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

RHB Research Institute

RHB Equity 360°

11 May 2010 (Plantation, KLK, Sime Darby; Technical: Tan Chong)

Top Story : Plantation – Fall in production and exports, but also in stock levels Overweight
Sector Update
- Malaysia’s CPO production fell back in Apr 10 by 5.8% mom, while exports also fell by 8.2% mom. Despite
the larger drop in exports versus production, closing CPO stock levels fell to 1.62m tonnes in Apr (from
1.65m tonnes in Mar). As a result, stock/usage ratio fell further to 8.8% (from 8.9% in Mar and versus the 7-
year average of 9.1%). We expect this to moderate for another 1-2 months, as the weak seasonal
production period continues and as exports pick up on an improved economic outlook, although this should
start reversing subsequently, as we approach the peak seasonal production period.
- Over the recent month, there have been five main developments including: 1) Argentina soybean oil ban
continues; 2) India asking to re-impose import tax; 3) Malaysian labour issues escalating; 4) Crude oil price
dropped drastically; and 5) Narrowing of discounts with soyoil and rapeseed oil.
- No change to our CPO price assumptions and forecasts. We maintain our Overweight stance on the sector
and our view that in the volatile market environment this year, the more liquid big-cap stocks will be
favoured, especially since the gap between the big-cap and smaller-cap stocks has narrowed recently. We
continue to rate KLK as our top pick, due to its inexpensive valuations (as it remains the cheapest amongst
the big-cap plantation stocks currently) and for its strong management with a good track record.

Corporate Highlights

KLK : Buys German oleochemical producer Outperform

News Update
- KLK has entered into a conditional S&P agreement with Croda International Plc to acquire oleochemicals
manufacturer, Uniqema GMBH & Co KG (UG) and its 150,000 tonne oleochemical plant at Emmerich,
Germany, for a cash consideration of €60.5m (or RM252.5m).
- Excluding the working capital included of €25.4m (RM106m), the price tag is reduced to €35.1m
(RM147m), which translates to RM977/tonne, based on its production capacity. Although this seems
expensive compared to the RM677/tonne paid for Uniqema Malaysia back in 2007, we believe the price is
fair, as this is a plant in Europe in a prime location along the Rhine river and given that the plant has its
own jetty and ample warehousing facilities. We also understand the plant only occupies about 40% of the
total landbank included in the acquisition, thus giving KLK plenty of room to expand if so required.
- Based on KLK’s immediate cash outlay required for the working capital, taking into account the interest
income foregone and assuming the worst case scenario where UG maintains its operational losses at
€2.1m (RM8.8m), the immediate impact to KLK’s profits would be -0.8-1% for FY11. This is insignificant
and we fully expect management to be able to make good this acquisition within the next year or so.
- No change to our forecasts, as the impact is too minimal. We maintain our SOP-based fair value for KLK of
RM18.40 and our Outperform rating. We continue to like KLK for its inexpensive valuations (as it remains
the cheapest amongst the big-cap plantation stocks currently) and for its strong management with a good
track record. Further catalysts could come from better-than-expected FFB production growth as well as
potential return to profitability of the retail division.

Sime Darby : Buys Sapura Auto’s land and building Outperform

News Update
- Sime Darby Motor Division has entered into a property Sale Agreement with Sapura Auto to acquire a 0.11
acre piece of freehold land on Jalan Tun Razak, Kuala Lumpur, together with the automobile showroom
and related facilities for the provision of after sales services for a cash consideration of RM49.05m. The
acquisition is to be completed by end-2010.
- We are pleasantly surprised that this deal does not involve buying the company itself (which is loss-
making) and only involves buying just the land and building. This means that Sime is not committed to buy
any of Sapura's existing stock/inventory. We believe this acquisition makes more sense for Sime, as it will
be able to immediately utilise the existing showroom and 4S centre for its BMW and Mini operations
following the recent closure of its Bukit Bintang branch in Dec. Besides that, Sime would also have the
 opportunity to tap into Sapura's existing customer base, in line with its strategy of expanding in major cities
like Kuala Lumpur. Based on the market value of the property given by the valuer Henry Butcher of
RM47m, we would say this is a fair price to pay, given the prime location of the land.
- Forecasts unchanged, as this acquisition would only dent earnings by <2%. No change to our fair value of
RM9.70/share. Maintain Outperform call for Sime given its further potential upside from GLC reforms,
additional merger synergies and yield improvements from its Indonesian plantations.

Technical Highlights

Daily Trading Strategy : Still vulnerable to downside risk …

- In our view, the two-day recovery was not enough to warrant a turnaround on the FBM KLCI’s short-term
technical downswing.
- In fact, the risk of a resumption of selling pressure remains high, especially after its failure to overcome the
10-day SMA of 1,338 and given the formation of a “star-like” candle yesterday.
- The index must also not fall below the 40-day SMA near 1,328 as that will lure back the selling forces,
hence igniting the “sell” mode towards a technical gap near 1,305 and psychological level of 1,300.
- Despite the fact that Asian and European markets enjoyed a powerful technical rebound yesterday, local
investors remained unconvinced on the potential of a powerful technical rebound, as shown on the easing
of the daily turnover to 806m shares.
- We expect the index to be trapped between the 10-day SMA and recent resistance zone near 1,347-1,350.
- The previous “double top” formation remains intact. Investors should thus maintain their “sell on strength”
strategy in anticipation of an imminent retracement of the 13-mth uptrend on FBM KLCI in our opinion.

Daily Technical Watch: Tan Chong Motor – Further rebound if it removes RM4.50 and the 10-day SMA …
- 10-day SMA: RM4.45
- 40-day SMA: RM4.14
- Support: IS = RM4.15 S1 = RM3.65 S2 = RM3.36
- Resistance: IR = RM4.50 R1 = RM4.90 R2 = RM5.20

Bulletin Board

Co/Sector News Impact Recom

CIMB CIMB has obtained an approval-in-principle to Neutral. While unlikely to be a significant OP, FV =
offer banking services in Cambodia by its central earnings contributor in the near-mid term, the RM16.24
bank, the National Bank of Cambodia. The move, however, would further expand CIMB’s
approval requires CIMB to set up operations presence in the ASEAN region.
within six months. (Bursa)
Sunway Sunway has entered into an MOU with Positive, but impact on earnings is unlikely to be OP, FV =
XuanCheng municipal government to develop an felt over the short term as, typically, a project of RM1.69
integrated city, consisting of an entertainment this scale in an overseas market has a fairly long
park, exhibition centre, hotels, shopping malls, gestation period.
offices and residential units on a piece of land
measuring 494 acres in the city of XuanCheng,
260 km to the east of Shanghai. (Bursa)
UMW The company expects revenue contribution from Positive. We expect the O&G division to benefit OP, FV =
the O&G division to rise to 35% in 2-3 years’ time from the improvement in drilling activities as well RM7.52
(from 20% in FY09). (Starbiz) as demand for OCTG pipes stemming from the
recovery in E&P activities amidst the stable crude
oil prices and rising demand for energy.

Important Dates

Corporate Results Quarter Expected date of announcement

 HL Bank 3QFY06/10 Week beginning 10 May
EON Cap 1QFY12/10 Week beginning 10 May
AMMB 4QFY03/10 Week beginning 10 May
Kurnia Asia 1QFY12/10 11-May
Hartalega 4QFY03/12 11-May
Dialog 3QFY06/10 11-May
Sunrise 3QFY06/10 13-May
Genting Singapore 1QFY12/10 13-May
Maybank 3QFY06/10 13-May
Wellcall 2QFY09/12 14-May

Company Entitlement details Ex-date Payment date

New entitlements
DFZ Capital First interim dividend of 5 sen less 25% tax 21-May-10 10-Jun-10
Loh & Loh Corp Final dividend of 10 sen less 25% tax 8-Jun-10 18-Jun-10
Astral Asia First and final dividend of 2 sen less 25% tax 18-Jun-10 8-Jul-10
TSR Capital First and final dividend of 2 sen less 25% tax 28-Jun-10 15-Jul-10
Emas Kiara Industries First and final tax exempt dividend of 1.5 sen 28-Jun-10 26-Jul-10

Going “ex” on 12 May

Ajiya Final dividend of 6 sen less 25% tax 12-May-10 25-May-10
KKB Engineering 1st & final dividend of 5 sen tax exempt + 10 sen less 25% tax 12-May-10 25-May-10
Bintulu Port Holdings Final single tier div of 7.5 sen + special single tier div of 7.5 sen 12-May-10 27-May-10
Amfirst Reit Final income distribution of 4.88 sen 12-May-10 27-May-10
Deleum Final single tier tax exempt dividend of 7 sen 12-May-10 27-May-10
Homeritz Corporation Second interim single tier tax-exempt dividend of 1.8 sen 12-May-10 8-Jun-10

...For more details, see individual reports attached

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad (previously known as RHB Sakura Merchant Bankers
Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and information contained herein are based on generally available data believed to be reliable and are
subject to change without notice, 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. This report is not to be construed as
an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any manner whatsoever and no reliance upon such statement by anyone shall
give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The securities discussed in this
report may not be suitable for all investors. RHBRI recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The
appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts any liability for
any loss or damage arising out of the use of all or any part of this report.

RHBRI and the Connected Persons (the “RHB Group”) are engaged in securities trading, securities brokerage, banking and financing activities as well as providing investment banking and financial advisory services. In the
ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of
customers, in debt or equity securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors, officers, employees and agents of each of them. Investors
should assume that the “Connected Persons” are seeking or will seek investment banking or other services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s
previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect information known to, professionals in other business areas of
the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based upon various factors, including quality of research, investor
client feedback, stock picking, competitive factors and firm revenues.

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.

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended securities, subject to the duties of confidentiality, will be made
available upon request.

This report may not be reproduced or redistributed, in whole or in part, without the written permission of RHBRI and RHBRI accepts no liability whatsoever for the actions of third parties in this respect.