PP 7767/09/2011(028730)

Malaysia
30 August
RHB Research 2010
Corporate Highlights Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

T he 2011 B udget
MARKET DATELINE
18 October 2010

Setting The Pace Towards

Transformation*

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

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

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

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

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

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

Lim Chee Sing

Please read important disclosures at the end of this report.
(603) 9280 2153
cslim@rhb.com.my

(This is an excerpt from The 2011 Budget – Setting The Pace Towards Transformation report dated 15 October 2010.)

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 30 August 2010

Table 1
RHBRI's Top Picks
FYE Price Fair Value Mkt Cap EPS (sen) EPS GWTH (%) PER (x) P/BV(x) P/CF (x) GDY (%)
15 October 2010 (RM/s) (RM/s) (RM m) FY11 FY12 FY11 FY12 FY11 FY12 FY11 FY11 FY11
Tactical Plays
Tenaga Aug 8.93 10.30 38,698 75.5 87.3 16.2 15.7 11.8 10.2 1.3 4.8 3.4
Gamuda Jul 3.89 4.51 7,849 19.0 20.5 36.5 7.9 20.5 19.0 2.2 50.9 3.1
MRCB Dec 2.08 2.49 2,832 6.4 6.7 23.5 4.9 32.6 31.1 2.1 20.4 0.0
Faber Dec 3.08 3.82 1,118 34.2 38.2 30.4 11.4 9.0 8.1 2.0 5.8 2.6
HSL Dec 1.82 1.95 1,012 16.2 17.7 21.4 8.9 11.2 10.3 2.3 13.2 1.4
Longer -Term Picks
Maybank Jun 8.88 10.50 62,852 61.9 69.6 14.7 12.4 14.3 12.8 2.1 n.a. 3.9
CIMB Dec 7.94 9.60 58,212 56.3 64.5 17.2 14.6 14.1 12.3 2.0 n.a. 1.6
IOI Jun 5.80 6.75 36,987 33.6 34.9 28.3 3.8 17.3 16.6 3.4 15.3 2.9
KLK Sep 19.00 22.05 20,283 124.4 131.4 42.1 5.6 15.3 14.5 3.0 14.5 3.4
AirAsia Dec 2.36 3.01 6,561 25.1 27.8 9.4 10.7 9.4 8.5 1.6 5.4 0.0
Parkson Jun 5.96 7.72 6,177 37.3 47.9 26.6 28.5 16.0 12.4 2.7 5.8 1.3
Dialog Jun 1.23 1.30 2,435 8.8 10.7 50.4 21.1 13.9 11.5 4.0 12.7 3.9
Media Prima Dec 2.30 2.75 2,174 16.5 19.4 21.3 17.6 14.0 11.9 2.1 7.0 4.9
KPJ Dec 3.55 4.51 1,873 26.6 29.9 10.7 12.2 13.3 11.9 2.1 10.5 4.5
Carlsberg Dec 5.21 6.03 1,605 42.8 47.5 5.2 10.8 12.2 11.0 2.6 10.1 4.9
Mah Sing Dec 1.87 2.33 1,555 17.2 21.2 22.8 23.2 10.9 8.8 1.6 21.1 3.7

IMPORTANT DISCLOSURES

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and may differ or be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria.
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objectives of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors
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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to
take on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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securities, subject to the duties of confidentiality, will be made available upon request.

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for the actions of third parties in this respect.

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