organs) rather than looking to the ECB for help. And behold, the stray path leads to greater misery. The ECB chief further insisted the ECBs contribution would be safeguarding the credibility of the Eurozones monetary policy by anchoring inflation expectations. He warned that losing credibility can happen quickly and history shows that regaining it has huge economic and social costs. Banking liquidity under growing stress. While the authorities have been ranting about the dire need for banks to recapitalize their balance sheet, the banking liquidity issue remains under the radar. The liquidity issue in European banks has received less attention but with banks forced to raise more capital as they report massive write downs, their liquidity situation is growing ever tighter. The two issues, i.e. capital and liquidity, are inter-related as a lowly capitalized banking system generally sees its liquidity funding situation under stress as banks across the board refrain lending to one another. Even worse, banks will try to raise capital ratios via deleveraging. Deleveraging is tantamount to balance sheet shrinking and can be achieved by calling-in loans

MALAYSIA EQUITY RESEARCH and liquidating securities. This action could trigger rise in lending rates as credit is sucked out of the economy. This situation would also engender credit crunch for private sector borrowers. Hence it could potentially harm economic growth that would be needed to increase tax revenues which are sorely required to correct the fiscal imbalances. Ultimately, it may also encumber sovereigns ability to access private funding. US Fed led the international liquidity funding arrangement... In view of the worsening liquidity situation, the central banks of the US, Euro region, Canada, UK, Japan and Switzerland agreed in late November to cut by 50 basis points the cost of dollar funding to European banks via swap arrangements. It also extended its authorization until February 2013 and agreed to make other currencies available as needed. While this is not the panacea to the European debt issue, it does indicate serious readiness by the international monetary authorities to prevent financial liquidity stress in Europe from afflicting other regions of the world. but the Euro interbank market alluded it was no panacea. The banks are very perceptive of each other credit standing and this can be reflected in the interbank rates. Does the international liquidity funding arrangement succeeded so far in allaying market fears of a substantive deterioration in the credit standing of European banks going forward? If we look at the spread between Euro benchmark interbank rates and its swap rates (akin to a clean versus collateralized lending), it remains at elevated levels and in fact climbed higher after the late November announcement. This suggests the level of credit apprehension of one bank towards the other remains unusually high despite the latest measures. Hence until (i) the bleeding stops, and (ii) the vital organs reviving,
3-M Euribor-OIS Spread






0.0 Dec-10







we are under no illusion that the Euro debt issue is going to see its end. US Fed to also spearhead international recapitalization initiative? Given the slow delivery on the EFSF recapitalization fund coupled with the ECB being dogmatic in its refusal to act as lender of last resort, the US Fed may not be willing to let the Europeans inactions to end up afflicting US banks and wreck the global economy. The US Fed is said to be very concerned about the prospect that the unresolved European sovereign debt crisis morphing into a contagion that could spread to the US and the rest of the world. Hence the US Fed may ultimately be compelled to spearhead


MALAYSIA EQUITY RESEARCH the formation of a global recapitalization fund (bulk of which will be re-channeled to the EFSF recapitalization fund) to avert a global financial meltdown. The IMF is a potential vehicle to front this supranational initiative. ASIA: THE INNOCENT BYSTANDERS China: Landing sequence in progress. The property market is consolidating after a government clampdown to cool speculations and deter the risk of asset bubbles. Based on official data, housing transactions in October declined sequentially by 25% and prices fell in 33 of 70 cities. Moreover, the November data for PMI index shows Chinas manufacturing contracted for the first time since February 2009, as demand weakens. Industrial output growth is likely to slow further in coming months on weakness in domestic and overseas demand. However, sliding home sales and reduced export demand because of Europes sovereign debt crisis, with Europe being Chinas largest export market, threaten to drive a deeper-than-desired slowdown in the economy. In late November, China eased it monetary policy by cutting banks statutory reserves ratio for the first time since 2008. The World Bank opines that China also possesses the room for further fiscal stimulus, if required, to avert a hard landing. Malaysia and the rest of Asia: Robust domestic demand to moderate external fallout. Even if there is a double-dip recession in Europe, the growth in Malaysia and the rest of Asia is expected to remain resilient albeit restrained. Weaker external demand shall be somewhat offset by robust domestic demand supported by accommodative monetary policies. While exports to the developed economies may suffer, continued growth in intra-regional trade should provide a needed buffer. While fiscal positions are not as strong as prior to the 2008 crisis, most countries in the region still have the capacity to roll out fiscal stimulus should it become necessary. WHITHER THE EQUITY MARKET? Late November rally injected momentum into the market. While the interbank market was rather apathetic of the international liquidity funding arrangement, the equity market embraced the news with such fervor that the worlds major bourses spiked by circa 3-5% upon the late November announcement. The FBM KLCI jumped off its immediate support level of 1,430 points leading to, and tested its major resistance level at 1,500 points after the announcement. It is noteworthy that both the interbank and equity markets displayed the same behaviors pursuant to the EFSF announcement on October 26. As earlier observed, the equity market enthusiasm dissipated not too long after. Nonetheless the recent market uplift had injected enough momentum to ensure that the market retain its upward bias at least until year end. It is inevitable that we will have to revise our year-end KLCI objective of 1,350. The year-end factor and speculation over the General Election is a guarantee that the market is not going to deteriorate to that level. We are still keeping to our potential market weakness scenario in view of the inherent hazards originating from Europe, but we are pushing the timeline to 2012. The market will have to retreat at some point in the future, and we expect this to happen in 2012, most likely after the General Election which is speculated to be held next year. FBM KLCI year-end 2011 target revised to 1,500. The KLCI lost only -1.3% in November, thanks to the rally last week. It was not out of tune with the performance in the past. From 2007 to 2010, the performance of the KLCI in November ranged between -1.4% and 0.3%. Thus we do not expect the December performance to drag the KLCI lower. This contention cannot be stronger in view of the fact that in every single year in the last six, the KLCI had ended the month in the positive



MALAYSIA EQUITY RESEARCH gain territory. The monthly gain ranged between +0.4% to +3.4%. Since 1995, there were only two years in which the KLCI ended December lower than it started: 2000 and 2004. The average gain in December since 1995 (16-year average) was +3.6%. Hence the balance probability is therefore stacked AGAINST the KLCI ending the year lower than 1,472, which was the index at the end of November. There is therefore a real possibility that the KLCI will close 2011 at its immediate resistance level of 1,500 points. At 1,500 points, the FBM KLCI is pegged at 14.7x CY2011 earnings, which is above its historical 5-year peace period forward PER lower band of 14 times. MIDF Research forecasts 2012 GDP growth of 4.8%. The economy is expected to experience only a soft landing in 2012. The government, during Budget 2012, has forecast a GDP growth of 5-6% next year, which is considered healthy within the current global economic climate. MIDF Research has forecast a slightly conservative GDP growth of 4.8% for next year. FBM KLCI 2012 trough at 1,350 and year-end target of 1,530. We reiterate our base-case FBM KLCI year-end 2012 target at 1,530 points. We expect the worst of the current downturn to manifest only by the first half of next year. As for its 2012 trough, MIDF Research is of the view that the FBM KLCI is likely to be supported at 1,350 points level or 12.2x CY2012 earnings (higher than the previous 1,210 points) as the economy is expected to experience only a soft landing in 2012. The market shall thereafter starts to gain ground as the Euro debt issue begins to show credible signs of healing (i.e. the bleeding stops and vital organs reviving). The FBM KLCI year-end target of 1,530 for next year is based on 14.0x CY2012 earnings which reflect our view that the market shall by then be on the road to recovery. Low PER signals the prospect of distress period ahead. The aggregate consensus earnings of the FBM KLCI stocks are expected to grow by 7.3% in 2012. The FBM KLCI forward multiple of 13.4x (as at 30 November) is below its historical 5-year peace period forward PER band of between 14-18 times. It indicates that the market is pricing-in the prospect of a distress period ahead.


18 17 16 15 14 13 12 11 10 9 Jun-06










Table 6: Regional earnings and valuation EPS Growth (% change) 2010 Jakarta Comp. Mumbai Sensex Shanghai Comp. Nikkei 225 SET Index Hang Seng KOSPI DJIA Taiwan Weighted Philippines Comp. FBM KLCI Straits Times
Source : Bloomberg


2011 (est as of) 2012 (f'cast as of) Sep-11 Nov-11 Sep-11

2010 21.0 14.7 13.3 16.9 14.6 9.7 14.7 13.4 12.3 13.7 16.8 9.1

2011 (est as of) 2012 (f'cast as of) Sep-11 Nov-11 Sep-11 Nov-11

143.3% 44.2% 42.8% 58.3% 41.8% 8.0% 4.5% 8.3% -0.9% 23.5% 19.8%

20.2% 15.5% 19.7% 13.3% 14.0% 11.3% 12.7% 10.7% 18.8% 13.7% 9.5% 8.3%

19.2% 15.2% 20.0% 21.4% 14.0% 9.3% 13.8% 9.8% 14.6% 11.3% 7.3% 6.6%

13.9 13.9 10.9 14.1 10.3 9.4 9.0 11.1 13.2 13.0 13.4 12.3

14.7 14.0 11.1 15.6 11.7 9.8 9.9 11.9 13.9 13.8 14.4 12.7

11.6 12.0 9.1 12.4 9.1 8.5 8.0 10.0 11.1 11.4 12.2 11.3

12.3 12.2 9.2 12.9 10.3 9.0 8.7 10.8 12.2 12.4 13.4 12.0

-261.3% 23.8% 33.4% 87.8% 30.9% 97.5% 61.2% 54.0% 27.1% 0.8%

147.0% 30.3% 25.0% 56.4% 47.5% 14.4% 13.0% -2.1% -11.4% 0.2% -0.9% 18.4% 17.1% -26.3% -28.4%

Top-down target is slightly conservative as compared to bottom-up valuation. The FBM KLCI 2012 year-end target of 1,530 points is deemed conservative vis--vis our bottom up valuation of 1,582.6 points, which we derived based on a set of target prices for each of the KLCI component stocks. Based on FBM KLCIs close of 1,472.1 on 30 November, our bottom-up approach target of 1,582.6 reflects a potential gain of 7.5%. Market volatility to remain at elevated levels. While we expect the FBM KLCI to find firm support at circa 1,350 points level in 2012, market volatility is expected to remain high well into next year. External events and developments emanating from the US, Europe and also China will continue to influence the sway and direction of the local market. The market has yet to regain its technical uptrend. Technically, the upward trend post-2008 crisis which was established in June 2009 came to an end in September this year. Despite the recent run-up, the equity market remains in a technical downtrend. Furthermore, the market is currently encountering a horde of stale bulls at between 1,450 and 1,500 levels, with a considerably bigger horde looming at 1,500 and higher levels. Tracking the regional money flow. As at 25 November, the cumulative flow of foreign fund into the Thailand, Indonesia, Philippines and India (TIPs + India) markets since early January 2011 had shrunk to slightly more than USD1 billion. Nevertheless, there was still slightly more than USD40 billion of cumulative foreign flow since early 2008 that may find its way out of the region. The cumulative flow to Korea and Taiwan markets has already reversed to the level prior to January 2008. Cumulative Foreign Flow as at 25 November 2011 (USD million) TIPs + India From Jan 2008 to date From Jan 2011 to date 40,606 1,531 Korea + Taiwan -3,339 -19,530


Name AMMB Holdings Axiata Group BAT CIMB DiGi.Com Gamuda Genting * Genting Malaysia * Hong Leong Bank Hg Leong Financial Group * IOI Corp KL Kepong Malayan Banking MMHE Maxis MISC MMC Corp * Petronas Chemicals Petronas Dagangan * Petronas Gas PLUS Expressways * PPB Group * Public Bank RHB Capital Sime Darby Telekom Malaysia Tenaga Nasional UMW Holdings YTL Corp * YTL Power KLCI @ 30 November 2011 Target @ 30 November 2011 % upside % Weight 2.79 6.46 1.43 8.32 4.36 1.40 6.21 2.38 1.70 0.77 5.15 2.43 9.71 0.57 2.57 2.29 0.65 4.10 1.04 2.24 1.85 2.04 9.31 0.67 8.53 2.44 4.79 1.22 1.46 1.14 Shares in the index 2,260.6 6,333.9 142.8 5,574.6 5,831.3 2,065.5 2,770.7 2,936.2 758.5 315.8 4,810.1 534.4 5,608.7 480.0 2,250.0 1,785.5 1,218.0 3,200.0 298.0 791.5 2,000.0 592.7 3,531.9 438.4 4,498.5 2,683.1 4,052.4 871.7 4,742.8 2,912.8 1,472.10 1,582.63 7.51 Price 30-Nov 5.94 5.10 46.50 7.14 3.52 3.06 10.96 3.91 10.46 11.40 5.01 21.50 8.30 5.60 5.50 5.88 2.53 5.99 16.50 13.20 4.45 16.06 12.54 7.31 9.00 4.32 5.65 6.68 1.45 1.84 Target Price (TP) 6.03 5.85 44.84 7.50 3.40 3.20 12.01 4.24 10.50 13.00 4.72 18.90 8.80 6.00 5.50 5.40 3.31 5.60 17.95 14.40 4.57 17.02 13.00 9.20 11.00 4.45 6.70 6.90 1.77 2.50 % chg 1.52 14.71 -3.57 5.04 -3.41 4.58 9.58 8.44 0.38 14.04 -5.79 -12.09 6.02 7.14 0.00 -8.16 30.83 -6.51 8.79 9.09 2.70 5.98 3.67 25.85 22.22 3.01 18.58 3.29 22.07 35.87

* = bloomberg consensus TP

MIDF stocks selection. Market volatility is expected to remain elevated well into 2012, coupled with continued macro uncertainty, and further combined with healthy but slowing earnings growth. This scenario leads us to favor investments with higher quality, secular growth, and sustainable and growing dividend yield. Below is a list of 10 stocks that fit our investment criteria. We reckon all the 10 stocks are in good stead to outperform the broader market due their inherent quality together with their good growth potential. Furthermore, their strong financial standings leave little doubt on their ability to maintain dividend payments even during period of economic slowdown.




Top 10 stock picks

YTL Power International Berhad (BUY, TP: RM2.50): YTL Power International Berhad (YTL Power) is known for its defensive earnings coupled with its strong cash pile of RM8.2 billion. Although YTL Power is conserving cash for its future overseas expansion and M&A opportunities, it still has set aside sufficient funds to at least sustain its dividend payments. We reiterate our BUY recommendation with target price (TP) of RM2.50 based on sum-of-parts (SOP) valuation. YTL Power is expected to provide potential upside of 40.9% with expected dividend yield of 5.0% in FY12. Wah Seong Berhad (BUY, TP: RM2.66): Wah Seong Berhad (WSC) valuation of 11.4x PER12 is undemanding (industry average of 18x) considering the strength of its outstanding order book (RM1.2b as at Sep11) and replenishment rate (RM400m per quarter). Gorgon LNG, Australia Pacific LNG and Kebabangan Deepwater projects are expected to sustain FY12F profit. WSC will also benefit from the booming Australia LNG sector as well as rising domestic gas field development. We have a BUY call on WSC with a target price (TP) of RM2.66. Total upside is 35.2% (including dividend yield of 3.5%). RHB Capital Berhad (BUY, TP: RM9.20): RHB Capital Berhad (RHB Cap) fundamentals have improved compared to previous financial years and this coupled with M&A news flow are likely to spur buying interest in the stock. Should the acquisitions of Bank Mestika and OSK materialized, this will enable RHB Cap to scale up its investment banking, brokerage business and gain vital access to regional markets for earnings growth, thus creating greater value for the banking group. We continue to see valuation of the stock as undemanding trading at 1.3x to forecast BVPS for FY12. We recommend BUY on the stock with a target price (TP) of RM9.20, a dividend yield of 2.5% and a total upside of 28.4%. Sime Darby Berhad (BUY, TP: RM11.00): We continue to like Sime Darby Berhad (Sime Darby) because we are expecting higher contribution from its plantation division as more trees coming into maturity, strong demand for mining equipment from China, increase in sales for its motor division supported by upcoming new models and higher contribution from property division as more property projects being launched. We reiterate our BUY call on Sime Darby at unchanged target price (TP) of RM11.00, giving a total upside of 25.6% inclusive of 3.4% expected dividend yield in FY12. Tenaga Nasional Berhad (BUY, TP: RM6.70): Tenaga Nasional Berhad (Tenaga) will now able to equally share its additional fuel costs with the Government and Petronas. Effectively, Tenaga, Petronas and the Government will each pay 1/3rd of the additional fuel cost amounting to RM3.1 billion that Tenaga has had to incur to generate power from alternative fuel sources. Given this positive development, we have revised upwards our FY12f earning and target price to RM6.70 (previous RM6.00) based on DCF valuation with WACC of 8.8%. Other catalysts for Tenaga are 1) introduction of FCPT tariff mechanism, 2) incorporation of coal prices in the next FCPT review, 3) above-expectation electricity demand and 4) favourable outcome of PPA renegotiation. We hava a BUY recommendation on Tenaga and the stock is expected to provide potential upside of 21.7% inclusive of expected dividend yield of 3.1% in FY12. Malaysia Airports Holding Berhad (BUY, TP: RM7.30): We believe that the main catalyst for Malaysia Airports Holding Berhad (MAHB) in FY12 will be the new airport charges which received the governments approval recently. Despite the rate hike, MAHBs PSC and aircraft



MALAYSIA EQUITY RESEARCH landing and parking charges are still comparatively lower than most airports globally and regionally. We expect that our non IC 12 revenue forecast in FY12 will increase by 1.1% due to the increase in airport charges. Also, we expect that the airport charges will increase our FY12 earnings forecast by 4.5%. Also, as suggested by its strong traffic, we expect MAHB will be able to weather the short term headwinds facing the aviation industry. The completion of KLIA-2, with the additional 45m capacity, and its overseas projects will provide a platform for future growth. Hence, our BUY recommendation for MAHB stock with a target price (TP) of RM7.30. This gives a total upside of 20.3% inclusive of 2.4% expected dividend yield in FY12. TH Plantation Berhad (BUY, TP: RM2.51): We are positive on the recent land acquisition by TH Plantation Berhad (TH Plant). The newly acquired plantation areas of 19,782ha in Sarawak and Kalimantan will support its long-term growth and is expected to start contributing to TH Plants earnings at least in 2015 onwards assuming the new planting starts in 2012. We are maintaining our BUY recommendation on TH Plant at unchanged target price (TP) of RM2.51, giving a total upside of 20.1% inclusive of 2.8% expected dividend yield in FY12. Dialog Group Berhad (BUY, TP: RM2.80): Additional 180K cubic meter of oil storage capacity (+20%) from Langsat Terminal Two (LT2) is expected to start contributing to the bottom line of Dialog Group Berhad (Dialog) next year. Furthermore, the expansions of 380K cubic meter (LT3) as well as 1.3M cubic meter (TP P1) are on-going, and are scheduled for completion by end-2013 and 2014 respectively. We reckon the recently announced incentive for petroleum trading will accommodate Dialogs future expansions. We are recommending BUY for Dialog with a target price (TP) of RM2.80. Total upside is 19.0% inclusive of dividend yield of 1.8%. Axiata Berhad (BUY, TP: RM5.85): We continue to like Axiata Berhad (Axiata) due to its growth potential and stable EBITDA despite operating in very competitive markets. We still consider Axiata to be a telecommunication company in a growth stage given that 2 of its 4 OpCos are operating in markets with low penetration rate. While the 3Q11 results were below expectations, partly due to higher expenses, we believe that some of the increases in expenses were short term in nature. We opine that the cost of network modernization as necessary in order to position itself for the next growth phase which is data. We also view positively at XLs early preparation to move into data as we believe that it will be well positioned to take advantage of the rising demand in data there. We maintain our BUY recommendation for the stock and target price (TP) of RM5.85, giving a total upside of 17.6% inclusive of 2.9% expected dividend yield in FY12. Parkson Holdings Berhad (BUY, TP: RM6.42): Parkson Holdings Berhad (PHB) currently operates 50 stores across the region. We like PHB due to (1) its aggressive expansion plan whereby it intend to add 7-8 stores p.a. in China, 2 stores p.a. each in Malaysia, Vietnam and Indonesia; (2) managements ability to deliver sturdy same-store-sales (SSS) growth anchored by its aggressive expansion plan and new contribution from Indonesia (management guidance on SSS growth for FY12: 12% for China, 6% for Malaysia, 15%-20% for Vietnam and 8% for Indonesia); and (3) the completion listing of Parkson Asia (PA) in Singapore will enable us to peg a higher PER benchmarking for PA as the market there trades more on regional valuation basis. PAs regionalized operations would justify comparison against peers with similar exposure. We maintain our BUY call for Parkson with target price (TP) of RM6.42, giving a total upside of 17.2% inclusive of 3.0% expected dividend yield in FY12.




Table 8: Top 10 stock picks

PRICE (RM) 30-Nov YTL Power Wah Seong RHB Cap Sime Darby Tenaga Nasional Malaysia Airports TH Plantation Dialog Group Axiata Parkson
Source: MIDFR, Bloomberg

TARGET PRICE (RM) 2.50 2.66 9.20 11.00 6.70 7.30 2.51 2.80 5.85 6.42

% PRICE RETURN 35.9 31.7 25.9 22.2 18.6 17.9 17.3 17.2 14.7 14.2

% DIV. YIELD 5.0 3.5 2.5 3.4 3.1 2.4 2.8 1.8 2.9 3.0

% TOTAL RETURN 40.9 35.2 28.4 25.6 21.7 20.3 20.1 19.0 17.6 17.2

1.84 2.02 7.31 9.00 5.65 6.19 2.14 2.39 5.10 5.62



OIL & GAS More contracts to look for in 2012



Big projects = higher contracts value. Petronas 5-year capex plans of RM300b, we believe, will ultimately translate into bigger contract size. In 3QCY11, Petronas spent RM14.4b (+50%) as compared with 2QCY11s RM9.6b, indicating capex plans are on an upswing. We believe 2012 will be an exciting year for the domestic oil & gas players in view of the potential announcement for sizeable projects like Malikai Deepwater project (2HCY12), RM15b North Malay Basin, RM60b RAPID, enhanced oil recovery (EOR), marginal oil fields and floating LNG development. We understand that 3 central processing platforms for Dulang, Semarang and Bokor oil fields worth RM1b each are likely to be tendered out. We also gather that Petronas is negotiating with Kencana and SapuraCrest for the fabrication and installation of two wellhead platforms in Bunga Dahlia and Teratai fields. We opined that news flow of the potential contracts remains encouraging. Upstream activities and new discoveries to spur contract opportunities. Contract opportunities for the domestic oil & gas industry remain intact. According to Petronas, over 50 exploration wells are expected to be drilled offshore Malaysia by Petronas and its PCSs over the next 3 years (CY11-CY13). YTD, Petronas has made a few major oil & gas discoveries East Malaysia. Exploration & Production (E&P) is expected to remain as Petronas main focus next year to address the declining trend of the nations oil supply. This was also evidenced by the recent signing of a Head of Agreement between Petronas and Shell for two 30-year Production Sharing Contracts (the Baram Delta oil fields, located offshore Sarawak and the North Sabah development areas offshore Sabah). Note that, the RM38b enhanced oil recovery (EOR) project is the worlds largest. Effectively, rising E&P activities will boost demand for various services including EPCC, offshore structure installation, offshore supply vessel, pipe-laying, FPSO, etc. SapuraCrest-Kencana merger nearing completion. The RM12b merger deal of SapuraCrestKencana will mark a milestone for the domestic oil & gas industry with the emergence of worlds 5th largest oil & gas service provider. Securities Commission had approved the proposed merger and the listing of Integral Key (SPV to facilitate the merger). The proposed corporate exercises are expected to be completed by 1Q12, pending shareholders approval during the EGM on 14 Dec 2011. International jobs to drive excitement. To recap, SapuraCrest secured a USD1.4b contract to construct, charter and operate three units of Pipe Laying Support Vessels (PLSV) from Petrobras in Nov11. We believe this is a prelude to domestic players penetrating into high growth Brazilian oil & gas market (Petrobras board has approved a US$225b investment program for 2011-2015). We reckon that the abovementioned merger deal also signify Malaysian companies ambition to establish their presence internationally. We believe industry consolidation and strategic tieup with foreign partners will continue taking place. We are positive on domestic companies securing more international jobs moving forward. New landscape in gas sector. Petronas Gas (PGas) is expected to enjoy new income stream starting 2H12 when its first re-gasification facility in Malacca is scheduled for completion.



MALAYSIA EQUITY RESEARCH LNG import agreement between Petronas and its suppliers will assure the consistency of income generation from the re-gasification business to PGas. Petronas also announced that it is considering for another re-gasification plant or LNG terminal in Lumut and we do not rule out the possibility of PGas taking part. On top of that, the 1st floating LNG project (in Kinawit field offshore Sarawak) is in the pipeline and Petronas is planning for a 2nd one (in Rotan field offshore Sabah). Petronas objective to curb the gas curtailment problem is clear. As a result, we believe PGas will be the main beneficiary, taking into account its strategic gas pipeline and up-coming re-gasification assets in Peninsular. Maintain Positive. As we are expecting more new contracts to be announced next year with the acceleration in Petronas capex spending and the development of LNG sector, we maintain our POSITIVE stance for the sector. Besides, we are also revising our CY12 average crude oil price forecast to US$85-US$90pb (from US$75-US$80) as the economic outlook for next year might not be as bad as previously expected. Petronas is looking at average crude oil price of US$85-US$87pb. Aggregate earnings for the sector is expected to grow by +11.2% in CY12 (+13% previously). The slight revision of -1.8%-ppts was mainly due to the lower margin assumption for KNM (unexpected losses were recorded in 3Q11) and lack of Investment Tax Allowance for MMHE. We reiterate our view that overall healthy order backlogs will continue to sustain CY12 earnings growth.

Petronas' Total Capex (RM'b)

70 60 50 40 30 20 10 0 FY06 FY07 FY08 FY09 FY10 FY11 CY11-CY15*

Sources: Petronas, MIDFR *Average figure per annum (est.)

Petronas' Total Capex Allocation (FY11)

6% E&P 10% Corporate & Others^ 20% Downstream Gas


Sources: Petronas, MIDFR ^Including Logistics, Maritime, Property and Others (est.)




HEALTHCARE Another healthy year


Private healthcare services demand remains intact. KPJ Healthcare (KPJ)s earnings was impressive (+14.1%yoy) in 3Q11 on the back of +9.1% revenue growth. We are expecting 3-year (FY10-FY12) earnings CAGR of +10.3% for KPJ. Topline growth in FY12 is expected to be sustained by the upcoming Bandar Baru Klang Specialist Hospital, Pasir Gudang Specialist Hospital and Muar Specialist Hospital. We believe KPJs revenue target of RM2b (our forecast is RM2.1b) in FY12 is achievable. As to date, KPJ operates 20 hospitals nationwide. Management expertise will continue to support the company in its growing phase. KPJs expansion plans are part of ETP initiatives. The expansion plan for the building of 5 new hospitals with a total of 822 beds over the next 3 years, which include Dato Onn International Specialist Hospital, Pasir Gudang Specialist Hospital, Sabah Medical Centre, Bandar Baru Klang Specialist Hospital and Pahang Specialist Hospital, is part of the ETP as announced in Nov11. The Government also indicated that these hospitals will take part to boost the nations healthcare tourism. KPJ will invest a total of RM763m for these 5 new hospitals. Furthermore, new hospitals in Perlis and Kuantan will be added to KPJs existing network in 2013. KPJ also recently announced its plan to open a 2nd hospital in Klang and to extend the existing one in Penang. Interim extension for HSS concessions. Given the Hospital Support Services (HSS) agreement (due to expire in Oct11) is yet to be finalized, government has granted an interim contract extension of 6 months (until Apr12) to Faber. We gathered that government is likely to renew Fabers HSS concession for the northern region of Peninsular and Sarawak. Nonetheless, the likelihood of Faber losing its concession in Sabah is high. Buying interest on the stock was dampened further due to its quarterly losses recorded as a result of additional costs recognized and impairment in UAE venture. Management was unable to give guidance on whether there will be further provisions. Moreover, outcome of the concession renewal by Apr12 will determine Fabers earnings visibility going forward. As such, we opine that next year will be a crucial transition period for Faber. Taking all into accounts, we are seeking for more certainty before revising our recommendation. Maintain Positive. We believe macro factors like rising disposable income, growing private healthcare demand and higher medical insurance penetration rate will continue to be the drivers for healthcare sector in 2012. Governments accommodative measure under ETP (e.g. the development of clinical research, education and etc.) will enhance the sector long-term fundamentals, complementing in promoting medical tourism, No. of KPJ Hospitals in Malaysia and the main beneficiary will 24 be KPJ. We remain a believer 22 of KPJ growth story supported 20 by its sound management.
18 16 14 12
Sources: KPJ, MIDFR

10 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012F




TELECOMMUNICATION No call interference


Telcos doing operationally well. The telecommunication companies continued to post good operational growth thus far. We aggregated the total subscribers, revenue and EBITDA from the recently concluded 3Q11 results of the top 3 mobile operator (Maxis, Celcom and Digi or MCD) as a proxy for the overall mobile industry trend. MCDs total revenue continued to gather pace in 3Q11 with a +3.0%qoq growth despite total subscribers remaining almost flat. The steady revenue growth was contributed by data revenues outstanding growth. More from non-voice. As the growth of voice revenue has reach a plateau in recent years, data revenue has become the operators main income growth impetus. The growth of non-voice revenue or data has been remarkable due to the advent of smart devices. This is evident with the increase in contribution of non-voice revenue by +1.4ppt in 3Q11 compared to 2Q11, and +4.3ppt against 3Q10. Cumulatively, MCDs 9MFY11 data contributed 35.6% to total revenue, an increase of +5.2ppt over the previous year. Maxis saw the biggest improvement with a sequential quarter +3.0ppt increase in 3Q11. We expect that the non-voice revenue trend will continue at a faster pace in CY12 in tandem with the growth of smart devices. Hence, our positive views of the network modernization undertaken by the telcos. EBITDA will face short term hit but will remain stable. While increase data usage is good for the telcos, it also presents challenges as operators need to translate into higher ARPU while optimising its networks. The side effect of more data usage is a higher network cost as evident by MCDs flat 3Q11 EBITDA growth. We expect telcos to face with some EBITDA pressure in CY12 but margins will remain stable around the 45%-48% level. The 9MFY11 and 9MFY10 EBITDA margin was both 47.2%. We were encouraged that avenues are being explored by telco companies to match the data usage with a comparable tariff. Still no news on 2.6GHz spectrum. The award of the 2.6Ghz spectrum is something to watch out for in CY12. The spectrum is essential for the telcos to cope with the increasing growth of data. Currently, we understand that telcos have submitted its proposal to the regulator, MCMC but a decision is still pending. We do not foresee any circumstance in which the top telcos will not be awarded the spectrum. We expect that a resolution will be reached by 2H12. Maintain POSITIVE for its resilience. Given stable outlook for the telco sector, its stable and recurring revenue business, various tie-ups and cost-saving initiatives, and its defensive qualities, we maintain our POSITIVE view on the sector. We particularly like its resilence in uncertain economic times. For example, TM outperformed the FBMKLCI as it registered a +14.1% increase in its share price vs. FBMKLCIs -28.7% decline between 29 Feb. 2008 and 20 Apr. 2009. BUY for Axiata and TM. We maintain our BUY call for Axiata (TP: RM5.85) for due to its growth potential and stable EBITDA despite operating in very competitive markets. We understand that the take-up rate for TMs UniFi has been very encouraging, surpassing managements expectations. Coupled with the strong take up in Streamyx, we continue to like TM as growth is more or less assured. Hence, our BUY call for TM (TP:RM4.45). NEUTRAL for Maxis and Digi. We have a NEUTRAL call on Maxis (TP: RM5.50) as it lacks growth and bears possibly execution risks of moving into the converged and integrated services market. We are also downgrading Digi (Adjusted TP:RM3.40) to NEUTRAL due to the surge in its share price. However, both remain to be respectable defensive stocks.



AUTOMOTIVE Slow recovery from a beating by Mother Nature


FY11 supply chain crisis thanks to Mother Nature. After the Japans earthquake and tsunami in Mac11, the auto industry was facing a global supply chain disruption and Malaysia was not spared of the after-effects. Barely recovered from the Japans disaster effects, auto industry then had to brace from the severe floods in Thailand which caused another supply disruption. Among the 3 big Japanese automakers in Thailand, Honda was worst affected by the flood. Toyota Motor has been forced to curtail production due to the disruption to its auto parts supply while Nissan had experienced some disruption as well. Impact of Thailand flood on local auto industry. The impact is likely to stretch until end 1QFY12 when normal production is expected to fully resume. However, the impact is likely to be contained due to sufficient inventory. The worst hit Japanese marquee from the flood is Honda, and its sales have predictably slowed down. Meanwhile, we gather that UMW may face shortages in kits sourced for Vios, Camry and Altis due to the prolonged flooding and disruption to supply chain. Nevertheless, UMW informed that for the time being there is no negative impact from the flood as it has sufficient inventory level of about one month. As for Tan Chong, they are able to cope with the situation as it has two to three months of inventory. Relative to UMW, Honda and Tan Chong, the flood did not yield any material adverse impact on Proton and Perodua. How well the marques fared in FY11? In terms of market share for the 10-month year-to-date (YTD), Perodua (YTD 28.9%) has exceeded Proton (YTD 27.1%) thanks to the overwhelming response to its new Myvi Market Share (%) model which was launched 35% i n June11 a n d S e p 11. 30% Perodua new Myvi sales 25% volume spiked 74.4%mom 20% in Oct11 to 10,364 units. As 15% for the non-national vehicle 10% segment, Toyota continued to 5% lead with YTD 14.9% market 0% share followed by Honda Perodua Proton Toyota Honda Nissan Others (YTD 6.0%) and Nissan (YTD YTD Oct10 YTD Oct11 5.5%). Upcoming new model/variant launches for FY12. For FY12, we would see Proton to launch its Exora facelift, Inspira R3 and Persona replacements. Interest in the Persona replacement appears to be encouraging but with Persona being a bigger car, pricing in that segment could be competitive since Proton will be competing head-on with the non-national marques. Other notable launches would be new UMWs Toyota Camry (2.5 litre and 3.5 litre), Tan Chongs Nissan Vanette and possibly the Nissan Leaf (an electric vehicle) as well as Sime Darbys Hyundai Veloster. A stricter banks approval process. Starting Jan12, Bank Negara Malaysia (BNM) shall impose new guidelines with stricter banks approval process as a pre-emptive move against further



MALAYSIA EQUITY RESEARCH rise in consumer debt. We expect the stringent banks approval process to be a dampener to consumers within the low-mid income bracket to obtain financing for vehicles. This could have an impact to the total industry volume (TIV) with possible cancellation on bookings or purchases. Expect a softer TIV growth for FY12. The annualised 10-month year-to-date (YTD) sales came up to 604,678 units which is -0.5% below our FY11f TIV forecast. We maintain our FY11f TIV forecast of 608,100 units considering that auto supply had barely enough time to catch up with the pent-up demand from the Japanese disaster before the Thailand flood struck. But we view the flood impact to stretch until end 1QFY12 when normal production is expected to fully resume. Given the uncertain economic outlook coupled with stricter banks approval process, consumers are becoming more cautious on purchases and if this situation persists, new model/ variant launches will be less likely to substantially spur growth. Hence, we expect FY12f TIV to inch up by a mild 0.5%, based on our in-house FY12f GDP growth of 4.8%.
Total Industry Volume (TIV)
70000 60%

50% 60000 40% 50000 30% 40000




0% 20000 -10% 10000 -20%

0 J07 A J O J08 A J O J09 A J O J10 A J O J11 A J O



YoY %(RHS)

Maintain NEGATIVE. We are maintaining our NEGATIVE recommendation on the sector. Under our coverage, we have only a BUY on MBM resources (TP: RM3.60) backed by undemanding valuation. We maintain our NEUTRAL recommendations on Tan Chong (TP:RM4.50), UMW (TP:RM6.90) and Proton (TP:RM2.70).

PORTS The storm has yet to pass


Surprised rebound in exports but unlikely to hold. Sept11s export grew by a surprising +16.6%yoy, the fastest pace since June10. The strong growth was driven by the gains in Electrical and electronics (E&E) sector and the continuous positive contribution from the commodity sector. E&E registered its first positive growth of +2.6%yoy after spending much of CY11 with negative growth, coming from the pick-up in global semiconductor sales to Japan. However, we remain cautious on the E&E sector as drag on the sector remains on a high note, emanating from a weaker global growth combined with the on-going euro crisis and a moderate growth envisaged in the Asia-Pacific region. We continue to hold our view that the non-E&E segment will continue to be the major revenue generator in the coming month from sustained regional demand for resource-based products like chemicals, petroleum and rubber. Less exports from less manufacturing activities. The Malaysian Industrial Production



MALAYSIA EQUITY RESEARCH Index (IPI) for manufacturing grew by +2.5%yoy for September. It was lower than Augusts manufacturing IPI growth of +3.6%yoy suggesting that manufacturing IPI showing a declining trend. We expect that the IPI and manufacturing to grow at a slower pace in 1H12 with continuing uncertainties weighing down on demand and global manufacturing. This is evident by the weakening Book-to-Bill ratio. We believe that it will translate into lower export growth for CY12. We are already seeing lower port traffic. For 3Q11, NCB saw its port traffic declining -4.1%qoq, while cumulatively port traffic declined by -4.1%yoy. We believe that these are signs of the effects of a declining trade volume. However, its 9MFY11 revenue increased marginally by +0.2%yoy suggesting that tariff has recovered slightly. We expect an easing of port traffic growth in 4Q11 onwards due to the anticipated lower export growth. Weak outlook remains. We are maintaining our NEGATIVE sector view on seaports for CY12 as we expect exports to continue to remain weak. We expect the slower growth will negatively impact total throughputs and revenue of the port companies. However, we are maintaining our NEUTRAL recommendation for NCB due to its defensive qualities. In addition, its generous dividend will surmount the weaken market sentiments.

SHIPPING No bottom in sight


No end in capacity expansion. The current malaise in the shipping sector continues to be unabated as overcapacity, depressed rates, low demand and high cost continues to plague the industry. Capacity expansion continues without any end in sight. Based on data of number of ships in service (source: Bloomberg), total number of bulk carriers (amalgamation of all classes) as at 28 Nov. 2011 expanded by +10.3%yoy, with a majority of the expansion coming from the Supramax class (+29.6%yoy increase). For tankers, the total number in service has risen by +3.7%yoy. Worryingly, Ultra Large Crude Carriers (ULCC) has expanded the most amongst the tankers, with an expansion of 57.9%yoy. The ULCC has a capacity of almost doubled to that of Very Large Crude Carriers (VLCC). Hence, every 1 ULCC entering the market is similar to 2 VLCC ships being added. Pace of demolition is still not fast enough. Some of the capacity is being reduced by ships being broken up. The total number of ships broken up for bulk carriers and tankers grew by +34.1%yoy and +7.9%yoy respectively. However, upon further inspection at absolute amount rather than in percentage terms, the number of bulk carriers in service expanded by 733 ships and tankers increased by 71 ships. In contrast, the number of bulk carriers and tankers being broken up only increased by 331 ships and 40 ships respectively. We do not believe that the overcapacity will be over anytime in CY12, as bulk and tanker carrier construction continues. The number of bulk and tanker carrier under construction rose by +77.8%yoy and +26.8%yoy respectively. Rates will continue to be depressed. It is not surprising that shipping rates are persistently depressed ever since the CY08/09 financial crisis. The bulk and tanker shipping rates indicator, the Baltic Dry Index (BDI) and Baltic Dirty Tanker Index (BDTI), continuously fail to achieve a sustainable recovery. The BDI was on an uptrend since Aug11 to reach a YTD high of 2,173 points, but as we expected has fallen off in recent weeks. The same can be said of the BDTI, where there was a reversal in trend since Sept11 but it was not sustained. We expect that any



MALAYSIA EQUITY RESEARCH recovery in rates in CY12 will only be short-term in nature as the overall industry problem has not been structurally addressed.
Baltic Dry Index







1,000 26-Nov-10 10-Dec-10 24-Dec-10 7-Jan-11 21-Jan-11 4-Feb-11 18-Feb-11 4-Mar-11 18-Mar-11 1-Apr-11 15-Apr-11 29-Apr-11 13-May-11 27-May-11 10-Jun-11 24-Jun-11 8-Jul-11 22-Jul-11 5-Aug-11 19-Aug-11 2-Sep-11 16-Sep-11 30-Sep-11 14-Oct-11 28-Oct-11 11-Nov-11 25-Nov-11

Despite overcapacity, bunkering cost remained high. We are surprised that bunkering cost remained stubbornly high despite excess capacity, adding to difficulties faced by shippers. Singapore bunker fuel spot price as at 29 Nov11 had grew by +38.4%yoy to USD693pmt. Since Jan11 the bunker fuel spot price had consistently been above USD600pmt. Maintain NEGATIVE. Although, certain consensus is expecting a pickup in 2H12, we believe that recovery of the shipping market is unlikely before CY13 as the structural problem of overcapacity is still prevalent. The demand growth for dry bulk cargo is still estimated to be healthy because of the increase in iron ore demand from China, rising coal imports from India and recovery in demand from other emerging and developed countries as reflected in the improvement in charter rates of bulk. However, additional tonnage entering the world fleet is still high. The scrapping of older vessels, cancellation and delivery slippages and port congestion could limit the negative impact of the delivery of new tonnage. We expect the overcapacity will narrow in CY12 but it will not be sufficient to boost rates to pre-crisis levels. In addition, high bunkering cost will add to the woe faced by shippers. Hence, we maintain our NEGATIVE outlook for the sector. For sector specifics, we maintain our TRADING SELL call for Maybulk (TP: RM1.39) and NEUTRAL for MISC (TP: RM5.40).

PROPERTY Global economic uncertainty dampens sentiment


National Property Information Centre (NAPIC) numbers show early signs of a slowdown: In 3Q11, property sales of most of the companies under our coverage had either leveled off or dropped substantially. We believe the waning property sales could be due to a combined factor of lesser launches and weaker property demand. The latest NAPICs statistics showed minor correction in house price, whereby the average house price has declined sequentially from RM214.8K to RM212.1K in 3QCY11. Moreover, year-on-year growth of house price index has decelerated from 10.6% in 2QCY11 to 6.6% in 3QCY11. Lower average house price in 3QCY11 attests to our view that the 2-year property up-cycle might be coming to an end. Over



MALAYSIA EQUITY RESEARCH the past 8 quarters, year-onyear growth rate of property prices were between 5.6% and 10.6%. Moving forward, we believe house prices will increase at a more moderate pace of between 1-5%yoy.
All house price and year-on-year growth
% 12

RM '000 250



8 150 6 100 4 50

Property market might have 0 0 peaked in 2QCY11: In 2QCY11, property sales of the 4 major All house price (LHS) YoY Growth(RHS) property markets in Malaysia amounted to RM26.8b which was the highest level for the GDP growth and property price % % past 9 years. Nevertheless in 50 20 3QCY11, even without major 40 15 30 changes of policy and lending 20 10 rates, property sales has 10 5 0 declined slightly to RM25.5b. -10 0 Property transactions and -20 -5 -30 property prices growth are -40 -10 highly correlated with the GDP -50 -60 -15 growth. We are expecting GDP 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 growth to decline slightly to Property transaction yoy growth (RHS) House price index yoy growth (LHS) GDP growth (LHS) 4.8% next year. Hence 3QCY11 could be the turning point as we expect property transactions growth to fall back to a more moderate level in 2012. In addition to that, new housing unit launches also dropped for the third consecutive quarters suggesting more cautious stance by developers.

New scheme to raise housing affordability: Average price of terrace houses has increased to RM800K in KL and RM525K in Selangor. The average house price in Selangor includes peripheral townships with properties of lower value. Strong growth of property price has reduced its affordability to the majority of lower to middle income households in Klang Valley. In Budget 2012, government raised the price limit of housing loan under My First Home Scheme from RM220K to RM400K in order to raise the housing affordability. The scheme will benefit property developers such as Mah Sing and SP Setia which plan to offer starter home priced at below the limit with launches as early as 2012. New policies such as (i) raising the RPGT from 5% flat in 5 years to 10% in the first 2 years and 5% on the 3rd year to 5th year, and (ii) BNM new guideline on credit assessment based on net income of applicants, were introduced to counter the property speculative activities. Nevertheless we believe, to a certain extent, the new policies will affect property demand. The new policies



MALAYSIA EQUITY RESEARCH implemented in 2011 will not have a material impact towards the property sector. We are more concern about the uncertain global economic outlook as property prices and transactions are heavily correlated to GDP growth. Maintaining our Negative view on the property sector: Moving forward, we believe property developers will be more cautious with their launches and buyers will be more selective and rational in buying properties. We maintain our NEGATIVE view on property sector. We have NEUTRAL recommendations on IJM Land (TP: RM2.10), Mah Sing (TP: RM1.71), SP Setia (TP: RM3.90), UEM Land (TP: RM2.14) and Sunway Berhad (TP: RM2.28).

RM 'mn 30 25 20 15 10 5 0

Property sales transaction

Johor KL

Penang Selangor

Overhang property and new house launching

35 Units '000 30 Value(RM 'bn) 8 7 25 6 20 17 15 15 12 11 10 6 5 2 1 0 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 16 12 15 12 11 5 4 3 9

Housing launched (LHS) Overhang Property Value (RHS)

Overhang Property (LHS)



BANKING A more challenging environment ahead


Maintain NEUTRAL

Earnings growth expected to moderate. Reported net profit for banks for the recent quarter ended Sept11 fell within our expectations. With the exceptions of Hong Leong (which reported stronger profit due to full integration of the merged entity results) and Maybank, all other banks under our coverage recorded lower sequential quarter on quarter growth in net profits. In CY12, we are expecting the growth rate of banks to be slower as the slowdown of global economy growth is expected to be filtered down domestically. Loans to expand at a slower pace in CY12. We expect loans to grow at a slower pace of 9% for CY12 compared to our expectation of 11% growth this year. This is in view that banks have started to adopt a more vigilant and selective lending stance in response to (i) the less favorable macroeconomic conditions, and (ii) recently issued guidelines by BNM to create more prudent and responsible lending practices for retail loans. Currently, we are already seeing slower growth rates for loan applications for the industry which suggest lower loan deals in the pipeline. Growth rate for loan approvals lately has declined to a single digit growth compared to double digit growth rates previously. We expect growth of household loans to continue to moderate due the announced stringent measures from Bank Negara to control the high household debts to GDP, such as (i) loan to value ratio of 70% cap for third mortgages, (ii) more stringent credit card policies for lower income earners, coupled with (iii) the maximum loan tenure of 9 years for hire purchase financing. MIERs consumer sentiment index though improved in 3QCY11 due to receding inflation, the rise was marginally and thus not reflecting a strong rebound since the steep decline in 1QCY11. MIERs business condition index in 3QCY11 continued to expand but at a slower rate as production and export sales trended lower. In line with this, we saw the working capital loans growth rate for the industry fell in Oct11. Moving forward, implementation of projects under the Economic Transformation Programme (ETP) is expect to provide support for demand of bridging loans and debt capital market fund raising. However, execution risk remains a concern on the projects which depends our whether the global economic condition deteriorates further. The funding for ETP projects mainly for large corporates as well as the special funds from Central Bank to support SMEs should partially counter the slowdown expected in lending for the other segments. Barring any rate cuts, we are expecting lesser pressure on NIMs next year. With the competitive banking landscape, this year we have seen NIMs of banks compressed not only due to lower lending rates but also higher funding cost. Generally, cost of funding for banks rose this year due to (i) higher reserve requirement by Central Bank, (ii) drop in low cost deposit (CASA) ratio and higher share of more costly fixed deposits in deposit base, and (iii) rise in long term debt funding which were aimed at raising capital ratios, increase stability funding as required under Basel III eventually, and to support expansion of loan book. With banks started to dial down loans growth and turned conservative in lending, it is expected that competition for deposits would be less intense next year and that should ease pressure on NIMs. Furthermore, barring any rate cuts, fixed deposits which were paid higher rates this year to attract deposits



MALAYSIA EQUITY RESEARCH in anticipation of further rate hikes should be repriced to normalized levels as rate hikes are looking unlikely now with the slowdown in global economy. We do not rule out rate cuts next year as we believe that would depend on the extent of the economies in the west. Should the situation deteriorates further, impact on the Asian economies would be more severe than just a soft landing and that would warrant monetary policy easing (rate cuts) for the Asian countries including Malaysia. Rate cuts (if any) will compress NIMs for a short term period (expected between 1 to 2 quarters) as adjustments for deposit rates lag behind loans repricing. Eventually, NIMs will be stabilized after the deposits are repriced. We reiterate that credit cost is likely to trend up due to weaker macroeconomic condition. For the latest quarters results, credit cost have edged up higher compared to the 1st two quarters for this year and we expect this to rise subsequently as under FRS139, loans that exhibit signs of credit weaknesses even before 3 months of non-payment can be classified as impaired. We have imputed credit cost of 25 to 55 bps for the banks under our coverage for next year as we expect stress on unsecured personal loan financing which now forms 4.1% of the industrys total impaired loans and working capital loans which constitute the largest portion at 42.3% of the total industry impaired loans. Growth of non interest income to be slower in CY12. With market expected to be volatile, fund raising from equity capital market is expected to be slower. Also, treasury income is expected to moderate while loans related fee income is anticipated to be lower due to slower loans growth for CY12. Overall, we see non interest income growth of banks softening next year. Increasing share of low cost deposits and cost management expected to be among key priorities to counter slower growth in operating revenue. Banks are likely to focus on achieving stronger growth in low cost deposits (CASA) to ease NIM pressure as well as controlling overheads through cost management with the expected slowdown in growth of operating revenue. We remain NEUTRAL on the banking sector. Our BUY calls are RHB Cap (TP: RM9.20) and AFG (TP: RM3.84) on prospects on mergers and acquisitions and on the basis that the valuation for these stocks are undemanding. We are neutral on CIMB (TP: RM7.50), Maybank (TP: RM8.80), AMMB (TP: RM6.03), Hong Leong Bank (TP: RM10.50) and Public Bank (TP: RM13.00).
12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 GDP growth Net NPL/Impaired Loan Ratio Gross NPL/Impaired Loan Ratio




12.8 12.8 11 8.6 6.3 5.3 5.8 6.5 4.8 7.2 5.0 4.8 8.6 7.8 9

14 12 10 8 6 4 2 0 -2 -4 2005 2006 2007


2009 -1.6




Real GDP growth (%Yoy)

Loan growth (%Yoy)

CONSTRUCTION Bettter job flows in 2012

Maintain NEUTRAL

Latest results below expectations: Majority of construction companies had delivered sets of disappointing results in 9MFY11 reporting season. Earnings were below ours and consensus expectations mainly due to delayed construction progress, late order book replenishment and lower contribution from property segment. We are more concern about the lower replenishment of order book in 2011 as earnings growth next year is likely to be affected. Construction companies to rebound in 2012 with the award of mega projects: Based on CIDB statistic, about RM49.4b worth of local construction projects had been awarded as at Sept 2011. Among all the projects awarded, local contractors had secured approximately RM40b worth of projects, with the remainder RM9.4b to be undertaken by foreign contractors. Projects awarded account for about 52% of local construction projects in 2010 which explained lower order book replenishment of construction companies. Apart from that, construction companies also secured lesser overseas contracts. Total overseas contract secured as at Sept was about RM3.2b or 20% of total overseas contract secured in 2010. Nevertheless, we expect jobs flows to improve next year with the execution of mega projects announced under the 10MP and ETP. Among the infrastructure projects to be awarded or called for tender next year are Klang Valley MRT Sungai Buloh-Kajang Line (RM20b), River of Life (RM4b), and Gemas-Johor Double tracking (RM7b). Apart from the infrastructure projects, building contracts should see increase with the development of government-related projects such as the KL International Finance District. RM8b positive surprise from Penang Traffic Alleviation project: In order to solve the traffic congestion problem in Penang, the state government had proposed to build a 6.5km sea tunnel connecting Gurney Drive to the northern side of Butterworth, a 4.2km road from Gurney Drive to the Tun Dr. Lim Chong Eu expressway bypassing the city centre, a 4.6km road linking Bandar Baru Air Itam to the same expressway and a 12km dual-carriage road from Tanjung Bungah to Teluk Bahang to pair with the existing coastal road. The state government is likely to repay the RM8b sum via land swap. Letter of awards will be issued in September 2012, but construction



MALAYSIA EQUITY RESEARCH work is anticipated to start in 2015 upon feasibility studies. Va l u a t i o n : S o m e o f t h e mega projects announced in the ETP and 10MP are scheduled to be implemented in 2012, however the actual projects execution remain a key issue. For instance, IJMs NPE extension will be slightly delayed due to alignment issue and MRCB will not bid for the River of Lifes river cleaning jobs as they are likely to remain as the Project Delivery Partner Source: The Edge Financial Daily only. Some of the projects like Penang traffic alleviation projects will be awarded by 2012 but physical construction will only begin in 2015. We are also expecting lesser private sector projects for construction companies as uncertain economy outlook is likely to affect their expansion plans. In addition to that, construction companies which derived sizable income from property segment will be affected by the potential slowdown of property market in 2012. We maintain our NEUTRAL recommendation on Construction sector due to its cyclical nature and the high beta of these companies which are vulnerable to the fluctuations of global stock market. The re-rating catalyst for the sector will be the swift execution and progress of the construction projects. We have a TRADING SELL recommendation for AZRB (TP: RM0.54). Furthermore, we are recommending NEUTRAL for IJM (RM5.65), Gamuda (TP: RM3.20), Hock Seng Lee (TP: RM1.44), MRCB (TP: RM1.94), Naim (TP: RM1.77) and WCT (TP: 2.20).
Estimated Cost (RM bn) 50 8 16.5 19 10 26 15 5 5 15 18 7 N/A N/A N/A N/A

List of Potential Projects

Klang Valley MRT (3 lines) Gemas to Johor Bahru electrified double tracking railway High Speed Railway KL-Singapore 7 new highways RRIM Land redevelopment KL International Finance District KL Metropolis (NAZA) Warisan Merdeka Bukit Bintang Commercial Centre (Pudu Jail) Bandar Malaysia (Sungai Besi Airport) River of Life Coal powered electricity generation plant Five Universiti Teknologi MARA (UiTM) branch campuses Redevelopment of the Angkasapuri Complex Kuala Lumpur as Media City Construction of the liquefied natural gas regassification by Petronas in Melaka Two aluminium smelters in Sarawak Corridor of Renewable Energy (SCORE)
Projects and project value are from various sources, some of the initial phase of the projects had kick start




Less fertile outlook for plantation

Maintain NEUTRAL

What goes up must come down. We believe that 2011 has been a good year for plantation companies. The year-to-date (Jan 2011 Nov 2011) average CPO price has averaged RM3,299pmt, an increased of +24.1%yoy. The higher average CPO price has translated into double digit earnings growth for the plantation companies in 2011. However, we are expecting the CPO price to ease in 2012 and its full year average price would retrace to RM2,700pmt on the back of (i) global economic uncertainties that would disrupt demand, and (ii) the current mild to moderate La-Nina condition that would help boosting CPO output. Less severe La-Nina. According to the Australian Bureau of Meteorology, the weekly sea surface temperature (SST) anomalies have just exceeding the La-Nina threshold of -0.8 point for the week ended 20 November 2011. The climate models surveyed by the Bureau suggest
30 2,500


20 2,000

15 Thousands









-20 Jan-06

Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan-11 Jun-11


CPO Output

that this event is likely to peak at the end of 2011 and would persist in early 2012. However, the current La-Nina observations are considerably weaker than the previous La-Nina conditions in 2010-2011. According to the research done by Ganling Institute, mild to moderate La-Nina conditions are beneficial for palm trees and are usually associated with high FFB output. Expecting higher output in 2011 and 2012. The palm oil output is expected to resume its normal growth given the moderate level of rainfall currently and the residual effect from previous el-Nino effect ending in 4QFY11. CPO output for the cumulative 10-month jumped +10.4%yoy to 15.8mmt, thanks to improve weather conditions and increase in FFB yield. For the past 5 years, on average, the cumulative CPO output for the first 10-month accounted for 83% of the total full year output. If the same rule applies, CPO output in 2011 would reach 19.02mmt. Given the moderate La-Nina in 2011, we are expecting CPO output in 2012 would at least stabilize at 18.0mmt level.


MALAYSIA EQUITY RESEARCH Higher output = higher inventory. For the past 5 years, the highest monthly inventory was 2.2mmt and the lowest level was 1.12mmt. Therefore, inventory in considered to be on the high side when it touches 1.7mmt per month. Since May 2011, the monthly inventory has been more than 1.8mmt and its cumulative figure (January-October 2011) surged +9.5%yoy to 18.3mmt. Assuming the monthly inventory for November and December 2011 would stay at 2.0mmt level, we are expecting the full year number to touch 22.3mmt, which is 5% behind its all-time high level of 23.5mmt in 2008. Maintain NEUTRAL. Due to the bullish supply outlook in 2012, we are maintaining our NEUTRAL call on the sector. We are expecting the CPO price to continue to trade at around RM3,000pmt level at least until the first quarter of 2012. However, higher CPO output and inventory level would exert some downward pressures on CPO price and may see it retrace to between RM2,500pmt to RM2,700pmt for the remaining 9 month of 2012. Hence materializing our full year average CPO price forecast of RM2,700pmt in 2012. Stocks in our BUY list. We are maintaining our BUY recommendation on Sime Darby, TH Plant and TSH Resources at higher target prices. The higher target prices are in-line with upward revisions of our earnings forecasts pursuant to the last quarter results season. We continue to like Sime Darby (TP: RM11.00) because we are positive that the management would achieve its targeted PATAMI of RM3.3b in FY12, supported by its auspicious first quarter results. We are also maintaining our BUY call for TH Plant (TP: RM2.51) because of its expansion into Indonesia, and TSH Resources (TP: RM2.25) due its large immature areas in Kalimantan.

GLOVE Rubber Industry sees brighter outlook

Upgrade to NEUTRAL (from NEGATIVE)

Downtrend in export expected to moderate going forward. For 9MCY11, rubber glove export volume has declined by -9.9%yoy to 360.8k MT from 400.6kMT in the same period last year. Conversely, export value for 9MCY11 increased to RM7.3bn (+9.3%yoy). This is unsurprising given the anticipated higher average selling price (ASP) of rubber glove which offset the lower export volume. Note that glove players have the ability to pass on about 70% of any increment in costs to their customers. On a full year basis, we estimate export volume for rubber glove to be decline by a smaller -8.3%yoy (at 484k MT) on the back of easing latex price with the prospect of improving demand for latex glove moving forward. Steep drop in latex price. Price of latex has plummeted by about -37.8% from its peak of RM10.93/kg in Apr11. Since then, latex price has progressively dropped to RM6.84/kg (refer table below). We opine that the price will remain at current levels and would not revert to the high in Apr11 due to (1) softening of demand from the automotive industry attributed to the recent flooding in Thailand that disrupted production of cars, (2) weak demand for glove in the absence of pandemic, (3) oversupply of rubber in the market, and (4) uncertainties in the global economy. YTD, the average price of latex stood at RM9.13/kg, which was +25.2% higher than in FY10. As the average price YTD this year nearly conformed to our full year forecast of RM9/ kg, we therefore make no change to the number. Meanwhile, we think that latex price will drop in 2012 but nonetheless remain supported due to (1) the upcoming wintering season (Feb-Apr) that normally support the price for the 1H, and (2) improvement in the demand outlook for the commodity used in tires. Taking all into consideration, we are imputing a lower estimate to our 2012 price forecast of RM7/kg RM8/kg from RM8.75/kg.



MALAYSIA EQUITY RESEARCH Demand to fare better in 2012. We expect growth in demand to be slightly better in 2012 driven by (1) softening in latex price, and (2) lower base factor in 2011 due to the absence of pandemic. The global demand for rubber glove is expected to grow by 8%-10% in 2012. Dollar performing well. Based on recent trend, dollar has strengthened as much as +2.5%ytd (refer to table below). We are of the opinion that USD will end the year higher against the ringgit. This is supported by our in-house USD/MYR average exchange rate estimates for 2011 and 2012 of RM3.12 and RM3.0 respectively. Softening headwinds to be reflect in margin. We expect the pressure on glove players margin to soften moving forward. Firstly, appreciation of USD against ringgit will benefit players as their sales are denominated in USD. Secondly, softening in latex price will give great advantage as latex cost typically accounts about 60-65% of total cost for the glove players. We estimate the average EBIT margin of the industry to pick up starting 4QCY11 or 1QCY12. On the other hand, we still expect the demand and margin for nitrile segment to remain stable. Although the ASP gap has narrowed between nitrile and latex glove by about USD1 per 1,000 pieces (USD35 per 1,000 pieces for nitrile; USD34 per 1,000 pieces for powder-free latex gloves; and USD31 per 1,000 pieces for powdered latex gloves), we believe the marginal price differential is not a concern given that nitrile glove has always been perceived as of superior in quality. Upgrade to NEUTRAL. We are upgrading the rubber gloves sector to NEUTRAL from NEGATIVE. The immediate catalysts would be softening in latex price as well as stronger USD against the ringgit. We maintain our SELL call for Top Glove (TP: RM3.29-under review) for now. However, we believe there will be an upward bias in the target price pending its 1QFY12 results that will be released on 15th Dec 2011. Meanwhile, we have BUY calls for Kossan (TP: RM3.59) and Hartalega (TP: RM6.36). We like both stocks due to their better product mix.
1200 3.25 3.20 1000 3.15 800 cent/kg 3.10 3.05 600 3.00 400 2.95 2.90 200 2.85 0 04-Jan-11 18-Jan-11 01-Feb-11 15-Feb-11 01-Mar-11 15-Mar-11 29-Mar-11 12-Apr-11 26-Apr-11 10-May-11 24-May-11 07-Jun-11 21-Jun-11 05-Jul-11 19-Jul-11 02-Aug-11 16-Aug-11 30-Aug-11 13-Sep-11 27-Sep-11 11-Oct-11 25-Oct-11 08-Nov-11 22-Nov-11 2.80

Latex Price


SEMICONDUCTOR Not yet returning to normal

Maintain NEUTRAL

High inventory level still persists. The disaster in Japan earlier this year had given a short term boost but the resultant effect was the buildup in inventory by consumer electronics manufacturer. Consequently, utilization rate at semiconductor companies plant dropped and had languished below the 70% level. This high inventory situation is still prevalent. The situation


MALAYSIA EQUITY RESEARCH might be exacerbated by the recent flooding in Thailand. We believe that the high inventory level will persist going into CY12, especially given the slowing demand coming from weakening consumer sentiments. Global semiconductor sales on a downward trend. It is not surprising that data from the Semiconductor Industry Association (SIA) showed global semiconductor sales on a downward trend given the persistent high inventory levels. It reported a sequential year loss of -1.7% to USD25.8b in Sept11, the third consecutive quarter of decline. We expect SIA to report more declines in the coming months, an indication of not only high level of inventory but slowing demand. Looking back at CY08, the global semiconductor sales fell for 12 consecutive months after the first instance of decline on Oct08 where the global sales fell -2.3%yoy after an extended period of growth. Book-to-Bill continues below parity but investment in equipments for smart device components on-going. The Book-to-Bill (BTB) ratio continued its path on the downward trend, falling for consecutive months since Apr11. North America-based manufacturers of semiconductor equipment posted USD939.4m in orders in Oct11, a sharp drop of -41.1%yoy, and a BTB ratio of 0.74, according to the SEMI. A BTB of 0.74 means that USD74 worth of orders for every USD100 of product billed for the month. The recent periods billings and bookings are reflecting the slowing capital investment in the industry that has been evident throughout CY11. We believe that the situation will continue towards 1H12. However, we understand that while overall spending has declined, investments in NAND Flash, sub-30nm technology, and system LSI are on-going due to the growth in smart devices. We expect that any weakness in semiconductor will be supported by the demand for smart device components. Maintain NEUTRAL. We maintain our NEUTRAL outlook for the sector the strong demand for smart devices will provide support to the negative circumstances of high level of inventory and the weakening demand. The smart device growth will come from the continuing hand phone replacement cycle. We believe that the negative situation will continue until 1H12, before we see a recovery in 2H12 as inventory levels falls back to normal levels. For specific stocks, we are currently reviewing our call for both Unisem (TP: RM0.95) and Globetronics (TP: RM0.90).

MEDIA Sporting events to uplift the sour mood

Maintain NEUTRAL

Confidence is shaking. The uncertain global economic outlook in CY12 is putting a damper on consumer confidence. According to Nielsen Media Research, online Consumer Confidence Index (CCI) in Malaysia fell 9 points to 101 in the 3Q11. It was the biggest quarterly decline since the 3Q08, suggesting that Malaysian consumer are becoming more concern on job prospects, job security and the unabating inflationary pressures. Another indicator, the Malaysian Institute of Economic Research 3Q11 Consumer Sentiments Index (CSI) showed a slip to 108.7 points from 115.8 points a year ago as worries over inflation continue and spending plans lowered. We expect CCI and CSI to exhibit further weakness in CY12 on lingering global uncertainties. Beginning to see some shrinking in adex. The anticipated purse tightening by consumers will have a negative effect on adex spending as companies pull back on its advertising budget. We have seen some evident of adex slowdown in media companies 3Q11 results. For example, Media Prima and Stars revenue fell by -1.0%qoq and -17.1%qoq respectively.



MALAYSIA EQUITY RESEARCH Three major events to keep busy with We expect that there will be three events that will boost adex in CY12: (i) possible 13th General Election, (ii) the London Olympics, and (iii) European Championship 2012. We found that adex spending will normally increase during major sporting events. For example, Malaysian adex grew by 15.9%yoy to RM7.66b in 2010, which was a World Cup year. The possible 13th General Election will also lend short term support to adex as faster refresh of news cycle to captivate readers and viewers will convince companies to spend on adex during the run up to the election. that will moderate the pull back. We expect that the three major events mentioned above will moderate on any pullback of adex spending by companies. However, we do not foresee the adex growth to match that of 2010 as the World Cup factor was further buttressed by improving consumer sentiments. Such sentiments are now weakening due to global events. Hence, we are forecasting an adex growth of circa 7% to 8% in 2012. We maintain our NEUTRAL recommendation for MEDIA sector. For stock specifics, we have a NEUTRAL recommendation for both Media Prima (TP: RM2.80) and Star (TP: RM3.50). We believe that Media Prima will be in a better position to capture much of the adex due to its complete media platform.CONSUMER

CONSUMER (Fast-moving consumer goods & services) Budget 2012 supportive of consumer demand

Maintain NEUTRAL

CSI is weakening but retail figure outperformed. MIER consumer sentiment index (CSI) showed a declining trend with 3Q11 index slipped -7.1pts year-on-year to 108.7 points. In contrast, CSI inched up marginally on sequential basis by +0.8pts on the back of receding inflationary expectations. On the other hand, Retail Group Malaysia (RGM) has recently revised upwards its FY11 growth forecast for the retail industry to +6.5% from previous +6%. The revision was made due to better-than-expected result whereby sales for 2Q11 recorded a 9.1% growth (2Q10: 5.8%) bringing the 1H growth to 8.2%. Acceleration in inflation and food price. Inflation remained stable in Oct11 by recording growth of 3.4%yoy (refer table below). Our in-house economist suggested that inflation has peaked and is expected to continue easing in the coming months. Our in-house inflation outlook for FY11 and FY12 remain unchanged at 3.2% and 2.7% respectively. Meanwhile, food prices were on an uptrend registering 0.7%-ppts higher in Oct 11 to 5.7%mom. This was mainly attributed to higher commodity prices and rebound of USD against ringgit. Although commodity prices has started to wear-off, there are concerns of curtailment in operating margin growth engendered by the strengthening of USD. Budget 2012 to support moderate growth in FY12. Our GDP forecast for next year is expected to show moderation in output growth of only 4.8%yoy. We are anticipating recent announcements from Budget 2012 to support domestic economic activity moving forward. The introduction of the
INFLATION 2011 CPI (yoy %) Food & Nonalcoholic beverages (yoy %)
Source: Bloomberg, CEIC

Jan 2.4 3.6

Feb 2.9 4.7

Mar 3.0 4.7

Apr 3.2 4.9

May 3.3 4.5

Jun 3.5 4.7

Jul 3.4 4.9

Aug 3.3 4.6

Sept 3.4 5.0

Oct 3.4 5.7




CONSUMER-RELATED SHARE PRICES AGAINST KLCI INDEX Company KFC Holdings QSR Brands MSM Nestle Malaysia Fraser & Neave Parkson KLCSU Index FBMKLCI Index
Source: Bloomberg

1-mth (%) -2.1 4.6 -3.6 5.6 5.7 2.0 2.4 1.0

3-mth (%) -14.4 1.4 -11.4 7.3 9.2 -2.1 2.4 0.8

6-mth (%) -15.0 1.0 N.A. 9.2 -5.4 -3.1 -1.7 -4.6

1-year (%) -12.6 16.8 N.A. 21.1 21.7 4.1 2.7 -2.2

YTD (%) -14.4 1.9 N.A. 20.5 21.7 -1.4 2.9 -1.2

New Civil Service Remuneration Scheme (SBPA) will help to raise disposable income especially for the low income group hence upholds the purchasing power level of consumers. We reckon the efforts will continue to boost consumer aggregate demand especially in the retail sector. Most of the stocks under our coverage will be indirect beneficiaries from the recent budget announcement. Bursa Malaysia Consumer Index (KLCSI) gained +2.95%ytd, outperforming the benchmark FBM KLCI -1.2%ytd performance. Consumer stocks Nestle and F&N in particular have outperformed the benchmark index with stellar performance, charting +20.5% and +21.7% year-to-date respectively (refer table above). On the other hand, KFC Holdings has been underperforming the KLCI mainly attributed by its higher input costs and initial start-up costs in India. Maintain NEUTRAL. Given the mixed outlook for the consumer sector due to (1) current volatility in global economic outlook, (2) weakening consumer sentiment, and (3) appreciation of the greenback, we perceive earnings growth will be capped at this juncture. We continue to maintain our NEUTRAL stance on the sector due to its defensive nature. We retain our NEUTRAL call for F&N (TP: RM14.20), Nestle Malaysia (TP: RM47.35), KFC Holdings (TP: RM3.15) and QSR Brands (TP: RM5.25). Meanwhile, we have BUY calls for Parkson (TP: RM6.42) and MSM Holdings (TP: RM5.25) due to their attractive growth potential and dividend yield respectively.

TOBACCO Price discounting reduces illicit trade

Maintain NEUTRAL

Concern on rising of illicit trade. In 2010, the incidence of illicit trade fell by -3.2%yoy to 36.3% mainly due to the price discounting activities within the sub value-for-money (VFM) / cheap white cigarettes segment, i.e. cigarettes that were sold for as low as RM3.50 per pack, half the stipulated minimum price of RM7.00. However, given the stricter enforcement coupled with price discounting activities under control, the main challenge is that of rising threat of illicit trade. Price conscious smokers, who are used to buying sub VFM / cheap white cigarettes now decided to switch to smuggled products instead. As highlighted by JTI, the level of illicit trade remains relatively high at 36.3% in Wave 2 (from June11-Aug11) of the Confederation of Malaysian Tobacco Manufacturers (CMTM) findings(Wave 1: 37.3%).



MALAYSIA EQUITY RESEARCH Pardon from excise duty hike in Budget 2012, we anticipate stable total industry volume (TIV) in FY12f. We anticipate the TIV growth to be stable, up 3.2% in FY12f from a decline of -3.0% in FY11f. This is due to the absence of excise duty hike in the Budget 2012, which is the first reprieve in nine years. We believe the Government did not raise the excise duties due to the current high volume of illicit trade. However, long-term outlook remains cloudy. Despite being spared an excise duty hike in the Budget 2012, we believe that the long-term outlook for the industry remains cloudy. Going forward, we expect that excise duties for cigarettes will continue to rise given the health risks associated with the product. As such, we expect that once the Government has the illicit trade activity under control, the risk of hike in excise duty remains as the government could increase it anytime without coinciding with the next Budget announcement.
(%) 40.0 35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2005 2006 2007 2008 2009 2010 2011 2011 (Mar-May) (Jun-Aug) Wave 1 Wave 2 17.5 23.7 21.0 25.7

Illicit Trade
37.5 36.3 37.3 36.3

Maintain NEUTRAL. In view of the far from rosy operating environment for tobacco industry, we maintain our NEUTRAL recommendation for the sector. We reiterate our NEUTRAL on both BAT and JTI with target prices of RM44.84 (WACC: 10.2%) and RM6.00 (WACC: 10.9%) respectively based on DFC valuation. Our preference is on BAT over JTI given its higher dividend yield and consistent payout in excess of 90%.

UTILITY: POWER Lights getting dimmer

Maintain NEUTRAL

Tariff review remains uncertain. The implementation of next tariff review of Fuel Cost Pass Through (FCPT) mechanism is due on Dec11. Note that the adjustment for gas input price is scheduled for every six months, while the one-off adjustment for coal input price should take effect in Dec11. However, given the lack of political will coupled with uncertain global economic outlook, the visibility of electricity tariff adjustment may continue to remain cloudy. If one takes this into account, a tariff hike in Dec11 would mean the third increase within the space of six months. This would not endear to the voting public, as general election draws near. Electricity demand growth is expected to be softer for FY12. Tenaga indicated that demand for electricity in Peninsular Malaysia for Aug11 grew at 4.1%yoy while for Sep11 was at 4.5%yoy. This is above the average of 3.1% for the 12-month period (from Sep10 to Aug11). Tenaga guided the FY12f demand growth for electricity at 4.0%yoy based on (i) the growth in electricity



MALAYSIA EQUITY RESEARCH demand of last three months (from Jul11 until Sep11) which posted above 4.0%yoy level, and (ii) supported by the roll-out of projects under the Economic Transformation Programme (ETP) initiatives. Our projection is at a more conservative 2.7% given our house view of a softening domestic economic activities with FY12f GDP growth expected to decelerate to 4.8%. Coal price is tapering off. Since Sep11, the coal prices have been easing from USD120/MT to USD114/MT. Should the current downward trend in coal prices continues, Tenaga will benefit from lower cost of coal. However, Tenaga estimated the average coal price for FY12f to be at USD110/MT, i.e. 29 % higher than the prevailing coal reference price of USD85/MT, and similar coal requirements as in FY11. We are maintaining our average coal price for FY12f of USD110/ MT, which is in line with Tenagas estimate. Meanwhile, gas supply remains challenging in 1HFY12. Recall that since the Bekok C platform caught fire in Dec10, Tenaga had been unable to secure the required 1250mmscfd of gas to efficiently generate electricity from gas. Instead, it has had to generate electricity by using more alternative fuels (i.e. oil and distillate) other than coal. While gas supply from Bekok has been restored, overall gas supply is still erratic and Tenaga expects that it would not be able to secure the needed 1350mmscfd in FY12. Note that the agreement with the Government is such that Tenaga was to be allocated 1250mmscfd of gas between FY09 and FY11, with the gas supply to be restored to 1350mmscfd in FY12. As such, Tenaga expects to have to continue generating power from alternative fuels until the Melaka re-gasification plant is completed in midFY12. We estimate that Tenaga will only get 1050 mmscfd for 1HFY12 and up to 1200mmscfd for most of 2HFY12 as gas line outages is assumed to be fewer and will only see closer to the guaranteed gas levels of 1350mmscfd when the Melaka re-gasification is up. Power Purchase Agreement (PPA) renegotiation. The Power Purchase Agreement (PPA) renegotiations are longer than expected and Tenaga does not seem too optimistic on the outcome. The previous negotiations were primarily based on the idea of reducing annual capacity payment (CP) in exchange for an extension in concession period for the 1st generation of Independent Power Producer (IPP). However, this approach does not seem to be working and MyPower Corp is now considering other ways to restructure the power sector. However, according to Tenaga, the government is bidding its time to decide in order to let the existing PPAs to lapse without renewal, beginning with the 1st generation PPAs which expire in 2015. Based on this proposal, whenever Tenaga requires new power plant capacity, the IPPs will be allowed to submit their bids using their existing power plants or by proposing new plants. The

GWh 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 S08 S09 S10 S11 N J M M J N J M M J N J M M J

Total Demand






MALAYSIA EQUITY RESEARCH most competitive bidder will be allowed to provide the required power plant capacity for Tenaga. Maintain NEUTRAL. We are maintaining our NEUTRAL recommendation for power sector as we take a conservative view given the slower electricity demand growth, gas supply issues and uncertainty surrounding the implementation of FCPT due to insufficient political will. Meanwhile, we have a BUY recommendation for both our stocks, i.e. Tenaga and YTL Power, under our coverage.

UTILITY: WATER Trading opportunity in an election year?

Maintain NEUTRAL

Amongst the laggards. Water concessionaire stocks which used to be the darling of investors are no longer attractive. Puncak Niaga (TP: RM1.32) has fallen by 53%ytd, against the 2%ytd decline in FBMKLCI Index. We believe that most investors are not interested in the sector anymore pursuant to the deadlock of the proposed restructuring in Selangor water industry. Selangor asked for another international arbitration. Recently, Selangor State Government (SSG) has officially requested an international arbitration from the Federal Government to end the deadlock on the consolidation of Selangor water industry. We believe that the arbitration proceedings are still in its early stages hence the consolidation of Selangor water industry will not reach a concrete solution anytime soon. Election is the key. As the deadlock in the Selangor water industry is a result of political disagreements, we believe General Election is the only hope for Selangor water industry to reach a workable solution. It is rumored that the General Election will be held next year. Hence should Federal government party, Barisan Nasional (BN), wins back the Selangor state in this upcoming election, we believe that this will unlock Puncaks value after being one of the most laggard stocks in Bursa Malaysia. While the proposed restructuring in Selangor water industry will likely to happen if BN wins back Selangor, this will also result in the scheduled water tariff hike to resume hence returning Puncaks earnings to profitability. On the flipside, should the current state government prevails, we believe the deadlock will be dragged on indefinitely. NEUTRAL on the sector, TRADING BUY on Puncak due to cheap valuation. As the deadlock in Selangor water industry remains questionable, we maintain our NEUTRAL call for the sector. Nonetheless, due to its very cheap valuation, we have a TRADING BUY on Puncak Niaga with a target price of RM1.32. We believe that there is a trading opportunity for this stock as investors have overreacted on the issue of water industry consolidation in Selangor. Our target price is calculated by using DCF valuation model based on WACC of 8.0%.

AVIATION Expect a slight reduction in headwinds

Maintain NEUTRAL

High fuel price will drop. albeit slightly. After a better than expected 1H11 passenger growth, the International Air Transport Association (IATA) had raised its CY11 net profit forecast for the global airline industry to USD6.9b from USD4.0b forecasted in June11. Nevertheless, the latest net profit forecast still showed a -56.3%yoy drop as high fuel price continued to plague to industry. IATA is projecting an average CY11 jet kerosene price of USD126.50pb, only 20 cent short of the peak in CY08. We expect jet kerosene price to moderate in CY12 to circa USD110-115pb,



MALAYSIA EQUITY RESEARCH in line with our house view of a lower WTI crude oil price. IATA is projecting average fuel price to fall to USD115pb. This should give some respite for airlines which had been struggling with the high fuel cost. Revenue will not be sufficient to outpace cost. We do not expect the slightly lower fuel price to have a significant impact considering that it is still on a high side. Hence, we are not surprised that IATA is projecting airlines CY12 net profit to fall by -29.0%yoy. However, it will not be due to lower passengers given global traffic is expected to rise by +4.6%. This suggests that airlines are expected to confront with lower yields in CY12, which will not be sufficient to keep pace with the rising cost. Global airline revenues are expected to grow by +6.4%yoy to USD632b, while expenses are to grow by +6.9%yoy to USD620b. In absolute amount, Asia is projected once again be the most profitable. Asia Pacific airlines are expected to be the most profitable, contributing 46% of the total industry profits in CY11 and 47% of the profits in CY12. However, its net profits are still expected to drop by USD200m in CY12. Differing circumstances for Malaysias two main airlines. MAS are currently struggling to lift its revenue and the expected fall in yields will add to its predicament. MAS fuel cost as a percentage of total revenue was 41.1% in 3Q11 as compared to 31.4% in 3Q10. Comparatively, Singapores SIA 3Q11 fuel cost to revenue ratio was 38.6%, suggesting that MAS revenue did not expand enough. On the other hand, AirAsias business model seems resilient even in
Global Airlines Net Profit, and Revenue (USD'billion)
20.0 15.0 10.0 6.9 5.0 0.0 -5.0 -5.6 -10.0 -11.3 -15.0 -200 -20.0 -300 -25.0 -26.1 -30.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F Net profit (LHS) Revenue (RHS) -500 -400 -7.5 5 4.9 400 300 200 -4.1 100 0 -100 14.7 15.8 700 600 500


Global Airlines Total Expenses (USD billion) & Average Jet Kerosene Price (USD/barrel)
700 140













0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011F 2012F

Expenses (LHS)

Jet kerosene price (RHS)



MALAYSIA EQUITY RESEARCH difficult situation. A measure of yield, RASK, improved by +2.5%yoy to 16.59 sen. While cost, as measured by CASK, in 3Q11 grew +5.0%yoy to 12.7 sen, but CASK excluding fuel declined by -14.9%yoy to 6.2 sen suggesting its low cost business model can moderate the impact of high fuel price. Higher global traffic will be good for airport. We believe that being an airport operator, MAHB will be able to weather the storm facing the aviation industry as it does not have to deal with the high fuel price. MAHB saw strong growth in passenger and aircraft movement in 9MFY11 where it grew by +12.0%yoy and +9.6%yoy respectively. We expect MAHB will see another year of strong traffic growth in CY12, riding on the higher global air traffic. Maintain NEUTRAL. We expect that MAS woe will continue in 1H12 but with the network configuration and better cost management, should see improvement in 2H12. Given that the global uncertainty is expected linger, at least until 1H12, we maintain our NEUTRAL view of the sector. However, we opine that AirAsia will continue to defy the industry trend and will continue to operationally perform well. We have a BUY recommendation for MAHB (TP: RM7.30) and TRADING BUY for AirAsia (TP: RM4.20). As for MAS (TP: RM1.35), we attached a NEUTRAL call on the stock.

BUILDING MATERIALS STEEL... Steel waiting for the recovery Maintain NEUTRAL

Weaker steel demand... After 3 consecutive months of decline, global steel output managed to inch up by mere 0.3%mom in October this year. Worlds steel utilization rate fell to 79.1% in September, against 81.4% in January this year. We believe that the slower overall demand was dragged by (i) weaker demand growth in China, and (ii) mounting concern on global economic outlook following the unresolved European debt crisis. China, the worlds biggest steel producer, saw weakening steel demand since mid-year as its crude steel production fell by 9% to 54.7mmt in October from 59.9mmt in June 2011. as China economy slows down. Our economist expects Chinas GDP to soften to around 8.9% in 2012 from 9.3% in 2011. According to the latest number, Chinas home prices fell by 0.28%mom in November.This is the third month of decline as developers started to cut prices to boost sales. Chinese government tightened its real estate market by raising down-payment and mortgage requirements and imposing home purchase restrictions in about 40 cities this year. As a result, global steel products and raw material prices fell sharply in the last two months. For instance, long steel products namely billet and steel bar prices have fallen by -9.3% and -11.9% respectively since the last two months. Meanwhile raw material prices, i.e. iron ore and scrap metals, were also down by -14% and -13% respectively in the last two months. Weaker steel prices outlook. Going forward, we believe steel prices are unlikely to recover next year due to: (i) there is no certainty that China property market will recover soon, and (ii) weakening in demand particularly from developed economy following rising concern over prospects of global recession amidst unresolved European debt crisis. Domestic market is a catalyst? Given gloomy export outlook, most Malaysian steel players can only depend on the domestic market. There are few mega projects under ETP and 10MP such as KL International Financial District, Klang Valley MRT, and KLIA2 which could drive steel consumptions next year. Apart from that, the ongoing projects such as Second Penang Bridge


MALAYSIA EQUITY RESEARCH and LRT Extension will also continue to help drive steel demand next year. Investment in new facilities to counter rising production costs. As most steel players expect raw material prices and other operating costs to remain volatile in tandem with the uncertainties in global economy, they are now expediting their plan to construct new facilities to counter such challenges (see table below). Steel players new facilities to counter rising costs
Steel producer New Facilities Commissioned its integrated Blast Furnace (BF) in 16 October 2011 which to reduce electricity costs and switch its feedstock to iron ore or scraps metal whichever is cost effective to produce long steel. Close to secure iron ore mining concession in Terengganu. In the midst of completing its pelletization plant. Waiting for shareholders agreement to approve the corporate guarantee for funding to continue the construction works of its fully integrated BF. Next meeting will be at 2nd March 2012. Will begin work on the first phase of its integrated steel complex in Kemaman from December 2011. The steel complex comprises a BF facilities that capable of producing 700,000 mt of steel slabs and 350,000 mt of coke per year Secured 600ha iron ore mining concession in Bukit Besi Terengganu
Source: Various

Ann Joo Resources

Perwaja Holdings (Kinsteels subsidiary) Lion Industries (through JV of Lion Diversified and Lion Forest) Hiap Teck Ventures (through 55% owned Eastern Steel)

Maintain NEUTRAL. The share price of steel companies has been falling since January this year. Year-to-date, stocks under our coverage namely Lion Industries, Ann Joo Resources and Kinsteel have all plunged by -32%, -36% and -40% respectively, which are way below than the decline of -2% in FBMKLCI. As global economic outlook is rather cloudy coupled with impending slowdown in China economy, we do not expect steel stock prices to recover significantly next year. Hence, we maintain our NEUTRAL call for Steel prices (USD'mt) 1200 the sector. We have NEUTRAL calls on both 1000 Kinsteel (TP: RM0.51) and Ann Joo Resources 800 (TP: RM1.78), and have 600 recently upgraded Lion Industries to NEUTRAL 400 from TRADING SELL 200 with an unchanged target price of RM1.14 0 due to its recent price retracement.
Dec-06 Oct-07 Dec-07 Oct-08 Dec-08 Oct-09 Dec-09 Oct-10 Dec-10 Apr-07 Apr-08 Apr-09 Apr-10 Aug-07 Aug-08 Aug-09 Aug-10 Apr-11

East Asia Billet

East Asia ReBar

Scrap metals
















CEMENT... Price war continues

Maintain NEUTRAL

Price war occurred in 4Q11 and to continue in 2012. As we mentioned in our 4Q11 outlook report, slower infrastructure jobs coupled with weak property demand has led cement players to stiff price competition in 4Q11. Most cement players are now offering rebates of up to RM40pmt for their cement products in order to secure cement orders. This is 12% lower than the current average selling price of RM320/mt. Going forward, we believe that the price war will continue in 2012 given the fact that domestic cement industry is facing overcapacity. Certain cement players are trying to increase their market share by offering rebates to their customers. Healthy demand next year driven by infrastructure jobs... We reaffirm our view that domestic cement demand shall continue to grow, driven by major projects under ETP and 10MP, i.e. Klang Valley MRT, KL Financial District, Iskandar development, and other infrastructure-related projects. Slow property market would affect cement demand. As our property analyst expects property market to be slower next year, the cement industry, which is highly dependent on the property market performance, will likely to be affected. This is supported by figure from Bank Negara Malaysia which shows Malaysias housing approval fell by -19% in October this year. As such, we are lowering our cement demand forecast from 8% to 4.5% or 21.9mmt for 2011. Stabilized coal price may not improve margins. Coal price has been stabilizing recently, and in fact declined by 12%ytd to USD111 pmt. Nonetheless, we do not expect margins for cement players to improve as rebates offered by cement players will offset the decline in coal price. We are lowering our coal price assumption by 7% to USD110 pmt in 2012 from USD120 pmt previously.
Cement Production ('000 mt)





89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11E
Source: BNM Statistical Bulletin

We are reiterating our NEUTRAL call for cement sector. Despite price competition and slower property market, earnings prospects remain positive next year on the back of higher demand from major infrastructure projects under ETP and 10MP. Nonetheless, given its expensive valuation, we have a NEUTRAL call for Lafarge Malayan Cement with an unchanged Target Price of RM5.93. Our target price for Lafarge is pegged at its 5-year historical average of PE multiple of 16x.




TIMBER... Diminishing Japan factor

Maintain NEUTRAL

Plywood demand dropped sharply due to high buyers inventory. According to Japan Lumber Reports, plywood imports in September dropped sharply by 36%mom and 25%yoy respectively to 202,300m3. As mentioned in our 4Q11 outlook, this situation was engendered by the high level of buyers inventory after a surge in orders pursuant to the earthquake of March 2011. Reconstruction works to support demand next year. We reaffirm our view that the reconstruction works will only start next year as the Japanese government is still in the midst of planning out the reconstruction efforts. Hence, we expect plywood demand to be stronger next year. This is underpinned by: (i) recent news reports that Japans parliament has passed a USD157b budget to pay for bulk of the rebuilding costs from the March earthquake, and (ii) new Prime Minister Japan Noda pledged in his press statement that despite the countrys economic problems of faltering growth, huge debt burden and rising Yen against USD, his single greatest mission for now will be to further expedite the reconstruction efforts. Japans housing starts rebounded slightly. In October, Japans housing starts rebounded by 5%mom after a sharp decline of -22%mom in September this year. The supply of homes has started to catch up after the March earthquake and from the negative effect of the termination of house eco-point system. We expect log prices to stabilize next year. In October, average plywood and log prices were trading at USD270m3 and USD570/m3, an increase of 40%yoy and 35%yoy respectively. This was mainly attributed to the sudden huge order from Japanese contractors after the deadly earthquake in March 2011 coupled with adverse weather condition during 1HFY11. We expect the log and plywood prices to remain stable at USD260pm3 and USD554pm3 respectively in 2012 given: (i) stable demand coming from Japan, (ii) normal weather condition in Sarawak next year (according to Meteorological Department). Weak external environment may affect the overall industry growth. Despite the industry fundamentals to remain intact next year, timber industry is highly correlated to the external environment. The prospect of global economic slowdown next year might negatively impact the overall industry. On average, timber players log production declined by more than 90% in the last recession (May 2008 to January 2009). In light of this, our NEUTRAL call for the sector is thereby maintained.
60% 120












Japan Housing Start (RHS)





FYE CONSTRUCTION IJM WCT Gamuda Naim HSL MRCB Ahmad Zaki TM Axiata Maxis Digi MEDIA M Prima Star Unisem Globetronics PLANTATION Sime Darby IOI KLK Genting Plant Kulim IJM Plant TH Plant Sarawak Plant TSH Res. TOBACCO BAT JT Intl GLOVE Top Glove Kossan Hartalega HEALTHCARE KPJ Faber KFC QSR AEON Parkson F&N Nestle MSM BANKING AMMB Maybank Public Bank RHB Capital Hong Leong CIMB AFG Mar Dec Dec Dec Jun Dec Mar NEUTRAL NEUTRAL NEUTRAL BUY NEUTRAL NEUTRAL BUY 5.94 8.30 12.54 7.31 10.46 7.14 3.55 6.03 8.80 9.20 10.50 7.50 3.84 1,008.7 1,342.8 1,478.9 3,818.2 4,450.3 4,684.2 3,611.0 1,420.3 1,549.3 1,658.8 988.0 301.4 1,134.9 1,504.3 409.2 454.2 3,520.8 3,869.0 4,091.9 34.7 53.9 87.2 66.0 68.2 47.4 19.6 44.7 59.5 95.0 71.0 78.1 52.1 26.7 49.0 63.0 102.0 75.7 80.0 55.1 29.0 9.8 >100 19.0 18.3 13.6 19.2 32.2 28.8 10.4 8.9 7.6 14.5 9.8 36.2 9.6 5.9 7.4 6.6 2.4 5.8 8.6 17.1 15.4 14.4 11.1 15.3 15.1 18.1 13.3 13.9 13.2 10.3 13.4 13.7 13.3 12.1 13.2 12.3 9.7 13.1 13.0 12.2 Dec Dec Dec Dec Dec Jun Sep Dec Dec BUY NEUTRAL NEUTRAL NEUTRAL NR BUY NEUTRAL NEUTRAL BUY 4.21 1.50 3.34 5.89 7.10 5.62 18.16 51.90 5.00 4.60 1.52 3.15 5.25 7.60 6.42 14.20 47.35 5.25 118.9 78.8 156.8 110.2 158.0 284.4 694.1 391.4 232.9 129.3 23.5 144.4 120.1 164.3 346.1 383.1 489.2 263.5 144.6 68.2 178.7 132.3 175.9 421.5 320.1 515.1 295.0 20.7 21.7 19.8 37.9 45.0 27.4 192.5 166.9 33.1 22.3 6.5 18.2 40.7 46.8 33.4 106.9 208.6 37.5 25.0 18.8 22.5 44.9 50.1 40.7 88.8 219.7 42.0 7.2 -4.8 >100.0 16.1 18.4 -48.6 11.3 -1.9 7.8 11.8 20.3 6.9 16.9 15.5 15.8 20.5 9.4 31.1 15.1 18.9 23.2 18.3 14.5 15.2 16.8 17.0 24.9 13.3 16.9 8.0 14.8 13.1 14.2 13.8 20.4 23.6 11.9 -70.2 >100.0 -8.1 7.5 4.0 21.9 25.0 13.3 23.8 10.2 7.1 21.9 -16.9 5.3 12.0 Aug Dec Mar SELL BUY BUY 4.61 3.12 5.63 3.29 3.59 6.36 245.2 118.2 143.1 113.1 97.1 191.0 145.3 114.9 210.4 39.7 36.9 39.4 18.3 30.4 52.5 23.5 35.9 57.8 38.5 76.9 69.5 -53.9 -17.7 33.3 28.5 18.3 10.2 11.6 8.5 14.3 25.2 10.3 10.7 19.6 8.7 9.7 Dec Dec NEUTRAL NEUTRAL 46.50 6.40 44.84 731.10 6.00 133.80 737.50 139.60 744.80 256.05 258.29 260.85 150.40 51.16 53.38 57.51 -2.1 24.8 0.9 4.3 1.0 7.7 18.2 12.5 18.0 12.0 17.8 11.1 Jun Jun Sep Dec Dec Mar Dec Dec Dec BUY NEUTRAL NEUTRAL NEUTRAL NEUTRAL NEUTRAL BUY NEUTRAL NEUTRAL BUY 9.00 5.01 21.50 8.13 3.65 2.60 2.14 2.30 5.10 2.00 11.00 4.72 8.87 3.20 2.71 2.51 2.36 3.41 2.25 726.8 3,664.5 4,002.7 12.1 30.4 95.0 42.8 67.8 11.0 18.3 12.3 34.5 20.8 61.0 34.6 147.2 58.3 45.7 18.4 23.1 22.2 38.1 30.6 66.6 36.2 123.5 55.1 36.7 21.7 26.3 24.3 43.2 38.5 -68.1 >100.0 88.5 65.2 37.4 -36.2 66.1 -12.8 48.2 17.6 13.9 55.0 36.3 66.8 26.3 80.7 10.4 47.3 9.2 4.5 -16.1 -5.5 -19.7 18.1 13.7 9.5 13.4 25.7 74.4 16.5 22.6 19.0 5.4 23.6 11.7 18.7 14.8 9.6 14.8 14.5 14.6 14.0 8.0 14.2 9.3 10.4 13.4 6.5 13.5 13.9 17.4 14.8 9.9 12.0 8.1 9.5 11.8 5.2 2,035.7 2,222.9 2,322.3 324.2 363.4 79.5 89.5 34.4 148.2 85.1 442.2 577.0 147.2 117.7 62.1 165.4 127.2 417.8 463.4 173.9 133.8 68.0 187.6 159.9 Dec Dec Dec Dec NEUTRAL NEUTRAL NEUTRAL NEUTRAL 2.57 3.21 1.03 0.88 2.80 3.50 0.95 0.90 261.5 190.2 183.0 3.1 177.5 190.9 61.8 28.8 223.2 200.3 127.4 24.0 25.8 25.7 27.0 11.3 16.7 25.8 9.2 10.8 21.0 27.1 18.9 9.0 13.6 31.2 -35.3 0.6 25.7 4.9 10.0 12.5 3.8 7.8 15.4 12.4 11.2 8.2 12.2 11.8 5.5 9.8 Mar Dec Jul Dec Dec Dec Dec Dec Dec Dec Dec NEUTRAL NEUTRAL NEUTRAL NEUTRAL NEUTRAL NEUTRAL TRDG SELL NEUTRAL BUY NEUTRAL BUY 5.91 2.14 3.06 1.68 1.30 1.94 0.67 4.32 5.10 5.50 3.52 5.65 2.20 3.20 1.77 1.44 1.94 0.54 4.45 5.85 5.50 3.40 321.3 141.1 425.4 99.9 73.6 67.3 -61.3 1,245.0 442.4 160.9 445.8 73.4 86.4 80.5 15.2 848.2 527.1 196.8 451.0 90.9 97.2 121.4 22.5 817.1 23.9 16.4 21.0 42.2 13.3 6.3 -22.1 33.9 21.0 30.6 32.2 20.0 21.6 29.4 14.8 5.8 5.5 23.7 33.5 28.6 145.1 38.3 24.5 21.8 36.4 16.7 8.8 8.1 22.8 37.4 30.0 156.6 1.9 -12.6 >100.0 17.7 29.8 79.0 34.6 21.9 2.8 -30.4 11.5 -7.8 19.1 22.3 1.2 23.8 12.5 50.8 48.0 -3.7 11.7 4.9 7.9 24.7 13.0 14.6 4.0 9.8 30.8 n.a. 12.7 24.3 18.0 2.3 18.4 10.7 14.2 5.7 8.8 33.4 12.2 18.2 15.2 19.2 2.4 15.4 8.7 14.0 4.6 7.8 22.2 8.2 18.9 13.6 18.3 2.2 Rec. Price (RM) Target Price Net Profit (RM m) FY10 FY11F FY12F EPS (sen) EPS (% chg) MALAYSIA EQUITY RESEARCH PER FY11F FY12F FY10 FY11F FY12F FY10 FY11F FY12F FY10

-394.3 >100.0 85.2 -4.5 12.3 17.7 -30.1 59.4 -6.5 -4.2

TELECOMMUNICATIONS 2,116.6 2,834.1 3,165.8 2,295.0 2,146.9 2,252.0

1,178.0 1,128.0 1,217.2 151.5

SEMICONDUCTOR >100.0 -66.0 >100.0 86.2 -4.7 -16.7

18.90 1,196.1 1,571.4 1,318.2

>100.0 -32.6

Swak Oil Palm Dec

CONSUMER (F&B, Retail)

>100.0 -44.5

13.00 3,048.2 3,345.1

Source: Company, MIDF Research



DPS MALAYSIA FY10 9.3 6.9 11.3 10.0 3.4 1.1 2.6 26.1 10.0 40.0 163.0 10.0 75.0 8.0 5.2 10.0 17.0 37.5 7.1 1.0 5.0 9.4 8.0 2.0 6.0 240.0 22.5 16.0 9.2 20.0 10.1 6.0 7.5 14.0 13.5 6.0 41.3 166.9 12.3 9.4 41.3 45.5 20.0 18.0 26.1 6.4 FY11F 9.2 7.8 11.3 10.0 1.9 1.1 1.9 28.0 13.0 40.0 145.0 14.0 20.0 2.5 4.0 27.0 12.8 40.0 8.0 2.0 8.0 7.9 8.6 2.3 7.0 240.0 32.5 11.0 7.6 26.3 11.4 1.3 7.5 16.5 14.0 15.0 62.0 208.6 14.1 18.0 45.0 39.0 21.0 18.0 23.3 7.0 FY12F 9.2 9.5 11.3 10.0 1.9 1.8 2.8 28.0 15.0 40.0 182.0 12.0 20.0 2.5 4.0 30.0 13.0 50.7 9.0 2.0 8.8 5.9 10.9 2.2 8.0 242.0 42.5 9.4 9.0 25.5 12.8 3.8 8.0 13.7 15.0 18.3 44.0 219.7 15.7 15.0 28.5 42.0 22.5 18.0 24.8 8.0

Yield (%) EQUITY RESEARCHPBV FY10 1.6 3.2 3.7 6.0 2.6 0.6 3.9 6.0 2.0 7.3 46.3 3.9 23.4 7.8 5.9 1.1 3.4 1.7 0.9 0.3 1.9 4.4 3.5 0.4 3.0 5.2 3.5 3.5 2.9 3.6 2.4 1.6 2.2 2.4 1.9 1.1 2.3 3.2 3.7 1.6 5.0 3.6 2.7 1.7 3.7 1.8 FY11F 1.6 3.6 3.7 6.0 1.5 0.6 2.8 6.5 2.5 7.3 41.2 5.4 6.2 2.4 4.5 3.0 2.5 1.9 1.0 0.5 3.1 3.7 3.7 0.4 3.5 5.2 5.1 2.4 2.4 4.7 2.7 0.9 2.2 2.8 2.0 2.7 3.4 4.0 4.2 3.0 5.4 3.1 2.9 1.7 3.3 2.0 FY12F 1.6 4.4 3.7 6.0 1.5 0.9 4.2 6.5 2.9 7.3 51.7 4.7 6.2 2.4 4.5 3.3 2.6 2.4 1.1 0.5 3.4 2.8 4.8 0.4 4.0 5.2 6.6 2.0 2.9 4.5 3.0 2.5 2.4 2.3 2.1 3.3 2.4 4.2 4.7 2.5 3.4 3.3 3.1 1.7 3.5 2.3 FY11

BV / share (RM) 3.71 1.73 1.79 3.13 0.67 0.95 0.67 1.87 2.25 1.07 1.60 1.32 1.41 1.59 0.94 4.00 1.87 6.37 4.03 3.03 1.61 1.08 1.93 2.55 2.01 1.76 1.63 1.78 1.53 1.45 1.42 1.26 1.30 3.18 3.43 2.04 4.08 2.26 2.04 3.54 4.21 3.72 4.63 4.67 3.13 2.17

Net margin (%) 8.6 8.3 15.9 16.3 15.1 6.3 n.a. 14.2 13.5 25.9 21.8 16.9 17.9 13.1 1.1 1.7 12.6 16.1 32.8 6.6 15.7 24.5 10.1 20.3 9.4 18.4 11.1 11.8 11.3 19.5 7.2 8.9 6.2 3.6 5.5 9.7 19.1 9.7 5.3 n.m. n.m. n.m. n.m. n.m. n.m. n.m.

ROA (%) ROE (%)

No of shares (m) 1,375.4 804.5 2,065.5 250.0 582.7 1,386.1 276.8 3,577.4 8,464.1 7,500.0 777.5 1,063.6 738.6 674.2 267.6 6,009.5 6,422.1 1,067.5 758.8 1,262.0 801.7 508.7 280.0 434.0 415.4 285.5 261.5 618.5 319.7 363.8 579.3 363.0 793.3 294.8 351.0 1,093.7 360.3 234.5 703.0 3,014.2 7,478.2 3,531.9 2,204.8 1,879.9 7,432.8 1,548.1

Market 52-week Price cap (RM High (RM) Low (RM) m) 8,128.8 1,721.7 6,320.4 420.0 757.5 2,689.0 185.4 15,454.4 43,166.7 41,250.0 2,736.8 2,733.6 2,370.8 694.4 235.5 54,085.2 32,174.5 22,951.4 6,169.4 4,606.4 2,084.5 1,088.7 644.0 2,213.5 830.7 13,277.1 1,673.8 2,851.3 997.6 2,048.2 2,438.8 544.5 2,649.5 1,736.2 2,492.1 6,146.5 6,542.9 12,170.6 3,514.9 17,904.3 62,069.2 44,290.4 16,117.2 19,663.8 53,070.0 5,495.8 6.82 3.63 4.26 3.90 1.93 2.60 1.34 4.50 5.22 5.69 33.58 3.04 3.67 2.32 1.26 9.49 6.16 22.98 9.06 4.00 3.24 2.28 2.78 4.55 3.25 49.61 7.38 5.88 3.47 6.08 4.72 1.77 4.62 6.58 7.82 7.73 19.70 50.20 6.10 7.18 9.38 13.60 10.40 13.25 9.17 0.00 4.38 1.85 2.63 1.58 1.22 1.48 0.59 3.08 4.40 5.16 23.88 2.00 3.07 0.98 0.83 7.64 4.26 17.24 6.55 2.20 2.38 1.49 2.15 2.82 2.12 42.70 5.60 3.85 2.48 4.85 3.43 0.87 3.13 4.83 5.48 4.88 12.95 42.02 3.50 5.30 7.35 11.68 6.53 8.64 6.56 0.00

1.6 1.2 1.7 0.5 1.9 2.0 1.0 2.3 2.3 5.2 2.2 1.9 2.3 0.6 0.9 2.3 2.7 3.4 2.0 1.2 1.6 2.0 1.2 2.0 1.0 26.4 3.9 2.6 2.0 3.9 3.0 1.2 2.6 1.9 2.1 2.8 4.4 22.9 2.1 1.7 2.0 3.4 1.6 2.2 2.3 1.6

3.5 3.1 5.9 9.5 12.6 1.5 n.a. 6.0 5.6 12.6 22.9 11.7 13.9 10.0 1.0 8.6 11.3 17.1 9.2 3.9 9.8 8.1 5.0 8.9 4.6 46.6 27.9 17.9 15.2 22.5 7.1 8.0 9.9 4.6 7.1 3.9 23.4 22.0 11.3 0.9 0.9 1.3 1.1 0.7 1.3 1.0

6.8 9.2 11.5 13.5 21.3 5.1 n.a. 15.8 10.4 26.5 87.5 20.9 18.4 17.1 1.3 14.8 18.1 24.8 10.9 6.6 11.3 13.1 6.7 13.5 10.1 149.1 34.3 22.0 26.6 28.9 13.8 15.3 15.6 7.1 14.0 8.4 38.6 63.8 16.3 9.5 11.8 22.3 14.2 13.2 14.5 10.2



MIDF RESEARCH STOCK UNIVERSE as at 30 November 2011 (cont'd)

FYE Rec. Price (RM) Target Price Net Profit (RM m) FY10 113.0 146.0 48.2 118.3 118.2 136.2 284.1 940.9 172.0 56.0 350.8 118.1 688.2 251.8 194.5 108.7 237.3 1,066.9 293.9 137.4 30.4 682.0 242.7 86.0 30.9 3,201.9 344.9 218.9 512.4 229.7 142.1 119.9 -35.4 361.5 291.2 269.1 24.4 75.0 31.0 102.1 119.5 26.3 FY11F FY12F


FY10 FY11F FY12F FY10 FY11F FY12F FY10 FY11F FY12F

FINANCE Bursa MBSB INSURANCE MNRB OIL & GAS Dialog Group KNM Kencana Pet. Pnas Chem MMHE Petronas Gas Sapura Crest Wah Seong Bumi Armada PROPERTY Mah Sing Sunway Bhd SP Setia UEMLand IJM Land MAS AirAsia MAHB NCB Century MISC Maybulk LITRAK SILK UTILITIES Tenaga YTL Power MMC AUTO Proton UMW Tan Chong MBM Res. Ann Joo Kinsteel Lion Lafarge MCt YTL Cement Jaya Tiasa Ta Ann WTK Lingui WATER Puncak Niaga PBA Dec Dec TRDG BUY NR 1.12 0.93 1.32 1.16 -117.7 36.4 113.0 34.9 29.1 8.0 -28.6 11.0 27.5 10.5 -16.9 -198.5 >100 >100 37.4 -4.1 3.9 11.6 n.a. 8.5 4.1 8.8 Mar Dec Dec Dec Dec Dec Jun Dec Jun Apr Dec Dec Jun NEUTRAL NEUTRAL NEUTRAL BUY NEUTRAL NEUTRAL NEUTRAL NEUTRAL NR NR NR NEUTRAL NR 3.04 6.68 4.35 3.30 1.84 0.51 1.34 6.94 4.46 6.33 5.18 1.29 1.25 2.70 6.90 4.50 3.60 1.78 0.51 1.14 5.93 4.72 7.79 7.15 1.11 1.91 155.6 632.2 256.2 137.8 58.3 -27.5 232.1 265.0 331.0 130.7 159.5 64.1 98.8 75.6 725.6 305.4 163.5 147.5 45.3 109.3 314.7 354.0 170.3 171.5 69.2 109.5 39.9 43.9 34.2 58.5 23.9 -3.4 50.9 34.8 54.4 8.6 24.3 7.1 3.6 28.3 54.1 38.1 56.7 11.1 -2.8 32.3 31.2 66.3 46.2 51.6 14.6 15.0 13.8 62.1 45.4 67.3 28.2 4.6 15.2 37.0 70.9 60.3 55.5 15.8 16.6 >100 26.8 46.0 >100 >100 >100 >100 -29.1 39.6 72.5 1.1 >100 >100 -28.9 23.4 11.5 -3.0 -51.4 14.8 19.2 18.7 7.6 15.2 12.7 5.6 7.7 n.a. 2.6 20.0 8.2 73.4 21.3 18.2 35.2 10.7 12.3 11.4 5.8 16.5 n.a. 4.1 22.3 6.7 13.7 10.0 8.8 8.3 22.1 10.8 9.6 4.9 6.5 11.1 8.8 18.7 6.3 10.5 9.3 8.2 7.5 Aug Jun Dec NEUTRAL BUY N.R 5.65 1.84 2.53 6.70 2.50 3.31 499.5 315.3 2,399.6 430.3 58.7 16.6 11.3 9.2 18.1 10.4 44.0 18.4 14.1 >100 46.2 46.8 -84.4 9.2 -8.6 >100 1.8 36.5 9.6 11.1 22.3 61.7 10.2 24.4 12.8 10.0 17.9 1,208.8 1,319.6 1,343.6 Dec Dec Oct Dec Mar Dec Dec Dec Dec Dec Dec Dec Mar Jul NEUTRAL NEUTRAL NEUTRAL NEUTRAL NEUTRAL NEUTRAL TRDG BUY BUY NEUTRAL BUY NEUTRAL TRDG SELL BUY BUY 1.89 2.36 3.84 2.20 2.11 1.40 3.69 6.19 3.78 1.68 5.88 1.54 3.41 0.26 1.71 2.28 3.90 2.14 2.10 1.35 4.20 7.30 3.75 2.00 5.40 1.39 4.07 0.46 166.6 333.2 326.5 218.2 217.7 207.8 409.0 362.0 282.8 184.0 14.2 44.4 24.7 6.0 9.8 7.3 38.5 26.8 29.2 33.6 17.7 23.8 17.2 5.7 20.0 25.8 18.3 5.0 15.7 -46.6 23.0 33.9 25.5 37.7 49.9 11.2 19.5 -0.8 25.0 31.6 20.3 6.5 13.3 -19.1 32.2 37.8 24.5 38.9 -5.8 11.0 25.7 8.0 14.4 n.a. >100 81.8 65.3 41.1 -41.9 -25.8 -15.9 60.0 24.7 22.7 10.9 29.6 -15.5 59.0 40.3 11.5 -4.1 3.2 -1.2 32.1 13.3 5.3 15.5 36.7 21.5 19.2 9.6 23.1 12.9 5.0 33.2 6.5 19.8 4.5 9.4 9.2 20.9 43.6 13.5 n.a. 16.1 18.3 14.8 4.5 11.8 13.8 17.5 n.a. 7.6 7.5 18.9 33.6 15.9 n.a. 11.4 16.4 15.5 4.3 n.a. 14.0 13.2 3.2 Jun Dec Jul Dec Dec Dec Jan Dec Dec BUY SELL BUY NEUTRAL NEUTRAL BUY NEUTRAL BUY NEUTRAL 2.39 0.99 2.65 5.99 5.60 13.20 4.27 2.02 4.04 2.80 0.85 2.70 5.60 5.28 14.40 3.90 2.66 3.25 152.3 -90.7 223.1 343.1 231.0 128.1 328.1 194.7 122.0 281.1 375.7 280.0 130.5 519.0 5.9 11.8 6.8 37.4 28.2 47.5 13.4 7.4 12.0 7.6 -9.1 11.2 43.9 21.4 72.7 18.1 17.0 11.2 9.8 12.2 14.1 43.7 23.5 79.5 21.9 17.3 17.7 25.8 -12.6 n.a. 64.3 1.3 36.3 -13.9 29.3 65.0 17.4 -24.0 53.1 35.0 -6.6 27.8 26.0 -0.6 9.5 9.3 21.2 1.9 58.2 40.5 8.3 39.0 16.0 19.9 27.8 31.9 27.3 33.7 31.3 n.a. 23.6 13.6 26.1 18.1 23.6 11.9 36.1 24.5 8.1 18.7 13.7 23.8 16.6 19.5 11.7 22.8 -88.8 -176.8 >100 Mar NR 2.65 2.81 64.9 64.9 22.6 30.5 30.5 83.7 34.8 0.0 11.7 8.7 8.7 Dec Dec NEUTRAL BUY 6.57 1.66 5.90 1.84 144.2 327.0 130.2 356.4 21.3 20.9 27.1 26.9 24.5 29.3 -36.8 >100 27.4 29.0 -9.7 9.0 30.8 8.0 24.2 6.2 26.8 5.7

2,994.0 3,513.0 3,493.0 1,439.3 1,573.5

-53.7 >100.0

TRANSPORT (Aviation, Ports, Logistics, Shipping, Toll) -1,557.6 -638.0 638.6 373.0 119.9 31.7 2,227.4 111.6 98.4 -3.3 895.8 415.9 115.0 32.7 -257.4 110.3 130.0 31.9 -64.5 -738.4 86.9 -15.9 -2.7 22.2 -48.9 -2.2 -16.7 -40.3 26.5 -12.7 12.3 -53.2 13.3

>100 -111.6

>100 -114.7 >100

BUILDING MATERIAL (Steel, Cement, Timber) -53.4 >100.0 18.3 >100.0 -36.5 -10.3 21.8 >100 >100 >100 >100 -52.9 18.7 6.9 30.4 7.5 7.9 10.8

Source: Company, MIDF Research




EQUITY RESEARCH BV / share Yield (%) PBV

FY11 (RM)

FY10 FY11F FY12F FY10 FY11F FY12F

Net margin (%)

ROA (%) ROE (%)

No of Market cap shares (m) (RM m)

52-week Price High (RM) Low (RM)

20.0 5.0 0.0

18.3 8.3 0.0

16.5 7.5 0.0

3.0 3.0 0.0

2.8 5.0 0.0

2.5 4.5 0.0

4.1 4.0 0.6

1.60 0.41 4.69

n.m n.m n.m

6.6 1.2 1.1

13.1 38.3 4.8

531.6 1,215.5 213.1

3,492.6 2,017.7 564.6

9.02 2.02 3.42

5.76 1.04 2.54

2.8 5.0 2.0 19.0 0.0 50.0 7.0 5.5 0.0 5.7 0.0 20.0 0.0 2.0 0.0 3.0 8.0 48.0 6.0 35.0 15.0 17.0 0.0 19.5 13.1 3.0 0.0 22.5 9.0 10.0 9.2 1.0 8.0 24.8 10.5 3.5 0.0 2.3 1.2 4.5 3.0

3.1 0.0 1.7 22.0 5.0 50.0 8.5 7.0 0.0 8.0 5.2 13.9 1.3 4.0 0.0 3.0 15.0 70.0 7.0 25.0 4.7 17.0 0.0 4.5 9.4 3.6 0.0 22.5 10.0 12.0 4.0 1.0 3.2 25.4 14.0 15.0 15.4 2.3 3.0 0.0 4.3

4.4 6.1 1.8 21.8 5.0 50.0 9.9 7.1 0.0 10.1 6.3 15.4 1.3 3.2 0.0 3.0 15.0 25.0 8.0 20.0 4.6 19.5 0.0 17.5 9.4 3.6 0.0 22.5 10.0 12.0 5.9 1.2 1.6 30.0 13.0 15.0 16.4 2.3 4.0 7.2 4.0

1.2 5.1 0.8 3.2 0.0 3.8 1.6 2.7 0.0 3.0 0.0 5.2 0.0 0.9 0.0 0.8 1.3 12.7 3.6 6.0 9.7 5.0 0.0 3.5 7.1 1.2 0.0 3.4 2.1 3.0 5.0 2.0 6.0 3.6 2.3 0.5 0.0 1.8 1.0 4.0 3.2

1.3 0.0 0.6 3.7 0.9 3.8 2.0 3.5 0.0 4.2 2.2 3.6 0.6 1.9 0.0 0.8 2.4 18.5 4.2 4.3 3.1 5.0 0.0 0.8 5.1 1.4 0.0 3.4 2.3 3.6 2.2 2.0 2.4 3.7 3.1 2.4 3.0 2.9 2.4 0.0 4.6

1.8 6.2 0.7 3.6 0.9 3.8 2.3 3.5 0.0 5.3 2.7 4.0 0.6 1.5 0.0 0.8 2.4 6.6 4.8 3.4 3.0 5.7 0.0 3.1 5.1 1.4 0.0 3.4 2.3 3.6 3.2 2.4 1.2 4.3 2.9 2.4 3.2 3.3 3.2 6.4 4.3

8.0 0.5 3.0 2.4 3.8 3.0 4.4 1.5 6.8 1.6 0.9 2.1 2.1 1.3 1.7 2.6 2.0 1.0 0.7 1.2 0.9 4.2 0.8 1.1 1.6 1.1 0.3 1.8 1.6 0.8 0.9 0.7 0.3 1.9 1.0 1.3 1.8 0.5 0.5 9.6 0.5

0.30 1.87 0.88 2.51 1.49 4.47 0.96 1.33 0.59 1.17 2.49 1.81 1.03 1.62 0.81 1.41 3.08 3.91 2.36 4.94 1.63 0.81 0.32 5.32 1.18 2.29 9.86 3.66 2.73 4.36 2.12 0.79 4.58 3.61 4.58 4.85 2.93 2.56 2.47 0.12 2.03

9.8 7.6 8.7 20.5 4.6 26.7 5.4 3.7 28.3 10.7 N/A 14.4 41.4 9.4 1.8 27.0 16.2 15.5 11.2 5.5 60.0 27.0 12.5 10.6 8.2 3.9 2.4 4.0 6.6 9.3 6.5 -2.1 4.7 12.7 15.4 17.4 9.1 4.2 11.6 -6.3 13.2

14.1 3.4 6.9 12.1 8.0 13.7 6.3 2.8 7.3 5.5 N/A 7.4 4.9 5.1 1.9 8.1 4.2 6.4 9.7 5.8 12.2 4.3 n.a. 0.7 3.7 0.9 2.0 5.1 8.4 10.6 5.1 -0.9 3.8 7.0 9.3 6.8 4.9 2.0 7.4 1.3 3.1

24.6 6.8 12.7 16.7 26.1 16.9 16.3 5.4 40.1 12.6 N/A 14.9 6.2 11.6 6.7 29.3 8.9 7.3 17.3 9.7 13.9 23.1 n.a. 1.7 15.7 5.4 2.9 9.7 13.6 12.2 12.2 -4.5 7.4 9.4 17.0 12.9 9.6 2.9 12.3 8.0 4.1

1,996.4 1,001.1 1,988.0 8,000.0 1,600.0 1,978.7 1,276.7 753.6 2,928.5 831.7 1,292.5 1,780.5 4,323.5 1,388.1 3,342.2 2,777.8 1,100.0 470.3 84.0 4,463.8 1,000.0 504.9 397.0 5,456.7 7,283.0 3,045.1 549.2 1,168.3 672.0 242.9 522.7 989.0 717.9 849.7 499.4 282.5 309.0 438.0 659.6 411.1 331.3

4,771.3 986.1 5,268.3 47,920.0 8,960.0 26,119.3 5,451.6 1,522.2 11,831.0 1,572.0 3,050.3 6,837.0 9,511.8 2,929.0 4,679.0 10,250.3 6,809.0 1,777.6 141.1 26,247.1 1,540.0 1,721.7 101.2 30,830.1 13,400.7 7,764.9 1,669.6 7,804.2 2,923.2 801.5 977.5 514.3 962.0 5,693.0 2,227.1 1,805.4 1,600.5 565.0 824.5 456.4 308.1

2.88 3.28 3.00 7.61 8.82 14.68 4.57 2.45 4.33 2.83 2.80 4.62 3.40 3.25 2.36 4.20 7.02 4.04 2.08 8.83 3.03 3.90 0.40 7.21 2.76 3.22 4.98 9.00 5.87 3.46 3.2 1.0 2.2 8.0 5.6 7.2 5.9 2.2 2.1 2.7 0.9

1.15 1.12 1.67 5.20 3.80 10.76 2.31 1.88 3.03 1.49 1.67 2.97 1.54 1.60 1.23 2.13 5.00 3.00 1.47 5.45 1.69 3.24 0.21 4.89 1.63 2.20 2.55 6.43 4.15 2.80 1.8 0.4 1.2 6.2 4.1 4.0 3.7 1.0 1.1 1.0 1.2





Research Zulkifli Hamzah (Head) ............................................. ............03-2173 8390 Anthony Dass .............................................................. ............03-2173 8396 Chief Economist Syed Muhammed Kifni Syed Kamaruddin ............03-2173 8383 Strategy Kelvin Ong, CFA ............03-2173 8353 Banks, Insurance Imran Yusof ............03-2173 8395 Telecommunications, Media, Technology, Transport Sean Liong ............03-2173 8227 Construction, Property Amelia Arshad ....................................................................... ............03-2173 8391 Auto, Utility (Power), Tobacco Belford Chang Kee Zheng ............03-2772 1650 Oil & gas, Healthcare Jasmaliha Jaafar ............03-2772 1655 Plantation, Timber Ellina Hashim ............03-2173 8392 Consumer products and services, Gloves Iqbal Zainal .................................................................... .............03-27721668 Cement, Steel, Utility (Water)

Sales and Distribution Wan Ahmad Satria ............03-2173 8728 Dealing Kamal Bahrin bin Zulkifli (Acting Head) ....................... ............03-2173 8386 Azlinda bt Sahnan ............03-2772 1644 Shaiful Baharin bin Mohd Zain ............03-2173 8445 Yap Chee .............03-21738362 Zarina binti Yusoff ................................................................. ............03-2173 8365 Norlela Mokty......................................................................... ............03-2173 8456 Suzana Sultani .......................................................... ............03-2173 8445 Louise Lee Lai Yoong ............03-2173 8359 Ameer Rizwan bin Azman ............03-2772 1643 Lorna Kang Poh Chuan ................................................... ............03-2173 8364 Zuraimi Sanayan .................................................................. .............03-21738363




This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose.

MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Negative total return is expected to be -15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow.

SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months.




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