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

RHB Research Institute

RHB Equity 360°

12 May 2010 (AFG, Daibochi, B-Toto, Kencana, Petra Perdana, Kurnia Asia, Hartalega, PetGas;
Technical: Latexx)

Top Story : AFG – Poised for the next leg of growth Outperform
Visit Note
- According to press reports, the Board has identified a replacement for Datuk Bridget Lai as group CEO and
will announce the person’s name once BNM approves the appointment.
- Notwithstanding the absence of a CEO these past few months, management reassured us that it was
business as usual for the group with consumer and commercial banking remaining as the main areas of
focus for the group. Management targets “above industry” loan growth, which we believe is achievable
given the group’s niche in the SME and consumer segments.
- Despite having the highest CASA as a percentage to total deposits, AFG’s unadjusted NIM is the third
lowest among peers. Nevertheless, we think this would mean that the company has room to manoeuvre
and can be competitive in terms of pricing (which would indirectly translate into loan growth).
- AFG is expected to announce its 4QFY03/10 results next week. We expect AFG to post 4Q net profit of
around RM35-45m (vs. 3QFY10 net profit of RM99.9m) with the qoq drop resulting from the normalisation
of LLP (after the recovery of a corporate loan in 3Q) as well as another RM9.6m impairment provision on
the Idaman CLO (3QFY10: nil for Idaman CLO). We do not expect any final dividend.
- No change to our earnings forecasts.
- Fair value of RM3.27 is based on unchanged target CY10 PER of 15x. Maintain Outperform.

Economic Highlights

IPI : Industrial production rebounded in March, real GDP grew strongly in the 1Q
Economic Highlights (published 11 May 2010)
- Industrial production bounced back to increase by 14.1% yoy in Mar, after slowing down to +4.8% in Feb
and compared with +13.8% in Jan, as workers returned to work after the Chinese New Year festive
celebration. The pick-up in Mar’s output was reflected in higher manufacturing production and electricity
output. These were aided by a smaller decline in mining production.
- In view of the stronger-than-expected growth in exports and industrial output during the quarter as well as
the proposed RM12bn supplementary budget, we are revising upward our real GDP forecast for 2010 to
6.4%, from +4.5% projected previously and compared with -1.7% in 2009.

GDP : Real GDP growth to pick up strongly in the 1Q, but will likely expand at a slower pace in the 2H
Economic Highlights (published 12 May 2010)
- We estimate that the Malaysian economy is likely to have grown at a much faster pace of around 8.3% yoy
in the 1Q, the strongest in a decade, due partly to a surge in exports and partly to a low base effect.
- Growth, however, will likely slow down in the 2H of the year, in line with a slower global economic growth,
as the impact of government stimulus spending around the globe fades and austerity measures in some
European countries to address fiscal deficit and debt problems begin to bite. At the same time, the
normalisation and policies tightening measures in some countries will likely slow down economic activities
in these countries.
- Indeed, signs of a more moderate economic expansion in 2H 2010 are beginning to emerge in China.
Despite the weakness, we do not expect the global economy to fall off the cliff and into a double dip. As a
result, we expect real GDP growth to weaken to 4.8% yoy in 2H 2010, from +8.0% in the 1H.

Corporate Highlights

Daibochi : Earnings contribution from new contracts on stream in 2H10 Outperform

Briefing Note
- Rising raw material costs to be offset by pricing adjustment. Has since increased the average selling prices
of its products by c.4% in Apr 10.
- Recognises sale to its Australian subsidiary based on spot exchange rates at the time, which could change
during the collection period. To minimise the impact on unfavourable exchange rate on its AU$ exposure,
 will be reducing the credit period granted to its subsidiary company.
- Expanding its current factory for its new non-F&B ventures with FY10 capex guidance of RM10m.
- Recently locked-in contracts with two major MNCs in Australia, for the production of “slider bags” for pet
food and flexible packaging for dairy products, which will be taking effect in Jun 10. We estimate this to
contribute additional 2-3% of revenue and 4-5% to net profit in FY10. Positive on development as tie-up
with these MNCs (one being a new client) could lead to more future contracts.
- Visibility for non-F&B ventures becoming clearer but we have yet to input contribution from this segment.
- Reduced our FY10-12 earnings forecasts by 4-5% after: 1) reducing our FY10 capex assumption; and 2)
increasing admin expenses to be in line with FY09 numbers. Following the changes to our forecasts, target
price is reduced to RM4.20 (from RM4.40) based on unchanged 12x FY10 PER. Based on guided net
payout of 50%, this translates to attractive gross dividend yields of approximately 7-8% p.a., paid quarterly.

Berjaya Sports Toto : Berjaya Corp suspended, sports betting imminent? Outperform
News Update
- Berjaya Corp yesterday requested for a suspension in trading pending an announcement of an acquisition
of an acquisition from a related party of the company and a capital raising exercise. Media reports say that
this is prelude to BCorp announcing the issuance of a sports betting licence.
- We believe a sports betting licence may not necessarily be a good thing due to four main issues: 1)
traditionally high prize payout ratios involved; 2) gaming taxes to be borne; 3) agent commissions that need
to be paid; and 4) implementation, as sports betting is far more complicated than normal 4D or lotto betting.
- Given the above issues and the costs involved, we estimate the sports betting operator itself would only be
able to garner operating margins of between 3-6%. As a pure distribution agent, operating margins would
be even thinner, as the commission would have to be shared between the NFO and the outlet operators,
and likely to be even lower at between 2-3%. However, we note that the economies of scale theory would
then apply, as the larger the volume of transactions, the larger the margin.
- At current valuation levels, we believe BToto provides better dividend yield prospects and at prospective
PE of 14x FY04/11, is at the lower-end of its 10-year historical PE range of 11-19x. As such, we maintain
our DCF-based fair value of RM4.95 (WACC 9.8%) and our Outperform recommendation.

Kencana : Bags RM92m contract Outperform

News Update
- Kencana announced yesterday that it had received a letter of award from Ministry of Energy, Green
Technology and Water for subsea pipeline installation works between a water treatment plant in Beaufort,
Sabah and Labuan. The contract is worth RM91.9m and is expected to be delivered in 4Q10.
- No change to our forecasts as we have already assumed RM1.0-1.3bn new orders p.a. flowing in over the
next 24 months to replenish existing ones.
- We therefore reiterate our Outperform call with unchanged fair value of RM1.88 (based on 16x FY11 PER).

Petra Perdana : Proposes private placement and renounceable right issues Underperform
News Update
- Petra Perdana has proposed two exercises: 1) private placement of up to 10% of its issued capital; and 2)
1-for-1 right issue with free warrants also on a 1-for-1 basis.
- The new shares would dilute our FY12/10 EPS estimate by 43% from 8 sen to 4.6 sen. The free warrants
would result in a further 2.2% dilution to our FY10 EPS estimate.
- We understand that RM41m raised from the private placement will be used for the payment of refundable
deposits in respect of the sale and leaseback of vessels. We note that around 75% of the proceeds from
the proposed rights issue will be used to repay bank borrowings and the balance for working capital.
- Maintain Underperform and fair value of RM1.00/share.

Hartalega : Above expectations Outperform (up from MP)

4QFY10 Results
- 4QFY03/10 net profit of RM46.4m came in above expectations with full-year net profit of RM143.1m
(+69.3% yoy) accounting for 110.1% and 105.7% of our and consensus estimates respectively.
- The key variance was higher-than-expected revenue due to higher selling prices, where full-year average
selling prices were US$30/’000 pcs vs. our forecasts of US$28/’000 pcs.
- Qoq, revenue jumped 10.0% as a result of higher sales volume and upward adjustments to selling prices in
 order to pass on the higher raw material cost to customers. 4Q net profit rose 24.7% qoq largely due to
stronger revenue as well as expansion in EBIT margin and lower effective tax rate of 17.9% (3Q: 21.5%).
- Separately, Hartalega proposed a 1-for-2 bonus issue that will, upon completion, increase its outstanding
number of shares by 121.2m shares to 363.5m shares. The entitlement dates are to be announced later
and is expected to be completed by 3QCY10.
- We have raised our FY11-12 earnings forecasts by 12.6% and 27.1% after raising our revenue projections
by 11.9% and 26.8% respectively.
- We have raised our fair value to RM8.89 (from RM7.93) based on unchanged target CY10 PER of 13x and
subsequently, have upgraded our call on the stock to Outperform from Market Perform.

Kurnia Asia : Within expectations Outperform (up from MP)

1QFY10 Results/Briefing Note
- Kurnia Asia recorded 1QFY12/10 net profit of RM23.8m (vs. RM26.4m in 3QFY06/09), accounting for
23.6% of our full-year forecast, which we consider to be in line with expectations.
- Kurnia continues to reduce its exposure to third party motor claims thus resulting in a lower claims ratio of
66.1%. For 1QFY12/10, the number of third party policies written reduced by 53.7% to 19,000 from 41,000
in 3QFY06/09, while third party motor gross premiums declined by 56.7% to RM5m from RM12m.
- Kurnia increased its holdings in wholesale funds via a shifting of RM470m from its fixed income portfolio.
We understand that the reason for the shift in asset allocation is due to the tax benefits arising from the
wholesale funds, as the income/dividend from these funds is not taxable. Management indicated that it will
reduce Kurnia’s FY12/10 tax liability by around RM6m.
- Our FY12/10 forecast has been trimmed by 1.4%. Given the 42% upside to our unchanged fair value of
RM0.74 based on 11x FY10 target PER, we upgrade our call to Outperform from market perform.

Petronas Gas : No surprises Market Perform

4QFY10 results
- FY03/10 net profit of RM940.9m accounted for 98% and 95% of our full-year forecast and market
consensus respectively. Petronas Gas reported 4QFY03/10 revenue of RM802.2m (-1% qoq, -14% yoy)
due mainly lower contribution from sales of utilities stemming from lower production activities in Kertih
petrochemical plants.
- In line with expectation, the company declared a final dividend of 35 sen, bringing gross DPS to-date to 50
sen or yield of 5.1%.
- Our FY11-12 earnings estimates are raised by 2.3% and 2.4% after updating our profit model.
- We have tweaked upwards slightly our fair value to RM10.71 (from RM10.51 previously).

Technical Highlights

Daily Trading Strategy : “Sell into strength” strategy preferred…

- Despite the fact that FBM KLCI reclaimed the 10-day SMA of 1,338 yesterday in an attempt to shore up the
short-term trading sentiment, we remain sceptical over the sustainability of this recovery leg.
- This is chiefly because the rebound attempt clearly lacks confirmation from the trading floor, i.e. the
negative market breadth and the reducing daily turnover are still dampening investors’ buying appetite.
- As a result, we are keeping our “sell into strength” strategy, unless the benchmark index can record a
positive confirmation candle at above the 10-day SMA today with higher daily volume and swiftly
penetrating the previous resistance zone at 1,347 - 1,350. Otherwise, the bearish “double top” formation
triggered last week remains intact.
- On the sentiment flow, we expect little impact from the upcoming Bank Negara’s Monetary Policy
Committee (MPC) meeting and the announcement of the 1Q GDP number this week. In fact, influence will
be stronger on the current external developments, in our view.

Daily Technical Watch: Latexx Partners – Losing RM3.40 will mean derailment from the one-year old UTL …
- 10-day SMA: RM3.707
- 40-day SMA: RM3.873
- Support: IS = RM3.40 S1 = RM2.40 S2 = RM1.80
- Resistance: IR = RM4.57 R1 = RM5.60
 Bulletin Board

Co/Sector News Impact Recom

TNB Although the earlier plan to bring power from
Bakun to Peninsular Malaysia has been shelved,
TNB was still reportedly exploring other options
to bring power from Sarawak through the setting
up of new hydro plants. (StarBiz)
Astro Astro expects World Cup to boost its sports
package subscribers by 5%. For its Astro B.yond
channels, the management said the company is
on-track for its target of 500,000 subscribers by
end FY11 (Financial Daily).
Recall, Sarawak Energy previously estimated OP, FV =
that there are around 50+ sites in Sarawak that RM10.40
could be developed to provide around 20,000MW
of hydropower. While we believe this is the
potential new hydro plants that TNB is eyeing to
import to Peninsular Malaysia, it appears that
new plant-ups would firstly go towards the
development of SCORE. Thus, it could take a
while more before any firm arrangements can be
reached to import power from Sarawak.
Neutral. While the boost in the sports package MP, FV =
subscribers would help lift Astro’s FY11 ARPUs, RM4.30
we have already factored in an uplift in our model
(FY11 ARPU assumption of RM84 vs. FY10:
RM81). We also believe that that the company
would be able to achieve its 500,000 Astro
B.yond subscribers by end-FY11 with the 2010
FIFA World Cup being a key driver.

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
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
KKB Engineering Share split on the basis of 1-into-2 24-May-10 -
KKB Engineering Bonus issue on the basis of 3-for-5 24-May-10 -
EON Selective capital repayment and repayment exercise 25-May-10 17-Jun-10
Hartalega Third interim dividend of 5 sen single tier 25-May-10 25-Jun-10
MRCB Final dividend of 1 sen less 25% tax 8-Jun-10 7-Jun-10
MWE Holdings Final dividend of 4 sen tax exempt 21-Jul-10 3-Aug-10

Going “ex” on 13 May

Rexit Tax exempt interim dividend of 1.5 sen 13-May-10 25-May-10
Tenaga Nasional Interim dividend of 6 sen less 25% tax 13-May-10 27-May-10
Paos Holdings Second interim dividend of 12.5 sen tax exempt 13-May-10 29-May-10
Hubline 1st & final tax exempt dividend of 0.2 sen 13-May-10 31-May-10
Tai Kwong Yokohama Final dividend of 5 sen less 25% tax 13-May-10 15-Jun-10
Success Transformer Interim tax-exempt dividend of 3.5 sen 13-May-10 16-Jun-10

...For more details, see individual reports attached

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