Market Dateline PP 7767/09/2010(025354)

RHB Research Institute

RHB Equity 360°

1 July 2010 (Strategy, Consumer, Banks, MRCB, Tanjong, Hiap Teck; Technical: Genting)

Top Story : Market Outlook & Strategy 2H2010 – Still a bumpy ride
Strategy Update
- Uncertainty persists in the global economy although we believe the risk to the global economy is a sharper-
than-expected slowdown in the 2H and not a “double-dip”.
- For Malaysia, economic growth is envisaged to slow down to 4.8% yoy in the 2H, from an estimate of
+8.8% in the 1H, as the “V-shape” export recovery normalised and demand from Europe and China
softened. Consequently, corporate earnings growth is likely to have peaked. Market valuations, though
not cheap, remain at reasonable levels.
- Meanwhile, more negative than positive news flow ahead suggests that the equity market may move into a
phase of greater volatility, which in our view, could persist for the next two to three months until a clearer
picture emerges on the strength of the global economic recovery.
- However, the longer-term outlook for the market is still positive we believe the market will likely come back
towards the 4Q when there is more certainty on the strength of the global economic recovery and better
news flow domestically on the award of key infrastructure projects/privatisation of government land for
redevelopment. Our year-end FBM KLCI target is maintained at 1,400.
- Under such circumstances, stock picking is key. Investors should trim their holdings of stocks with
relatively rich valuations and look for opportunities to accumulate fundamentally-robust stocks on
weakness. Sector-wise, we are more positive on the banking, construction, property, power,
telecommunications, gaming, motor and rubber glove sectors.

Macro View

Money supply : Broad monetary aggregate and loan growth picked up in May
Economic Highlights (published 30 Jun 2010)
- M3 bounced back to increase by 9.5% yoy in May, from +8.1% in April and +8.7% in Mar. This was the
fastest growth in six months, indicating that the underlying economic activities remained quite strong.
- In the same vein, loan growth expanded at a faster pace of +11.7% yoy in May, compared with +10.0% in
Apr. This was on account of a pick-up in household and corporate loans during the month. We expect the
banking system’s loans to expand at a stronger pace of 9.0% in 2010, compared with +7.8% in 2009.
- Given that inflation will not be a major threat to the economy at this stage and Malaysia is already ahead of
the curve in normalising its monetary conditions, we believe Bank Negara will not be in a hurry to increase
interest rates and it will likely pause in the Jul policy meeting. We expect the Central Bank to resume its
rate hike in Sep and by 25 basis points, bringing the OPR to 2.75% for the rest of this year.

Sector Call

Consumer : Resilient, though slowing growth trend envisaged in the 2H Neutral

Sector Update
- Consumer spending is expected to grow at a slower pace of 4.6% yoy in the 2H vs. +5.4% yoy in the 1H,
with more downside risk arising from uncertainty in government policies, especially on the cut in consumer
subsidies, which could further dampen consumer spending particularly on big-ticket items. Expect retailers
and MLM players to be most affected, while healthcare and F&B sectors would be least affected.
- In contrast, Malaysia’s healthcare sector is expected to grow at a resilient 8-10% p.a. driven by: 1) 2%
steady population growth; 2) ageing population; and 3) greater affluence. We anticipate higher allocations
from the Government for public healthcare to benefit Faber (OP; FV = RM3.54). Recent news reports that
UEM Group is looking to dispose of its 34% stake in Faber could provide trading opportunities for the stock.
- Higher uptake in insurance policies would benefit the private healthcare sector, such as KPJ (OP; FV =
RM4.25). Together with news flow on M&A in the regional healthcare sector, we believe that KPJ deserves
to be trading at a higher valuation, further narrowing its discount to regional peers’ PER of 18x.
- Top pick for the sector is KPJ. We are keeping our Neutral stance on the sector given: 1) our Underperform
call on BAT; and 2) slower increase in consumer spending outlook coupled with uncertainties arising from
the cut in consumer subsidy issue.
Banks : May ‘10 system data – Loan growth streaks ahead Overweight
Sector Update
- According to BNM’s statistics, May ’10 loan growth stood at +11.7% yoy vs. +10% yoy in Apr ‘10, partly due
to a moderation in repayments during the month. Possibly, this was a reflection of fund raising activities
during the month, where the net funds raised in the capital market stood at RM220m in May, as compared
to RM8.5bn in Apr.
- MoM, total applications were broadly stable but approvals slowed down slightly with the slowdown mainly
from the business segment.
- May’s statistics suggest that demand for loans has not been dampened by the two recent hikes in the
Overnight Policy Rate (OPR) by BNM. While our 2010 loan growth projection of +9% appears conservative
on the back of May’s statistics, we are keeping our projection unchanged for now with potential upside bias
upon release of the half-year figures.
- Absolute NPLs as at end-May ‘10 rose 5.9% mom to reach RM28.8bn, although it is unclear whether the
increase was due to a deterioration in asset quality system wide or FRS139 or a combination. More
importantly, we note that despite the increase in NPLs, system-wide specific and general provisions
remained stable mom.
- Overall, system-wide three-month gross and net NPL ratios rose to 3.5% (Apr ‘10: 3.4%) and 2% (Apr ‘10:
1.8%) respectively while loan loss coverage (LLC) dropped to 92.6% (Apr ‘10: 97.7%).
- Overweight stance on the sector maintained.

Corporate Highlights

MRCB : Buys out jv partner of 348 Sentral Trading Buy

News Update
- MRCB is paying RM105m for its partner's 60% stake in 348 Sentral, an office & service apartment
development with a total GDV of RM850m in KL Sentral, boosting its stake in the project to 100%.
- The valuation is at a premium to the price when MRCB first bought a 40% stake in the project, also from
Gapurna, but justifiable given that the land value should have appreciated, the project is now 15%
completed and Shell has recently been roped in as tenant for 60% of the office space for 15 years.
- The acquisition will increase MRCB’s net debt and gearing of RM430m and 0.36x as at 31 Mar 2010 to
RM535m and 0.43x.
- Forecast are maintained as rental income will only come in beyond our forecast period.
- Fair value is RM2.10, maintain Trading Buy.

Tanjong : Results in line but dividends surprise Market Perform

1QFY11 Results
- 1QFY01/11 net profit of RM177m (-7.4% yoy; +54% qoq) was within our and consensus expectations,
accounting for 25.5-26% of our and consensus full-year estimates.
- YoY, net profit fell 7.4% mainly due to: 1) lower EBIT from the power division (-10% yoy) stemming from
weaker US$ vs. RM (-9% yoy); and 2) lower EBIT from the NFO division (-19% yoy) due to weaker average
sales/draw (-9% yoy due to common draw days for special draws this year) and poorer luck factor (1QFY10
prize payout: 61.6%).
- Tanjong pleasantly surprised with a first interim gross DPS of 20 sen, as compared to our expectations and
1QFY10 gross DPS of 17.5 sen. While we believe Tanjong is likely to keep its future quarterly interim gross
DPS at 20 sen, the final DPS is a wildcard at this juncture and thus, we are keeping our full-year gross DPS
projection of RM1.02 unchanged for now (FY10: RM1/share).
- Earnings forecasts, SOP-derived fair value of RM19.20 and Market Perform call remain unchanged.

Hiap Teck : 3QFY07/10 improves on better margins; but likely to weaken Underperform (down from MP)
3QFY10 Results
- 9MFY07/10 net profit of RM38.0m came in within expectations, accounting for 75% of our full-year forecast.
- Results came in below market expectations, at only 63.7% of the full-year market consensus.
- No change in our forecast and indicative fair value of RM1.28 based on 7x CY2011 EPS of 18.3 sen.
Technical Highlights

Daily Trading Strategy : The bearish near-term outlook remains…

- Although yesterday’s closing with a positive candle, neatly at above the 40-day SMA could spell follow-
through buying support today, the index is still trading greatly underpressure, in our view.
- The immediate-term upside is expected to be capped at the 10-day SMA near 1,322. And, without
recapturing the 10-day SMA, its short-term technical outlook will stay negative.
- In fact, with the regional markets sentiment remained negatively biased on fresh doubts over the
sustainability of the global economic recovery pace going forward, investors are expected to adobt the
“wait-and-see” strategy before committing to any fresh positions.
- Therefore, we are keeping our bearish near-term outlook for the local market, and remain watchful on the
possibility of a resumption of selling activities.
- As a note, a loss of the 1,300 critical level will trigger significant selling pressure, which will lead further
downside towards the 1,250 key support

Daily Technical Watch: Genting – Rangebound within RM6.80 – RM7.45 likely in the near term…
- 10-day SMA: RM7.327
- 40-day SMA: RM6.973
- Support: IS = RM6.80 S1 = RM6.00 S2 = RM5.15
- Resistance: IR = RM7.45 R1 = RM8.15 R2 = RM8.90

Bulletin Board

Co/Sector News Impact Recom

Plantations Industry consultant M.R. Chandran said that Neutral, as this is close to our expectations. We N
current CPO prices reflected negative factors expect prices to only start recovering towards the
such as the direction of the global economy, end of the year, after the peak production season
particularly with the EU tightening its belt. ends.
However, even though CPO prices may drop to
RM2,300 in the short term, he is confident the
current weakness to be short-lived and expects
prices to stabilise to RM2,400-2,500 by end-Aug
or Sep. In addition, he said many buyers were
now seen holding back on their purchases in
anticipation of lower CPO prices, while top
producers Indonesia and Malaysia may miss
their production targets this year, given the
abnormal weather pattern over the past six
months, which could affect yields. (The Star)
Genting After submitting its US$1m entry fee to the New Neutral, as it is still only a bid. Results will not be MP, FV =
Malaysia York State Division of Lottery on 1 June to allow made known until August, we understand. We RM2.90
Genting NY to participate in the bidding process believe any EPS-enhancing acquisition will be
to develop and operate a Video Lottery Facility at positive for GM and be a catalyst for its share
the Aqueduct Racetrack in New York, Genting price, which is currently languishing due to
NY on 29 June, submitted a formal bid after under-utilisation of its RM5.3bn net cash hoard.
evaluating the project’s viability. (Bursa)
KFCH KFCH has acquired 989,600 units of Al-Aqar KPJ Positive. This is the third time KFCH has OP, FV =
REIT for a total purchase consideration of acquired KPJ REITS from the market and this RM11.20
RM1.03m from the open market. The rationale latest acquisition would bring its total stake to
for the purchase is due to the better investment 10m shares (or 1.7%) (from 9m shares or 1.5%).
return from KPJ REIT vs. fixed deposit of 7.3% KPJ REIT is deemed as a non-risky asset given
vs. 2.5-3.0% and the opportunity of capital a locked in contract between KPJ and KPJ REIT.
appreciation from the REIT assets. (Bursa)
 Changes To Foreign Shareholdings (%)
Stock May-10 Jun-10 Chg (%)
Unisem 8.1 15.2 7.1

Important Dates

Company Entitlement details Ex-date Payment date

New entitlements
SEG International Bonus issue on the basis of 2-for-5 12-Jul-10 -
SEG International Share split on the basis of 1-into-2 12-Jul-10 -
Guan Chong Interim dividend of 1.5 sen less 25% tax (1.125 sen net) 13-Jul-10 22-Jul-10
Oriental Holdings Bonus issue on the basis of 1-for-5 14-Jul-10 -
Pacific & Orient Share split on the basis of 1-into-2 14-Jul-10 -
Tanjong plc First interim gross dividend of 20 sen less 25% tax 21-Jul-10 5-Aug-10
Petronas Gas Final dividend of 30 sen single tier + 5 sen tax-exempt 30-Jul-10 17-Aug-10
General Corp First and final dividend of 3 sen less tax 2-Aug-10 19-Aug-10
Padini Holdings Second interim dividend of 7.5 sen single tier 26-Aug-10 17-Sep-10
YNH Property Final dividend distribution of treasury shares on the basis of 1-for-90 27-Aug-10 30-Sep-10
YNH Property Final dividend of 1.5 sen single tier 27-Aug-10 30-Sep-10
Dominant Enterprise Final dividend of 1 sen less 25% tax 22-Sep-10 4-Oct-10

Going “ex” on 2 Jul

Berjaya Sports Toto Second interim single tier exempt dividend of 8 sen 2-Jul-10 16-Jul-10
Top Glove Corporation First interim single tier dividend of 14 sen 2-Jul-10 23-Jul-10

...For more details, see individual reports attached

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Stock Ratings

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